Horizon Finance
Annual Report 2015

Plain-text annual report

UNITED STATES SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549 Form 10-K (Mark One)þANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2015 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) DELAWARE27-2114934(State or other jurisdiction ofincorporation or organization)(I.R.S. EmployerIdentification No.) 312 Farmington Avenue, Farmington, CT06032(Address of principal executive offices)(Zip Code) Registrant’s telephone number, including area code (860) 676-8654 Securities registered pursuant to Section 12(b) of the Act: Title of Each Class Name of Each Exchange on Which RegisteredCommon Stock, par value $0.001 per share The NASDAQ Stock Market LLC 7.375% Senior Notes due 2019 The New York Stock Exchange Securities registered pursuant to Section 12(g) of the Act:None Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ¨ No þ. Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ¨ No þ. 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 1934during 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 filingrequirements for the past 90 days. Yes þ No ¨. Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File requiredto be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter periodthat the registrant was required to submit and post such files). Yes o No o Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to thebest of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to thisForm 10-K. þ Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer”and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one): Large accelerated filer ¨Accelerated filer þNon-accelerated filer ¨Smaller Reporting Company ¨ (Do not check if a smaller reporting company) Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No þ. The aggregate market value of common stock held by non-affiliates of the Registrant on June 30, 2015 based on the closing price on that date of $12.68on the Nasdaq Global Select Market was $146.1 million. For the purposes of calculating this amount only, all directors and executive officers of theRegistrant have been treated as affiliates. There were 11,538,984 shares of the Registrant’s common stock outstanding as of March 1, 2016. Documents Incorporated by Reference: Portions of the Registrant’s Proxy Statement relating to the Registrant’s 2016 Annual Meeting of Stockholders tobe filed not later than 120 days after the end of the fiscal year covered by this Annual Report on Form 10-K are incorporated by reference into Part III of thisAnnual Report on Form 10-K.   HORIZON TECHNOLOGY FINANCE CORPORATION FORM 10-KFOR THE YEAR ENDED DECEMBER 31, 2015 TABLE OF CONTENTS PagePART I Item 1.Business 3Item 1A.Risk Factors 25Item 1B.Unresolved Staff Comments 51Item 2.Properties 51Item 3.Legal Proceedings 51Item 4.Mine Safety Disclosures 51 PART II Item 5.Market For Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 52Item 6.Selected Financial Data 56Item 7.Management’s Discussion and Analysis of Financial Condition and Results of Operations 57Item 7A.Quantitative And Qualitative Disclosures About Market Risk 69Item 8.Consolidated Financial Statements and Supplementary Data 71Item 9.Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 112Item 9A.Controls and Procedures 112Item 9B.Other Information 112 PART III Item 10.Directors, Executive Officers and Corporate Governance 113Item 11.Executive Compensation 113Item 12.Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 113Item 13.Certain Relationships and Related Transactions, and Director Independence 113Item 14.Principal Accountant Fees and Services 113 PART IV Item 15.Exhibits and Financial Statement Schedules 114 Signatures 116 2  PART IIn this annual report on Form 10-K, except where the context suggests otherwise, the terms: ·“we,” “us,” “our” “the Company” and “Horizon Technology Finance” refer to Horizon Technology Finance Corporation, a Delawarecorporation, and its consolidated subsidiaries; ·The “Advisor” and the “Administrator” refer to Horizon Technology Finance Management LLC, a Delaware limited liability company; ·“Credit II” refers to Horizon Credit II LLC, a Delaware limited liability company, which is a special purpose bankruptcy remote entity and ourdirect subsidiary; ·“Key” refers to KeyBank National Association and “Key Facility” refers to the revolving credit facility with Key; ·“2019 Notes” refers to our $33 million aggregate principal amount of 7.375% senior unsecured notes due 2019; ·“Term Loan Facility” refers to a term loan credit facility we entered into with Fortress Credit Co LLC on August 23, 2012 that was terminatedon June 17, 2014; ·“2013-1 Securitization” refers to the $189.3 million securitization of secured loans we completed on June 28, 2013; ·“Asset-Backed Notes” refers to our $90 million aggregate principal amount of fixed-rate asset-backed notes issued in conjunction with the2013-1 Securitization; and ·The “2013-1 Trust” refers to Horizon Funding Trust 2013-1, a Delaware trust. Some of the statements in this annual report on Form 10-K constitute forward-looking statements which apply to both us and our consolidated subsidiariesand relate to future events, future performance or financial condition. The forward-looking statements involve risks and uncertainties for both us and ourconsolidated subsidiaries and actual results could differ materially from those projected in the forward-looking statements for any reason, including thosefactors described in “Item 1A.—Risk Factors” and elsewhere in this annual report on Form 10-K. Item 1. Business General We are a specialty finance company that lends to and invests in development-stage companies in the technology, life science, healthcare informationand services and cleantech industries, which we refer to collectively as our “Target Industries.” Our investment objective is to generate current income fromthe debt investments we make and capital appreciation from the warrants we receive when making such debt investments. We are focused on making secureddebt investments, which we refer to as “Venture Loans,” to venture capital backed companies in our Target Industries, which we refer to as “VentureLending.” We also selectively provide Venture Loans to publicly traded companies in our Target Industries. Our debt investments are typically secured byfirst liens or first liens behind a revolving line of credit, or “Senior Term Loans.” Venture Lending is typically characterized by (1) the making of a secureddebt investment after a venture capital or equity investment in the portfolio company has been made, which investment provides a source of cash to fund theportfolio company’s debt service obligations under the Venture Loan, (2) the senior priority of the Venture Loan which requires repayment of the VentureLoan prior to the equity investors realizing a return on their capital, (3) the relatively rapid amortization of the Venture Loan and (4) the lender’s receipt ofwarrants or other success fees with the making of the Venture Loan. We are an externally managed, closed-end, non-diversified management investment company that has elected to be regulated as a businessdevelopment company, or BDC, under the Investment Company Act of 1940, as amended, or the 1940 Act. In addition, for U.S. federal income tax purposes,we have elected to be treated as a regulated investment company, or RIC, under Subchapter M of the Internal Revenue Code of 1986, as amended, or theCode. As a BDC, we are required to comply with regulatory requirements, including limitations on our use of debt. We are permitted to, and expect to,finance our investments through borrowings. However, as a BDC, we are only generally allowed to borrow amounts such that our asset coverage, as defined inthe 1940 Act, equals at least 200% after such borrowing. The amount of leverage that we employ depends on our assessment of market conditions and otherfactors at the time of any proposed borrowing. As a RIC, we generally do not have to pay corporate-level federal income taxes on our investment companytaxable income and our net capital gain that we distribute to our stockholders as long as we meet certain source-of-income, distribution, asset diversificationand other requirements. 3  Compass Horizon Funding Company LLC, or Compass Horizon, our predecessor company, commenced operations in March 2008. We were formed inMarch 2010 for the purpose of acquiring Compass Horizon and continuing its business as a public entity. From our inception through December 31, 2015, we funded 138 portfolio companies and invested $780.0 million in debt investments. As of December31, 2015, our debt investment portfolio consisted of 52 debt investments with an aggregate fair value balance of $242.2 million. As of December 31, 2015,97.8%, or $236.9 million, of our debt investment portfolio at fair value consisted of Senior Term Loans. As of December 31, 2015, 18.6%, or $45.1 million, ofour total debt investment portfolio at fair value was held through our 2013-1 Securitization. As of December 31, 2015, our net assets were $159.8 million andall of our debt investments were secured by all or a portion of the tangible and intangible assets of the applicable portfolio company. The debt investments inour portfolio are generally not rated by any rating agency. If the individual debt investments in our portfolio were rated, they would be rated below“investment grade” because they are subject to many risks, including volatility, intense competition, short product life cycles and periodic downturns. For the year ended December 31, 2015, our debt investment portfolio had a dollar-weighted annualized yield of 14.2% (excluding any yield fromwarrants). The warrants we receive from time to time when making loans to portfolio companies are excluded from the calculation of our dollar-weightedannualized yield because such warrants do not generate any yield since we do not receive dividends or other payments in respect of our outstanding warrants.We calculate the yield on dollar-weighted average debt investments for any period measured as (1) total investment income during the period divided by (2)the average of the fair value of debt investments outstanding on (a) the last day of the calendar month immediately preceding the first day of the period and(b) the last day of each calendar month during the period. The dollar-weighted annualized yield represents the portfolio yield and will be higher than whatinvestors will realize because it does not reflect our expenses or any sales load paid by investors. As of December 31, 2015, our debt investments had a dollar-weighted average term of 44 months from inception and a dollar-weighted average remaining term of 32 months. As of December 31, 2015, substantially allof our debt investments had an original committed principal amount of between $2 million and $12 million, repayment terms of between 11 and 48 monthsand bore current pay interest at annual interest rates of between 9% and 13%. For the year ended December 31, 2015, our total return based on market value was (6.3)%. Total return based on market value is calculated as (x) thesum of (i) the closing sales price of our common stock on the last day of the period plus (ii) distributions paid per share during the period, less (iii) the closingsales price of our common stock on the first day of the period, divided by (y) the closing sales price of our common stock on the first day of the period. In addition to our debt investments, as of December 31, 2015, we held warrants to purchase stock in 83 portfolio companies, equity positions in sixportfolio companies and success fee arrangements in ten portfolio companies. Our investment activities, and our day-to-day operations, are managed by our Advisor and supervised by our board of directors, or the Board, of which amajority of the members are independent of us. Under an amended and restated investment management agreement, or the Investment ManagementAgreement, we have agreed to pay our Advisor a base management fee and an incentive fee for its advisory services to us. We have also entered into anadministration agreement, or the Administration Agreement, with our Advisor under which we have agreed to reimburse our Advisor for our allocable portionof overhead and other expenses incurred by our Advisor in performing its obligations under the Administration Agreement. Our common stock began trading October 29, 2010 and is currently traded on the NASDAQ Global Select Market under the symbol “HRZN”. Information available Our principal executive office is located at 312 Farmington Avenue, Farmington, Connecticut 06032, our telephone number is (860) 676-8654, and ourinternet address is www.horizontechfinance.com. We make available, free of charge, on our website our annual report on Form 10-K, quarterly reports onForm 10-Q, current reports on Form 8-K and amendments to those reports as soon as reasonably practicable after we electronically file such material with, orfurnish it to, the U.S. Securities and Exchange Commission, or the SEC. Information contained on our website is not incorporated by reference into thisannual report on Form 10-K and you should not consider information contained on our website to be part of this annual report on Form 10-K or any otherreport we file with the SEC. 4  Our advisor Our investment activities are managed by our Advisor, and we expect to continue to benefit from our Advisor’s ability to identify attractive investmentopportunities, conduct diligence on and value prospective investments, negotiate investments and manage our diversified portfolio of investments. Inaddition to the experience gained from the years that they have worked together both at our Advisor and prior to the formation of our Advisor, the membersof our investment team have broad lending backgrounds, with substantial experience at a variety of commercial finance companies, technology banks andprivate debt funds, and have developed a broad network of contacts within the venture capital and private equity community. This network of contactsprovides a principal source of investment opportunities. Our Advisor is led by five senior managers including Robert D. Pomeroy, Jr., our Chief Executive Officer, Gerald A. Michaud, our President, ChristopherM. Mathieu, our Senior Vice President and Chief Financial Officer, John C. Bombara, our Senior Vice President, General Counsel and Chief ComplianceOfficer, and Daniel S. Devorsetz, our Senior Vice President and Chief Investment Officer. Our strategy Our investment objective is to maximize our investment portfolio’s total return by generating current income from the debt investments we make andcapital appreciation from the warrants we receive when making such debt investments. To further implement our business strategy, we expect our Advisor tocontinue to employ the following core strategies: •Structured investments in the venture capital and private equity markets. We make loans to development-stage companies within our TargetIndustries typically in the form of secured loans. The secured debt structure provides a lower risk strategy, as compared to equity investments, toparticipate in the emerging technology markets because the debt structures we typically utilize provide collateral against the downside risk of loss,provide return of capital in a much shorter timeframe through current-pay interest and amortization of principal and have a senior position to equityin the borrower’s capital structure in the case of insolvency, wind down or bankruptcy. Unlike venture capital and private equity investments, ourinvestment returns and return of our capital do not require equity investment exits such as mergers and acquisitions or initial public offerings. Instead,we receive returns on our debt investments primarily through regularly scheduled payments of principal and interest and, if necessary, liquidation ofthe collateral supporting the debt investment upon a default. Only the potential gains from warrants depend upon equity investments exits. •“Enterprise value” lending. We and our Advisor take an enterprise value approach to the loan structuring and underwriting process. Enterprise valueincludes the implied valuation based upon recent equity capital invested as well as the intrinsic value of the applicable portfolio company’sparticular technology, service or customer base. We secure our lien position against the enterprise value of each portfolio company. •Creative products with attractive risk-adjusted pricing. Each of our existing and prospective portfolio companies has its own unique funding needsfor the capital provided from the proceeds of our Venture Loans. These funding needs include funds for additional development “runways,” funds tohire or retain sales staff or funds to invest in research and development in order to reach important technical milestones in advance of raisingadditional equity. Our loans include current-pay interest, commitment fees, end-of-term payments, or ETPs, pre-payment fees, success fees and non-utilization fees. We believe we have developed pricing tools, structuring techniques and valuation metrics that satisfy our portfolio companies’financing requirements while mitigating risk and maximizing returns on our investments. •Opportunity for enhanced returns. To enhance our debt investment portfolio returns, in addition to interest and fees, we obtain warrants to purchasethe equity of our portfolio companies as additional consideration for making debt investments. The warrants we obtain generally include a “cashlessexercise” provision to allow us to exercise these rights without requiring us to make any additional cash investment. Obtaining warrants in ourportfolio companies has allowed us to participate in the equity appreciation of our portfolio companies, which we expect will enable us to generatehigher returns for our investors. 5  •Direct origination. We originate transactions directly with technology, life science, healthcare information and services and cleantech companies.These transactions are referred to our Advisor from a number of sources, including referrals from, or direct solicitation of, venture capital and privateequity firms, portfolio company management teams, legal firms, accounting firms, investment banks and other lenders that represent companieswithin our Target Industries. Our Advisor has been the sole or lead originator in substantially all transactions in which the funds it manages haveinvested. •Disciplined and balanced underwriting and portfolio management. We use a disciplined underwriting process that includes obtaining informationvalidation from multiple sources, extensive knowledge of our Target Industries, comparable industry valuation metrics and sophisticated financialanalysis related to development-stage companies. Our Advisor’s due diligence on investment prospects includes obtaining and evaluatinginformation on the prospective portfolio company’s technology, market opportunity, management team, fund raising history, investor support,valuation considerations, financial condition and projections. We seek to balance our investment portfolio to reduce the risk of down market cyclesassociated with any particular industry or sector, development-stage or geographic area. Our Advisor employs a “hands on” approach to portfoliomanagement requiring private portfolio companies to provide monthly financial information and to participate in regular updates on performanceand future plans. •Use of leverage. We use leverage to increase returns on equity through our Key Facility, our 2019 Notes and our 2013-1 Securitization. See “Item 7— Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and capital resources” for additionalinformation about our use of leverage. In addition, we may issue additional debt securities or preferred stock in one or more series in the future. Market opportunity We focus our investments primarily in four key industries of the emerging technology market: technology, life science, healthcare information andservices and cleantech. The technology sectors we focus on include communications, networking, data storage, software, cloud computing, semiconductor,power management, internet and media and consumer-related technologies. The life science sectors we focus on include biotechnology, drug delivery,bioinformatics and medical devices. The healthcare information and services sectors we focus on include diagnostics, medical record services and softwareand other healthcare related services and technologies that improve efficiency and quality of administered healthcare. The cleantech sectors we focus oninclude alternative energy, water purification, energy efficiency, green building materials and waste recycling. We refer to all of these companies as“technology-related” companies and intend, under normal market conditions, to invest at least 80% of the value of our total assets in such businesses. We believe that Venture Lending has the potential to achieve enhanced returns that are attractive notwithstanding the high degree of risk associatedwith lending to development-stage companies. Potential benefits include: •interest rates that typically exceed rates that would be available to portfolio companies if they could borrow in traditional commercial financingtransactions; •the debt investment support provided by cash proceeds from equity capital invested by venture capital and private equity firms; •relatively rapid amortization of principal; •senior ranking to equity and collateralization of debt investments to minimize potential loss of capital; and •potential equity appreciation through warrants. We believe that Venture Lending also provides an attractive financing source for portfolio companies, their management teams and their equity capitalinvestors, as it: •is typically less dilutive to the equity holders than additional equity financing; 6  •extends the time period during which a portfolio company can operate before seeking additional equity capital or pursuing a sale transaction or otherliquidity event; and •allows portfolio companies to better match cash sources with uses. Competitive strengths We believe that we, together with our Advisor, possess significant competitive strengths, including: Consistently execute commitments and close transactions. Our Advisor and its senior management and investment professionals have an extensivetrack record of originating, underwriting and managing Venture Loans. Our Advisor and its predecessor have directly originated, underwritten andmanaged Venture Loans with an aggregate original principal amount over $1.2 billion to more than 200 companies since operations commenced in2004. Robust direct origination capabilities. Our Advisor’s managing directors each has significant experience originating Venture Loans in our TargetIndustries. This experience has given each managing director a deep knowledge of our Target Industries and an extensive base of transaction sourcesand references. Highly experienced and cohesive management team. Our Advisor has had the same senior management team of experienced professionals since itsinception. This consistency allows companies, their management teams and their investors to rely on consistent and predictable service, loan productsand terms and underwriting standards. Relationships with venture capital and private equity investors. Our Advisor has developed strong relationships with venture capital and privateequity firms and their partners. Well-known brand name. Our Advisor has originated Venture Loans to more than 200 companies in our Target Industries under the “HorizonTechnology Finance” brand. Competition We compete to provide financing to development-stage companies in our Target Industries with a number of investment funds and other BDCs, as wellas traditional financial services companies such as commercial banks and other financing sources. Some of our competitors are larger and have greaterfinancial and other resources than we do. We believe we compete effectively with these entities primarily on the basis of the experience, industry knowledgeand contacts of our Advisor’s investment professionals, its responsiveness and efficient investment analysis and decision-making processes, its creativefinancing products and its customized investment terms. We do not intend to compete primarily on the interest rates we offer and believe that somecompetitors make loans with rates that are comparable or lower than our rates. For additional information concerning our competitive position andcompetitive risks, see “Item 1A — Risk Factors — Risks related to our business and structure — We operate in a highly competitive market for investmentopportunities, and if we are not able to compete effectively, our business, results of operations and financial condition may be adversely affected and thevalue of your investment in us could decline.” Investment criteria We seek to invest in companies that are diversified by their stage of development, their Target Industries and sectors of Target Industries and theirgeographical location, as well as by the venture capital and private equity sponsors that support our portfolio companies. While we invest in companies atvarious stages of development, we require that prospective portfolio companies be beyond the seed stage of development and have received at least their firstround of venture capital or private equity financing before we will consider making an investment. We expect a prospective portfolio company todemonstrate its ability to advance technology and increase its value over time. We have identified several criteria that we believe have proven, and will prove, important in achieving our investment objective. These criteria providegeneral guidelines for our investment decisions. However, we caution you that not all of these criteria are met by each portfolio company in which we chooseto invest. Management. Our portfolio companies are generally led by experienced management that has in-market expertise in the Target Industry in whichthe company operates, as well as extensive experience with development-stage companies. The adequacy and completeness of the management team isassessed relative to the stage of development and the challenges facing the potential portfolio company. 7  Continuing support from one or more venture capital and private equity investors. We typically invest in companies in which one or moreestablished venture capital and private equity investors have previously invested and continue to make a contribution to the management of thebusiness. We believe that established venture capital and private equity investors can serve as a committed partner and will assist their portfoliocompanies and their management teams in creating value. We take into consideration the total amount raised by the company, the valuation history,investor reserves for future investment and the expected timing and milestones to the next equity round financing. Operating plan and cash resources. We generally require that a prospective portfolio company, in addition to having sufficient access to capitalto support leverage, demonstrate an operating plan capable of generating cash flows or the ability to raise the additional capital necessary to cover itsoperating expenses and service its debt. Our review of the operating plan will take into consideration existing cash, cash burn, cash runway and themilestones necessary for the company to achieve cash flow positive operations or to access additional equity from the investors. Enterprise and technology value. We expect that the enterprise value of a prospective portfolio company should substantially exceed theprincipal balance of debt borrowed by the company. Enterprise value includes the implied valuation based upon recent equity capital invested as wellas the intrinsic value of the company’s particular technology, service or customer base. Market opportunity and exit strategy. We seek portfolio companies that are addressing large market opportunities that capitalize on theircompetitive advantages. Competitive advantages may include unique technology, protected intellectual property, superior clinical results orsignificant market traction. As part of our investment analysis, we typically also consider potential realization of our warrants through merger,acquisition or initial public offering based upon comparable exits in the company’s Target Industry. Investment process Our Board has delegated authority for all investment decisions to our Advisor. Our Advisor, in turn, has created an integrated approach to the loanorigination, underwriting, approval and documentation process that we believe effectively combines the skills of our Advisor’s professionals. This processallows our Advisor to achieve an efficient and timely closing of an investment from the initial contact with a prospective portfolio company through theinvestment decision, close of documentation and funding of the investment, while ensuring that our Advisor’s rigorous underwriting standards areconsistently maintained. We believe that the high level of involvement by our Advisor’s staff in the various phases of the investment process allows us tominimize the credit risk while delivering superior service to our portfolio companies. Origination. Our Advisor’s loan origination process begins with its industry-focused regional managing directors who are responsible foridentifying, contacting and screening prospects. These managing directors meet with key decision makers and deal referral sources such as venturecapital and private equity firms and management teams, legal firms, accounting firms, investment banks and other lenders to source prospectiveportfolio companies. We believe our brand name and management team are well known within the Venture Lending community, as well as by manyrepeat entrepreneurs and board members of prospective portfolio companies. These broad relationships, which reach across the Venture Lendingindustry, give rise to a significant portion of our Advisor’s deal origination. The responsible managing director of our Advisor obtains review materials from the prospective portfolio company and from those materials, aswell as other available information, determines whether it is appropriate for our Advisor to issue a non-binding term sheet. The managing director basesthis decision to proceed on his or her experience, the competitive environment and the prospective portfolio company’s needs and also seeks thecounsel of our Advisor’s senior management and investment team. Term sheet. If the managing director determines, after review and consultation with senior management, that the potential transaction meets ourAdvisor’s initial credit standards, our Advisor will issue a non-binding term sheet to the prospective portfolio company. 8  The terms of the transaction are tailored to a prospective portfolio company’s specific funding needs while taking into consideration marketdynamics, the quality of the management team, the venture capital and private equity investors involved and applicable credit criteria, which mayinclude the prospective portfolio company’s existing cash resources, the development of its technology and the anticipated timing for the next round ofequity financing. Underwriting. Once the term sheet has been negotiated and executed and the prospective portfolio company has remitted a good faith deposit, werequest additional due diligence materials from the prospective portfolio company and arrange for a due diligence visit. Due diligence. The due diligence process includes a formal visit to the prospective portfolio company’s location and interviews with theprospective portfolio company’s senior management team. The process includes obtaining and analyzing information from independent third partiesthat have knowledge of the prospective portfolio company’s business, including, to the extent available analysts that follow the technology market,thought leaders in our Target Industries and important customers or partners, if any. Outside sources of information are reviewed, including industrypublications, scientific and market articles, Internet publications, publicly available information on competitors or competing technologies andinformation known to our Advisor’s investment team from their experience in the technology markets. A key element of the due diligence process is interviewing key existing investors in the prospective portfolio company, who are often alsomembers of the prospective portfolio company’s board of directors. While these board members and/or investors are not independent sources ofinformation, their support for management and willingness to support the prospective portfolio company’s further development are critical elements ofour decision making process. Investment memorandum. Upon completion of the due diligence process and review and analysis of all of the information provided by theprospective portfolio company and obtained externally, our Advisor’s assigned credit officer prepares an investment memorandum for review andapproval. The investment memorandum is reviewed by our Advisor’s Chief Investment Officer and submitted to our Advisor’s investment committee forapproval. Investment committee. Our Advisor’s investment committee is responsible for overall credit policy, portfolio management, approval of allinvestments, portfolio monitoring and reporting and managing of problem accounts. The committee interacts with the entire staff of our Advisor toreview potential transactions and deal flow. This interaction of cross-functional members of our Advisor’s staff assures efficient transaction sourcing,negotiating and underwriting throughout the transaction process. Portfolio performance and current market conditions are reviewed and discussed bythe investment committee on a regular basis to assure that transaction structures and terms are consistent and current. Loan closing and funding. Approved investments are documented and closed by our Advisor’s in-house legal and loan administration staff. Loandocumentation is based upon standard templates created by our Advisor and is customized for each transaction to reflect the specific deal terms. Thetransaction documents typically include a loan and security agreement, warrant agreement and applicable perfection documents, including applicableUniform Commercial Code, or UCC, financing statements and, as applicable, may also include a landlord agreement, patent and trademark securitygrants, a subordination agreement and other standard agreements for commercial loans in the Venture Lending industry. Funding requires final approvalby our Advisor’s General Counsel, Chief Executive Officer or President, Chief Financial Officer and Chief Investment Officer. Portfolio management and reporting. Our Advisor maintains a “hands on” approach to maintain communication with our portfolio companies. Atleast quarterly, our Advisor contacts our portfolio companies for operational and financial updates by phone and performs reviews. Our Advisor maycontact portfolio companies deemed to have greater credit risk on a monthly basis. Our Advisor requires all private companies to provide financialstatements. For public companies, our Advisor typically relies on publicly reported quarterly financials. This allows our Advisor to identify anyunexpected developments in the financial performance or condition of our portfolio company. Our Advisor has developed a proprietary internal credit rating system to analyze the quality of our debt investments. Using this system, our Advisoranalyzes and then rates the credit risk within the portfolio on a monthly basis. Each portfolio company is rated on a 1 through 4 scale, with 3representing the rating for a standard level of risk. A rating of 4 represents an improved and better credit quality. A rating of 2 or 1 represents adeteriorating credit quality and increasing risk. Newly funded investments are typically assigned a rating of 3, unless extraordinary circumstancesrequire otherwise. These investment ratings are generated internally by our Advisor, and we cannot guarantee that others would assign the same ratingsto our portfolio investments or similar portfolio investments. 9  Our Advisor closely monitors portfolio companies rated a 1 or 2 for adverse developments. In addition, our Advisor maintains regular contact withthe management, board of directors and major equity holders of these portfolio companies in order to discuss strategic initiatives to correct thedeterioration of the portfolio company. The following table describes each rating level: Rating 4 The portfolio company has performed in excess of our expectations at the time of initial underwriting as demonstrated by exceedingrevenue milestones, clinical milestones or other operating metrics or as a result of raising capital well in excess of our underwritingassumptions. Generally the portfolio company displays one or more of the following: its enterprise value greatly exceeds our loan balance;it has achieved cash flow positive operations or has sufficient cash resources to cover the remaining balance of the loan; there is strongpotential for warrant gains from our warrants; and there is a high likelihood that the borrower will receive favorable future financing tosupport operations. Loans rated 4 are the lowest risk profile in our portfolio, and there is no expected risk of principal loss.3 The portfolio company has performed to our expectations at the time of initial underwriting as demonstrated by meeting revenuemilestones, clinical milestones or other operating metrics. It has raised, or is expected to raise, capital consistent with our underwritingassumptions. Generally the portfolio company displays one or more of the following: its enterprise value comfortably exceeds our loanbalance; it has sufficient cash resources to operate according to its plan; it is expected to raise additional capital as needed; and therecontinues to be potential for warrant gains from our warrants. New loans are typically rated 3 when approved and thereafter 3-rated loansrepresent a standard risk profile, with no loss currently expected.2 The portfolio company has performed below our expectations at underwriting as demonstrated by missing revenue milestones, delayedclinical progress or otherwise failing to meet projected operating metrics. It may have raised capital in support of the poorer performancebut generally on less favorable terms than originally contemplated at the time of underwriting. Generally the portfolio company displaysone or more of the following: its enterprise value exceeds our loan balance but at a lower multiple than originally expected; it hassufficient cash to operate according to its plan but liquidity may be tight; and it is planning to raise additional capital but there isuncertainty and the potential for warrant gains from our warrants are possible, but unlikely. Loans rated 2 represent an increased level ofrisk. While no loss is currently anticipated for a 2-rated loan, there is potential for future loss of principal.1 The portfolio company has performed well below plan as demonstrated by materially missing revenue milestones, delayed or failedclinical progress or otherwise failing to meet operating metrics. The portfolio company has not raised sufficient capital to operateeffectively or retire its debt obligation to us. Generally the portfolio company displays one or more of the following: its enterprise valuemay not exceed our loan balance; it has insufficient cash to operate according to its plan and liquidity may be tight; and there areuncertain plans to raise additional capital or the portfolio company is being sold under distressed conditions. There is no potential forwarrant gains from our warrants. Loans rated 1 are generally put on non-accrual status and represent a high degree of risk of loss. For a discussion of the ratings of our existing portfolio, see “Item 7 — Management’s Discussion and Analysis of Financial Condition and Results ofOperations — Debt investment asset quality.” Managerial assistance As a BDC, we offer, through our Advisor, and must provide upon request, managerial assistance to certain of our portfolio companies. This assistancemay involve monitoring the operations of the portfolio companies, participating in board of directors and management meetings, consulting with andadvising officers of portfolio companies and providing other organizational and financial guidance. 