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 MARCH 31, 2019

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 every Interactive Data File required to be submitted 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 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	¨	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 traded under the symbol “HRZN” on the Nasdaq Global Select Market, $0.001 par value per share, outstanding as of April 30, 2019 was 13,539,680.

HORIZON TECHNOLOGY FINANCE CORPORATION

FORM 10-Q

TABLE OF CONTENTS

		Page
	PART I
Item 1.	Consolidated Financial Statements	3

	Consolidated Statements of Assets and Liabilities as of March 31, 2019 and December 31, 2018 (unaudited)	3
	Consolidated Statements of Operations for the three months ended March 31, 2019 and 2018 (unaudited)	4
	Consolidated Statements of Changes in Net Assets for the three months ended March 31, 2019 and 2018 (unaudited)	5
	Consolidated Statements of Cash Flows for the three months ended March 31, 2019 and 2018 (unaudited)	6
	Consolidated Schedules of Investments as of March 31, 2019 and December 31, 2018 (unaudited)	7
	Notes to the Consolidated Financial Statements (unaudited)	18
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	44
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	61
Item 4.	Controls and Procedures	62

	PART II
Item 1.	Legal Proceedings	63
Item 1A.	Risk Factors	63
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	63
Item 3.	Defaults Upon Senior Securities	63
Item 4.	Mine Safety Disclosures	63
Item 5.	Other Information	64
Item 6.	Exhibits	64
	Signatures	65

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)

	March 31, 2019			December 31, 2018

Assets
Non-affiliate investments at fair value (cost of $248,890 and $229,772, respectively)	$	245,226		$	227,624
Non-controlled affiliate investments at fair value (cost of $7,742 and $7,887, respectively) (Note 5)		7,581			7,574
Controlled affiliate investments at fair value (cost of $13,360 and $13,262, respectively) (Note 5)		13,345			13,243
Total investments at fair value (cost of $269,992 and $250,921, respectively) (Note 4)		266,152			248,441
Cash		22,163			12,591
Interest receivable		4,848			3,966
Other assets		1,628			1,751
Total assets	$	294,791		$	266,749

Liabilities
Borrowings (Note 7)	$	131,923		$	126,853
Distributions payable		4,062			3,461
Base management fee payable (Note 3)		447			422
Incentive fee payable (Note 3)		808			991
Other accrued expenses		1,127			765
Total liabilities		138,367			132,492

Commitments and Contingencies (Note 8)

Net assets
Preferred stock, par value $0.001 per share, 1,000,000 shares authorized, zero shares issued and outstanding as of March 31, 2019 and December 31, 2019		—			—
Common stock, par value $0.001 per share, 100,000,000 shares authorized, 13,705,946 and 11,702,594 shares issued and 13,538,481 and 11,535,129 shares outstanding as of March 31, 2019 and December 31, 2018, respectively		14			12
Paid-in capital in excess of par		202,818			179,616
Distributable earnings		(46,408	)		(45,371	)
Total net assets		156,424			134,257
Total liabilities and net assets	$	294,791		$	266,749
Net asset value per common share	$	11.55		$	11.64

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
	March 31,
	2019			2018
Investment income
Interest income on investments
Interest income on non-affiliate investments	$	7,434		$	6,622
Interest income on affiliate investments		223			131
Total interest income on investments		7,657			6,753
Fee income
Fee income on non-affiliate investments		313			422
Fee income on affiliate investments		5			—
Total fee income		318			422
Dividend income
Dividend income on controlled affiliate investments		331			—
Total dividend income		331			—
Total investment income		8,306			7,175
Expenses
Interest expense		2,048			1,484
Base management fee (Note 3)		1,297			1,114
Performance based incentive fee (Note 3)		1,948			545
Administrative fee (Note 3)		211			184
Professional fees		491			445
General and administrative		218			193
Total expenses		6,213			3,965
Performance based incentive fees waived (Note 3)		(1,140	)		—
Net expenses		5,073			3,965
Net investment income		3,233			3,210
Net realized and unrealized loss on investments
Net realized gain (loss) on non-affiliate investments		1,151			(149	)
Net realized gain (loss) on investments		1,151			(149	)
Net unrealized depreciation on non-affiliate investments		(1,515	)		(332	)
Net unrealized appreciation (depreciation) on affiliate investments		152			(126	)
Net unrealized appreciation on controlled affiliate investments		4			—
Net unrealized depreciation on investments		(1,359	)		(458	)
Net realized and unrealized loss on investments		(208	)		(607	)
Net increase in net assets resulting from operations	$	3,025		$	2,603
Net investment income per common share	$	0.28		$	0.28
Net increase in net assets per common share	$	0.26		$	0.23
Distributions declared per share	$	0.30		$	0.30
Weighted average shares outstanding		11,670,196			11,522,153

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		Distributable			Total Net
	Shares		Amount		Par		Earnings			Assets
Balance at December 31, 2017		11,520,406	$	12	$	179,641	$	(44,578	)	$	135,075
Net increase in net assets resulting from operations, net of excise tax:
Net investment income, net of excise tax		—		—		—		3,210			3,210
Net realized loss on investments		—		—		—		(149	)		(149	)
Net unrealized depreciation on investments		—		—		—		(458	)		(458	)
Issuance of common stock under dividend reinvestment plan		3,545		—		40		—			40
Distributions declared		—		—		—		(3,457	)		(3,457	)
Balance at March 31, 2018		11,523,951		12		179,681		(45,432	)		134,261

Balance at December 31, 2018		11,535,129		12		179,616		(45,371	)		134,257
Issuance of common stock, net of offering costs		2,000,000		2		23,160		—			23,162
Net increase in net assets resulting from operations, net of excise tax:
Net investment income, net of excise tax		—		—		—		3,233			3,233
Net realized gain on investments		—		—		—		1,151			1,151
Net unrealized depreciation on investments		—		—		—		(1,359	)		(1,359	)
Issuance of common stock under dividend reinvestment plan		3,352		—		42		—			42
Distributions declared		—		—		—		(4,062	)		(4,062	)
Balance at March 31, 2019		13,538,481	$	14	$	202,818	$	(46,408	)	$	156,424

See Notes to Consolidated Financial Statements

Horizon Technology Finance Corporation and Subsidiaries

Consolidated Statements of Cash Flows (Unaudited)

(Dollars in thousands)

	For the Three Months Ended
	March 31,
	2019			2018
Cash flows from operating activities:
Net increase in net assets resulting from operations	$	3,025		$	2,603
Adjustments to reconcile net increase in net assets resulting from operations to net cash (used in) provided by operating activities:
Amortization of debt issuance costs		172			150
Net realized (gain) loss on investments		(1,151	)		149
Net unrealized depreciation on investments		1,359			458
Purchase of investments		(38,082	)		(8,562	)
Principal payments received on investments		18,613			15,540
Proceeds from sale of investments		1,768			2,715
Distributions from controlled affiliate investment		233			—
Dividends from controlled affiliate investment		(331	)		—
Changes in assets and liabilities:
(Increase) decrease in interest receivable		(327	)		4
Increase in end-of-term payments		(555	)		(242	)
Decrease in unearned income		(120	)		(106	)
Decrease (increase) in other assets		21			(124	)
Increase in other accrued expenses		362			355
Increase in base management fee payable		25			5
(Decrease) increase in incentive fee payable		(183	)		4
Net cash (used in) provided by operating activities		(15,171	)		12,949
Cash flows from financing activities:
Proceeds from issuance of common stock, net of offering costs		23,162			—
Advances on credit facility		15,000			—
Repayment of credit facility		(10,000	)		—
Distributions paid		(3,419	)		(3,416	)
Net cash provided by (used in) financing activities		24,743			(3,416	)
Net increase in cash		9,572			9,533
Cash:
Beginning of period		12,591			6,594
End of period	$	22,163		$	16,127
Supplemental disclosure of cash flow information:
Cash paid for interest	$	1,785		$	1,278
Supplemental non-cash investing and financing activities:
Warrant investments received and recorded as unearned income	$	714		$	248
Distributions payable	$	4,062		$	3,457
End-of-term payments receivable	$	3,570		$	3,178

See Notes to Consolidated Financial Statements

Horizon Technology Finance Corporation and Subsidiaries

Consolidated Schedule of Investments (Unaudited)

March 31, 2019

(Dollars in thousands)

