UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
Form 10-Q
 
(Mark One)
 
 	 	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934	
 	 	 	
 	 	FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2013	
 	 	 	
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)	
 
Registrant’s telephone number, including area code (860) 676-8654
 
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  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. See definition of “accelerated filer” and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):
 
Large accelerated filer ¨	 	Accelerated filer	 	Non-accelerated filer ¨	 	Smaller Reporting Company ¨	
 	 	 	 	(Do not check if a smaller reporting company)	 	 	
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No  .
 
As of May 6, 2013, the Registrant had 9,578,312 shares of common stock, $0.001 par value, outstanding. 

 

 	
 
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, 2013 and December 31, 2012 (unaudited)	 	3	
 	Consolidated Statements of Operations for the three months ended March 31, 2013 and 2012 (unaudited)	 	4	
 	Consolidated Statements of Changes in Net Assets for the three months ended March 31, 2013 and 2012 (unaudited)	 	5	
 	Consolidated Statements of Cash Flows for the three months ended March 31, 2013 and 2012 (unaudited)	 	6	
 	Consolidated Schedules of Investments as of March 31, 2013 and December 31, 2012 (unaudited)	 	7	
 	Notes to the Consolidated Financial Statements (unaudited)	 	15	
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	 	30	
Item 3.	Quantitative And Qualitative Disclosures About Market Risk	 	40	
Item 4.	Controls and Procedures	 	41	
 	 	 	 	
 	PART II	 	 	
Item 1.	Legal Proceedings	 	42	
Item 1A.	Risk Factors	 	42	
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	 	42	
Item 3.	Defaults Upon Senior Securities	 	42	
Item 4.	Mine Safety Disclosures	 	42	
Item 5.	Other Information	 	42	
Item 6.	Exhibits	 	42	
 	Signatures	 	43	
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)
(In thousands, except share data)
 
 	 	March 31,	 	 	December 31,	 	
 	 	2013	 	 	2012	 	
Assets	 	 	 	 	 	 	 	 	
Non-affiliate investments at fair value (cost of $258,133 and $239,385, respectively) (Note 4)	 	$	247,781	 	 	$	228,613	 	
Investment in money market funds	 	 	4,119	 	 	 	2,560	 	
Cash	 	 	478	 	 	 	1,048	 	
Interest receivable	 	 	3,513	 	 	 	2,811	 	
Other assets	 	 	4,244	 	 	 	4,626	 	
Total assets	 	$	260,135	 	 	$	239,658	 	
 	 	 	 	 	 	 	 	 	
Liabilities	 	 	 	 	 	 	 	 	
Borrowings (Note 6)	 	$	110,037	 	 	$	89,020	 	
Dividends payable	 	 	3,303	 	 	 	3,301	 	
Base management fee payable (Note 3)	 	 	433	 	 	 	402	 	
Incentive fee payable (Note 3)	 	 	693	 	 	 	855	 	
Other accrued expenses	 	 	909	 	 	 	1,108	 	
Total liabilities	 	 	115,375	 	 	 	94,686	 	
 	 	 	 	 	 	 	 	 	
Net assets	 	 	 	 	 	 	 	 	
Preferred stock, par value $0.001 per share, 1,000,000 shares authorized, zero shares issued and outstanding as of March 31, 2013 and December 31, 2012	 	 	-	 	 	 	-	 	
Common stock, par value $0.001 per share, 100,000,000 shares authorized, 9,574,445 and 9,567,225 shares outstanding as of March 31, 2013 and December 31, 2012, respectively	 	 	10	 	 	 	10	 	
Paid-in capital in excess of par	 	 	154,492	 	 	 	154,384	 	
Accumulated undistributed net investment income	 	 	898	 	 	 	1,428	 	
Net unrealized depreciation on investments	 	 	(10,352	)	 	 	(10,772	)	
Net realized loss on investments	 	 	(288	)	 	 	(78	)	
Total net assets	 	 	144,760	 	 	 	144,972	 	
Total liabilities and net assets	 	$	260,135	 	 	$	239,658	 	
Net asset value per common share	 	$	15.12	 	 	$	15.15	 	
 
See Notes to Consolidated Financial Statements
 
3	

 	
 
Horizon Technology Finance Corporation and Subsidiaries
 
Consolidated Statements of Operations (Unaudited)
(In thousands, except share data)
 
 	 	For the Three Months Ended	 	
 	 	March 31,	 	
 	 	2013	 	 	2012	 	
Investment income	 	 	 	 	 	 	 	 	
Interest income on non-affiliate investments	 	$	7,346	 	 	$	5,910	 	
Fee income on non-affiliate investments	 	 	22	 	 	 	715	 	
Total investment income	 	 	7,368	 	 	 	6,625	 	
Expenses	 	 	 	 	 	 	 	 	
Interest expense	 	 	1,773	 	 	 	675	 	
Base management fee (Note 3)	 	 	1,241	 	 	 	994	 	
Performance based incentive fee (Note 3)	 	 	693	 	 	 	838	 	
Administrative fee (Note 3)	 	 	285	 	 	 	256	 	
Professional fees	 	 	382	 	 	 	307	 	
General and administrative	 	 	221	 	 	 	203	 	
Total expenses	 	 	4,595	 	 	 	3,273	 	
Net investment income	 	 	2,773	 	 	 	3,352	 	
Net realized and unrealized gain (loss) on investments	 	 	 	 	 	 	 	 	
Net realized loss on investments	 	 	(210	)	 	 	-	 	
Net unrealized appreciation (depreciation) on investments	 	 	420	 	 	 	(813	)	
Net realized and unrealized gain (loss) on investments	 	 	210	 	 	 	(813	)	
Net increase in net assets resulting from operations	 	$	2,983	 	 	$	2,539	 	
Net investment income per common share	 	$	0.29	 	 	$	0.44	 	
Net increase in net assets per common share	 	$	0.31	 	 	$	0.33	 	
Dividends declared per share	 	$	0.345	 	 	$	0.450	 	
Weighted average shares outstanding	 	 	9,570,789	 	 	 	7,636,609	 	
 
See Notes to Consolidated Financial Statements
 
4	

 	
 
Horizon Technology Finance Corporation and Subsidiaries
 
Consolidated Statements of Changes in Net Assets (Unaudited)
(In thousands, except share data)
 
 	 	 	 	 	Common	 	 	Paid-In
Capital in
Excess of	 	 	Accumulated
Undistributed
Net
Investment	 	 	Net Unrealized
Depreciation
on	 	 	Net Realized
Gains
(Losses) on	 	 	Total Net	 	
 	 	Shares	 	 	Stock	 	 	Par	 	 	Income	 	 	Investments	 	 	Investments	 	 	Assets	 	
Balance at December 31, 2011	 	 	7,636,532	 	 	$	8	 	 	$	124,512	 	 	$	4,965	 	 	$	(2,659	)	 	$	3,058	 	 	$	129,884	 	
Net increase in net assets resulting from operations	 	 	-	 	 	 	-	 	 	 	-	 	 	 	3,352	 	 	 	(813	)	 	 	-	 	 	 	2,539	 	
Issuance of common stock under dividend reinvestment plan	 	 	3,517	 	 	 	-	 	 	 	58	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	58	 	
Dividends declared	 	 	-	 	 	 	-	 	 	 	-	 	 	 	(3,436	)	 	 	-	 	 	 	-	 	 	 	(3,436	)	
Balance at March 31, 2012	 	 	7,640,049	 	 	$	8	 	 	$	124,570	 	 	$	4,881	 	 	$	(3,472	)	 	$	3,058	 	 	$	129,045	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Balance at December 31, 2012	 	 	9,567,225	 	 	$	10	 	 	$	154,384	 	 	$	1,428	 	 	$	(10,772	)	 	$	(78	)	 	$	144,972	 	
Net increase in net assets resulting from operations	 	 	-	 	 	 	-	 	 	 	-	 	 	 	2,773	 	 	 	420	 	 	 	(210	)	 	 	2,983	 	
Issuance of common stock under dividend reinvestment plan	 	 	7,220	 	 	 	-	 	 	 	108	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	108	 	
Dividends declared	 	 	-	 	 	 	-	 	 	 	-	 	 	 	(3,303	)	 	 	-	 	 	 	-	 	 	 	(3,303	)	
Balance at March 31, 2013	 	 	9,574,445	 	 	$	10	 	 	$	154,492	 	 	$	898	 	 	$	(10,352	)	 	$	(288	)	 	$	144,760	 	
 
See Notes to Consolidated Financial Statements
 
5	

 	
 
Horizon Technology Finance Corporation and Subsidiaries
 
Consolidated Statements of Cash Flows (Unaudited)
(In thousands)
 
 	 	For the Three Months Ended	 	
 	 	March 31,	 	
 	 	2013	 	 	2012	 	
Cash flows from operating activities:	 	 	 	 	 	 	 	 	
Net increase in net assets resulting from operations	 	$	2,983	 	 	$	2,539	 	
Adjustments to reconcile net increase in net assets resulting from operations to net cash (used in) provided by operating activities:	 	 	 	 	 	 	 	 	
Amortization of debt issuance costs	 	 	183	 	 	 	51	 	
Net realized loss on investments	 	 	18	 	 	 	-	 	
Net unrealized (appreciation) depreciation on investments	 	 	(420	)	 	 	813	 	
Purchase of investments	 	 	(28,500	)	 	 	(12,961	)	
Principal payments received on investments	 	 	9,962	 	 	 	23,325	 	
Changes in assets and liabilities:	 	 	 	 	 	 	 	 	
Net increase in investments in money market funds	 	 	(1,559	)	 	 	(9,426	)	
(Increase) decrease in interest receivable	 	 	(88	)	 	 	712	 	
Increase in end-of-term payments	 	 	(614	)	 	 	(229	)	
Decrease in unearned loan income	 	 	(228	)	 	 	(460	)	
Increase in other assets	 	 	199	 	 	 	40	 	
Decrease in other accrued expenses	 	 	(199	)	 	 	(577	)	
Increase in base management fee payable	 	 	31	 	 	 	265	 	
Decrease in incentive fee payable	 	 	(162	)	 	 	(928	)	
Net cash (used in) provided by operating activities	 	 	(18,394	)	 	 	3,164	 	
 	 	 	 	 	 	 	 	 	
Cash flows from financing activities:	 	 	 	 	 	 	 	 	
Proceeds from issuance of senior notes	 	 	-	 	 	 	30,000	 	
Dividends paid	 	 	(3,193	)	 	 	(3,378	)	
Net increase (decrease) in Credit Facilities	 	 	21,017	 	 	 	(24,335	)	
Debt issuance costs	 	 	-	 	 	 	(1,052	)	
Net cash provided by financing activities	 	 	17,824	 	 	 	1,235	 	
Net (decrease) increase in cash	 	 	(570	)	 	 	4,399	 	
 	 	 	 	 	 	 	 	 	
Cash:	 	 	 	 	 	 	 	 	
Beginning of period	 	 	1,048	 	 	 	1,298	 	
End of period	 	$	478	 	 	$	5,697	 	
Supplemental disclosure of cash flow information:	 	 	 	 	 	 	 	 	
Cash paid for interest	 	$	1,517	 	 	$	581	 	
Supplemental non-cash investing and financing activities:	 	 	 	 	 	 	 	 	
Warrant investments received & recorded as unearned loan income	 	$	172	 	 	$	185	 	
Dividends Payable	 	$	3,303	 	 	$	-	 	
 
See Notes to Consolidated Financial Statements
 
6	

 	
 
Horizon Technology Finance Corporation and Subsidiaries
 
Consolidated Schedule of Investments (Unaudited)
March 31, 2013
(In thousands)
 