10  Although we may receive fees for these services, pursuant to the Administration Agreement, we will reimburse our Advisor for its expenses related toproviding such services on our behalf. Employees We do not have any employees. Each of our executive officers is an employee of our Advisor. Our day-to-day investment operations are managed byour Advisor. We reimburse our Advisor for our allocable portion of expenses incurred by it in performing its obligations under the Administration Agreement,as our Administrator, including our allocable portion of the cost of our Chief Financial Officer and Chief Compliance Officer and their respective staffs. Investment Management Agreement Under the terms of the Investment Management Agreement, our Advisor: • determines the composition of our portfolio, the nature and timing of the changes to our portfolio and the manner of implementing suchchanges; • identifies, evaluates and negotiates the structure of the investments we make (including performing due diligence on our prospective portfoliocompanies); and • closes, monitors and administers the investments we make, including the exercise of any voting or consent rights. Our Advisor’s services under the Investment Management Agreement are not exclusive, and it is free to furnish similar services to other entities so longas its services to us are not impaired. Investment advisory fees Pursuant to our Investment Management Agreement, we pay our Advisor a fee for investment advisory and management services consisting of a basemanagement fee and an incentive fee. Base management fee. The base management fee, payable monthly in arrears, is calculated at an annual rate of 2.00% of (i) our gross assets less (ii)cash and cash equivalents. For purposes of calculating the base management fee, the term “gross assets” includes any assets acquired with the proceeds ofleverage. The Advisor agreed to waive the base management fee relating to the proceeds raised in a public offering of our common stock that closed onMarch 24, 2015, to the extent such fee is not otherwise waived and regardless of the application of the proceeds raised, until the earlier to occur of (i) March31, 2016 or (ii) the last day of the second consecutive calendar quarter in which our net investment income exceeds distributions declared on shares of ourcommon stock for the applicable quarter. As of December 31, 2015, condition (ii) above has been met, as our net investment income exceeded distributionsdeclared for the quarters ended September 30, 2015 and December 31, 2015, and our Advisor is not obligated to waive the base management fee with respectto such offering proceeds for any future quarter. Incentive fee. 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 basedon our 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 ascommitment, origination, structuring, diligence and consulting fees or other fees received from portfolio companies) accrued during the calendar quarter,minus operating expenses for the quarter (including the base management fee, expenses payable under the Administration Agreement and any interestexpense and any dividends paid on any issued and outstanding preferred stock, but excluding the incentive fee). Pre-Incentive Fee Net Investment Incomeincludes, in the case of investments with a deferred interest feature (such as original issue discount, debt instruments with payment-in-kind interest and zerocoupon securities), accrued income we have not yet received in cash. The incentive fee with respect to the Pre-Incentive Fee Net Investment Income is20.00% of the amount, if any, by which the Pre-Incentive Fee Net Investment Income for the immediately preceding calendar quarter, expressed as a rate ofreturn on the value of our net assets at the end of such quarter, exceeds a 1.75% (which is 7.00% annualized) hurdle rate and a “catch-up” provision. Underthis provision, in any calendar quarter, the Advisor receives no incentive fee until the Pre-Incentive Fee Net Investment Income equals the hurdle rate of1.75%, 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 NetInvestment Income, if any, that exceeds the hurdle rate but is less than 2.1875%. The effect of this “catch-up” provision is that, if Pre-Incentive Fee NetInvestment 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 hurdlerate did not apply. 11  Pre-Incentive Fee Net Investment Income does not include any realized capital gains, realized capital losses or unrealized capital appreciation ordepreciation. Because of the structure of the incentive fee, it is possible that we may pay an incentive fee in a quarter in which we incur a loss. For example, ifwe receive Pre-Incentive Fee Net Investment Income in excess of the quarterly minimum hurdle rate, we will pay the applicable incentive fee up to theIncentive Fee Cap, defined below, even if we have incurred a loss in that quarter due to realized and unrealized capital losses. Our net investment incomeused to calculate this part of the incentive fee is also included in the amount of our gross assets used to calculate the 2.00% base management fee. Thesecalculations are appropriately prorated for any period of less than three months and adjusted for any share issuances or repurchases during the applicablequarter. 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 anddeferral mechanism which is determined based upon a look-back period of up to three years and is expensed when incurred. For this purpose, the IncentiveFee Look-back Period commenced on July 1, 2014 and increases by one quarter in length at the end of each calendar quarter until June 30, 2017, after whichtime, the Incentive Fee Look-back Period will include the relevant calendar quarter and the 11 preceding full calendar quarters. Each quarterly incentive feepayable on Pre-Incentive Fee Net Investment Income is subject to a cap (the “Incentive Fee Cap”) and a deferral mechanism through which the Advisor mayrecoup 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 anykind 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,we 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 feeson 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 calendarquarters up to three years after their date of deferment, subject to certain limitations, which are set forth in the Investment Management Agreement. We onlypay 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 basemanagement fee for each calendar quarter during the Incentive Fee Look-back Period and (b) the sum of cumulative realized capital gains and losses,cumulative unrealized capital appreciation and cumulative unrealized capital depreciation during the applicable Incentive Fee Look-back Period. The following is a graphical representation of the calculation of the income-related portion of the incentive fee: Quarterly incentive fee based on Net Investment Income Pre-Incentive Fee Net Investment Income (expressed as a percentage of the value of net assets) Percentage of Pre-Incentive Fee Net Investment Income allocated to first part of incentive fee 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 InvestmentManagement Agreement, as of the termination date), and equals 20.00% of our realized capital gains, if any, on a cumulative basis from the date of ourelection to be a BDC through the end of each calendar year, computed net of all realized capital losses and unrealized capital depreciation on a cumulativebasis, less all previous amounts paid in respect of the capital gain incentive fee. 12  Examples of incentive fee calculation Example 1: Income related portion of incentive fee before total return requirement calculation for each fiscal quarter Alternative 1 Assumptions: Investment income (including interest, distributions, fees, etc.) = 1.25% Hurdle rate(1) = 1.75% Management fee(2) = 0.50% Other expenses (legal, accounting, custodian, transfer agent, etc.)(3) = 0.20% Pre-Incentive Fee Net Investment Income (investment income - (management fee + other expenses)) = 0.55% Pre-Incentive Fee Net Investment Income does not exceed hurdle rate; therefore, there is no income-related incentive fee. Alternative 2 Assumptions: Investment income (including interest, distributions, fees, etc.) = 2.80% Hurdle rate(1) = 1.75% Management fee(2) = 0.50% Other expenses (legal, accounting, custodian, transfer agent, etc.)(3) = 0.20% Pre-Incentive Fee Net Investment Income (investment income - (management fee + other expenses)) = 2.10% Incentive fee = 100.00% × Pre-Incentive Fee Net Investment Income (subject to “catch-up”)(4) = 100.00% × (2.10% - 1.75%) = 0.35% Pre-Incentive Fee Net Investment Income exceeds the hurdle rate, but does not fully satisfy the “catch-up” provision; therefore, the income relatedportion of the incentive fee is 0.35%. Alternative 3 Assumptions: Investment income (including interest, distributions, fees, etc.) = 3.00% Hurdle rate(1) = 1.75% Management fee(2) = 0.50% Other expenses (legal, accounting, custodian, transfer agent, etc.)(3) = 0.20% Pre-Incentive Fee Net Investment Income (investment income - (management fee + other expenses)) = 2.30% Incentive fee = 100.00% × Pre-Incentive Fee Net Investment Income (subject to “catch-up”)(4) Incentive fee = 100.00% × “catch-up” + (20.00% × (Pre-Incentive Fee Net Investment Income - 2.1875%)) Catch up = 2.1875% - 1.75% = 0.4375% 13  Incentive fee = (100.00% × 0.4375%) + (20.00% × (2.30% - 2.1875%)) = 0.4375% + (20.00% × 0.1125%) = 0.4375% + 0.0225% = 0.46% Pre-Incentive Fee Net Investment Income exceeds the hurdle rate and fully satisfies the “catch-up” provision; therefore, the income related portion ofthe incentive fee is 0.46%. (1)Represents 7.00% annualized hurdle rate. (2)Represents 2.00% annualized base management fee. (3)Excludes organizational and offering expenses. (4)The “catch-up” provision is intended to provide our Advisor with an incentive fee of 20.00% on all Pre-Incentive Fee Net Investment Incomeas if a hurdle rate did not apply when our net investment income exceeds 2.1875% in any fiscal quarter. Example 2: Income related portion of incentive fee after total return requirement calculation for each fiscal quarter Alternative 1 Assumptions: Investment income (including interest, distributions, fees, etc.) = 1.25% Hurdle rate(1) = 1.75% Management fee(2) = 0.50% Other expenses (legal, accounting, custodian, transfer agent, etc.)(3) = 0.20% Pre-Incentive Fee Net Investment Income (investment income - (management fee + other expenses)) = 0.55% Pre-Incentive Fee Net Investment Income does not exceed hurdle rate; therefore, there is no income-related incentive fee. Cumulative incentive compensation accrued and/or paid since July 1, 2014 = $9,000,000 20.0% of cumulative net increase in net assets resulting from operations since July 1, 2014 = $8,000,000 Although our Pre-Incentive Fee Net Investment Income exceeds the hurdle rate of 1.75% (as shown in Alternative 3 of Example 1 above), no incentivefee is payable because 20.0% of the cumulative net increase in net assets resulting from operations since July 1, 2014 did not exceed the cumulativeincome and capital gains incentive fees accrued and/or paid since July 1, 2014. Alternative 2 Assumptions: Investment income (including interest, distributions, fees, etc.) = 2.80% Hurdle rate(1) = 1.75% Management fee(2) = 0.50% Other expenses (legal, accounting, custodian, transfer agent, etc.)(3) = 0.20% Pre-Incentive Fee Net Investment Income (investment income - (management fee + other expenses)) = 2.10% Incentive fee = 100.00% × Pre-Incentive Fee Net Investment Income (subject to ‘‘catch-up’’)(4) 14  =100.00% × (2.10% - 1.75%) = 0.35% Pre-Incentive Fee Net Investment Income exceeds the hurdle rate, but does not fully satisfy the ‘‘catch-up’’ provision; therefore, the income relatedportion of the incentive fee is 0.35%. Cumulative incentive compensation accrued and/or paid since July 1, 2014 = $9,000,000 20.0% of cumulative net increase in net assets resulting from operations since July 1, 2014 = $10,000,000 Because our Pre-Incentive Fee Net Investment Income exceeds the hurdle rate of 1.75% and because 20.0% of the cumulative net increase in net assetsresulting from operations since July 1, 2014 exceeds the cumulative income and capital gains incentive fees accrued and/or paid since July 1, 2014, anincentive fee would be payable, as shown in Alternative 3 of Example 1 above. (1)Represents 7.00% annualized hurdle rate. (2)Represents 2.00% annualized base management fee. (3)Excludes organizational and offering expenses. (4)The “catch-up” provision is intended to provide our Advisor with an incentive fee of 20.00% on all Pre-Incentive Fee Net InvestmentIncome as if a hurdle rate did not apply when our net investment income exceeds 2.1875% in any fiscal quarter. Example 3: Capital gains portion of incentive fee Alternative 1 Assumptions: Year 1: $20 million investment made in Company A (“Investment A”), and $30 million investment made in Company B (“Investment B”) Year 2: Investment A sold for $50 million and fair market value (“FMV”) of Investment B determined to be $32 million Year 3: FMV of Investment B determined to be $25 million Year 4: Investment B sold for $31 million The capital gains portion of the incentive fee, if any, would be: Year 1: None (No sales transaction) Year 2: Capital gains incentive fee of $6 million ($30 million realized capital gains on sale of Investment A multiplied by 20%) Year 3: None; $5 million ((20% multiplied by ($30 million cumulative capital gains less $5 million cumulative capital depreciation)) less $6 million(previous capital gains fee paid in Year 2)) Year 4: Capital gains incentive fee of $200,000; $6.2 million (($31 million cumulative realized capital gains multiplied by 20%) less $6 million(capital gains incentive fee taken in Year 2)) Alternative 2 Assumptions: Year 1: $20 million investment made in Company A (“Investment A”), $30 million investment made in Company B (“Investment B”) and $25 millioninvestment made in Company C (“Investment C”) Year 2: Investment A sold for $50 million, FMV of Investment B determined to be $25 million and FMV of Investment C determined to be $25 million 15  Year 3: FMV of Investment B determined to be $27 million and Investment C sold for $30 million Year 4: FMV of Investment B determined to be $35 million Year 5: Investment B sold for $20 million The capital gains incentive fee, if any, would be: Year 1: None (no sales transaction) Year 2: $5 million capital gains incentive fee (20% multiplied by $25 million ($30 million realized capital gains on Investment A less unrealizedcapital depreciation on Investment B)) Year 3: $1.4 million capital gains incentive fee(1) ($6.4 million (20% multiplied by $32 million ($35 million cumulative realized capital gains less$3 million unrealized capital depreciation)) less $5 million capital gains incentive fee received in Year 2 Year 4: None (no sales transaction) Year 5: None ($5 million (20% multiplied by $25 million (cumulative realized capital gains of $35 million less realized capital losses of $10 million))less $6.4 million cumulative capital gains incentive fee paid in Year 2 and Year 3(2) The hypothetical amounts of returns shown are based on a percentage of our total net assets and assume no leverage. There is no guarantee that positivereturns will be realized and actual returns may vary from those shown in this example. (1)As illustrated in Year 3 of Alternative 1 above, if we were to be wound up on a date other than our fiscal year end of any year, we may havepaid aggregate capital gains incentive fees that are more than the amount of such fees that would be payable if we had been wound up on itsfiscal year end of such year. (2)As noted above, it is possible that the cumulative aggregate capital gains fee received by our Advisor ($6.4 million) is effectively greater than$5 million (20.00% of cumulative aggregate realized capital gains less net realized capital losses or net unrealized depreciation($25 million)). Payment of our expenses All investment professionals and staff of our Advisor, when and to the extent engaged in providing investment advisory and management services, andthe compensation and routine overhead expenses of its personnel allocable to such services, are provided and paid for by our Advisor. We bear all other costsand expenses of our operations and transactions, including those relating to: •our organization; •calculating our net asset value (including the cost and expenses of any independent valuation firms); •expenses, including travel expense, incurred by our Advisor or payable to third parties performing due diligence on prospective portfolio companies,monitoring our investments and, if necessary, enforcing our rights; •interest payable on debt, if any, incurred to finance our investments; •the costs of all future offerings and repurchases of our common stock and other securities, if any; •the base management fee and any incentive fee; •distributions on our shares; •administration fees payable under the Administration Agreement; •the allocated costs incurred by our Advisor as our Administrator in providing managerial assistance to those portfolio companies that request it; •amounts payable to third parties relating to, or associated with, making investments; 16  •transfer agent and custodial fees; •registration fees; •listing fees; •fees and expenses associated with marketing efforts; •taxes; •independent director fees and expenses; •brokerage commissions; •costs of preparing and filing reports or other documents with the SEC; •the costs of any reports, proxy statements or other notices to our stockholders, including printing costs; •the fidelity bond; •directors and officers/errors and omissions liability insurance, and any other insurance premiums; •indemnification payments; •direct costs and expenses of administration, including audit and legal costs; and •all other expenses incurred by us or the Administrator in connection with administering our business, such as the allocable portion of overhead underthe Administration Agreement, including rent, the fees and expenses associated with performing compliance functions and our allocable portion ofthe costs of compensation and related expenses of our Chief Financial Officer and Chief Compliance Officer and their respective staffs. Generally, our expenses are expensed as incurred in accordance with U.S. generally accepted accounting principles, or GAAP. To the extent we incurcosts that should be capitalized and amortized into expense we also do so in accordance with GAAP, which may include amortizing such amount on astraight line basis over the life of the asset or the life of the services or product being performed or provided. Limitation of liability and indemnification The Investment Management Agreement provides that our Advisor and its officers, managers, partners, agents, employees, controlling persons and anyother person or entity affiliated with our Advisor are not liable to us for any act or omission by it in the supervision or management of our investmentactivities or for any loss sustained by us except for acts or omissions constituting willful misfeasance, bad faith, gross negligence or reckless disregard of itsobligations under the Investment Management Agreement. The Investment Management Agreement also provides for indemnification by us of our Advisorand its officers, managers, partners, agents, employees, controlling persons and any other person or entity affiliated with our Advisor for liabilities incurred bythem in connection with their services to us (including any liabilities associated with an action or suit by or in the right of us or our stockholders), butexcluding liabilities for acts or omissions constituting willful misfeasance, bad faith or gross negligence or reckless disregard of their duties under theInvestment Management Agreement subject to certain conditions. Board approval of the Investment Management Agreement Our Board held an in-person meeting on July 29, 2015, at which it considered and reapproved our Investment Management Agreement for an additional12-month period. In its consideration of the Investment Management Agreement, our Board focused on information it had received relating to (a) the nature,quality and extent of the advisory and other services to be provided to us by our Advisor; (b) comparative data with respect to advisory fees or similarexpenses paid by other BDCs with similar investment objectives; (c) our projected expenses and expense ratio compared to BDCs with similar investmentobjectives; (d) any existing and potential sources of indirect income to our Advisor or the Administrator from their relationships with us and the profitabilityof those relationships; (e) information about the services to be performed and the personnel performing such services under the Investment ManagementAgreement; (f) the organizational capability and financial condition of our Advisor and its affiliates; (g) our Advisor’s practices regarding the selection andcompensation of brokers that may execute our portfolio transactions and the brokers’ provision of brokerage and research services to our Advisor; and (h) thepossibility of obtaining similar services from other third party service providers or through an internally managed structure. 17  Based on the information reviewed and its discussions related thereto, our Board, including a majority of the directors who are not interested persons ofus, concluded that the investment management fee rates were reasonable in relation to the services to be provided. Duration and termination The Investment Management Agreement was reapproved by our Board on July 29, 2015. Unless terminated earlier as described below, it will continuein effect from year to year thereafter if approved annually by our Board including a majority of our directors who are not interested persons or by theaffirmative vote of the holders of a majority of our outstanding voting securities and a majority of our directors who are not interested persons. TheInvestment Management Agreement will automatically terminate in the event of its assignment. The Investment Management Agreement may be terminatedby either party without penalty by delivering notice of termination upon not more than 60 days’ written notice to the other party. See “Item 1A — RiskFactors — Risks related to our business and structure — Our Advisor can resign on 60 days’ notice, and we may not be able to find a suitable replacementwithin that time, resulting in a disruption in our operations that could adversely affect our business, results of operations or financial condition.” Administration Agreement The Administration Agreement was considered and reapproved by our Board on July 29, 2015. Under the Administration Agreement, the Administratorfurnishes us with office facilities and equipment, provides us clerical, bookkeeping and record keeping services at such facilities and provides us with otheradministrative services necessary to conduct our day-to-day operations. We reimburse the Administrator for our allocable portion of overhead and otherexpenses incurred by the Administrator in performing its obligations under the Administration Agreement, including rent, the fees and expenses associatedwith performing compliance functions and our allocable portion of the costs of compensation and related expenses of our Chief Financial Officer and ChiefCompliance Officer and their respective staffs. License agreement We have entered into a license agreement with Horizon Technology Finance, LLC, or HTF, pursuant to which we were granted a non-exclusive, royalty-free right and license to use the service mark “Horizon Technology Finance.” Under this agreement, we have a right to use the “Horizon TechnologyFinance” service mark for so long as the Investment Management Agreement with our Advisor is in effect. Other than with respect to this limited license, wehave no legal right to the “Horizon Technology Finance” service mark. Regulation We have elected to be regulated as a BDC under the 1940 Act and elected to be treated as a RIC under Subchapter M of the Code. As with othercompanies regulated by the 1940 Act, a BDC must adhere to certain substantive regulatory requirements. The 1940 Act contains prohibitions and restrictionsrelating to transactions between BDCs and their affiliates (including any investment advisers or sub-advisers), principal underwriters and affiliates of thoseaffiliates or underwriters and requires that a majority of the directors be persons other than “interested persons,” as that term is defined in the 1940 Act. Inaddition, the 1940 Act provides that we may not change the nature of our business so as to cease to be, or to withdraw our election as, a BDC unless approvedby “a majority of our outstanding voting securities” as defined in the 1940 Act. A majority of the outstanding voting securities of a company is defined underthe 1940 Act as the lesser of: (1) 67% or more of such company’s shares present at a meeting if more than 50% of the outstanding shares of such company arepresent or represented by proxy or (2) more than 50% of the outstanding shares of such company. Our bylaws provide for the calling of a special meeting ofstockholders at which such action could be considered upon written notice of not less than ten or more than sixty days before the date of such meeting. We may invest up to 100% of our assets in securities acquired directly from issuers in privately negotiated transactions. With respect to such securities,we may, for the purpose of public resale, be deemed an “underwriter” as that term is defined in the Securities Act of 1933, as amended, or the Securities Act.We do not intend to acquire securities issued by any investment company that exceed the limits imposed by the 1940 Act. Under these limits, except forregistered money market funds, we generally cannot acquire more than 3% of the voting stock of any investment company, invest more than 5% of the valueof our total assets in the securities of one investment company or invest more than 10% of the value of our total assets in the securities of more than oneinvestment company. With regard to that portion of our portfolio invested in securities issued by investment companies, it should be noted that suchinvestments might subject our stockholders to additional expenses. None of our investment policies are fundamental and any may be changed withoutstockholder approval. 18  We may also be prohibited under the 1940 Act from knowingly participating in certain transactions with our affiliates without the prior approval of ourdirectors who are not interested persons and, in some cases, prior approval by the SEC. For example, under the 1940 Act, absent receipt of exemptive relieffrom the SEC, we and our affiliates may be precluded from co-investing in private placements of securities. As a result of one or more of these situations, wemay not be able to invest as much as we otherwise would in certain investments or may not be able to liquidate a position as quickly. We expect to be periodically examined by the SEC for compliance with the 1940 Act. We are required to provide and maintain a bond issued by a reputable fidelity insurance company to protect us against larceny and embezzlement.Furthermore, as a BDC, we are prohibited from protecting any director or officer against any liability to us or our stockholders arising from willfulmisfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of such person’s office. We and our Advisor have adopted and implemented written policies and procedures reasonably designed to prevent violation of the federal securitieslaws and review these policies and procedures annually for their adequacy and the effectiveness of their implementation. We and our Advisor havedesignated a chief compliance officer to be responsible for administering the policies and procedures. Qualifying assets Under the 1940 Act, a BDC may not acquire any asset other than assets of the type listed in section 55(a) of the 1940 Act, which are referred to asqualifying assets, unless, at the time the acquisition is made, qualifying assets represent at least 70% of the company’s total assets. The principal categories ofqualifying assets relevant to our proposed business are the following: •Securities purchased in transactions not involving any public offering from the issuer of such securities, which issuer (subject to certain limitedexceptions) is an eligible portfolio company, or from any person who is, or has been during the preceding 13 months, an affiliated person of aneligible portfolio company, or from any other person, subject to such rules as may be prescribed by the SEC. An eligible portfolio company is definedin the 1940 Act as any issuer which: •is organized under the laws of, and has its principal place of business in, the United States; •is not an investment company (other than a small business investment company wholly owned by the BDC) or a company that would be aninvestment company but for certain exclusions under the 1940 Act; and •satisfies any of the following: •has a market capitalization of less than $250 million or does not have any class of securities listed on a national securities exchange; •is controlled by a BDC or a group of companies including a BDC, the BDC actually exercises a controlling influence over the management orpolicies of the eligible portfolio company, and, as a result thereof, the BDC has an affiliated person who is a director of the eligible portfoliocompany; or •is a small and solvent company having total assets of not more than $4 million and capital and surplus of not less than $2 million. •Securities of any eligible portfolio company which we control. •Securities purchased in a private transaction from a U.S. issuer that is not an investment company or from an affiliated person of the issuer, or intransactions incident thereto, if the issuer is in bankruptcy and subject to reorganization or if the issuer, immediately prior to the purchase of itssecurities was unable to meet its obligations as they came due without material assistance other than conventional lending or financing arrangements. 19  •Securities of an eligible portfolio company purchased from any person in a private transaction if there is no ready market for such securities and wealready own 60% of the outstanding equity of the eligible portfolio company. •Securities received in exchange for or distributed on or with respect to securities described above, or pursuant to the exercise of warrants or rightsrelating to such securities. •Cash, cash equivalents, U.S. Government securities or high-quality debt securities maturing in one year or less from the time of investment. The regulations defining qualifying assets may change over time. We may adjust our investment focus as needed to comply with and/or take advantageof any regulatory, legislative, administrative or judicial actions in this area. Managerial assistance to portfolio companies A BDC must have been organized and have its principal place of business in the United States and must be operated for the purpose of makinginvestments in the types of securities described in “— Qualifying assets.” However, in order to count portfolio securities as qualifying assets for the purposeof the 70% test, the BDC must either control the issuer of the securities or must offer to make available to the issuer of the securities (other than small andsolvent companies described above) significant managerial assistance. Where the BDC purchases such securities in conjunction with one or more otherpersons acting together, the BDC will satisfy this test if one of the other persons in the group makes available such managerial assistance. Making availablemanagerial assistance means, among other things, any arrangement whereby the BDC, through its directors, officers or employees, offers to provide, and, ifaccepted, does so provide, significant guidance and counsel concerning the management, operations or business objectives and policies of a portfoliocompany. Issuance of additional shares We are not generally able to issue and sell our common stock at a price below net asset value per share. We may, however, issue and sell our commonstock at a price below the current net asset value of the common stock, or issue and sell warrants, options or rights to acquire such common stock at a pricebelow the current net asset value of the common stock if our Board determines that such sale is in our best interest and in the best interests of ourstockholders, and our stockholders have approved our policy and practice of making such sales within the preceding 12 months. In any such case, the price atwhich our securities are to be issued and sold may not be less than a price which, in the determination of our Board, closely approximates the market value ofsuch securities. Our stockholder approval to sell shares of our common stock below its net asset value expired on January 21, 2016. We intend to seekapproval from our stockholders to offer shares of our common stock below its net asset value in the future. Temporary investments Pending investment in other types of “qualifying assets,” as described above, our investments may consist of cash, cash equivalents, U.S. Governmentsecurities or high-quality debt securities maturing in one year or less from the time of investment, which we refer to, collectively, as temporary investments,so that 70% of our assets are qualifying assets. Typically, we invest in highly rated commercial paper, U.S. Government agency notes, U.S. Treasury bills or inrepurchase agreements relating to such securities that are fully collateralized by cash or securities issued by the U.S. Government or its agencies. A repurchaseagreement involves the purchase by an investor, such as us, of a specified security and the simultaneous agreement by the seller to repurchase it at an agreed-upon future date and at a price which is greater than the purchase price by an amount that reflects an agreed-upon interest rate. There is no percentagerestriction on the proportion of our assets that may be invested in such repurchase agreements. However, subject to certain exceptions, if more than 25% ofour total assets constitute repurchase agreements from a single counterparty, we generally would not meet the diversification tests in order to qualify as a RICfor federal income tax purposes. Thus, we do not intend to enter into repurchase agreements with a single counterparty in excess of this limit. Our Advisormonitors the creditworthiness of the counterparties with which we enter into repurchase agreement transactions. 20  Senior securities; derivative securities We are permitted, under specified conditions, to issue multiple classes of indebtedness and one class of stock senior to our common stock if our assetcoverage, as defined in the 1940 Act, is at least equal to 200% immediately after each such issuance. In addition, while any senior securities are outstanding,we must make provisions to prohibit any distribution to our stockholders or the repurchase of such securities or shares unless we meet the applicable assetcoverage requirement at the time of the distribution or repurchase. We may also borrow amounts up to 5% of the value of our total assets for temporarypurposes without regard to asset coverage. For a discussion of the risks associated with leverage, see “Item 1A — Risk Factors — Risks related to our businessand structure — We borrow money, which magnifies the potential for gain or loss on amounts invested and may increase the risk of investing in us.” The 1940 Act also limits the amount of warrants, options and rights to common stock that we may issue and the terms of such securities. Code of ethics We and our Advisor have each adopted a code of ethics pursuant to Rule 17j-1 under the 1940 Act and Rule 204A-1 under the Investment Advisers Actof 1940, as amended, or the Advisers Act, respectively, that establishes procedures for personal investments and restricts certain personal securitiestransactions. Personnel subject to each code may invest in securities for their personal investment accounts, including securities that may be purchased orheld by us, so long as such investments are made in accordance with the code’s requirements. You may read and copy the code of ethics at the SEC’s PublicReference Room in Washington, D.C. You may obtain information on the operation of the Public Reference Room by calling the SEC at (202) 942-8090. Inaddition, each code of ethics is attached as an exhibit to our Pre-effective Amendment No. 3 to the registration statement on Form N-2 (File No. 333-165570filed with the SEC on July 19, 2010 as Exhibits (r)(1) and (r)(2)), which is available on the SEC’s Internet site at www.sec.gov. You may also obtain copies ofthe code of ethics, after paying a duplicating fee, by electronic request at the following e-mail address: publicinfo@sec.gov, or by writing the SEC’s PublicReference Section, Washington, D.C. 20549-0102. Proxy voting policies and procedures We have delegated our proxy voting responsibility to our Advisor. The proxy voting policies and procedures of our Advisor are set forth below. Theguidelines are reviewed periodically by our Advisor and our independent directors and, accordingly, are subject to change. Introduction Our Advisor is registered with the SEC as an investment adviser under the Advisers Act. As an investment adviser registered under the Advisers Act, ourAdvisor has fiduciary duties to us. As part of this duty, our Advisor recognizes that it must vote client securities in a timely manner free of conflicts of interestand in our best interests and the best interests of our stockholders. Our Advisor’s proxy voting policies and procedures have been formulated to ensuredecision-making is consistent with these fiduciary duties. These policies and procedures for voting proxies are intended to comply with Section 206 of, and Rule 206(4)-6 under, the Advisers Act. Proxy policies Our Advisor votes proxies relating to our portfolio securities in what our Advisor perceives to be the best interest of our stockholders. Our Advisorreviews on a case-by-case basis each proposal submitted to a stockholder vote to determine its effect on the portfolio securities held by us. Although ourAdvisor generally votes against proposals that may have a negative effect on our portfolio securities, our Advisor may vote for such a proposal if there existcompelling long-term reasons to do so. Our Advisor’s proxy voting decisions are made by those senior officers who are responsible for monitoring each of our investments. To ensure that avote is not the product of a conflict of interest, our Advisor requires that (1) anyone involved in the decision-making process disclose to our ChiefCompliance Officer any potential conflict that he or she is aware of and any contact that he or she has had with any interested party regarding a proxy voteand (2) employees involved in the decision-making process or vote administration are prohibited from revealing how we intend to vote on a proposal in orderto reduce any attempted influence from interested parties. 