			Principal		Cost of		Fair
Portfolio Company (1)(3)	Sector	Type of Investment (4)(7)(9)(10)	Amount		Investments (6)		Value
Non-Affiliate Investments — 156.7% (8)
Non-Affiliate Debt Investments — 146.1% (8)
Non-Affiliate Debt Investments — Life Science — 50.9% (8)
Celsion Corporation (2)(5)(12)	Biotechnology	Term Loan (10.12% cash (Libor + 7.63%; Floor	$	2,500	$	2,453	$	2,453
		9.63%), 4.00% ETP, Due 7/1/22)
		Term Loan (10.12% cash (Libor + 7.63%; Floor		2,500		2,453		2,453
		9.63%), 4.00% ETP, Due 7/1/22)
Espero BioPharma, Inc. (2)(12)	Biotechnology	Term Loan (12.39% cash (Libor + 9.9%; Floor		5,000		4,830		4,830
		12.00%), 4.00% ETP, Due 6/30/19)
Mustang Bio, Inc. (2)(5)(12)	Biotechnology	Term Loan (9.00% cash (Libor + 6.5%; Floor		5,000		4,807		4,807
		9.00%), 5.00% ETP, Due 10/1/22)
		Term Loan (9.00% cash (Libor + 6.5%; Floor		5,000		4,903		4,903
		9.00%), 5.00% ETP, Due 10/1/22)
		Term Loan (9.00% cash (Libor + 6.5%; Floor		5,000		4,903		4,903
		9.00%), 5.00% ETP, Due 10/1/22)
Palatin Technologies, Inc. (2)(5)(12)	Biotechnology	Term Loan (10.99% cash (Libor + 8.50%; Floor		667		661		661
		9.00%), 5.00% ETP, Due 8/1/19)
		Term Loan (10.99% cash (Libor + 8.50%; Floor		667		667		667
		9.00%), 3.27% ETP, Due 8/1/19)
vTv Therapeutics Inc. (2)(5)(12)	Biotechnology	Term Loan (12.49% cash (Libor + 10.00%; Floor		3,385		3,361		3,361
		10.50%), 6.00% ETP, Due 5/1/20)
		Term Loan (12.49% cash (Libor + 10.00%; Floor		2,813		2,785		2,785
		10.50%), 6.00% ETP, Due 10/1/20)
Titan Pharmaceuticals, Inc. (2)(5)(12)	Drug Delivery	Term Loan (10.89% cash (Libor + 8.40%; Floor		1,600		1,506		1,506
		9.50%), 5.00% ETP, Due 6/1/21)
Aerin Medical, Inc. (2)(12)	Medical Device	Term Loan (9.94% cash (Libor + 7.45%; Floor		4,000		3,895		3,895
		8.75%), 4.00% ETP, Due 1/1/22)
		Term Loan (9.94% cash (Libor + 7.45%; Floor		3,000		2,969		2,969
		8.75%), 4.00% ETP, Due 1/1/22)
		Term Loan (9.94% cash (Libor + 7.45%; Floor		3,000		2,969		2,969
		8.75%), 4.00% ETP, Due 1/1/22)
Conventus Orthopaedics, Inc. (2)(12)	Medical Device	Revolving Loan (10.49% cash (Libor + 8.00%;		4,000		3,955		3,955
		Floor 9.25%), 6.00% ETP, Due 6/1/21)
		Revolving Loan (10.49% cash (Libor + 8.00%;		4,000		3,955		3,955
		Floor 9.25%), 6.00% ETP, Due 6/1/21)
		Revolving Loan (10.49% cash (Libor + 8.00%;		4,000		3,955		3,955
		Floor 9.25%), 6.00% ETP, Due 6/1/21)
CSA Medical, Inc. (2)(12)	Medical Device	Term Loan (10.42% cash (Libor + 7.93%; Floor		6,000		5,775		5,775
		10.00%), 5.00% ETP, Due 10/1/22)
Lantos Technologies, Inc. (2)(12)	Medical Device	Term Loan (10.92% cash (Libor + 8.43%; Floor		4,000		3,604		3,604
		10.00%), 10.00% ETP, Due 9/1/21)
MacuLogix, Inc. (2)(12)	Medical Device	Term Loan (10.17% cash (Libor + 7.68%; Floor		3,750		3,632		3,632
		9.50%), 4.00% ETP, Due 8/1/22)
		Term Loan (10.17% cash (Libor + 7.68%; Floor		3,750		3,646		3,646
		9.50%), 4.00% ETP, Due 8/1/22)
VERO Biotech LLC (2)(12)	Medical Device	Term Loan (10.49% cash (Libor + 8.00%; Floor		4,000		3,954		3,954
		9.25%), 5.00% ETP, Due 1/1/22)
		Term Loan (10.49% cash (Libor + 8.00%; Floor		4,000		3,954		3,954
		9.25%), 5.00% ETP, Due 1/1/22)
Total Non-Affiliate Debt Investments — Life Science						79,592		79,592
Non-Affiliate Debt Investments — Technology — 79.0% (8)
Audacy Corporation (2)(12)	Communications	Term Loan (10.39% cash (Libor + 7.90%; Floor		3,143		3,092		2,492
		9.50%), 5.00% ETP, Due 7/1/22)
Intelepeer Holdings, Inc. (2)(12)	Communications	Term Loan (12.44% cash (Libor + 9.95%; Floor		4,000		3,929		3,929
		11.25%), 3.30% ETP, Due 1/1/22)
		Term Loan (12.44% cash (Libor + 9.95%; Floor		3,000		2,941		2,941
		11.25%), 2.50% ETP, Due 2/1/22)
		Term Loan (12.45% cash (Libor + 9.95%; Floor		1,073		1,053		1,053
		12.45%), 2.50% ETP, Due 10/1/22)
Betabrand Corporation (2)(12)	Consumer-related Technologies	Term Loan (10.05% cash (Libor + 7.50%; Floor 10.05%), 4.50% ETP, Due 9/1/23)		4,250		4,102		4,102
		Term Loan (10.05% cash (Libor + 7.50%; Floor 10.05%), 4.50% ETP, Due 9/1/23)		4,250		4,168		4,168

See Notes to Consolidated Financial Statements

Horizon Technology Finance Corporation and Subsidiaries

Consolidated Schedule of Investments (Unaudited)

March 31, 2019

(Dollars in thousands)

			Principal		Cost of		Fair
Portfolio Company (1)(3)	Sector	Type of Investment (4)(7)(9)(10)	Amount		Investments (6)		Value
Food52, Inc. (2)(12)	Consumer-related Technologies	Term Loan (10.90% cash (Libor + 8.40%; Floor 10.90%), 3.00% ETP, Due 1/1/23)		3,000		2,923		2,923
		Term Loan (10.90% cash (Libor + 8.40%; Floor		3,000		2,923		2,923
		10.90%), 3.00% ETP, Due 1/1/23)
Mohawk Group Holdings, Inc. (2)(12)	Consumer-related Technologies	Term Loan (9.90% cash (Libor + 7.40%; Floor 9.90%), 4.00% ETP, Due 1/1/23)		5,000		4,892		4,892
		Term Loan (9.90% cash (Libor + 7.40%; Floor		5,000		4,892		4,892
		9.90%), 4.00% ETP, Due 1/1/23)
		Term Loan (9.90% cash (Libor + 7.40%; Floor		5,000		4,892		4,892
		9.90%), 4.00% ETP, Due 1/1/23)
Canara, Inc. (2)(12)	Data Storage	Term Loan (11.09% cash (Libor + 8.60%; Floor		5,000		4,836		4,836
		11.00%), 1.00% ETP, Due 2/1/23)
		Term Loan (11.09% cash (Libor + 8.60%; Floor		5,000		4,836		4,836
		11.00%), 1.00% ETP, Due 2/1/23)
Kaminario, Inc. (2)(12)	Data Storage	Term Loan (10.89% cash (Libor + 8.40%; Floor		5,000		4,923		4,923
		10.65%), 3.00% ETP, Due 1/1/23)
		Term Loan (10.89% cash (Libor + 8.40%; Floor		5,000		4,923		4,923
		10.65%), 3.00% ETP, Due 1/1/23)
IgnitionOne, Inc. (2)(12)	Internet and Media	Term Loan (12.72% cash (Libor + 10.23%; Floor 10.23%), 2.00% ETP, Due 4/1/22)		3,000		2,881		2,881
		Term Loan (12.72% cash (Libor + 10.23%; Floor		3,000		2,881		2,881
		10.23%), 2.00% ETP, Due 4/1/22)
		Term Loan (12.72% cash (Libor + 10.23%; Floor		3,000		2,881		2,881
		10.23%), 2.00% ETP, Due 4/1/22)
		Term Loan (12.72% cash (Libor + 10.23%; Floor		3,000		2,881		2,881
		10.23%), 2.00% ETP, Due 4/1/22)
Jump Ramp Games, Inc. (2)(12)	Internet and Media	Term Loan (12.22% cash (Libor + 9.73%), 3.00% ETP, Due 4/1/21)		4,000		3,964		3,964
Kixeye, Inc. (2)(12)	Internet and Media	Term Loan (12.09% cash (Libor + 9.60%; Floor 10.75%), 4.00% ETP, Due 5/1/21)		2,550		2,476		2,476
		Term Loan (12.09% cash (Libor + 9.60%; Floor		2,550		2,516		2,516
		10.75%), 4.00% ETP, Due 5/1/21)
Verve Wireless, Inc. (2)(12)	Internet and Media	Term Loan (11.29% cash (Libor + 8.80%; Floor 10.80%), 3.33% ETP, Due 9/1/21)		3,000		2,884		2,884
Zinio Holdings, LLC (2)(12)	Internet and Media	Term Loan (13.74% cash (Libor + 11.25%; Floor 11.75%), 8.50% ETP, Due 2/1/20)		2,800		2,791		2,791
The NanoSteel Company, Inc. (2)(12)	Materials	Term Loan (11.00% cash (Libor + 8.50%; Floor		4,250		4,190		4,190
		11.00%), 4.0% ETP, Due 6/1/22)
		Term Loan (11.00% cash (Libor + 8.50%; Floor		4,250		4,190		4,190
		11.00%), 4.0% ETP, Due 6/1/22)
Powerhouse Dynamics, Inc. (2)(12)	Power Management	Term Loan (13.19% cash (Libor + 10.70%; Floor 11.20%), 3.32% ETP, Due 9/1/19)		408		400		400
Bridge2 Solutions, LLC. (2)(12)	Software	Term Loan (11.74% cash (Libor + 9.25%; Floor		5,000		4,850		4,850
		10.50%), 2.00% ETP, Due 11/1/21)
		Term Loan (11.74% cash (Libor + 9.25%; Floor		5,000		4,850		4,850
		10.50%), 2.00% ETP, Due 11/1/21)
Education Elements, Inc. (2)(12)	Software	Term Loan (12.49% cash (Libor + 10.00%; Floor		200		197		197
		10.50%), 4.00% ETP, Due 8/1/19)
New Signature US, Inc. (2)(12)(13)	Software	Term Loan (10.99% cash (Libor + 8.50%; Floor		2,750		2,712		2,712
		10.50%), 3.50% ETP, Due 7/1/22)
		Term Loan (10.99% cash (Libor + 8.50%; Floor		1,000		984		984
		10.50%), 3.50% ETP, Due 2/1/23)
SIGNiX, Inc. (12)	Software	Term Loan (13.49% cash (Libor + 11.00%; Floor		1,645		1,602		1,500
		11.50%), 8.67% ETP, Due 2/1/20)
xAd, Inc. (2)(12)	Software	Term Loan (11.19% cash (Libor + 8.70%; Floor		5,000		4,930		4,930
		10.00%), 4.75% ETP, Due 11/1/21)
		Term Loan (11.19% cash (Libor + 8.70%; Floor		5,000		4,930		4,930
		10.00%), 4.75% ETP, Due 11/1/21)
		Term Loan (11.19% cash (Libor + 8.70%; Floor		3,000		2,958		2,958
		10.00%), 4.75% ETP, Due 11/1/21)