 	 	 	 	 	 	Principal	 	 	Cost of	 	 	Fair	 	
Portfolio Company (1)	 	Sector	 	Type of Investment (3)(4)(7)	 	Amount	 	 	Investments (6)	 	 	Value	 	
Debt Investments - 164.9% (9)	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Debt Investments - Life Science - 41.4% (9)	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
ACT Biotech Corporation (8)	 	Biotechnology	 	Term Loan (13.10% cash, 8.00% ETP, Due 9/1/14)	 	$	3,947	 	 	$	3,905	 	 	$	2,811	 	
Ambit Biosciences Corporation (2)	 	Biotechnology	 	Term Loan (12.25% cash, 3.00% ETP, Due 10/1/13)	 	 	1,568	 	 	 	1,564	 	 	 	1,564	 	
Anacor Pharmaceuticals, Inc. (2)(5)	 	Biotechnology	 	Term Loan (9.41% cash, 5.50% ETP, Due 4/1/15)	 	 	2,412	 	 	 	2,391	 	 	 	2,391	 	
 	 	 	 	Term Loan (9.67% cash, 5.50% ETP, Due 4/1/15)	 	 	1,932	 	 	 	1,908	 	 	 	1,908	 	
 	 	 	 	Term Loan (9.47% cash, 5.50% ETP, Due 4/1/15)	 	 	3,397	 	 	 	3,354	 	 	 	3,354	 	
Celsion Corporation (2)(5)	 	Biotechnology	 	Term Loan (11.75% cash, Due 10/1/15)	 	 	2,500	 	 	 	2,482	 	 	 	2,482	 	
N30 Pharmaceuticals, LLC (2)	 	Biotechnology	 	Term Loan (11.25% cash, 3.00% ETP, Due 9/1/14)	 	 	1,458	 	 	 	1,442	 	 	 	1,442	 	
 	 	 	 	Term Loan (11.25% cash, 3.00% ETP, Due 7/1/15)	 	 	2,500	 	 	 	2,458	 	 	 	2,458	 	
Sample6 Technologies, Inc. (2)	 	Biotechnology	 	Term Loan (11.00% cash, 3.00% ETP, Due 1/1/16)	 	 	2,500	 	 	 	2,460	 	 	 	2,460	 	
Sunesis Pharmaceuticals, Inc. (2)(5)	 	Biotechnology	 	Term Loan (8.95% cash, 3.75% ETP, Due 10/1/15)	 	 	1,944	 	 	 	1,931	 	 	 	1,931	 	
 	 	 	 	Term Loan (9.00% cash, 3.75% ETP, Due 10/1/15)	 	 	2,917	 	 	 	2,842	 	 	 	2,842	 	
Supernus Pharmaceuticals, Inc. (2)(5)	 	Biotechnology	 	Term Loan (11.00% cash, 3.00% ETP, Due 8/1/14)	 	 	1,800	 	 	 	1,792	 	 	 	1,792	 	
 	 	 	 	Term Loan (11.00% cash, 2.50% ETP, Due 1/1/15)	 	 	5,316	 	 	 	5,280	 	 	 	5,280	 	
Xcovery Holding Company, LLC (2)	 	Biotechnology	 	Term Loan (12.50% cash, Due 8/1/15)	 	 	918	 	 	 	915	 	 	 	915	 	
 	 	 	 	Term Loan (12.50% cash, Due 8/1/15)	 	 	1,444	 	 	 	1,440	 	 	 	1,440	 	
 	 	 	 	Term Loan (12.50% cash, Due 10/1/15)	 	 	250	 	 	 	249	 	 	 	249	 	
Direct Flow Medical, Inc. (2)	 	Medical Device	 	Term Loan (11.00% cash, 3.00% ETP, Due 7/1/16)	 	 	5,000	 	 	 	4,899	 	 	 	4,899	 	
 	 	 	 	Term Loan (11.00% cash, 3.00% ETP, Due 10/1/16)	 	 	2,500	 	 	 	2,444	 	 	 	2,444	 	
Mitralign, Inc. (2)	 	Medical Device	 	Term Loan (12.00% cash, 3.00% ETP, Due 10/1/15)	 	 	1,714	 	 	 	1,660	 	 	 	1,660	 	
 	 	 	 	Term Loan (10.88% cash, 3.00% ETP, Due 11/1/15)	 	 	1,143	 	 	 	1,123	 	 	 	1,123	 	
OraMetrix, Inc. (2)	 	Medical Device	 	Term Loan (11.50% cash, 3.00% ETP, Due 4/1/14)	 	 	2,003	 	 	 	1,990	 	 	 	1,990	 	
 	 	 	 	Revolver (11.50% (Prime + 8.25%) cash, Due 12/1/15)	 	 	2,000	 	 	 	1,970	 	 	 	1,970	 	
PixelOptics, Inc. (2)	 	Medical Device	 	Term Loan (10.75% cash, 3.00% ETP, Due 11/1/14)	 	 	6,959	 	 	 	6,933	 	 	 	6,933	 	
Tengion, Inc. (2)(5)	 	Medical Device	 	Term Loan (13.00% cash, Due 5/1/14)	 	 	3,660	 	 	 	3,587	 	 	 	3,587	 	
Total Debt Investments - Life Science	 	 	 	 	 	 	 	 	 	 	61,019	 	 	 	59,925	 	
Debt Investments - Technology - 81.2% (9)	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Avalanche Technology, Inc. (2)	 	Semiconductors	 	Term Loan (10.00% cash, 2.00% ETP, Due 7/1/16)	 	 	3,758	 	 	 	3,630	 	 	 	3,630	 	
Luxtera, Inc. (2)	 	Semiconductors	 	Term Loan (10.25% cash, 8.00% ETP, Due 12/1/15)	 	 	3,333	 	 	 	3,296	 	 	 	3,296	 	
 	 	 	 	Term Loan (10.25% cash, 8.00% ETP, Due 3/1/16)	 	 	1,667	 	 	 	1,645	 	 	 	1,645	 	
Newport Media, Inc. (2)	 	Semiconductors	 	Term Loan (11.00% cash, 2.14% ETP, Due 1/1/16)	 	 	3,500	 	 	 	3,452	 	 	 	3,452	 	
 	 	 	 	Term Loan (11.00% cash, 2.14% ETP, Due 1/1/16)	 	 	3,500	 	 	 	3,452	 	 	 	3,452	 	
Xtera Communications, Inc. (2)	 	Semiconductors	 	Term Loan (11.50% cash, Due 12/1/14)	 	 	7,294	 	 	 	7,228	 	 	 	7,228	 	
 	 	 	 	Term Loan (11.50% cash, Due 7/1/15)	 	 	1,844	 	 	 	1,860	 	 	 	1,860	 	
Grab Networks, Inc. (2)	 	Internet and Media	 	Term Loan (12.00% cash, Due 1/1/16)	 	 	2,500	 	 	 	2,404	 	 	 	2,404	 	
Optaros, Inc. (2)	 	Internet and Media	 	Term Loan (11.95% cash, 3.00% ETP, Due 10/1/15)	 	 	2,000	 	 	 	1,979	 	 	 	1,979	 	
 	 	 	 	Term Loan (11.95% cash, 3.00% ETP, Due 3/1/16)	 	 	500	 	 	 	495	 	 	 	495	 	
SimpleTuition, Inc. (2)	 	Internet and Media	 	Term Loan (11.75% cash, Due 3/1/16)	 	 	5,000	 	 	 	4,918	 	 	 	4,918	 	
Construction Software Technologies, Inc. (2)	 	Software	 	Term Loan (11.75% cash, 5.00% ETP, Due 10/1/16)	 	 	4,200	 	 	 	4,160	 	 	 	4,160	 	
 	 	 	 	Term Loan (11.75% cash, 5.00% ETP, Due 10/1/16)	 	 	4,200	 	 	 	4,160	 	 	 	4,160	 	
Courion Corporation (2)	 	Software	 	Term Loan (11.45% cash, Due 10/1/15)	 	 	3,500	 	 	 	3,484	 	 	 	3,484	 	
 	 	 	 	Term Loan (11.45% cash, Due 10/1/15)	 	 	3,500	 	 	 	3,484	 	 	 	3,484	 	
Decisyon, Inc. (2)	 	Software	 	Term Loan (11.65% cash, 5.00% ETP, Due 9/1/16)	 	 	4,000	 	 	 	3,907	 	 	 	3,907	 	
Fiberlink Communications Corporation (2)	 	Software	 	Term Loan (11.50% cash, 5.00% ETP, Due 7/1/16)	 	 	5,000	 	 	 	4,925	 	 	 	4,925	 	
Kontera Technologies, Inc. (2)	 	Software	 	Term Loan (11.50% cash, 3.00% ETP, Due 10/1/16)	 	 	4,000	 	 	 	3,925	 	 	 	3,925	 	
 	 	 	 	Term Loan (11.50% cash, 3.00% ETP, Due 10/1/16)	 	 	4,000	 	 	 	3,925	 	 	 	3,925	 	
Lotame Solutions, Inc.	 	Software	 	Term Loan (11.50% cash, 3.00% ETP, Due 10/1/16)	 	 	4,000	 	 	 	3,941	 	 	 	3,941	 	
Netuitive, Inc. (2)	 	Software	 	Term Loan (11.75% cash, Due 1/1/16)	 	 	3,000	 	 	 	2,948	 	 	 	2,948	 	
Raydiance, Inc. (2)	 	Software	 	Term Loan (11.50% cash, 2.75% ETP, Due 9/1/16)	 	 	5,000	 	 	 	4,907	 	 	 	4,907	 	
Seapass Solutions, Inc. (2)	 	Software	 	Term Loan (11.65% cash, 4.00% ETP, Due 5/1/16)	 	 	5,000	 	 	 	4,940	 	 	 	4,940	 	
 	 	 	 	Term Loan (11.65% cash, 4.00% ETP, Due 5/1/16)	 	 	5,000	 	 	 	4,940	 	 	 	4,940	 	
StreamBase Systems, Inc. (2)	 	Software	 	Term Loan (12.51% cash, Due 3/1/14)	 	 	1,164	 	 	 	1,095	 	 	 	1,095	 	
 	 	 	 	Term Loan (12.50% cash, Due 10/1/14)	 	 	512	 	 	 	509	 	 	 	509	 	
 	 	 	 	Term Loan (12.50% cash, Due 3/1/16)	 	 	1,490	 	 	 	1,470	 	 	 	1,470	 	
Sys-Tech Solutions, Inc. (2)	 	Software	 	Term Loan (11.65% cash, Due 6/1/16)	 	 	7,500	 	 	 	7,225	 	 	 	7,225	 	
Vidsys, Inc. (2)	 	Software	 	Term Loan (11.00% cash, 5.00% ETP, Due 6/1/16)	 	 	3,000	 	 	 	2,954	 	 	 	2,954	 	
Visage Mobile, Inc. (2)	 	Software	 	Term Loan (12.00% cash, 3.50% ETP, Due 9/1/16)	 	 	1,000	 	 	 	961	 	 	 	961	 	
 
See Notes to Consolidated Financial Statements
 
7	

 	
 
Horizon Technology Finance Corporation and Subsidiaries
 
Consolidated Schedule of Investments (Unaudited)
March 31, 2013
(In thousands)
 
 	 	 	 	 	 	Principal	 	 	Cost of	 	 	Fair	 	
Portfolio Company (1)	 	Sector	 	Type of Investment (3)(4)(7)	 	Amount	 	 	Investments (6)	 	 	Value	 	
Aquion Energy, Inc. (2)	 	Power Management	 	Term Loan (10.25% cash, 4.00% ETP, Due 3/1/16)	 	 	3,333	 	 	 	3,315	 	 	 	3,315	 	
 	 	 	 	Term Loan (10.25% cash, 4.00% ETP, Due 3/1/16)	 	 	3,333	 	 	 	3,315	 	 	 	3,315	 	
 	 	 	 	Term Loan (10.25% cash, 4.00% ETP, Due 6/1/16)	 	 	3,333	 	 	 	3,312	 	 	 	3,312	 	
Xtreme Power, Inc. (2)	 	Power Management	 	Term Loan (10.75% cash, 3.50% ETP, Due 5/1/16)	 	 	6,000	 	 	 	5,919	 	 	 	5,387	 	
Total Debt Investments - Technology	 	 	 	 	 	 	 	 	 	 	118,080	 	 	 	117,548	 	
Debt Investments - Cleantech - 19.2% (9)	 	 	 	 	 	 	 	 	 	 	 	 	
Renmatix, Inc. (2)	 	Alternative Energy	 	Term Loan (10.25% cash, 3.00% ETP, Due 2/1/16)	 	 	2,500	 	 	 	2,477	 	 	 	2,477	 	
 	 	 	 	Term Loan (10.25% cash, 3.00% ETP, Due 2/1/16)	 	 	2,500	 	 	 	2,477	 	 	 	2,477	 	
 	 	 	 	Term Loan (10.25% cash, Due 10/1/16)	 	 	5,000	 	 	 	4,933	 	 	 	4,933	 	
Semprius, Inc. (2)	 	Alternative Energy	 	Term Loan (10.25% cash, 2.50% ETP, Due 6/1/16)	 	 	3,750	 	 	 	3,717	 	 	 	3,717	 	
Cereplast, Inc. (5)(8)	 	Waste Recycling	 	Term Loan (12.00% cash, Due 8/1/14)	 	 	1,411	 	 	 	1,308	 	 	 	1,094	 	
 	 	 	 	Term Loan (12.00% cash, Due 8/1/14)	 	 	1,514	 	 	 	1,495	 	 	 	1,250	 	
 	 	 	 	Term Loan (15.00% cash, Due 8/1/13)	 	 	56	 	 	 	56	 	 	 	47	 	
 	 	 	 	Term Loan (15.00% cash, Due 8/1/13)	 	 	94	 	 	 	94	 	 	 	78	 	
Aurora Algae, Inc. (2)	 	Energy Efficiency	 	Term Loan (10.50% cash, 2.00% ETP, Due 5/1/15)	 	 	1,883	 	 	 	1,873	 	 	 	1,873	 	
Satcon Technology Corporation (5)(8)	 	Energy Efficiency	 	Term Loan (12.58% cash, Due 1/1/14)	 	 	5,076	 	 	 	5,011	 	 	 	-	 	
Solarbridge Technologies, Inc. (2)	 	Energy Efficiency	 	Term Loan (11.65% cash, Due 4/1/16)	 	 	7,000	 	 	 	6,848	 	 	 	6,065	 	
Tigo Energy, Inc.  (2)	 	Energy Efficiency	 	Term Loan (11.00% cash, Due 8/1/14)	 	 	2,214	 	 	 	2,199	 	 	 	2,199	 	
 	 	 	 	Revolver (10.75% (Prime + 7.50%) cash, Due 1/1/14)	 	 	1,698	 	 	 	1,675	 	 	 	1,675	 	
Total Debt Investments - Cleantech	 	 	 	 	 	 	 	 	 	 	34,163	 	 	 	27,885	 	
Debt Investments - Healthcare information and services - 23.1% (9)	 	 	 	 	 	 	 	 	 	 	 	 	
Accumetrics, Inc. (2)	 	Diagnostics	 	Term Loan (10.90% cash, 5.00% ETP, Due 6/1/16)	 	 	4,000	 	 	 	3,870	 	 	 	3,870	 	
BioScale, Inc. (2)	 	Diagnostics	 	Term Loan (11.51% cash, Due 1/1/14)	 	 	2,223	 	 	 	2,216	 	 	 	2,216	 	
Radisphere National Radiology Group, Inc. (2)	 	Diagnostics	 	Revolver (11.25% (Prime + 8.00%) cash, Due 10/1/15)	 	 	14,000	 	 	 	13,869	 	 	 	13,869	 	
Recondo Technology, Inc. (2)	 	Software	 	Term Loan (11.50% cash, 3.00% ETP, Due 4/1/15)	 	 	2,000	 	 	 	1,943	 	 	 	1,943	 	
 	 	 	 	Term Loan (11.00% cash, 3.00% ETP, Due 1/1/17)	 	 	2,500	 	 	 	2,463	 	 	 	2,463	 	
Singulex, Inc.	 	Other Healthcare	 	Term Loan (11.00% cash, 3.00% ETP, Due 3/1/14)	 	 	1,299	 	 	 	1,293	 	 	 	1,293	 	
 	 	 	 	Term Loan (11.00% cash, 3.00% ETP, Due 3/1/14)	 	 	866	 	 	 	863	 	 	 	863	 	
Watermark Medical, Inc.	 	Other Healthcare	 	Term Loan (12.00% cash, 4.00% ETP, Due 4/1/17)	 	 	3,500	 	 	 	3,437	 	 	 	3,437	 	
 	 	 	 	Term Loan (12.00% cash, 4.00% ETP, Due 4/1/17)	 	 	3,500	 	 	 	3,437	 	 	 	3,437	 	
Total Debt Investments - Healthcare information and services	 	 	 	 	 	 	33,391	 	 	 	33,391	 	
Total Debt Investments	 	 	 	 	 	 	 	 	 	 	246,653	 	 	 	238,749	 	
Warrant Investments - 4.2% (9)	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Warrants - Life Science - 1.2% (9)	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
ACT Biotech Corporation	 	Biotechnology	 	1,521,782 Preferred Stock Warrants	 	 	-	 	 	 	83	 	 	 	-	 	
Ambit Biosciences, Inc. (2)	 	Biotechnology	 	1,075,083 Preferred Stock Warrants	 	 	-	 	 	 	143	 	 	 	116	 	
Anacor Pharmaceuticals, Inc. (2)(5)	 	Biotechnology	 	84,583 Common Stock Warrants	 	 	-	 	 	 	93	 	 	 	95	 	
Celsion Corporation (2)(5)	 	Biotechnology	 	25,685 Common Stock Warrants	 	 	-	 	 	 	15	 	 	 	-	 	
N30 Pharmaceuticals, LLC (2)	 	Biotechnology	 	214,200 Preferred Stock Warrants	 	 	-	 	 	 	122	 	 	 	252	 	
Novalar Pharmaceuticals, Inc.	 	Biotechnology	 	84,845 Preferred Stock Warrants	 	 	-	 	 	 	69	 	 	 	-	 	
Revance Therapeutics, Inc.	 	Biotechnology	 	687,091 Preferred Stock Warrants	 	 	-	 	 	 	223	 	 	 	552	 	
Sample6 Technologies, Inc. (2)	 	Biotechnology	 	200,582 Preferred Stock Warrants	 	 	-	 	 	 	27	 	 	 	28	 	
Sunesis Pharmaceuticals, Inc. (2)(5)	 	Biotechnology	 	116,203 Common Stock Warrants	 	 	-	 	 	 	83	 	 	 	390	 	
Supernus Pharmaceuticals, Inc. (2)(5)	 	Biotechnology	 	42,083 Preferred Stock Warrants	 	 	-	 	 	 	94	 	 	 	61	 	
Tranzyme, Inc. (2)(5)	 	Biotechnology	 	77,902 Common Stock Warrants	 	 	-	 	 	 	6	 	 	 	-	 	
Direct Flow Medical, Inc. (2)	 	Medical Device	 	176,922 Preferred Stock Warrants	 	 	-	 	 	 	144	 	 	 	134	 	
EnteroMedics, Inc. (5)	 	Medical Device	 	141,026 Common Stock Warrants	 	 	-	 	 	 	347	 	 	 	-	 	
Mitralign, Inc. (2)	 	Medical Device	 	295,238 Common Stock Warrants	 	 	-	 	 	 	49	 	 	 	43	 	
OraMetrix, Inc. (2)	 	Medical Device	 	812,348 Preferred Stock Warrants	 	 	-	 	 	 	78	 	 	 	-	 	
PixelOptics, Inc. (2)	 	Medical Device	 	381,612 Preferred Stock Warrants	 	 	-	 	 	 	96	 	 	 	35	 	
Tengion, Inc. (2)(5)	 	Medical Device	 	1,708,273 Common Stock Warrants	 	 	-	 	 	 	124	 	 	 	79	 	
ViOptix, Inc.	 	Medical Device	 	375,763 Preferred Stock Warrants	 	 	-	 	 	 	13	 	 	 	-	 	
Total Warrants - Life Science	 	 	 	 	 	 	 	 	 	 	1,809	 	 	 	1,785	 	
 
See Notes to Consolidated Financial Statements
 
8	

 	
 
Horizon Technology Finance Corporation and Subsidiaries
 
Consolidated Schedule of Investments (Unaudited)
March 31, 2013
(In thousands)
 