21  Proxy voting records You may obtain information about how we voted proxies by making a written request for proxy voting information to: Chief Compliance Officer,Horizon Technology Finance Corporation, 312 Farmington Avenue, Farmington, Connecticut 06032 or by calling (860) 676-8654. Sarbanes-Oxley Act of 2002 The Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act, imposes a wide variety of regulatory requirements on publicly held companies and theirinsiders. Many of these requirements affect us. For example: •pursuant to Rule 13a-14 under the Securities Exchange Act of 1934, as amended, or the Exchange Act, our principal executive officer andprincipal financial officer must certify the accuracy of the financial statements contained in our periodic reports; •pursuant to Item 307 under Regulation S-K, our periodic reports must disclose our conclusions about the effectiveness of our disclosure controlsand procedures; •pursuant to Rule 13a-15 under the Exchange Act, our management must prepare an annual report regarding its assessment of our internal controlover financial reporting, which must be audited by our independent registered public accounting firm; and •pursuant to Item 308 of Regulation S-K and Rule 13a-15 under the Exchange Act, our periodic reports must disclose whether there weresignificant changes in our internal controls over financial reporting or in other factors that could significantly affect these controls subsequent tothe date of their evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. The Sarbanes-Oxley Act requires us to review our current policies and procedures to determine whether we comply with the Sarbanes-Oxley Act and theregulations promulgated thereunder. We will continue to monitor our compliance with all regulations under the Sarbanes-Oxley Act and intend to takeactions necessary to ensure that we are in compliance therewith. NASDAQ Global Select Market corporate governance regulations NASDAQ has adopted corporate governance regulations with which listed companies must comply. We intend to be in compliance with these corporategovernance listing standards. We intend to monitor our compliance with all future listing standards and to take all necessary actions to ensure that we are incompliance therewith. Privacy principles We are committed to maintaining the privacy of stockholders and to safeguarding our non-public personal information. The following information isprovided to help you understand what personal information we collect, how we protect that information and why, in certain cases, we may share informationwith select other parties. Generally, we do not receive any nonpublic personal information relating to our stockholders, although certain nonpublic personal information of ourstockholders may become available to us. We do not disclose any nonpublic personal information about our stockholders or former stockholders, except aspermitted by law or as is necessary in order to service stockholder accounts (for example, to a transfer agent or third party administrator). We restrict access to nonpublic personal information about our stockholders to our Advisor’s employees with a legitimate business need for theinformation. We maintain physical, electronic and procedural safeguards designed to protect the nonpublic personal information of our stockholders. Election to be taxed as a RIC We have elected to be taxed, and intend to qualify annually to maintain our election to be taxed, as a RIC under Subchapter M of the Code. Tomaintain our RIC status, we must, among other requirements, meet certain source-of-income and quarterly asset diversification requirements (as describedbelow). We also must distribute dividends each tax year of an amount generally at least equal to 90% of the sum of our ordinary income and our realized netshort-term capital gains (i.e. net short-term capital gains in excess of net long term losses), or investment company taxable income, if any, out of the assetslegally available for distribution, which we refer to as the “Annual Distribution Requirement.” Although not required for us to maintain our RIC tax status, inorder to preclude the imposition of a 4% nondeductible federal excise tax imposed on RICs, we are required to distribute dividends in respect of eachcalendar year of an amount generally at least equal to the sum of (1) 98% of our ordinary income (taking into account certain deferrals and elections) for thecalendar year, (2) 98.2% of the excess of our capital gains over our capital losses, or capital gain net income (adjusted for certain ordinary losses) for the one-year period ending on October 31 of the calendar year and (3) any ordinary income and net capital gains for preceding years that were not distributed duringsuch years and on which we previously did not pay U.S. federal corporate income tax, or the Excise Tax Avoidance Requirement. In addition, although wemay distribute realized net capital gains (i.e., net long-term capital gains in excess of short-term capital losses), if any, at least annually out of the assetslegally available for such distributions, we may decide to retain such net capital gains or ordinary income to provide us with additional liquidity. In order toqualify as a RIC for federal income tax purposes under Section 851(a) of the Code, we must: 22  •maintain an election to be treated as a BDC under the 1940 Act at all times during each tax year; •meet any applicable securities law requirements, including capital structure requirements; •derive in each tax year at least 90% of our gross income from dividends, interest, payments with respect to certain securities loans, gains from thesale of stock or other securities, net income from certain qualified publicly traded partnerships or other income derived with respect to ourbusiness of investing in such stock or securities, or the Qualifying Income Test; and •diversify our holdings so that at the end of each quarter of the tax year: •at least 50% of the value of our assets consists of cash, cash equivalents, U.S. government securities, securities of other RICs, and othersecurities if such other securities of any one issuer neither represent more than 5% of the value of our assets nor more than 10% of theoutstanding voting securities of the issuer; and •no more than 25% of the value of our assets is invested in the securities, other than U.S. government securities or securities of other RICs, ofone issuer or of two or more issuers that are controlled, as determined under applicable tax rules, by us and that are engaged in the same orsimilar or related trades or businesses or in certain qualified publicly traded partnerships, or the Diversification Tests. Taxation as a RIC If we qualify as a RIC under Section 851(a) of the Code, and satisfy the Annual Distribution Requirement, then we are not be subject to federal incometax on the portion of our investment company taxable income as well as any net capital gain (i.e., realized net long-term capital gains in excess of realized netshort-term capital losses) we distribute as dividends to stockholders. We may retain for investment all or a portion of our net capital gain. However, if weretain any investment company taxable income or net capital gains, and satisfy the Annual Distribution Requirement, we will be subject to tax at regularcorporate rates on any amounts retained. If we fail to qualify as a RIC for a period greater than two consecutive tax years, to qualify as a RIC in a subsequenttax year, we may be subject to regular corporate rates on any net built-in gains with respect to certain of our assets (that is, the excess of the aggregate gains,including items of income, over aggregate losses that would have been realized with respect to such assets if we had sold the property at fair market value atthe end of the tax year) that we elect to recognize on requalification or when recognized over the next five tax years. We may be required to recognize taxable income in circumstances in which we do not receive cash. For example, if we hold debt obligations that aretreated under applicable tax rules as having original issue discount (such as debt instruments with payment in kind interest or, in certain cases, increasinginterest rates or issued with warrants), we must include in income each tax year a portion of the original issue discount that accrues over the life of theobligation, regardless of whether cash representing such income is received by us in the same tax year. Because any original issue discount accrued will beincluded in our investment company taxable income for the tax year of accrual, we may be required to make a distribution to our stockholders in order tosatisfy the Annual Distribution Requirement or the Excise Tax Avoidance Requirement, even though we will not have received any corresponding cashamount. Gain or loss realized by us from warrants acquired by us as well as any loss attributable to the lapse of such warrants generally will be treated as capitalgain or loss. Such gain or loss generally will be long-term or short-term, depending on how long we held a particular warrant. 23  Although we do not presently expect to do so, we are authorized to borrow funds and to sell assets in order to satisfy distribution requirements.However, under the 1940 Act, we are not permitted to make distributions to our stockholders while our debt obligations and other senior securities areoutstanding unless certain “asset coverage” tests are met. Moreover, our ability to dispose of assets to meet our distribution requirements may be limited by(1) the illiquid nature of our portfolio and/or (2) other requirements relating to our status as a RIC, including the Diversification Tests. If we dispose of assetsin order to meet the Annual Distribution Requirement or the Excise Tax Avoidance Requirement, we may make such dispositions at times that, from aninvestment standpoint, are not advantageous. Failure to qualify as a RIC If we fail to satisfy the Annual Distribution Requirement or fail to qualify as a RIC in any tax year, assuming we do not qualify for or take advantage ofcertain remedial provisions, we will be subject to tax in that year on all of our taxable income, regardless of whether we make any distributions to ourstockholders. In that case, all of our income will be subject to corporate-level federal income tax, reducing the amount available to be distributed to ourstockholders. In contrast, assuming we qualify as a RIC, our corporate-level federal income tax liability should be substantially reduced or eliminated. See“—Election to be taxed as a RIC” above. If we are unable to maintain our status as a RIC, we would be subject to tax on all of our taxable income at regular corporate rates. We would not be ableto deduct distributions to stockholders, nor would they be required to be made. Distributions would generally be taxable to our stockholders as ordinarydistribution income eligible for the 15% or 20% maximum rate to the extent of our current and accumulated earnings and profits. Subject to certainlimitations under the Code, dividends paid by us to certain corporate distributes would be eligible for the dividends received deduction. Distributions inexcess of our current and accumulated earnings and profits would be treated first as a return of capital to the extent of the stockholder’s tax basis in ourcommon stock, and any remaining distributions would be treated as a capital gain. 24  Item 1A. Risk Factors Investing in our securities involves a high degree of risk. In addition to the other information contained in this annual report on Form 10-K, youshould consider carefully the following information before making an investment in our securities. The risks set out below are not the only risks we face. Ifany of the following events occur, our business, financial condition and results of operations could be materially and adversely affected. In such case, ournet asset value, or NAV, per share and the trading price of our common stock could decline, and you may lose part or all of your investment. Risks related to our business and structure We are dependent upon key personnel of our Advisor and our Advisor’s ability to hire and retain qualified personnel. We do not have any employees and are dependent upon the members of our Advisor’s senior management, as well as other key personnel for theidentification, evaluation, final selection, structuring, closing and monitoring of our investments. These employees have critical industry experience andrelationships that we rely on to implement our business plan to originate Venture Loans in our Target Industries. Our future success depends on the continuedservice of the senior members of our Advisor’s management team. If our Advisor were to lose the services of any of the senior members of our Advisor’smanagement team, we may not be able to operate our business as we expect, and our ability to compete could be harmed, either of which could cause ourbusiness, results of operations or financial condition to suffer. In addition, if more than one of Mr. Pomeroy, Mr. Michaud or Mr. Mathieu, our Chief FinancialOfficer, cease to be actively involved with us or our Advisor, and are not replaced by individuals satisfactory to Key within 90 days, Key could, absent awaiver or cure, demand repayment of any outstanding obligations under the Key Facility. Our future success also depends, in part, on our Advisor’s ability to identify, attract and retain sufficient numbers of highly skilled employees. If ourAdvisor is not successful in identifying, attracting and retaining such employees, we may not be able to operate our business as we expect. In addition, ourAdvisor may in the future manage investment funds with investment objectives similar to ours thereby diverting the time and attention of its investmentprofessionals that we rely on to implement our business plan. Our Advisor may change or be restructured. We cannot assure you that the Advisor will remain our investment adviser or that we will continue to have access to our Advisor’s investmentprofessionals or its relationships. We would be required to obtain shareholder approval for a new investment management agreement in the event that (1) theAdvisor resigns as our investment adviser or (2) a change of control or deemed change of control of the Advisor occurs. We cannot provide assurance that anew investment management agreement or new investment adviser would provide the same or equivalent services on the same or on as favorable of terms asthe Investment Management Agreement or the Advisor. We operate in a highly competitive market for investment opportunities, and if we are not able to compete effectively, our business, results of operationsand financial condition may be adversely affected and the value of your investment in us could decline. We compete for investments with a number of investment funds and other BDCs, as well as traditional financial services companies such as commercialbanks and other financing sources. Some of our competitors are larger and have greater financial, technical, marketing and other resources than we have. Forexample, some competitors may have a lower cost of funds and access to funding sources that are not available to us. This may enable these competitors tomake commercial loans with interest rates that are comparable to, or lower than, the rates we typically offer. We may lose prospective portfolio companies ifwe do not match our competitors’ pricing, terms and structure. If we do match our competitors’ pricing, terms or structure, we may experience decreased netinterest income and increased risk of credit losses. In addition, some of our competitors may have higher risk tolerances or different risk assessments, whichcould allow them to consider a wider variety of investments, establish more relationships than us and build their market shares. Furthermore, many of ourcompetitors are not subject to the regulatory restrictions that the 1940 Act imposes on us as a BDC or that the Code imposes on us as a RIC. If we are not ableto compete effectively, we may not be able to identify and take advantage of attractive investment opportunities that we identify and may not be able to fullyinvest our available capital. If this occurs, our business, financial condition and results of operations could be materially adversely affected. 25  We borrow money, which magnifies the potential for gain or loss on amounts invested and may increase the risk of investing in us. Leverage is generally considered a speculative investment technique, and we intend to continue to borrow money as part of our business plan. The useof leverage magnifies the potential for gain or loss on amounts invested and, therefore, increases the risks associated with investing in us. See “Item 7 —Management’s Discussion and Analysis of Financial Condition and Results of Operation — Liquidity and capital resources.” Lenders of senior debtsecurities have fixed dollar claims on our assets that are superior to the claims of our common stockholders. If the value of our assets increases, thenleveraging would cause the NAV attributable to our common stock to increase more sharply than it would have had we not leveraged. However, any decreasein our income would cause net income to decline more sharply than it would have had we not leveraged. This decline could adversely affect our ability tomake common stock distribution payments. In addition, because our investments may be illiquid, we may be unable to dispose of them or unable to do so at afavorable price in the event we need to do so, if we are unable to refinance any indebtedness upon maturity, and, as a result, we may suffer losses. Our ability to service any debt that we incur depends largely on our financial performance and is subject to prevailing economic conditions andcompetitive pressures. Moreover, as our Advisor’s management fee is payable to our Advisor based on our gross assets, including those assets acquiredthrough the use of leverage, our Advisor may have a financial incentive to incur leverage which may not be consistent with our stockholders’ interests. Inaddition, holders of our common stock bear the burden of any increase in our expenses, as a result of leverage, including any increase in the management feepayable to our Advisor. In addition to the leverage described above, we have securitized a large portion of our debt investments to generate cash for funding new investmentsand may seek to securitize additional debt investments in the future. To securitize additional debt investments in the future, we may create a wholly-ownedsubsidiary and sell and/or contribute a pool of debt investments to such subsidiary. This could include the sale of interests in the subsidiary on a non-recourse basis to purchasers, who we would expect to be willing to accept a lower interest rate to invest in investment grade loan pools. We would retain all ora portion of the equity in any such securitized pool of loans. An inability to securitize part of our debt investments in the future could limit our ability togrow our business, fully execute our business strategy and increase our earnings. Moreover, certain types of securitization transactions may expose us togreater risk of loss than would other types of financing. Illustration: The following table illustrates the effect of leverage on returns from an investment in our common stock assuming various annual returns,net of expenses. The calculations in the table below are hypothetical and actual returns may be higher or lower than those appearing in the table below: Assumed Return on Our Portfolio(Net of Expenses) -10% -5% 0% 5% 10% Corresponding return to stockholder(1) -21.26% -12.48% -3.70% 5.09% 13.87% (1)Assumes $281 million in total assets, $116 million in outstanding debt, $160 million in net assets, and an average cost of borrowed funds of 5.10%at December 31, 2015. Actual interest payments may be different. Based on our outstanding indebtedness of $116 million as of December 31, 2015 and the average cost of borrowed funds of 5.10% as of that date, ourinvestment portfolio would have been required to experience an annual return of at least 2.31% to cover annual interest payments on the outstanding debt. If we are unable to comply with the covenants or restrictions in the Key Facility or make payments when due thereunder, our business could be materiallyadversely affected. Our Key Facility is secured by a lien on the assets of our wholly owned subsidiary, Credit II. The breach of certain of the covenants or restrictions or ourfailure to make payments when due under the Key Facility, unless cured within the applicable grace period, would result in a default under the Key Facilitythat would permit the lender thereunder to declare all amounts outstanding to be due and payable. In such an event, we may not have sufficient assets torepay such indebtedness and the lender may exercise rights available to them, including to the extent permitted under applicable law, the seizure of suchassets without adjudication. 26  The Key Facility also requires Credit II and our Advisor to comply with various financial covenants, including maintenance by our Advisor of aminimum tangible net worth and limitations on the value of, and modifications to, the loan collateral that secures the Key Facility. Complying with theserestrictions may prevent us from taking actions that we believe would help us to grow our business or are otherwise consistent with our investment objective.These restrictions could also limit our ability to plan for or react to market conditions, meet extraordinary capital needs or otherwise restrict corporateactivities, and could result in our failing to qualify as a RIC resulting in our becoming subject to corporate-level income tax. See “Item 7 — Management’sDiscussion and Analysis of Financial Condition and Results of Operations — Liquidity and capital resources” for additional information regarding our creditarrangements. An event of default or acceleration under the Key Facility could also cause a cross-default or cross-acceleration of other debt instruments or contractualobligations, which would adversely impact our liquidity. We may not be granted waivers or amendments to the Key Facility, if for any reason we are unableto comply with the terms of the Key Facility and we may not be able to refinance the Key Facility on terms acceptable to us, or at all. If we are unable to obtain additional debt financing, our business could be materially adversely affected. We may want to obtain additional debt financing, or need to do so upon maturity of the Key Facility, Asset-Back Notes or 2019 Notes, in order toobtain funds which may be made available for investments. We may borrow under the Key Facility until August 12, 2018. After such date, we must repay theoutstanding advances under the Key Facility in accordance with its terms and conditions. All outstanding advances under the Key Facility are due andpayable on August 12, 2020, unless such date is extended in accordance with its terms. All outstanding amounts on our 2019 Notes are due and payable onMarch 15, 2019 unless redeemed prior to that date. The Asset-Backed Notes have a stated maturity of May 15, 2018. If we are unable to increase, renew orreplace the Key Facility or enter into other new debt financings on commercially reasonable terms, our liquidity may be reduced significantly. In addition, ifwe are unable to repay amounts outstanding under any such debt financings and are declared in default or are unable to renew or refinance these debtfinancings, we may not be able to make new investments or operate our business in the normal course. These situations may arise due to circumstances thatwe may be unable to control, such as lack of access to the credit markets, a severe decline in the value of the U.S. dollar, a further economic downturn or anoperational problem that affects third parties or us, and could materially damage our business. Our 2019 Notes are unsecured and therefore are effectively subordinated to any secured indebtedness we have currently incurred or may incur in thefuture. Our 2019 Notes are not secured by any of our assets or any of the assets of our subsidiaries. As a result, the 2019 Notes are effectively subordinated toany secured indebtedness we or our subsidiaries have currently incurred and may incur in the future (or any indebtedness that is initially unsecured to whichwe subsequently grant security) to the extent of the value of the assets securing such indebtedness. In any liquidation, dissolution, bankruptcy or othersimilar proceeding, the holders of any of our existing or future secured indebtedness and the secured indebtedness of our subsidiaries may assert rightsagainst the assets pledged to secure that indebtedness in order to receive full payment of their indebtedness before the assets may be used to pay othercreditors, including the holders of the 2019 Notes. Our 2019 Notes are structurally subordinated to the indebtedness and other liabilities of our subsidiaries. Our 2019 Notes are obligations exclusively of Horizon Technology Finance Corporation, and not of any of our subsidiaries. None of our subsidiaries isa guarantor of the 2019 Notes and the 2019 Notes are not required to be guaranteed by any subsidiaries we may acquire or create in the future. The assets ofsuch subsidiaries are not directly available to satisfy the claims of our creditors, including holders of the 2019 Notes. Except to the extent we are a creditor with recognized claims against our subsidiaries, all claims of creditors (including trade creditors) and holders ofpreferred stock, if any, of our subsidiaries have priority over our equity interests in such subsidiaries (and therefore the claims of our creditors, includingholders of the 2019 Notes) with respect to the assets of such subsidiaries. Even if we are recognized as a creditor of one or more of our subsidiaries, our claimsare effectively subordinated to any security interests in the assets of any such subsidiary and to any indebtedness or other liabilities of any such subsidiarysenior to our claims. Consequently, the 2019 Notes are structurally subordinated to all indebtedness and other liabilities (including trade payables) of any ofour subsidiaries and any subsidiaries that we may in the future acquire or establish as financing vehicles or otherwise. In addition, our subsidiaries may incur substantial additional indebtedness in the future, all of which would be structurally senior to the 2019 Notes. 27  The indenture under which our 2019 Notes were issued contains limited protection for holders of our 2019 Notes. The indenture under which the 2019 Notes were issued offers limited protection to holders of the 2019 Notes. The terms of the indenture and the 2019Notes do not restrict our or any of our subsidiaries' ability to engage in, or otherwise be a party to, a variety of corporate transactions, circumstances or eventsthat could have a material adverse impact on investments in the 2019 Notes. In particular, the terms of the indenture and the 2019 Notes do not place anyrestrictions on our or our subsidiaries’ ability to: ·issue securities or otherwise incur additional indebtedness or other obligations, including (1) any indebtedness or other obligations that wouldbe equal in right of payment to the 2019 Notes, (2) any indebtedness or other obligations that would be secured and therefore rank effectivelysenior in right of payment to the 2019 Notes to the extent of the values of the assets securing such debt, (3) indebtedness of ours that isguaranteed by one or more of our subsidiaries and which therefore is structurally senior to the 2019 Notes and (4) securities, indebtedness orobligations issued or incurred by our subsidiaries that would be senior to our equity interests in our subsidiaries and therefore rank structurallysenior to the 2019 Notes with respect to the assets of our subsidiaries, in each case other than an incurrence of indebtedness or other obligationthat would cause a violation of Section 18(a)(l)(A) as modified by Section 61(a)(l) of the 1940 Act or any successor provisions, whether or not wecontinue to be subject to such provisions of the 1940 Act, but giving effect, in either case, to any exemptive relief granted to us by the SEC(these provisions generally prohibit us from making additional borrowings, including through the issuance of additional debt or the sale ofadditional debt securities, unless our asset coverage, as defined in the 1940 Act, equals at least 200% after such borrowings); ·pay dividends on, or purchase or redeem or make any payments in respect of capital stock or other securities ranking junior in right of payment tothe 2019 Notes, including subordinated indebtedness, in each case other than dividends, purchases, redemptions or payments that would cause aviolation of Section 18(a)(1)(B) as modified by Section 61(a)(l) of the 1940 Act or any successor provisions giving effect to any exemptive reliefgranted to us by the SEC (these provisions generally prohibit us from declaring any cash dividend or distribution upon any class of our capitalstock, or purchasing any such capital stock unless our asset coverage, as defined in the 1940 Act, equals at least 200% at the time of thedeclaration of the dividend or distribution or the purchase and after deducting the amount of such dividend, distribution or purchase); ·sell assets (other than certain limited restrictions on our ability to consolidate, merge or sell all or substantially all of our assets); ·enter into transactions with affiliates; ·create liens (including liens on the shares of our subsidiaries) or enter into sale and leaseback transactions; ·make investments; or ·create restrictions on the payment of dividends or other amounts to us from our subsidiaries. In addition, the indenture does not require us to offer to purchase the 2019 Notes in connection with a change of control or any other event. Furthermore, the terms of the indenture and the 2019 Notes do not protect holders of the 2019 Notes in the event that we experience changes (includingsignificant adverse changes) in our financial condition, results of operations or credit ratings, as they do not require that we or our subsidiaries adhere to anyfinancial tests or ratios or specified levels of net worth, revenues, income, cash flow, or liquidity. Our ability to recapitalize, incur additional debt and take a number of other actions that are not limited by the terms of the 2019 Notes may haveimportant consequences for holders of the 2019 Notes, including making it more difficult for us to satisfy our obligations with respect to the 2019 Notes ornegatively affecting the trading value of the 2019 Notes. Certain of our current debt instruments include more protections for their holders than the indenture and the 2019 Notes. In addition, other debt weissue or incur in the future could contain more protections for its holders than the indenture and the 2019 Notes, including additional covenants and eventsof default. The issuance or incurrence of any such debt with incremental protections could affect the market for and trading levels and prices of the 2019Notes. 28  An active trading market for our 2019 Notes may not exist, which could limit holders’ ability to sell our 2019 Notes or affect the market price of the 2019Notes. The 2019 Notes are listed on the New York Stock Exchange, or NYSE, under the symbol “HTF”. However, we cannot provide any assurances that anactive trading market for the 2019 Notes will exist in the future or that you will be able to sell your 2019 Notes. Even if an active trading market does exist,the 2019 Notes may trade at a discount from their initial offering price depending on prevailing interest rates, the market for similar securities, our creditratings, if any, general economic conditions, our financial condition, performance and prospects and other factors. To the extent an active trading marketdoes not exist, the liquidity and trading price for the 2019 Notes may be harmed. Accordingly, you may be required to bear the financial risk of an investmentin the 2019 Notes for an indefinite period of time. If we default on our obligations to pay our other indebtedness, we may not be able to make payments on our 2019 Notes. Any default under the agreements governing our indebtedness, including a default under the Key Facility or the 2013-1 Securitization, or otherindebtedness to which we may be a party that is not waived by the required lenders or holders thereunder, and the remedies sought by the holders of suchindebtedness could make us unable to pay principal, premium, if any, and interest on the 2019 Notes and substantially decrease the market value of the 2019Notes. If we are unable to generate sufficient cash flow and are otherwise unable to obtain funds necessary to meet required payments of principal, premium, ifany, and interest on our indebtedness, or if we otherwise fail to comply with the various covenants, including financial and operating covenants, in theinstruments governing our indebtedness, we could be in default under the terms of the agreements governing such indebtedness. In the event of such default,the holders of such indebtedness could elect to declare all the funds borrowed thereunder to be due and payable, together with accrued and unpaid interest,the lender under the Key Facility and our 2013-1 Securitization or other debt we may incur in the future could elect to terminate their commitments, ceasemaking further loans and institute foreclosure proceedings against our assets, and we could be forced into bankruptcy or liquidation. If our operatingperformance declines, we may in the future need to seek to obtain waivers from the required lender under the Key Facility and our 2013-1 Securitization orother debt that we may incur in the future to avoid being in default. If we breach our covenants under the Key Facility and our 2013-1 Securitization or otherdebt and seek a waiver, we may not be able to obtain a waiver from the required lenders or holders. If this occurs, we would be in default and our lenders ordebt holders could exercise their rights as described above, and we could be forced into bankruptcy or liquidation. If we are unable to repay debt, lendershaving secured obligations, including the lender under the Key Facility and our 2013-1 Securitization, could proceed against the collateral securing the debt.Because the Key Facility and our 2013-1 Securitization have, and any future credit facilities will likely have, customary cross-default provisions, if theindebtedness thereunder or under any future credit facility is accelerated, we may be unable to repay or finance the amounts due. We are subject to certain risks as a result of our interests in connection with the 2013-1 Securitization and our equity interest in the 2013-1 Trust. On June 28, 2013, in connection with the 2013-1 Securitization and the offering of the Asset-Backed Notes by the 2013-1 Trust, we sold and/orcontributed to Horizon Funding 2013-1, LLC or the Trust Depositor, certain loans, or the Trust Loans, which the Trust Depositor in turn sold and/orcontributed to the 2013-1 Trust in exchange for 100% of the equity interest in the 2013-1 Trust, cash proceeds and other consideration. Following thesetransfers, the 2013-1 Trust, and not the Trust Depositor or us, holds all of the ownership interest in the Trust Loans. As a result of the 2013-1 Securitization, we hold, indirectly through the Trust Depositor, 100% of the equity interest of the 2013-1 Trust. As a result, weconsolidate the financial statements of the Trust Depositor and the 2013-1 Trust, as well as our other subsidiaries, in our consolidated financial statements.Because each of the Trust Depositor and the 2013-1 Trust is disregarded as an entity separate from its owner for U.S. federal income tax purposes, the sale orcontribution by us to the Trust Depositor, and by the Trust Depositor to the 2013-1 Trust, did not constitute a taxable event for U.S. federal income taxpurposes. If the U.S. Internal Revenue Service were to take a contrary position, there could be a material adverse effect on our business, financial condition,results of operations or cash flows. Further, a failure of the 2013-1 Trust to be treated as a disregarded entity for U.S. federal income tax purposes wouldconstitute an event of default pursuant to the indenture under the 2013-1 Securitization, upon which the trustee under the 2013-1 Securitization, or theTrustee, may, and will at the direction of a supermajority of the holders of the Asset-Backed Notes (collectively, the “Noteholders”), declare the Asset-BackedNotes to be immediately due and payable and exercise remedies under the indenture, including (i) institute proceedings for the collection of all amounts thenpayable on the Asset-Backed Notes or under the indenture, enforce any judgment obtained, and collect from the 2013-1 Trust and any other obligor upon theAsset-Backed Notes monies adjudged due; (ii) institute proceedings from time to time for the complete or partial foreclosure of the indenture with respect tothe property of the 2013-1 Trust; (iii) exercise any remedies as a secured party under the relevant provisions of the applicable jurisdiction’s UCC and takeother appropriate action under applicable law to protect and enforce the rights and remedies of the Trustee and the Noteholders; or (iv) sell the property of the2013-1 Trust or any portion thereof or rights or interest therein at one or more public or private sales called and conducted in any matter permitted by law.Any such exercise of remedies could have a material adverse effect on our business, financial condition, results of operations or cash flows. 29  An event of default in connection with the 2013-1 Securitization could give rise to a cross-default under our other material indebtedness. The documents governing our other material indebtedness contain customary cross-default provisions that could be triggered if an event of defaultoccurs in connection with the 2013-1 Securitization. An event of default with respect to our other indebtedness could lead to the acceleration of suchindebtedness and the exercise of other remedies as provided in the documents governing such other indebtedness. This could have a material adverse effecton our business, financial condition, results of operations and cash flows and may result in our inability to make distributions sufficient to maintain our statusas a RIC. We may not receive cash distributions in respect of our indirect ownership interest in the 2013-1 Trust. Apart from fees payable to us in connection with our role as servicer of the Trust Loans and the reimbursement of related amounts under the 2013-1Securitization documents, we receive cash in connection with the 2013-1 Securitization only to the extent that the Trust Depositor receives payments inrespect of its equity interest in the 2013-1 Trust. The holder of the equity interest in the 2013-1 Trust is the residual claimant on distributions, if any, made bythe 2013-1 Trust after the Noteholders and other claimants have been paid in full on each payment date or upon maturity of the Asset-Backed Notes, subjectto the priority of payment provisions under the 2013-1 Securitization documents. To the extent that the value of the 2013-1 Trust’s portfolio of Trust Loansis reduced as a result of conditions in the credit markets (relevant in the event of a liquidation event), other macroeconomic factors, distressed or defaultedTrust Loans or the failure of individual portfolio companies to otherwise meet their obligations in respect of the Trust Loans, or for any other reason, theability of the 2013-1 Trust to make cash distributions in respect of the Trust Depositor’s equity interest would be negatively affected and, consequently, thevalue of the equity interest in the 2013-1 Trust would also be reduced. In the event that we fail to receive cash indirectly from the 2013-1 Trust, we could beunable to make distributions in amounts sufficient to maintain our status as a RIC or at all. The interests of the Noteholders may not be aligned with our interests. The Asset-Backed Notes are debt obligations ranking senior in right of payment to the rights of the holder of the equity interest in the 2013-1 Trust(currently the Trust Depositor, our wholly owned subsidiary), as residual claimant in respect of distributions, if any, made by the 2013-1 Trust. As such, thereare circumstances in which the interests of the Noteholders may not be aligned with the interests of the holder of the equity interest in the 2013-1 Trust. Forexample, under the terms of the documents governing the 2013-1 Securitization, the Noteholders have the right to receive payments of principal and interestprior to the holder of the equity interest in the 2013-1 Trust. For as long as the Asset-Backed Notes remain outstanding, the Noteholders have the right to act in certain circumstances with respect to the Trust Loansin ways that may benefit their interests but not the interests of holder of the equity interest in the 2013-1 Trust, including by exercising remedies under thedocuments governing the 2013-1 Securitization. If an event of default occurs, the Noteholders will be entitled to determine the remedies to be exercised, subject to the terms of the documents governingthe 2013-1 Securitization. For example, upon the occurrence of an event of default with respect to the Asset-Backed Notes, the Trustee may, and will at thedirection of the holders of a supermajority of the Asset-Backed Notes, declare the principal, together with any accrued interest, of the Asset-Backed Note tobe immediately due and payable. This would have the effect of accelerating the principal on such Asset-Backed Note, triggering a repayment obligation onthe part of the 2013-1 Trust. The Asset-Backed Notes then outstanding will be paid in full before any further payment or distribution is made to the holder ofthe equity interest in 2013-1 Trust. There can be no assurance that there will be sufficient funds through collections on the Trust Loans or through theproceeds of the sale of the Trust Loans in the event of a bankruptcy or insolvency to repay in full the obligations under the Asset-Backed Notes, or to makeany distribution payment to holder of the equity interest in the 2013-1 Trust. 