See Notes to Consolidated Financial Statements

Horizon Technology Finance Corporation and Subsidiaries

Consolidated Schedule of Investments (Unaudited)

March 31, 2019

(Dollars in thousands)

			Principal		Cost of		Fair
Portfolio Company (1)(3)	Sector	Type of Investment (4)(7)(9)(10)	Amount		Investments (6)		Value
		Term Loan (11.19% cash (Libor + 8.70%; Floor		2,000		1,972		1,972
		10.00%), 4.75% ETP, Due 11/1/21)
Total Non-Affiliate Debt Investments — Technology						124,245		123,543
Non-Affiliate Debt Investments — Healthcare information and services — 16.2% (8)
Catasys, Inc. (2)(5)(12)	Software	Term Loan (10.24% cash (Libor + 7.75%;		2,500		2,480		2,480
		Floor 9.75%), 6.00% ETP, Due 3/1/22)
		Term Loan (10.24% cash (Libor + 7.75%;		2,500		2,480		2,480
		Floor 9.75%), 6.00% ETP, Due 3/1/22)
		Term Loan (10.24% cash (Libor + 7.75%;		2,500		2,479		2,479
		Floor 9.75%), 6.00% ETP, Due 3/1/22)
		Revolving Loan (10.23% cash (Libor + 7.75%;		2,500		2,276		2,276
		Floor 9.75%), 6.00% ETP, Due 8/31/22)
HealthEdge Software, Inc. (2)(12)	Software	Term Loan (10.74% cash (Libor + 8.25%;		4,643		4,593		4,593
		Floor 9.25%), 3.00% ETP, Due 7/1/22)
		Term Loan (10.74% cash (Libor + 8.25%;		3,750		3,707		3,707
		Floor 9.25%), 3.00% ETP, Due 1/1/23)
		Term Loan (10.74% cash (Libor + 8.25%;		3,750		3,704		3,704
		Floor 9.25%), 3.00% ETP, Due 4/1/23)
		Term Loan (10.74% cash (Libor + 8.25%;		3,750		3,699		3,699
		Floor 9.25%), 3.00% ETP, Due 1/1/24)
Total Non-Affiliate Debt Investments — Healthcare information and services						25,418		25,418
Total Non- Affiliate Debt Investments						229,255		228,553

Non-Affiliate Warrant Investments — 6.2% (8)
Non-Affiliate Warrants — Life Science — 1.4% (8)
ACT Biotech Corporation	Biotechnology	130,872 Preferred Stock Warrants				12		—
Alpine Immune Sciences, Inc. (5)(12)	Biotechnology	4,634 Common Stock Warrants				122		—
Celsion Corporation (2)(5)(12)	Biotechnology	95,465 Common Stock Warrants				79		11
Espero BioPharma, Inc. (2)(5)(12)	Biotechnology	1,506,937 Common Stock Warrants				185		182
Mustang Bio, Inc. (2)(5)(12)	Biotechnology	288,184 Common Stock Warrants				187		187
Rocket Pharmaceuticals Corporation (5)(12)	Biotechnology	7,051 Common Stock Warrants				17		3
Palatin Technologies, Inc. (2)(5)(12)	Biotechnology	608,058 Common Stock Warrants				51		139
Revance Therapeutics, Inc. (5)(12)	Biotechnology	34,113 Common Stock Warrants				68		86
Sample6, Inc. (2)(12)	Biotechnology	661,956 Preferred Stock Warrants				53		25
Strongbridge U.S. Inc. (2)(5)(12)	Biotechnology	160,714 Common Stock Warrants				72		433
Sunesis Pharmaceuticals, Inc. (5)(12)	Biotechnology	2,050 Common Stock Warrants				5		—
vTv Therapeutics Inc. (2)(5)(12)	Biotechnology	95,293 Common Stock Warrants				44		—
Titan Pharmaceuticals, Inc. (2)(5)(12)	Drug Delivery	373,333 Common Stock Warrants				95		201
AccuVein Inc. (2)(12)	Medical Device	1,174,881 Preferred Stock Warrants				24		27
Aerin Medical, Inc. (2)(12)	Medical Device	1,818,182 Preferred Stock Warrants				66		66
Conventus Orthopaedics, Inc. (2)(12)	Medical Device	720,000 Preferred Stock Warrants				95		97
CSA Medical, Inc. (12)	Medical Device	745,562 Preferred Stock Warrants				89		84
Lantos Technologies, Inc. (2)(12)	Medical Device	1,715,926 Common Stock Warrants				253		285
MacuLogix, Inc. (2)(12)	Medical Device	234,742 Preferred Stock Warrants				179		88
NinePoint Medical, Inc. (2)(12)	Medical Device	29,102 Preferred Stock Warrants				33		6
ReShape Lifesciences Inc. (5)(12)	Medical Device	121 Common Stock Warrants				341		—
Tryton Medical, Inc. (2)(12)	Medical Device	122,362 Preferred Stock Warrants				15		13
VERO Biotech LLC (2)(12)	Medical Device	800 Common Stock Warrants				53		329
Total Non-Affiliate Warrants — Life Science						2,138		2,262
Non-Affiliate Warrants — Technology — 4.2% (8)
Audacy Corporation (2)(12)	Communications	1,545,575 Preferred Stock Warrants				194		—
Intelepeer Holdings, Inc. (2)(12)	Communications	1,702,617 Preferred Stock Warrants				122		83
PebblePost, Inc. (2)(12)	Communications	598,850 Preferred Stock Warrants				92		156
Betabrand Corporation (2)(12)	Consumer-related Technologies	248,211 Preferred Stock Warrants				101		101
Food52, Inc. (2)(12)	Consumer-related Technologies	102,941 Preferred Stock Warrants				104		102
Gwynnie Bee, Inc. (2)(12)	Consumer-related Technologies	268,591 Preferred Stock Warrants				68		837
Le Tote, Inc. (2)(12)	Consumer-related Technologies	202,974 Preferred Stock Warrants				63		366
Mohawk Group Holdings, Inc. (2)(12)	Consumer-related Technologies	300,000 Common Stock Warrants				195		190
Rhapsody International Inc. (2)(12)	Consumer-related Technologies	852,273 Common Stock Warrants				164		—
Canara, Inc. (2)(12)	Data Storage	500,000 Preferred Stock Warrants				242		242
Kaminario, Inc. (2)(12)	Data Storage	9,981,346 Preferred Stock Warrants				124		159
IgnitionOne, Inc. (2)(12)	Internet and Media	262,910 Preferred Stock Warrants				672		697

See Notes to Consolidated Financial Statements

Horizon Technology Finance Corporation and Subsidiaries

Consolidated Schedule of Investments (Unaudited)

March 31, 2019

(Dollars in thousands)

			Principal		Cost of		Fair
Portfolio Company (1)(3)	Sector	Type of Investment (4)(7)(9)(10)	Amount		Investments (6)		Value
Jump Ramp Games, Inc. (2)(12)	Internet and Media	159,766 Preferred Stock Warrants				32		1
Kixeye, Inc. (2)(12)	Internet and Media	791,251 Preferred Stock Warrants				75		60
Rocket Lawyer Incorporated (2)(12)	Internet and Media	261,721 Preferred Stock Warrants				92		75
Verve Wireless, Inc. (2)(12)	Internet and Media	112,805 Common Stock Warrants				120		119
The NanoSteel Company, Inc. (2)(12)	Materials	467,277 Preferred Stock Warrants				233		561
Powerhouse Dynamics, Inc. (2)(12)	Power Management	348,838 Preferred Stock Warrants				33		50
Avalanche Technology, Inc. (2)(12)	Semiconductors	202,602 Preferred Stock Warrants				101		53
Soraa, Inc. (2)(12)	Semiconductors	203,616 Preferred Stock Warrants				80		423
Bridge2 Solutions, Inc. (2)(12)	Software	125,458 Common Stock Warrants				432		755
BSI Platform Holdings, LLC (2)(12)(13)	Software	187,500 Preferred Stock Warrants				26		25
Clarabridge, Inc. (12)	Software	53,486 Preferred Stock Warrants				14		105
Education Elements, Inc. (2)(12)	Software	238,121 Preferred Stock Warrants				28		23
Lotame Solutions, Inc. (2)(12)	Software	288,115 Preferred Stock Warrants				22		284
Metricly, Inc. (12)	Software	41,569 Common Stock Warrants				48		—
Riv Data Corp. (2)(12)	Software	321,428 Preferred Stock Warrants				12		254
ShopKeep.com, Inc. (2)(12)	Software	193,962 Preferred Stock Warrants				118		113
SIGNiX, Inc. (12)	Software	133,560 Preferred Stock Warrants				225		35
Skyword, Inc. (12)	Software	301,056 Preferred Stock Warrants				48		3
Sys-Tech Solutions, Inc. (2)(12)	Software	375,000 Preferred Stock Warrants				242		429
Weblinc Corporation (2)(12)	Software	195,122 Preferred Stock Warrants				42		—
xAd, Inc. (2)(12)	Software	4,343,350 Preferred Stock Warrants				177		248
Total Non-Affiliate Warrants — Technology						4,341		6,549
Non-Affiliate Warrants — Cleantech — 0.1% (8)
Renmatix, Inc. (2)(12)	Alternative Energy	53,022 Preferred Stock Warrants				68		—
Tigo Energy, Inc. (2)(12)	Energy Efficiency	804,604 Preferred Stock Warrants				100		111
Total Non-Affiliate Warrants — Cleantech						168		111
Non-Affiliate Warrants — Healthcare information and services — 0.5% (8)
LifePrint Group, Inc. (2)(12)	Diagnostics	49,000 Preferred Stock Warrants				29		2
ProterixBio, Inc. (2)(12)	Diagnostics	2,676 Common Stock Warrants				42		—
Singulex, Inc. (12)	Other Healthcare	294,231 Preferred Stock Warrants				44		45
Verity Solutions Group, Inc. (12)	Other Healthcare	300,360 Preferred Stock Warrants				100		64
Watermark Medical, Inc. (2)(12)	Other Healthcare	27,373 Preferred Stock Warrants				74		61
Catasys, Inc. (2)(5)(12)	Software	40,282 Common Stock Warrants				149		149
HealthEdge Software, Inc. (2)(12)	Software	205,481 Preferred Stock Warrants				83		69
Medsphere Systems Corporation (2)(12)	Software	7,097,792 Preferred Stock Warrants				60		210
Recondo Technology, Inc. (2)(12)	Software	556,796 Preferred Stock Warrants				95		211
Total Non-Affiliate Warrants — Healthcare information and services						676		811
Total Non-Affiliate Warrants						7,323		9,733