 	 	 	 	 	 	Principal	 	 	Cost of	 	 	Fair	 	
Portfolio Company (1)	 	Sector	 	Type of Investment (3)(4)(7)	 	Amount	 	 	Investments (6)	 	 	Value	 	
Warrants - Technology - 2.0% (9)	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
OpenPeak, Inc.	 	Communications	 	18,997 Preferred Stock Warrants	 	 	-	 	 	 	89	 	 	 	-	 	
Everyday Health, Inc.	 	Consumer-related Technologies	 	65,674 Preferred Stock Warrants	 	 	-	 	 	 	69	 	 	 	97	 	
SnagAJob.com, Inc.	 	Consumer-related Technologies	 	365,396 Preferred Stock Warrants	 	 	-	 	 	 	23	 	 	 	268	 	
Tagged, Inc.	 	Consumer-related Technologies	 	190,868 Preferred Stock Warrants	 	 	-	 	 	 	27	 	 	 	78	 	
Avalanche Technology, Inc. (2)	 	Semiconductors	 	201,835 Preferred Stock Warrants	 	 	-	 	 	 	45	 	 	 	39	 	
Impinj, Inc.	 	Semi-conductor	 	1 Preferred Stock Warrants	 	 	-	 	 	 	7	 	 	 	-	 	
Luxtera, Inc. (2)	 	Semiconductors	 	1,827,485 Preferred Stock Warrants	 	 	-	 	 	 	34	 	 	 	41	 	
Newport Media, Inc. (2)	 	Semiconductors	 	188,764 Preferred Stock Warrants	 	 	-	 	 	 	40	 	 	 	40	 	
Xtera Communications, Inc. (2)	 	Semiconductors	 	983,607 Preferred Stock Warrants	 	 	-	 	 	 	206	 	 	 	1	 	
XIOtech, Inc.	 	Data Storage	 	2,217,979 Preferred Stock Warrants	 	 	-	 	 	 	22	 	 	 	20	 	
Cartera Commerce, Inc.	 	Internet and media	 	90,909 Preferred Stock Warrants	 	 	-	 	 	 	16	 	 	 	162	 	
Grab Networks, Inc.  (2)	 	Internet and media	 	1,493,681 Preferred Stock Warrants	 	 	-	 	 	 	194	 	 	 	119	 	
Optaros, Inc. (2)	 	Internet and media	 	477,403 Preferred Stock Warrants	 	 	-	 	 	 	20	 	 	 	18	 	
SimpleTuition, Inc. (2)	 	Internet and media	 	189,573 Preferred Stock Warrants	 	 	-	 	 	 	63	 	 	 	56	 	
IntelePeer, Inc.	 	Networking	 	141,549 Preferred Stock Warrants	 	 	-	 	 	 	39	 	 	 	483	 	
Motion Computing, Inc.	 	Networking	 	260,707 Preferred Stock Warrants	 	 	-	 	 	 	7	 	 	 	293	 	
Clarabridge, Inc.	 	Software	 	104,503 Preferred Stock Warrants	 	 	-	 	 	 	28	 	 	 	25	 	
Construction Software Technologies, Inc. (2)	 	Software	 	386,415 Preferred Stock Warrants	 	 	-	 	 	 	69	 	 	 	50	 	
Courion Corporation (2)	 	Software	 	772,543 Preferred Stock Warrants	 	 	-	 	 	 	107	 	 	 	98	 	
Decisyon, Inc. (2)	 	Software	 	314,686 Preferred Stock Warrants	 	 	-	 	 	 	45	 	 	 	45	 	
DriveCam, Inc.	 	Software	 	71,639 Preferred Stock Warrants	 	 	-	 	 	 	20	 	 	 	121	 	
Kontera Technologies, Inc. (2)	 	Software	 	99,476 Preferred Stock Warrants	 	 	-	 	 	 	101	 	 	 	101	 	
Lotame Solutions, Inc.	 	Software	 	216,810 Preferred Stock Warrants	 	 	-	 	 	 	4	 	 	 	4	 	
Netuitive, Inc. (2)	 	Software	 	748,453 Preferred Stock Warrants	 	 	-	 	 	 	75	 	 	 	60	 	
Raydiance, Inc. (2)	 	Software	 	525,560 Preferred Stock Warrants	 	 	-	 	 	 	36	 	 	 	36	 	
Seapass Solutions, Inc. (2)	 	Software	 	202,892 Preferred Stock Warrants	 	 	-	 	 	 	113	 	 	 	105	 	
StreamBase Systems, Inc. (2)	 	Software	 	306,041 Preferred Stock Warrants	 	 	-	 	 	 	84	 	 	 	63	 	
Sys-Tech Solutions, Inc. (2)	 	Software	 	375,000 Preferred Stock Warrants	 	 	-	 	 	 	242	 	 	 	254	 	
Vidsys, Inc. (2)	 	Software	 	178,802 Preferred Stock Warrants	 	 	-	 	 	 	23	 	 	 	23	 	
Visage Mobile, Inc. (2)	 	Software	 	1,692,047 Preferred Stock Warrants	 	 	-	 	 	 	20	 	 	 	20	 	
Aquion Energy, Inc. (2)	 	Power Management	 	115,051 Preferred Stock Warrants	 	 	-	 	 	 	7	 	 	 	60	 	
Xtreme Power, Inc. (2)	 	Power Management	 	182,723 Preferred Stock Warrants	 	 	-	 	 	 	76	 	 	 	68	 	
Total Warrants - Technology	 	 	 	 	 	 	 	 	 	 	1,951	 	 	 	2,848	 	
Warrants - Cleantech - 0.3% (9)	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Renmatix, Inc. (2)	 	Alternative Energy	 	52,296 Preferred Stock Warrants	 	 	-	 	 	 	70	 	 	 	70	 	
Semprius, Inc. (2)	 	Alternative Energy	 	519,981 Preferred Stock Warrants	 	 	-	 	 	 	25	 	 	 	23	 	
Cereplast, Inc. (5)	 	Waste Recycling	 	365,000 Common Stock Warrants	 	 	-	 	 	 	175	 	 	 	2	 	
Enphase Energy, Inc. (5)	 	Energy Efficiency	 	161,959 Common Stock Warrants	 	 	-	 	 	 	175	 	 	 	123	 	
Satcon Technology Corporation (5)	 	Energy Efficiency	 	493,097 Common Stock Warrants	 	 	-	 	 	 	285	 	 	 	-	 	
Solarbridge Technologies, Inc. (2)	 	Energy Efficiency	 	1,761,051 Preferred Stock Warrants	 	 	-	 	 	 	125	 	 	 	113	 	
Tigo Energy, Inc. (2)	 	Energy Efficiency	 	190,901 Preferred Stock Warrants	 	 	-	 	 	 	101	 	 	 	72	 	
Total Warrants - Cleantech	 	 	 	 	 	 	 	 	 	 	956	 	 	 	403	 	
Warrants - Healthcare information and services - 0.7% (9)	 	 	 	 	 	 	 	 	 	 	 	 	
Accumetrics, Inc. (2)	 	Diagnostics	 	1,028,571 Preferred Stock Warrants	 	 	-	 	 	 	107	 	 	 	138	 	
BioScale, Inc. (2)	 	Diagnostics	 	315,618 Preferred Stock Warrants	 	 	-	 	 	 	55	 	 	 	46	 	
Precision Therapeutics, Inc.	 	Diagnostics	 	561,409 Preferred Stock Warrants	 	 	-	 	 	 	73	 	 	 	142	 	
Radisphere National Radiology Group, Inc. (2)	 	Diagnostics	 	519,943 Preferred Stock Warrants	 	 	-	 	 	 	378	 	 	 	288	 	
Recondo Technology, Inc. (2)	 	Software	 	360,645 Preferred Stock Warrants	 	 	-	 	 	 	60	 	 	 	173	 	
Patientkeeper, Inc.	 	Other Healthcare	 	396,410 Preferred Stock Warrants	 	 	-	 	 	 	269	 	 	 	31	 	
Singulex, Inc.	 	Other Healthcare	 	293,632 Preferred Stock Warrants	 	 	-	 	 	 	44	 	 	 	71	 	
Talyst, Inc.	 	Other Healthcare	 	300,360 Preferred Stock Warrants	 	 	-	 	 	 	100	 	 	 	57	 	
Watermark Medical, Inc.	 	Other Healthcare	 	12,216 Preferred Stock Warrants	 	 	-	 	 	 	66	 	 	 	66	 	
Total Warrants - Healthcare information and services	 	 	 	 	 	 	1,152	 	 	 	1,012	 	
Total Warrants	 	 	 	 	 	 	 	 	 	 	5,868	 	 	 	6,048	 	
Other Investments - 1.5% (9)	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Vette Technology, LLC	 	Data Storage	 	Royalty Agreement Due 4/18/2019	 	 	-	 	 	 	4,830	 	 	 	2,100	 	
Total Other Investments	 	 	 	 	 	 	 	 	 	 	4,830	 	 	 	2,100	 	
 
See Notes to Consolidated Financial Statements
 
9	

 	
 
Horizon Technology Finance Corporation and Subsidiaries
 
Consolidated Schedule of Investments (Unaudited)
March 31, 2013
(In thousands)
 
 	 	 	 	 	 	Principal	 	 	Cost of	 	 	Fair	 	
Portfolio Company (1)	 	Sector	 	Type of Investment (3)(4)(7)	 	Amount	 	 	Investments (6)	 	 	Value	 	
Equity - 0.6% (9)	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Insmed Incorporated (5)	 	Biotechnology	 	33,208 Common Stock	 	 	-	 	 	 	227	 	 	 	249	 	
Revance Therapeutics, Inc.	 	Biotechnology	 	72,925 Preferred Stock	 	 	-	 	 	 	73	 	 	 	109	 	
Overture Networks Inc.	 	Communications	 	386,191 Preferred Stock	 	 	-	 	 	 	482	 	 	 	526	 	
Total Equity	 	 	 	 	 	 	 	 	 	 	782	 	 	 	884	 	
Total Portfolio Investment Assets - 171.2% (9)	 	 	 	 	 	$	258,133	 	 	$	247,781	 	
Short Term Investments - Money Market Funds - 2.8% (9)	 	 	 	 	 	 	 	 	 	 	 	 	
Blackrock Liquid Fed Funds Institutional (Fund #30)	 	 	 	 	 	$	2,997	 	 	$	2,997	 	
Fidelity Prime Money Market (Class I Fund #690)	 	 	 	 	 	 	91	 	 	 	91	 	
US Bank Money Market	 	 	 	 	 	 	1,031	 	 	 	1,031	 	
Total Short Term Investments - Money Market Funds	 	 	 	 	 	$	4,119	 	 	$	4,119	 	

 
 	(1)	All of the Company’s investments are in entities which are domiciled in the United States and/or have a principal place of business in the United States.	
 	(2)	Has been pledged as collateral under the Credit Facilities.	
 	(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 ETP 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 loan, unless otherwise indicated. For each debt investment, we have provided the current interest rate in effect as of March 31, 2013.	
 	(5)	Portfolio company is a public company.	
 	(6)	For debt investments, represents principal balance less unearned income.	
 	(7)	Preferred and common stock warrants, equity interests and other investments are non-income producing.	
 	(8)	Debt is on non-accrual status at March 31, 2013 and is, therefore, considered non-income producing.	
 	(9)	Value as a percent of net assets.	
 
See Notes to Consolidated Financial Statements
 
10	

 	
 
Horizon Technology Finance Corporation and Subsidiaries
 
Consolidated Schedule of Investments (Unaudited)
December 31, 2012
(In thousands)
 
 	 	 	 	 	 	Principal	 	 	Cost of	 	 	Fair	 	
Portfolio Company (1)	 	Sector	 	Type of Investment (3)(4)(7)	 	Amount	 	 	Investments (6)	 	 	Value	 	
Debt Investments - 152.0% (9)	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Debt Investments - Life Science - 42.4% (9)	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
ACT Biotech Corporation (8)	 	Biotechnology	 	Term Loan (13.10% cash, 8.00% ETP, Due 9/1/14)	 	$	3,947	 	 	$	3,906	 	 	$	2,770	 	
Ambit Biosciences Corporation (2)	 	Biotechnology	 	Term Loan (12.25% cash, 3.00% ETP, Due 10/1/13)	 	 	2,206	 	 	 	2,197	 	 	 	2,197	 	
Anacor Pharmaceuticals, Inc. (2)(5)	 	Biotechnology	 	Term Loan (9.41% cash, 5.50% ETP, Due 4/1/15)	 	 	2,671	 	 	 	2,644	 	 	 	2,645	 	
 	 	 	 	Term Loan (9.67% cash, 5.50% ETP, Due 4/1/15)	 	 	2,139	 	 	 	2,109	 	 	 	2,109	 	
 	 	 	 	Term Loan (9.47% cash, 5.50% ETP, Due 4/1/15)	 	 	3,762	 	 	 	3,708	 	 	 	3,708	 	
Celsion Corporation (2)(5)	 	Biotechnology	 	Term Loan (11.75% cash, Due 10/1/15)	 	 	2,500	 	 	 	2,466	 	 	 	2,466	 	
N30 Pharmaceuticals, LLC (2)	 	Biotechnology	 	Term Loan (11.25% cash, 3.00% ETP, Due 9/1/14)	 	 	1,679	 	 	 	1,657	 	 	 	1,657	 	
 	 	 	 	Term Loan (11.25% cash, 3.00% ETP, Due 7/1/15)	 	 	2,500	 	 	 	2,450	 	 	 	2,450	 	
Revance Therapeutics, Inc.	 	Biotechnology	 	Convertible Note (8.00% ETP, Due 2/10/13)	 	 	71	 	 	 	71	 	 	 	71	 	
Sample6 Technologies, Inc. (2)	 	Biotechnology	 	Term Loan (11.00% cash, 3.00% ETP, Due 1/1/16)	 	 	2,500	 	 	 	2,454	 	 	 	2,454	 	
Sunesis Pharmaceuticals, Inc. (2)(5)	 	Biotechnology	 	Term Loan (8.95% cash, 3.75% ETP, Due 10/1/15)	 	 	2,000	 	 	 	1,984	 	 	 	1,984	 	
 	 	 	 	Term Loan (9.00% cash, 3.75% ETP, Due 10/1/15)	 	 	3,000	 	 	 	2,911	 	 	 	2,911	 	
Supernus Pharmaceuticals, Inc. (2)(5)	 	Biotechnology	 	Term Loan (11.00% cash, 3.00% ETP, Due 8/1/14)	 	 	2,090	 	 	 	2,079	 	 	 	2,079	 	
 	 	 	 	Term Loan (11.00% cash, 2.50% ETP, Due 1/1/15)	 	 	5,962	 	 	 	5,915	 	 	 	5,915	 	
Xcovery Holding Company, LLC (2)	 	Biotechnology	 	Term Loan (12.50% cash, Due 8/1/15)	 	 	918	 	 	 	915	 	 	 	915	 	
 	 	 	 	Term Loan (12.50% cash, Due 8/1/15)	 	 	1,444	 	 	 	1,439	 	 	 	1,439	 	
 	 	 	 	Term Loan (12.50% cash, Due 10/1/15)	 	 	250	 	 	 	249	 	 	 	249	 	
Direct Flow Medical, Inc. (2)	 	Medical Device	 	Term Loan (11.00% cash, 3.00% ETP, Due 7/1/16)	 	 	5,000	 	 	 	4,831	 	 	 	4,831	 	
Mitralign, Inc. (2)	 	Medical Device	 	Term Loan (12.00% cash, 3.00% ETP, Due 10/1/15)	 	 	1,714	 	 	 	1,655	 	 	 	1,655	 	
 	 	 	 	Term Loan (10.88% cash, 3.00% ETP, Due 11/1/15)	 	 	1,143	 	 	 	1,119	 	 	 	1,119	 	
OraMetrix, Inc. (2)	 	Medical Device	 	Term Loan (11.50% cash, 3.00% ETP, Due 4/1/14)	 	 	2,468	 	 	 	1,966	 	 	 	1,966	 	
 	 	 	 	Revolver (11.50% (Prime + 8.25%) cash, Due 12/1/15)	 	 	2,000	 	 	 	2,449	 	 	 	2,449	 	
PixelOptics, Inc. (2)	 	Medical Device	 	Term Loan (10.75% cash, 3.00% ETP, Due 11/1/14)	 	 	7,900	 	 	 	7,865	 	 	 	7,865	 	
Tengion, Inc. (2)(5)	 	Medical Device	 	Term Loan (13.00% cash, Due 5/1/14)	 	 	3,660	 	 	 	3,560	 	 	 	3,560	 	
Total Debt Investments - Life Science	 	 	 	 	 	 	 	 	 	 	62,599	 	 	 	61,464	 	
Debt Investments - Technology - 72.9% (9)	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Avalanche Technology, Inc. (2)	 	Semiconductors	 	Term Loan (10.00% cash, 2.00% ETP, Due 7/1/16)	 	 	4,000	 	 	 	3,866	 	 	 	3,866	 	
Luxtera, Inc. (2)	 	Semiconductors	 	Term Loan (10.25% cash, 8.00% ETP, Due 12/1/15)	 	 	3,333	 	 	 	3,290	 	 	 	3,290	 	
 	 	 	 	Term Loan (10.25% cash, 8.00% ETP, Due 3/1/16)	 	 	1,667	 	 	 	1,642	 	 	 	1,642	 	
Newport Media, Inc. (2)	 	Semiconductors	 	Term Loan (11.00% cash, 2.14% ETP, Due 1/1/16)	 	 	3,500	 	 	 	3,445	 	 	 	3,445	 	
 	 	 	 	Term Loan (11.00% cash, 2.14% ETP, Due 1/1/16)	 	 	3,500	 	 	 	3,445	 	 	 	3,445	 	
Xtera Communications, Inc. (2)	 	Semiconductors	 	Term Loan (11.50% cash, Due 12/1/14)	 	 	8,222	 	 	 	8,136	 	 	 	8,136	 	
 	 	 	 	Term Loan (11.50% cash, Due 7/1/15)	 	 	2,000	 	 	 	1,972	 	 	 	1,972	 	
Grab Networks, Inc. (2)	 	Internet and Media	 	Term Loan (12.00% cash, Due 1/1/16)	 	 	2,500	 	 	 	2,387	 	 	 	2,387	 	
Optaros, Inc. (2)	 	Internet and Media	 	Term Loan (11.95% cash, 3.00% ETP, Due 10/1/15)	 	 	2,000	 	 	 	1,976	 	 	 	1,976	 	
 	 	 	 	Term Loan (11.95% cash, 3.00% ETP, Due 3/1/16)	 	 	500	 	 	 	495	 	 	 	495	 	
SimpleTuition, Inc. (2)	 	Internet and Media	 	Term Loan (11.75% cash, Due 3/1/16)	 	 	5,000	 	 	 	4,905	 	 	 	4,905	 	
Construction Software Technologies, Inc. (2)	 	Software	 	Term Loan (11.75% cash, 5.00% ETP, Due 10/1/16)	 	 	4,200	 	 	 	4,156	 	 	 	4,156	 	
 	 	 	 	Term Loan (11.75% cash, 5.00% ETP, Due 10/1/16)	 	 	4,200	 	 	 	4,156	 	 	 	4,156	 	
Courion Corporation (2)	 	Software	 	Term Loan (11.45% cash, Due 10/1/15)	 	 	3,500	 	 	 	3,481	 	 	 	3,481	 	
 	 	 	 	Term Loan (11.45% cash, Due 10/1/15)	 	 	3,500	 	 	 	3,481	 	 	 	3,481	 	
Fiberlink Communications Corporation (2)	 	Software	 	Term Loan (11.50% cash, 5.00% ETP, Due 7/1/16)	 	 	5,000	 	 	 	4,920	 	 	 	4,920	 	
Kontera Technologies, Inc. (2)	 	Software	 	Term Loan (11.50% cash, 3.00% ETP, Due 10/1/16)	 	 	4,000	 	 	 	3,917	 	 	 	3,917	 	
 	 	 	 	Term Loan (11.50% cash, 3.00% ETP, Due 10/1/16)	 	 	4,000	 	 	 	3,917	 	 	 	3,917	 	
Netuitive, Inc. (2)	 	Software	 	Term Loan (11.75% cash, Due 1/1/16)	 	 	3,000	 	 	 	2,939	 	 	 	2,939	 	
Seapass Solutions, Inc. (2)	 	Software	 	Term Loan (11.65% cash, 4.00% ETP, Due 5/1/16)	 	 	5,000	 	 	 	4,933	 	 	 	4,933	 	
 	 	 	 	Term Loan (11.65% cash, 4.00% ETP, Due 5/1/16)	 	 	5,000	 	 	 	4,933	 	 	 	4,933	 	
StreamBase Systems, Inc. (2)	 	Software	 	Term Loan (12.51% cash, Due 11/1/13)	 	 	1,360	 	 	 	1,353	 	 	 	1,353	 	
 	 	 	 	Term Loan (12.50% cash, Due 6/1/14)	 	 	558	 	 	 	553	 	 	 	553	 	
 	 	 	 	Term Loan (12.50% cash, Due 12/1/15)	 	 	1,500	 	 	 	1,477	 	 	 	1,477	 	
Sys-Tech Solutions, Inc. (2)	 	Software	 	Term Loan (11.65% cash, Due 6/1/16)	 	 	7,500	 	 	 	7,193	 	 	 	7,193	 	
Vidsys, Inc. (2)	 	Software	 	Term Loan (11.00% cash, 5.00% ETP, Due 6/1/16)	 	 	3,000	 	 	 	2,948	 	 	 	2,948	 	
Aquion Energy, Inc. (2)	 	Power Management	 	Term Loan (10.25% cash, 4.00% ETP, Due 3/1/16)	 	 	3,333	 	 	 	3,312	 	 	 	3,312	 	
 	 	 	 	Term Loan (10.25% cash, 4.00% ETP, Due 3/1/16)	 	 	3,333	 	 	 	3,312	 	 	 	3,312	 	
 	 	 	 	Term Loan (10.25% cash, 4.00% ETP, Due 6/1/16)	 	 	3,333	 	 	 	3,309	 	 	 	3,309	 	
Xtreme Power, Inc. (2)	 	Power Management	 	Term Loan (10.75% cash, 3.50% ETP, Due 5/1/16)	 	 	6,000	 	 	 	5,859	 	 	 	5,859	 	
Total Debt Investments - Technology	 	 	 	 	 	 	 	 	 	 	105,708	 	 	 	105,708	 	
 
