Edgar Filing: Horizon Technology Finance Corp

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark One)

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

	FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2017

	OR

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

FOR THE TRANSITION PERIOD FROM TO

COMMISSION FILE NUMBER: 814-00802

HORIZON TECHNOLOGY FINANCE CORPORATION

(Exact name of registrant as specified in its charter)

DELAWARE		27-2114934
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

312 Farmington Avenue
Farmington, CT		06032
(Address of principal executive offices)		(Zip Code)

(860) 676-8654
(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ¨ No ¨

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

Large accelerated filer	¨	Accelerated filer	x

Non-accelerated filer	¨ (Do not check if a smaller reporting company)	Smaller reporting company	¨

Emerging growth company	¨

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

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

The number of shares of the registrant’s common stock, $0.001 par value per share, outstanding as of August 1, 2017 was 11,520,344.

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 June 30, 2017 and December 31, 2016 (unaudited)	3
	Consolidated Statements of Operations for the three and six months ended June 30, 2017 and 2016 (unaudited)	4
	Consolidated Statements of Changes in Net Assets for the six months ended June 30, 2017 and 2016 (unaudited)	5
	Consolidated Statements of Cash Flows for the six months ended June 30, 2017 and 2016 (unaudited)	6
	Consolidated Schedules of Investments as of June 30, 2017 and December 31, 2016 (unaudited)	7
	Notes to the Consolidated Financial Statements (unaudited)	18
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	36
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	49
Item 4.	Controls and Procedures	50

	PART II
Item 1.	Legal Proceedings	51
Item 1A.	Risk Factors	51
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	51
Item 3.	Defaults Upon Senior Securities	51
Item 4.	Mine Safety Disclosures	51
Item 5.	Other Information	51
Item 6.	Exhibits	51
	Signatures	52
EX-31.1
EX-31.2
EX-32.1
EX-32.2

PART I: FINANCIAL INFORMATION

Item 1. Consolidated Financial Statements

Horizon Technology Finance Corporation and Subsidiaries

Consolidated Statements of Assets and Liabilities (Unaudited)

(Dollars in thousands, except share and per share data)

	June 30, 2017			December 31, 2016

Assets
Non-affiliate investments at fair value (cost of $189,613 and $211,627, respectively) (Note 4)	$	179,084		$	194,003
Cash		12,273			37,135
Interest receivable		4,095			6,036
Other assets		1,665			2,078
Total assets		197,117		$	239,252

Liabilities
Borrowings (Note 6)	$	55,691		$	95,597
Distributions payable		3,456			3,453
Base management fee payable (Note 3)		308			337
Incentive fee payable (Note 3)		405			—
Other accrued expenses		495			673
Total liabilities		60,355			100,060

Commitments and Contingencies (Note 7)

Net assets
Preferred stock, par value $0.001 per share, 1,000,000 shares authorized, zero shares issued and outstanding as of June 30, 2017 and December 31, 2016		—			—
Common stock, par value $0.001 per share, 100,000,000 shares authorized, 11,680,722 and 11,671,966 shares issued and 11,519,180 and 11,510,424 shares outstanding as of June 30, 2017 and December 31, 2016, respectively		12			12
Paid-in capital in excess of par		179,647			179,551
Distributions in excess of net investment income		(1,187	)		(397	)
Net unrealized depreciation on investments		(10,529	)		(19,463	)
Net realized loss on investments		(31,181	)		(20,511	)
Total net assets		136,762			139,192
Total liabilities and net assets	$	197,117		$	239,252
Net asset value per common share	$	11.87		$	12.09

See Notes to Consolidated Financial Statements

Horizon Technology Finance Corporation and Subsidiaries

Consolidated Statements of Operations (Unaudited)

(Dollars in thousands, except share and per share data)

	For the Three Months Ended						For the Six Months Ended
	June 30,						June 30,
	2017			2016			2017			2016
Investment income

Interest income on non-affiliate investments	$	5,418		$	8,788		$	11,697		$	17,790
Prepayment fee income on non-affiliate investments		327			263			788			429
Fee income on non-affiliate investments		133			41			356			170
Total investment income		5,878			9,092			12,841			18,389
Expenses
Interest expense		1,084			1,512			2,401			3,046
Base management fee (Note 3)		888			1,247			1,862			2,531
Performance based incentive fee(Note 3)		405			1,027			836			2,126
Administrative fee (Note 3)		187			275			381			556
Professional fees		324			343			830			844
General and administrative		236			261			410			462
Total expenses		3,124			4,665			6,720			9,565
Net investment income before excise tax		2,754			4,427			6,121			8,824
Credit for excise tax		—			(85	)		—			(85	)
Net investment income		2,754			4,512			6,121			8,909

Net realized and unrealized loss on investments
Net realized gain (loss) on investments		176			(876	)		(10,670	)		(2,862	)
Net unrealized (depreciation) appreciation on investments		(2,197	)		(3,714	)		8,934			(4,728	)
Net realized and unrealized loss on investments		(2,021	)		(4,590	)		(1,736	)		(7,590	)

Net increase (decrease) in net assets resulting from operations	$	733		$	(78	)	$	4,385		$	1,319
Net investment income per common share	$	0.24		$	0.39		$	0.53		$	0.77
Net increase (decrease) in net assets per common share	$	0.06		$	(0.01	)	$	0.38		$	0.11
Distributions declared per share	$	0.30		$	0.345		$	0.60		$	0.69
Weighted average shares outstanding		11,517,271			11,544,412			11,515,074			11,541,208

See Notes to Consolidated Financial Statements

Horizon Technology Finance Corporation and Subsidiaries

Consolidated Statements of Changes in Net Assets (Unaudited)

(Dollars in thousands, except share data)

	Common Stock				Paid-In Capital in Excess of			Distributions in Excess of Net Investment			Net Unrealized Depreciation on			Net Realized Loss on			Total Net
	Shares		Amount		Par			Income			Investments			Investments			Assets
Balance at December 31, 2015		11,535,212	$	12	$	179,707		$	(2,006	)	$	(5,227	)	$	(12,735	)	$	159,751
Net increase in net assets resulting from operations, net of excise tax		—		—		—			8,909			(4,728	)		(2,862	)		1,319
Issuance of common stock under dividend reinvestment plan		12,937		—		142			—			—			—			142
Repurchases of common stock		—		—		(16	)		—			—			—			(16	)
Distributions declared		—		—		—			(7,966	)		—			—			(7,966	)
Balance at June 30, 2016		11,548,149	$	12	$	179,833		$	(1,063	)	$	(9,955	)	$	(15,597	)	$	153,230

Balance at December 31, 2016		11,510,424	$	12	$	179,551		$	(397	)	$	(19,463	)	$	(20,511	)	$	139,192
Net increase in net assets resulting from operations, net of excise tax		—		—		—			6,121			8,934			(10,670	)		4,385
Issuance of common stock under dividend reinvestment plan		8,756		—		96			—			—			—			96
Distributions declared		—		—		—			(6,911	)		—			—			(6,911	)
Balance at June 30, 2017		11,519,180	$	12	$	179,647		$	(1,187	)	$	(10,529	)	$	(31,181	)	$	136,762

See Notes to Consolidated Financial Statements

Horizon Technology Finance Corporation and Subsidiaries

Consolidated Statements of Cash Flows (Unaudited)

(Dollars in thousands)

	For the Six Months Ended
	June 30,
	2017			2016
Cash flows from operating activities:
Net increase in net assets resulting from operations	$	4,385		$	1,319
Adjustments to reconcile net increase in net assets resulting from operations to net cash provided by operating activities:
Amortization of debt issuance costs		255			306
Net realized loss on investments		10,670			2,862
Net unrealized (appreciation) depreciation on investments		(8,934	)		4,728
Purchase of investments		(47,990	)		(31,687	)
Principal payments received on investments		60,260			40,466
Proceeds from sale of investments		1,572			935
Changes in assets and liabilities:
Net decrease in investments in money market funds		—			285
Net decrease in restricted investments in money market funds		—			1,091
Decrease (increase) in interest receivable		517			(372	)
Decrease (increase) in end-of-term payments		1,013			(1,510	)
Decrease in unearned income		(248	)		(278	)
Decrease (increase) in other assets		252			(19	)
Decrease in other accrued expenses		(178	)		(28	)
(Decrease) increase in base management fee payable		(29	)		21
Increase (decrease) in incentive fee payable		405			(1	)
Net cash provided by operating activities		21,950			18,118

Cash flows from financing activities:
Repayment of Asset-Backed Notes		—			(14,546	)
Advances on credit facility		15,000			—
Repayment of credit facility		(55,000	)		—
Distributions paid		(6,812	)		(7,820	)
Repurchase of common stock		—			(16	)
Debt issuance costs		—			(221	)
Net cash used in financing activities		(46,812	)		(22,603	)
Net decrease in cash		(24,862	)		(4,485	)

Cash:
Beginning of period		37,135			20,765
End of period	$	12,273		$	16,280
Supplemental disclosure of cash flow information:
Cash paid for interest	$	2,260		$	2,722
Supplemental non-cash investing and financing activities:
Warrant investments received and recorded as unearned income	$	1,087		$	149
Distributions payable	$	3,456		$	3,984
End-of-term payments receivable	$	3,651		$	6,570

See Notes to Consolidated Financial Statements

Horizon Technology Finance Corporation and Subsidiaries

Consolidated Schedule of Investments (Unaudited)

June 30, 2017

(Dollars in thousands)