Non-Affiliate Other Investments — 4.1% (8)
Espero Pharmaceuticals, Inc. (12)	Biotechnology	Royalty Agreement				5,300		4,700
ZetrOZ, Inc. (12)	Medical Device	Royalty Agreement				142		700
Vette Technology, LLC (12)	Data Storage	Royalty Agreement Due 4/18/2019				4,166		20
Triple Double Holdings, LLC (12)	Software	License Agreement				2,200		1,000
Total Non-Affiliate Other Investments						11,808		6,420

Non-Affiliate Equity — 0.3% (8)
Revance Therapeutics, Inc.(5)	Biotechnology	5,125 Common Stock				72		81
Sunesis Pharmaceuticals, Inc. (5)	Biotechnology	13,082 Common Stock				83		16
SnagAJob.com, Inc. (12)	Consumer-related Technologies	82,974 Common Stock				9		83
Verve Wireless, Inc. (2)(12)	Internet and Media	100,598 Preferred Stock				225		225
Formetrix, Inc. (2)(12)	Materials	74,286 Common Stock				74		74
TruSignal, Inc. (12)	Software	32,637 Common Stock				41		41
Total Non-Affiliate Equity						504		520
Total Non-Affiliate Portfolio Investment Assets					$	248,890	$	245,226

Non-controlled Affiliate Investments — 4.9% (8)
Non-controlled Affiliate Debt Investments — Technology — 4.3% (8)
Decisyon, Inc. (12)	Software	Term Loan (14.798% cash (Libor + 12.308%; Floor	$	1,426	$	1,425	$	1,423
		12.50%), 8.00% ETP, Due 12/1/20)
		Term Loan (14.798% cash (Libor + 12.308%; Floor		780		747		746
		12.50%), 8.00% ETP, Due 12/1/20)

See Notes to Consolidated Financial Statements

Horizon Technology Finance Corporation and Subsidiaries

Consolidated Schedule of Investments (Unaudited)

March 31, 2019

(Dollars in thousands)

			Principal		Cost of		Fair
Portfolio Company (1)(3)	Sector	Type of Investment (4)(7)(9)(10)	Amount		Investments (6)		Value
		Term Loan (12.02% cash, Due 12/31/19)		250		250		250
		Term Loan (12.03% cash, Due 12/31/19)		250		250		250
		Term Loan (12.24% cash, Due 12/31/19)		750		750		748
		Term Loan (13.08% cash, Due 12/31/19)		300		300		300
		Term Loan (13.10% cash, Due 12/31/19)		200		200		200
StereoVision Imaging, Inc. (12)	Software	Term Loan (9.52% Cash (Libor + 7.03%; Floor		3,200		2,798		2,798
		8.50%), 8.50% ETP, Due 9/1/21) (11)
Total Non-controlled Affiliate Debt Investments — Technology						6,720		6,715

Non-controlled Affiliate Warrants — Technology — 0.0% (8)
Decisyon, Inc. (12)	Software	82,967 Common Stock Warrants				46		—
Total Non-controlled Affiliate Warrants — Technology						46		—

Non-controlled Affiliate Equity — Technology — 0.6% (8)
Decisyon, Inc. (12)	Software	45,365,936 Common Stock				185		75
StereoVision Imaging, Inc. (12)	Software	1,943,572 Common Stock				791		791
Total Non-controlled Affiliate Equity						976		866
Total Non-controlled Affiliate Portfolio Investment Assets					$	7,742	$	7,581

Controlled Affiliate Investments — 8.5% (8)
Controlled Affiliate Equity — Financial — 8.5% (8)
Horizon Secured Loan Fund I LLC (12)(14)	Investment funds				$	13,360	$	13,345
Total Controlled Affiliate Equity						13,360		13,345
Total Controlled Affiliate Portfolio Investment Assets					$	13,360	$	13,345

Total Portfolio Investment Assets — 170.1%(8)					$	269,992	$	266,152

(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 revolving credit facility with KeyBank National Association (the “Key Facility”).

(3)		All non-affiliate investments are investments in which the Company owns less than 5% of the voting securities of the portfolio company. All non-controlled affiliate investments are investments in which the Company owns 5% or more of the voting securities of the portfolio company but not more than 25% of the voting securities of the portfolio company. All controlled affiliate investments are investments in which the Company owns more than 25% of the portfolio company’s outstanding voting securities or has the power to exercise control over management or policies of such portfolio company (including through a management agreement).

(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 variable rates for the term of the debt investment, unless otherwise indicated. All debt investments based on the London InterBank Offered Rate (“LIBOR”) are based on one-month LIBOR. For each debt investment, the current interest rate in effect as of March 31, 2019 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)		As of March 31, 2019, 4.5% of the Company’s total assets on a cost and fair value basis are in non-qualifying assets. Under the Investment Company Act of 1940, as amended (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 has a payment-in-kind (“PIK”) feature.

(12)		The fair value of the investment was valued using significant unobservable inputs.

See Notes to Consolidated Financial Statements

Horizon Technology Finance Corporation and Subsidiaries

Consolidated Schedule of Investments (Unaudited)

March 31, 2019

(Dollars in thousands)

(13)		New Signature US, Inc. is a subsidiary of BSI Platform Holdings, LLC.

(14)		On June 1, 2018, the Company entered into an agreement with Arena Sunset SPV, LLC (“Arena”) to co-invest through Horizon Secured Loan Fund I (“HSLFI”), a joint venture, which is expected to make investments, either directly or indirectly through subsidiaries, primarily in the form of secured loans to development-stage companies in the technology, life science, healthcare information and services and cleantech industries. All HSLFI investment decisions require unanimous approval of a quorum of HSLFI’s board of managers. Although the Company owns more than 25% of the voting securities of HSLFI, the Company does not have sole control over significant actions of HSLFI for purposes of the 1940 Act or otherwise.

See Notes to Consolidated Financial Statements

Horizon Technology Finance Corporation and Subsidiaries

Consolidated Schedule of Investments (Unaudited)

December 31, 2018

(Dollars in thousands)

			Principal		Cost of		Fair
Portfolio Company (1)(3)	Sector	Type of Investment (4)(7)(9)(10)	Amount		Investments (6)		Value
Non-Affiliate Investments — 169.6% (8)
Non-Affiliate Debt Investments — 156.3% (8)
Non-Affiliate Debt Investments — Life Science — 49.9% (8)
Celsion Corporation (2)(5)(12)	Biotechnology	Term Loan (9.98% cash (Libor + 7.63%; Floor	$	2,500	$	2,450	$	2,450
		9.63%), 4.00% ETP, Due 7/1/22)
		Term Loan (9.98% cash (Libor + 7.63%; Floor		2,500		2,450		2,450
		9.63%), 4.00% ETP, Due 7/1/22)
Espero BioPharma, Inc. (2)(12)	Biotechnology	Term Loan (12.25% cash (Libor + 9.9%; Floor		5,000		4,760		4,760
		12.00%), 4.00% ETP, Due 6/30/19)
Palatin Technologies, Inc. (2)(5)(12)	Biotechnology	Term Loan (10.85% cash (Libor + 8.50%; Floor		1,167		1,156		1,156
		9.00%), 5.00% ETP, Due 8/1/19)
		Term Loan (10.85% cash (Libor + 8.50%; Floor		1,167		1,167		1,167
		9.00%), 3.27% ETP, Due 8/1/19)
vTv Therapeutics Inc. (2)(5)(12)	Biotechnology	Term Loan (12.35% cash (Libor + 10.00%; Floor		4,167		4,136		4,136
		10.50%), 6.00% ETP, Due 5/1/20)
		Term Loan (12.35% cash (Libor + 10.00%; Floor		3,281		3,250		3,250
		10.50%), 6.00% ETP, Due 10/1/20)
Titan Pharmaceuticals, Inc. (2)(5)(12)	Drug Delivery	Term Loan (10.75% cash (Libor + 8.40%; Floor		1,600		1,495		1,495
		9.50%), 5.00% ETP, Due 6/1/21)
Aerin Medical, Inc. (2)(12)	Medical Device	Term Loan (9.80% cash (Libor + 7.45%; Floor		4,000		3,891		3,891
		8.75%), 4.00% ETP, Due 1/1/22)
		Term Loan (9.80% cash (Libor + 7.45%; Floor		3,000		2,966		2,966
		8.75%), 4.00% ETP, Due 1/1/22)
		Term Loan (9.80% cash (Libor + 7.45%; Floor		3,000		2,966		2,966
		8.75%), 4.00% ETP, Due 1/1/22)
Conventus Orthopaedics, Inc. (2)(12)	Medical Device	Term Loan (10.35% cash (Libor + 8.00%; Floor		4,000		3,949		3,949
		9.25%), 6.00% ETP, Due 6/1/21)
		Term Loan (10.35% cash (Libor + 8.00%; Floor		4,000		3,949		3,949
		9.25%), 6.00% ETP, Due 6/1/21)
		Term Loan (10.35% cash (Libor + 8.00%; Floor		4,000		3,949		3,949
		9.25%), 6.00% ETP, Due 6/1/21)
CSA Medical, Inc. (2)(12)	Medical Device	Term Loan (10.28% cash (Libor + 7.93%; Floor		6,000		5,768		5,768
		10.00%), 5.00% ETP, Due 10/1/22)
Lantos Technologies, Inc. (2)(12)	Medical Device	Term Loan (10.78% cash (Libor + 8.43%; Floor		4,000		3,563		3,563
		10.00%), 6.00% ETP, Due 9/1/21)
MacuLogix, Inc. (2)(12)	Medical Device	Term Loan (10.02% cash (Libor + 7.68%; Floor		3,750		3,623		3,623
		9.50%), 4.00% ETP, Due 8/1/22)
		Term Loan (10.14% cash (Libor + 7.68%; Floor		3,750		3,638		3,638
		9.50%), 4.00% ETP, Due 8/1/22)
VERO Biotech LLC (2)(12)	Medical Device	Term Loan (10.35% cash (Libor + 8.00%; Floor		4,000		3,950		3,950
		9.25%), 5.00% ETP, Due 1/1/22)
		Term Loan (10.35% cash (Libor + 8.00%; Floor		4,000		3,950		3,950
		9.25%), 5.00% ETP, Due 1/1/22)
Total Non-Affiliate Debt Investments — Life Science						67,026		67,026
Non-Affiliate Debt Investments — Technology — 88.9% (8)
Audacy Corporation (2)(12)	Communications	Term Loan (10.25% cash (Libor + 7.90%; Floor		4,000		3,936		3,636
		9.50%), 5.00% ETP, Due 7/1/22)
Intelepeer Holdings, Inc. (2)(12)	Communications	Term Loan (12.30% cash (Libor + 9.95%; Floor		4,000		3,948		3,948
		11.25%), 2.50% ETP, Due 7/1/21)
		Term Loan (12.30% cash (Libor + 9.95%; Floor		3,000		2,955		2,955
		11.25%), 2.50% ETP, Due 2/1/21)
Food52, Inc. (2)(12)	Consumer-related Technologies	Term Loan (10.90% cash (Libor + 8.40%; Floor		3,000		2,918		2,918
		10.90%), 3.00% ETP, Due 1/1/23)
		Term Loan (10.90% cash (Libor + 8.40%; Floor		3,000		2,918		2,918
		10.90%), 3.00% ETP, Due 1/1/23)
Mohawk Group Holdings, Inc. (2)(12)	Consumer-related Technologies	Term Loan (9.90% cash (Libor + 7.40%; Floor		5,000		4,885		4,885
		9.90%), 4.00% ETP, Due 1/1/23)
		Term Loan (9.90% cash (Libor + 7.40%; Floor		5,000		4,885		4,885
		9.90%), 4.00% ETP, Due 1/1/23)
		Term Loan (9.90% cash (Libor + 7.40%; Floor		5,000		4,885		4,885
		9.90%), 4.00% ETP, Due 1/1/23)
Kaminario, Inc. (2)(12)	Data Storage	Term Loan (10.87% cash (Libor + 8.40%; Floor		5,000		4,918		4,918
		10.65%), 3.00% ETP, Due 1/1/23)