See Notes to Consolidated Financial Statements
 
11	

 	
 
Horizon Technology Finance Corporation and Subsidiaries
 
Consolidated Schedule of Investments (Unaudited)
December 31, 2012
(In thousands) 
 
 	 	 	 	 	 	Principal	 	 	Cost of	 	 	Fair	 	
Portfolio Company (1)	 	Sector	 	Type of Investment (3)(4)(7)	 	Amount	 	 	Investments (6)	 	 	Value	 	
Debt Investments - Cleantech - 16.4% (9)	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Renmatix, Inc. (2)	 	Alternative Energy	 	Term Loan (10.25% cash, 3.00% ETP, Due 2/1/16)	 	 	2,500	 	 	 	2,402	 	 	 	2,402	 	
 	 	 	 	Term Loan (10.25% cash, 3.00% ETP, Due 2/1/16)	 	 	2,500	 	 	 	2,473	 	 	 	2,473	 	
Semprius, Inc. (2)	 	Alternative Energy	 	Term Loan (10.25% cash, 2.50% ETP, Due 6/1/16)	 	 	3,750	 	 	 	3,712	 	 	 	3,712	 	
Cereplast, Inc. (5)(8)	 	Waste Recycling	 	Term Loan (12.00% cash, Due 8/1/14)	 	 	1,683	 	 	 	1,515	 	 	 	890	 	
 	 	 	 	Term Loan (12.00% cash, Due 8/1/14)	 	 	1,806	 	 	 	1,787	 	 	 	1,116	 	
 	 	 	 	Term Loan (15.00% cash, Due 4/4/13)	 	 	75	 	 	 	75	 	 	 	47	 	
 	 	 	 	Term Loan (15.00% cash, Due 4/4/13)	 	 	125	 	 	 	125	 	 	 	78	 	
Aurora Algae, Inc. (2)	 	Energy Efficiency	 	Term Loan (10.50% cash, 2.00% ETP, Due 5/1/15)	 	 	2,075	 	 	 	2,062	 	 	 	2,062	 	
Satcon Technology Corporation (5)(8)	 	Energy Efficiency	 	Term Loan (12.58% cash, Due 1/1/14)	 	 	5,278	 	 	 	5,278	 	 	 	-	 	
Solarbridge Technologies, Inc. (2)	 	Energy Efficiency	 	Term Loan (11.65% cash, Due 4/1/16)	 	 	7,000	 	 	 	6,826	 	 	 	6,826	 	
Tigo Energy, Inc.  (2)	 	Energy Efficiency	 	Term Loan (11.00% cash, Due 8/1/14)	 	 	2,326	 	 	 	2,306	 	 	 	2,306	 	
 	 	 	 	Revolver (10.75% (Prime + 7.50%) cash, Due 1/1/14)	 	 	1,859	 	 	 	1,821	 	 	 	1,821	 	
Total Debt Investments - Cleantech	 	 	 	 	 	 	 	 	 	 	30,382	 	 	 	23,733	 	
Debt Investments - Healthcare information and services - 20.3% (9)	 	 	 	 	 	 	 	 	 	 	 	 	
Accumetrics, Inc. (2)	 	Diagnostics	 	Term Loan (10.90% cash, 5.00% ETP, Due 6/1/16)	 	 	4,000	 	 	 	3,853	 	 	 	3,853	 	
BioScale, Inc. (2)	 	Diagnostics	 	Term Loan (11.51% cash, Due 1/1/14)	 	 	2,643	 	 	 	2,630	 	 	 	2,630	 	
Radisphere National Radiology Group, Inc. (2)	 	Diagnostics	 	Revolver (11.25% (Prime + 8.00%) cash, Due 10/1/15)	 	 	15,000	 	 	 	14,856	 	 	 	14,856	 	
Recondo Technology, Inc. (2)	 	Software	 	Term Loan (11.50% cash, 3.00% ETP, Due 4/1/15)	 	 	2,000	 	 	 	1,968	 	 	 	1,968	 	
 	 	 	 	Term Loan (11.00% cash, 3.00% ETP, Due 1/1/17)	 	 	2,500	 	 	 	2,460	 	 	 	2,460	 	
 	 	 	 	Revolver (10.50% (Prime + 7.25%) cash, Due  4/1/15)	 	 	1,000	 	 	 	968	 	 	 	968	 	
Singulex, Inc.	 	Other Healthcare	 	Term Loan (11.00% cash, 3.00% ETP, Due 3/1/14)	 	 	1,602	 	 	 	1,593	 	 	 	1,593	 	
 	 	 	 	Term Loan (11.00% cash, 3.00% ETP, Due 3/1/14)	 	 	1,068	 	 	 	1,064	 	 	 	1,064	 	
Total Debt Investments - Healthcare information and services	 	 	 	 	 	 	29,392	 	 	 	29,392	 	
Total Debt Investments	 	 	 	 	 	 	 	 	 	 	228,081	 	 	 	220,297	 	
Warrant Investments - 3.8% (9)	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Warrants - Life Science - 1.1% (9)	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
ACT Biotech Corporation	 	Biotechnology	 	1,390,910 Preferred Stock Warrants	 	 	-	 	 	 	83	 	 	 	-	 	
Ambit Biosciences, Inc. (2)	 	Biotechnology	 	1,075,083 Preferred Stock Warrants	 	 	-	 	 	 	143	 	 	 	101	 	
Anacor Pharmaceuticals, Inc. (2)(5)	 	Biotechnology	 	84,583 Common Stock Warrants	 	 	-	 	 	 	93	 	 	 	41	 	
Anesiva, Inc.	 	Biotechnology	 	198,898 Common Stock Warrants	 	 	-	 	 	 	18	 	 	 	-	 	
Celsion Corporation (2)(5)	 	Biotechnology	 	25,685 Common Stock Warrants	 	 	-	 	 	 	15	 	 	 	136	 	
N30 Pharmaceuticals, LLC (2)	 	Biotechnology	 	214,200 Preferred Stock Warrants	 	 	-	 	 	 	122	 	 	 	252	 	
Novalar Pharmaceuticals, Inc.	 	Biotechnology	 	84,845 Preferred Stock Warrants	 	 	-	 	 	 	69	 	 	 	-	 	
Revance Therapeutics, Inc.	 	Biotechnology	 	199,470 Preferred Stock Warrants	 	 	-	 	 	 	224	 	 	 	404	 	
Sample6 Technologies, Inc. (2)	 	Biotechnology	 	200,582 Preferred Stock Warrants	 	 	-	 	 	 	27	 	 	 	28	 	
Sunesis Pharmaceuticals, Inc. (2)(5)	 	Biotechnology	 	116,203 Common Stock Warrants	 	 	-	 	 	 	83	 	 	 	251	 	
Supernus Pharmaceuticals, Inc. (2)(5)	 	Biotechnology	 	42,083 Preferred Stock Warrants	 	 	-	 	 	 	94	 	 	 	117	 	
Tranzyme, Inc. (2)(5)	 	Biotechnology	 	77,902 Common Stock Warrants	 	 	-	 	 	 	6	 	 	 	-	 	
Direct Flow Medical, Inc. (2)	 	Medical Device	 	176,922 Preferred Stock Warrants	 	 	-	 	 	 	145	 	 	 	145	 	
EnteroMedics, Inc. (5)	 	Medical Device	 	141,026 Common Stock Warrants	 	 	-	 	 	 	347	 	 	 	2	 	
Mitralign, Inc. (2)	 	Medical Device	 	295,238 Common Stock Warrants	 	 	-	 	 	 	49	 	 	 	43	 	
OraMetrix, Inc. (2)	 	Medical Device	 	812,348 Preferred Stock Warrants	 	 	-	 	 	 	78	 	 	 	-	 	
PixelOptics, Inc. (2)	 	Medical Device	 	381,612 Preferred Stock Warrants	 	 	-	 	 	 	96	 	 	 	35	 	
Tengion, Inc. (2)(5)	 	Medical Device	 	1,716,339 Common Stock Warrants	 	 	-	 	 	 	124	 	 	 	62	 	
ViOptix, Inc.	 	Medical Device	 	375,763 Preferred Stock Warrants	 	 	-	 	 	 	13	 	 	 	-	 	
Total Warrants - Life Science	 	 	 	 	 	 	 	 	 	 	1,829	 	 	 	1,617	 	
Warrants - Technology - 1.9% (9)	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
OpenPeak, Inc.	 	Communications	 	18,997 Preferred Stock Warrants	 	 	-	 	 	 	89	 	 	 	-	 	
Everyday Health, Inc.	 	Consumer-related Technologies	 	65,674 Preferred Stock Warrants	 	 	-	 	 	 	69	 	 	 	97	 	
SnagAJob.com, Inc.	 	Consumer-related Technologies	 	365,396 Preferred Stock Warrants	 	 	-	 	 	 	23	 	 	 	269	 	
Tagged, Inc.	 	Consumer-related Technologies	 	190,868 Preferred Stock Warrants	 	 	-	 	 	 	27	 	 	 	80	 	
Avalanche Technology, Inc. (2)	 	Semiconductors	 	201,835 Preferred Stock Warrants	 	 	-	 	 	 	45	 	 	 	46	 	
Impinj, Inc.	 	Semi-conductor	 	1 Preferred Stock Warrants	 	 	-	 	 	 	7	 	 	 	-	 	
Luxtera, Inc. (2)	 	Semiconductors	 	1,827,485 Preferred Stock Warrants	 	 	-	 	 	 	34	 	 	 	30	 	
Newport Media, Inc. (2)	 	Semiconductors	 	188,764 Preferred Stock Warrants	 	 	-	 	 	 	40	 	 	 	40	 	
Xtera Communications, Inc. (2)	 	Semiconductors	 	983,607 Preferred Stock Warrants	 	 	-	 	 	 	206	 	 	 	1	 	
 
See Notes to Consolidated Financial Statements
 
12	

 	
 
Horizon Technology Finance Corporation and Subsidiaries
 
Consolidated Schedule of Investments (Unaudited)
December 31, 2012
(In thousands)
 