			Principal		Cost of		Fair
Portfolio Company (1)	Sector	Type of Investment (3)(4)(7)(9)(10)	Amount		Investments (6)		Value
Debt Investments — 120.6% (8)
Debt Investments — Life Science — 25.9% (8)
Palatin Technologies, Inc. (2)(5)	Biotechnology	Term Loan (9.58% cash (Libor + 8.50%; Floor	$	3,000	$	2,970	$	2,970
		9.00%), 5.00% ETP, Due 1/1/19)
		Term Loan (9.58% cash (Libor + 8.50%; Floor		4,167		4,130		4,130
		9.00%), 5.00% ETP, Due 8/1/19)
Sample6, Inc. (2)	Biotechnology	Term Loan (10.08% cash (Libor + 9.00%; Floor		648		644		644
		9.50%; Ceiling 11.00%), 4.50% ETP, Due 8/1/18)
		Term Loan (10.08% cash (Libor + 9.00%; Floor		394		391		391
		9.50%; Ceiling 11.00%), 4.50% ETP, Due 8/1/18)
		Term Loan (10.08% cash (Libor + 9.00%; Floor		1,389		1,377		1,377
		9.50%; Ceiling 11.00%), 4.50% ETP, Due 8/1/18)
Strongbridge U.S. Inc. (5)	Biotechnology	Term Loan (9.28% cash (Libor + 8.22%; Floor		7,500		7,364		7,364
		8.75%), 8.00% ETP, Due 12/1/20)
vTv Therapeutics Inc. (2)(5)	Biotechnology	Term Loan (11.08% cash (Libor + 10.00%; Floor		6,250		6,185		6,185
		10.50%), 6.00% ETP, Due 5/1/20)
		Term Loan (11.08% cash (Libor + 10.00%; Floor		3,750		3,691		3,691
		10.50%), 6.00% ETP, Due 10/1/20)
Lantos Technologies, Inc. (2)	Medical Device	Term Loan (11.58% cash (Libor + 10.50%; Floor		2,479		2,463		2,378
		11.50%), 8.60% ETP, Due 5/1/19)
Mederi Therapeutics, Inc. (2)	Medical Device	Term Loan (12.72% cash (Libor + 11.82%; Floor		566		562		562
		12.00%), 6.00% ETP, Due 12/1/17)
		Term Loan (12.72% cash (Libor + 11.82%; Floor		566		562		562
		12.00%), 6.00% ETP, Due 12/1/17)
NinePoint Medical, Inc. (2)	Medical Device	Term Loan (9.83% cash (Libor + 8.75%; Floor		3,500		3,470		3,470
		9.25%), 4.50% ETP, Due 3/1/19)
		Term Loan (9.83% cash (Libor + 8.75%; Floor		1,750		1,731		1,731
		9.25%), 4.50% ETP, Due 3/1/19)
Total Debt Investments — Life Science						35,540		35,455
Debt Investments — Technology — 82.0% (8)
PebblePost, Inc. (2)	Communications	Term Loan (10.48% cash (Libor + 9.26%; Floor		4,000		3,865		3,865
		10.25%), 4.00% ETP, Due 7/1/21)
		Term Loan (10.48% cash (Libor + 9.26%; Floor		4,000		3,923		3,923
		10.25%), 4.00% ETP, Due 7/1/21)
Gwynnie Bee, Inc. (2)	Consumer-related Technologies	Term Loan (11.56% cash (Libor + 10.50%; Floor		267		263		263
		11.00%; Ceiling 12.50%), 2.00% ETP, Due 11/1/17)
		Term Loan (11.56% cash (Libor + 10.50%; Floor		233		228		228
		11.00%; Ceiling 12.50%), 2.00% ETP, Due 2/1/18)
		Term Loan (11.56% cash (Libor + 10.50%; Floor		300		295		295
		11.00%; Ceiling 12.50%), 2.00% ETP, Due 4/1/18)
Le Tote, Inc. (2)	Consumer-related Technologies	Term Loan (10.73% cash (Libor + 9.65%; Floor		4,000		3,951		3,951
		10.15%), 5.00% ETP, Due 3/1/20)
		Term Loan (10.73% cash (Libor + 9.65%; Floor		3,000		2,962		2,962
		10.15%), 5.00% ETP, Due 3/1/20)
Rhapsody International, Inc. (2)	Consumer-related Technologies	Term Loan (11.58% cash (Libor + 10.50%; Floor		6,750		6,616		6,616
		11.00%), 3.00% ETP, Due 10/1/19)
SavingStar, Inc. (2)	Consumer-related Technologies	Term Loan (11.48% cash (Libor + 10.40%; Floor		2,367		2,334		2,334
		10.90%), 4.25% ETP, Due 6/1/20)
		Term Loan (11.48% cash (Libor + 10.40%; Floor		2,000		1,971		1,971
		10.90%), 3.80% ETP, Due 11/1/20)
IgnitionOne, Inc. (2)	Internet and Media	Term Loan (11.31% cash (Libor + 10.23%; Floor		3,000		2,812		2,812
		10.23%), 2.00% ETP, Due 4/1/22)
		Term Loan (11.31% cash (Libor + 10.23%; Floor		3,000		2,812		2,812
		10.23%), 2.00% ETP, Due 4/1/22)
		Term Loan (11.31% cash (Libor + 10.23%; Floor		3,000		2,812		2,812
		10.23%), 2.00% ETP, Due 4/1/22)
		Term Loan (11.31% cash (Libor + 10.23%; Floor		3,000		2,812		2,812
		10.23%), 2.00% ETP, Due 4/1/22)
Jump Ramp Games, Inc. (2)	Internet and Media	Term Loan (10.81% cash (Libor + 9.73%),		4,000		3,933		3,933
		3.00% ETP, Due 4/1/21)
MediaBrix, Inc. (2)	Internet and Media	Term Loan (12.08% cash (Libor + 11.00%; Floor		4,000		3,971		3,971
		11.50%), 3.00% ETP, Due 1/1/20)
Rocket Lawyer Incorporated (2)	Internet and Media	Term Loan (10.62% cash (Libor + 9.40%; Floor		4,000		3,894		3,894
		10.50%), 3.00% ETP, Due 7/1/21)
		Term Loan (10.62% cash (Libor + 9.40%; Floor		4,000		3,923		3,923
		10.50%), 3.00% ETP, Due 7/1/21)

See Notes to Consolidated Financial Statements

Horizon Technology Finance Corporation and Subsidiaries

Consolidated Schedule of Investments (Unaudited)

June 30, 2017

(Dollars in thousands)

			Principal		Cost of		Fair
Portfolio Company (1)	Sector	Type of Investment (3)(4)(7)(9)(10)	Amount		Investments (6)		Value
Zinio Holdings, LLC (2)	Internet and Media	Term Loan (12.33% cash (Libor + 11.25%; Floor		4,000		3,972		3,972
		11.75%), 5.00% ETP, Due 2/1/20)
The NanoSteel Company, Inc. (2)	Materials	Term Loan (10.58% cash (Libor + 9.50%; Floor		5,000		4,952		4,952
		10.00%), 5.00% ETP, Due 7/1/19)
		Term Loan (10.58% cash (Libor + 9.50%; Floor		2,500		2,476		2,476
		10.00%), 5.00% ETP, Due 7/1/19)
		Term Loan (10.58% cash (Libor + 9.50%; Floor		2,500		2,470		2,470
		10.00%), 5.00% ETP, Due 1/1/20)
Powerhouse Dynamics, Inc. (2)	Power Management	Term Loan (11.78% cash (Libor + 10.70%; Floor		1,750		1,727		1,727
		11.20%), 3.00% ETP, Due 3/1/19)
Luxtera, Inc.	Semiconductors	Term Loan (11.00% cash (Prime + 6.75%),		2,000		1,880		1,880
		Due 3/28/20)
Bridge2 Solutions, Inc. (2)	Software	Term Loan (12.08% cash (Libor + 11.00%; Floor		3,200		3,181		3,181
		11.50%; Ceiling 14.50%), 2.00% ETP, Due 7/1/19)
		Term Loan 12.08% cash (Libor + 11.00%; Floor		1,000		997		997
		11.50%; Ceiling 14.50%), 2.00% ETP, Due 1/1/20)
Decisyon, Inc.	Software	Term Loan (13.338% cash (Libor + 12.308%; Floor		1,523		1,521		1,440
		12.50%), 6.50% ETP, Due 6/1/18)
		Term Loan (13.338% cash (Libor + 12.308%; Floor		833		756		715
		12.50%), 6.50% ETP, Due 6/1/18)
		Term Loan (12.02% PIK , Due 4/15/19) (15)		250		250		237
		Term Loan (12.03% PIK , Due 4/15/19) (15)		250		250		237
Digital Signal Corporation (11)(13)	Software	Term Loan (11.33% cash (Libor + 10.25%; Floor		1,285		1,252		895
		10.43%), 5.00% ETP, Due 7/1/19)
		Term Loan (11.33% cash (Libor + 10.25%; Floor		1,285		1,252		895
		10.43%), 5.00% ETP, Due 7/1/19)
		Term Loan (10.00% cash, Due 6/30/17)		295		295		210
Education Elements, Inc. (2)	Software	Term Loan (11.08% cash (Libor + 10.00%; Floor		1,200		1,184		1,184
		10.50%), 4.00% ETP, Due 1/1/19)
		Term Loan (11.08% cash (Libor + 10.00%; Floor		1,250		1,233		1,233
		10.50%), 4.00% ETP, Due 8/1/19)
Netuitive, Inc.	Software	Term Loan (13.33% cash (Libor + 12.25%; Floor		252		252		252
		12.50%), 3.33% ETP, Due 9/1/18)
ScoreBig, Inc. (2)(11)(12)	Software	Term Loan (11.08% cash (Libor + 10.00%; Floor		3,403		3,332		945
		10.50%), 4.00% ETP, Due 4/1/19)
		Term Loan (11.08% cash (Libor + 10.00%; Floor		3,403		3,360		953
		10.50%), 4.00% ETP, Due 4/1/19)
		Term Loan (11.08% cash (Libor + 10.00%; Floor		2,000		1,950		553
		10.50%), 4.00% ETP, Due 3/1/20)
		Term Loan (11.08% cash (Libor + 10.00%; Floor		203		203		58
		10.50%), 4.00% ETP, Due 10/31/16)
		Term Loan (11.08% cash (Libor + 10.00%; Floor		324		324		91
		10.50%), 4.00% ETP, Due 11/11/19)
ShopKeep.com, Inc. (2)	Software	Term Loan (11.03% cash (Libor + 9.95%; Floor		6,000		5,907		5,907
		10.45%), 3.00% ETP, Due 4/1/20)
		Term Loan (11.03% cash (Libor + 9.95%; Floor		4,000		3,928		3,928
		10.45%), 3.00% ETP, Due 9/1/20)
SIGNiX, Inc.	Software	Term Loan (12.08% cash (Libor + 11.00%; Floor		2,200		2,077		2,033
		11.50%), 3.5% ETP, Due 4/1/19)
SilkRoad Technology, Inc. (2)	Software	Term Loan (11.43% cash (Libor + 10.35%; Floor		7,000		6,899		6,899
		10.85%; Ceiling 12.85%), 4.00% ETP, Due 12/1/19)
Skyword, Inc.	Software	Term Loan (12.03% cash (Libor + 10.95%; Floor		3,600		3,555		3,555
		11.45%), 3.00% ETP, Due 8/1/19)
Sys-Tech Solutions, Inc. (2)	Software	Term Loan (12.23% cash (Libor + 11.15%; Floor		1,833		1,821		1,821
		11.65%; Ceiling 12.65%), 9.00% ETP, Due 5/1/18)
VBrick Systems, Inc. (2)	Software	Term Loan (12.08% cash (Libor + 11.00%; Floor		100		100		100
		11.50%; Ceiling 13.50%), 5.00% ETP, Due 7/1/17)
xTech Holdings, Inc. (2)	Software	Term Loan (11.58% cash (Libor + 10.50%; Floor		1,167		1,150		1,150
		11.00%), 3.00% ETP, Due 4/1/19)
		Term Loan (11.58% cash (Libor + 10.50%; Floor		1,778		1,753		1,753
		11.00%), 3.00% ETP, Due 3/1/20)
Total Debt Investments — Technology						119,636		112,076

See Notes to Consolidated Financial Statements

Horizon Technology Finance Corporation and Subsidiaries

Consolidated Schedule of Investments (Unaudited)

June 30, 2017

(Dollars in thousands)