30  Remedies pursued by the Noteholders could be adverse to our interests as the indirect holder of the equity interest in the 2013-1 Trust. The Noteholdershave no obligation to consider any possible adverse effect on such other interests. Thus, there can be no assurance that any remedies pursued by theNoteholders will be consistent with the best interests of the Trust Depositor or that we will receive, indirectly through the Trust Depositor, any payments ordistributions upon an acceleration of the Asset-Backed Notes. Any failure of the 2013-1 Trust to make distributions in respect of the equity interest that weindirectly hold through the Trust Depositor, whether as a result of an event of default and the acceleration of payments on the Asset-Backed Notes orotherwise, could have a material adverse effect on our business, financial condition, results of operations and cash flows and may result in our inability tomake distributions sufficient to maintain our status as a RIC. Certain events related to the performance of Trust Loans could lead to the acceleration of principal payments on the Asset-Backed Notes. The following constitute rapid amortization events, or Rapid Amortization Events, under the documents governing the 2013-1 Securitization: (i) theaggregate outstanding principal balance of all delinquent Trust Loans, and restructured Trust Loans that would constitute delinquent Trust Loans had suchTrust Loans not become restructured Trust Loans, exceeds ten percent (10%) of the aggregate outstanding principal balance of the Trust Loans for a period ofthree consecutive months; (ii) the aggregate outstanding principal balance of defaulted Trust Loans exceeds five percent (5%) of the initial aggregateoutstanding principal balance of the Trust Loans determined as of June 28, 2013 for a period of three consecutive months; (iii) the aggregate outstandingprincipal balance of the Asset-Backed Notes exceeds the borrowing base (which is a percentage of the outstanding principal balance of the Trust Loans lessdefaulted, delinquent, ineligible, and certain restructured Trust Loans and Trust Loans to issuers that exceed given thresholds) for a period of threeconsecutive months; (iv) the 2013-1 Trust’s pool of Trust Loans contains Trust Loans to ten or fewer obligors; and (v) the occurrence of an event of defaultunder the documents governing the 2013-1 Securitization. After a Rapid Amortization Event has occurred, subject to the priority of payment provisionsunder the documents governing the 2013-1 Securitization, principal collections on the Trust Loans will be used to make accelerated payments of principalon the Asset-Backed Notes until the payment of principal balance of the Asset-Backed Notes is reduced to zero. Such an event could delay, reduce oreliminate the ability of the 2013-1 Trust to make payments or distributions in respect of the equity interest that we indirectly hold, which could have amaterial adverse effect on our business, financial condition, results of operations and cash flows and may result in our inability to make distributionssufficient to maintain our status as a RIC. We have certain repurchase obligations with respect to the Trust Loans transferred in connection with the 2013-1 Securitization. As part of the 2013-1 Securitization, we entered into a sale and contribution agreement and a sale and servicing agreement under which we would berequired to repurchase any Trust Loan (or participation interest therein) which was sold to the 2013-1 Trust in breach of certain customary representations andwarranties made by us or by the Trust Depositor with respect to such Trust Loan or the legal structure of the 2013-1 Securitization. To the extent that there issuch a breach of such representations and warranties and we fail to satisfy any such repurchase obligation, the Trustee may, on behalf of the 2013-1 Trust,bring an action against us to enforce these repurchase obligations. Because we distribute all or substantially all of our investment company taxable income to our stockholders, we will need additional capital to finance ourgrowth. If additional funds are unavailable or not available on favorable terms, our ability to grow will be impaired. To satisfy the requirements applicable to a RIC, to avoid payment of excise taxes and to minimize or to avoid payment of corporate-level federalincome taxes, we intend to distribute to our stockholders all or substantially all of our investment company taxable income and net capital gains. However,we may retain all or a portion of our net capital gains, pay applicable income taxes with respect thereto, and elect to treat such retained capital gains asdeemed distributions to our stockholders. As a BDC, we generally are required to maintain coverage of total assets to total senior securities, which includesall of our borrowings and any preferred stock we may issue in the future, of at least 200%. This requirement limits the amount that we may borrow. Becausewe continue to need capital to grow our debt investment portfolio, this limitation may prevent us from incurring debt and require us to raise additional equityat a time when it may be disadvantageous to do so. We cannot assure you that debt and equity financing will be available to us on favorable terms, or at all,and debt financings may be restricted by the terms of any of our outstanding borrowings. In addition, as a BDC, we are limited in our ability to issue equitysecurities at a price below the then current NAV per share. If additional funds are not available to us, we could be forced to curtail or cease new lending andinvestment activities, and our NAV could decline. 31  As a BDC, we generally are not able to issue our common stock at a price below the then current NAV per share without first obtaining the approval of ourstockholders and our independent directors. If our common stock trades at a price below NAV per share and we do not receive such approval, our businesscould be materially adversely affected. As a BDC, we generally are not able to issue our common stock at a price below the then current NAV per share without first obtaining the approval ofour stockholders and our independent directors. Stockholder approval to offer our common stock at a price below NAV per share expired in January 2016, butwe may seek such approval again in the future. If our common stock trades at a price below NAV per share and we do not receive approval from ourstockholders and our independent directors to issue common stock at a price below NAV per share, we cannot raise capital through the issuance of equitysecurities. This may limit our ability: to grow and make new investments; to attract and retain top investment professionals; to maintain deal flow andrelations with top companies in our Target Industries and related entities such as venture capital and private equity sponsors; and to sustain a minimumefficient scale for a public company. We are subject to risks associated with the current interest rate environment that may affect our cost of capital and net investment income. Since the economic downturn that began in mid-2007, interest rates have remained low. Because longer-term inflationary pressure may result from theU.S. government’s fiscal policies and other challenges, because of the historically low interest rate environment in which we now operate and because theFederal Reserve has ended its quantitative easing program, we will likely experience rising interest rates, rather than falling rates in the future. Because we currently incur indebtedness to fund our investments, a portion of our income depends upon the difference between the interest rate atwhich we borrow funds and the interest rate at which we invest these funds. Some of our investments have fixed interest rates, while the Key Facility has afloating interest rate. As a result, a significant change in interest rates could have a material adverse effect on our net investment income. In periods of risinginterest rates, our cost of funds could increase, which may reduce our net investment income. We may hedge against interest rate fluctuations by usinghedging instruments such as swaps, futures, options and forward contracts, subject to applicable legal requirements, including all necessary registrations (orexemptions from registration) with the Commodity Futures Trading Commission. These activities may limit our ability to benefit from lower interest rateswith respect to the hedged portfolio. Adverse developments resulting from changes in interest rates or hedging transactions or any adverse developmentsfrom our use of hedging instruments could have a material adverse effect on our business, financial condition and results of operations. In addition, we maybe unable to enter into appropriate hedging transactions when desired and any hedging transactions we enter into may not be effective. Because many of our investments are not and typically will not be in publicly traded securities, the value of our investments may not be readilydeterminable, which could adversely affect the determination of our NAV. Our investments consist, and we expect our future investments to consist, primarily of debt investments or securities issued by privately heldcompanies. As these investments are not publicly traded, their fair value may not be readily determinable. In addition, we are not permitted to maintain ageneral reserve for anticipated debt investment losses. Instead, we are required by the 1940 Act to specifically value each investment and record anunrealized gain or loss for any asset that we believe has increased or decreased in value. We value these investments on a quarterly basis, or more frequentlyas circumstances require, in accordance with our valuation policy and consistent with GAAP. Our Board employs an independent third-party valuation firmto assist them in arriving at the fair value of our investments. Our Board discusses valuations and determines the fair value in good faith based on the input ofour Advisor and the third-party valuation firm. The factors that may be considered in fair value pricing our investments include the nature and realizablevalue of any collateral, the portfolio company’s earnings and its ability to make payments on its indebtedness, the markets in which the portfolio companydoes business, comparisons to publicly traded companies, discounted cash flow and other relevant factors. Because such valuations are inherently uncertainand may be based on estimates, our determinations of fair value may differ materially from the values that would be assessed if a ready market for thesesecurities existed. Our NAV could be adversely affected if our determinations regarding the fair value of our investments are materially higher than the valuesthat we ultimately realize upon the disposal of these investments. 32  Global capital markets could enter a period of severe disruption and instability. These conditions have historically affected and could again materiallyand adversely affect debt and equity capital markets in the United States and around the world and our business. The U.S. and global capital markets experienced extreme volatility and disruption during the economic downturn that began in mid-2007, and the U.S.economy was in a recession for several consecutive calendar quarters during the same period. This economic decline materially and adversely affected thebroader financial and credit markets and has reduced the availability of debt and equity capital for the market as a whole and to financial firms, in particular.At various times, these disruptions resulted in a lack of liquidity in parts of the debt capital markets, significant write-offs in the financial services sectorrelating to subprime mortgages and the repricing of credit risk in the broadly syndicated market. These disruptions in the capital markets also increased thespread between the yields realized on risk-free and higher risk securities and reduced the availability of debt and equity capital for the market as a whole andfinancial services firms in particular. These conditions may reoccur for a prolonged period of time again or materially worsen in the future. Unfavorableeconomic conditions, including future recessions, also could affect our investment valuations, increase our funding costs, limit our access to the capitalmarkets or result in a decision by lenders not to extend credit to us or our portfolio companies. We may in the future have difficulty accessing debt and equitycapital on attractive terms, or at all, and a severe disruption and instability in the global financial markets or deteriorations in credit and financing conditionsmay cause us to reduce the volume of debt investments we originate and/or fund, adversely affect the value of our portfolio investments or otherwise have amaterial adverse effect on our business, financial condition, results of operations and cash flows. Regulations governing our operation as a BDC affect our ability to, and the way in which, we raise additional capital, which may expose us to additionalrisks. Our business plans contemplate a need for a substantial amount of capital in addition to our current amount of capital. We may obtain additional capitalthrough the issuance of debt securities or preferred stock, and we may borrow money from banks or other financial institutions, which we refer to collectivelyas “senior securities,” up to the maximum amount permitted by the 1940 Act. If we issue senior securities, we would be exposed to typical risks associatedwith leverage, including an increased risk of loss. In addition, if we issue preferred stock, it would rank senior to common stock in our capital structure andpreferred stockholders would have separate voting rights and may have rights, preferences or privileges more favorable than those of holders of our commonstock. The 1940 Act permits us to issue senior securities in amounts such that our asset coverage, as defined in the 1940 Act, equals at least 200% after eachissuance of senior securities. If our asset coverage is not at least 200%, we are not permitted to pay distributions or issue additional senior securities. As aresult, we may have difficulty meeting the Annual Distribution Requirement necessary to qualify for and maintain RIC tax treatment under Subchapter M ofthe Code. Moreover, if the value of our assets declines, we may be unable to satisfy this asset coverage test. If that happens, we may be required to liquidate aportion of our investments and repay a portion of our indebtedness at a time when we may be unable to do so or unable to do so on favorable terms. As a BDC, we generally are not able to issue our common stock at a price below NAV per share without first obtaining the approval of our stockholdersand our independent directors. Our stockholder approval expired in January 2016, but we may seek such approval again in the future. This requirement doesnot apply to stock issued upon the exercise of options, warrants or rights that we may issue from time to time. If we raise additional funds by issuing morecommon stock or senior securities convertible into, or exchangeable for, our common stock, the percentage ownership of our stockholders at that time woulddecrease, and you may experience dilution. Pending legislation may allow us to incur additional leverage. As a BDC, under the 1940 Act we generally are not permitted to incur indebtedness unless immediately after such borrowing we have an asset coveragefor total borrowings of at least 200% (i.e., the amount of debt may not exceed 50% of the value of our assets). Legislation introduced in the U.S. House ofRepresentatives, if eventually passed, would modify this section of the 1940 Act and, subject to stockholder approval, increase the amount of debt that BDCsmay incur from 200% to 150%. As a result, we may be able to incur additional indebtedness in the future, and therefore the risk of an investment in us mayincrease. 33  If we are unable to satisfy the requirements under the Code for qualification as a RIC, we will be subject to corporate-level federal income tax. To qualify as a RIC under the Code, we must meet certain source-of-income, asset diversification and distribution requirements contained in SubchapterM of the Code, as well as maintain our election to be regulated as a BDC under the 1940 Act. We must also meet the Annual Distribution Requirement (asdescribed below) to avoid corporate-level federal income tax in that year on all of our taxable income, regardless of whether we make any distributions to ourstockholders. The Qualifying Income Test is satisfied if we derive in each tax year at least 90% of our gross income from dividends, interest (including tax-exemptinterest), payments with respect to certain securities loans, gains from the sale or other disposition of stock, securities or foreign currencies, other income(including but not limited to gain from options, futures or forward contracts) derived with respect to our business of investing in stock, securities orcurrencies, or net income derived from interests in “qualified publicly traded partnerships.” The status of certain forms of income we receive could be subjectto different interpretations under the Code and might be characterized as non-qualifying income that could cause us to fail to qualify as a RIC, assuming wedo not qualify for or take advantage of certain remedial provisions, and, thus, may cause us to be subject to corporate-level federal income taxes. To qualify as a RIC, we must also meet the Diversification Tests at the end of each calendar quarter. Failure to meet these tests may result in our havingto (1) dispose of certain investments quickly; (2) raise additional capital to prevent the loss of RIC status; or (3) engage in certain remedial actions that mayentail the disposition of certain investments at disadvantageous prices that could result in substantial losses, and the payment of penalties, if we qualify totake such actions. Because most of our investments are and will be in development-stage companies within our Target Industries, any such dispositions couldbe made at disadvantageous prices and may result in substantial losses. If we raise additional capital to satisfy the asset diversification requirements, it couldtake a longer time to invest such capital. During this period, we will invest in temporary investments, such as money market funds, which we expect will earnyields substantially lower than the interest income that we anticipate receiving in respect of our investments in secured and amortizing debt investments. The Annual Distribution Requirement for a RIC is satisfied if we distribute dividends to our stockholders in each tax year of an amount generally equalto at least 90% of our investment company taxable income. If we borrow money, we may be subject to certain asset coverage requirements under the 1940 Actand loan covenants that could, under certain circumstances, restrict us from making distributions necessary to qualify as a RIC. If we are unable to obtain cashfrom other sources, we may fail to qualify for the federal income tax benefits allowable to a RIC, assuming we do not qualify for or take advantage of certainremedial provisions, and, thus, may be subject to corporate-level income tax. If we were to fail to qualify for the federal income tax benefits allowable to RICs for any reason and become subject to a corporate-level federal incometax, the resulting taxes could substantially reduce our net assets, the amount of income available for distribution to our stockholders, and the actual amountof our distributions. Such a failure would have a material adverse effect on us, the NAV of our common stock and the total return, if any, obtainable from yourinvestment in our common stock. In addition, we could be required to recognize unrealized gains, pay substantial taxes and interest and make substantialdistributions before requalifying as a RIC. See “Item 1. Business—Regulation.” We may have difficulty paying our required distributions if we recognize taxable income before or without receiving cash. We may be required to recognize taxable income in circumstances in which we do not receive cash. For example, if we hold debt instruments that aretreated under applicable tax rules as having original issue discount (such as debt instruments with payment-in-kind interest or, in certain cases, increasinginterest rates or issued with warrants), we must include in taxable income each tax year a portion of the original issue discount that accrues over the life of thedebt instrument, regardless of whether cash representing such income is received by us in the same tax year. We do not have a policy limiting our ability toinvest in original issue discount instruments, including payment-in-kind debt investments. Because in certain cases we may recognize taxable income beforeor without receiving cash representing such income, we may have difficulty meeting the Annual Distribution Requirement. 34  Accordingly, we may need to sell some of our assets at times that we would not consider advantageous, raise additional debt or equity capital or foregonew investment opportunities or otherwise take actions that are disadvantageous to our business (or be unable to take actions that we believe are necessary oradvantageous to our business) in order to satisfy the Annual Distribution Requirement. If we are unable to obtain cash from other sources to satisfy theAnnual Distribution Requirement, we may fail to qualify for the federal income tax benefits allowable to RICs and, thus, become subject to a corporate-levelfederal income tax on all our income. The proportion of our income, consisting of interest and fee income that resulted from the portion of original issuediscount classified as such in accordance with GAAP not received in cash for the years ended December 31, 2015, 2014 and 2013 was 8.9%, 9.5% and 11.5%,respectively. If we make loans to borrowers or acquire loans that contain deferred payment features, such as loans providing for the payment of portions of principaland/or interest at maturity, this could increase the risk of default by our borrowers. Our investments with deferred payment features, such as debt investments providing for ETPs, may represent a higher credit risk than debt investmentsrequiring payments of all principal and accrued interest at regular intervals over the life of the debt investment. For example, even if the accountingconditions for income accrual were met during the period when the obligation was outstanding, the borrower could still default when our actual collection isscheduled to occur upon maturity of the obligation. The amount of ETPs due under our investments having such a feature currently represents a small portionof the applicable borrowers’ total repayment obligations under such investments. However, deferred payment arrangements increase the incremental risk thatwe will not receive a portion of the amount due at maturity. Additionally, because investments with a deferred payment feature may have the effect ofdeferring a portion of the borrower’s payment obligation until maturity of the debt investment, it may be difficult for us to identify and address developingproblems with borrowers in terms of their ability to repay us. Any such developments may increase the risk of default on our debt investments by borrowers. In addition, debt investments providing for ETPs are subject to the risks associated with debt investments having original issue discount (such as debtinstruments with payment-in-kind interest or, in certain cases, increasing interest rates or issued with warrants). See “—We may have difficulty paying ourrequired distributions if we recognize taxable income before or without receiving cash.” The borrowing needs of our portfolio companies are unpredictable, especially during a challenging economic environment. We may not be able to meetour unfunded commitments to extend credit, which could have a material adverse effect on our business, financial condition and results of operations. A commitment to extend credit is a formal agreement to lend funds to our portfolio companies as long as there is no violation of any conditionestablished under the agreement. The actual borrowing needs of our portfolio companies under these commitments have historically been lower than thecontractual amount of the commitments. A significant portion of these commitments expire without being drawn upon, and as such, the total amount ofunfunded commitments does not reflect our expected future cash funding requirements. Because of the credit profile of our portfolio companies, we typicallyhave a substantial amount of total unfunded credit commitments, which amount is not reflected on our balance sheet. The actual borrowing needs of ourportfolio companies may exceed our expected funding requirements, especially during a challenging economic environment when our portfolio companiesmay be more dependent on our credit commitments due to the lack of available credit elsewhere, an increasing cost of credit or the limited availability offinancing from venture capital firms. In addition, limited partner investors of some of our portfolio companies may fail to meet their underlying investmentcommitments due to liquidity or other financing issues, which may increase our portfolio companies’ borrowing needs. Any failure to meet our unfundedcredit commitments in accordance with the actual borrowing needs of our portfolio companies may have a material adverse effect on our business, financialcondition and results of operations. If we do not invest a sufficient portion of our assets in qualifying assets, we could fail to qualify as a BDC or be precluded from investing according to ourcurrent business strategy. As a BDC, we are prohibited from acquiring any assets other than qualifying assets (as defined under the 1940 Act) unless, at the time of and aftergiving effect to such acquisition, at least 70% of our total assets are qualifying assets. As of December 31, 2015 and 2014, 100% of our assets were qualifyingassets, and we expect that substantially all of our assets that we may acquire in the future will be qualifying assets, although we may decide to make otherinvestments that are not qualifying assets to the extent permitted by the 1940 Act. If we acquire debt or equity securities from an issuer that has outstandingmarginable securities at the time we make an investment, these acquired assets may not be treated as qualifying assets. This result is dictated by the definitionof “eligible portfolio company” under the 1940 Act, which in part looks to whether a company has outstanding marginable securities. See Item 1 above,“Regulation — Qualifying assets.” If we do not invest a sufficient portion of our assets in qualifying assets, we could lose our status as a BDC. If we do notmaintain our status as a BDC, we would be subject to regulation as a registered closed-end investment company under the 1940 Act. As a registered closed-end investment company, we would be subject to substantially more regulatory restrictions under the 1940 Act, which would significantly decrease ouroperating flexibility. 35  New or modified laws or regulations governing our operations may adversely affect our business. We and our portfolio companies are subject to regulation by laws at the U.S. federal, state and local levels. These laws and regulations, as well as theirinterpretation, may change from time to time, and new laws, regulations and interpretations may also come into effect. Any such new or changed laws orregulations could have a material adverse effect on our business. In particular, on July 21, 2010, the Dodd-Frank Wall Street Reform and Consumer ProtectionAct, or Dodd-Frank, became law. The scope of Dodd-Frank impacts many aspects of the financial services industry, and it requires the development andadoption of many implementing regulations over the next several months and years. The effects of Dodd-Frank on the financial services industry will depend,in large part, upon the extent to which regulators exercise the authority granted to them and the approaches taken in implementing regulations. The likelyimpact of Dodd-Frank cannot be ascertained with any degree of certainty. Additionally, changes to the laws and regulations governing our operations, including those associated with RICs, may cause us to alter our investmentstrategy in order to avail ourselves of new or different opportunities or result in the imposition of corporate-level taxes on us. Such changes could result inmaterial differences to our strategies and plans and may shift our investment focus from the areas of expertise of the Advisor to other types of investments inwhich the Advisor may have little or no expertise or experience. Any such changes, if they occur, could have a material adverse effect on our results ofoperations and the value of your investment. Our Advisor has significant potential conflicts of interest with us and our stockholders. As a result of our arrangements with our Advisor, there may be times when our Advisor has interests that differ from those of our stockholders, givingrise to a potential conflict of interest. Our executive officers and directors, as well as the current and future executives and employees of our Advisor, serve ormay serve as officers, directors or principals of entities that operate in the same or a related line of business as we do. Accordingly, they may have obligationsto investors in those entities, the fulfillment of which might not be in the best interests of our stockholders. In addition, our Advisor may manage other fundsin the future that may have investment objectives that are similar, in whole or in part, to ours. Our Advisor may determine that an investment is appropriatefor us and for one or more of those other funds. In such an event, depending on the availability of the investment and other appropriate factors, our Advisorwill endeavor to allocate investment opportunities in a fair and equitable manner and act in accordance with its written conflicts of interest policy to addressand, if necessary, resolve any conflict of interests. It is also possible that we may not be given the opportunity to participate in these other investmentopportunities. We pay management and incentive fees to our Advisor and reimburse our Advisor for certain expenses it incurs. As a result, investors in our commonstock invest on a “gross” basis and receive distributions on a “net” basis after expenses, resulting in a lower rate of return than an investor might achievethrough direct investments. Also, the incentive fee payable by us to our Advisor may create an incentive for our Advisor to pursue investments on our behalfthat are riskier or more speculative than would be the case in the absence of such compensation arrangements. We have entered into a license agreement with Horizon Technology Finance, LLC, pursuant to which it has agreed to grant us a non-exclusive, royalty-free right and license to use the service mark “Horizon Technology Finance.” Under this agreement, we have a right to use the “Horizon TechnologyFinance” service mark for so long as the Investment Management Agreement is in effect between us and our Advisor. In addition, we pay our Advisor, ourallocable portion of overhead and other expenses incurred by our Advisor in performing its obligations under the Administration Agreement, including rent,the fees and expenses associated with performing compliance functions, and our allocable portion of the compensation of our Chief Financial Officer andChief Compliance Officer and their respective staffs. Any potential conflict of interest arising as a result of our arrangements with our Advisor could have amaterial adverse effect on our business, results of operations and financial condition. 36  Our incentive fee may impact our Advisor’s structuring of our investments, including by causing our Advisor to pursue speculative investments. The incentive fee payable by us to our Advisor may create an incentive for our Advisor to pursue investments on our behalf that are riskier or morespeculative than would be the case in the absence of such compensation arrangement. The incentive fee payable to our Advisor is calculated based on apercentage of our return on invested capital. This may encourage our Advisor to use leverage to increase the return on our investments. Under certaincircumstances, the use of leverage may increase the likelihood of default, which would impair the value of our common stock. In addition, our Advisorreceives the incentive fee based, in part, upon net capital gains realized on our investments. Unlike that portion of the incentive fee based on income, there isno hurdle rate applicable to the portion of the incentive fee based on net capital gains. As a result, our Advisor may have an incentive to invest more capitalin investments that are likely to result in capital gains as compared to income-producing securities. Such a practice could result in our investing in morespeculative investments than would otherwise be the case, which could result in higher investment losses, particularly during economic downturns. Inaddition, the incentive fee may encourage our Advisor to pursue different types of investments or structure investments in ways that are more likely to resultin warrant gains or gains on equity investments, including upon exercise of equity participation rights, which are inconsistent with our investment strategyand disciplined underwriting process. The incentive fee payable by us to our Advisor may also induce our Advisor to pursue investments on our behalf that have a deferred interest feature,even if such deferred payments would not provide cash necessary to enable us to pay current distributions to our stockholders. Under these investments, wewould accrue interest over the life of the investment but would not receive the cash income from the investment until the end of the term. Our net investmentincome used to calculate the income portion of our investment fee, however, includes accrued interest. Thus, a portion of this incentive fee would be basedon income that we have not yet received in cash. In addition, the “catch-up” portion of the incentive fee may encourage our Advisor to accelerate or deferinterest payable by portfolio companies from one calendar quarter to another, potentially resulting in fluctuations in the timing and amounts of distributions.Our governing documents do not limit the number of debt investments we may make with deferred interest features or the proportion of our income we derivefrom such debt investments. Our ability to enter into transactions with our affiliates is restricted. As a BDC, we are prohibited under the 1940 Act from participating in certain transactions with our affiliates without the prior approval of ourindependent directors and, in some cases, the SEC. Any person that, among other things, owns, directly or indirectly, 5% or more of our outstanding votingsecurities is considered our affiliate for purposes of the 1940 Act. We are generally prohibited from buying or selling any security from or to an affiliate,absent the prior approval of our independent directors. The 1940 Act also prohibits certain “joint” transactions with an affiliate, which could includeinvestments in the same portfolio company (whether at the same or different times), without prior approval of our independent directors. If a person acquiresmore than 25% of our voting securities, we are prohibited from buying or selling any security from or to that person or certain of that person’s affiliates, orentering into prohibited joint transactions with those persons, absent the prior approval of the SEC. Similar restrictions limit our ability to transact businesswith our officers or directors or their affiliates. These restrictions could limit or prohibit us from making certain attractive investments that we might otherwisemake absent such restrictions. While we have no current intention to enter into any principal transactions or joint arrangements with any affiliates, we have considered and evaluated,and will continue to consider and evaluate, the potential advantages and disadvantages of doing so. If we decide to enter into any such transactions in thefuture we will not do so until we have requested and received the requisite exemptive relief under Section 57 of the 1940 Act, the filing of which our Boardhas previously authorized. The valuation process for certain of our portfolio holdings creates a conflict of interest. The majority of our portfolio investments are expected to be made in the form of securities that are not publicly traded. As a result, the Board willdetermine the fair value of these securities in good faith as described above in “— Because many of our investments typically are not and will not be inpublicly traded securities, the value of our investments may not be readily determinable, which could adversely affect the determination of our NAV.” Inconnection with that determination, investment professionals from the Advisor may provide the Board with portfolio company valuations based upon themost recent portfolio company financial statements available and projected financial results of each portfolio company. The participation of the Advisor’sinvestment professionals in our valuation process could result in a conflict of interest as the Advisor’s management fee is based, in part, on our average grossassets and our incentive fees will be based, in part, on unrealized appreciation and depreciation on our investments. 