 	 	 	 	 	 	Principal	 	 	Cost of	 	 	Fair	 	
Portfolio Company (1)	 	Sector	 	Type of Investment (3)(4)(7)	 	Amount	 	 	Investments (6)	 	 	Value	 	
XIOtech, Inc.	 	Data Storage	 	2,217,979 Preferred Stock Warrants	 	 	-	 	 	 	22	 	 	 	20	 	
Cartera Commerce, Inc.	 	Internet and media	 	90,909 Preferred Stock Warrants	 	 	-	 	 	 	16	 	 	 	162	 	
Grab Networks, Inc.  (2)	 	Internet and media	 	1,493,681 Preferred Stock Warrants	 	 	-	 	 	 	194	 	 	 	119	 	
Optaros, Inc. (2)	 	Internet and media	 	477,403 Preferred Stock Warrants	 	 	-	 	 	 	20	 	 	 	18	 	
SimpleTuition, Inc. (2)	 	Internet and media	 	189,573 Preferred Stock Warrants	 	 	-	 	 	 	63	 	 	 	56	 	
IntelePeer, Inc.	 	Networking	 	141,549 Preferred Stock Warrants	 	 	-	 	 	 	39	 	 	 	481	 	
Motion Computing, Inc.	 	Networking	 	260,707 Preferred Stock Warrants	 	 	-	 	 	 	7	 	 	 	293	 	
Clarabridge, Inc.	 	Software	 	104,503 Preferred Stock Warrants	 	 	-	 	 	 	28	 	 	 	17	 	
Construction Software Technologies, Inc. (2)	 	Software	 	386,415 Preferred Stock Warrants	 	 	-	 	 	 	69	 	 	 	49	 	
Courion Corporation (2)	 	Software	 	772,543 Preferred Stock Warrants	 	 	-	 	 	 	107	 	 	 	98	 	
DriveCam, Inc.	 	Software	 	71,639 Preferred Stock Warrants	 	 	-	 	 	 	19	 	 	 	120	 	
Kontera Technologies, Inc. (2)	 	Software	 	99,476 Preferred Stock Warrants	 	 	-	 	 	 	101	 	 	 	101	 	
Netuitive, Inc. (2)	 	Software	 	748,453 Preferred Stock Warrants	 	 	-	 	 	 	75	 	 	 	61	 	
Seapass Solutions, Inc. (2)	 	Software	 	202,892 Preferred Stock Warrants	 	 	-	 	 	 	113	 	 	 	105	 	
StreamBase Systems, Inc. (2)	 	Software	 	306,041 Preferred Stock Warrants	 	 	-	 	 	 	83	 	 	 	63	 	
Sys-Tech Solutions, Inc. (2)	 	Software	 	375,000 Preferred Stock Warrants	 	 	-	 	 	 	242	 	 	 	242	 	
Vidsys, Inc. (2)	 	Software	 	178,802 Preferred Stock Warrants	 	 	-	 	 	 	23	 	 	 	23	 	
Aquion Energy, Inc. (2)	 	Power Management	 	82,644 Preferred Stock Warrants	 	 	-	 	 	 	7	 	 	 	4	 	
Xtreme Power, Inc. (2)	 	Power Management	 	182,723 Preferred Stock Warrants	 	 	-	 	 	 	76	 	 	 	68	 	
Total Warrants - Technology	 	 	 	 	 	 	 	 	 	 	1,844	 	 	 	2,663	 	
Warrants - Cleantech - 0.2% (9)	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Renmatix, Inc. (2)	 	Alternative Energy	 	52,296 Preferred Stock Warrants	 	 	-	 	 	 	69	 	 	 	70	 	
Semprius, Inc. (2)	 	Alternative Energy	 	519,981 Preferred Stock Warrants	 	 	-	 	 	 	25	 	 	 	27	 	
Cereplast, Inc. (5)	 	Waste Recycling	 	365,000 Common Stock Warrants	 	 	-	 	 	 	175	 	 	 	2	 	
Enphase Energy, Inc. (5)	 	Energy Efficiency	 	161,959 Common Stock Warrants	 	 	-	 	 	 	176	 	 	 	4	 	
Satcon Technology Corporation (5)	 	Energy Efficiency	 	493,097 Common Stock Warrants	 	 	-	 	 	 	285	 	 	 	-	 	
Solarbridge Technologies, Inc. (2)	 	Energy Efficiency	 	1,761,051 Preferred Stock Warrants	 	 	-	 	 	 	125	 	 	 	112	 	
Tigo Energy, Inc. (2)	 	Energy Efficiency	 	190,901 Preferred Stock Warrants	 	 	-	 	 	 	101	 	 	 	72	 	
Total Warrants - Cleantech	 	 	 	 	 	 	 	 	 	 	956	 	 	 	287	 	
Warrants - Healthcare information and services - 0.6% (9)	 	 	 	 	 	 	 	 	 	 	 	 	
Accumetrics, Inc. (2)	 	Diagnostics	 	1,028,57 Preferred Stock Warrants	 	 	-	 	 	 	107	 	 	 	107	 	
BioScale, Inc. (2)	 	Diagnostics	 	315,618 Preferred Stock Warrants	 	 	-	 	 	 	55	 	 	 	46	 	
Precision Therapeutics, Inc.	 	Diagnostics	 	561,409 Preferred Stock Warrants	 	 	-	 	 	 	73	 	 	 	142	 	
Radisphere National Radiology Group, Inc. (2)	 	Diagnostics	 	519,943 Preferred Stock Warrants	 	 	-	 	 	 	378	 	 	 	288	 	
Recondo Technology, Inc. (2)	 	Software	 	360,645 Preferred Stock Warrants	 	 	-	 	 	 	60	 	 	 	144	 	
Patientkeeper, Inc.	 	Other Healthcare	 	396,410 Preferred Stock Warrants	 	 	-	 	 	 	269	 	 	 	31	 	
Singulex, Inc.	 	Other Healthcare	 	293,632 Preferred Stock Warrants	 	 	-	 	 	 	44	 	 	 	71	 	
Talyst, Inc.	 	Other Healthcare	 	300,360 Preferred Stock Warrants	 	 	-	 	 	 	100	 	 	 	72	 	
Total Warrants - Healthcare information and services	 	 	 	 	 	 	 	 	 	 	1,086	 	 	 	901	 	
Total Warrants	 	 	 	 	 	 	 	 	 	 	5,715	 	 	 	5,468	 	
Other Investments - 1.4% (9)	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Vette Technology, LLC	 	Data Storage	 	Royalty Agreement Due 4/18/2019	 	 	 	 	 	 	4,880	 	 	 	2,100	 	
Total Other Investments	 	 	 	 	 	 	 	 	 	 	4,880	 	 	 	2,100	 	
Equity - 0.5% (9)	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Insmed Incorporated (5)	 	Biotechnology	 	33,208 Common Stock	 	 	 	 	 	 	227	 	 	 	222	 	
Overture Networks Inc.	 	Communications	 	386,191 Preferred Stock	 	 	 	 	 	 	482	 	 	 	526	 	
Total Equity	 	 	 	 	 	 	 	 	 	 	709	 	 	 	748	 	
Total Portfolio Investment Assets - 157.7% (9)	 	 	 	 	 	 	 	 	 	$	239,385	 	 	$	228,613	 	
 
See Notes to Consolidated Financial Statements
 
13	

 	
 
Horizon Technology Finance Corporation and Subsidiaries
 
Consolidated Schedule of Investments (Unaudited)
December 31, 2012
(In thousands)
 
 	 	 	 	 	 	Principal	 	 	Cost of	 	 	Fair	 	
Portfolio Company (1)	 	Sector	 	Type of Investment (3)(4)(7)	 	Amount	 	 	Investments (6)	 	 	Value	 	
Short Term Investments - Money Market Funds - 1.8% (9)	 	 	 	 	 	 	 	 	 	 	 	 	
Blackrock Liquid Fed Funds Institutional (Fund #30)	 	 	 	 	 	$	2,197	 	 	$	2,197	 	
Fidelity Prime Money Market (Class I Fund #690)	 	 	 	 	 	 	91	 	 	 	91	 	
US Bank Money Market	 	 	 	 	 	 	272	 	 	 	272	 	
Total Short Term Investments - Money Market Funds	 	 	 	 	 	$	2,560	 	 	$	2,560	 	

 
 	(1)	All of the Company’s investments are in entities which are domiciled in the United States and/or have a principal place of business in the United States.	
 	(2)	Has been pledged as collateral under the Credit Facilities.	
 	(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 ETP 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 loan, unless otherwise indicated. For each debt investment, we have provided the current interest rate in effect as of December 31, 2012.	
 	(5)	Portfolio company is a public company.	
 	(6)	For debt investments, represents principal balance less unearned income.	
 	(7)	Preferred and common stock warrants, equity interests and other investments are non-income producing.	
 	(8)	Debt is on non-accrual status at December 31, 2012 and is, therefore, considered non-income producing.	
 	(9)	Value as a percent of net assets.	
 
See Notes to Consolidated Financial Statements
 
14	

 	
 
Horizon Technology Finance Corporation and Subsidiaries
 
Notes to Consolidated Financial Statements
(In thousands, except shares and per share data)
 
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 Investment Company Act of 1940, as amended (“1940 Act”). In addition, for tax purposes, the Company has elected to be treated as a regulated investment company (“RIC”) as defined in Subtitle A, Chapter 1, under Subchapter M of the Internal Revenue Code of 1986, as amended (the “Code”). As a RIC, the Company is not subject to federal income tax on the portion of its taxable income and capital gains the Company distributes to the stockholders. The Company primarily makes secured loans to development-stage companies in the technology, life science, healthcare information and services and cleantech industries. Substantially all of the Company’s debt investments consisting of loans are 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 (“CHF”), a Delaware limited liability company, which commenced operations in March 2008 and became the Company’s wholly owned subsidiary with the completion of the IPO.
 
Horizon Credit I LLC (“Credit I”) was formed as a Delaware limited liability company on January 23, 2008, with CHF as the sole equity member. Credit I is a special purpose bankruptcy remote entity and is a separate legal entity from the Company and CHF. There has been no activity in Credit I during the three months ended March 31, 2013.
 
Horizon Credit II LLC (“Credit II”) was formed as a Delaware limited liability company on June 28, 2011, with the Company as the 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.
 
Horizon Credit III LLC (“Credit III”) was formed as a Delaware limited liability company on May 30, 2012, with the Company as the sole equity member. Credit III is a special purpose bankruptcy remote entity and is a separate legal entity from the Company. Any assets conveyed to Credit III are not available to creditors of the Company or any other entity other than Credit III’s lenders.
 
Longview SBIC GP LLC and Longview SBIC LP (collectively, “Horizon SBIC”) were formed as a Delaware limited liability company and Delaware limited partnership, respectively on February 11, 2011. Horizon SBIC are wholly owned subsidiaries of the Company and were formed in anticipation of obtaining a license to operate a small business investment company from the U. S. Small Business Administration. There has been no activity in Horizon SBIC since its inception.
 
The Company’s investment strategy is to maximize the investment portfolio’s return by generating current income from the debt investments made and the capital appreciation from the warrants received when making such debt investments. The Company has entered into an investment management agreement (the “Investment Management Agreement”) with Horizon Technology Finance Management LLC (“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
 
Basis of Financial Statement Presentation
 
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 or 10 of Regulation S-X. 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. Certain prior period amounts have been reclassified to conform to the current period presentation. 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, 2012.
 
15	

 	
 
Horizon Technology Finance Corporation and Subsidiaries
 
Notes to Consolidated Financial Statements
(In thousands, except shares and per share data)
 
Principles of Consolidation
 
As permitted under Regulation S-X and the AICPA Audit and Accounting Guide for Investment Companies, the Company will generally not consolidate its investment in a company other than 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 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 applies fair value to substantially all of its investments 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.
 
In May 2011, the FASB issued Accounting Standards Update (ASU) 2011-04, Amendments to Achieve Common Fair Value Measurements and Disclosure Requirements in U.S. GAAP and IFRSs, (ASU 2011-04). ASU 2011-04 converges the fair value measurement guidance in U.S. GAAP and IFRSs. Some of the amendments clarify the application of existing fair value measurement requirements, while other amendments change a particular principle in existing guidance. In addition, ASU 2011-04 requires additional fair value disclosures. The Company has adopted ASU 2011-04 and included additional disclosures in Note 5.
 
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 loan and investment relationships has similar business and economic characteristics, they have been aggregated into a single lending and investment segment.
 
16	

 	
 
Horizon Technology Finance Corporation and Subsidiaries
 
Notes to Consolidated Financial Statements
(In thousands, except shares and per share data)
 
Investments
 
Investments are recorded at fair value. The Company’s board of directors (“Board”) determines the fair value of its portfolio investments. The Company has the intent to hold its loans 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 loan becomes 90 days or more past due, or if the Company otherwise does not expect to receive interest and principal repayments, the loan is placed on non-accrual status and the recognition of interest income is discontinued. Interest payments received on loans that are on non-accrual status are treated as reductions of principal until the principal is repaid. As of March 31, 2013, there were three investments on non-accrual status with an approximate cost of $11.9 million and approximate fair value of $5.3 million. As of December 31, 2012, there were three investments on non-accrual status with an approximate cost of $12.9 million and approximate fair value of $4.9 million.
 
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 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. Loan 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 loan. Fees for counterparty loan commitments with multiple loans are allocated to each loan based upon each loan’s relative fair value. When a loan is placed on non-accrual status, the amortization of the related fees and unearned income is discontinued until the loan is returned to accrual status.
 
Certain loan agreements also require the borrower to make an end-of-term payment (“ETP”), which is accrued into interest income over the life of the loan 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 all principal and interest due.
 
In connection with substantially all of the Company’s 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 also recorded as unearned loan income on the grant date. The unearned income is recognized as interest income over the contractual life of the related loan in accordance with the Company’s income recognition policy. Subsequent to loan 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 from the disposition of the warrants or stock acquired from the exercise of warrants are recognized as realized gains on investments.
 
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. Debt issuance costs are recognized as assets and are amortized as interest expense over the term of the related credit facility. The unamortized balance of debt issuance costs as of March 31, 2013 and December 31, 2012, included in other assets, was $3.5 million and $3.7 million, respectively. The accumulated amortization balances as of March 31, 2013 and December 31, 2012 was $0.7 million and $0.6 million, respectively. The amortization expense for the three months ended March 31, 2013 and 2012 was $0.2 million and $0.1 million, respectively.
 
Income Taxes
 
The Company 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, among other things, the Company is required to meet certain source of income and asset diversification requirements and timely distribute to its stockholders at least 90% of investment company taxable income, as defined by the Code, for each year. The Company, among other things, has made and intends to continue to make the requisite distributions to its stockholders, which will generally relieve the Company from U.S. federal income taxes.
 
17	

 	
 
Horizon Technology Finance Corporation and Subsidiaries
 
Notes to Consolidated Financial Statements
(In thousands, except shares and per share data)
 
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 dividend distributions into the next tax year and pay a 4% 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 dividend 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, 2013 and 2012, no amount was recorded for U.S. federal excise tax.
 
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. 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. There were no material uncertain tax positions at March 31, 2013 and December 31, 2012. The 2011, 2010 and 2009 tax years remain subject to examination by U.S. federal and state tax authorities.
 
Dividends
 
Dividends to common stockholders are recorded on the declaration date. The amount to be paid out as a dividend 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 and other distributions on behalf of its stockholders, unless a stockholder elects to receive cash. As a result, if the Board authorizes, and the Company declares, a cash dividend, then stockholders who have not “opted out” of the dividend reinvestment plan will have their cash dividends automatically reinvested in additional shares of the Company’s common stock, rather than receiving the cash dividend. The Company may use newly issued shares to implement the plan (especially if the Company’s shares are trading at a premium to net asset value), or the Company may purchase shares in the open market in connection with the obligations under the plan.
 
Transfers of Financial Assets
 
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
 
On October 28, 2010, the Company entered into the Investment Management Agreement with the Advisor, under which the Advisor manages the day-to-day operations of, and provides investment advisory services to, the Company. 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, consisting of two components, a base management fee and an incentive fee.
 
18	

 	
 
Horizon Technology Finance Corporation and Subsidiaries
 
Notes to Consolidated Financial Statements
(In thousands, except shares and per share data)
 
The base management fee under the Investment Management Agreement is calculated at an annual rate of 2.00% of the Company’s gross assets, 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 management fee payable at both March 31, 2013 and December 31, 2012 was $0.4 million. The base management fee expense was $1.2 million and $1.0 million for the three months ended March 31, 2013 and 2012, respectively.
 
The incentive fee has two parts, as follows:
 
The first part 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 operating 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 that we have not yet received in cash. The incentive fee with respect to the pre-incentive fee net 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 1.75% (which is 7.00% annualized) hurdle rate and 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 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%. The effect of this 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 a hurdle rate did not apply.
 
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 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.
 
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 aggregate 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 through the end of such year, less all previous amounts paid in respect of the capital gain incentive fee.
 
The performance based incentive fee expense was $0.7 million and $0.8 million for the three months ended March 31, 2013 and 2012, respectively. The incentive fee payable as of March 31, 2012 and December 31, 2012 was $0.7 million and $0.9 million, respectively. The entire incentive fee payable as of March 31, 2013 and December 31, 2012 represents part one of the incentive fee.
 
19	

 	
 
Horizon Technology Finance Corporation and Subsidiaries
 
Notes to Consolidated Financial Statements
(In thousands, except shares and per share data)
 
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 compliance officer and chief financial officer and their respective staffs. For both the three months ended March 31, 2013 and 2012, $0.3 million was charged to operations under the Administration Agreement.
 
Note 4.  Investments
 
Investments, all of which are with portfolio companies in the United States, consisted of the following:
 
 	 	March 31, 2013	 	 	December 31, 2012	 	
 	 	Cost	 	 	Fair Value	 	 	Cost	 	 	Fair Value	 	
Money market funds	 	$	4,119	 	 	$	4,119	 	 	$	2,560	 	 	$	2,560	 	
Non-affiliate investments	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Debt	 	$	246,653	 	 	$	238,749	 	 	$	228,081	 	 	$	220,297	 	
Warrants	 	 	5,868	 	 	 	6,048	 	 	 	5,715	 	 	 	5,468	 	
Other Investments	 	 	4,830	 	 	 	2,100	 	 	 	4,880	 	 	 	2,100	 	
Equity	 	 	782	 	 	 	884	 	 	 	709	 	 	 	748	 	
Total non-affiliate investments	 	$	258,133	 	 	$	247,781	 	 	$	239,385	 	 	$	228,613	 	
 
The following table shows the Company’s portfolio investments by industry sector:
 
 	 	March 31, 2013	 	 	December 31, 2012	 	
 	 	Cost	 	 	Fair Value	 	 	Cost	 	 	Fair Value	 	
Life Science	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Biotechnology	 	$	37,671	 	 	$	37,171	 	 	$	40,358	 	 	$	39,569	 	
Medical Device	 	 	25,457	 	 	 	24,897	 	 	 	24,296	 	 	 	23,733	 	
Technology	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Consumer-Related Technologies	 	 	119	 	 	 	443	 	 	 	118	 	 	 	445	 	
Networking	 	 	46	 	 	 	776	 	 	 	46	 	 	 	774	 	
Software	 	 	68,827	 	 	 	68,865	 	 	 	55,220	 	 	 	55,237	 	
Data Storage	 	 	4,852	 	 	 	2,120	 	 	 	4,901	 	 	 	2,121	 	
Internet and Media	 	 	10,089	 	 	 	10,151	 	 	 	10,056	 	 	 	10,118	 	
Communications	 	 	571	 	 	 	526	 	 	 	571	 	 	 	526	 	
Semiconductors	 	 	24,895	 	 	 	24,684	 	 	 	26,128	 	 	 	25,913	 	
Power Management	 	 	15,944	 	 	 	15,457	 	 	 	15,875	 	 	 	15,864	 	
Cleantech	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Energy Efficiency	 	 	18,292	 	 	 	12,120	 	 	 	18,914	 	 	 	13,138	 	
Waste Recycling	 	 	3,128	 	 	 	2,471	 	 	 	3,744	 	 	 	2,199	 	
Alternative Energy	 	 	13,699	 	 	 	13,697	 	 	 	8,680	 	 	 	8,683	 	
Healthcare Information and Services	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Diagnostics	 	 	20,568	 	 	 	20,569	 	 	 	21,952	 	 	 	21,921	 	
Other Healthcare Related Services	 	 	9,509	 	 	 	9,255	 	 	 	3,067	 	 	 	2,829	 	
Software	 	 	4,466	 	 	 	4,579	 	 	 	5,459	 	 	 	5,543	 	
Total non-affiliate investments	 	$	258,133	 	 	$	247,781	 	 	$	239,385	 	 	$	228,613	 	
 
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.
 