See Notes to Consolidated Financial Statements

Horizon Technology Finance Corporation and Subsidiaries

Consolidated Schedule of Investments (Unaudited)

December 31, 2018

(Dollars in thousands)

			Principal		Cost of		Fair
Portfolio Company (1)(3)	Sector	Type of Investment (4)(7)(9)(10)	Amount		Investments (6)		Value
		Term Loan (10.87% cash (Libor + 8.40%; Floor		5,000		4,917		4,917
		10.65%), 3.00% ETP, Due 1/1/23)
IgnitionOne, Inc. (2)(12)	Internet and Media	Term Loan (12.58% cash (Libor + 10.23%; Floor 10.23%), 2.00% ETP, Due 4/1/22)		3,000		2,871		2,871
		Term Loan (12.58% cash (Libor + 10.23%; Floor		3,000		2,871		2,871
		10.23%), 2.00% ETP, Due 4/1/22)
		Term Loan (12.58% cash (Libor + 10.23%; Floor		3,000		2,871		2,871
		10.23%), 2.00% ETP, Due 4/1/22)
		Term Loan (12.58% cash (Libor + 10.23%; Floor		3,000		2,871		2,871
		10.23%), 2.00% ETP, Due 4/1/22)
Jump Ramp Games, Inc. (2)(12)	Internet and Media	Term Loan (12.08% cash (Libor + 9.73%), 3.00% ETP, Due 4/1/21)		4,000		3,960		3,960
Kixeye, Inc. (2)(12)	Internet and Media	Term Loan (11.95% cash (Libor + 9.60%; Floor 10.75%), 2.00% ETP, Due 5/1/21)		2,700		2,617		2,617
		Term Loan (11.95% cash (Libor + 9.60%; Floor		2,700		2,661		2,661
		10.75%), 2.00% ETP, Due 5/1/21)
Rocket Lawyer Incorporated (2)(12)	Internet and Media	Term Loan (11.75% cash (Libor + 9.40%; Floor 10.50%), 3.00% ETP, Due 7/1/21)		4,000		3,952		3,952
		Term Loan (11.75% cash (Libor + 9.40%; Floor		4,000		3,952		3,952
		10.50%), 3.00% ETP, Due 7/1/21)
		Term Loan (11.75% cash (Libor + 9.40%; Floor		2,000		1,973		1,973
		10.50%), 3.00% ETP, Due 11/1/21)
Verve Wireless, Inc. (2)(12)	Internet and Media	Term Loan (11.15% cash (Libor + 8.80%; Floor 10.80%), 3.33% ETP, Due 9/1/21)		3,300		3,172		3,172
Zinio Holdings, LLC (2)(12)	Internet and Media	Term Loan (13.60% cash (Libor + 11.25%; Floor 11.75%), 6.00% ETP, Due 2/1/20)		3,225		3,213		3,213
The NanoSteel Company, Inc. (2)(12)	Materials	Term Loan (11.00% cash (Libor + 8.50%; Floor		4,250		4,186		4,186
		11.00%), 4.0% ETP, Due 6/1/22)
		Term Loan (11.00% cash (Libor + 8.50%; Floor		4,250		4,186		4,186
		11.00%), 4.0% ETP, Due 6/1/22)
Powerhouse Dynamics, Inc. (2)(12)	Power Management	Term Loan (13.05% cash (Libor + 10.70%; Floor 11.20%), 3.32% ETP, Due 9/1/19)		525		512		512
Luxtera, Inc. (12)	Semiconductors	Term Loan (12.00% cash (Prime + 6.75%),		2,000		1,945		1,945
		Due 3/28/20)
		Term Loan (12.00% cash (Prime + 6.75%),		1,500		1,468		1,468
		Due 3/28/20)
Bridge2 Solutions, LLC. (2)(12)	Software	Term Loan (11.60% cash (Libor + 9.25%; Floor		5,000		4,835		4,835
		10.50%), 2.00% ETP, Due 11/1/21)
		Term Loan (11.60% cash (Libor + 9.25%; Floor		5,000		4,835		4,835
		10.50%), 2.00% ETP, Due 11/1/21)
Education Elements, Inc. (2)(12)	Software	Term Loan (12.35% cash (Libor + 10.00%; Floor		350		346		346
		10.50%), 4.00% ETP, Due 8/1/19)
New Signature US, Inc. (2)(12)(13)	Software	Term Loan (10.85% cash (Libor + 8.50%; Floor		2,750		2,699		2,699
		10.50%), 3.50% ETP, Due 7/1/22)
SIGNiX, Inc. (12)	Software	Term Loan (13.35% cash (Libor + 11.00%; Floor		1,845		1,790		1,555
		11.50%), 8.67% ETP, Due 2/1/20)
xAd, Inc. (2)(12)	Software	Term Loan (11.05% cash (Libor + 8.70%; Floor		5,000		4,923		4,923
		10.00%), 4.75% ETP, Due 11/1/21)
		Term Loan (11.05% cash (Libor + 8.70%; Floor		5,000		4,923		4,923
		10.00%), 4.75% ETP, Due 11/1/21)
		Term Loan (11.05% cash (Libor + 8.70%; Floor		3,000		2,954		2,954
		10.00%), 4.75% ETP, Due 11/1/21)
		Term Loan (11.05% cash (Libor + 8.70%; Floor		2,000		1,969		1,969
		10.00%), 4.75% ETP, Due 11/1/21)
Total Non-Affiliate Debt Investments — Technology						119,720		119,185
Non-Affiliate Debt Investments — Healthcare information and services — 17.5% (8)
Catasys, Inc. (2)(5)(12)	Software	Term Loan (10.10% cash (Libor + 7.75%;		2,500		2,478		2,478
		Floor 9.75%), 6.00% ETP, Due 3/1/22)
		Term Loan (10.10% cash (Libor + 7.75%;		2,500		2,478		2,478
		Floor 9.75%), 6.00% ETP, Due 3/1/22)
		Term Loan (10.10% cash (Libor + 7.75%;		2,500		2,477		2,477
		Floor 9.75%), 6.00% ETP, Due 3/1/22)

See Notes to Consolidated Financial Statements

Horizon Technology Finance Corporation and Subsidiaries

Consolidated Schedule of Investments (Unaudited)

December 31, 2018

(Dollars in thousands)

			Principal		Cost of		Fair
Portfolio Company (1)(3)	Sector	Type of Investment (4)(7)(9)(10)	Amount		Investments (6)		Value
HealthEdge Software, Inc. (2)(12)	Software	Term Loan (10.60% cash (Libor + 8.25%;		5,000		4,948		4,948
		Floor 9.25%), 3.00% ETP, Due 7/1/22)
		Term Loan (10.60% cash (Libor + 8.25%;		3,750		3,704		3,704
		Floor 9.25%), 3.00% ETP, Due 1/1/23)
		Term Loan (10.60% cash (Libor + 8.25%;		3,750		3,701		3,701
		Floor 9.25%), 3.00% ETP, Due 4/1/23)
		Term Loan (10.69% cash (Libor + 8.25%;		3,750		3,696		3,696
		Floor 9.25%), 3.00% ETP, Due 1/1/24)
Total Non-Affiliate Debt Investments — Healthcare information and services						23,482		23,482
Total Non- Affiliate Debt Investments						210,228		209,693