37  Our Advisor’s liability is limited, and we have agreed to indemnify our Advisor against certain liabilities, which may lead our Advisor to act in a riskiermanner on our behalf than it would when acting for its own account. Under the Investment Management Agreement, our Advisor does not assume any responsibility to us other than to render the services called for underthat agreement, and it is not responsible for any action of our Board in following or declining to follow our Advisor’s advice or recommendations. Under theterms of the Investment Management Agreement, our Advisor, its officers, members, personnel and any person controlling or controlled by our Advisor is notliable to us, any subsidiary of ours, our directors, our stockholders or any subsidiary’s stockholders or partners for acts or omissions performed in accordancewith and pursuant to the Investment Management Agreement, except those resulting from acts constituting gross negligence, willful misconduct, bad faith orreckless disregard of our Advisor’s duties under the Investment Management Agreement. In addition, we have agreed to indemnify our Advisor and each ofits officers, directors, members, managers and employees from and against any claims or liabilities, including reasonable legal fees and other expensesreasonably incurred, arising out of or in connection with our business and operations or any action taken or omitted on our behalf pursuant to authoritygranted by the Investment Management Agreement, except where attributable to gross negligence, willful misconduct, bad faith or reckless disregard of suchperson’s duties under the Investment Management Agreement. These protections may lead our Advisor to act in a riskier manner when acting on our behalfthan it would when acting for its own account. If we are unable to manage our future growth effectively, we may be unable to achieve our investment objective, which could adversely affect our business,results of operations and financial condition and cause the value of your investment in us to decline. Our ability to achieve our investment objective depends on our ability to achieve and sustain growth, which depends, in turn, on our Advisor’s directorigination capabilities and disciplined underwriting process in identifying, evaluating, financing, investing in and monitoring suitable companies that meetour investment criteria. Accomplishing this result on a cost-effective basis is largely a function of our Advisor’s marketing capabilities, management of theinvestment process, ability to provide efficient services and access to financing sources on acceptable terms. In addition to monitoring the performance of ourexisting investments, our Advisor may also be called upon to provide managerial assistance to our portfolio companies. These demands on their time maydistract them or slow the rate of investment. If we fail to manage our future growth effectively, our business, results of operations and financial conditioncould be materially adversely affected and the value of your investment in us could decrease. Our Board may change our operating policies and strategies, including our investment objective, without prior notice or stockholder approval, the effectsof which may adversely affect our business. Our Board may modify or waive our current operating policies and strategies, including our investment objectives, without prior notice and withoutstockholder approval (provided that no such modification or waiver may change the nature of our business so as to cease to be, or withdraw our election as aBDC as provided by the 1940 Act without stockholder approval at a special meeting called upon written notice of not less than ten or more than sixty daysbefore the date of such meeting). We cannot predict the effect any changes to our current operating policies and strategies would have on our business, resultsof operations or financial condition or on the value of our stock. However, the effects of any changes might adversely affect our business, any or all of whichcould negatively impact our ability to pay distributions or cause you to lose all or part of your investment in us. Our quarterly and annual operating results may fluctuate due to the nature of our business. We could experience fluctuations in our quarterly and annual operating results due to a number of factors, some of which are beyond our control,including: our ability to make investments in companies that meet our investment criteria, the interest rate payable on our debt investments, the default rateon these investments, the level of our expenses, variations in, and the timing of, the recognition of realized and unrealized gains or losses, the degree towhich we encounter competition in our markets and general economic conditions. For example, we have historically experienced greater investment activityduring the second and fourth quarters relative to other periods. As a result of these factors, you should not rely on the results for any prior period as beingindicative of our performance in future periods. 38  Our business plan and growth strategy depends to a significant extent upon our Advisor’s referral relationships. If our Advisor is unable to develop new ormaintain existing relationships, or if these relationships fail to generate investment opportunities, our business could be materially adversely affected. We have historically depended on our Advisor’s referral relationships to generate investment opportunities. For us to achieve our future businessobjectives, members of our Advisor need to maintain these relationships with venture capital and private equity firms and management teams and legal firms,accounting firms, investment banks and other lenders, and we rely to a significant extent upon these relationships to provide us with investmentopportunities. If they fail to maintain their existing relationships or develop new relationships with other firms or sources of investment opportunities, wemay not be able to grow our investment portfolio. In addition, persons with whom our Advisor has relationships are not obligated to provide us withinvestment opportunities, and, therefore, there is no assurance that such relationships will lead to the origination of debt or other investments. Our Advisor can resign on 60 days’ notice and we may not be able to find a suitable replacement within that time, resulting in a disruption in ouroperations that could adversely affect our business, results of operations or financial condition. Under our Investment Management Agreement and our Administration Agreement, our Advisor has the right to resign at any time, including during thefirst two years following the Investment Management Agreement’s effective date, upon not more than 60 days’ written notice, whether we have found areplacement or not. If our Advisor resigns, we may not be able to find a new investment adviser or administrator or hire internal management with similarexpertise and ability to provide the same or equivalent services on acceptable terms within 60 days, or at all. If we are unable to do so, our operations arelikely to be disrupted, our business, results of operations and financial condition and our ability to pay distributions may be adversely affected and themarket price of our shares may decline. In addition, the coordination of our internal management and investment activities is likely to suffer if we are unableto identify and reach an agreement with a single institution or group of executives having the expertise possessed by our Advisor and its affiliates. Even if weare able to retain comparable management, whether internal or external, the integration of new management and their lack of familiarity with our investmentobjective may result in additional costs and time delays that may adversely affect our business, results of operations or financial condition. We incur significant costs as a result of being a publicly traded company. As a publicly traded company, we incur legal, accounting and other expenses, including costs associated with the periodic reporting requirementsapplicable to a company whose securities are registered under the Exchange Act as well as additional corporate governance requirements, includingrequirements under the Sarbanes-Oxley Act, and other rules implemented by the SEC. Compliance with Section 404 of the Sarbanes-Oxley Act involves significant expenditures, and non-compliance with Section 404 of the Sarbanes-OxleyAct would adversely affect us and the market price of our common stock. Under current SEC rules, we are required to report on our internal control over financial reporting pursuant to Section 404 of the Sarbanes-Oxley Actand related rules and regulations of the SEC. As a result, we incur additional expenses that negatively impact our financial performance and our ability tomake distributions. This process also results in a diversion of management’s time and attention. We cannot be certain as to the timing of completion of ourannual re-evaluation, testing and remediation actions or the impact of the same on our operations, and we cannot assure you that our internal control overfinancial reporting is or will be effective. In the event that we are unable to maintain compliance with Section 404 of the Sarbanes-Oxley Act and relatedrules, we and the market price of our securities may be adversely affected. We are highly dependent on information systems and systems failures could significantly disrupt our business, which may, in turn, negatively affect themarket price of our common stock and our ability to pay distributions. Our business is highly dependent on the Advisor and its affiliates’ communications and information systems. Any failure or interruption of thosesystems, including as a result of the termination of an agreement with any third-party service providers, could cause delays or other problems in our activities.Our financial, accounting, data processing, backup or other operating systems and facilities may fail to operate properly or become disabled or damaged as aresult of a number of factors including events that are wholly or partially beyond our control and adversely affect our business. There could be: 39  •sudden electrical or telecommunications outages; •natural disasters such as earthquakes, tornadoes and hurricanes; •disease pandemics; and •events arising from local or larger scale political or social matters, including terrorist acts. Any of these events, could have a material adverse effect on our operating results and negatively affect the market price of our common stock and ourability to pay distributions to our stockholders. In addition, these communications and information systems are subject to potential attacks, including through adverse events that threaten theconfidentiality, integrity or availability of our information resources. These attacks, which may include cyber incidents, may involve a third party gainingunauthorized access to our communications or information systems for purposes of misappropriating assets, stealing confidential information, corrupting dataor causing operational disruption. Any such attack could result in disruption to our business, misstated or unreliable financial data, liability for stolen assetsor information, increased cybersecurity protection and insurance costs, litigation and damage to our business relationships, any of which could have amaterial adverse effect on our business, financial condition and results of operations. Risks related to our investments Our stockholders are not able to evaluate our future investments. Our future investments will be selected by our Advisor, subject to the approval of its investment committee. Our stockholders do not have input into ourAdvisor’s investment decisions. As a result, our stockholders are unable to evaluate any of our future portfolio company investments. These factors increasethe uncertainty, and thus the risk, of investing in our securities. We are a non-diversified investment company within the meaning of the 1940 Act, and therefore we generally are not limited with respect to the proportionof our assets that may be invested in securities of a single issuer. We are classified as a non-diversified investment company within the meaning of the 1940 Act, which means that we are not limited by the 1940 Actwith respect to the proportion of our assets that we may invest in securities of a single issuer, excluding limitations on stake holdings in investmentcompanies. To the extent that we assume large positions in the securities of a small number of issuers, our NAV may fluctuate to a greater extent than that of adiversified investment company as a result of changes in the financial condition or the market’s assessment of the issuer. We may also be more susceptible toany single economic or regulatory occurrence than a diversified investment company. Beyond our income tax diversification requirements, we do not havefixed guidelines for diversification, and our investments could be concentrated in relatively few portfolio companies. Our portfolio may be concentrated in a limited number of portfolio companies and industries, which will subject us to a risk of significant loss if any ofthese companies defaults on its obligations under any of its debt instruments or if there is a downturn in a particular industry. Our portfolio may be concentrated in a limited number of portfolio companies and industries. As a result, the aggregate returns we realize may besignificantly and adversely affected if a small number of investments perform poorly or if we need to write down the value of any one investment.Additionally, our investments will be concentrated in relatively few industries. As a result, a downturn in any particular industry in which we are investedcould also significantly impact the aggregate returns we realize. Our Target Industries are susceptible to changes in government policy and economicassistance, which could adversely affect the returns we receive. If our investments do not meet our performance expectations, you may not receive distributions. We intend to make distributions of income on a monthly basis to our stockholders. We may not be able to achieve operating results that will allow us tomake distributions at a specific level or increase the amount of these distributions from time to time. In addition, due to the asset coverage test applicable tous as a BDC, we may be limited in our ability to make distributions. Also, restrictions and provisions in any existing or future credit facilities may limit ourability to make distributions. If we do not distribute a certain percentage of our income each tax year as dividends to stockholders, we will suffer adverse taxconsequences, including the possible loss of the federal income tax benefits allowable to RICs. 40  Most of our portfolio companies will need additional capital, which may not be readily available. Our portfolio companies typically require substantial additional financing to satisfy their continuing working capital and other capital requirementsand service the interest and principal payments on our investments. We cannot predict the circumstances or market conditions under which our portfoliocompanies will seek additional capital. Each round of institutional equity financing is typically intended to provide a company with only enough capital toreach the next stage of development. It is possible that one or more of our portfolio companies will not be able to raise additional financing or may be able todo so only at a price or on terms that are unfavorable to the portfolio company, either of which would negatively impact our investment returns. Some ofthese companies may be unable to obtain sufficient financing from private investors, public capital markets or lenders, thereby requiring these companies tocease or curtail business operations. Accordingly, investing in these types of companies generally entails a higher risk of loss than investing in companiesthat do not have significant incremental capital raising requirements. Economic recessions or downturns could adversely affect our business and that of our portfolio companies which may have an adverse effect on ourbusiness, results of operations and financial condition. General economic conditions may affect our activities and the operation and value of our portfolio companies. Economic slowdowns or recessions mayresult in a decrease of institutional equity investment, which would limit our lending opportunities. Furthermore, many of our portfolio companies may besusceptible to economic slowdowns or recessions and may be unable to repay our debt investments during these periods. Therefore, our non-performingassets are likely to increase and the value of our portfolio is likely to decrease during these periods. Adverse economic conditions may also decrease thevalue of collateral securing some of our debt investments and the value of our equity investments. Economic slowdowns or recessions could lead to financiallosses in our portfolio and a decrease in revenues, net income and assets. Unfavorable economic conditions could also increase our funding costs, limit ouraccess to the capital markets or result in a decision by lenders not to extend credit to us. A portfolio company’s failure to satisfy financial or operating covenants imposed by us or other lenders could lead to defaults and, potentially,termination of its loans and foreclosure on its secured assets, which could trigger cross-defaults under other agreements and jeopardize the portfoliocompany’s ability to meet its obligations under the loans that we hold. We may incur expenses to the extent necessary to recover our investment upon defaultor to negotiate new terms with a defaulting portfolio company. These events could harm our financial condition and operating results. Our investment strategy focuses on investments in development-stage companies in our Target Industries, which are subject to many risks, includingvolatility, intense competition, shortened product life cycles and periodic downturns, and would be rated below “investment grade.” We intend to invest, under normal circumstances, most of the value of our total assets (including the amount of any borrowings for investment purposes)in development-stage companies, which may have relatively limited operating histories, in our Target Industries. Many of these companies may have narrowproduct lines and small market shares, compared to larger established publicly owned firms, which tend to render them more vulnerable to competitors’actions and market conditions, as well as general economic downturns. The revenues, income (or losses) and valuations of development-stage companies inour Target Industries can and often do fluctuate suddenly and dramatically. For these reasons, investments in our portfolio companies, if rated by one or moreratings agency, would typically be rated below “investment grade,” which refers to securities rated by ratings agencies below the four highest ratingcategories. These companies may also have more limited access to capital and higher funding costs. In addition, development-stage technology markets aregenerally characterized by abrupt business cycles and intense competition, and the competitive environment can change abruptly due to rapidly evolvingtechnology. Therefore, our portfolio companies may face considerably more risk than companies in other industry sectors. Accordingly, these factors couldimpair their cash flow or result in other events, such as bankruptcy, which could limit their ability to repay their obligations to us and may materiallyadversely affect the return on, or the recovery of, our investments in these businesses. Because of rapid technological change, the average selling prices of products and some services provided by development-stage companies in ourTarget Industries have historically decreased over their productive lives. These decreases could adversely affect their operating results and cash flow, theirability to meet obligations under their debt securities and the value of their equity securities. This could, in turn, materially adversely affect our business,financial condition and results of operations. 41  Any unrealized depreciation we experience on our debt investments may be an indication of future realized losses, which could reduce our incomeavailable for distribution. As a BDC, we are required to carry our investments at fair value, which is the market value of our investments or, if no market value is ascertainable, atthe fair value as determined in good faith pursuant to procedures approved by our Board in accordance with our valuation policy. We are not permitted tomaintain a reserve for debt investment losses. Decreases in the fair values of our investments are recorded as unrealized depreciation. Any unrealizeddepreciation in our debt investments could be an indication of a portfolio company’s inability to meet its repayment obligations to us with respect to theaffected debt investments. This could result in realized losses in the future and ultimately reduces our income available for distribution in future periods. If the assets securing the debt investments we make decrease in value, we may not have sufficient collateral to cover losses and may experience losses uponforeclosure. We believe our portfolio companies generally are and will be able to repay our debt investments from their available capital, from future capital-raisingtransactions or from cash flow from operations. However, to mitigate our credit risks, we typically take a security interest in all or a portion of the assets of ourportfolio companies, including the equity interests of their subsidiaries. There is a risk that the collateral securing our debt investments may decrease in valueover time, may be difficult to appraise or sell in a timely manner and may fluctuate in value based upon the business and market conditions, including as aresult of an inability of the portfolio company to raise additional capital, and, in some circumstances, our lien could be subordinated to claims of othercreditors. In addition, deterioration of a portfolio company’s financial condition and prospects, including its inability to raise additional capital, may beaccompanied by deterioration of the value of the collateral for the debt investment. Consequently, although such debt investment is secured, we may notreceive principal and interest payments according to the debt investment’s terms and the value of the collateral may not be sufficient to recover ourinvestment should we be forced to enforce our remedies. In addition, because we invest in development-stage companies in our Target Industries, a substantial portion of the assets securing our investment maybe in the form of intellectual property, if any, inventory, equipment, cash and accounts receivables. Intellectual property, if any, which secures a debtinvestment could lose value if the company’s rights to the intellectual property are challenged or if the company’s license to the intellectual property isrevoked or expires. In addition, in lieu of a security interest in a portfolio company’s intellectual property we may sometimes obtain a security interest in allassets of the portfolio company other than intellectual property and also obtain a commitment by the portfolio company not to grant liens to any othercreditor on the company’s intellectual property. In these cases, we may have additional difficulty recovering our principal in the event of a foreclosure.Similarly, any equipment securing our debt investments may not provide us with the anticipated security if there are changes in technology or advances innew equipment that render the particular equipment obsolete or of limited value or if the company fails to adequately maintain or repair the equipment. Anyone or more of the preceding factors could materially impair our ability to recover principal in a foreclosure, which may adversely affect our ability to paydistributions in the future. We may choose to waive or defer enforcement of covenants in the debt securities held in our portfolio, which may cause us to lose all or part of ourinvestment in these companies. We structure the debt investments in our portfolio companies to include business and financial covenants placing affirmative and negative obligationson the operation of the company’s business and its financial condition. However, from time to time we may elect to waive breaches of these covenants,including our right to payment, or waive or defer enforcement of remedies, such as acceleration of obligations or foreclosure on collateral, depending uponthe financial condition and prospects of the particular portfolio company. These actions may reduce the likelihood of our receiving the full amount of futurepayments of interest or principal and be accompanied by a deterioration in the value of the underlying collateral as many of these companies may havelimited financial resources, may be unable to meet future obligations and may go bankrupt. These events could harm our financial condition and operatingresults. The lack of liquidity in our investments may adversely affect our business, and if we need to sell any of our investments, we may not be able to do so at afavorable price. As a result, we may suffer losses. We plan to generally invest in debt investments with terms of up to four years and hold such investments until maturity, unless earlier prepaid, and wedo not expect that our related holdings of equity securities will provide us with liquidity opportunities in the near-term. We expect to primarily invest incompanies whose securities are not publicly-traded, and whose securities are subject to legal and other restrictions on resale or are otherwise less liquid thanpublicly traded securities. The illiquidity of these investments may make it difficult for us to sell these investments when desired. We may also face otherrestrictions on our ability to liquidate an investment in a public portfolio company to the extent that we possess material non-public information regardingthe portfolio company. In addition, if we are required to liquidate all or a portion of our portfolio quickly, we may realize significantly less than the value atwhich we had previously recorded these investments. As a result, we do not expect to dispose of our investments in the near term. However, we may berequired to do so in order to maintain our qualification as a BDC and as a RIC if we do not satisfy one or more of the applicable criteria under the respectiveregulatory frameworks. Because most of our investments are illiquid, we may be unable to dispose of them, in which case we could fail to qualify as a RICand/or BDC, or we may not be able to dispose of them at favorable prices, and as a result, we may suffer losses. 42  Our portfolio companies may incur debt that ranks equally with, or senior to, our investments in such companies. We plan to invest primarily in debt investments issued by our portfolio companies. Some of our portfolio companies are permitted to have other debtthat ranks equally with, or senior to, our debt investments in the portfolio company. By their terms, these debt instruments may provide that the holdersthereof are entitled to receive payment of interest or principal on or before the dates on which we are entitled to receive payments in respect of our debtinvestments. These debt instruments may prohibit the portfolio companies from paying interest on or repaying our investments in the event of, and during,the continuance of a default under the debt instruments. In addition, in the event of insolvency, liquidation, dissolution, reorganization or bankruptcy of aportfolio company, holders of debt instruments ranking senior to our investment in that portfolio company would typically be entitled to receive payment infull before we receive any payment in respect of our investment. After repaying senior creditors, a portfolio company may not have any remaining assets touse for repaying its obligation to us. In the case of debt ranking equally with our debt investments, we would have to share on an equal basis anydistributions with other creditors holding such debt in the event of an insolvency, liquidation, dissolution, reorganization or bankruptcy. There may be circumstances where our debt investments could be subordinated to claims of other creditors, or we could be subject to lender liabilityclaims. Even though certain of our investments are structured as senior debt investments, if one of our portfolio companies were to go bankrupt, depending onthe facts and circumstances, including the extent to which we actually provided managerial assistance to that portfolio company, a bankruptcy court mightrecharacterize our debt investment and subordinate all or a portion of our claim to that of other creditors. We may also be subject to lender liability claims foractions taken by us with respect to a portfolio company’s business, including in rendering significant managerial assistance, or instances where we exercisecontrol over the portfolio company. An investment strategy focused primarily on privately held companies presents certain challenges, including the lack of available information about thesecompanies, a dependence on the talents and efforts of only a few key portfolio company personnel and a greater vulnerability to economic downturns. We currently invest, and plan to invest, primarily in privately held companies. Generally, very little public information exists about these companies,and we are required to rely on the ability of our Advisor to obtain adequate information to evaluate the potential returns from investing in these companies. Ifwe are unable to uncover all material information about these companies, we may not make a fully informed investment decision, and we may lose money onour investments. Also, privately held companies frequently have less diverse product lines and a smaller market presence than larger competitors. Thus, theyare generally more vulnerable to economic downturns and may experience substantial variations in operating results. These factors could affect ourinvestment returns. In addition, our success depends, in large part, upon the abilities of the key management personnel of our portfolio companies, who are responsible forthe day-to-day operations of our portfolio companies. Competition for qualified personnel is intense at any stage of a company’s development. The loss ofone or more key managers can hinder or delay a company’s implementation of its business plan and harm its financial condition. Our portfolio companiesmay not be able to attract and retain qualified managers and personnel. Any inability to do so may negatively affect our investment returns. 43  We may hold the debt securities of leveraged companies that may, due to the significant volatility of such companies, experience bankruptcy or similarfinancial distress. Leveraged companies may experience bankruptcy or similar financial distress. The debt investments of distressed companies may not produce income,may require us to bear certain expenses to protect our investment and may subject us to uncertainty as to when, in what manner (e.g., through liquidation,reorganization or bankruptcy) and for what value such distressed debt will eventually be satisfied. Proceeds received from such proceedings may not beincome that satisfies the Qualifying Income Test for RICs. In the event that a plan of reorganization is adopted, we may receive equity securities in exchangeof the debt investment that we currently hold, which may require significantly more of our management’s time and attention. If a portfolio company enters a bankruptcy process, we will be subject to a number of significant inherent risks. Many events in a bankruptcyproceeding are the product of contested matters and adversary proceedings and are beyond the control of the creditors. A bankruptcy filing by an issuer mayadversely and permanently affect the issuer. If the proceeding is converted to a liquidation, the value of the issuer may not equal the liquidation value thatwas believed to exist at the time of the investment. The duration of a bankruptcy proceeding is also difficult to predict, and a creditor’s return on investmentcan be adversely affected by delays until the plan of reorganization or liquidation ultimately becomes effective. The administrative costs of a bankruptcyproceeding are frequently high and would be paid out of the debtor’s estate prior to any return to creditors. Because the standards for classification of claimsunder bankruptcy law are vague, our influence with respect to the class of securities or other obligations we own may be lost by increases in the number andamount of claims in the same class or by different classification and treatment. In the early stages of the bankruptcy process, it is often difficult to estimate theextent of, or even to identify, any contingent claims that might be made. In addition, certain claims that have priority by law (for example, claims for taxes)may be substantial. Prepayments of our debt investments by our portfolio companies could adversely impact our results of operations and reduce our return on equity. We are subject to the risk that the investments we make in our portfolio companies may be repaid prior to maturity. For example, most of our debtinvestments have historically been repaid prior to maturity by our portfolio companies. At the time of a liquidity event, such as a sale of the business,refinancing or public offering, many of our portfolio companies have availed themselves of the opportunity to repay our debt investments prior to maturity.Our investments generally allow for repayment at any time subject to certain penalties. When this occurs, we generally reinvest these proceeds in temporaryinvestments, pending their future investment in new portfolio companies. These temporary investments have substantially lower yields than the debt beingprepaid, and we could experience significant delays in reinvesting these amounts. Any future investment in a new portfolio company may also be at loweryields than the debt that was repaid. As a result, our results of operations could be materially adversely affected if one or more of our portfolio companieselects to prepay amounts owed to us. Additionally, prepayments could negatively impact our return on equity, which could result in a decline in the marketprice of our common stock. Our business and growth strategy could be adversely affected if government regulations, priorities and resources impacting the industries in which ourportfolio companies operate change. Some of our portfolio companies operate in industries that are highly regulated by federal, state and/or local agencies. Changes in existing laws, rules orregulations, or judicial or administrative interpretations thereof, or new laws, rules or regulations could have an adverse impact on the business and industriesof our portfolio companies. In addition, changes in government priorities or limitations on government resources could also adversely impact our portfoliocompanies. We are unable to predict whether any such changes in laws, rules or regulations will occur and, if they do occur, the impact of these changes onour portfolio companies and our investment returns. Our portfolio companies operating in the life science industry are subject to extensive government regulation and certain other risks particular to thatindustry. As part of our investment strategy, we have invested, and plan to invest in the future, in companies in the life science industry that are subject toextensive regulation by the Food and Drug Administration and to a lesser extent, other federal and state agencies. If any of these portfolio companies fail tocomply with applicable regulations, they could be subject to significant penalties and claims that could materially and adversely affect their operations.Portfolio companies that produce medical devices or drugs are subject to the expense, delay and uncertainty of the regulatory approval process for theirproducts and, even if approved, these products may not be accepted in the marketplace. In addition, new laws, regulations or judicial interpretations ofexisting laws and regulations might adversely affect a portfolio company in this industry. Portfolio companies in the life science industry may also have alimited number of suppliers of necessary components or a limited number of manufacturers for their products, and therefore face a risk of disruption to theirmanufacturing process if they are unable to find alternative suppliers when needed. Any of these factors could materially and adversely affect the operationsof a portfolio company in this industry and, in turn, impair our ability to timely collect principal and interest payments owed to us. 44  Our portfolio companies operating in the drug discovery industry are subject to numerous risks, including competition, extensive government regulation,product liability and commercial difficulties. Our portfolio companies in the drug discovery industry are subject to numerous risks. The successful and timely implementation of the business modelof drug discovery companies depends on their ability to adapt to changing technologies and introduce new products. As competitors continue to introducecompetitive products, the development and acquisition of innovative products and technologies that improve efficacy, safety, patient’s and clinician’s easeof use and cost-effectiveness are important to the success of such companies. The success of new product offerings will depend on many factors, including theability to properly anticipate and satisfy customer needs, obtain regulatory approvals on a timely basis, develop and manufacture products in an economicand timely manner, obtain or maintain advantageous positions with respect to intellectual property, and differentiate products from those of competitors.Failure by companies to introduce planned products or other new products or to introduce products on schedule could materially and adversely affect theoperations of the companies and, in turn, impair our ability to timely collect principal and interest payments owed to us. Further, the development of products by drug discovery companies requires significant research and development, clinical trials and regulatoryapprovals. The results of product development efforts may be affected by a number of factors, including the ability to innovate, develop and manufacture newproducts, complete clinical trials, obtain regulatory approvals and reimbursement by insurers in the United States (including Medicare and Medicaid) andabroad, or gain and maintain market approval of products. In addition, patents attained by others can preclude or delay the commercialization of a product.There can be no assurance that any products now in development will achieve technological feasibility, obtain regulatory approval, or gain marketacceptance. Failure can occur at any point in the development process, including after significant funds have been invested. Products may fail to reach themarket or may have only limited commercial success because of efficacy or safety concerns, failure to achieve positive clinical outcomes, inability to obtainnecessary regulatory approvals, failure to achieve market adoption, limited scope of approved uses, excessive costs to manufacture, failure to establish ormaintain intellectual property rights, infringement by others of a company’s intellectual property rights, or infringement by a company of intellectualproperty rights of others. Any of these factors could materially and adversely affect the operations of the companies and, in turn, impair our ability to timelycollect principal and interest payments owed to us. Our investments in the clean technology industry are subject to many risks, including volatility, intense competition, unproven technologies, periodicdownturns and potential litigation. Our investments in clean technology, or cleantech, companies are subject to substantial operational risks, such as underestimated cost projections,unanticipated operation and maintenance expenses, loss of government subsidies, and inability to deliver cost-effective alternative energy solutionscompared to traditional energy products. In addition, energy companies employ a variety of means of increasing cash flow, including increasing utilizationof existing facilities, expanding operations through new construction or acquisitions, or securing additional long-term contracts. Thus, some energycompanies may be subject to construction risk, acquisition risk or other risks arising from their specific business strategies. Furthermore, production levels forsolar, wind and other renewable energies may be dependent upon adequate sunlight, wind, or biogas production, which can vary from market to market andperiod to period, resulting in volatility in production levels and profitability. In addition, our cleantech companies may have narrow product lines and smallmarket shares, which tend to render them more vulnerable to competitors’ actions and market conditions, as well as to general economic downturns. Therevenues, income (or losses) and valuations of clean technology companies can and often do fluctuate suddenly and dramatically and the markets in whichclean technology companies operate are generally characterized by abrupt business cycles and intense competition. Demand for cleantech and renewableenergy is also influenced by the available supply and prices for other energy products, such as coal, oil and natural gas. A decrease in prices in these energyproducts could reduce demand for alternative energy. Cleantech companies face potential litigation, including significant warranty and product liabilityclaims, as well as class action and government claims. Such litigation could adversely affect the business and results of operations of our cleantech portfoliocompanies. 