			Principal		Cost of		Fair
Portfolio Company (1)	Sector	Type of Investment (3)(4)(7)(9)(10)	Amount		Investments (6)		Value
Debt Investments — Cleantech — 4.4% (8)
Lehigh Technologies, Inc. (2)	Waste Recycling	Term Loan (10.80% cash (Libor + 9.72%), 1.67% ETP,		3,000		2,992		2,992
		Due 8/1/19)
		Term Loan (10.80% cash (Libor + 9.72%), 1.67% ETP,		3,000		2,992		2,992
		Due 8/1/19)
Total Debt Investments — Cleantech						5,984		5,984
Debt Investments — Healthcare information and services — 8.3% (8)
Interleukin Genetics, Inc. (2)(5)(11)	Diagnostics	Term Loan (11.58% cash (Libor + 10.50%;		3,649		3,539		2,629
		Floor 11.00%), 6.50% ETP, Due 10/1/18)
		Term Loan (8.00% PIK , Due 1/1/22) (15)		500		500		371
Watermark Medical, Inc. (2)	Other Healthcare	Term Loan (10.58% cash (Libor + 9.50%; Floor 10.00%;		1,458		1,456		1,456
		Ceiling 11.00%); 4.00% ETP, Due 4/1/18)
		Term Loan (10.58% cash (Libor + 9.50%; Floor 10.00%;		1,458		1,456		1,456
		Ceiling 11.00%); 4.00% ETP, Due 4/1/18)
		Term Loan (10.58% cash (Libor + 9.50%; Floor 10.00%;		694		694		694
		Ceiling 11.00%); 4.00% ETP, Due 4/1/18)
HealthEdge Software, Inc. (2)	Software	Term Loan (9.47% cash (Libor + 8.25%;		5,000		4,774		4,774
		Floor 9.25%), 3.00% ETP, Due 7/1/22)
Total Debt Investments — Healthcare information and services						12,419		11,380
Total Debt Investments						173,579		164,895

Warrant Investments — 5.4% (8)
Warrants — Life Science — 1.1% (8)
ACT Biotech Corporation	Biotechnology	1,521,820 Preferred Stock Warrants				83		—
Argos Therapeutics, Inc. (2)(5)	Biotechnology	73,112 Common Stock Warrants				33		—
Celsion Corporation (5)	Biotechnology	408 Common Stock Warrants				15		—
Inotek Pharmaceuticals Corporation (5)	Biotechnology	28,204 Common Stock Warrants				17		—
Nivalis Therapeutics, Inc. (5)	Biotechnology	18,534 Common Stock Warrants				122		—
Ocera Therapeutics, Inc. (2)(5)	Biotechnology	6,491 Common Stock Warrants				6		—
Palatin Technologies, Inc. (2)(5)	Biotechnology	608,058 Common Stock Warrants				51		1
Revance Therapeutics, Inc. (5)	Biotechnology	34,113 Common Stock Warrants				68		418
Sample6, Inc. (2)	Biotechnology	661,956 Preferred Stock Warrants				53		25
Strongbridge U.S. Inc. (5)	Biotechnology	160,714 Common Stock Warrants				72		782
Sunesis Pharmaceuticals, Inc. (5)	Biotechnology	2,050 Common Stock Warrants				5		—
vTv Therapeutics Inc. (2)(5)	Biotechnology	93,896 Common Stock Warrants				44		34
AccuVein Inc. (2)	Medical Device	75,769 Preferred Stock Warrants				24		27
EnteroMedics, Inc. (5)	Medical Device	134 Common Stock Warrants				347		—
IntegenX, Inc. (2)	Medical Device	170,646 Preferred Stock Warrants				35		32
Lantos Technologies, Inc. (2)	Medical Device	66,665,256 Preferred Stock Warrants				38		42
Mederi Therapeutics, Inc. (2)	Medical Device	248,736 Preferred Stock Warrants				26		40
Mitralign, Inc. (2)	Medical Device	641,909 Preferred Stock Warrants				52		44
NinePoint Medical, Inc. (2)	Medical Device	566,038 Preferred Stock Warrants				33		40
OraMetrix, Inc. (2)	Medical Device	812,348 Preferred Stock Warrants				78		—
Tryton Medical, Inc. (2)	Medical Device	122,362 Preferred Stock Warrants				15		13
ViOptix, Inc.	Medical Device	375,763 Preferred Stock Warrants				13		—
Total Warrants — Life Science						1,230		1,498
Warrants — Technology — 3.8% (8)
Ekahau, Inc. (2)	Communications	978,261 Preferred Stock Warrants				33		23
PebblePost, Inc. (2)	Communications	119,770 Preferred Stock Warrants				92		92
Additech, Inc. (2)	Consumer-related Technologies	150,000 Preferred Stock Warrants				33		31
Gwynnie Bee, Inc. (2)	Consumer-related Technologies	268,591 Preferred Stock Warrants				68		819
Le Tote, Inc. (2)	Consumer-related Technologies	202,974 Preferred Stock Warrants				63		359
Rhapsody International Inc. (2)	Consumer-related Technologies	852,273 Common Stock Warrants				164		—
SavingStar, Inc. (2)	Consumer-related Technologies	98,860 Preferred Stock Warrants				60		—
XIOtech, Inc.	Data Storage	96 Preferred Stock Warrants				22		—
IgnitionOne, Inc. (2)	Internet and Media	262,910 Preferred Stock Warrants				672		668
Jump Ramp Games, Inc. (2)	Internet and Media	159,766 Preferred Stock Warrants				32		32
Rocket Lawyer Incorporated (2)	Internet and Media	235,549 Preferred Stock Warrants				83		83
The NanoSteel Company, Inc. (2)	Materials	299,211 Preferred Stock Warrants				93		349
IntelePeer, Inc.	Networking	141,549 Common Stock Warrants				39		—
Nanocomp Technologies, Inc. (2)	Networking	1,414,921 Preferred Stock Warrants				67		47
Powerhouse Dynamics, Inc. (2)	Power Management	290,698 Preferred Stock Warrants				28		26
Avalanche Technology, Inc. (2)	Semiconductors	202,602 Preferred Stock Warrants				101		40

See Notes to Consolidated Financial Statements

Horizon Technology Finance Corporation and Subsidiaries

Consolidated Schedule of Investments (Unaudited)

June 30, 2017

(Dollars in thousands)

			Cost of		Fair
Portfolio Company (1)	Sector	Type of Investment (3)(4)(7)(9)(10)	Investments (6)		Value
eASIC Corporation (2)	Semiconductors	40,445 Preferred Stock Warrants		25		28
InVisage Technologies, Inc. (2)	Semiconductors	395,009 Preferred Stock Warrants		48		—
Kaminario, Inc.	Semiconductors	1,087,203 Preferred Stock Warrants		59		45
Luxtera, Inc.(2)	Semiconductors	3,212,948 Preferred Stock Warrants		160		305
Soraa, Inc. (2)	Semiconductors	203,616 Preferred Stock Warrants		80		433
Bolt Solutions Inc. (2)	Software	202,892 Preferred Stock Warrants		113		118
Bridge2 Solutions, Inc. (2)	Software	75,458 Common Stock Warrants		18		341
Clarabridge, Inc.	Software	53,486 Preferred Stock Warrants		14		82
Decisyon, Inc.	Software	82,967 Common Stock Warrants		46		—
Digital Signal Corporation	Software	125,116 Common Stock Warrants		32		—
Education Elements, Inc. (2)	Software	238,121 Preferred Stock Warrants		28		28
Lotame Solutions, Inc. (2)	Software	288,115 Preferred Stock Warrants		22		277
Netuitive, Inc.	Software	41,569 Common Stock Warrants		48		—
Riv Data Corp. (2)	Software	321,428 Preferred Stock Warrants		12		31
ShopKeep.com, Inc. (2)	Software	165,779 Preferred Stock Warrants		98		119
SIGNiX, Inc.	Software	114,767 Preferred Stock Warrants		210		41
Skyword, Inc.	Software	301,056 Preferred Stock Warrants		48		56
SpringCM, Inc. (2)	Software	2,385,686 Preferred Stock Warrants		55		131
Sys-Tech Solutions, Inc.	Software	375,000 Preferred Stock Warrants		242		442
Visage Mobile, Inc.	Software	1,692,047 Preferred Stock Warrants		19		—
xTech Holdings, Inc. (2)	Software	158,730 Preferred Stock Warrants		43		43
Total Warrants — Technology				3,070		5,089
Warrants — Cleantech — 0.1% (8)
Renmatix, Inc.	Alternative Energy	53,022 Preferred Stock Warrants		68		—
Rypos, Inc. (2)	Energy Efficiency	5,627 Preferred Stock Warrants		44		47
Tigo Energy, Inc. (2)	Energy Efficiency	804,604 Preferred Stock Warrants		100		115
Total Warrants — Cleantech				212		162
Warrants — Healthcare information and services — 0.4% (8)
Candescent Health, Inc. (2)	Diagnostics	519,991 Preferred Stock Warrants		378		—
Interleukin Genetics, Inc. (2)(5)	Diagnostics	7,973,864 Common Stock Warrants		168		—
LifePrint Group, Inc. (2)	Diagnostics	49,000 Preferred Stock Warrants		29		2
ProterixBio, Inc. (2)	Diagnostics	3,156 Common Stock Warrants		54		—
Singulex, Inc.	Other Healthcare	294,231 Preferred Stock Warrants		44		51
Verity Solutions Group, Inc.	Other Healthcare	300,360 Preferred Stock Warrants		100		43
Watermark Medical, Inc. (2)	Other Healthcare	27,373 Preferred Stock Warrants		74		58
HealthEdge Software, Inc. (2)	Software	63,225 Preferred Stock Warrants		26		26
Medsphere Systems Corporation (2)	Software	7,097,792 Preferred Stock Warrants		60		206
Recondo Technology, Inc. (2)	Software	556,796 Preferred Stock Warrants		95		206
Total Warrants — Healthcare information and services				1,028		592
Total Warrants				5,540		7,341

Other Investments — 4.3% (8)
Espero Pharmaceuticals, Inc. (14)	Biotechnology	Royalty Agreement		5,300		5,300
ZetrOZ, Inc.	Medical Device	Royalty Agreement		328		500
Vette Technology, LLC	Data Storage	Royalty Agreement Due 4/18/2019		4,278		100
Total Other Investments				9,906		5,900
Equity — 0.7% (8)
Insmed Incorporated (5)	Biotechnology	33,208 Common Stock		238		570
Revance Therapeutics, Inc.(5)	Biotechnology	5,125 Common Stock		73		135
Sunesis Pharmaceuticals, Inc. (5)	Biotechnology	13,082 Common Stock		83		35
SnagAJob.com, Inc.	Consumer-related Technologies	82,974 Common Stock		9		83
Decisyon, Inc.	Software	4,200,934 Common Stock		185		125
Total Equity				588		948
Total Portfolio Investment Assets — 131.0% (8)			$	189,613	$	179,084

(1)	All investments of the Company are in entities which are organized under the laws of the United States and have a principal place of business in the United States.

(2)	Has been pledged as collateral under the Key Facility.

(3)	All investments are less than 5% ownership of the class and ownership of the portfolio company.

See Notes to Consolidated Financial Statements

Horizon Technology Finance Corporation and Subsidiaries

Consolidated Schedule of Investments (Unaudited)

June 30, 2017

(Dollars in thousands)

(4)

All interest is payable in cash due monthly in arrears, unless otherwise indicated, and applies only to the Company’s debt investments. Interest rate is the annual interest rate on the debt investment and does not include end-of-term payments (“ETPs”) and any additional fees related to the investments, such as deferred interest, commitment fees or prepayment fees. Debt investments are at fixed rates for the term of the debt investment, unless otherwise indicated. All debt investments based on LIBOR are based on one-month LIBOR. For each debt investment, the current interest rate in effect as of June 30, 2017 is provided.