20	

 	
 
Horizon Technology Finance Corporation and Subsidiaries
 
Notes to Consolidated Financial Statements
(In thousands, except shares and per share data)
 
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 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 that have been engaged at the direction of the 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 a valuation policy and a consistently applied valuation process. This valuation process is conducted at the end of each fiscal quarter, with approximately 25% (based on fair value) of the Company’s valuation of portfolio companies without readily available market quotations subject to review by an independent valuation firm.
 
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.
 
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 year end rates at which similar debt investments would be made to borrowers with similar credit ratings and for the same remaining maturities. At both March 31, 2013 and December 31, 2012, the discount rates used ranged from 9% 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. 
 
21	

 	
 
Horizon Technology Finance Corporation and Subsidiaries
 
Notes to Consolidated Financial Statements
(In thousands, except shares and per share data)
 
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 guideline publicly traded companies within indices similar in nature to the underlying company issuing the warrant. A total of seven such indices were used. Significant increases (decreases) in this unobservable input would result in a significantly higher (lower) fair value investment.	
 
 	•	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. Significant increases (decreases) in this unobservable input would result in significantly lower (higher) fair value measurement.	
 
 	•	Historical portfolio experience on cancellations and exercises of 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.
 
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 with 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 with the fair value hierarchy described above. These assets are recorded at fair value on a recurring basis.
 
Other Investments: Other investments will be valued based on the facts and circumstances of the underlying agreement. The Company currently values one contractual agreement 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 this other investment as Level 3 within the fair value hierarchy described above. These assets are recorded at fair value on a recurring basis.
 
22	

 	
 
Horizon Technology Finance Corporation and Subsidiaries
 
Notes to Consolidated Financial Statements
(In thousands, except shares and per share data)
 
The following tables provide a summary of quantitative information about the Company’s Level 3 fair value measurements of investments as of March 31, 2013 and December 31, 2012. 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 fair value measurements. The tables below are not intended to be all-inclusive, but rather provide information on the significant Level 3 inputs as they relate to the Company’s fair value measurements:
 
March 31, 2013	
 	 	Fair	 	 	Valuation Techniques/	 	Unobservable	 	 	 	
Investment Type	 	Value	 	 	Methodologies	 	Input	 	Range	 	
Debt investments	 	$	238,749	 	 	Discounted Expected Future Cash Flows	 	Hypothetical Market Yield	 	 	9% - 25	%	
 	 	 	 	 	 	Multiple Probability Weighted Cash	 	Discount Rate	 	 	25	%	
 	 	 	 	 	 	Flow Model	 	Probability Weighting	 	 	10% - 60	%	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Warrant investments	 	 	5,378	 	 	Black-Scholes Valuation Model	 	Price per share	 	 	$0.0 - 45.84	 	
 	 	 	 	 	 	 	 	Average Industry Volatility	 	 	21	%	
 	 	 	 	 	 	 	 	Marketability Discount	 	 	20	%	
 	 	 	 	 	 	 	 	Estimated Time to Exit	 	 	1 to 10 years	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Other investments	 	 	2,100	 	 	Multiple Probability Weighted Cash	 	Discount Rate	 	 	25	%	
 	 	 	 	 	 	Flow Model	 	Probability Weighting	 	 	10% - 45	%	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Equity investments	 	 	635	 	 	Market Comparable Companies	 	Revenue Multiple	 	 	1.5x - 2.0x	 	
Total Level 3 investments	 	$	246,862	 	 	 	 	 	 	 	 	 	
 
December 31, 2012	
 	 	Fair	 	 	Valuation Techniques/	 	Unobservable	 	 	 	
Investment Type	 	Value	 	 	Methodologies	 	Input	 	Range	 	
Debt investments	 	$	220,297	 	 	Discounted Expected Future Cash Flows	 	Hypothetical Market Yield	 	 	8% - 25	%	
 	 	 	 	 	 	Multiple Probability Weighted Cash	 	Discount Rate	 	 	25	%	
 	 	 	 	 	 	Flow Model	 	Probability Weighting	 	 	10% - 60	%	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Warrant investments	 	 	4,914	 	 	Black-Scholes Valuation Model	 	Price per share	 	 	$0.0 - 9.56	 	
 	 	 	 	 	 	 	 	Average Industry Volatility	 	 	21	%	
 	 	 	 	 	 	 	 	Marketability Discount	 	 	20	%	
 	 	 	 	 	 	 	 	Estimated Time to Exit	 	 	1 to 10 years	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Other investments	 	 	2,100	 	 	Multiple Probability Weighted Cash	 	Discount Rate	 	 	25	%	
 	 	 	 	 	 	Flow Model	 	Probability Weighting	 	 	10% - 45	%	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Equity investments	 	 	526	 	 	Market Comparable Companies	 	Revenue Multiple	 	 	1.5x - 2.0x	 	
Total Level 3 investments	 	$	227,837	 	 	 	 	 	 	 	 	 	
 
Borrowings:  The carrying amount of borrowings under the Credit Facilities approximates fair value due to the variable interest rate of the Credit Facilities and are 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 Senior Notes (See Note 6) is based on the closing public share price on the date of measurement. At March 31, 2013, the Senior Notes were trading on the New York Stock Exchange for $26.00 per note, or $34.3 million. Therefore, the Company has categorized this borrowing as Level 1 within the fair value hierarchy described above. These liabilities are not recorded at fair value on a recurring basis.
 
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.
 
23	

 	
 
Horizon Technology Finance Corporation and Subsidiaries
 
Notes to Consolidated Financial Statements
(In thousands, except shares and per share data)
 
The following tables detail the assets and liabilities that are carried at fair value and measured at fair value on a recurring basis as of March 31, 2013 and December 31, 2012 and indicate the fair value hierarchy of the valuation techniques utilized by the Company to determine the fair value:
 
 	 	March 31, 2013	 	
 	 	Total	 	 	Level 1	 	 	Level 2	 	 	Level 3	 	
Money market funds	 	$	4,119	 	 	$	-	 	 	$	4,119	 	 	$	-	 	
Debt investments	 	$	238,749	 	 	$	-	 	 	$	-	 	 	$	238,749	 	
Warrant investments	 	$	6,048	 	 	$	-	 	 	$	670	 	 	$	5,378	 	
Other investments	 	$	2,100	 	 	$	-	 	 	$	-	 	 	$	2,100	 	
Equity investments	 	$	884	 	 	$	249	 	 	$	-	 	 	$	635	 	
 
 	 	December 31, 2012	 	
 	 	Total	 	 	Level 1	 	 	Level 2	 	 	Level 3	 	
Money market funds	 	$	2,560	 	 	$	-	 	 	$	2,560	 	 	$	-	 	
Debt investments	 	$	220,297	 	 	$	-	 	 	$	-	 	 	$	220,297	 	
Warrant investments	 	$	5,468	 	 	$	-	 	 	$	554	 	 	$	4,914	 	
Other investments	 	$	2,100	 	 	$	-	 	 	$	-	 	 	$	2,100	 	
Equity investments	 	$	748	 	 	$	222	 	 	$	-	 	 	$	526	 	
 
The following tables show a reconciliation of the beginning and ending balances for Level 3 assets:
 
 	 	Three Months Ended March 31, 2013	 	
 	 	Debt
Investments	 	 	Warrant
Investments	 	 	Equity
Investments	 	 	Other
Investments	 	 	Total	 	
Level 3 assets, beginning of period	 	$	220,297	 	 	$	4,914	 	 	$	526	 	 	$	2,100	 	 	$	227,837	 	
Purchase of investments	 	 	28,500	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	28,500	 	
Warrants and equity received and classified as Level 3	 	 	-	 	 	 	172	 	 	 	-	 	 	 	-	 	 	 	172	 	
Principal payments received on investments	 	 	(9,962	)	 	 	-	 	 	 	-	 	 	 	-	 	 	 	(9,962	)	
Unrealized (depreciation) appreciation included in earnings	 	 	(70	)	 	 	292	 	 	 	36	 	 	 	-	 	 	 	258	 	
Transfer from debt to equity investments	 	 	(73	)	 	 	-	 	 	 	73	 	 	 	-	 	 	 	-	 	
Other	 	 	57	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	57	 	
Level 3 assets, end of period	 	$	238,749	 	 	$	5,378	 	 	$	635	 	 	$	2,100	 	 	$	246,862	 	
 
The Company’s transfers between levels are recognized at the end of the reporting period. During the three months ended March 31, 2013, there were no transfers between levels.
 
24	

 	
 
Horizon Technology Finance Corporation and Subsidiaries
 
Notes to Consolidated Financial Statements
(In thousands, except shares and per share data)
 
 	 	Three Months Ended March 31, 2012	 	
 	 	Debt
Investments	 	 	Warrant
Investments	 	 	Equity
Investments	 	 	Total	 	
Level 3 assets, beginning of period	 	$	173,286	 	 	$	4,048	 	 	$	526	 	 	$	177,860	 	
Purchase of investments	 	 	12,961	 	 	 	-	 	 	 	-	 	 	 	12,961	 	
Warrants and equity received and classified as Level 3	 	 	-	 	 	 	180	 	 	 	-	 	 	 	180	 	
Principal payments received on investments	 	 	(23,325	)	 	 	-	 	 	 	-	 	 	 	(23,325	)	
Unrealized (depreciation) appreciation included in earnings	 	 	(1,186	)	 	 	102	 	 	 	-	 	 	 	(1,084	)	
Transfer out of Level 3	 	 	-	 	 	 	(111	)	 	 	-	 	 	 	(111	)	
Other	 	 	273	 	 	 	-	 	 	 	-	 	 	 	273	 	
Level 3 assets, end of period	 	$	162,009	 	 	$	4,219	 	 	$	526	 	 	$	166,754	 	
 
During the three months ended March 31, 2012, there were no transfers between Level 1 and Level 2. The transfer out of Level 3 relates to warrants held in one portfolio company, with a value of $0.1 million, that were transferred into Level 2 due to the portfolio company becoming a public company during the three months ended March 31, 2012. Because the fair value of the portfolio company’s warrants held are determined based on inputs that are readily available in public markets or can be derived from information available in public markets, the Company has categorized the warrants as Level 2 within the fair value hierarchy described above as of March 31, 2012.
 
The change in unrealized appreciation included in the consolidated statement of operations attributable to Level 3 investments still held at March 31, 2013 includes $0.1 million unrealized depreciation on loans, $0.3 million unrealized appreciation on warrants and $0.04 million unrealized appreciation on equity.
 
The Company discloses fair value information about financial instruments, whether or not recognized in the 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 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, 2013 and December 31, 2012, the recorded book balances equaled fair values of all the Company’s financial instruments, except for the Company’s Senior 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 loans and by investing in securities with terms that mitigate the Company’s overall interest rate risk.
 
25	

 	
 
Horizon Technology Finance Corporation and Subsidiaries
 
Notes to Consolidated Financial Statements
(In thousands, except shares and per share data)
 
Note 6.  Borrowings
 
A summary of the Company’s borrowings as of March 31, 2013 and December 31, 2012 is as follows:
 
 	 	March 31, 2013	 	
 	 	Total
Commitment	 	 	Balance
Outstanding	 	 	Unused
Commitment	 	
Wells Facility		 	$	75,000	 	 	$	67,037	 	 	$	7,963	 	
Fortress Facility		 	 	75,000	 	 	 	10,000	 	 	 	65,000	 	
Senior Notes		 	 	33,000	 	 	 	33,000	 	 	 	-	 	
Total		 	$	183,000	 	 	$	110,037	 	 	$	72,963	 	
 
 	 	December 31, 2012	 	
 	 	Total
Commitment	 	 	Balance
Outstanding	 	 	Unused
Commitment	 	
Wells Facility		 	$	75,000	 	 	$	46,020	 	 	$	28,980	 	
Fortress Facility		 	 	75,000	 	 	 	10,000	 	 	 	65,000	 	
Senior Notes		 	 	33,000	 	 	 	33,000	 	 	 	-	 	
Total		 	$	183,000	 	 	$	89,020	 	 	$	93,980	 	
 
In accordance with the 1940 Act, with certain limited exceptions, the Company is only allowed to borrow amounts such that the asset coverage, as defined in the 1940 Act, is at least 200% after such borrowings. As of March 31, 2013, the asset coverage for borrowed amounts was 225%.
 
The Company entered into a revolving credit facility (the “Wells Facility”) with Wells Fargo Capital Finance, LLC (“Wells”) effective July 14, 2011. The Wells Facility has an accordion feature which allows for an increase in the total loan commitment to $150 million from the current $75 million commitment provided by Wells. The Wells Facility is collateralized by all loans and warrants held by Credit II and permits an advance rate of up to 50% of eligible loans held by Credit II. The Wells Facility contains covenants that, among other things, require the Company to maintain a minimum net worth and to restrict the loans securing the Wells Facility to certain criteria for qualified loans and includes portfolio company concentration limits as defined in the related loan agreement. The Wells Facility has a three-year revolving term followed by a three-year amortization period and matures on July 14, 2017. The interest rate is based upon the one-month LIBOR plus a spread of 4.00%, with a LIBOR floor of 1.00%. The rate at both March 31, 2013 and December 31, 2012 was 5.0%, and the average rate for the three months ended March 31, 2013 and 2012 was 5.0%. The average amounts of borrowings were approximately $49.7 million and $17.0 million for the three months ended March 31, 2013 and 2012, respectively.
 
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 “Senior Notes”). The Senior 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 on or after March 15, 2015 at a redemption price of $25 per security plus accrued and unpaid interest. The Senior 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 Senior Notes are the Company’s direct unsecured obligations and rank (i) pari passu with the Company’s future senior unsecured indebtedness; (ii) senior to any of the Company’s future indebtedness that expressly provides it is subordinated to the Senior Notes; (iii) effectively subordinated to all of the Company’s 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 (iv) structurally subordinated to all existing and future indebtedness and other obligations of any of the Company’s subsidiaries. As of March 31, 2013, the Company was in material compliance with the terms of the Senior Notes. The Senior Notes are listed on the New York Stock Exchange under the symbol “HTF.”
 
26	

 	
 
Horizon Technology Finance Corporation and Subsidiaries
 
Notes to Consolidated Financial Statements
(In thousands, except shares and per share data)
 
The Company entered into a term loan credit facility (the “Fortress Facility”) with Fortress Credit Co LLC (“Fortress”) effective August 23, 2012. The Fortress Facility is collateralized by all loans and warrants held by Credit III. The Fortress Facility contains covenants that, among other things, require the Company to maintain a minimum net worth and to restrict the loans securing the Fortress Facility to certain criteria for qualified loans and includes portfolio company concentration limits as defined in the related loan agreement. The Fortress Facility, among other things, has a three-year term subject to two one-year extensions with a draw period of up to four years. The Fortress Facility requires the payment of an unused line fee of 1.00% annually beginning October 1, 2012 and has an effective advance rate of approximately 66% against eligible loans. The Fortress Facility generally bears interest based upon the one-month LIBOR plus a spread of 6.00%, with a LIBOR floor of 1.00%. The rate at both March 31, 2013 and December 31, 2012 was 7.00%, and the average rate for the three months ended March 31, 2013 was 7.00%. The average amount of borrowings was approximately $10.0 million for the three months ended March 31, 2013.
 
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 approximately $12.6 million and $24.6 million as of March 31, 2013 and December 31, 2012, 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. Commitments may also include a financial or non-financial milestone that has to be achieved before the commitment can be drawn. 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.
 
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 largest loans may vary from year to year as new loans are recorded and repaid. The Company’s five largest loans represented approximately 21% and 23% of total loans outstanding as of March 31, 2013 and December 31, 2012, respectively. No single loan represents more than 10% of the total loans as of March 31, 2013 and December 31, 2012. Loan income, consisting of interest and fees, can fluctuate significantly upon repayment of large loans. Interest income from the five largest loans accounted for approximately 23% and 29% of total interest income and fee income on investments for the three months ended March 31, 2013 and 2012, respectively.
 