45  Cleantech companies are subject to extensive government regulation and certain other risks particular to the sectors in which they operate and ourbusiness and growth strategy could be adversely affected if government regulations, priorities and resources impacting such sectors change or if ourportfolio companies fail to comply with such regulations. As part of our investment strategy we invest in portfolio companies in cleantech sectors that may be subject to extensive regulation by foreign, U.S.federal, state and/or local agencies. Changes in existing laws, rules or regulations, or judicial or administrative interpretations thereof, or new laws, rules orregulations could have an adverse impact on the business and industries of our portfolio companies. In addition, changes in government priorities orlimitations on government resources could also adversely impact our portfolio companies. We are unable to predict whether any such changes in laws, rulesor regulations will occur and, if they do occur, the impact of these changes on our portfolio companies and our investment returns. Furthermore, if any of ourportfolio companies fail to comply with applicable regulations, they could be subject to significant penalties and claims that could materially and adverselyaffect their operations. Our portfolio companies may be subject to the expense, delay and uncertainty of the regulatory approval process for their productsand, even if approved, these products may not be accepted in the marketplace. In addition, there is considerable uncertainty about whether foreign, U.S., state and/or local governmental entities will enact or maintain legislation orregulatory programs that mandate reductions in greenhouse gas emissions or provide incentives for cleantech companies. Without such regulatory policies,investments in cleantech companies may not be economical and financing for cleantech companies may become unavailable, which could materiallyadversely affect the ability of our portfolio companies to repay the debt they owe to us. Any of these factors could materially and adversely affect theoperations and financial condition of a portfolio company and, in turn, the ability of the portfolio company to repay the debt they owe to us. If our portfolio companies are unable to commercialize their technologies, products, business concepts or services, the returns on our investments could beadversely affected. The value of our investments in our portfolio companies may decline if our portfolio companies are not able to commercialize their technology,products, business concepts or services. Additionally, although some of our portfolio companies may already have a commercially successful product orproduct line at the time of our investment, technology-related products and services often have a more limited market or life span than products in otherindustries. Thus, the ultimate success of these companies often depends on their ability to innovate continually in increasingly competitive markets. If theyare unable to do so, our investment returns could be adversely affected and their ability to service their debt obligations to us over the life of a loan could beimpaired. Our portfolio companies may be unable to acquire or develop successful new technologies and the intellectual property they currently hold maynot remain viable. Even if our portfolio companies are able to develop commercially viable products, the market for new products and services is highlycompetitive and rapidly changing. Neither our portfolio companies nor we have any control over the pace of technology development. Commercial successis difficult to predict, and the marketing efforts of our portfolio companies may not be successful. Our portfolio companies may rely upon licenses for all or part of their intellectual property. A portfolio company may license all or part of its intellectual property from another unrelated party. While the portfolio company may continuedevelopment on that licensed intellectual property, it can be difficult to ascertain who has title to the intellectual property. We may also rely upon theportfolio company’s management team’s representations as to the nature of the licensing agreement. There are implications in workouts and in bankruptcywhere intellectual property is not wholly owned by a portfolio company. Further, the licensor may have an actual or contingent claim on the intellectualproperty (for instance, a payment due upon change in control) that would supersede other claims in that asset in certain situations. If our portfolio companies are unable to protect their intellectual property rights, our business and prospects could be harmed, and if portfolio companiesare required to devote significant resources to protecting their intellectual property rights, the value of our investment could be reduced. Our future success and competitive position depends in part upon the ability of our portfolio companies to obtain, maintain and protect proprietarytechnology used in their products and services. The intellectual property held by our portfolio companies often represents a substantial portion of thecollateral securing our investments and/or constitutes a significant portion of the portfolio companies’ value that may be available in a downside scenario torepay our debt investments. Our portfolio companies rely, in part, on patent, trade secret and trademark law to protect that technology, but competitors maymisappropriate their intellectual property, and disputes as to ownership of intellectual property may arise. Portfolio companies may, from time to time, berequired to institute litigation to enforce their patents, copyrights or other intellectual property rights, protect their trade secrets, determine the validity andscope of the proprietary rights of others or defend against claims of infringement. 46  Such litigation could result in substantial costs and diversion of resources. Similarly, if a portfolio company is found to infringe or misappropriate athird party’s patent or other proprietary rights, it could be required to pay damages to the third party, alter its products or processes, obtain a license from thethird party and/or cease activities utilizing the proprietary rights, including making or selling products utilizing the proprietary rights. Any of the foregoingevents could negatively affect both the portfolio company’s ability to service our debt investment and the value of any related debt and equity securities thatwe own, as well as the value of any collateral securing our investment. We do not expect to control any of our portfolio companies. We do not control, or expect to control in the future, any of our portfolio companies, even though our debt agreements may contain certain restrictivecovenants that limit the business and operations of our portfolio companies. We also do not maintain, or intend to maintain in the future, a control position tothe extent we own equity interests in any portfolio company. As a result, we are subject to the risk that a portfolio company in which we invest may makebusiness decisions with which we disagree and the management of such company, as representatives of the holders of their common equity, may take risks orotherwise act in ways that do not serve our interests as debt investors. Due to the lack of liquidity of the investments that we typically hold in our portfoliocompanies, we may not be able to dispose of our investments in the event we disagree with the actions of a portfolio company and we may therefore, suffer adecrease in the value of our investments. Our portfolio companies may have foreign subsidiaries. Although our debt investments consist of secured loans to portfolio companies with headquarters and primary operations located within the UnitedStates, certain debt investments may be secured by the assets of a portfolio company’s foreign subsidiary which may involve greater risks. These risksinclude: (i) less publicly available information; (ii) varying levels of governmental regulation and supervision; and (iii) the difficulty of enforcing legalrights in a foreign jurisdiction and uncertainties as to the status, interpretation and application of laws. Moreover, foreign companies are generally not subjectto uniform accounting, auditing and financial reporting standards, practices and requirements comparable to those applicable to United States companies.Debt investments secured by the assets of a portfolio company’s foreign subsidiary may be subject to various laws enacted in their home countries for theprotection of debtors or creditors, which could adversely affect our ability to recover amounts owed. These insolvency considerations will differ dependingon the country in which each foreign subsidiary is located and may differ depending on whether the foreign subsidiary is a non-sovereign or a sovereignentity. The economies of individual non-U.S. countries may also differ from the U.S. economy in such respects as growth of gross domestic product, rate ofinflation, volatility of currency exchange rates, depreciation, capital reinvestment, resources self-sufficiency and balance of payments position. Accordingly,debt investments secured by the assets of a portfolio company’s foreign subsidiary could face risks which would not pertain to debt investments solely in U.S.portfolio companies. We may not realize expected returns on warrants received in connection with our debt investments. As discussed above, we generally receive warrants in connection with our debt investments. If we do not receive the returns that are anticipated on thewarrants, our investment returns on our portfolio companies, and the value of your investment in us, may be lower than expected. Risks related to our common stock There is a risk that investors in our equity securities may not receive distributions, that our distributions may not grow over time or that a portion ofdistributions paid to you may be a return of capital. We intend to make distributions on a monthly basis to our stockholders out of assets legally available for distribution. We cannot assure you that wewill achieve investment results that will allow us to make a specified level of cash distributions or year-to-year increases in cash distributions. Our ability topay distributions might be adversely affected by the impact of one or more risk factors described in this report. In addition, due to the asset coverage testapplicable to us as a BDC, we may be limited in our ability to make distributions. All distributions will be paid at the discretion of our Board and will dependon our earnings, our financial condition, maintenance of our RIC status, compliance with BDC regulation and such other factors as our Board may deemrelevant from time to time. We cannot assure you that we will pay distributions to our stockholders in the future. Further, if we invest a greater amount ofassets in equity securities that do not pay current dividends, the amount available for distribution could be reduced. 47  On an annual basis, we must determine the extent to which any distributions we made were paid out of current or accumulated earnings, recognizedcapital gains or capital. Distributions that represent a return of capital (which is the return of your original investment in us, after subtracting sales load, feesand expenses directly or indirectly paid by you) rather than a distribution from earnings or profits, reduce your basis in our stock for U.S. federal income taxpurposes, which may result in higher tax liability when the shares are sold, even if they have not increased in value or have lost value. Our common stock price may be volatile and may decrease substantially. The trading price of our common stock may fluctuate substantially and the liquidity of our common stock may be limited, in each case depending onmany factors, some of which are beyond our control and may not be directly related to our operating performance. These factors include the following: •price and volume fluctuations in the overall stock market or in the market for BDCs from time to time; •investor demand for our shares of common stock; •significant volatility in the market price and trading volume of securities of registered closed-end management investment companies, BDCs or otherfinancial services companies; •our inability to raise capital, borrow money or deploy or invest our capital; •fluctuations in interest rates; •any shortfall in revenue or net income or any increase in losses from levels expected by investors or securities analysts; •operating performance of companies comparable to us; •changes in regulatory policies or tax guidelines with respect to RICs or BDCs; •losing RIC status; •actual or anticipated changes in our earnings or fluctuations in our operating results; •changes in the value of our portfolio of investments; •general economic conditions, trends and other external factors; •departures of key personnel; or •loss of a major source of funding. We and our Advisor could be the target of litigation. We or our Advisor could become the target of securities class action litigation or other similar claims if our stock price fluctuates significantly or forother reasons. The outcome of any such proceedings could materially adversely affect our business, financial condition, and/or operating results and couldcontinue without resolution for long periods of time. Any litigation or other similar claims could consume substantial amounts of our management’s time andattention, and that time and attention and the devotion of associated resources could, at times, be disproportionate to the amounts at stake. Litigation andother claims are subject to inherent uncertainties, and a material adverse impact on our financial statements could occur for the period in which the effect ofan unfavorable final outcome in litigation or other similar claims becomes probable and reasonably estimable. In addition, we could incur expensesassociated with defending ourselves against litigation and other similar claims, and these expenses could be material to our earnings in future periods. 48  Shares of closed-end investment companies, including BDCs, frequently trade at a discount to their NAV, and we cannot assure you that the market priceof our common stock will not decline following an offering. We cannot predict the price at which our common stock will trade. Shares of closed-end investment companies, including BDCs, frequently trade at adiscount to their NAV and our stock may also be discounted in the market. This characteristic of closed-end investment companies is separate and distinctfrom the risk that our NAV per share may decline. We cannot predict whether shares of our common stock will trade above, at or below our NAV. In addition,if our common stock trades below its NAV, we will generally not be able to issue additional shares of our common stock at its market price without firstobtaining the approval of our stockholders and our independent directors. We currently invest a portion of our capital in high-quality short-term investments, which generate lower rates of return than those expected frominvestments made in accordance with our investment objective. We currently invest a portion of our capital in cash, cash equivalents, U.S. government securities, money market funds and other high-quality short-terminvestments. These securities may earn yields substantially lower than the income that we anticipate receiving once these proceeds are fully invested inaccordance with our investment objective. Investing in shares of our common stock may involve an above average degree of risk. The investments we make in accordance with our investment objective may result in a higher amount of risk, volatility or loss of principal thanalternative investment options. Our investments in portfolio companies may be highly speculative and aggressive, and therefore, an investment in ourcommon stock may not be suitable for investors with lower risk tolerance. Anti-takeover provisions in our charter documents and other agreements and certain provisions of the Delaware General Corporation Law, or DGCL,could deter takeover attempts and have an adverse impact on the price of our common stock. The DGCL, our certificate of incorporation and our bylaws contain provisions that may have the effect of discouraging a third party from making anacquisition proposal for us. Among other things, our certificate of incorporation and bylaws: •provide for a classified board of directors, which may delay the ability of our stockholders to change the membership of a majority of our Board; •authorize the issuance of “blank check” preferred stock that could be issued by our Board to thwart a takeover attempt; •do not provide for cumulative voting; •provide that vacancies on the Board, including newly created directorships, may be filled only by a majority vote of directors then in office; •limit the calling of special meetings of stockholders; •provide that our directors may be removed only for cause; •require supermajority voting to effect certain amendments to our certificate of incorporation and our bylaws; and •require stockholders to provide advance notice of new business proposals and director nominations under specific procedures. These anti-takeover provisions may inhibit a change in control in circumstances that could give the holders of our common stock the opportunity torealize a premium over the market price of our common stock. It is a default under our Key Facility if (i) a person or group of persons (within the meaning ofthe Exchange Act) acquires beneficial ownership of 20% or more of our issued and outstanding common stock or (ii) during any twelve-month period,individuals who at the beginning of such period constituted our Board cease for any reason, other than death or disability, to constitute a majority of thedirectors in office. If either event were to occur, Key could accelerate our repayment obligations under, and/or terminate, our Key Facility. 49  If we elect to issue preferred stock, holders of any such preferred stock will have the right to elect members of our Board and have class voting rights oncertain matters. The 1940 Act requires that holders of shares of preferred stock must be entitled as a class to elect two directors at all times and to elect a majority of thedirectors if distributions on such preferred stock are in arrears by two years or more, until such arrearage is eliminated. In addition, certain matters under the1940 Act require the separate vote of the holders of any issued and outstanding preferred stock, including changes in fundamental investment restrictions andconversion to open-end status and, accordingly, preferred stockholders could veto any such changes. Restrictions imposed on the declarations and paymentof distributions to the holders of our common stock and preferred stock, both by the 1940 Act and by requirements imposed by rating agencies, might impairour ability to maintain our qualification as a RIC for U.S. federal income tax purposes. Your interest in us may be diluted if you do not fully exercise your subscription rights in any rights offering. In addition, if the subscription price is lessthan our NAV per share, then you will experience an immediate dilution of the aggregate NAV of your shares. In the event we issue subscription rights, stockholders who do not fully exercise their rights should expect that they will, at the completion of a rightsoffering, own a smaller proportional interest in us than would otherwise be the case if they fully exercised their rights. Such dilution is not currentlydeterminable because it is not known what proportion of the shares will be purchased as a result of such rights offering. Any such dilution willdisproportionately affect nonexercising stockholders. If the subscription price per share is substantially less than the current NAV per share, this dilutioncould be substantial. In addition, if the subscription price is less than our NAV per share, our stockholders would experience an immediate dilution of the aggregate NAV oftheir shares as a result of such rights offering. The amount of any decrease in NAV is not predictable because it is not known at this time what the subscriptionprice and NAV per share will be on the expiration date of the rights offering or what proportion of the shares will be purchased as a result of such rightsoffering. Such dilution could be substantial. Investors in offerings of our common stock may incur immediate dilution upon the closing of an offering. If the public offering price for any offering of shares of our common stock is higher than the book value per share of our outstanding common stock,investors purchasing shares of common stock in any offering will pay a price per share that exceeds the tangible book value per share after such offering. If we sell common stock at a discount to our NAV per share, stockholders who do not participate in such sale will experience immediate dilution in anamount that may be material. The issuance or sale by us of shares of our common stock at a discount to NAV poses a risk of dilution to our current stockholders. In particular,stockholders who do not purchase additional shares at or below the discounted price in proportion to their current ownership will experience an immediatedecrease in NAV per share (as well as in the aggregate NAV of their shares if they do not participate at all). These stockholders will also experience adisproportionately greater decrease in their participation in our earnings and assets and their voting power than the increase we experience in our assets,potential earning power and voting interests from such issuance or sale. In addition, such sales may adversely affect the price at which our common stocktrades. Stockholders will experience dilution in their ownership percentage if they do not participate in our dividend reinvestment plan. All distributions payable to stockholders that are participants in our dividend reinvestment plan, or DRIP, are automatically reinvested in shares of ourcommon stock. As a result, stockholders that do not participate in the DRIP will experience dilution in their ownership interest over time. The trading market or market value of our publicly issued debt securities that we may issue may fluctuate. Upon issuance, any publicly issued debt securities that we may issue will not have an established trading market. We cannot assure you that a tradingmarket for our publicly issued debt securities will ever develop or, if developed, will be maintained. In addition to our creditworthiness, many factors maymaterially adversely affect the trading market for, and market value of, our publicly issued debt securities. These factors include: •the time remaining to the maturity of these debt securities; 50  •the outstanding principal amount of debt securities with terms identical to these debt securities; •the supply of debt securities trading in the secondary market, if any; •the redemption or repayment features, if any, of these debt securities; •the level, direction and volatility of market interest rates generally; and •market rate of interest higher or lower than the rate borne by the debt securities. You should also be aware that there may be a limited number of buyers when you decide to sell your debt securities. This too may materially adverselyaffect the market value of the debt securities or the trading market for the debt securities. Terms relating to redemption may materially adversely affect your return on the debt securities that we may issue. If we issue debt securities that are redeemable at our option, we may choose to redeem the debt securities at times when prevailing interest rates arelower than the interest rate paid on the debt securities. In addition, if such debt securities are subject to mandatory redemption, we may be required to redeemthe debt securities at times when prevailing interest rates are lower than the interest rate paid on the debt securities. In this circumstance, you may not be ableto reinvest the redemption proceeds in a comparable security at an effective interest rate as high as your debt securities being redeemed. Credit ratings provided by third party credit rating agencies may not reflect all risks of an investment in debt securities that we may issue. Credit ratings provided by third party credit rating agencies are an assessment by third parties of our ability to pay our obligations. Consequently, realor anticipated changes in our credit ratings will generally affect the market value of debt securities that we may issue. Credit ratings provided by third partycredit rating agencies, however, may not reflect the potential impact of risks related to market conditions generally or other factors discussed above on themarket value of or trading market for any publicly issued debt securities that we may issue. Sales in the public market of substantial amounts of our common stock may have an adverse effect on the market price of our common stock, and theregistration of a substantial amount of insider shares, whether or not actually sold, may have a negative impact on the market price of our common stock. Sales of substantial amounts of our common stock, or the availability of such common stock for sale, whether or not actually sold, could adverselyaffect the prevailing market price of our common stock. If this occurs and continues, it could impair our ability to raise additional capital through the sale ofequity securities should we desire to do so. Item 1B. Unresolved Staff Comments None Item 2. Properties We do not own any real estate or other physical properties materially important to our operation. Our headquarters and our Advisor’s headquarters arecurrently located at 312 Farmington Avenue, Farmington, Connecticut 06032. We believe that our office facilities are suitable and adequate to our business. Item 3. Legal Proceedings Neither we nor our Advisor is currently subject to any material legal proceedings. Item 4. Mine Safety Disclosures Not applicable 51  PART II Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Price range of common stock Our common stock is traded on NASDAQ, under the symbol “HRZN.” The following table sets forth, for each fiscal quarter since January 1, 2014, therange of high and low closing sales price of our common stock, the closing sales price as a percentage of our NAV and the distributions declared per share byus for each quarter. Premium/Discount ofHigh Sales Premium/Discount ofLow Sales DistributionsDeclared Closing Sales Price Price to Price to Per Period NAV(1) High Low NAV(2) NAV(2) Share (3) Year ended December 31, 2015 Fourth Quarter $13.85 $12.41 $9.32 (10)% (33)% $0.345(4)Third Quarter $13.94 $12.67 $9.05 (9)% (35)% $0.345 Second Quarter $13.99 $14.36 $12.56 3% (10)% $0.345 First Quarter $14.19 $14.39 $13.61 1% (4)% $0.345 Year ended December 31, 2014 Fourth Quarter $14.36 $14.27 $13.45 (1)% (6)% $0.345 Third Quarter $14.38 $14.72 $12.90 2% (10)% $0.345 Second Quarter $14.23 $14.89 $12.59 5% (12)% $0.345 First Quarter $14.32 $14.61 $12.43 2% (13)% $0.345 (1)NAV per share determined as of the last day in the relevant quarter and therefore may not reflect the NAV per share on the date of the high and lowsales prices. The NAVs shown are based on outstanding shares at the end of each period. (2)Calculated as of the respective high or low closing sales price divided by the quarter end NAV. (3)We have adopted an “opt out” DRIP for our common stockholders. As a result, if we declare a distribution, then stockholders’ cash distributions areautomatically reinvested in additional shares of our common stock, unless they specifically opt out of the DRIP so as to receive cash distributions. (4)$0.115 of which is payable on March 15, 2016. The last reported price for our common stock on March 1, 2016 was $11.16 per share. As of March 1, 2016 we had 13 stockholders of record, which didnot include stockholders for whom shares are held in nominee or “street” name. Shares of BDCs may trade at a market price that is less than the NAV that is attributable to those shares. The possibility that our shares of common stockwill trade at a discount from NAV or at a premium that is unsustainable over the long term is separate and distinct from the risk that our NAV will decrease. Itis not possible to predict whether our shares will trade at, above or below NAV in the future. Sales of unregistered securities We did not engage in any sales of unregistered equity securities during the years ended December 31, 2015, 2014 and 2013. 52  Issuer Purchases of Equity Securities The following table provides information regarding our purchases of our common stock for each month in the three month period ended December 31,2015: Period TotalNumber of Shares Purchased Average PricePaid per Share Total Numberof Shares Purchased asPart of Publicly AnnouncedPlans or Programs(1) ApproximateDollar Value of Shares that MayYet BePurchased Underthe Plans or Programs (In thousands, except share and per share data) October 1, 2015 through October 31, 2015 — $— — $5,000 November 1, 2015 through November 30, 2015 22,982 11.23 22,982 $4,742 December 1, 2015 through December 31, 2015 90,400 11.60 90,400 $3,693 Total 113,382 $11.53 113,382 (1)On September 28, 2015, we announced a share repurchase plan which allows us to repurchase up to $5.0 million of our outstanding common stock.Unless extended by our board of directors, the repurchase program will expire on the earlier of September 30, 2016 and the repurchase of $5.0million of common stock. Distributions We intend to continue making monthly distributions to our stockholders. The timing and amount of our monthly distributions, if any, is determined byour Board. Any distributions to our stockholders are declared out of assets legally available for distribution. We monitor available net investment income todetermine if a tax return of capital may occur for the fiscal year. To the extent our taxable earnings fall below the total amount of our distributions for anygiven fiscal year, a portion of those distributions may be deemed to be a return of capital to our common stockholders for U.S. federal income tax purpose.Thus, the source of distribution to our stockholders may be the original capital invested by the stockholder rather than our income or gains. Stockholdersshould read any written disclosure accompanying a distribution payment carefully and should not assume that the source of any distribution is our ordinaryincome or gains. In order to qualify as a RIC, we must meet certain source-of-income, asset diversification and annual distribution requirements. Generally, in order toqualify as a RIC, we must derive at least 90% of our gross income during each tax year from dividends, interest, payments with respect to certain securities,loans, gains from the sale or other disposition of stock, securities or foreign currencies, or other income derived with respect to its business of investing instock or other securities. We must also meet certain asset diversification requirements at the end of each quarter of each tax year. Failure to meet thesediversification requirements on the last day of a quarter may result in us having to dispose of certain investments quickly in order to prevent the loss of RICstatus. Any such dispositions could be made at disadvantageous prices or times, and may cause us to incur substantial losses. In addition, in order to be eligible for the special tax treatment accorded to RICs and to avoid corporate level tax on the income and gains we distributeto our stockholders, each tax year we are required under the Code to distribute as dividends of an amount generally at least 90% of our investment companytaxable income to our stockholders. We refer to such amount as the Annual Distribution Requirement in this annual report on Form 10-K. Additionally, wemust distribute, in respect of each calendar year, dividends of an amount generally at least equal to the sum of 98% of our calendar year net ordinary income(taking into account certain deferrals and elections); 98.2% of our capital gain net income (adjusted for certain ordinary losses) for the one year period endingon October 31 of such calendar year; and any net ordinary income and capital gain net income for preceding years that were not distributed during such yearsand on which we previously paid no U.S. federal income tax to avoid a U.S. federal excise tax. If we fail to qualify as a RIC for any reason and become subjectto corporate tax, the resulting corporate taxes could substantially reduce our net assets, the amount of income available for distribution and the amount of ourdistributions. Such a failure would have a material adverse effect on us and our stockholders. In addition, we could be required to recognize unrealized gains,pay substantial taxes and interest and make substantial distributions in order to re-qualify as a RIC. We cannot assure stockholders that they will receive anydistributions. 53  Depending on the level of taxable income earned in a tax year, we may choose to carry forward taxable income in excess of current year distributionsinto the next tax year and pay a 4% excise tax on such undistributed income. Distributions of any such carryover taxable income must be made through adistribution declared as of the earlier of the filing date of the corporate income tax return related to the tax year in which such taxable income was generatedor the 15th day of the ninth month following the end of such tax year, in order to count towards the satisfaction of the Annual Distribution Requirement forthe tax year in which such taxable income was generated. We can offer no assurance that we will achieve results that will permit the payment of any cashdistributions and, if we issue senior securities, we may be prohibited from making distributions if doing so causes us to fail to maintain the asset coveragestipulated by the 1940 Act or if distributions are limited by the terms of any of our borrowings. See “Item 1. Business — Regulation — Taxation as a RIC.” We have adopted an “opt out” DRIP for our common stockholders. As a result, if we make a distribution, then stockholders’ cash distributions areautomatically reinvested in additional shares of our common stock, unless they specifically opt out of the DRIP. If a stockholder opts out, that stockholderreceives cash distributions. Although distributions paid in the form of additional shares of common stock are generally subject to U.S. federal, state and localtaxes, stockholders participating in our DRIP do not receive any corresponding cash distributions with which to pay any such applicable taxes. We may usenewly issued shares to implement the DRIP, or we may purchase shares in the open market in connection with our obligations under the DRIP. The following table reflects the monthly cash distributions, including dividends and returns of capital per share that our Board has declared sinceJanuary 1, 2014, including shares issued under our DRIP, on our common stock: RecordDates Payment Date DistributionsDeclared Year ended December 31, 2015 February 22, 2016 March 15, 2016 $0.115 January 21, 2016 February 17, 2016 0.115 December 18, 2015 January 15, 2016 0.115 November 19, 2015 December 15, 2015 0.115 October 20, 2015 November 16, 2015 0.115 September 18, 2015 October 15, 2015 0.115 August 19, 2015 September 15, 2015 0.115 July 20, 2014 August 14, 2015 0.115 June 18, 2015 July 15, 2015 0.115 May 20, 2015 June 15, 2015 0.115 April 20, 2015 May 15, 2015 0.115 March 20, 2015 April 15, 2015 0.115 Total $1.380 Year ended December 31, 2014 February 19, 2015 March 16, 2015 $0.115 January 20, 2015 February 13, 2015 0.115 December 17, 2014 January 15, 2015 0.115 November 19, 2014 December 15, 2014 0.115 October 20, 2014 November 17, 2014 0.115 September 18, 2014 October 15, 2014 0.115 August 19, 2014 September 15, 2014 0.115 July 21, 2014 August 15, 2014 0.115 June 18, 2014 July 17, 2014 0.115 May 20, 2014 June 16, 2014 0.115 April 17, 2014 May 15, 2014 0.115 March 19, 2014 April 15, 2014 0.115 Total $1.380 On March 3, 2016, our Board declared distributions as set forth in the following table: Ex-Dividend Date Record Date Payment Date Distributions DeclaredMay 17, 2016 May 19, 2016 June 15, 2016 $0.115April 18, 2016 April 20, 2016 May 16, 2016 $0.115March 16, 2016 March 18, 2016 April 15, 2016 $0.115 54  Stock performance graph The following graph compares the return on our common stock with that of the Standard & Poor’s 500 Stock Index, the NASDAQ Financial-100 Indexand the S&P BDC Index, for the period from October 29, 2010 (the date that our common stock was first listed on NASDAQ) through December 31, 2015. Thegraph assumes that, on October 29, 2010, a person invested $100 in each of our common stock, the S&P 500 Index, the NASDAQ Financial-100 Index andthe S&P BDC Index. The graph measures total stockholder return, which takes into account both changes in stock price and distributions. It assumes thatdistributions paid are invested in like securities. The graph and other information furnished under this Part II Item 5 of Form 10-K shall not be deemed to be“soliciting material” or to be “filed” with the SEC or subject to Regulation 14A or 14C, or to the liabilities of Section 18 of the Exchange Act. The stockprice performance included in this graph is not necessarily indicative of future stock price performance. 