Non-Affiliate Warrant Investments — 6.9% (8)
Non-Affiliate Warrants — Life Science — 1.5% (8)
ACT Biotech Corporation	Biotechnology	130,872 Preferred Stock Warrants				12		—
Alpine Immune Sciences, Inc. (5)(12)	Biotechnology	4,634 Common Stock Warrants				122		—
Celsion Corporation (2)(5)(12)	Biotechnology	95,465 Common Stock Warrants				79		1
Espero BioPharma, Inc. (2)(5)(12)	Biotechnology	1,506,937 Common Stock Warrants				184		185
Rocket Pharmaceuticals Corporation (5)(12)	Biotechnology	7,051 Common Stock Warrants				17		—
Palatin Technologies, Inc. (2)(5)(12)	Biotechnology	608,058 Common Stock Warrants				51		34
Revance Therapeutics, Inc. (5)(12)	Biotechnology	34,113 Common Stock Warrants				68		210
Sample6, Inc. (2)(12)	Biotechnology	661,956 Preferred Stock Warrants				53		26
Strongbridge U.S. Inc. (2)(5)(12)	Biotechnology	160,714 Common Stock Warrants				72		356
Sunesis Pharmaceuticals, Inc. (5)(12)	Biotechnology	2,050 Common Stock Warrants				5		—
vTv Therapeutics Inc. (2)(5)(12)	Biotechnology	95,293 Common Stock Warrants				44		1
Titan Pharmaceuticals, Inc. (2)(5)(12)	Drug Delivery	2,240,000 Common Stock Warrants				95		89
AccuVein Inc. (2)(12)	Medical Device	1,174,881 Preferred Stock Warrants				24		28
Aerin Medical, Inc. (2)(12)	Medical Device	1,818,182 Preferred Stock Warrants				66		68
Conventus Orthopaedics, Inc. (2)(12)	Medical Device	720,000 Preferred Stock Warrants				95		99
CSA Medical, Inc. (12)	Medical Device	745,562 Preferred Stock Warrants				89		86
Lantos Technologies, Inc. (2)(12)	Medical Device	1,715,926 Common Stock Warrants				253		285
MacuLogix, Inc. (2)(12)	Medical Device	234,742 Preferred Stock Warrants				179		90
Mitralign, Inc. (2)(12)	Medical Device	64,190 Common Stock Warrants				52		1
NinePoint Medical, Inc. (2)(12)	Medical Device	29,102 Preferred Stock Warrants				33		6
ReShape Lifesciences Inc. (5)(12)	Medical Device	121 Common Stock Warrants				341		—
Tryton Medical, Inc. (2)(12)	Medical Device	122,362 Preferred Stock Warrants				15		13
VERO Biotech LLC (2)(12)	Medical Device	800 Common Stock Warrants				53		331
Total Non-Affiliate Warrants — Life Science						2,002		1,909
Non-Affiliate Warrants — Technology — 4.8% (8)
Audacy Corporation (2)(12)	Communications	1,545,575 Preferred Stock Warrants				194		—
Intelepeer Holdings, Inc. (2)(12)	Communications	1,171,549 Preferred Stock Warrants				94		57
PebblePost, Inc. (2)(12)	Communications	598,850 Preferred Stock Warrants				92		158
Food52, Inc. (2)(12)	Consumer-related Technologies	102,941 Preferred Stock Warrants				104		104
Gwynnie Bee, Inc. (2)(12)	Consumer-related Technologies	268,591 Preferred Stock Warrants				68		820
Le Tote, Inc. (2)(12)	Consumer-related Technologies	202,974 Preferred Stock Warrants				63		368
Mohawk Group Holdings, Inc. (2)(12)	Consumer-related Technologies	300,000 Common Stock Warrants				195		195
Rhapsody International Inc. (2)(12)	Consumer-related Technologies	852,273 Common Stock Warrants				164		—
Kaminario, Inc. (2)(12)	Data Storage	9,981,346 Preferred Stock Warrants				124		161
IgnitionOne, Inc. (2)(12)	Internet and Media	262,910 Preferred Stock Warrants				672		665
Jump Ramp Games, Inc. (2)(12)	Internet and Media	159,766 Preferred Stock Warrants				32		1
Kixeye, Inc. (2)(12)	Internet and Media	791,251 Preferred Stock Warrants				75		61
Rocket Lawyer Incorporated (2)(12)	Internet and Media	261,721 Preferred Stock Warrants				92		76
Verve Wireless, Inc. (2)(12)	Internet and Media	112,805 Common Stock Warrants				120		120
The NanoSteel Company, Inc. (2)(12)	Materials	467,277 Preferred Stock Warrants				233		567
Powerhouse Dynamics, Inc. (2)(12)	Power Management	348,838 Preferred Stock Warrants				33		—
Avalanche Technology, Inc. (2)(12)	Semiconductors	202,602 Preferred Stock Warrants				101		53
Luxtera, Inc.(2)(12)	Semiconductors	3,546,553 Preferred Stock Warrants				213		744
Soraa, Inc. (2)(12)	Semiconductors	203,616 Preferred Stock Warrants				80		426
Bolt Solutions Inc. (2)(12)	Software	202,892 Preferred Stock Warrants				113		—
Bridge2 Solutions, Inc. (2)(12)	Software	125,458 Common Stock Warrants				432		756
BSI Platform Holdings, LLC (2)(12)(13)	Software	137,500 Preferred Stock Warrants				19		19
Clarabridge, Inc. (12)	Software	53,486 Preferred Stock Warrants				14		106
Education Elements, Inc. (2)(12)	Software	238,121 Preferred Stock Warrants				28		23

See Notes to Consolidated Financial Statements

Horizon Technology Finance Corporation and Subsidiaries

Consolidated Schedule of Investments (Unaudited)

December 31, 2018

(Dollars in thousands)

			Principal		Cost of		Fair
Portfolio Company (1)(3)	Sector	Type of Investment (4)(7)(9)(10)	Amount		Investments (6)		Value
Lotame Solutions, Inc. (2)(12)	Software	288,115 Preferred Stock Warrants				22		286
Metricly, Inc. (12)	Software	41,569 Common Stock Warrants				48		—
Riv Data Corp. (2)(12)	Software	321,428 Preferred Stock Warrants				12		36
ShopKeep.com, Inc. (2)(12)	Software	193,962 Preferred Stock Warrants				118		114
SIGNiX, Inc. (12)	Software	133,560 Preferred Stock Warrants				225		35
Skyword, Inc. (12)	Software	301,056 Preferred Stock Warrants				48		3
Sys-Tech Solutions, Inc. (2)(12)	Software	375,000 Preferred Stock Warrants				242		429
Weblinc Corporation (2)(12)	Software	195,122 Preferred Stock Warrants				42		—
xAd, Inc. (2)(12)	Software	4,343,350 Preferred Stock Warrants				177		251
Total Non-Affiliate Warrants — Technology						4,289		6,634
Non-Affiliate Warrants — Cleantech — 0.1% (8)
Renmatix, Inc. (2)(12)	Alternative Energy	53,022 Preferred Stock Warrants				68		—
Tigo Energy, Inc. (2)(12)	Energy Efficiency	804,604 Preferred Stock Warrants				100		112
Total Non-Affiliate Warrants — Cleantech						168		112
Non-Affiliate Warrants — Healthcare information and services — 0.5% (8)
LifePrint Group, Inc. (2)(12)	Diagnostics	49,000 Preferred Stock Warrants				29		2
ProterixBio, Inc. (2)(12)	Diagnostics	2,676 Common Stock Warrants				42		—
Singulex, Inc. (12)	Other Healthcare	294,231 Preferred Stock Warrants				44		45
Verity Solutions Group, Inc. (12)	Other Healthcare	300,360 Preferred Stock Warrants				100		65
Watermark Medical, Inc. (2)(12)	Other Healthcare	27,373 Preferred Stock Warrants				74		62
HealthEdge Software, Inc. (2)(12)	Software	205,481 Preferred Stock Warrants				83		71
Medsphere Systems Corporation (2)(12)	Software	7,097,792 Preferred Stock Warrants				60		212
Recondo Technology, Inc. (2)(12)	Software	556,796 Preferred Stock Warrants				95		212
Total Non-Affiliate Warrants — Healthcare information and services						527		669
Total Non-Affiliate Warrants						6,986		9,324

Non-Affiliate Other Investments — 5.7% (8)
Espero Pharmaceuticals, Inc. (12)	Biotechnology	Royalty Agreement				5,300		4,700
ZetrOZ, Inc. (12)	Medical Device	Royalty Agreement				142		700
Vette Technology, LLC (12)	Data Storage	Royalty Agreement Due 4/18/2019				4,173		40
Triple Double Holdings, LLC (12)	Software	License Agreement				2,200		2,200
Total Non-Affiliate Other Investments						11,815		7,640

Non-Affiliate Equity — 0.7% (8)
Insmed Incorporated (5)	Biotechnology	33,208 Common Stock				238		436
Revance Therapeutics, Inc.(5)	Biotechnology	5,125 Common Stock				73		103
Sunesis Pharmaceuticals, Inc. (5)	Biotechnology	13,082 Common Stock				83		5
SnagAJob.com, Inc. (12)	Consumer-related Technologies	82,974 Common Stock				9		83
Verve Wireless, Inc. (2)(12)	Internet and Media	100,598 Preferred Stock				225		225
Formetrix, Inc. (2)(12)	Materials	74,286 Common Stock				74		74
TruSignal, Inc. (12)	Software	32,637 Common Stock				41		41
Total Non-Affiliate Equity						743		967
Total Non-Affiliate Portfolio Investment Assets					$	229,772	$	227,624

Non-controlled Affiliate Investments — 5.6% (8)
Non-controlled Affiliate Debt Investments — Technology — 5.0% (8)
Decisyon, Inc. (12)	Software	Term Loan (14.658% cash (Libor + 12.308%; Floor	$	1,523	$	1,522	$	1,464
		12.50%), 8.00% ETP, Due 12/1/20)
		Term Loan (14.658% cash (Libor + 12.308%; Floor		833		795		764
		12.50%), 8.00% ETP, Due 12/1/20)
		Term Loan (12.02% cash, Due 12/31/19)		250		250		240
		Term Loan (12.03% cash, Due 12/31/19)		250		250		240
		Term Loan (12.24% cash, Due 12/31/19)		750		750		721
		Term Loan (13.08% cash, Due 12/31/19)		300		300		289
		Term Loan (13.10% cash, Due 12/31/19)		200		200		192
StereoVision Imaging, Inc. (12)	Software	Term Loan (9.38% Cash (Libor + 7.03%; Floor		3,200		2,798		2,798
		8.50%), 8.50% ETP, Due 9/1/21) (11)
Total Non-controlled Affiliate Debt Investments — Technology						6,865		6,708

Non-controlled Affiliate Warrants — Technology — 0.0% (8)
Decisyon, Inc. (12)	Software	82,967 Common Stock Warrants				46		—
Total Non-controlled Affiliate Warrants — Technology						46		—