(5)

Portfolio company is a public company.

(6)

For debt investments, represents principal balance less unearned income.

(7)

Warrants, Equity and Other Investments are non-income producing.

(8)

Value as a percent of net assets.

(9)

The Company did not have any non-qualifying assets under Section 55(a) of the Investment Company Act of 1940, as amended (the “1940 Act”), as of June 30, 2017. Under the 1940 Act, the Company may not acquire any non-qualifying assets unless, at the time the acquisition is made, qualifying assets represent at least 70% of the Company’s total assets.

(10)

ETPs are contractual fixed-interest payments due in cash at the maturity date of the applicable debt investment, including upon any prepayment, and are a fixed percentage of the original principal balance of the debt investments unless otherwise noted. Interest will accrue during the life of the debt investment on each ETP and will be recognized as non-cash income until it is actually paid. Therefore, a portion of the incentive fee the Company may pay its Advisor will be based on income that the Company has not yet received in cash.

(11)

Debt investment is on non-accrual status at June 30, 2017.

(12)

ScoreBig, Inc., a Delaware corporation (“ScoreBig”), made an assignment for the benefit of its creditors whereby ScoreBig assigned all of its assets to SB (assignment for the benefit of creditors), LLC, a California limited liability company (“SBABC”), established under California law to effectuate the Assignment for the Benefit of Creditors of ScoreBig. SBABC subsequently entered into a License Agreement with a third party (“Licensee”), whereby SBABC granted a license of certain of SBABC’s intellectual property and general intangibles to Licensee in exchange for certain royalty payments on the future net profits, if any, of Licensee. SBABC, in consideration for the Company’s consent to the License Agreement, agreed to pay all payments due under the License Agreement, if any, to the Company until the payment in full in cash of the Company’s debt investments in ScoreBig.

(13)

Digital Signal Corporation, a Delaware corporation (“DSC”), made an assignment for the benefit of its creditors whereby DSC assigned all of its assets to DSC (assignment for the benefit of creditors), LLC, a Delaware limited liability company, established under Delaware law to effectuate the Assignment for the Benefit of Creditors of DSC.

(14)

Royalty Agreement received in partial satisfaction of obligations of New Haven Pharmaceuticals, Inc. (“NHP”) to the Company in connection with the sale of substantially all of the assets of NHP to Espero Pharmaceuticals, Inc.

(15)

Debt investment has a payment-in-kind (“PIK”) feature.

See Notes to Consolidated Financial Statements

Horizon Technology Finance Corporation and Subsidiaries

Consolidated Schedule of Investments (Unaudited)

December 31, 2016

(Dollars in thousands)

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

See Notes to Consolidated Financial Statements

Horizon Technology Finance Corporation and Subsidiaries

Consolidated Schedule of Investments (Unaudited)

December 31, 2016

(Dollars in thousands)

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

See Notes to Consolidated Financial Statements

Horizon Technology Finance Corporation and Subsidiaries

Consolidated Schedule of Investments (Unaudited)

December 31, 2016

(Dollars in thousands)

			Principal		Cost of		Fair
Portfolio Company (1)	Sector	Type of Investment (3)(4)(7)(9)(10)	Amount		Investments (6)		Value
		Term Loan (10.63% cash (Libor + 10.00%; Floor		203		203		93
		10.50%), 4.00% ETP, Due 10/31/16)
		Term Loan (10.63% cash (Libor + 10.00%; Floor		324		324		148
		10.50%), 4.00% ETP, Due 11/11/19)
ShopKeep.com, Inc. (2)	Software	Term Loan (10.47% cash (Libor + 9.95%; Floor		6,000		5,811		5,811
		10.45%), 3.00% ETP, Due 4/1/20)
SIGNiX, Inc.	Software	Term Loan (11.63% cash (Libor + 11.00%; Floor		2,250		2,124		2,012
		11.50%), Due 10/1/18)
SilkRoad Technology, Inc. (2)	Software	Term Loan (10.98% cash (Libor + 10.35%; Floor		7,500		7,455		7,455
		10.85%; Ceiling 12.85%), 3.00% ETP, Due 6/1/19)
Skyword, Inc.	Software	Term Loan (11.58% cash (Libor + 10.95%; Floor		4,000		3,944		3,870
		11.45%), 3.00% ETP, Due 8/1/19)
Social Intelligence Corp. (2)	Software	Term Loan (11.13% cash (Libor + 10.50%; Floor		323		316		315
		11.00%; Ceiling 13.00%), 3.50% ETP, Due 12/1/17)
Sys-Tech Solutions, Inc. (2)	Software	Term Loan (11.78% cash (Libor + 11.15%; Floor		3,000		2,983		2,983
		11.65%; Ceiling 12.65%), 4.50% ETP, Due 3/1/18)
		Term Loan (11.78% cash (Libor + 11.15%; Floor		2,833		2,814		2,814
		11.65%; Ceiling 12.65%), 9.00% ETP, Due 5/1/18)
VBrick Systems, Inc. (2)	Software	Term Loan (11.63% cash (Libor + 11.00%; Floor		700		696		696
		11.50%; Ceiling 13.50%), 5.00% ETP, Due 7/1/17)
Vidsys, Inc. (2)	Software	Term Loan (13.00% cash, 12.58% ETP, Due 12/1/17)		2,610		2,610		2,610
xTech Holdings, Inc. (2)	Software	Term Loan (11.13% cash (Libor + 10.50%; Floor		1,500		1,479		1,479
		11.00%), 3.00% ETP, Due 4/1/19)
		Term Loan (11.13% cash (Libor + 10.50%; Floor		2,000		1,970		1,970
		11.00%), 3.00% ETP, Due 3/1/20)
Total Debt Investments — Technology						114,743		104,917
Debt Investments — Cleantech — 5.7% (8)
Rypos, Inc. (2)	Energy Efficiency	Term Loan (11.93% cash (Libor + 11.55%;		1,260		1,252		1,252
		Floor 11.80%), 4.25% ETP, Due 6/1/17)
		Term Loan (11.93% cash (Libor + 11.55%;		697		690		690
		Floor 11.80%), 4.25% ETP, Due 1/1/18)
Lehigh Technologies, Inc. (2)	Waste Recycling	Term Loan (10.35% cash (Libor + 9.72%), 6.75% ETP,		3,000		2,982		2,982
		Due 8/1/19)
		Term Loan (10.35% cash (Libor + 9.72%), 6.75% ETP,		3,000		2,982		2,982
		Due 8/1/19)
Total Debt Investments — Cleantech						7,906		7,906
Debt Investments — Healthcare information and services — 14.2% (8)
Interleukin Genetics, Inc. (2)(5)	Diagnostics	Term Loan (11.13% cash (Libor + 10.50%;		4,225		4,081		4,081
		Floor 11.00%), 6.50% ETP, Due 10/1/18)
Watermark Medical, Inc. (2)	Other Healthcare	Term Loan (10.13% cash (Libor + 9.50%; Floor 10.00%;		2,333		2,330		2,330
		Ceiling 11.00%); 4.00% ETP, Due 4/1/18)
		Term Loan (10.13% cash (Libor + 9.50%; Floor 10.00%;		2,333		2,330		2,330
		Ceiling 11.00%); 4.00% ETP, Due 4/1/18)
		Term Loan (10.13% cash (Libor + 9.50%; Floor 10.00%;		1,111		1,110		1,110
		Ceiling 11.00%); 4.00% ETP, Due 4/1/18)
MedAvante, Inc. (2)	Software	Term Loan (9.88% cash (Libor + 9.25%; Floor		3,000		2,972		2,972
		9.75%), 4.00% ETP, Due 1/1/19)
		Term Loan (9.88% cash (Libor + 9.25%; Floor		3,000		2,972		2,972
		9.75%), 4.00% ETP, Due 1/1/19)
		Term Loan (9.88% cash (Libor + 9.25%; Floor		4,000		3,953		3,953
		9.75%), 4.00% ETP, Due 7/1/19)
Total Debt Investments — Healthcare information and services						19,748		19,748
Total Debt Investments						201,216		186,186

See Notes to Consolidated Financial Statements

Horizon Technology Finance Corporation and Subsidiaries

Consolidated Schedule of Investments (Unaudited)

December 31, 2016

(Dollars in thousands)

Cost of

Fair

Portfolio Company (1)

Sector

Type of Investment (3)(4)(7)(9)(10)

Investments (6)

Value

Warrant Investments — 4.6% (8)

Warrants — Life Science — 0.5% (8)

ACT Biotech Corporation

Biotechnology

1,521,820 Preferred Stock Warrants

—

Argos Therapeutics, Inc. (2)(5)

Biotechnology

33,112 Common Stock Warrants

Celsion Corporation (5)

Biotechnology

5,708 Common Stock Warrants

—

Inotek Pharmaceuticals Corporation (5)

Biotechnology

28,204 Common Stock Warrants

New Haven Pharmaceuticals, Inc.

Biotechnology

103,982 Preferred Stock Warrants

—

Nivalis Therapeutics, Inc. (5)

Biotechnology

18,534 Common Stock Warrants

122

—

Ocera Therapeutics, Inc. (2)(5)

Biotechnology

6,491 Common Stock Warrants

—

Palatin Technologies, Inc. (2)(5)

Biotechnology

608,058 Common Stock Warrants

Revance Therapeutics, Inc. (5)

Biotechnology

34,377 Common Stock Warrants

241

Sample6, Inc. (2)

Biotechnology

494,988 Preferred Stock Warrants

Strongbridge U.S. Inc. (5)

Biotechnology

160,714 Common Stock Warrants

vTv Therapeutics Inc. (2)(5)

Biotechnology

76,290 Common Stock Warrants

Sunesis Pharmaceuticals, Inc. (5)

Biotechnology

2,050 Common Stock Warrants

—

AccuVein Inc. (2)

Medical Device

75,769 Preferred Stock Warrants

EnteroMedics, Inc. (5)

Medical Device

134 Common Stock Warrants

347

—

IntegenX, Inc. (2)

Medical Device

170,646 Preferred Stock Warrants

Lantos Technologies, Inc. (2)

Medical Device

66,665,256 Preferred Stock Warrants

Mederi Therapeutics, Inc. (2)

Medical Device

248,736 Preferred Stock Warrants

Mitralign, Inc. (2)

Medical Device

641,909 Preferred Stock Warrants

NinePoint Medical, Inc. (2)

Medical Device

566,038 Preferred Stock Warrants

OraMetrix, Inc. (2)

Medical Device

812,348 Preferred Stock Warrants

—

Tryton Medical, Inc. (2)

Medical Device

122,362 Preferred Stock Warrants

ViOptix, Inc.

Medical Device

375,763 Preferred Stock Warrants

—

Total Warrants — Life Science

1,289

612

Warrants — Technology — 3.3% (8)

Ekahau, Inc. (2)

Communications

978,261 Preferred Stock Warrants

Additech, Inc. (2)

Consumer-related Technologies

150,000 Preferred Stock Warrants

Gwynnie Bee, Inc. (2)

Consumer-related Technologies

268,591 Preferred Stock Warrants

698

If(we), Inc.