27	

 	
 
Horizon Technology Finance Corporation and Subsidiaries
 
Notes to Consolidated Financial Statements
(In thousands, except shares and per share data)
 
Note 9. Dividends and Distributions
 
The Company’s dividends and distributions are recorded on the record date. The following table summarizes the Company’s dividend declaration and distribution activity since inception:
 
Date 
Declared	 	Record
Date	 	Payment
Date	 	Amount
Per Share	 	 	Cash
Distribution	 	 	DRIP
Shares
Issued	 	 	DRIP
Share
Value	 	
Three Months Ended March 31, 2013	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
3/8/13	 	5/20/13	 	6/16/13	 	$	0.115	 	 	$	-	 	 	 	-	 	 	$	-	 	
3/8/13	 	4/18/13	 	5/15/13	 	$	0.115	 	 	$	-	 	 	 	-	 	 	$	-	 	
3/8/13	 	3/20/13	 	4/15/13	 	$	0.115	 	 	$	1,046	 	 	 	3,867	 	 	$	55	 	
 	 	 	 	 	 	$	0.345	 	 	$	1,046	 	 	 	3,867	 	 	$	55	 	
Year Ended December 31, 2012	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
11/27/12	 	2/21/13	 	3/15/13	 	$	0.115	 	 	$	1,050	 	 	 	3,392	 	 	$	50	 	
11/27/12	 	1/18/13	 	2/15/13	 	$	0.115	 	 	$	1,087	 	 	 	898	 	 	$	14	 	
11/27/12	 	12/20/12	 	1/15/13	 	$	0.115	 	 	$	1,056	 	 	 	2,930	 	 	$	44	 	
11/2/12	 	11/16/12	 	11/30/12	 	$	0.450	 	 	$	4,243	 	 	 	4,269	 	 	$	61	 	
8/7/12	 	8/17/12	 	8/31/12	 	$	0.450	 	 	$	4,105	 	 	 	11,608	 	 	$	193	 	
5/3/12	 	5/17/12	 	5/31/12	 	$	0.450	 	 	$	3,402	 	 	 	2,299	 	 	$	37	 	
3/12/12	 	3/23/12	 	3/30/12	 	$	0.450	 	 	$	3,378	 	 	 	3,517	 	 	$	58	 	
 	 	 	 	 	 	$	2.145	 	 	$	18,321	 	 	 	28,913	 	 	$	457	 	
Year Ended December 31, 2011	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
11/8/11	 	11/23/11	 	11/30/11	 	$	0.450	 	 	$	3,281	 	 	 	9,814	 	 	$	151	 	
8/9/11	 	8/23/11	 	8/30/11	 	$	0.400	 	 	$	2,836	 	 	 	13,193	 	 	$	209	 	
5/10/11	 	5/19/11	 	5/26/11	 	$	0.330	 	 	$	2,190	 	 	 	20,104	 	 	$	316	 	
 	 	 	 	 	 	$	1.180	 	 	$	8,307	 	 	 	43,111	 	 	$	676	 	
Year Ended December 31, 2010	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
12/15/10	 	12/28/10	 	12/31/10	 	$	0.220	 	 	$	1,097	 	 	 	38,297	 	 	$	565	 	
 
On May 3, 2013, the Board declared monthly dividends payable as set forth in the table below.
 
Record Dates	 	Payment Date	 	Dividends
Declared	 	
August 19, 2013	 	September 16, 2013	 	$	0.115	 	
July 17, 2013	 	August 15, 2013	 	$	0.115	 	
June 20, 2013	 	July 15, 2013	 	$	0.115	 	
 
28	

 	
 
Horizon Technology Finance Corporation and Subsidiaries
 
Notes to Consolidated Financial Statements
(In thousands, except shares and per share data)
 
Note 10.  Financial Highlights
 
The financial highlights for the Company are as follows:
 
 	 	Three Months
Ended
March 31, 2013	 	 	Three Months
Ended
March 31, 2012	 	
 	 	 	 	 	 	 	
Per share data:	 	 	 	 	 	 	 	 	
Net asset value at beginning of period	 	$	15.15	 	 	$	17.01	 	
Net investment income	 	 	0.29	 	 	 	0.44	 	
Realized loss on investments	 	 	(0.02	)	 	 	-	 	
Unrealized appreciation (depreciation) on investments	 	 	0.04	 	 	 	(0.11	)	
Net increase in net assets resulting from operations	 	 	0.31	 	 	 	0.33	 	
Dividends declared	 	 	(0.35	)	 	 	(0.45	)	
Issuance of common stock under dividend reinvestment plan	 	 	0.01	 	 	 	-	 	
Net asset value at end of period	 	$	15.12	 	 	$	16.89	 	
Per share market value, end of period	 	$	14.61	 	 	$	16.61	 	
Total return based on a market value	 	 	0.2	%(1)	 	 	4.5	%(1)	
Shares outstanding at end of period	 	 	9,574,445	 	 	 	7,640,049	 	
Ratios to average net assets:	 	 	 	 	 	 	 	 	
Expenses without incentive fees	 	 	10.8	%(2)	 	 	7.5	%(2)	
Incentive fees	 	 	1.9	%(2)	 	 	2.6	%(2)	
Total expenses	 	 	12.7	%(2)	 	 	10.1	%(2)	
Net investment income with incentive fees	 	 	9.6	%(2)	 	 	10.4	%(2)	
Average net asset value	 	$	144,866	 	 	$	129,465	 	
Average debt per share	 	 	9.68	 	 	 	8.57	 	
Portfolio turnover ratio	 	 	12.38	%	 	 	7.55	%	
____________
 
(1)	The total return for the three months ended March 31, 2013 and 2012, equals the change in the ending market value over the beginning of period price per share plus dividends paid per share during the period, divided by the beginning price.	
(2)	Annualized.	
 
29	

 	
 
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. Amounts are stated in thousands, except shares and per share data and where otherwise noted.
 
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 loans 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 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;	
 
 	•	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;	
 
 	•	our ability to cause a subsidiary to become a licensed Small Business Investment Company (“SBIC”);	
 
 	•	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 set forth as “Risk Factors” in our annual report on Form 10-K, or Form 10-K, and elsewhere in this quarterly report on Form 10-Q.
 
30	

 	
 
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, reports on Form 10-Q and current reports on Form 8-K and Form 10-K.
 
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 generate current income from the loans we make and capital appreciation from the warrants we receive when making such loans. We make secured loans, which we refer to as “Venture Loans,” to companies backed by established venture capital and private equity firms in our Target Industries, which we refer to as “Venture Lending.” We also selectively lend to publicly traded companies in our Target Industries.
 
We are an externally managed, closed-end, non-diversified management investment company that has elected to be regulated as a business development company, or 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 regulated investment company, or 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.
 
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 are managed by the Advisor and supervised by our board of directors, or the Board, of which a majority of the members are independent of us. Under an investment management agreement, or the Investment Management Agreement, we have agreed to pay the 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 the Advisor under which 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.
 
Portfolio Composition and Investment Activity
 
The following table shows our portfolio by asset class as of March 31, 2013 and December 31, 2012:
 
 	 	March 31, 2013	 	 	December 31, 2012	 	
 	 	# of
Investments	 	 	Fair
Value	 	 	Percentage
of Total
Portfolio	 	 	# of
Investments	 	 	Fair
Value	 	 	Percentage
of Total
Portfolio	 	
Term loans	 	 	46	 	 	$	221,262	 	 	 	89.3	%	 	 	41	 	 	$	200,685	 	 	 	87.8	%	
Revolving loans	 	 	3	 	 	 	17,487	 	 	 	7.1	%	 	 	4	 	 	 	19,612	 	 	 	8.6	%	
Total loans	 	 	49	 	 	 	238,749	 	 	 	96.4	%	 	 	45	 	 	 	220,297	 	 	 	96.4	%	
Warrants	 	 	66	 	 	 	6,048	 	 	 	2.4	%	 	 	62	 	 	 	5,468	 	 	 	2.4	%	
Other investments	 	 	1	 	 	 	2,100	 	 	 	0.8	%	 	 	1	 	 	 	2,100	 	 	 	0.9	%	
Equity	 	 	3	 	 	 	884	 	 	 	0.4	%	 	 	2	 	 	 	748	 	 	 	0.3	%	
Total	 	 	 	 	 	$	247,781	 	 	 	100.0	%	 	 	 	 	 	$	228,613	 	 	 	100.0	%	
 
31	

 	
 
Total portfolio investment activity as of and for the three months ended March 31, 2013 and 2012 was as follows:
 
 	 	For the three months Ended
March 31,	 	
 	 	2013	 	 	2012	 	
Beginning portfolio	 	$	228,613	 	 	$	178,013	 	
New loan funding	 	 	28,500	 	 	 	31,700	 	
Less refinanced balances and participation	 	 	-	 	 	 	(18,739	)	
Net new loan funding	 	 	28,500	 	 	 	12,961	 	
Principal payments received on investments	 	 	(9,962	)	 	 	(9,120	)	
Early pay-offs	 	 	-	 	 	 	(14,205	)	
Accretion of loan fees	 	 	548	 	 	 	642	 	
New loan fees	 	 	(320	)	 	 	(182	)	
New equity	 	 	73	 	 	 	-	 	
Net realized loss on investments	 	 	(18	)	 	 	-	 	
Net appreciation (depreciation) on investments	 	 	420	 	 	 	(813	)	
Other	 	 	(73	)	 	 	-	 	
Ending Portfolio	 	$	247,781	 	 	$	167,296	 	
 
We receive payments in our loan portfolio based on scheduled amortization of the outstanding balances. In addition, we receive repayments of some of our loans 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 loan portfolio by industry sector as of March 31, 2013 and December 31, 2012:
 
 	 	March 31, 2013	 	 	December 31, 2012	 	
 	 	Loans at
Fair
Value	 	 	Percentage
of Total
Portfolio	 	 	Loans at
Fair
Value	 	 	Percentage
of Total
Portfolio	 	
Life Science	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Biotechnology	 	$	35,319	 	 	 	14.8	%	 	$	38,018	 	 	 	17.3	%	
Medical Device	 	 	24,606	 	 	 	10.3	%	 	 	23,446	 	 	 	10.6	%	
Technology	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Software	 	 	67,860	 	 	 	28.4	%	 	 	54,358	 	 	 	24.7	%	
Internet and Media	 	 	9,796	 	 	 	4.1	%	 	 	9,763	 	 	 	4.4	%	
Semiconductors	 	 	24,563	 	 	 	10.3	%	 	 	25,795	 	 	 	11.7	%	
Power Management	 	 	15,329	 	 	 	6.4	%	 	 	15,792	 	 	 	7.2	%	
Cleantech	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Energy Efficiency	 	 	11,812	 	 	 	5.0	%	 	 	12,950	 	 	 	5.9	%	
Waste Recycling	 	 	2,469	 	 	 	1.0	%	 	 	2,197	 	 	 	1.0	%	
Alternative Energy	 	 	13,604	 	 	 	5.7	%	 	 	8,586	 	 	 	3.9	%	
Healthcare Information and Services	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Diagnostics	 	 	19,955	 	 	 	8.4	%	 	 	21,340	 	 	 	9.7	%	
Other Healthcare Related Services	 	 	9,030	 	 	 	3.8	%	 	 	2,655	 	 	 	1.2	%	
Software	 	 	4,406	 	 	 	1.8	%	 	 	5,397	 	 	 	2.4	%	
Total	 	$	238,749	 	 	 	100.0	%	 	$	220,297	 	 	 	100.0	%	
 
The largest loans may vary from year to year as new loans are recorded and repaid. Our five largest loans represented approximately 21% and 23% of total loans outstanding as of March 31, 2013 and December 31, 2012, respectively. No single loan represented more than 10% of our total loans as of March 31, 2013 and December 31, 2012.
 
32	

 	
 
Loan Portfolio Asset Quality
 
We use a credit rating system which rates each loan 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 loan, there is potential for future loss of principal. A rating of 1 represents a deteriorating credit quality and increased risk. The following table shows the classification of our loan portfolio by credit rating as of March 31, 2013 and December 31, 2012:
 
 	 	March 31, 2013	 	 	December 31, 2012	 	
 	 	Loans at
Fair
Value	 	 	Percentage
of Loan
Portfolio	 	 	Loans at
Fair
Value	 	 	Percentage
of Loan
Portfolio	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Credit Rating	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
4	 	$	33,696	 	 	 	14.1	%	 	$	30,818	 	 	 	14.0	%	
3	 	 	180,859	 	 	 	75.8	%	 	 	181,019	 	 	 	82.2	%	
2	 	 	18,914	 	 	 	7.9	%	 	 	3,560	 	 	 	1.6	%	
1	 	 	5,280	 	 	 	2.2	%	 	 	4,900	 	 	 	2.2	%	
Total	 	$	238,749	 	 	 	100.0	%	 	$	220,297	 	 	 	100.0	%	
 
As of March 31, 2013 and December 31, 2012, our loan portfolio had a weighted average credit rating of 3.1 and 3.2, respectively. As of March 31, 2013, there were four investments with a credit rating of 2. As of December 31, 2012, there was one investment with a credit rating of 2. As of both March 31, 2013 and December 31, 2012, there were three investments with a credit rating of 1, all of which were on non-accrual status.
 
Consolidated Results of Operations
 
As a BDC and a RIC for U.S. federal income tax purposes, we are also subject to certain constraints on our operations, including limitations imposed by the 1940 Act and the Code. Also, the management fee that we pay to our Advisor under the Investment Management Agreement is determined by reference to a formula that differs materially from the management fee paid by Compass Horizon in prior periods. For these and other reasons, the results of operations described below may not be indicative of the results we report in future periods.
 
Consolidated operating results for the three months ended March 31, 2013 and 2012 are as follows:
 
 	 	For the three Months Ended	 	
 	 	March 31,	 	
 	 	2013	 	 	2012	 	
Total investment income	 	$	7,368	 	 	$	6,625	 	
Total expenses	 	 	4,595	 	 	 	3,273	 	
Net investment income	 	 	2,773	 	 	 	3,352	 	
Net realized loss on investments	 	 	(210	)	 	 	-	 	
Net unrealized appreciation (depreciation) on investments	 	 	420	 	 	 	(813	)	
Net increase in net assets resulting from operations	 	$	2,983	 	 	$	2,539	 	
Average investments, at fair value	 	$	230,291	 	 	$	171,592	 	
Average debt outstanding	 	$	92,665	 	 	$	65,469	 	
 
Net increase in net asset 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. As a result, quarterly comparisons of net income may not be meaningful.
 
Investment Income
 
Investment income increased by $0.7 million, or 11.2%, for the three months ended March 31, 2013 as compared to the three months ended March 31, 2012. For the three months ended March 31, 2013, total investment income consisted primarily of $7.3 million in interest income from investments, which included $1.2 million in income from the accretion of origination fees and ETPs. Interest income on investments and other investment income increased primarily due to the increased average size of the loan portfolio offset by lower fee income, as we had no prepayments in the quarter.
 
33	

 	
 
For the three months ended March 31, 2012, total investment income consisted primarily of $5.9 million in interest income from investments, which included $1.1 million in income from the accretion of origination fees and ETPs. Fee income of $0.7 million was primarily earned from prepayment fees collected from our portfolio companies as we experienced early payoffs and refinances of approximately $27.6 million.
 
For the three months ended March 31, 2013 and 2012, our dollar-weighted average annualized yield on average debt investments was approximately 12.8% and 15.4%, respectively. 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.
 
Investment income, consisting of interest income and fees on loans, can fluctuate significantly upon repayment of large loans. Interest income from the five largest loans accounted for approximately 23% and 29% of investment income for the three months ended March 31, 2013, and 2012, respectively.
 
As of March 31, 2013 and December 31, 2012, interest receivable was $3.5 million and $2.8 million, respectively, which represents accreted ETPs and one month of accrued interest income on substantially all of our loans.
 
Expenses
 
Total expenses increased by $1.3 million, or 40.4%, to $4.6 million for the three months ended March 31, 2013 as compared to the three months ended March 31, 2012. Total operating expenses for each period consisted principally of management fees, incentive and administrative fees, interest expense and, to a lesser degree, professional fees and general and administrative expenses.
 
Interest expense the for three months ended March 31, 2013, which includes the amortization of debt issuance costs, increased primarily due to an increase in our average debt outstanding, as well as an increase borrowing cost associated with our Fortress Facility and our Senior Notes.
 
Management fee expense for the three months ended March 31, 2013 increased compared to the three months ended March 31, 2012 as a result of an increase in average gross assets.
 
Performance based incentive fees for the three months ended March 31, 2013 decreased compared to the three months ended March 31, 2012 due to lower pre-incentive fee net investment income in the three months ended March 31, 2013. The incentive fees for the three months ended March 31, 2013 and 2012 were approximately $0.7 million and $0.8 million, respectively, and consisted entirely of incentive fees payable on pre-incentive fee net investment income.
 