See Notes to Consolidated Financial Statements

Horizon Technology Finance Corporation and Subsidiaries

Consolidated Schedule of Investments (Unaudited)

December 31, 2018

(Dollars in thousands)

			Principal	Cost of		Fair
Portfolio Company (1)(3)	Sector	Type of Investment (4)(7)(9)(10)	Amount	Investments (6)		Value

Non-controlled Affiliate Equity — Technology — 0.6% (8)
Decisyon, Inc. (12)	Software	45,365,936 Common Stock			185		75
StereoVision Imaging, Inc. (12)	Software	1,943,572 Common Stock			791		791
Total Non-controlled Affiliate Equity					976		866
Total Non-controlled Affiliate Portfolio Investment Assets				$	7,887	$	7,574

Controlled Affiliate Investments — 9.9% (8)
Controlled Affiliate Equity — Financial — 9.9% (8)
Horizon Secured Loan Fund I LLC (12)(14)	Investment funds			$	13,262	$	13,243
Total Controlled Affiliate Equity					13,262		13,243
Total Controlled Affiliate Portfolio Investment Assets				$	13,262	$	13,243

Total Portfolio Investment Assets — 185.1%(8)				$	250,921	$	248,441

(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 non-affiliate investments are investments in which the Company owns less than 5% of the voting securities of the portfolio company. All non-controlled affiliate investments are investments in which the Company owns 5% or more of the voting securities of the portfolio company but not more than 25% of the voting securities of the portfolio company. All controlled affiliate investments are investments in which the Company owns more than 25% of the portfolio company’s outstanding voting securities or has the power to exercise control over management or policies of such portfolio company (including through a management agreement).

(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 variable 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, 2018 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)		As of December 31, 2018, 5.0% of the Company’s total assets on a cost and fair value basis are in non-qualifying assets. Under the 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 has a PIK feature.

(12)		The fair value of the investment was valued using significant unobservable inputs.

(13)		New Signature US, Inc. is a subsidiary of BSI Platform Holdings, LLC.

(14)		On June 1, 2018, the Company entered into an agreement with Arena to co-invest through HSLFI, a joint venture, which is expected to make investments, either directly or indirectly through subsidiaries, primarily in the form of secured loans to development-stage companies in the technology, life science, healthcare information and services and cleantech industries. All HSLFI investment decisions require unanimous approval of a quorum of HSLFI’s board of managers. Although the Company owns more than 25% of the voting securities of HSLFI, the Company does not have sole control over significant actions of HSLFI for purposes of the 1940 Act or otherwise.

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 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.

On March 26, 2019, the Company completed a follow-on public offering of 2,000,000 shares of its common stock at a public offering price of $12.14 per share, for total net proceeds to the Company of $23.2 million, after deducting underwriting commission and discounts and other offering expenses.

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, 2018.

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. Although the Company owns more than 25% of the voting securities of HSLFI, the Company does not have sole control over significant actions of HSLFI for purposes of the 1940 Act or otherwise, and thus does not consolidate its interest.

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 6. 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 6 for additional information regarding fair value.

Segments

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

Investments

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

Interest on debt investments is accrued and included in income based on contractual rates applied to principal amounts outstanding. Interest income is determined using a method that results in a level rate of return on principal amounts outstanding. Generally, when a debt investment becomes 90 days or more past due, or if the Company otherwise does not expect to receive interest and principal repayments, the debt investment is placed on non-accrual status and the recognition of interest income may be discontinued. Interest payments received on non-accrual debt investments may be recognized as income, on a cash basis, or applied to principal depending upon management’s judgment at the time the debt investment is placed on non-accrual status. As of March 31, 2019 and December 31, 2018, there were no debt investments on non-accrual status. For the three months ended March 31, 2019 and 2018, 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 proportion of the Company’s total investment income that resulted from the portion of ETPs not received in cash for the three months ended March 31, 2019 and 2018 was 8.1% and 7.5%, respectively.

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

Distributions from HSLFI are evaluated at the time of distribution to determine if the distribution should be recorded as dividend income or a return of capital. Generally, the Company will not record distributions from HSLFI as dividend income unless there are sufficient accumulated tax-basis earnings and profit in HSLFI prior to distribution. Distributions that are classified as a return of capital are recorded as a reduction in the cost basis of the investment. For the three months ended March 31, 2019, HSLFI distributed $0.2 million classified as dividend income to the Company.

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

Debt issuance costs

Debt issuance costs are fees and other direct incremental costs incurred by the Company in obtaining debt financing from its lenders and issuing debt securities. The unamortized balance of debt issuance costs as of March 31, 2019 and December 31, 2018 was $2.0 million and $2.2 million, respectively. These amounts are amortized and included in interest expense in the consolidated statements of operations over the life of the borrowings. The accumulated amortization balances as of March 31, 2019 and December 31, 2018 were $2.6 million and $2.4 million, respectively. The amortization expense for the three months ended March 31, 2019 and 2018 was $0.2 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 (“FASB’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 fiscal 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, 2018, the Company reclassified $0.03 million to paid-in capital from distributions in excess of net investment income, which related to excise taxes payable.

Depending on the level of taxable income earned in a tax year, the Company may choose to carry forward taxable income in excess of current year distributions into the next tax year and incur a 4% U.S. federal excise tax on such income, as required. To the extent that the Company determines that its estimated current year annual taxable income will be in excess of estimated current year distributions, the Company accrues excise tax, if any, on estimated excess taxable income as taxable income is earned. For the three months ended March 31, 2019 and 2018, there was no U.S. federal excise tax recorded.

The Company evaluates tax positions taken in the course of preparing the Company’s tax returns to determine whether the tax positions are “more-likely-than-not” to be sustained by the applicable tax authority in accordance with ASC Topic 740, Income Taxes, as modified by ASC Topic 946. Tax benefits of positions not deemed to meet the more-likely-than-not threshold, or uncertain tax positions, would be recorded as a tax expense in the current year. It is the Company’s policy to recognize accrued interest and penalties related to uncertain tax benefits in income tax expense. The Company had no material uncertain tax positions at March 31, 2019 and December 31, 2018. The Company’s income tax returns for the 2017, 2016 and 2015 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, may be distributed, 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 26, 2019, 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, 2020 or the repurchase of $5.0 million of the Company’s common stock. During the three months ended March 31, 2019 and 2018, the Company did not make any repurchases of its common stock. From the inception of the stock repurchase program through March 31, 2019, the Company repurchased 167,465 shares of its common stock at an average price of $11.22 on the open market at a total cost of $1.9 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 sale treatment under GAAP 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.

Recently adopted accounting pronouncements

In April 2014, the FASB issued Accounting Standards Update 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASU 2014-09”), which amends existing revenue recognition guidance to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. ASU 2014-09 is effective for annual and interim periods beginning after December 15, 2017. As required, the Company adopted ASU 2014-09 effective January 1, 2018, and such adoption did not have an impact on the Company’s consolidated financial statements and disclosures.

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework — Changes to the Disclosure Requirements for Fair Value Measurement (“ASU 2018-13”), which modifies disclosure requirements for the fair value measurement of Level 3 securities of public companies. This guidance is effective for annual and interim periods beginning on or after December 15, 2019 and early adoption is permitted. The Company elected to early adopt ASU 2018-13 for the year ended December 31, 2018. As a result, no significant changes were made to the Company’s disclosures in the notes to the consolidated financial statements.

Securities and Exchange Commission Disclosure Update and Simplification

In August 2018, the Securities and Exchange Commission (the “SEC”) adopted the final rule under SEC Release No. 33-10532, Disclosure Update and Simplification (the “SEC Release”), amending certain disclosure requirements that were redundant, duplicative, overlapping, outdated or superseded. The SEC Release is effective for all filings on or after November 5, 2018. As required, the Company adopted the SEC Release for the year ended December 31, 2018. The SEC Release required changes to the presentation of the Company's Consolidated Statements of Assets and Liabilities and the Consolidated Statements of Changes in Net Assets. Prior to adoption, the Company presented distributable earnings on the Consolidated Statements of Assets and Liabilities and the Consolidated Statement of Net Assets as three components: 1) distributions in excess of net investment income; 2) net unrealized depreciation on investments; and 3) net realized loss on investments. Upon adoption, the Company presents distributable earnings in total on the Consolidated Statements of Assets and Liabilities and the Consolidated Statements of Changes in Net Assets. The changes in presentation have been retrospectively applied to the Consolidated Statements of Changes in Net Assets for the three months ended March 31, 2018.

Horizon Technology Finance Corporation and Subsidiaries

Notes to Consolidated Financial Statements

The following table provides a reconciliation of previously disclosed components of distributable earnings on the Consolidated Statement of Changes in Net Assets as of March 31, 2018 to currently disclosed total distributable earnings on the Consolidated Statement of Assets and Liabilities as of March 31, 2018:

	For the three months ended March 31, 2018
	Accumulated Undistributed (Distributions in Excess of) Net Investment Income		Net Unrealized Depreciation on Investments			Net Realized Loss on Investments			Distributable Earnings
	(In thousands)
Net investment income, net of excise tax	$	3,210	$	—		$	—		$	3,210
Net unrealized depreciation on investments		—		(458	)		—			(458	)
Net realized loss on investments		—		—			(149	)		(149	)
Net increase in net assets resulting from operations	$	3,210	$	(458	)	$	(149	)	$	2,603

Note 3. Related party transactions

Investment Management Agreement

On July 27, 2018, the Board approved the New Investment Management Agreement, which the shareholders, at a special meeting of the stockholders, approved October 30, 2018; the New Investment Management Agreement replaced the existing Investment Management Agreement and went into effect upon a change of control of the Advisor. 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 SEC. 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.

Through October 30, 2018, the base management fee was calculated at an annual rate of 2.00% of the Company’s gross assets (less cash and cash equivalents) including any assets acquired with the proceeds of leverage. From and after October 31, 2018, the first date on which the reduced asset coverage requirements in Section 61(a)(2) of the 1940 Act apply to the Company, the base management fee was and will be calculated at an annual rate of 2.00% of the Company’s gross assets (less cash and cash equivalents) including any assets acquired with the proceeds of leverage; provided, that, to the extent the Company’s gross assets (less cash and cash equivalents) exceed $250 million, the base management fee on the amount of such excess over $250 million will be calculated at an annual rate of 1.60% of the Company’s gross assets (less cash and cash equivalents) including any assets acquired with the proceeds of leverage. The base management fee is payable monthly in arrears and is prorated for any partial month.