Consumer-related Technologies

190,868 Preferred Stock Warrants

Le Tote, Inc. (2)

Consumer-related Technologies

202,974 Preferred Stock Warrants

411

Rhapsody International Inc. (2)

Consumer-related Technologies

852,273 Common Stock Warrants

164

150

SavingStar, Inc. (2)

Consumer-related Technologies

98,860 Preferred Stock Warrants

XIOtech, Inc.

Data Storage

2,217,979 Preferred Stock Warrants

—

The NanoSteel Company, Inc. (2)

Materials

299,211 Preferred Stock Warrants

348

IntelePeer, Inc.

Networking

141,549 Common Stock Warrants

Nanocomp Technologies, Inc. (2)

Networking

707,387 Preferred Stock Warrants

Aquion Energy, Inc.

Power Management

115,051 Preferred Stock Warrants

Powerhouse Dynamics, Inc. (2)

Power Management

290,698 Preferred Stock Warrants

Avalanche Technology, Inc. (2)

Semiconductors

202,602 Preferred Stock Warrants

101

eASIC Corporation (2)

Semiconductors

40,445 Preferred Stock Warrants

InVisage Technologies, Inc. (2)

Semiconductors

395,009 Preferred Stock Warrants

Kaminario, Inc.

Semiconductors

1,087,203 Preferred Stock Warrants

Luxtera, Inc.(2)

Semiconductors

2,508,671 Preferred Stock Warrants

193

Soraa, Inc. (2)

Semiconductors

203,616 Preferred Stock Warrants

432

Xtera Communications, Inc. (5)

Semiconductors

37,831 Common Stock Warrants

206

—

Bolt Solutions Inc. (2)

Software

202,892 Preferred Stock Warrants

113

135

Bridge2 Solutions, Inc.

Software

75,458 Common Stock Warrants

341

Clarabridge, Inc.

Software

53,486 Preferred Stock Warrants

ControlScan, Inc. (2)

Software

2,295,918 Preferred Stock Warrants

Decisyon, Inc.

Software

82,967 Common Stock Warrants

—

Digital Signal Corporation

Software

125,116 Common Stock Warrants

—

Education Elements, Inc. (2)

Software

238,122 Preferred Stock Warrants

Lotame Solutions, Inc. (2)

Software

288,115 Preferred Stock Warrants

276

Netuitive, Inc.

Software

41,569 Common Stock Warrants

—

Riv Data Corp. (2)

Software

237,361 Preferred Stock Warrants

ScoreBig, Inc. (2)

Software

879,014 Preferred Stock Warrants

—

ShopKeep.com, Inc. (2)

Software

165,779 Preferred Stock Warrants

118

SIGNiX, Inc.

Software

89,767 Preferred Stock Warrants

168

167

See Notes to Consolidated Financial Statements

Horizon Technology Finance Corporation and Subsidiaries

Consolidated Schedule of Investments (Unaudited)

December 31, 2016

(Dollars in thousands)

			Cost of		Fair
Portfolio Company (1)	Sector	Type of Investment (3)(4)(7)(9)(10)	Investments (6)		Value
Skyword, Inc.	Software	301,056 Preferred Stock Warrants		48		56
SpringCM, Inc. (2)	Software	2,385,686 Preferred Stock Warrants		55		131
Sys-Tech Solutions, Inc.	Software	375,000 Preferred Stock Warrants		242		389
Vidsys, Inc.	Software	85,399 Preferred Stock Warrants		23		12
Visage Mobile, Inc.	Software	1,692,047 Preferred Stock Warrants		19		—
xTech Holdings, Inc. (2)	Software	158,730 Preferred Stock Warrants		43		52
Total Warrants — Technology				2,406		4,590
Warrants — Cleantech — 0.1% (8)
Renmatix, Inc.	Alternative Energy	53,022 Preferred Stock Warrants		68		—
Semprius, Inc.	Alternative Energy	519,981 Preferred Stock Warrants		25		—
Rypos, Inc. (2)	Energy Efficiency	5,627 Preferred Stock Warrants		44		25
Tigo Energy, Inc. (2)	Energy Efficiency	804,604 Preferred Stock Warrants		100		115
Lehigh Technologies, Inc. (2)	Waste Recycling	272,727 Preferred Stock Warrants		33		39
Total Warrants — Cleantech				270		179
Warrants — Healthcare information and services — 0.7% (8)
Accumetrics, Inc.	Diagnostics	100,928 Preferred Stock Warrants		107		180
Candescent Health, Inc. (2)	Diagnostics	519,991 Preferred Stock Warrants		378		—
Interleukin Genetics, Inc. (2)(5)	Diagnostics	7,662,100 Common Stock Warrants		168		142
LifePrint Group, Inc. (2)	Diagnostics	49,000 Preferred Stock Warrants		29		2
ProterixBio, Inc. (2)	Diagnostics	3,156 Common Stock Warrants		54		—
Singulex, Inc.	Other Healthcare	294,231 Preferred Stock Warrants		44		51
Verity Solutions Group, Inc.	Other Healthcare	300,360 Preferred Stock Warrants		100		42
Watermark Medical, Inc. (2)	Other Healthcare	27,373 Preferred Stock Warrants		74		76
MedAvante, Inc. (2)	Software	114,285 Preferred Stock Warrants		66		79
Medsphere Systems Corporation (2)	Software	7,097,791 Preferred Stock Warrants		60		205
Recondo Technology, Inc. (2)	Software	556,796 Preferred Stock Warrants		95		204
Total Warrants — Healthcare information and services				1,175		981
Total Warrants				5,140		6,362

Other Investments — 0.4% (8)
ZetrOZ, Inc.	Medical Device	Royalty Agreement		365		500
Vette Technology, LLC	Data Storage	Royalty Agreement Due 4/18/2019		4,318		100
Total Other Investments				4,683		600
Equity — 0.6% (8)
Insmed Incorporated (5)	Biotechnology	33,208 Common Stock		238		439
Revance Therapeutics, Inc.(5)	Biotechnology	4,861 Common Stock		73		101
Sunesis Pharmaceuticals, Inc. (5)	Biotechnology	13,082 Common Stock		83		47
SnagAJob.com, Inc.	Consumer-related Technologies	82,974 Common Stock		9		83
Decisyon, Inc.	Software	4,200,934 Common Stock		185		185
Total Equity				588		855
Total Portfolio Investment Assets — 139.4% (8)			$	211,627	$	194,003

(1)

All investments of the Company are in entities which are organized under the laws of the United States and have a principal place of business in the United States.

(2)

Has been pledged as collateral under the Key Facility.

(3)

All investments are less than 5% ownership of the class and ownership of the portfolio company.

(4)

All interest is payable in cash due monthly in arrears, unless otherwise indicated, and applies only to the Company’s debt investments. Interest rate is the annual interest rate on the debt investment and does not include ETPs and any additional fees related to the investments, such as deferred interest, commitment fees or prepayment fees. Debt investments are at fixed rates for the term of the debt investment, unless otherwise indicated. All debt investments based on LIBOR are based on one-month LIBOR. For each debt investment, the current interest rate in effect as of December 31, 2016 is provided.

(5)

Portfolio company is a public company.

(6)

For debt investments, represents principal balance less unearned income.

(7)

Warrants, Equity and Other Investments are non-income producing.

(8)

Value as a percent of net assets.

See Notes to Consolidated Financial Statements

Horizon Technology Finance Corporation and Subsidiaries

Consolidated Schedule of Investments (Unaudited)

December 31, 2016

(Dollars in thousands)

(9)

The Company did not have any non-qualifying assets under Section 55(a) of the 1940 Act as of December 31, 2016. Under the 1940 Act, the Company may not acquire any non-qualifying assets unless, at the time the acquisition is made, qualifying assets represent at least 70% of the Company’s total assets.

(10)

(11)

Debt investment is on non-accrual status at December 31, 2016.

(12)

ScoreBig made an assignment for the benefit of its creditors whereby ScoreBig assigned all of its assets to SBABC, established under California law to effectuate the Assignment for the Benefit of Creditors of ScoreBig. SBABC subsequently entered into a License Agreement with a Licensee, whereby SBABC granted a license of certain of SBABC’s intellectual property and general intangibles to Licensee in exchange for certain royalty payments on the future net profits, if any, of Licensee. SBABC, in consideration for the Company’s consent to the License Agreement, agreed to pay all payments due under the License Agreement, if any, to the Company until the payment in full in cash of the Company’s debt investments in ScoreBig.

(13)

DSC made an assignment for the benefit of its creditors whereby DSC assigned all of its assets to DSC (assignment for the benefit of creditors), LLC, a Delaware limited liability company, established under Delaware law to effectuate the Assignment for the Benefit of Creditors of DSC.

See Notes to Consolidated Financial Statements

Horizon Technology Finance Corporation and Subsidiaries

Notes to Consolidated Financial Statements

Note 1. Organization

Horizon Technology Finance Corporation (the “Company”) was organized as a Delaware corporation on March 16, 2010 and is an externally managed, non-diversified, closed-end investment company. The Company has elected to be regulated as a business development company (“BDC”) under the 1940 Act. In addition, for tax purposes, the Company has elected to be treated as a regulated investment company (“RIC”) as defined under Subchapter M of the Internal Revenue Code of 1986, as amended (the “Code”). As a RIC, the Company generally is not subject to corporate-level federal income tax on the portion of its taxable income (including net capital gains) the Company distributes to its stockholders. The Company primarily makes secured debt investments to development-stage companies in the technology, life science, healthcare information and services and cleantech industries. All of the Company’s debt investments consist of loans secured by all of, or a portion of, the applicable debtor company’s tangible and intangible assets.

On October 28, 2010, the Company completed an initial public offering (“IPO”), and its common stock trades on the NASDAQ Global Select Market under the symbol “HRZN”. The Company was formed to continue and expand the business of Compass Horizon Funding Company LLC, a Delaware limited liability company, which commenced operations in March 2008 and became the Company’s wholly owned subsidiary upon the completion of the Company’s IPO.

Horizon Credit II LLC (“Credit II”) was formed as a Delaware limited liability company on June 28, 2011, with the Company as its sole equity member. Credit II is a special purpose bankruptcy-remote entity and is a separate legal entity from the Company. Any assets conveyed to Credit II are not available to creditors of the Company or any other entity other than Credit II’s lenders.

The Company formed Horizon Funding 2013-1 LLC (“2013-1 LLC”) as a Delaware limited liability company on June 7, 2013 and Horizon Funding Trust 2013-1 (“2013-1 Trust” and, together with the 2013-1 LLC, the “2013-1 Entities”) as a Delaware trust on June 18, 2013. The 2013-1 Entities were special purpose bankruptcy remote entities and were separate legal entities from the Company. The Company formed the 2013-1 Entities for purposes of securitizing $189.3 million of secured loans (the “2013-1 Securitization”) and issuing fixed-rate asset-backed notes in an aggregate principal amount of $90 million (the “Asset-Backed Notes”). The 2013-1 Entities were dissolved as of September 30, 2016.

The Company has also established an additional wholly owned subsidiary, which is structured as a Delaware limited liability company, to hold the assets of a portfolio company acquired in connection with foreclosure or bankruptcy, which is a separate legal entity from the Company.