55  Item 6. Selected Financial Data The following selected consolidated financial data of the Company as of December 31, 2015, 2014, 2013, 2012, and 2011, and for the years endedDecember 31, 2015, 2014, 2013, 2012 and 2011 are derived from the consolidated financial statements that have been audited by RSM US LLP, anindependent registered public accounting firm. These selected financial data should be read in conjunction with our financial statements and related notesthereto and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” As of and for the years ended December 31, (In thousands, except per share data) 2015 2014 2013 2012 2011 Statement of Operations Data: Total investment income $31,110 $31,254 $33,643 $26,664 $24,054 Base management fee 4,747 4,648 5,353 4,208 4,192 Performance based incentive fee 3,501 2,112 3,318 2,847 3,013 All other expenses 9,212 13,962 11,605 7,382 6,127 Base management and performance based incentivefees waived (346) (345) (144) — — Net investment income before excise tax 13,996 10,877 13,511 12,227 10,722 Provision for excise tax — 160 240 231 211 Net investment income 13,996 10,717 13,271 11,996 10,511 Net realized (loss) gain on investments (1,650) (3,576) (7,509) 108 6,316 Provision for excise tax — — — — 129 Net unrealized (depreciation) appreciation oninvestments (490) 8,289 (2,254) (8,113) (5,702)Net increase in net assets resulting from operations $11,856 $15,430 $3,508 $3,991 $10,996 Per Share Data: Net asset value $13.85 $14.36 $14.14 $15.15 $17.01 Net investment income 1.25 1.11 1.38 1.41 1.38 Net realized (loss) gain on investments (0.15) (0.37) (0.78) 0.01 0.81 Net change in unrealized (depreciation) appreciationon investments (0.04) 0.86 (0.23) (0.95) (0.75)Net increase in net assets resulting from operations 1.06 1.60 0.37 0.47 1.44 Per share distributions declared 1.38 1.38 1.38 2.15 1.18 Dollar amount of distributions declared $15,793 $13,282 $13,236 $18,777 $8,983 Statement of Assets and Liabilities Data at PeriodEnd: Investments, at fair value $250,267 $205,101 $221,284 $228,613 $178,013 Other assets 31,221 20,095 42,453 11,045 19,798 Total assets 281,488 225,196 263,737 239,658 197,811 Borrowings 115,546 81,753 122,343 89,020 64,571 Total liabilities 121,737 86,948 127,902 94,686 67,927 Total net assets $159,751 $138,248 $135,835 $144,972 $129,884 Other data: Weighted annualized yield on income producinginvestments at fair value 14.2% 15.3% 14.4% 14.2% 14.6%Number of portfolio companies at period end: Debt investments 52 50 49 45 38 Warrants investments 83 75 73 62 47 Equity investments 6 4 4 2 3 56  Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations The information contained in this section should be read in conjunction with our consolidated financial statements and related notes theretoappearing elsewhere in this annual report on Form 10-K. Forward-looking statements This annual report on Form 10-K, including the Management’s Discussion and Analysis of Financial Condition and Results of Operations, containsstatements that constitute forward-looking statements, which relate to future events or our future performance or financial condition. These forward-lookingstatements are not historical facts, but rather are based on current expectations, estimates and projections about our industry, our beliefs and our assumptions.The forward-looking statements contained in this annual report on Form 10-K involve risks and uncertainties, including statements as to: •our future operating results, including the performance of our existing debt investments and warrants;•the introduction, withdrawal, success and timing of business initiatives and strategies;•changes in political, economic or industry conditions, the interest rate environment or financial and capital markets, which could result in changes inthe value of our assets;•the relative and absolute investment performance and operations of our Advisor;•the impact of increased competition;•the impact of investments we intend to make and future acquisitions and divestitures;•the unfavorable resolution of legal proceedings;•our business prospects and the prospects of our portfolio companies;•the impact, extent and timing of technological changes and the adequacy of intellectual property protection;•our regulatory structure and tax status;•our ability to qualify and maintain qualification as a RIC and as a BDC;•the adequacy of our cash resources and working capital;•the timing of cash flows, if any, from the operations of our portfolio companies;•the impact of interest rate volatility on our results, particularly if we use leverage as part of our investment strategy;•the ability of our portfolio companies to achieve their objective;•the impact of legislative and regulatory actions and reforms and regulatory supervisory or enforcement actions of government agencies relating to usor our Advisor;•our contractual arrangements and relationships with third parties;•our ability to access capital and any future financings by us;•the ability of our Advisor to attract and retain highly talented professionals; and•the impact of changes to tax legislation and, generally, our tax position. We use words such as “anticipates,” “believes,” “expects,” “intends,” “seeks” and similar expressions to identify forward-looking statements. Undueinfluence should not be placed on the forward looking statements as our actual results could differ materially from those projected in the forward-lookingstatements for any reason, including the factors in “Item 1A – Risk Factors” and elsewhere in our annual report on Form 10-K. We have based the forward-looking statements included in this report on information available to us on the date of this report, and we assume noobligation to update any such forward-looking statements. Although we undertake no obligation to revise or update any forward-looking statements in thisannual report on Form 10-K, whether as a result of new information, future events or otherwise, you are advised to consult any additional disclosures that wemay make directly to you or through reports that we in the future may file with the SEC, including periodic reports on Form 10-Q and current reports onForm 8-K. You should understand that under Sections 27A(b)(2)(B) and (D) of the Securities Act and Sections 21E(b)(2)(B) and (D) of the Exchange Act, the “safeharbor” provisions of the Private Securities Litigation Reform Act of 1995 do not apply to statements made in connection with this annual report on Form 10-K or any periodic reports we file under the Exchange Act. Overview We are a specialty finance company that lends to and invests in development-stage companies in our Target Industries. Our investment objective is togenerate current income from the debt investments we make and capital appreciation from the warrants we receive when making such debt investments. Weare focused on making Venture Loans to venture capital backed companies in our Target Industries, which we refer to as “Venture Lending.” We alsoselectively lend to publicly traded companies in our Target Industries. Venture Lending is typically characterized by (1) the making of a secured debtinvestment after a venture capital or equity investment in the portfolio company has been made, which investment provides a source of cash to fund theportfolio company’s debt service obligations under the Venture Loan, (2) the senior priority of the Venture Loan which requires repayment of the VentureLoan prior to the equity investors realizing a return on their capital, (3) the relatively rapid amortization of the Venture Loan and (4) the lender’s receipt ofwarrants or other success fees with the making of the Venture Loan. 57  We are an externally managed, closed-end, non-diversified management investment company that has elected to be regulated as a BDC under the 1940Act. In addition, for U.S. federal income tax purposes, we have elected to be treated as a RIC under Subchapter M of the Code. As a BDC, we are required tocomply with regulatory requirements, including limitations on our use of debt. We are permitted to, and expect to, finance our investments throughborrowings. However, as a BDC, we are only generally allowed to borrow amounts such that our asset coverage, as defined in the 1940 Act, equals at least200% after such borrowing. The amount of leverage that we employ depends on our assessment of market conditions and other factors at the time of anyproposed borrowing. As a RIC, we generally do not have to pay corporate-level federal income taxes on our investment company taxable income and netcapital gain that we distribute to our stockholders as long as we meet certain source-of-income, distribution, asset diversification and other requirements. Compass Horizon, our predecessor company, commenced operations in March 2008. We were formed in March 2010 for the purpose of acquiringCompass Horizon and continuing its business as a public entity. Our investment activities, and our day-to-day operations, are managed by our Advisor and supervised by our Board, of which a majority of the membersare independent of us. Under the Investment Management Agreement, we have agreed to pay our Advisor a base management fee and an incentive fee for itsadvisory services to us. We have also entered into the Administration Agreement with our Advisor under which we have agreed to reimburse our Advisor forour allocable portion of overhead and other expenses incurred by our Advisor in performing its obligations under the Administration Agreement. Portfolio composition and investment activity The following table shows our portfolio by type of investment as of December 31, 2015 and 2014: December 31, 2015 December 31, 2014 Number ofInvestments FairValue Percentageof TotalPortfolio Number ofInvestments FairValue Percentageof TotalPortfolio (Dollars in thousands) Term loans 52 $242,167 96.8% 49 $189,127 92.2%Revolving loans — — — 1 10,053 4.9 Total loans 52 242,167 96.8 50 199,180 97.1 Warrants 83 6,645 2.6 75 4,603 2.2 Other investments 1 300 0.1 1 300 0.2 Equity 6 1,155 0.5 4 1,018 0.5 Total $250,267 100.0% $205,101 100.0% 58  The following table shows total portfolio investment activity as of and for the years ended December 31, 2015 and 2014: December 31, 2015 2014 (In thousands) Beginning portfolio $205,101 $221,284 New debt investments 123,281 95,323 Principal payments received on investments (27,016) (42,830)Early pay-offs (47,624) (66,675)Accretion of debt investment fees 1,350 2,339 New debt investment fees (1,147) (1,392)New equity 101 12 Sale of investments (1,669) (7,673)Net realized loss on investments (1,620) (3,576)Net (depreciation) appreciation on investments (490) 8,289 Ending portfolio $250,267 $205,101 We receive payments on our debt investments based on scheduled amortization of the outstanding balances. In addition, we receive repayments of someof our debt investments prior to their scheduled maturity date. The frequency or volume of these repayments may fluctuate significantly from period toperiod. The following table shows our debt investments by industry sector as of December 31, 2015 and 2014: December 31, 2015 December 31, 2014 DebtInvestmentsat Fair Value Percentageof TotalPortfolio DebtInvestmentsat Fair Value Percentageof TotalPortfolio (Dollars in thousands) Life Science Biotechnology $36,005 14.9% $21,253 10.7%Medical Device 22,472 9.2 22,225 11.2 Technology Communications 19,511 8.1 17,732 8.9 Consumer-Related 18,268 7.5 6,337 3.2 Materials 9,825 4.1 — — Networking 693 0.3 981 0.5 Power Management 2,456 1.0 — — Semiconductors 18,237 7.5 30,355 15.2 Software 59,664 24.6 53,583 26.9 Cleantech Alternative Energy 2,849 1.2 8,009 4.0 Consumer-Related — — 396 0.2 Energy Efficiency 3,227 1.3 4,414 2.2 Waste Recycling 5,936 2.5 — — Healthcare Information and Services Diagnostics 7,247 3.0 17,637 8.8 Other 8,236 3.4 6,946 3.5 Software 27,541 11.4 9,312 4.7 Total $242,167 100.0% $199,180 100.0% The largest debt investments in our portfolio may vary from year to year as new debt investments are originated and existing debt investments arerepaid. Our five largest debt investments represented 21% and 24% of total debt investments outstanding as of December 31, 2015 and 2014, respectively.No single debt investment represented more than 10% of our total debt investments as of December 31, 2015 or 2014. 59  Debt investment asset quality We use an internal credit rating system which rates each debt investment on a scale of 4 to 1, with 4 being the highest credit quality rating and 3 beingthe rating for a standard level of risk. A rating of 2 represents an increased level of risk and, while no loss is currently anticipated for a 2-rated debtinvestment, there is potential for future loss of principal. A rating of 1 represents a deteriorating credit quality and a high degree of risk of loss of principal.Our internal credit rating system is not a national credit rating system. See “Item 1 – Business” for a more detailed description of the internal credit ratingsystem. As of December 31, 2015 and 2014, our debt investments had a weighted average credit rating of 3.0 and 3.1, respectively. The following table showsthe classification of our debt investment portfolio by credit rating as of December 31, 2015 and December 31, 2014: December 31, 2015 December 31, 2014 Number ofInvestments Debt Investmentsat Fair Value Percentageof DebtInvestments Number ofInvestments DebtInvestmentsat Fair Value Percentageof DebtInvestments (Dollars in thousands) Credit Rating 4 7 $23,603 9.8% 9 $44,082 22.1%3 37 199,185 82.2 36 138,109 69.4 2 7 18,879 7.8 3 11,746 5.9 1 1 500 0.2 2 5,243 2.6 Total 52 $242,167 100.0% 50 $199,180 100.0% As of December 31, 2015, there was one debt investment with an internal credit rating of 1, with a cost of $2.7 million and a fair value of $0.5 million.As of December 31, 2014, there were two debt investments with an internal credit rating of 1, with an aggregate cost of $5.4 million and an aggregate fairvalue of $5.2 million. Consolidated results of operations As a BDC and a RIC, we are subject to certain constraints on our operations, including limitations imposed by the 1940 Act and the Code. Theconsolidated results of operations described below may not be indicative of the results we report in future periods. The following table shows consolidated results of operations for the years ended December 31, 2015, 2014 and 2013: 2015 2014 2013 (In thousands) Total investment income $31,110 $31,254 $33,643 Total net expenses 17,114 20,377 20,132 Net investment income before excise tax 13,996 10,877 13,511 Provision for excise tax — 160 240 Net investment income 13,996 10,717 13,271 Net realized loss on investments (1,650) (3,576) (7,509)Net unrealized (depreciation) appreciation on investments (490) 8,289 (2,254)Net increase in net assets resulting from operations $11,856 $15,430 $3,508 Average debt investments, at fair value $219,848 $204,862 $233,045 Average borrowings outstanding $87,976 $102,754 $115,562 Net increase in net assets resulting from operations can vary substantially from period to period for various reasons, including the recognition ofrealized gains and losses and unrealized appreciation and depreciation on investments. As a result, annual comparisons of net increase in net assets resultingfrom operations may not be meaningful. 60  Investment income Total investment income remained flat at $31.1 million for the year ended December 31, 2015 as compared to the year ended December 31, 2014. Forthe year ended December 31, 2015, total investment income consisted primarily of $28.7 million in interest income from investments, which included$4.5 million in income from the accretion of origination fees and ETPs, and $2.5 million in income from fees. Interest income on investments remained flat at$28.7 million for the year ended December 31, 2015 as compared to the year ended December 31, 2014, as the increase in the average size of our investmentportfolio of $15.0 million, or 7.3%, was offset by lower acceleration of fees and ETPs from prepayments. Other income, which includes prepayment feeincome and fee income on debt investments, decreased by $0.2 million, or 6.0%, primarily due to a lower aggregate amount of principal prepayments for theyear ended December 31, 2015. Total investment income decreased by $2.4 million, or 7.1%, to $31.2 million for the year ended December 31, 2014 as compared to the year endedDecember 31, 2013. For the year ended December 31, 2014, total investment income consisted primarily of $28.6 million in interest income frominvestments, which included $6.0 million in income from the accretion of origination fees and ETPs, and $2.6 million of fee income. Interest income oninvestments decreased by $3.3 million, or 10.2%, for the year ended December 31, 2014 as compared to the year ended December 31, 2013. Interest incomeon investments decreased primarily due to a decrease of $28.2 million, or 12.1%, in the average size of our investment portfolio. Other income, whichincludes prepayment fee income and fee income on debt investments, increased by $0.9 million, or 50.5% primarily due to a larger aggregate amount ofprincipal prepayments for the year ended December 31, 2014. For the years ended December 31, 2015, 2014 and 2013, our dollar-weighted annualized yield on average debt investments was 14.2%, 15.3% and14.4%, respectively. We calculate the yield on dollar-weighted average debt investments for any period measured as (1) total investment income during theperiod divided by (2) the average of the fair value of debt investments outstanding on (a) the last day of the calendar month immediately preceding the firstday of the period and (b) the last day of each calendar month during the period. The dollar-weighted annualized yield represents the portfolio yield and willbe higher than what investors will realize because it does not reflect our expenses or any sales load paid by investors. Investment income, consisting of interest income and fees on debt investments, can fluctuate significantly upon repayment of large debt investments.Interest income from the five largest debt investments in the aggregate accounted for 14%, 20% and 23% of investment income for the years ended December31, 2015, 2014 and 2013, respectively. Expenses Total net expenses decreased by $3.3 million, or 16.0%, to $17.1 million for the year ended December 31, 2015 as compared to the year endedDecember 31, 2014. Total net expenses increased by $0.2 million, or 1.2%, to $20.4 million for the year ended December 31, 2014 as compared to the yearended December 31, 2013. Total expenses for each period consisted principally of interest expense, base management fee, incentive and administrative fees,professional fees and general and administrative expenses. Interest expense decreased by $3.0 million, or 33.9%, to $5.8 million for the year ended December 31, 2015 as compared to the year endedDecember 31, 2014. Interest expense, which includes the amortization of debt issuance costs, decreased primarily due to a decrease in average borrowings of$14.8 million, or 14.4%, along with a decrease in our effective cost of debt. Interest expense increased by $0.6 million, or 7.2%, to $8.7 million for the yearended December 31, 2014 as compared to the year ended December 31, 2013. Interest expense increased primarily due to the acceleration of $1.1 million ofunamortized debt issuance costs and a $0.8 million prepayment fee related to the termination of our Term Loan Facility, offset by a decrease in averageborrowings of $12.8 million, or 11.1%. Base management fee expense, net of waivers, remained flat at $4.4 million for the year ended December 31, 2015 as compared to the year endedDecember 31, 2014. Base management fee expense remained flat primarily due to our Advisor’s waiver of base management fees of $0.3 million relating tothe proceeds raised in the public offering of our common stock that closed on March 24, 2015, offset by an increase in our average gross assets of $6.4million, or 2.6%. Base management fee expense decreased by $0.8 million, or 15.3%, to $4.4 million for the year ended December 31, 2014 as compared tothe year ended December 31, 2013. Base management fee expense decreased primarily due to (i) a decrease in average gross assets of $19.6 million, or 7.4%,(ii) our Advisor’s waiver of base management fees of $0.2 million, and (iii) as of July 1, 2014, the base management fee was calculated on gross assets lesscash and cash equivalents. As noted above, our Advisor agreed to waive its base management fee relating to the proceeds raised in the public offering of our common stock thatclosed on March 24, 2015, to the extent such fee is not otherwise waived and regardless of the application of the proceeds raised, until the earlier to occur of(i) March 31, 2016 or (ii) the last day of the second consecutive calendar quarter in which our net investment income exceeds distributions declared on sharesof our common stock for the applicable quarter. During the year ended December 31, 2015, our Advisor waived $0.3 million of base management fees. As ofDecember 31, 2015, condition (ii) above has been met, as our net investment income exceeded distributions declared for the quarters ended September 30,2015 and December 31, 2015. 61  Performance based incentive fee expense, net of waivers, increased by $1.5 million, or 74.6%, to $3.5 million for the year ended December 31, 2015 ascompared to the year ended December 31, 2014. Performance based incentive fee expense increased primarily due to higher Pre-Incentive Fee Net InvestmentIncome. Performance based incentive fee decreased by $1.3 million, or 39.6%, to $2.0 million for the year ended December 31, 2014 as compared to the yearended December 31, 2013. Performance based incentive fee decreased primarily due to lower Pre-Incentive Fee Net Investment Income. In 2015 and 2014, we elected to carry forward taxable income in excess of current year distributions into the next tax year and pay a 4% excise tax onsuch income. For the years ended December 31, 2015 and 2014, the Company elected to carry forward taxable income in excess of current year distributionsof $1.3 million and $4.0 million, respectively. At December 31, 2015, no excise tax payable was recorded. At December 31, 2014, an excise tax payable of$0.2 million was recorded. Professional fees and general and administrative expenses primarily include legal and audit fees and insurance premiums. These expenses for the yearended December 31, 2015 decreased compared to the year ended December 31, 2014 due to decreased legal fees and other costs associated with certain non-accrual investments and other assets. Net realized gains and losses and net unrealized appreciation and depreciation Realized gains or losses on investments are measured by the difference between the net proceeds from the repayment or sale and the cost basis of ourinvestments without regard to unrealized appreciation or depreciation previously recognized. Realized gains or losses on investments include investmentscharged off during the period, net of recoveries. The net change in unrealized appreciation or depreciation on investments primarily reflects the change inportfolio investment fair values during the reporting period, including the reversal of previously recorded unrealized appreciation or depreciation when gainsor losses are realized. During the year ended December 31, 2015, we realized net losses totaling $1.7 million primarily due to the resolution of one debt investment partiallyoffset by realized gains on the sale of warrants. The debt investment was settled for a net cash payment of $4.9 million, which resulted in a realized loss of$1.8 million and unrealized appreciation of $1.8 million. During the year ended December 31, 2014, we realized net losses totaling $3.6 million primarilydue to the resolution of three debt investments which were partially offset by realized gains on the sale of equity received upon the exercise of warrants. As aresult of the resolution of the three debt investments, we recognized $5.0 million of realized net losses and $7.6 million of unrealized appreciation. Duringthe year ended December 31, 2013, we realized losses totaling $7.5 million primarily due to the resolution of two debt investments. During the year ended December 31, 2015, net unrealized depreciation on investments totaled $0.5 million which was primarily due to the unrealizeddepreciation on one debt investment offset by the reversal of previously recorded unrealized depreciation on one debt investment that was settled during theperiod, described above. During the year ended December 31, 2014, net unrealized appreciation on investments totaled $8.3 million which was primarily dueto the reversal of previously recorded unrealized depreciation on four debt investments. During the year ended December 31, 2013, net unrealizeddepreciation on investments totaled $2.3 million which was primarily due to the unrealized depreciation on debt investments offset by the reversal ofpreviously recorded unrealized depreciation on debt investments that were settled in the period. Liquidity and capital resources As of December 31, 2015 and 2014, we had cash and investments in money market funds of $21.1 million and $8.4 million, respectively. Cash andinvestments in money market funds are available to fund new investments, reduce borrowings, pay expenses, repurchase common stock and pay distributions.In addition, as of December 31, 2015 and 2014, we had $1.1 million and $2.9 million, respectively, of restricted investments in money market funds.Restricted investments in money market funds may be used to make monthly interest and principal payments on our Asset-Backed Notes. Our primarysources of capital have been from our private and public equity offerings, use of our revolving credit facilities and issuance of our 2019 Notes and the Asset-Backed Notes. 62  On March 24, 2015, we completed a public offering of 2.0 million shares of common stock for net proceeds of $26.5 million, after deductingunderwriting commission and discounts and other offering expenses, or the 2015 Offering. We generally used the net proceeds from this offering to makeinvestments, to repurchase or pay down liabilities and for general corporate purposes. On September 28, 2015, our Board authorized a stock repurchase program which allows us to repurchase up to $5.0 million of our common stock atprices below our net asset value per share as reported in our most recent consolidated financial statements. Under the repurchase program, we may, but are notobligated to, repurchase shares of our outstanding common stock in the open market or in privately negotiated transactions from time to time. Anyrepurchases by us will comply with the requirements of Rule 10b-18 under the Exchange Act and any applicable requirements of the 1940 Act. Unlessextended by our Board, the repurchase program will terminate on the earlier of September 30, 2016 or the repurchase of $5.0 million of our common stock.During the quarter ended December 31, 2015, we repurchased 113,382 shares of our common stock at an average price of $11.53 on the open market for atotal cost of $1.3 million. At December 31, 2015 and 2014, the outstanding principal balance under the Key Facility was $68.0 million and $10.0 million, respectively. As ofDecember 31, 2015 and 2014, we had borrowing capacity under the Key Facility of $2.0 million and $40.0 million, respectively. At December 31, 2015 and2014, $2.0 million and $35.6 million, respectively, was available, subject to existing terms and advance rates. Our operating activities used cash of $31.3 million for the year ended December 31, 2015, and our financing activities provided cash of $43.7 millionfor the same period. Our operating activities used cash primarily for investments made in portfolio companies, partially offset by principal payments receivedon our debt investments. Our financing activities provided cash primarily from the 2015 Offering and advances on our Key Facility of $58.0 million, whichwas partially offset by cash used to pay down our Asset-Backed Notes, pay distributions to our stockholders and repurchase common stock under the stockrepurchase program. Our operating activities provided cash of $36.7 million for the year ended December 31, 2014, and our financing activities used cash of $53.6 millionfor the same period. Our operating activities provided cash primarily from principal payments received on debt investments, partially offset by investmentsmade in portfolio companies. Our financing activities used cash primarily to pay down borrowings and pay distributions to our stockholders. Our operating activities provided cash of $6.5 million for the year ended December 31, 2013, and our financing activities provided cash of $17.8million for the same period. Our operating activities provided cash primarily from principal payments received on debt investments, offset by investmentsmade in portfolio companies. Our financing activities provided cash primarily from the issuance of our Asset-Backed Notes. This increase from investingactivities was partially offset by repayments of $56.7 million of borrowings and $12.6 million of distributions paid to our stockholders. Our primary use of available funds is to make debt investments in portfolio companies and for general corporate purposes. We expect to raise additionalequity and debt capital opportunistically as needed, and subject to market conditions, to support our future growth to the extent permitted by the 1940 Act. In order to satisfy the Code requirements applicable to a RIC, we intend to distribute to our stockholders all or substantially all of our investmentcompany taxable income. In addition, as a BDC, we are required to maintain asset coverage of at least 200%. This requirement limits the amount that we mayborrow. We believe that our current cash and investments in money market funds, cash generated from operations, and funds available from our Key Facilitywill be sufficient to meet our working capital and capital expenditure commitments for at least the next 12 months. 63  Current borrowings The following table shows our borrowings as of December 31, 2015 and 2014: December 31, 2015 December 31, 2014 TotalCommitment BalanceOutstanding UnusedCommitment TotalCommitment BalanceOutstanding UnusedCommitment (In thousands) Asset-Backed Notes $14,546 $14,546 $— $38,753 $38,753 $— Key Facility 70,000 68,000 2,000 50,000 10,000 40,000 2019 Notes 33,000 33,000 — 33,000 33,000 — Total $117,546 $115,546 $2,000 $121,753 $81,753 $40,000 On November 4, 2013, through our wholly owned subsidiary, Credit II, we renewed and amended our revolving credit facility which, among otherthings, assigned all rights and obligations of Wells Fargo Capital Finance LLC under the facility to Key. On August 12, 2015, we further amended the KeyFacility to (1) add a $20 million commitment to the existing $50 million commitment and (2) extend the term of the Key Facility. The interest rate on the KeyFacility is based upon the one-month London Interbank Offered Rate, or LIBOR, plus a spread of 3.25%, with a LIBOR floor of 0.75%. Based on a LIBORrate of 0.43% and 0.17% on December 31, 2015 and 2014, respectively, the interest rate was 4.00% as of December 31, 2015 and 2014. The Key Facility has an accordion feature which allows for an increase in the total loan commitment to $150 million from the current $70 millioncommitment. The Key Facility is collateralized by debt investments held by Credit II and permits an advance rate of up to fifty percent (50%) of eligible debtinvestments held by Credit II. The Key Facility contains covenants that, among other things, require us to maintain a minimum net worth, to restrict the debtinvestments securing the Key Facility to certain criteria for qualified debt investments and to comply with portfolio company concentration limits as definedin the related loan agreement. We may request advances under the Key Facility through August 12, 2018, or the Revolving Period. After the RevolvingPeriod, we may not request new advances, and we must repay the outstanding advances under the Key Facility as of such date, at such times and in suchamounts as are necessary to maintain compliance with the terms and conditions of the Key Facility, particularly the condition that the principal balance ofthe Key Facility not exceed fifty percent (50%) of the aggregate principal balance of our eligible debt investments to our portfolio companies. Alloutstanding advances under the Key Facility are due and payable on August 12, 2020. On March 23, 2012, we issued and sold an aggregate principal amount of $30 million 2019 Notes, and on April 18, 2012, pursuant to the underwriters’30-day option to purchase additional notes, we sold an additional $3 million of the 2019 Notes. The 2019 Notes will mature on March 15, 2019 and may beredeemed in whole or in part at our option at any time or from time to time at a redemption price of $25 per security plus accrued and unpaid interest. The2019 Notes bear interest at a rate of 7.375% per year payable quarterly on March 15, June 15, September 15 and December 15 of each year. The 2019 Notesare our direct, unsecured obligations and (1) rank equally in right of payment with our future unsecured indebtedness; (2) are senior in right of payment toany of our future indebtedness that expressly provides it is subordinated to the 2019 Notes; (3) are effectively subordinated to all of our existing and futuresecured indebtedness (including indebtedness that is initially unsecured to which we subsequently grant security), to the extent of the value of the assetssecuring such indebtedness and (4) are structurally subordinated to all existing and future indebtedness and other obligations of any of our subsidiaries. As ofDecember 31, 2015, we were in material compliance with the terms of the 2019 Notes. The 2019 Notes are listed on the NYSE under the symbol “HTF”. We, through our wholly owned subsidiary, Horizon Credit III LLC, a Delaware limited liability company, entered into the Term Loan Facility, onAugust 23, 2012. The interest rate on the Term Loan Facility was based upon the one-month LIBOR plus a spread of 6.00%, with a LIBOR floor of 1.00% andprovided for a four-year drawing period. The Term Loan Facility contained customary covenants for a facility of its type. Effective June 17, 2014, weterminated the Term Loan Facility and a related loan and security agreement and other documents. On June 28, 2013, we completed a $189.3 million securitization of secured loans which we originated. 2013-1 Trust, a wholly owned subsidiary of ours,issued the Asset-Backed Notes, which are rated A1(sf) by Moody’s Investors Service, Inc. We are the sponsor, originator and servicer for the transaction. TheAsset-Backed Notes bear interest at a fixed rate of 3.00% per annum and have a stated maturity of May 15, 2018. 64  The Asset-Backed Notes were issued by 2013-1 Trust pursuant to a note purchase agreement, or the Note Purchase Agreement, dated as of June 28,2013, by and among us, the Trust Depositor, as the Trust Depositor, 2013-1 Trust and Guggenheim Securities, LLC, or Guggenheim Securities, as initialpurchaser, and are backed the Trust Loans made to certain portfolio companies of ours and secured by certain assets of such portfolio companies. The TrustLoans are serviced by us. In connection with the issuance and sale of the Asset-Backed Notes, we have made customary representations, warranties andcovenants in the Note Purchase Agreement. The Asset-Backed Notes are secured obligations of 2013-1 Trust and are non-recourse to us. As part of the transaction, we entered into a sale and contribution agreement, or the Sale and Contribution Agreement, dated as of June 28, 2013, withthe Trust Depositor, pursuant to which we sold or contributed the Trust Loans to the Trust Depositor. We made customary representations, warranties andcovenants in the Sale and Contribution Agreement with respect to the Trust Loans as of the date of the transfer of the Trust Loans to the Trust Depositor. Wealso entered into a sale and servicing agreement, or the Sale and Servicing Agreement, dated as of June 28, 2013, with the Trust Depositor and 2013-1 Trustpursuant to which the Trust Depositor sold or contributed the Trust Loans to 2013-1 Trust. We made customary representations, warranties and covenants inthe Sale and Servicing Agreement. We serve as administrator to 2013-1 Trust pursuant to an administration agreement, dated as of June 28, 2013, with 2013-1Trust, Wilmington Trust, National Association, and U.S. Bank National Association. 2013-1 Trust also entered into an indenture, dated as of June 28, 2013,which governs the Asset-Backed Notes and includes customary covenants and events of default. In addition, the Trust Depositor entered into an amended andrestated trust agreement, dated as of June 28, 2013, which includes customary representations, warranties and covenants. The Asset-Backed Notes were soldthrough an unregistered private placement to “qualified institutional buyers” in compliance with the exemption from registration provided by Rule 144Aunder the Securities Act and to institutional “accredited investors” (as defined in Rule 501(a)(1), (2), (3) or (7) under the Securities Act) who, in each case, are“qualified purchasers” for purposes of Section 3(c)(7) under the 1940 Act. Under the terms of the Asset-Backed Notes, we are required to maintain a reserve cash balance, funded through principal collections from theunderlying securitized debt portfolio, which may be used to make monthly interest and principal payments on the Asset-Backed Notes. As of December 31, 2015 and 2014, other assets were $2.8 million and $4.0 million, respectively, which is primarily comprised of debt issuance costsand prepaid expenses. Contractual obligations and off-balance sheet arrangements The following table shows our significant contractual payment obligations and off-balance sheet arrangements as of December 31, 2015: Payments due by period Total Less than1 year 1 – 3Years 3 – 5Years After 5years (In thousands) Borrowings $115,546 $4,962 $70,695 $39,889 $— Unfunded commitments 10,000 10,000 — — — Total $125,546 $14,962 $70,695 $39,889 $— In the normal course of business, we are party to financial instruments with off-balance sheet risk. These consist primarily of unfunded commitments toextend credit, in the form of loans, to our portfolio companies. Unfunded commitments to provide funds to portfolio companies are not reflected on ourbalance sheet. Our unfunded commitments may be significant from time to time. As of December 31, 2015, we had unfunded commitments of $10.0 million.These commitments are subject to the same underwriting and ongoing portfolio maintenance as are the financial instruments that we hold on our balancesheet. In addition, these commitments are often subject to financial or non-financial milestones and other conditions to borrowing that must be achievedbefore the commitment can be drawn. Since these commitments may expire without being drawn upon, the total commitment amount does not necessarilyrepresent future cash requirements. In addition to the Key Facility, we have certain commitments pursuant to our Investment Management Agreement entered into with our Advisor. Wehave agreed to pay a fee for investment advisory and management services consisting of two components (1) a base management fee equal to a percentage ofthe value of our gross assets less cash or cash equivalents, and (2) a two-part incentive fee. We have also entered into a contract with our Advisor to serve asour administrator. Payments under the Administration Agreement are equal to an amount based upon our allocable portion of our Advisor’s overhead inperforming its obligations under the agreement, including rent, fees and other expenses inclusive of our allocable portion of the compensation of our ChiefFinancial Officer and Chief Compliance Officer and their respective staffs. See Note 3 to our consolidated financial statements for additional informationregarding our Investment Management Agreement and our Administration Agreement. 