Administrative fee expense for the three months ended March 31, 2013 remained flat compared to the three months ended March 31, 2012.
 
Professional fees and general and administrative expenses primarily include legal and audit fees and insurance premiums. These expenses for the three months ended March 31, 2013 remained flat compared to the three months ended March 31, 2012.
 
Net Realized Gains 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 and includes 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, 2013, we recognized realized losses totaling approximately $0.2 million primarily in connection with the disposal of a portfolio company’s warrants. During the three months ended March 31, 2012, no realized gains were recognized.
 
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During the three months ended March 31, 2013, net unrealized appreciation on investments totaled approximately $0.4 million which was primarily due to the change in fair values of our investment portfolio during the period. During the three months ended March 31, 2012, net unrealized depreciation on investments totaled approximately $0.8 million which was primarily due to $1.2 million of net unrealized depreciation on six debt investments partially offset by unrealized appreciation on our warrant and equity investments.
 
Liquidity and Capital Resources
 
As of March 31, 2013 and December 31, 2012, we had cash and investments in money market funds of $4.6 million and $3.6 million, respectively. These amounts are available to fund new investments, reduce borrowings under a revolving credit facility with Wells Fargo Capital Finance, LLC, or the Wells Facility, and a term loan credit facility with Fortress Credit Co LLC, or the Fortress Facility, pay operating expenses and pay dividends. In this quarterly report on Form 10-Q, we refer to the Wells Facility and the Fortress Facility, collectively, as the “Credit Facilities.” Our primary sources of capital have been from our private and public common stock offerings, use of our Credit Facilities and issuance of our 7.375% senior unsecured notes due in 2019, or the Senior Notes.
 
As of March 31, 2013, the outstanding principal balance under the Wells Facility was $67.0 million. As of March 31, 2013, we had available borrowing capacity of approximately $8.0 million under our Wells Facility, subject to existing terms and advance rates.
 
As of March 31, 2013, the outstanding principal balance under the Fortress Facility was $10.0 million. As of March 31, 2013, we had available borrowing capacity of approximately $65.0 million under our Fortress Facility, subject to existing terms and advance rates.
 
Our operating activities used cash of $18.4 million for the three months ended March 31, 2013, and our financing activities provided cash of $17.8 million for the same period. Our operating activities used cash primarily for investing in portfolio companies, net of principal payments received. Our financing activities provided cash primarily from advances on our Wells Facility offset by our dividends paid in the first quarter.
 
Our operating activities provided cash of $3.2 million for the three months ended March 31, 2012 and our financing activities provided cash of $1.2 million for the same period. Our operating activities provided cash primarily from normal amortization and prepayments of our debt investments. Our financing activity provided cash primarily from our issuance of our Senior Notes offset by payments made on our Credit Facilities and our dividends paid in the first quarter.
 
Our primary use of available funds is to make 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 through future equity offerings, issuances of senior securities and/or future borrowings, to the extent permitted by the 1940 Act.
 
In order to satisfy the Code requirements applicable to a RIC, we distribute to our stockholders all or substantially all of our income except for certain net capital gains. In addition, as a BDC, we are required to meet a coverage ratio of 200%. This requirement limits the amount that we may borrow.
 
We believe that our current cash and investments in money market funds, cash generated from operations, and funds available from our Credit Facilities will be sufficient to meet our working capital and capital expenditure commitments for at least the next 12 months.
 
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Current Borrowings
 
A summary of our borrowings as of March 31, 2013 and December 31, 2012 is as follows:
 
 	 	March 31, 2013	 	
 	 	Total
Commitment	 	 	Balance
Outstanding	 	 	Unused
Commitment	 	
Wells Facility	 	$	75,000	 	 	$	67,037	 	 	$	7,963	 	
Fortress Facility	 	 	75,000	 	 	 	10,000	 	 	 	65,000	 	
Senior Notes	 	 	33,000	 	 	 	33,000	 	 	 	-	 	
Total	 	$	183,000	 	 	$	110,037	 	 	$	72,963	 	
 
 	 	December 31, 2012	 	
 	 	Total
Commitment	 	 	Balance
Outstanding	 	 	Unused
Commitment	 	
Wells Facility	 	$	75,000	 	 	$	46,020	 	 	$	28,980	 	
Fortress Facility	 	 	75,000	 	 	 	10,000	 	 	 	65,000	 	
Senior Notes	 	 	33,000	 	 	 	33,000	 	 	 	-	 	
Total	 	$	183,000	 	 	$	89,020	 	 	$	93,980	 	
 
We, through our wholly owned subsidiary, Horizon Credit II LLC, or Credit II, entered into the Wells Facility on July 14, 2011. The interest rate is based upon the one-month LIBOR plus a spread of 4.00%, with a LIBOR floor of 1.00%. The interest rate was 5.00% as of March 31, 2013 and December 31, 2012.
 
We may request advances under the Wells Facility through July 14, 2014, or the Revolving Period. After the Revolving Period, we may not request new advances, and we must repay the outstanding advances under the Wells 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 Wells Facility, particularly the condition that the principal balance of the Wells Facility does not exceed fifty percent (50%) of the aggregate principal balance of our eligible loans to our portfolio companies. All outstanding advances under the Wells Facility are due and payable on July 14, 2017.
 
The Wells Facility is collateralized by loans held by Credit II and permits an advance rate of up to 50% of eligible loans held by Credit II. The Wells Facility contains covenants that, among other things, require us to maintain a minimum net worth, to restrict the loans securing the Wells Facility to certain criteria for qualified loans and to comply with portfolio company concentration limits as defined in the related loan agreement. 
 
On March 23, 2012, we issued and sold $30 million aggregate principal amount of Senior Notes, and on April 18, 2012, pursuant to the underwriters’ 30 day option to purchase additional notes, we sold an additional $3 million of such notes. The Senior 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 on or after March 15, 2015 at a redemption price of $25 per security plus accrued and unpaid interest. The Senior 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 Senior Notes are our direct, unsecured obligations and rank (1) equally in right of payment with our future senior unsecured indebtedness; (2) senior in right of payment to any of our future indebtedness that expressly provides it is subordinated to the Senior Notes; (3) 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) structurally subordinated to all existing and future indebtedness and other obligations of any of our subsidiaries. As of March 31, 2013, we were in material compliance with the terms of the Senior Notes. The Senior Notes are listed on the New York Stock Exchange under the symbol “HTF”.
 
We, through our wholly owned subsidiary Horizon Credit III LLC, or Credit III, entered into the Fortress Facility on August 23, 2012. The interest rate on the Fortress Facility is based upon the one-month LIBOR plus a spread of 6.00%, with a LIBOR floor of 1.00%. The interest rate was 7.00% as of March 31, 2013 and December 31, 2012.
 
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We may request advances under the Fortress Facility through August 23, 2016, or the Draw Period. After the Draw Period, we may not request new advances and we must repay the outstanding advances under the Fortress 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 Fortress Facility, particularly the condition that the principal balance of the Fortress Facility does not exceed approximately sixty-six percent (66%) of the aggregate principal balance of our eligible loans to our portfolio companies. All outstanding advances under the Fortress Facility are due and payable on August 23, 2017.
 
The Fortress Facility is collateralized by loans held by Credit III and permits an advance rate of up to approximately 66% of eligible loans held by Credit III. The Fortress Facility contains covenants that, among other things, require us to maintain a minimum net worth, to restrict the loans securing the Fortress Facility to certain criteria for qualified loans and to comply with portfolio company concentration limits as defined in the related loan agreement.
 
As of March 31, 2013 and December 31, 2012, other assets were $4.2 million and $4.6 million, respectively, which were primarily, comprised of debt issuance costs.
 
Contractual Obligations and Off-Balance Sheet Arrangements
 
A summary of our significant contractual payment obligations and off-balance sheet arrangements as of March 31, 2013 is as follows:
 
 	 	Payments due by period	 	
 	 	Total	 	 	Less than
1 year	 	 	1 - 3
Years	 	 	3-5
Years	 	 	After 5
years	 	
Borrowings	 	$	110,037	 	 	$	20,425	 	 	$	56,612	 	 	$	-	 	 	$	33,000	 	
Unfunded commitments	 	 	12,643	 	 	 	10,643	 	 	 	2,000	 	 	 	-	 	 	 	-	 	
Total	 	$	122,680	 	 	$	31,068	 	 	$	58,612	 	 	$	-	 	 	$	33,000	 	
 
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, 2013, we had unfunded commitments of approximately $12.6 million. These commitments will be subject to the same underwriting and ongoing portfolio maintenance as are the balance sheet financial instruments that we hold. Since these commitments may expire without being drawn upon, the total commitment amount does not necessarily represent future cash requirements.
 
In addition to the Wells Facility and Fortress 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 - a base management fee and an incentive fee. Payments under the Investment Management Agreement are equal to (1) a base management fee equal to a percentage of the value of our average gross assets 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 obligation 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.
 
Distributions
 
In order to qualify as a RIC and to avoid corporate level tax on the income we distribute to our stockholders, we are required under the Code to distribute at least 90% of our net ordinary income and net short-term capital gains in excess of net long-term capital losses, if any, to our stockholders on an annual basis. Additionally, we must distribute at least 98% of our ordinary income and 98.2% of our capital gain net income on an annual basis and any net ordinary income and net capital gains for preceding years that were not distributed during such years and on which we previously paid no U.S. federal income tax to avoid a U.S. federal excise tax. We intend to distribute monthly dividends to our stockholders as determined by our Board.
 
We may not be able to achieve operating results that will allow us to make distributions at a specific level or to increase the amount of our distributions from time to time. In addition, we may be limited in our ability to make distributions due to the asset coverage requirements applicable to us as a BDC under the 1940 Act. If we do not distribute a certain percentage of our income annually, we will suffer adverse tax consequences, including the possible loss of our qualification as a RIC. We cannot assure stockholders that they will receive any distributions.
 
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To the extent our taxable earnings 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 dividend 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 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 dividend reinvestment plan. 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 in the same manner as cash distributions, stockholders participating in our dividend reinvestment plan will not receive any corresponding cash distributions with which to pay any such applicable taxes.
 
Related Party Transactions
 
We have entered into a number of business relationships with affiliated or related parties, including the following:
 
 	•	We entered into the Investment Management Agreement with our Advisor. Mr. Robert D. Pomeroy Jr., Chairman of the Board and our Chief Executive Officer, is a manager of the Advisor, and Mr. Gerald A. Michaud, President and Director is a manager of our Advisor.	
 
 	•	Our Advisor provides us with the office facilities and administrative services necessary to conduct day-to day operations pursuant to our Administration Agreement.	
 
 	•	We have entered into a license agreement with the predecessor of the Advisor, pursuant to which it has granted us a non-exclusive, royalty-free license to use the name “Horizon Technology Finance.”	
 
Our Advisor may manage other investment vehicles with the same investment strategy as us, which we refer to in this report as “Advisor Funds.” Our 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 may be precluded from co-investing in such investments. Accordingly, we may apply for exemptive relief which would permit us to co-invest subject to certain conditions, including approval of such investments by both a majority of our directors who have no financial interest in such transaction and a majority of directors who are not interested directors as defined in the 1940 Act.
 
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, or “GAAP.” 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 relevant GAAP, 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.
 
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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.	
 
 	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 approximately 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 loan 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. When a loan becomes 90 days or more past due, or if we otherwise do not expect to receive interest and principal repayments, the loan is placed on non-accrual status and the recognition of interest income is discontinued. Interest payments received on loans that are on non-accrual status are treated as reductions of principal until the principal is repaid.
 
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 and prepayment fees. In a limited number of cases, we may also receive a non-refundable deposit earned upon the termination of a transaction. Loan 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 loan. Fees for counterparty loan commitments with multiple loans are allocated to each loan based upon each loan’s relative fair value. When a loan is placed on non-accrual status, the amortization of the related fees and unearned income is discontinued until the loan is returned to accrual status.
 
Certain loan agreements also require the borrower to make an ETP that is accrued into income over the life of the loan 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 of our 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 loan fees and also record as unearned loan income on the grant date. The unearned income is recognized as interest income over the contractual life of the related loan in accordance with our income recognition policy. Subsequent to loan origination, we also measure the warrants 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 warrants. Gains from the disposition of the warrants or stock acquired from the exercise of warrants are recognized as realized gains on warrants.
 
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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, among other things, we are required to meet certain source of income and asset diversification requirements and we must timely distribute to our stockholders at least 90% of investment company taxable income, as defined by the Code, for each 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 dividend distributions into the next tax year and pay 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 dividend 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. 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, 2013 and December 31, 2012.
 
Recently Issued Accounting Standards
 
In May 2011, the FASB issued Accounting Standards Update (ASU) 2011-04, Amendments to Achieve Common Fair Value Measurements and Disclosure Requirements in U.S. GAAP and IFRs, (ASU 2011-04). ASU 2011-04 converges the fair value measurement guidance in U.S. GAAP and International Financial Reporting Standards (IFRSs). Some of the amendments clarify the application of existing fair value measurement requirements, while other amendments change a particular principle in existing guidance. In addition, ASU 2011-04 requires additional fair value disclosures. We adopted ASU 2011-04 in the quarter ended March 31, 2012.
 
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 loans within our portfolio were mostly at fixed rates and we expect that our loans in the future will also have primarily fixed interest rates. The initial commitments to lend to our portfolio companies are usually based on a floating LIBOR index and typically have interest rates that are fixed at the time of the loan funding and remain fixed for the term of the loan.
 
Assuming that the consolidated statement of assets and liabilities as of March 31, 2013 was to remain constant and no actions were taken to alter the existing interest rate sensitivity, a hypothetical immediate 1% change in interest rates may affect net income by more than 1% over a one-year horizon. Although management believes that this measure is indicative of our sensitivity to interest rate changes, it does not adjust for potential changes in the credit market, credit quality, size and composition of the assets on the consolidated statement of assets and liabilities and other business developments that could affect net increase in net assets resulting from operations, or net income. Accordingly, no assurances can be given that actual results would not differ materially from the statement above.
 
While our Senior Notes bear interest at a fixed rate, our Credit Facilities have a floating interest rate provision based on a LIBOR index which resets daily, and we expect that 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 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.
 
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Because we currently fund, and will 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 would increase, which could reduce our net investment income.
 
Item 4.  Controls and Procedures
 
(a) Evaluation of Disclosure Controls and Procedures
 
As of March 31, 2013, 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) of the Securities Exchange Act of 1934, as amended, or Exchange Act). Based on that evaluation, our management, including the 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) of 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.
 
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PART II
 
Item 1: Legal Proceedings.
 
Neither we nor our Advisor are 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, 2012, 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, 2013 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, 2012.
 
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	
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	
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	
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	
____________
 
*	Filed herewith	
 
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SIGNATURES
 
Pursuant to the requirements of the Securities Exchange Act of 1934, 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 7, 2013	By:	/s/  Robert D. Pomeroy, Jr.	
 	 	Name:  	Robert D. Pomeroy, Jr.	
 	 	Title:	Chief Executive Officer and Chairman of the Board	
 	 	 	 	
Date: May 7, 2013	By:	/s/  Christopher M. Mathieu	
 	 	Name:  	Christopher M. Mathieu	
 	 	Title:	Chief Financial Officer	
 
43	

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 Chairman of the Board and Chief Executive Officer of Horizon Technology Finance Corporation and Subsidiaries, certify that:
 
1. I have reviewed this quarterly report on Form 10-Q of Horizon Technology Finance Corporation and Subsidiaries;
 
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; and
 
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; and
 
 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 7, 2013
 
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, Christopher M. Mathieu, Chief Financial Officer of Horizon Technology Finance Corporation and Subsidiaries, certify that:
 
1. I have reviewed this quarterly report on Form 10-Q of Horizon Technology Finance Corporation and Subsidiaries;
 
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; and
 
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; and
 
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 7, 2013
 
By:  	/s/ Christopher M. Mathieu  	 	 	
 	Christopher M. Mathieu  	 	 	
 	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 and Subsidiaries (the “Company”) for the quarterly period ended March 31, 2013 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, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of Sarbanes-Oxley Act of 2002, that to our 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 as of the dates and for the periods expressed in the Report.
 
/s/ Robert D. Pomeroy, Jr.  	 	 	
Name:  	Robert D. Pomeroy, Jr.  	 	 	
Title:  	Chief Executive Officer and
Chairman of the Board   	 	 	
 
Date: May 7, 2013

 
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 and Subsidiaries (the “Company”) for the quarterly period ended March 31, 2013 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Christopher M. Mathieu, 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, that to our 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 operation of the Company as of the dates and for the periods expressed in the Report.
 
/s/ Christopher M. Mathieu  	 	 	
Name:  	Christopher M. Mathieu  	 	 	
Title:  	Chief Financial Officer  	 	 	
 
Date: May 7, 2013