The Company’s investment strategy is to maximize the investment portfolio’s return by generating current income from the debt investments the Company makes and capital appreciation from the warrants the Company receives when making such debt investments. The Company has entered into an investment management agreement, (the “Investment Management Agreement”) with Horizon Technology Finance Management LLC (the “Advisor”) under which the Advisor manages the day-to-day operations of, and provides investment advisory services to, the Company.

Note 2. Basis of presentation and significant accounting policies

The consolidated financial statements of the Company have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) and pursuant to the requirements for reporting on Form 10-Q and Articles 6 and 10 of Regulation S-X (“Regulation S-X”) under the Securities Act of 1933, as amended (the “Securities Act”). In the opinion of management, the consolidated financial statements reflect all adjustments and reclassifications that are necessary for the fair presentation of financial results as of and for the periods presented. All intercompany balances and transactions have been eliminated. The current period’s results of operations are not necessarily indicative of results that ultimately may be achieved for the year. Therefore, the unaudited financial statements and notes should be read in conjunction with the audited financial statements and notes thereto for the year ended December 31, 2016.

Horizon Technology Finance Corporation and Subsidiaries

Notes to Consolidated Financial Statements

Principles of consolidation

As required under GAAP and Regulation S-X, the Company will generally consolidate its investment in a company that is an investment company subsidiary or a controlled operating company whose business consists of providing services to the Company. Accordingly, the Company consolidated the results of the Company’s wholly-owned subsidiaries in its consolidated financial statements.

Use of estimates

In preparing the consolidated financial statements in accordance with GAAP, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosures of contingent assets and liabilities, as of the date of the balance sheet and income and expenses for the period. Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant change in the near term relate to the valuation of investments.

Fair value

The Company records all of its investments at fair value in accordance with relevant GAAP, which establishes a framework used to measure fair value and requires disclosures for fair value measurements. The Company has categorized its investments carried at fair value, based on the priority of the valuation technique, into a three-level fair value hierarchy as more fully described in Note 5. Fair value is a market-based measure considered from the perspective of the market participant who holds the financial instrument rather than an entity specific measure. Therefore, when market assumptions are not readily available, the Company’s own assumptions are set to reflect those that management believes market participants would use in pricing the financial instrument at the measurement date.

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

See Note 5 for additional information regarding fair value.

Segments

The Company has determined that it has a single reporting segment and operating unit structure. The Company lends to and invests in portfolio companies in various technology, life science, healthcare information and services and cleantech industries. The Company separately evaluates the performance of each of its lending and investment relationships. However, because each of these debt investments and investment relationships has similar business and economic characteristics, they have been aggregated into a single lending and investment segment.

Investments

Investments are recorded at fair value. The Company’s board of directors (the “Board”) determines the fair value of the Company’s portfolio investments. The Company has the intent to hold its debt investments for the foreseeable future or until maturity or payoff.

Interest on debt investments is accrued and included in income based on contractual rates applied to principal amounts outstanding. Interest income is determined using a method that results in a level rate of return on principal amounts outstanding. Generally, when a debt investment becomes 90 days or more past due, or if the Company otherwise does not expect to receive interest and principal repayments, the debt investment is placed on non-accrual status and the recognition of interest income may be discontinued. Interest payments received on non-accrual debt investments may be recognized as income, on a cash basis, or applied to principal depending upon management’s judgment at the time the debt investment is placed on non-accrual status. As of June 30, 2017, there were three debt investments on non-accrual status with a cost of $16.0 million and a fair value of $7.6 million. As of December 31, 2016, there were four investments on non-accrual status with a cost of $26.2 million and a fair value of $11.5 million. For the three and six months ended June 30, 2017 and 2016, the Company did not recognize any interest income from debt investments on non-accrual status.

Horizon Technology Finance Corporation and Subsidiaries

Notes to Consolidated Financial Statements

The Company receives a variety of fees from borrowers in the ordinary course of conducting its business, including advisory fees, commitment fees, amendment fees, non-utilization fees, success fees and prepayment fees. In a limited number of cases, the Company may also receive a non-refundable deposit earned upon the termination of a transaction. Debt investment origination fees, net of certain direct origination costs, are deferred and, along with unearned income, are amortized as a level-yield adjustment over the respective term of the debt investment. All other income is recognized when earned. Fees for counterparty debt investment commitments with multiple debt investments are allocated to each debt investment based upon each debt investment’s relative fair value. When a debt investment is placed on non-accrual status, the amortization of the related fees and unearned income is discontinued until the debt investment is returned to accrual status.

Certain debt investment agreements also require the borrower to make an ETP, that is accrued into interest receivable and taken into income over the life of the debt investment to the extent such amounts are expected to be collected. The Company will generally cease accruing the income if there is insufficient value to support the accrual or the Company does not expect the borrower to be able to pay the ETP when due. The percentage of the Company’s total investment income that resulted from the portion of ETPs not received in cash for the three months ended June 30, 2017 and 2016 was 7.5% and 7.7%, respectively. The percentage of the Company’s total investment income that resulted from the portion of ETPs not received in cash for the six months ended June 30, 2017 and 2016 was 7.5% and 14.2%, respectively.

In connection with substantially all lending arrangements, the Company receives warrants to purchase shares of stock from the borrower. The warrants are recorded as assets at estimated fair value on the grant date using the Black-Scholes valuation model. The warrants are considered loan fees and are recorded as unearned income on the grant date. The unearned income is recognized as interest income over the contractual life of the related debt investment in accordance with the Company’s income recognition policy. Subsequent to debt investment origination, the fair value of the warrants is determined using the Black-Scholes valuation model. Any adjustment to fair value is recorded through earnings as net unrealized appreciation or depreciation on investments. Gains and losses from the disposition of the warrants or stock acquired from the exercise of warrants are recognized as realized gains and losses on investments.

Realized gains or losses on the sale of investments, or upon the determination that an investment balance, or portion thereof, is not recoverable, are calculated using the specific identification method. The Company measures realized gains or losses by calculating the difference between the net proceeds from the repayment or sale and the amortized cost basis of the investment. Net change in unrealized appreciation or depreciation reflects the change in the fair values of the Company’s portfolio investments during the reporting period, including any reversal of previously recorded unrealized appreciation or depreciation when gains or losses are realized.

Debt issuance costs

Debt issuance costs are fees and other direct incremental costs incurred by the Company in obtaining debt financing from its lenders and issuing debt securities. The unamortized balance of debt issuance costs as of June 30, 2017 and December 31, 2016 was $1.3 million and $1.6 million, respectively. These amounts are amortized and included in interest expense in the consolidated statements of operations over the life of the borrowings. The accumulated amortization balances as of June 30, 2017 and December 31, 2016 were $4.7 million and $4.4 million, respectively. The amortization expense for the three months ended June 30, 2017 and 2016 was $0.1 million and $0.2 million, respectively. The amortization expense for each of the six months ended June 30, 2017 and 2016 was $0.3 million.

Horizon Technology Finance Corporation and Subsidiaries

Notes to Consolidated Financial Statements

Income taxes

As a BDC, the Company has elected to be treated as a RIC under Subchapter M of the Code and operates in a manner so as to qualify for the tax treatment applicable to RICs. In order to qualify as a RIC and to avoid the imposition of corporate-level income tax on the portion of its taxable income distributed to stockholders, among other things, the Company is required to meet certain source of income and asset diversification requirements and to timely distribute dividends out of assets legally available for distribution to its stockholders of an amount generally at least equal to 90% of its investment company taxable income, as defined by the Code and determined without regard to any deduction for dividends paid, for each tax year. The Company, among other things, has made and intends to continue to make the requisite distributions to its stockholders, which generally relieves the Company from corporate-level U.S. federal income taxes. Accordingly, no provision for federal income tax has been recorded in the financial statements. Differences between taxable income and net increase in net assets resulting from operations either can be temporary, meaning they will reverse in the future, or permanent. In accordance with Topic 946, Financial Services—Investment Companies, of the Financial Accounting Standards Board’s, Accounting Standards Codification, as amended (“ASC”), permanent tax differences, such as non-deductible excise taxes paid, are reclassified from distributions in excess of net investment income and net realized loss on investments to paid-in-capital at the end of each year. These permanent book-to-tax differences are reclassified on the consolidated statements of changes in net assets to reflect their tax character but have no impact on total net assets. For the year ended December 31, 2016, the Company reclassified $0.1 million to paid-in capital from distributions in excess of net investment income, which related to excise taxes refunded in 2016.

Depending on the level of taxable income earned in a tax year, the Company may choose to carry forward taxable income in excess of current year distributions into the next tax year and incur a 4% U.S. federal excise tax on such income, as required. To the extent that the Company determines that its estimated current year annual taxable income will be in excess of estimated current year distributions, the Company accrues excise tax, if any, on estimated excess taxable income as taxable income is earned. For the six months ended June 30, 2017 and 2016, there was no U.S. federal excise tax accrual recorded.

The Company evaluates tax positions taken in the course of preparing the Company’s tax returns to determine whether the tax positions are “more-likely-than-not” to be sustained by the applicable tax authority in accordance with ASC Topic 740, Income Taxes, as modified by ASC Topic 946. Tax benefits of positions not deemed to meet the more-likely-than-not threshold, or uncertain tax positions, would be recorded as a tax expense in the current year. It is the Company’s policy to recognize accrued interest and penalties related to uncertain tax benefits in income tax expense. The Company had no material uncertain tax positions at June 30, 2017 and December 31, 2016. The Company’s income tax returns for the 2015, 2014 and 2013 tax years remain subject to examination by U.S. federal and state tax authorities.

Distributions

Distributions to common stockholders are recorded on the declaration date. The amount to be paid out as distributions is determined by the Board. Net realized capital gains, if any, are distributed at least annually, although the Company may decide to retain such net realized gains for investment.

The Company has adopted a dividend reinvestment plan that provides for reinvestment of cash distributions on behalf of its stockholders, unless a stockholder elects to receive cash. As a result, if the Board declares a cash distribution, then stockholders who have not “opted out” of the dividend reinvestment plan will have their cash distributions automatically reinvested in additional shares of the Company’s common stock, rather than receiving the cash distribution. The Company may use newly issued shares to implement the plan or the Company may purchase shares in the open market to fulfill its obligations under the plan.

Stock Repurchase Program

On April 27, 2017, the Board extended a previously authorized stock repurchase program which allows the Company to repurchase up to $5.0 million of its common stock at prices below the Company’s net asset value per share as reported in its most recent consolidated financial statements. Under the repurchase program, the Company may, but is not obligated to, repurchase shares of its outstanding common stock in the open market or in privately negotiated transactions from time to time. Any repurchases by the Company will comply with the requirements of Rule 10b-18 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and any applicable requirements of the 1940 Act. Unless extended by the Board, the repurchase program will terminate on the earlier of June 30, 2018 or the repurchase of $5.0 million of the Company’s common stock. During the three and six months ended June 30, 2017 and 2016, the Company did not complete any repurchases of its common stock. From the inception of the stock repurchase program through June 30, 2017, the Company repurchased 161,542 shares of its common stock at an average price of $11.27 on the open market at a total cost of $1.8 million.

Horizon Technology Finance Corporation and Subsidiaries

Notes to Consolidated Financial Statements

Transfers of financial assets

Assets related to transactions that do not meet the requirements under ASC Topic 860, Transfers and Servicing for accounting sale treatment are reflected in the Company’s consolidated statements of assets and liabilities as investments. Those assets are owned by special purpose entities that are consolidated in the Company’s financial statements. The creditors of the special purpose entities have received security interests in such assets and such assets are not intended to be available to the creditors of the Company (or any other affiliate of the Company).