The base management fee payable at March 31, 2019 and December 31, 2018 was $0.4 million. The base management fee expense was $1.3 million and $1.1 million for the three months ended March 31, 2019 and 2018, respectively.

Horizon Technology Finance Corporation and Subsidiaries

Notes to Consolidated Financial Statements

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 PIK 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.

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 increased 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 includes 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.

Horizon Technology Finance Corporation and Subsidiaries

Notes to Consolidated Financial Statements

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.

On March 5, 2019, the Advisor irrevocably waived the receipt of incentive fees related to the amounts previously deferred that it may be entitled to receive under the Investment Management Agreement for the period commencing on January 1, 2019 and ending on December 31, 2019. Such waived incentive fees will not be subject to recoupment. During the three months ended March 31, 2019, the Advisor waived performance based incentive fees of $1.1 million which the Advisor would have otherwise been paid by the Company.

On March 6, 2018, the Advisor irrevocably waived the receipt of incentive fees related to the amounts previously deferred that it may be entitled to receive under the Investment Management Agreement for the period commencing on January 1, 2018 and ending on December 31, 2018. Such waived incentive fees are not subject to recoupment. During the three months ended March 31, 2018, the Advisor did not waive performance based incentive fees.

The net performance based incentive fee expense was $0.8 million and $0.5 million for the three months ended March 31, 2019 and 2018, respectively. The incentive fee on Pre-Incentive Fee Net Investment Income was subject to the Incentive Fee Cap and Deferral Mechanism for the three months ended March 31, 2018, which resulted in $0.2 million of reduced expense and additional net investment income. The performance based incentive fee payable as of March 31, 2019 and December 31, 2018 was $0.8 million and $1.0 million, respectively. The entire incentive fee payable as of March 31, 2019 and December 31, 2018 represented part one of the incentive fee.

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 for the three months ended March 31, 2019 and 2018.

Note 4. Investments

The following table shows the Company’s investments as of March 31, 2019 and December 31, 2018:

	March 31, 2019				December 31, 2018
	Cost		Fair Value		Cost		Fair Value
			(In thousands)
Investments
Debt	$	235,975	$	235,268	$	217,093	$	216,401
Warrants		7,369		9,733		7,032		9,324
Other		11,808		6,420		11,815		7,640
Equity		1,480		1,386		1,719		1,833
Equity interest in HSLFI		13,360		13,345		13,262		13,243
Total investments	$	269,992	$	266,152	$	250,921	$	248,441

Additionally, as of March 31, 2019, the Company had commitments to fund undrawn revolvers to its portfolio companies totaling $5.0 million. As of December 31, 2018, the Company had no commitments to fund undrawn revolvers to its portfolio companies.

Horizon Technology Finance Corporation and Subsidiaries

Notes to Consolidated Financial Statements

The following table shows the Company’s investments by industry sector as of March 31, 2019 and December 31, 2018:

	March 31, 2019				December 31, 2018
	Cost		Fair Value		Cost		Fair Value
			(In thousands)
Life Science
Biotechnology	$	38,173	$	37,686	$	25,770	$	25,426
Drug Delivery		1,601		1,707		1,590		1,584
Medical Device		47,553		47,958		47,504		47,869
Technology
Communications		11,423		10,654		11,219		10,754
Consumer-Related		29,496		30,471		21,094		22,061
Data Storage		24,050		19,939		14,132		10,036
Internet and Media		27,371		27,332		38,200		38,132
Materials		8,687		9,015		8,679		9,013
Power Management		433		450		545		512
Semiconductors		181		476		3,807		4,636
Software		41,402		40,779		40,942		40,912
Cleantech
Alternative Energy		68		—		68		—
Energy Efficiency		100		111		100		112
Healthcare Information and Services
Diagnostics		71		2		71		2
Other		218		170		218		172
Software		25,805		26,057		23,720		23,977
Investment funds
HSLFI		13,360		13,345		13,262		13,243
Total investments	$	269,992	$	266,152	$	250,921	$	248,441

Horizon Secured Loan Fund I LLC

On June 1, 2018, the Company and Arena formed a joint venture, HSLFI, to make investments, either directly or indirectly through subsidiaries, primarily in secured loans to development-stage companies in the technology, life science, healthcare information and services and cleantech industries. HSLFI was formed as a Delaware limited liability company and is not consolidated by either the Company or Arena for financial reporting purposes. Investments held by HSLFI are measured at fair value using the same valuation methodology as described in Note 6. As of March 31, 2019 and December 31, 2018, HSLFI had total assets of $30.9 million and $26.4 million, respectively. HSLFI’s portfolio consisted of debt investments in four portfolio companies as of March 31, 2019 and December 31, 2018. As of March 31, 2019, the largest investment in a single portfolio company in the HSLFI’s portfolio in aggregate principal amount was $11.3 million, and the four largest investments in portfolio companies in the HSLFI totaled $29.2 million. As of December 31, 2018, the largest investment in a single portfolio company in the HSLFI’s portfolio in aggregate principal amount was $8.3 million, and the four largest investments in portfolio companies in the HSLFI totaled $25.0 million. As of March 31, 2019 and December 31, 2018, HSLFI had no investments on non-accrual status. HSLFI invests in portfolio companies in the same industries in which the Company may directly invest.

The Company invests cash or securities in portfolio companies in HSLFI in exchange for limited liability company equity interests in HSLFI. As of March 31, 2019 and December 31, 2018, the Company and Arena each owned 50.0% of the equity interests of HSLFI. The Company had an original commitment to fund $25.0 million of equity interests in HSLFI. As of March 31, 2019 and December 31, 2018, $11.7 million was unfunded. The Company’s investment in HSLFI consisted of an equity contribution of $13.3 million as of March 31, 2019 and December 31, 2018.

Horizon Technology Finance Corporation and Subsidiaries

Notes to Consolidated Financial Statements

The Company and Arena each appointed two members to HSLFI’s four-person board of managers. All material decisions with respect to HSLFI, including those involving its investment portfolio, require unanimous approval of a quorum of the board of managers. Quorum is defined as (i) the presence of two members of the board of managers; provided that at least one individual is present that was elected, designated or appointed by each member; (ii) the presence of three members of the board of managers, provided that the individual that was elected, designated or appointed by the member with only one individual present will be entitled to cast two votes on each matter; or (iii) the presence of all four members of the board of managers.

Horizon Funding I, LLC (“HFI”) was formed as a Delaware limited liability company on May 9, 2018, with HSLFI as its sole member. HFI is a special purpose bankruptcy-remote entity and is a separate legal entity from HSLFI. Any assets conveyed to HFI are not available to creditors of HSLFI or any other entity other than HFI’s lenders.

In addition, on June 1, 2018, HSLFI entered into a sale and servicing agreement with HFI, as Issuer, and the Company, as Servicer, pursuant to which HSLFI will sell or contribute to HFI certain secured loans made to certain portfolio companies. HFI entered into a Note Funding Agreement (the “NYL Facility”) with several entities owned or affiliated with New York Life Insurance Company (“Noteholders”) for an aggregate purchase price of up to $100.0 million, with an accordion feature of up to $200.0 million at the mutual discretion and agreement of HSLFI and the Noteholders. The Note Funding Agreement has an investment period that ends on June 1, 2020, if not extended, followed by a five year amortization period and a scheduled final payment date of June 10, 2025, subject to any extension of the investment period. Any notes issued by HFI will be collateralized by all investments held by HFI and permit an advance rate of up to 67% of the aggregate principal amount of eligible debt investments. The interest rate on the notes issued under the NYL Facility is based on the three year USD mid-market swap rate plus a margin of between 2.75% and 3.25% depending on the rating of such notes at the time of issuance. There were $4.2 million in advances made by the Noteholders as of March 31, 2019 at an interest rate of 5.29%. There were no advances made by the Noteholders as of December 31, 2018.

The following table shows HSLFI’s individual investments as of March 31, 2019:

			Principal		Cost of		Fair
Portfolio Company ⁽¹⁾	Sector	Type of Investment ^(2)(3)(4)	Amount		Investments⁽⁵⁾		Value
(Dollars in thousands)
Debt Investments — Life science
Celsion Corporation (6)(7)(8)	Biotechnology	Term Loan (10.12% cash (Libor + 7.63%; Floor	$	2,500	$	2,453	$	2,453
		9.63%), 4.00% ETP, Due 7/1/22)
		Term Loan (10.12% cash (Libor + 7.63%; Floor		2,500		2,453		2,453
		9.63%), 4.00% ETP, Due 7/1/22)
Total Debt Investments — Life science						4,906		4,906
Debt Investments — Technology
Intelepeer Holdings, Inc. (6)(7)	Communications	Term Loan (12.44% cash (Libor + 9.95%; Floor		4,000		3,930		3,930
		11.25%), 3.30% ETP, Due 1/1/22)
		Term Loan (12.44% cash (Libor + 9.95%; Floor		4,000		3,930		3,930
		11.25%), 3.30% ETP, Due 1/1/22)
		Term Loan (12.45% cash (Libor + 9.95%; Floor		1,227		1,204		1,204
		12.45%), 2.50% ETP, Due 10/1/22)
New Signature US, Inc. (6)(7)(9)	Software	Term Loan (10.99% cash (Libor + 8.50%; Floor		8,250		8,136		8,136
		10.50%), 3.50% ETP, Due 7/1/22)
		Term Loan (10.99% cash (Libor + 8.50%; Floor		3,000		2,952		2,952
		10.50%), 3.50% ETP, Due 2/1/23)
Total Debt Investments — Technology						20,152		20,152
Debt Investments — Healthcare information and services
HealthEdge Software, Inc. (6)(7)	Software	Term Loan (10.74% cash (Libor + 8.25%; Floor		3,750		3,701		3,701
		9.25%), 3.00% ETP, Due 10/1/23)
Total Debt Investments — Healthcare information and services						3,701		3,701
Total Debt Investments