Transfers of financial assets are accounted for as sales when control over the assets has been surrendered. Control over transferred assets is deemed to be surrendered when (1) the assets have been isolated from the Company — put presumptively beyond the reach of the transferor and its creditors, even in bankruptcy or other receivership, (2) the transferee obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred assets and (3) the transferor does not maintain effective control over the transferred assets through either (a) an agreement that both entitles and obligates the transferor to repurchase or redeem the assets before maturity or (b) the ability to unilaterally cause the holder to return specific assets, other than through a cleanup call.

Note 3. Related party transactions

Investment Management Agreement

The Investment Management Agreement was reapproved by the Board on July 28, 2017. Under the terms of the Investment Management Agreement, the Advisor determines the composition of the Company’s investment portfolio, the nature and timing of the changes to the investment portfolio and the manner of implementing such changes; identifies, evaluates and negotiates the structure of the investments the Company makes (including performing due diligence on the Company’s prospective portfolio companies); and closes, monitors and administers the investments the Company makes, including the exercise of any voting or consent rights.

The Advisor’s services under the Investment Management Agreement are not exclusive to the Company, and the Advisor is free to furnish similar services to other entities so long as its services to the Company are not impaired. The Advisor is a registered investment adviser with the U.S. Securities and Exchange Commission. The Advisor receives fees for providing services to the Company under the Investment Management Agreement, consisting of two components, a base management fee and an incentive fee.

The base management fee under the Investment Management Agreement is calculated at an annual rate of 2.00% of (i) the Company’s gross assets, less (ii) assets consisting of cash and cash equivalents, and is payable monthly in arrears. For purposes of calculating the base management fee, the term “gross assets” includes any assets acquired with the proceeds of leverage.

The base management fee payable at June 30, 2017 and December 31, 2016 was $0.3 million. The base management fee expense was $0.9 million and $1.2 million, respectively, for the three months ended June 30, 2017 and 2016. The base management fee expense was $1.9 million and $2.5 million, respectively, for the six months ended June 30, 2017 and 2016.

The incentive fee has two parts, as follows:

The first part, which is subject to the Incentive Fee Cap and Deferral Mechanism, as defined below, is calculated and payable quarterly in arrears based on the Company’s pre-incentive fee net investment income for the immediately preceding calendar quarter. For this purpose, “Pre-Incentive Fee Net Investment Income” means interest income, dividend income and any other income (including any other fees (other than fees for providing managerial assistance), such as commitment, origination, structuring, diligence and consulting fees or other fees received from portfolio companies) accrued during the calendar quarter, minus expenses for the quarter (including the base management fee, expenses payable under the Administration Agreement (as defined below), and any interest expense and any dividends paid on any issued and outstanding preferred stock, but excluding the incentive fee). Pre-Incentive Fee Net Investment Income includes, in the case of investments with a deferred interest feature (such as original issue discount, debt instruments with payment-in-kind interest and zero coupon securities), accrued income the Company has not yet received in cash. The incentive fee with respect to the Pre-Incentive Fee Net Investment Income is 20.00% of the amount, if any, by which the Pre-Incentive Fee Net Investment Income for the immediately preceding calendar quarter exceeds a hurdle rate of 1.75% (which is 7.00% annualized) of the Company’s net assets at the end of the immediately preceding calendar quarter, subject to a “catch-up” provision measured as of the end of each calendar quarter. Under this provision, in any calendar quarter, the Advisor receives no incentive fee until the Pre-Incentive Fee Net Investment Income equals the hurdle rate of 1.75%, but then receives, as a “catch-up,” 100.00% of the Pre-Incentive Fee Net Investment Income with respect to that portion of such Pre-Incentive Fee Net Investment Income, if any, that exceeds the hurdle rate but is less than 2.1875% quarterly (which is 8.75% annualized). The effect of this “catch-up” provision is that, if Pre-Incentive Fee Net Investment Income exceeds 2.1875% in any calendar quarter, the Advisor will receive 20.00% of the Pre-Incentive Fee Net Investment Income as if the hurdle rate did not apply.

Horizon Technology Finance Corporation and Subsidiaries

Notes to Consolidated Financial Statements

Pre-Incentive Fee Net Investment Income does not include any realized capital gains, realized capital losses or unrealized capital appreciation or depreciation. Because of the structure of the incentive fee, it is possible that the Company may pay an incentive fee in a quarter in which the Company incurs a loss. For example, if the Company receives Pre-Incentive Fee Net Investment Income in excess of the quarterly minimum hurdle rate, the Company will pay the applicable incentive fee up to the Incentive Fee Cap, defined below, even if the Company has incurred a loss in that quarter due to realized and unrealized capital losses. The Company’s net investment income used to calculate this part of the incentive fee is also included in the amount of the Company’s gross assets used to calculate the 2.00% base management fee. These calculations are appropriately prorated for any period of less than three months and adjusted for any share issuances or repurchases during the current quarter.

Commencing with the calendar quarter beginning July 1, 2014, the incentive fee on Pre-Incentive Fee Net Investment Income is subject to a fee cap and deferral mechanism which is determined based upon a look-back period of up to three years and is expensed when incurred. For this purpose, the look-back period for the incentive fee based on Pre-Incentive Fee Net Investment Income (the “Incentive Fee Look-back Period”) commenced on July 1, 2014 and increases by one quarter in length at the end of each calendar quarter until June 30, 2017, after which time, the Incentive Fee Look-back Period will include the relevant calendar quarter and the 11 preceding full calendar quarters. Each quarterly incentive fee payable on Pre-Incentive Fee Net Investment Income is subject to a cap (the “Incentive Fee Cap”) and a deferral mechanism through which the Advisor may recoup a portion of such deferred incentive fees (collectively, the “Incentive Fee Cap and Deferral Mechanism”). The Incentive Fee Cap is equal to (a) 20.00% of Cumulative Pre-Incentive Fee Net Return (as defined below) during the Incentive Fee Look-back Period less (b) cumulative incentive fees of any kind paid to the Advisor during the Incentive Fee Look-back Period. To the extent the Incentive Fee Cap is zero or a negative value in any calendar quarter, the Company will not pay an incentive fee on Pre-Incentive Fee Net Investment Income to the Advisor in that quarter. To the extent that the payment of incentive fees on Pre-Incentive Fee Net Investment Income is limited by the Incentive Fee Cap, the payment of such fees will be deferred and paid in subsequent calendar quarters up to three years after their date of deferment, subject to certain limitations, which are set forth in the Investment Management Agreement. The Company only pays incentive fees on Pre-Incentive Fee Net Investment Income to the extent allowed by the Incentive Fee Cap and Deferral Mechanism. “Cumulative Pre-Incentive Fee Net Return” during any Incentive Fee Look-back Period means the sum of (a) Pre-Incentive Fee Net Investment Income and the base management fee for each calendar quarter during the Incentive Fee Look-back Period and (b) the sum of cumulative realized capital gains and losses, cumulative unrealized capital appreciation and cumulative unrealized capital depreciation during the applicable Incentive Fee Look-back Period.

The second part of the incentive fee is determined and payable in arrears as of the end of each calendar year (or, upon termination of the Investment Management Agreement, as of the termination date), and equals 20.00% of the Company’s realized capital gains, if any, on a cumulative basis from the date of the election to be a BDC through the end of each calendar year, computed net of all realized capital losses and unrealized capital depreciation on a cumulative basis through the end of such year, less all previous amounts paid in respect of the capital gain incentive fee. However, in accordance with GAAP, the Company is required to include the aggregate unrealized capital appreciation on investments in the calculation and accrue a capital gain incentive fee on a quarterly basis, as if such unrealized capital appreciation were realized, even though such unrealized capital appreciation is not permitted to be considered in calculating the fee actually payable under the Investment Management Agreement.

Horizon Technology Finance Corporation and Subsidiaries

Notes to Consolidated Financial Statements

The performance based incentive fee expense was $0.4 million and $1.0 million for the three months ended June 30, 2017 and 2016, respectively. The incentive fee on Pre-Incentive Fee Net Investment Income was subject to the Incentive Fee Cap and Deferral Mechanism for the three months ended June 30, 2017, which resulted in $0.2 million of reduced expense and additional net investment income. The performance based incentive fee expense was subject to the Incentive Fee Cap and Deferral Mechanism for the three months ended June 30, 2016, which resulted in $0.1 million of reduced expense and additional net investment income. The performance based incentive fee expense was $0.8 million and $2.1 million for the six months ended June 30, 2017 and 2016, respectively. The incentive fee on Pre-Incentive Fee Net Investment Income was subject to the Incentive Fee Cap and Deferral Mechanism for the six months ended June 30, 2017, which resulted in $0.6 million of reduced expense and additional net investment income. The performance based incentive fee payable as of June 30, 2017 was $0.4 million. The entire incentive fee payable as of June 30, 2017 was composed of the incentive fee based on Pre-Incentive Fee Net Investment Income. There was no performance based incentive fee payable as of December 31, 2016.

Administration Agreement

The Company entered into an administration agreement (the “Administration Agreement”) with the Advisor to provide administrative services to the Company. For providing these services, facilities and personnel, the Company reimburses the Advisor for the Company’s allocable portion of overhead and other expenses incurred by the Advisor in performing its obligations under the Administration Agreement, including rent, the fees and expenses associated with performing compliance functions and the Company’s allocable portion of the costs of compensation and related expenses of the Company’s Chief Financial Officer and Chief Compliance Officer and their respective staffs. The administrative fee expense was $0.2 million and $0.3 million for the three months ended June 30, 2017 and 2016, respectively. The administrative fee expense was $0.4 million and $0.6 million for the six months ended June 30, 2017 and 2016, respectively.

Note 4. Investments

The following table shows the Company’s investments as of June 30, 2017 and December 31, 2016:

	June 30, 2017				December 31, 2016
	Cost		Fair Value		Cost		Fair Value
			(In thousands)
Non-affiliate investments
Debt	$	173,579	$	164,895	$	201,216	$	186,186
Warrants		5,540		7,341		5,140		6,362
Other		9,906		5,900		4,683		600
Equity		588		948		588		855
Total non-affiliate investments	$	189,613	$	179,084	$	211,627	$	194,003

Horizon Technology Finance Corporation and Subsidiaries

Notes to Consolidated Financial Statements

The following table shows the Company’s non-affiliate investments by industry sector as of June 30, 2017 and December 31, 2016:

	June 30, 2017				December 31, 2016
	Cost		Fair Value		Cost		Fair Value
			(In thousands)
Life Science
Biotechnology	$	33,015	$	34,052	$	46,703	$	41,578
Medical Device		9,777		9,441		14,164		13,736
Technology
Communications		7,913		7,903		108		99
Consumer-Related		19,017		19,912		21,055		22,121
Data Storage		4,300		100		4,340		100
Internet and Media		31,728		31,724		7,933		7,933
Materials		9,991		10,247		9,966		10,222
Networking		106		47		3,412		3,409
Power Management		1,755		1,753		2,255		2,318
Semiconductors		2,353		2,731		12,076		8,311
Software		50,015		43,056		60,516		55,362
Cleantech
Alternative Energy		68		—		93		—
Energy Efficiency		144		162		2,086		2,082
Waste Recycling		5,984		5,984		5,997		6,003
Healthcare Information and Services
Diagnostics		4,668		3,002		4,817		4,405
Other		3,824		3,758		5,988		5,939
Software		4,955		5,212		10,118		10,385
Total non-affiliate investments	$	189,613	$	179,084	$	211,627	$	194,003

Note 5. Fair value

The Company uses fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value is best determined based upon quoted market prices. However, in certain instances, there are no quoted market prices for certain assets or liabilities. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. Accordingly, the fair value estimates may not be realized in an immediate settlement of the asset or liability.

Fair value measurements focus on exit prices in an orderly transaction (that is, not a forced liquidation or distressed sale) between market participants at the measurement date under current market conditions. If there has been a significant decrease in the volume and level of activity for the asset or liability, a change in valuation technique or the use of multiple valuation techniques may be appropriate. In such instances, determining the price at which willing market participants would transact at the measurement date under current market conditions depends on the facts and circumstances and requires the use of significant judgment.

The Company’s fair value measurements are classified into a fair value hierarchy in accordance with ASC Topic 820, Fair Value Measurement, based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value. The three categories within the hierarchy are as follows:

Level 1

Quoted prices in active markets for identical assets and liabilities.

Level 2

Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities in active markets, quoted prices in markets that are not active, and model-based valuation techniques for which all significant inputs are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Horizon Technology Finance Corporation and Subsidiaries

Notes to Consolidated Financial Statements

Level 3

Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Level 3 assets and liabilities include financial instruments whose value is determined using pricing models, discounted cash flow methodologies or similar techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation.

Investments are valued at fair value as determined in good faith by the Board, based on input of management, the audit committee and independent valuation firms which are engaged at the direction of the Board to assist in the valuation of each portfolio investment lacking a readily available market quotation at least once during a trailing twelve-month period under a valuation policy and a consistently applied valuation process. This valuation process is conducted at the end of each fiscal quarter, with at least 25% (based on fair value) of the Company’s valuation of portfolio companies lacking readily available market quotations subject to review by an independent valuation firm.

Because there is not a readily available market value for most of the investments in its portfolio, the Company values substantially all of its portfolio investments at fair value as determined in good faith by the Board, as described herein. Due to the inherent uncertainty of determining the fair value of investments that do not have a readily available market value, the fair value of the Company's investments may fluctuate from period to period. Additionally, the fair value of the Company's investments may differ significantly from the values that would have been used had a ready market existed for such investments and may differ materially from the values that the Company may ultimately realize. Further, such investments are generally subject to legal and other restrictions on resale or otherwise are less liquid than publicly traded securities. If the Company was required to liquidate a portfolio investment in a forced or liquidation sale, the Company could realize significantly less than the value at which the Company has recorded such portfolio investment.

Cash and interest receivable: The carrying amount is a reasonable estimate of fair value. These financial instruments are not recorded at fair value on a recurring basis and are categorized as Level 1 within the fair value hierarchy described above.

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: The fair value of debt investments is estimated by discounting the expected future cash flows using the period end rates at which similar debt investments would be made to borrowers with similar credit ratings and for the same remaining maturities. At June 30, 2017 and December 31, 2016, the hypothetical market yields used ranged from 11% to 25%. Significant increases (decreases) in this unobservable input would result in a significantly lower (higher) fair value measurement. These assets are recorded at fair value on a recurring basis and are categorized as Level 3 within the fair value hierarchy described above.

Under certain circumstances, the Company may use an alternative technique to value debt investments that better reflects its fair value such as the use of multiple probability weighted cash flow models when the expected future cash flows contain elements of variability.

Warrant investments: The Company values its warrants using the Black-Scholes valuation model incorporating the following material assumptions:

•

Underlying asset value of the issuer is estimated based on information available, including any information regarding the most recent rounds of borrower funding. Significant increases (decreases) in this unobservable input would result in a significantly higher (lower) fair value measurement.

•

Volatility, or the amount of uncertainty or risk about the size of the changes in the warrant price, is based on indices of publicly traded companies similar in nature to the underlying company issuing the warrant. A total of seven such indices are used. Significant increases (decreases) in this unobservable input would result in a significantly higher (lower) fair value measurement.

•

The risk-free interest rates are derived from the U.S. Treasury yield curve. The risk-free interest rates are calculated based on a weighted average of the risk-free interest rates that correspond closest to the expected remaining life of the warrant.

Horizon Technology Finance Corporation and Subsidiaries

Notes to Consolidated Financial Statements

•

Other adjustments, including a marketability discount on private company warrants, are estimated based on management’s judgment about the general industry environment.

•

Historical portfolio experience on cancellations and exercises of the Company’s warrants are utilized as the basis for determining the estimated time to exit of the warrants in each financial reporting period. Warrants may be exercised in the event of acquisitions, mergers or IPOs, and cancelled due to events such as bankruptcies, restructuring activities or additional financings. These events cause the expected remaining life assumption to be shorter than the contractual term of the warrants. Significant increases (decreases) in this unobservable input would result in significantly higher (lower) fair value measurement.

Under certain circumstances the Company may use an alternative technique to value warrants that better reflects the warrants’ fair value, such as an expected settlement of a warrant in the near term or a model that incorporates a put feature associated with the warrant. The fair value may be determined based on the expected proceeds to be received from such settlement or based on the net present value of the expected proceeds from the put option.

The fair value of the Company’s warrants held in publicly traded companies is determined based on inputs that are readily available in public markets or can be derived from information available in public markets. Therefore, the Company has categorized these warrants as Level 2 within the fair value hierarchy described above. The fair value of the Company’s warrants held in private companies is determined using both observable and unobservable inputs and represents management’s best estimate of what market participants would use in pricing the warrants at the measurement date. Therefore, the Company has categorized these warrants as Level 3 within the fair value hierarchy described above. These assets are recorded at fair value on a recurring basis.

Equity investments: The fair value of an equity investment in a privately held company is initially the face value of the amount invested. The Company adjusts the fair value of equity investments in private companies upon the completion of a new third-party round of equity financing. The Company may make adjustments to fair value, absent a new equity financing event, based upon positive or negative changes in a portfolio company’s financial or operational performance. Significant increases (decreases) in this unobservable input would result in a significantly higher (lower) fair value measurement. The Company has categorized these equity investments as Level 3 within the fair value hierarchy described above. The fair value of an equity investment in a publicly traded company is based upon the closing public share price on the date of measurement. Therefore, the Company has categorized these equity investments as Level 1 within the fair value hierarchy described above. These assets are recorded at fair value on a recurring basis.

Other investments: Other investments are valued based on the facts and circumstances of the underlying contractual agreement. The Company currently values these contractual agreements using a multiple probability weighted cash flow model as the contractual future cash flows contain elements of variability. Significant changes in the estimated cash flows and probability weightings would result in a significantly higher or lower fair value measurement. The Company has categorized these other investments as Level 3 within the fair value hierarchy described above. These other investments are recorded at fair value on a recurring basis.

The following tables provide a summary of quantitative information about the Company’s Level 3 fair value measurements of its investments as of June 30, 2017 and December 31, 2016. In addition to the techniques and inputs noted in the table below, according to the Company’s valuation policy, the Company may also use other valuation techniques and methodologies when determining its fair value measurements.

Horizon Technology Finance Corporation and Subsidiaries

Notes to Consolidated Financial Statements

The following table is not intended to be all-inclusive, but rather provides information on the significant Level 3 inputs as they relate to the Company’s fair value measurements as of June 30, 2017:

June 30, 2017

Fair

Valuation Techniques/

Unobservable

Weighted

Investment Type

Value

Methodologies

Input

Range

Average

(Dollars in thousands, except per share data)

Debt investments

157,295

Discounted Expected Future Cash Flows

Hypothetical Market Yield

11% – 25%

13%

7,600

Liquidation Scenario

Probability Weighting

10% – 50%

33%

Warrant investments

6,107

Black-Scholes Valuation Model

Price Per Share
Average Industry Volatility

$0.00 – $63.98
21%

$4.15
21%

Marketability Discount

20%

Estimated Time to Exit

1 to 5 years

3 years

Other investments

5,900

Multiple Probability Weighted Cash Flow Model

Discount Rate
Probability Weighting

18% – 25%
25% – 100%

19%
40%

Equity investments

208

Last Equity Financing

Price Per Share

$0.00 – $1.00

$0.40

Total Level 3 investments

177,110

December 31, 2016

Fair

Valuation Techniques/

Unobservable

Weighted

Investment Type

Value

Methodologies

Input

Range

Average

(Dollars in thousands, except per share data)

Debt investments

174,686

Discounted Expected Future Cash Flows

Hypothetical Market Yield

11% – 25%

13%

11,500

Liquidation Scenario

Probability Weighting

25% – 100%

40%

Warrant investments

5,677

Black-Scholes Valuation Model

Price Per Share
Average Industry Volatility

$0.00 – $63.98
21%

$4.02
21%

Marketability Discount

20%

Estimated Time to Exit

1 to 5 years

3 years

180

Expected Settlement

Price Per Share

$1.78

Other investments

600

Multiple Probability Weighted Cash Flow Model

Discount Rate
Probability Weighting

25%
25% – 100%

25%
43%

Equity investments

268

Last Equity Financing

Price Per Share

$0.04 – $1.00

$0.34

Total Level 3 investments

192,911

Borrowings: The carrying amount of borrowings under the Company’s revolving credit facility (the “Key Facility”) with KeyBank National Association (“Key”) approximates fair value due to the variable interest rate of the Key Facility and is categorized as Level 2 within the fair value hierarchy described above. Additionally, the Company considers its creditworthiness in determining the fair value of such borrowings. The fair value of the fixed rate 2019 Notes (as defined in Note 6) is based on the closing public share price on the date of measurement. On June 30, 2017, the closing price of the 2019 Notes on the New York Stock Exchange was $25.64 per note, or $33.8 million. Therefore, the Company has categorized this borrowing as Level 1 within the fair value hierarchy described above.

Off-balance-sheet instruments: Fair values for off-balance-sheet lending commitments are based on fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the counterparties’ credit standings. Therefore, the Company has categorized these instruments as Level 3 within the fair value hierarchy described above.

Horizon Technology Finance Corporation and Subsidiaries

Notes to Consolidated Financial Statements

The following tables detail the assets that are carried at fair value and measured at fair value on a recurring basis as of June 30, 2017 and December 31, 2016 and indicate the fair value hierarchy of the valuation techniques utilized by the Company to determine the fair value:

	June 30, 2017
	Total		Level 1		Level 2		Level 3
	(In thousands)
Debt investments	$	164,895	$	—	$	—	$	164,895
Warrant investments	$	7,341	$	—	$	1,234	$	6,107
Other investments	$	5,900	$	—	$	—	$	5,900
Equity investments	$	948	$	740	$	—	$	208

	December 31, 2016
	Total		Level 1		Level 2		Level 3
	(In thousands)
Debt investments	$	186,186	$	—	$	—	$	186,186
Warrant investments	$	6,362	$	—	$	505	$	5,857
Other investments	$	600	$	—	$	—	$	600
Equity investments	$	855