65  Distributions In order to qualify and be subject to tax as a RIC, we must meet certain source-of-income, asset diversification and annual distribution requirements.Very generally, in order to qualify as a RIC, we must derive at least 90% of our gross income for each tax year from dividends, interest, payments with respectto certain securities, loans, gains from the sale or other disposition of stock, securities or foreign currencies, or other income derived with respect to itsbusiness of investing in stock or other securities. We must also meet certain asset diversification requirements at the end of each quarter of each tax year.Failure to meet these diversification requirements on the last day of a quarter may result in us having to dispose of certain investments quickly in order toprevent the loss of RIC status. Any such dispositions could be made at disadvantageous prices or times, and may cause us to incur substantial losses. In addition, in order to be eligible for the special tax treatment accorded to RICs and to avoid corporate level tax on the income and gains we distributeto our stockholders in any tax year, we are required under the Code to annually distribute as dividends to our stockholders out of assets legally available fordistribution an amount generally at least equal to 90% of our net ordinary income and net short-term capital gains in excess of net long-term capital losses, ifany. Additionally, in order to avoid the imposition of a U.S. federal excise tax, we are required to distribute, in respect of each calendar year, dividends to ourstockholders of an amount at least equal to the sum of 98% of our calendar year net ordinary income (taking into account certain deferrals and elections);98.2% of our capital gain net income (adjusted for certain ordinary losses) for the one year period ending on October 31 of such calendar year; and any netordinary income and capital gain net income for preceding calendar years that were not distributed during such calendar years and on which we previouslypaid no U.S. federal income tax. If we fail to qualify as a RIC for any reason and become subject to corporate tax, the resulting corporate taxes couldsubstantially reduce our net assets, the amount of income available for distribution and the amount of our distributions. Such a failure would have a materialadverse effect on us and our stockholders. In addition, we could be required to recognize unrealized gains, pay substantial taxes and interest and makesubstantial distributions in order to re-qualify as a RIC. We cannot assure stockholders that they will receive any distributions. To the extent our taxable earnings for a fiscal year fall below the total amount of our distributions for that fiscal year, a portion of those distributionsmay be deemed a return of capital to our stockholders for U.S. federal income tax purposes. Thus, the source of a distribution to our stockholders may be theoriginal capital invested by the stockholder rather than our income or gains. Stockholders should read any written disclosure accompanying a distributionpayment carefully and should not assume that the source of any distribution is our ordinary income or gains. We have adopted an “opt out” DRIP for our common stockholders. As a result, if we declare a distribution, then stockholders’ cash distributions will beautomatically reinvested in additional shares of our common stock unless a stockholder specifically “opts out” of our DRIP. If a stockholder opts out, thatstockholder will receive cash distributions. Although distributions paid in the form of additional shares of our common stock will generally be subject toU.S. federal, state and local taxes, stockholders participating in our DRIP will not receive any corresponding cash distributions with which to pay any suchapplicable taxes. If our common stock is trading above net asset value, a stockholder receiving distributions in the form of additional shares of our commonstock will be treated as receiving a distribution of an amount equal to the fair market value of such shares of our common stock. We may use newly issuedshares to implement the DRIP, or we may purchase shares in the open market in connection with our obligations under the DRIP. Related party transactions We have entered into the Investment Management Agreement with the Advisor. The Advisor is registered as an investment adviser under the AdvisersAct. The investment activities are managed by the Advisor and supervised by the Board, the majority of whom are independent directors. Under theInvestment Management Agreement, we have agreed to pay the Advisor a base management fee as well as an incentive fee. During the years ended December31, 2015, 2014 and 2013, we paid the Advisor $7.9 million, $6.4 million and $8.5 million, respectively, pursuant to the Investment Management Agreement. 66  Our Advisor is 60% owned by HTF Holdings LLC, which is 100% owned by Horizon Technology Finance, LLC. By virtue of their ownership interest inHorizon Technology Finance, LLC, our Chief Executive Officer, Robert D. Pomeroy, Jr. and our President, Gerald A. Michaud, may be deemed to control ourAdvisor. We have also entered into the Administration Agreement with the Administrator. Under the Administration Agreement, we have agreed to reimburse theAdministrator for our allocable portion of overhead and other expenses incurred by the Administrator in performing its obligations under the AdministrationAgreement, including rent and our allocable portion of the costs of compensation and related expenses of our Chief Financial Officer and Chief ComplianceOfficer and their respective staffs. In addition, pursuant to the terms of the Administration Agreement the Administrator provides us with the office facilitiesand administrative services necessary to conduct our day-to-day operations. The predecessor of the Advisor has granted the Company a non-exclusive, royalty-free license to use the name “Horizon Technology Finance.” We believe that we derive substantial benefits from our relationship with our Advisor. Our Advisor may manage other investment vehicles, or AdvisorFunds, with the same investment strategy as us. The Advisor may provide us an opportunity to co-invest with the Advisor Funds. Under the 1940 Act, absentreceipt of exemptive relief from the SEC, we and our affiliates are precluded from co-investing in such investments. Accordingly, we may apply for exemptiverelief which would permit us to co-invest subject to certain conditions, including, without limitation, approval of such investments by both a majority of ourdirectors who have no financial interest in such transaction and a majority of directors who are not interested persons of us as defined in the 1940 Act. Critical accounting policies The discussion of our financial condition and results of operation is based upon our financial statements, which have been prepared in accordance withGAAP. The preparation of these consolidated financial statements requires management to make estimates and assumptions that affect the reported amountsof assets, liabilities, revenues and expenses. Changes in the economic environment, financial markets and any other parameters used in determining suchestimates could cause actual results to differ. In addition to the discussion below, we describe our significant accounting policies in the notes to ourconsolidated financial statements. We have identified the following items as critical accounting policies. Valuation of investments Investments are recorded at fair value. Our Board determines the fair value of our portfolio investments. We apply fair value to substantially all of ourinvestments in accordance with GAAP, which establishes a framework used to measure fair value and requires disclosures for fair value measurements. Wehave categorized our investments carried at fair value, based on the priority of the valuation technique, into a three-level fair value hierarchy. Fair value is amarket-based measure considered from the perspective of the market participant who holds the financial instrument rather than an entity specific measure.Therefore, when market assumptions are not readily available, our own assumptions are set to reflect those that management believes market participantswould 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, forexample, 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 currentmarket conditions. To the extent that the valuation is based on models or inputs that are less observable or unobservable in the market, the determination offair value requires more judgment. The three categories within the hierarchy are as follows: Level 1Quoted prices in active markets for identical assets and liabilities. Level 2Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities in active markets, quoted prices in marketsthat are not active and model-based valuation techniques for which all significant inputs are observable or can be corroborated byobservable market data for substantially the full term of the assets or liabilities. Level 3Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.Level 3 assets and liabilities include financial instruments whose value is determined using pricing models, discounted cash flowmethodologies or similar techniques, as well as instruments for which the determination of fair value requires significant managementjudgment or estimation. 67  Our Board determines the fair value of investments in good faith, based on the input of management, the audit committee and independent valuationfirms that have been engaged at the direction of our Board to assist in the valuation of each portfolio investment without a readily available market quotationat least once during a trailing twelve-month period under our valuation policy and a consistently applied valuation process. The Board conducts thisvaluation process at the end of each fiscal quarter, with 25% (based on fair value) of our valuation of portfolio companies that do not have a readily availablemarket quotations subject to review by an independent valuation firm. Income recognition Interest on debt investments is accrued and included in income based on contractual rates applied to principal amounts outstanding. Interest income isdetermined using a method that results in a level rate of return on principal amounts outstanding. Generally, when a debt investment becomes 90 days ormore past due, or if we otherwise do not expect to receive interest and principal repayments, the debt investment is placed on non-accrual status and therecognition of interest income may be discontinued. Interest payments received on non-accrual debt investments may be recognized as income, on a cashbasis, or applied to principal depending upon management’s judgment at the time the debt investment is placed on non-accrual status. For the years endedDecember 31, 2015 and 2014, we recognized as interest income interest payments of $0.2 million and $0.3 million, respectively, received from one portfoliocompany whose debt investment was on non-accrual status. We receive a variety of fees from borrowers in the ordinary course of conducting our business, including advisory fees, commitment fees, amendmentfees, non-utilization fees, success fees and prepayment fees. In a limited number of cases, we may also receive a non-refundable deposit earned upon thetermination of a transaction. Debt investment origination fees, net of certain direct origination costs, are deferred, and along with unearned income, areamortized as a level yield adjustment over the respective term of the debt investment. All other income is recorded into income when earned. Fees forcounterparty debt investment commitments with multiple debt investments are allocated to each debt investment based upon each debt investment’s relativefair value. When a debt investment is placed on non-accrual status, the amortization of the related fees and unearned income is discontinued until the debtinvestment is returned to accrual status. Certain debt investment agreements also require the borrower to make an ETP that is accrued into income over the life of the debt investment to theextent such amounts are expected to be collected. We will generally cease accruing the income if there is insufficient value to support the accrual or if we donot expect the borrower to be able to pay all principal and interest due. In connection with substantially all lending arrangements, we receive warrants to purchase shares of stock from the borrower. We record the warrants asassets at estimated fair value on the grant date using the Black-Scholes valuation model. We consider the warrants as loan fees and record them as unearnedincome on the grant date. The unearned income is recognized as interest income over the contractual life of the related debt investment in accordance withour income recognition policy. Subsequent to origination, the warrants are also measured at fair value using the Black-Scholes valuation model. Anyadjustment to fair value is recorded through earnings as net unrealized gain or loss on investments. Gains and losses from the disposition of the warrants orstock acquired from the exercise of warrants are recognized as realized gains and losses on investments. Realized gains or losses on the sale of investments, or upon the determination that an investment balance, or portion thereof, is not recoverable, arecalculated using the specific identification method. We measure realized gains or losses by calculating the difference between the net proceeds from therepayment or sale and the amortized cost basis of the investment. Net change in unrealized appreciation or depreciation reflects the change in the fair valuesof our portfolio investments during the reporting period, including any reversal of previously recorded unrealized appreciation or depreciation, when gains orlosses are realized. Income taxes We have elected to be treated as a RIC under Subchapter M of the Code and operate in a manner so as to qualify for the tax treatment applicable toRICs. In order to qualify as a RIC and to avoid corporate-level U.S. federal income tax on the income distributed to stockholders, among other things, we arerequired to meet certain source of income and asset diversification requirements, and we must timely distribute dividends to our stockholders out of assetslegally available for distribution of an amount generally at least equal to 90% of our investment company taxable income, as defined by the Code, for eachtax year. We, among other things, have made and intend to continue to make the requisite distributions to our stockholders, which will generally relieve usfrom U.S. federal income taxes. 68  Depending on the level of taxable income earned in a tax year, we may choose to carry forward taxable income in excess of current year distributionsinto the next tax year and pay a 4% excise tax on such income, as required. To the extent that we determine that our estimated current year annual taxableincome will be in excess of estimated current year distributions, we will accrue excise tax, if any, on estimated excess taxable income as taxable income isearned. We evaluate tax positions taken in the course of preparing our tax returns to determine whether the tax positions are “more-likely-than-not” to besustained by the applicable tax authority in accordance with Topic 740, as modified by Topic 946, of the Financial Accounting Standards Board’s, orFASB’s, Accounting Standards Codification, as amended, or ASC. Tax benefits of positions not deemed to meet the more-likely-than-not threshold, oruncertain tax positions, are recorded as a tax expense in the current year. It is our policy to recognize accrued interest and penalties related to uncertain taxbenefits in income tax expense. We had no material uncertain tax positions at December 31, 2015 and 2014. Recently issued accounting standards In April 2015, the FASB issued Accounting Standards Update, or ASU, 2015-03, Interest—Imputation of Interest (Subtopic 835-30): Simplifying thePresentation of Debt Issuance Costs, or ASU 2015-03, containing new guidance that will require debt issuance costs related to a recognized debt liability tobe presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, instead of being recorded as a separate asset. Thisguidance is effective for annual and interim periods beginning on or after December 15, 2015. We are evaluating the impact ASU 2015-03 will have on ourconsolidated financial position and disclosures. In August 2015, the FASB issued ASU 2015-15, Interest Imputation of Interest (Subtopic 835-30): Presentation and Subsequent Measurement of DebtIssue Costs Associated with Line-of-Credit Arrangements – Amendments to SEC Paragraphs Pursuant to Staff Announcement at June 18, 2015 EITF Meeting,or ASU 2015-15, which addresses presentation and subsequent measurement of debt issuance costs associated with line-of-credit arrangements, omitted fromASU 2015-03. This update states that the SEC staff would not object to an entity deferring and presenting debt issuance costs as an asset and subsequentlyamortizing the deferred debt issuance costs ratably over the term of the line-of-credit arrangement, regardless of whether there are any outstanding borrowingson the line-of-credit arrangement. We are evaluating the impact ASU 2015-15 will have on our consolidated financial position and disclosures. Item 7A. Quantitative and Qualitative Disclosures About Market Risk We are subject to financial market risks, including changes in interest rates. During the periods covered by our financial statements, the interest rates onthe debt investments within our portfolio were at floating and fixed rates. We expect that our debt investments in the future will primarily have floatinginterest rates. As of December 31, 2015 and 2014, 93% and 64%, respectively, of the outstanding principal amount of our debt investments bore interest atfloating rates. The initial commitments to lend to our portfolio companies are usually based on a floating LIBOR index. 69  Based on our December 31, 2015 consolidated statement of assets and liabilities (without adjustment for potential changes in the credit market, creditquality, size and composition of assets on the consolidated statement of assets and liabilities or other business developments that could affect net income),the following table shows the annual impact on the change in net assets resulting from operations of changes in interest rates, which assumes no changes inour investments and borrowings: InterestIncome InterestExpense Change inNet Assets(1) Change in basis points (In thousands) Up 300 basis points $5,386 $1,848 $3,538 Up 200 basis points $3,982 $1,158 $2,824 Up 100 basis points $2,075 $469 $1,606 Down 300 basis points $(214) $— $(214)Down 200 basis points $(154) $— $(154)Down 100 basis points $(94) $— $(94) (1)Excludes the impact of incentive fees based on pre-incentive fee net investment income. While our 2019 Notes and Asset-Backed Notes bear interest at a fixed rate, our Key Facility has a floating interest rate provision, subject to a floor of0.75%, based on a LIBOR index which resets daily, and any other credit facilities into which we enter in the future may have floating interest rate provisions.We have used hedging instruments in the past to protect us against interest rate fluctuations and we may use them in the future. Such instruments may includecaps, swaps, futures, options and forward contracts. While hedging activities may insulate us against adverse changes in interest rates, they may also limit ourability to participate in the benefits of lower interest rates with respect to the investments in our portfolio with fixed interest rates. Because we currently fund, and expect to continue to fund, our investments with borrowings, our net income is dependent upon the difference betweenthe rate at which we borrow funds and the rate at which we invest the funds borrowed. Accordingly, there can be no assurance that a significant change inmarket interest rates will not have a material adverse effect on our net income. In periods of rising interest rates, our cost of funds could increase, which couldreduce our net investment income. 70  Item 8. Consolidated Financial Statements and Supplementary Data Index to Consolidated Financial Statements PageManagement’s Report on Internal Control over Financial Reporting 72Report of Independent Registered Public Accounting Firm 73Report of Independent Registered Public Accounting Firm on Internal Control over Financial Reporting 74Consolidated Statements of Assets and Liabilities as of December 31, 2015 and 2014 75Consolidated Statements of Operations for the Years Ended December 31, 2015, 2014 and 2013 76Consolidated Statements of Changes in Net Assets for the Years Ended December 31, 2015, 2014 and 2013 77Consolidated Statements of Cash Flows for the Years Ended December 31, 2015, 2014 and 2013 78Consolidated Schedules of Investments as of December 31, 2015 and 2014 79Notes to the Consolidated Financial Statements 90 71  Management’s Report on Internal Control over Financial Reporting Management of Horizon Technology Finance Corporation (the “Company”) is responsible for establishing and maintaining adequate internal controlover the Company’s financial reporting. The Company’s internal control system is a process designed to provide reasonable assurance to management andthe board of directors regarding the preparation and fair presentation of published financial statements. The Company’s internal control over financial reporting includes policies and procedures that pertain to the maintenance of records that, in reasonabledetail, accurately and fairly reflect transactions recorded necessary to permit the preparation of financial statements in accordance with U.S. generallyaccepted accounting principles. The Company’s policies and procedures also provide reasonable assurance that receipts and expenditures are being madeonly in accordance with authorizations of management and the directors of the Company, and provide reasonable assurance regarding prevention or timelydetection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the Company’s financial statements. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective canprovide only reasonable assurance with respect to financial statement preparation and presentation. Also, projections of any evaluation of effectiveness as tofuture periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with thepolicies or procedures may deteriorate. Management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2015. In making this assessment,we used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control — Integrated Framework issuedin 2013. Based on the assessment, management believes that, as of December 31, 2015, the Company’s internal control over financial reporting is effectivebased on those criteria. The Company’s independent registered public accounting firm that audited the financial statements has issued an audit report on the effectiveness ofthe Company’s internal control over financial reporting as of December 31, 2015, which appears in this annual report on Form 10-K. 72  Report of Independent Registered Public Accounting Firm To the Board of Directors and StockholdersHorizon Technology Finance Corporation We have audited the accompanying consolidated statements of assets and liabilities, including the consolidated schedules of investments, of HorizonTechnology Finance Corporation and Subsidiaries (the Company) as of December 31, 2015 and 2014, and the related consolidated statements of operations,changes in net assets, and cash flows for each of the three years in the period ended December 31, 2015. These financial statements are the responsibility ofthe Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require thatwe plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit also includesexamining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used andsignificant estimates made by management, as well as evaluating the overall financial statement presentation. Our procedures included confirmation ofinvestments owned as of December 31, 2015 and 2014, by correspondence with the custodian or borrower or by other appropriate auditing procedures wherereplies from the custodian or borrowers were not received. Our audits also involved performing such other procedures as we considered necessary in thecircumstances. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Horizon TechnologyFinance Corporation and Subsidiaries as of December 31, 2015 and 2014, and the results of their operations and their cash flows for each of the three years inthe period ended December 31, 2015, in conformity with U.S. generally accepted accounting principles. We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Horizon Technology FinanceCorporation and Subsidiaries’ internal control over financial reporting as of December 31, 2015, based on criteria established in Internal Control –Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013, and our report dated March 8, 2016expressed an unqualified opinion on the effectiveness of Horizon Technology Finance Corporation and Subsidiaries’ internal control over financialreporting. /s/ RSM US LLP New York, New YorkMarch 8, 2016 73  Report of Independent Registered Public Accounting Firm onInternal Control Over Financial Reporting To the Board of Directors and StockholdersHorizon Technology Finance Corporation We have audited Horizon Technology Finance Corporation and Subsidiaries’ (the Company) internal control over financial reporting as of December 31,2015, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the TreadwayCommission in 2013. The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment ofthe effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control over FinancialReporting. Our responsibility is to express an opinion on the Company's internal control over financial reporting based on our audit. We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require thatwe plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all materialrespects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, andtesting and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such otherprocedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reportingand the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal controlover financial reporting includes those policies and procedures that (a) pertain to the maintenance of records that, in reasonable detail, accurately and fairlyreflect the transactions and dispositions of the assets of the company; (b) provide reasonable assurance that transactions are recorded as necessary to permitpreparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are beingmade only in accordance with authorizations of management and directors of the company; and (c) provide reasonable assurance regarding prevention ortimely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation ofeffectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliancewith the policies or procedures may deteriorate. In our opinion, Horizon Technology Finance Corporation and Subsidiaries maintained, in all material respects, effective internal control over financialreporting as of December 31, 2015, based on criteria established in Internal Control — Integrated Framework issued by the Committee of SponsoringOrganizations of the Treadway Commission in 2013. We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated statements ofassets and liabilities, including the consolidated schedules of investments, of Horizon Technology Finance Corporation and Subsidiaries as of December 31,2015 and 2014, and the related consolidated statements of operations, changes in net assets, and cash flows for each of the three years in the period endedDecember 31, 2015, and our report dated March 8, 2016 expressed an unqualified opinion. /s/ RSM US LLP New York, New YorkMarch 8, 2016 74  Horizon Technology Finance Corporation and Subsidiaries Consolidated Statements of Assets and Liabilities(In thousands, except share and per share data) December 31, 2015 2014 Assets Non-affiliate investments at fair value (cost of $255,494 and $209,838, respectively) (Note 4) $250,267 $205,101 Investments in money market funds 285 27 Cash 20,765 8,417 Restricted investments in money market funds 1,091 2,906 Interest receivable 6,258 4,758 Other assets 2,822 3,987 Total assets $281,488 $225,196 Liabilities Borrowings (Note 6) $115,546 $81,753 Distributions payable 3,980 3,322 Base management fee payable (Note 3) 385 356 Incentive fee payable (Note 3) 1,028 799 Other accrued expenses 798 718 Total liabilities 121,737 86,948 Commitments and Contingencies (Notes 7 and 8) Net assets Preferred stock, par value $0.001 per share, 1,000,000 shares authorized, zero shares issued and outstanding as ofDecember 31, 2015 and 2014 — — Common stock, par value $0.001 per share, 100,000,000 shares authorized, 11,648,594 and 9,628,124 issued and11,535,212 and 9,628,124 shares outstanding as of December 31, 2015 and 2014, respectively 12 10 Paid-in capital in excess of par 179,707 155,240 Distributions in excess of net investment income (2,006) (1,102)Net unrealized depreciation on investments (5,227) (4,737)Net realized loss on investments (12,735) (11,163)Total net assets 159,751 138,248 Total liabilities and net assets $281,488 $225,196 Net asset value per common share $13.85 $14.36 See Notes to Consolidated Financial Statements 75  Horizon Technology Finance Corporation and Subsidiaries Consolidated Statements of Operations(In thousands, except share and per share data) Year Ended December 31, 2015 2014 2013 Investment income Interest income on non-affiliate investments $28,650 $28,636 $31,904 Fee income on non-affiliate investments 2,460 2,618 1,739 Total investment income 31,110 31,254 33,643 Expenses Interest expense 5,757 8,707 8,124 Base management fee (Note 3) 4,747 4,648 5,353 Performance based incentive fee (Note 3) 3,501 2,112 3,318 Administrative fee (Note 3) 1,124 1,113 1,169 Professional fees 1,308 3,074 1,464 General and administrative 1,023 1,068 848 Total expenses 17,460 20,722 20,276 Management and performance based incentive fees waived (Note 3) (346) (345) (144)Net expenses 17,114 20,377 20,132 Net investment income before excise tax 13,996 10,877 13,511 Provision for excise tax (Note 7) — 160 240 Net investment income 13,996 10,717 13,271 Net realized and unrealized (loss) gain on investments Net realized loss on investments (1,650) (3,576) (7,509)Net unrealized (depreciation) appreciation on investments (490) 8,289 (2,254) Net realized and unrealized (loss) gain on investments (2,140) 4,713 (9,763) Net increase in net assets resulting from operations $11,856 $15,430 $3,508 Net investment income per common share $1.25 $1.11 $1.38 Net increase in net assets per common share $1.06 $1.60 $0.37 Distributions declared per share $1.38 $1.38 $1.38 Weighted average shares outstanding 11,180,864 9,621,011 9,583,257 See Notes to Consolidated Financial Statements 76  Horizon Technology Finance Corporation and Subsidiaries Consolidated Statements of Changes in Net Assets(In thousands, except share data) Common Stock Paid-InCapital in Excess of Accumulated Undistributed (Distributions in Excess of) Net Net Unrealized Depreciation on Net Realized Loss on Total Net Shares Amount Par Investment Income Investments Investments Assets Balance at December 31, 2012 9,567,225 $10 $154,384 $1,428 $(10,772) $(78) $144,972 Net increase in net assets resulting fromoperations, net of excise tax — — — 13,271 (2,254) (7,509) 3,508 Issuance of common stock under dividendreinvestment plan 41,724 — 591 — — — 591 Distributions declared — — — (13,236) — — (13,236)Balance at December 31, 2013 9,608,949 10 154,975 1,463 (13,026) (7,587) 135,835 Net increase in net assets resulting fromoperations, net of excise tax — — — 10,717 8,289 (3,576) 15,430 Issuance of common stock under dividendreinvestment plan 19,175 — 265 — — — 265 Distributions declared — — — (13,282) — — (13,282)Balance at December 31, 2014 9,628,124 10 155,240 (1,102) (4,737) (11,163) 138,248 Issuance of common stock, net of offering costs 2,000,000 2 26,504 — — — 26,506 Net increase in net assets resulting fromoperations, net of excise tax — — — 13,996 (490) (1,650) 11,856 Issuance of common stock under dividendreinvestment plan 20,470 — 247 — — — 247 Repurchase of common stock (113,382) — (1,313) — — — (1,313)Distributions declared — — — (15,793) — — (15,793)Reclassification of permanent tax differences(Note 2) — — (971) 893 — 78 — Balance at December 31, 2015 11,535,212 $12 $179,707 $(2,006) $(5,227) $(12,735) $159,751 See Notes to Consolidated Financial Statements 77  Horizon Technology Finance Corporation and Subsidiaries Consolidated Statements of Cash Flow(In thousands) Year Ended December 31, 2015 2014 2013 Cash flows from operating activities: Net increase in net assets resulting from operations $11,856 $15,430 $3,508 Adjustments to reconcile net increase in net assets resulting from operations to net cash (usedin) provided by operating activities: Amortization of debt issuance costs 911 2,682 1,484 Net realized loss on investments 1,650 3,576 7,299 Net unrealized depreciation (appreciation) on investments 490 (8,289) 2,254 Purchase of investments (123,281) (95,335) (88,362)Principal payments received on investments 74,640 109,505 87,497 Proceeds from sale of investments 1,669 7,673 200 Changes in assets and liabilities: Net (increase) decrease in investments in money market funds (258) 1,161 1,372 Net decrease (increase) in restricted investments in money market funds 1,815 3,045 (5,951)(Increase) decrease in interest receivable (199) 89 237 Increase in end-of-term payments (1,301) (607) (1,666)Decrease in unearned income (203) (947) (1,559)Decrease (increase) in other assets 634 (936) 307 Decrease in other accrued expenses (11) (235) (155)Increase (decrease) in base management fee payable 29 (83) 37 Increase (decrease) in incentive fee payable 229 (53) (3)Net cash (used in) provided by operating activities (31,330) 36,676 6,499 Cash flows from financing activities: Proceeds from issuance of common stock, net of offering costs 26,506 — — Proceeds from issuance of Asset-Backed Notes — — 90,000 Repayment of Asset-Backed Notes (24,207) (40,590) (10,657)Advances on credit facilities 58,000 — — Distributions paid (14,888) (13,010) (12,632)Repurchase of common stock (1,313) — — Net decrease in borrowings — — (46,020)Debt issuance costs (420) — (2,897)Net cash provided by (used in) financing activities 43,678 (53,600) 17,794 Net increase (decrease) in cash 12,348 (16,924) 24,293 Cash: Beginning of period 8,417 25,341 1,048 End of period $20,765 $8,417 $25,341 Supplemental disclosure of cash flow information: Cash paid for interest $4,733 $6,156 $6,707 Supplemental non-cash investing and financing activities: Warrant investments received and recorded as unearned income $870 $835 $704 Distributions payable $3,980 $3,322 $3,315 End of term payments receivable $5,086 $3,785 $3,178 See Notes to Consolidated Financial Statements 78  Horizon Technology Finance Corporation and Subsidiaries Consolidated Schedule of InvestmentsDecember 31, 2015(In thousands) Principal Cost of Fair Portfolio Company (1) Sector Type of Investment (3)(4)(7)(9)(10) Amount Investments (6) Value Debt Investments — 151.6 % (8) Debt Investments — Life Science — 36.6% (8) Argos Therapeutics, Inc. (2)(5) Biotechnology Term Loan (9.25% cash (Libor + 8.75%; Floor 9.25%; $5,000 $4,944 $4,944 Ceiling 10.75%), 5.00% ETP, Due 10/1/18) Term Loan (9.25% cash (Libor + 8.75%; Floor 9.25%; 5,000 4,954 4,954 Ceiling 10.75%), 5.00% ETP, Due 3/1/19) New Haven Pharmaceuticals, Inc. (2) Biotechnology Term Loan (11.50% cash (Libor + 11.00%; Floor 1,301 1,293 1,293 11.50%), 11.42% ETP, Due 3/1/19) Term Loan (11.50% cash (Libor + 11.00%; Floor 434 431 431 11.50%), 11.42% ETP, Due 3/1/19) Term Loan (10.50% cash (Libor + 10.00%; Floor 2,000 1,987 1,987 10.50%), 6.10% ETP, Due 3/1/19) Term Loan (10.00% cash (Libor + 9.50%; Floor 6,265 6,190 6,190 10.00%), 4.00% ETP, Due 4/1/19) Palatin Technologies, Inc. (2)(5) Biotechnology Term Loan (9.00% cash (Libor + 8.50%; Floor 5,000 4,939 4,939 9.00%), 5.00% ETP, Due 1/1/19) Term Loan (9.00% cash (Libor + 8.50%; Floor 5,000 4,937 4,937 9.00%), 5.00% ETP, Due 8/1/19) Sample6, Inc. (2) Biotechnology Term Loan (9.50% cash (Libor + 9.00%; Floor 1,555 1,550 1,550 9.50%; Ceiling 11.00%), 4.00% ETP, Due 4/1/18) Term Loan (9.50% cash (Libor + 9.00%; Floor 945 940 940 9.50%; Ceiling 11.00%), 4.00% ETP, Due 4/1/18) Term Loan (9.50% cash (Libor + 9.00%; Floor 2,500 2,481 2,481 9.50%; Ceiling 11.00%), 4.00% ETP, Due 4/1/18) Sunesis Pharmaceuticals, Inc. (2)(5) Biotechnology Term Loan (8.95% cash, 4.65% ETP, Due 10/1/16) 545 544 544 Term Loan (9.00% cash, 4.65% ETP, Due 10/1/16) 818 815 815 IntegenX Inc. (2) Medical Device Term Loan (10.75% cash (Libor + 10.25%; Floor 3,750 3,703 3,703 10.75%; Ceiling 12.75%), 3.50% ETP, Due 7/1/18) Lantos Technologies, Inc. (2) Medical Device Term Loan (11.50% cash (Libor + 10.50%; Floor 3,500 3,454 3,333 11.50%), 5.00% ETP, Due 2/1/18) Mederi Therapeutics, Inc. (2) Medical Device Term Loan (12.06% cash (Libor + 11.82%), 4.00% ETP, 2,850 2,826 2,738 Due 7/1/17) Term Loan (12.06% cash (Libor + 11.82%), 4.00% ETP, 2,850 2,826 2,738 Due 7/1/17) NinePoint Medical, Inc. (2) Medical Device Term Loan (9.25% cash (Libor + 8.75%; Floor 5,000 4,943 4,943 9.25%), 4.50% ETP, Due 3/1/19) Term Loan (9.25% cash (Libor + 8.75%; Floor 2,500 2,464 2,464 9.25%), 4.50% ETP, Due 3/1/19) Tryton Medical, Inc. (2) Medical Device Term Loan (10.41% cash (Prime + 7.16%), 2.50% ETP, 2,063 2,053 2,053 Due 9/1/16) ZetrOZ, Inc. (2)(11) Medical Device Term Loan (11.00% cash (Libor + 10.50%; Floor 1,350 1,330 250 11.00%; Ceiling 12.50%), 3.00% ETP, Due 4/1/18) Term Loan (11.00% cash (Libor + 10.50%; Floor 1,350 1,326 250 11.00%; Ceiling 12.50%), 3.00% ETP, Due 4/1/18) Total Debt Investments — Life Science 60,930 58,477 Debt Investments — Technology — 80.5% (8) Ekahau, Inc. (2) Communications Term Loan (11.75% cash, 2.50% ETP, Due 2/1/17) 704 700 700 Term Loan (11.75% cash, 2.50% ETP, Due 2/1/17) 235 233 233 mBlox, Inc. (2) Communications Term Loan (11.50% cash (Libor + 11.00%; Floor 5,000 4,977 4,977 11.50%; Ceiling 13.00%), 3.40% ETP, Due 7/1/18) Term Loan (11.50% cash (Libor + 11.00%; Floor 5,000 4,977 4,977 11.50%; Ceiling 13.00%), 3.40% ETP, Due 7/1/18) Term Loan (12.00% cash, 100.0% ETP, Due 7/1/16) 1,000 1,000 1,000 Term Loan (12.00% cash, 100.0% ETP, Due 7/1/16) 500 500 500 Overture Networks, Inc. (2) Communications Term Loan (10.75% cash, (Libor + 10.25%; Floor 4,104 4,089 4,089 10.75%), 5.75% ETP, Due 12/1/17) Term Loan (10.75% cash (Libor + 10.25%; Floor 2,052 2,043 2,043 10.75%), 5.75% ETP, Due 12/1/17) Term Loan (10.75% cash (Libor + 10.25%; Floor 1,000 992 992 10.75%), 5.00% ETP, Due 11/1/18) Additech, Inc. (2) Consumer-relatedTechnologies Term Loan (11.75% cash (Libor + 11.25%; Floor 2,500 2,470 2,470 See Notes to Consolidated Financial Statements 79  Horizon Technology Finance Corporation and Subsidiaries Consolidated Schedule of InvestmentsDecember 31, 2015(In thousands) Principal Cost of Fair Portfolio Company (1) Sector Type of Investment (3)(4)(7)(9)(10) Amount Investments (6) Value 11.75%; Ceiling 13.25%), 4.00% ETP, Due 7/1/18) Term Loan (11.75% cash (Libor + 11.25%; Floor 2,500 2,464 2,464 11.75%; Ceiling 13.25%), 4.00% ETP, Due 1/1/19) Gwynnie Bee, Inc. (2) Consumer-relatedTechnologies Term Loan (11.00% cash (Libor + 10.50%; Floor 1,467 1,445 1,445 11.00%; Ceiling 12.50%), 2.0% ETP, Due 11/1/17) Term Loan (11.00% cash (Libor + 10.50%; Floor 833 816 816 11.00%; Ceiling 12.50%), 2.0% ETP, Due 2/1/18) Term Loan (11.00% cash (Libor + 10.50%; Floor 900 886 886 11.00%; Ceiling 12.50%), 2.0% ETP, Due 4/1/18) Rhapsody International, Inc. (2) Consumer-relatedTechnologies Term Loan (11.00% cash (Libor + 10.50%; Floor 7,500 7,276 7,276 11.00%), 3.0% ETP, Due 10/1/19) SavingStar, Inc. (2) Consumer-relatedTechnologies Term Loan (10.90% cash (Libor + 10.40%; Floor 3,000 2,911 2,911 10.90%), 3.0% ETP, Due 6/1/19) The NanoSteel Company, Inc. (2) Materials Term Loan (10.00% cash (Libor + 9.50%; Floor 5,000 4,915 4,915 10.00%), 5.0% ETP, Due 7/1/19) Term Loan (10.00% cash (Libor + 9.50%; Floor 2,500 2,458 2,458 10.00%), 5.0% ETP, Due 7/1/19) Term Loan (10.00% cash (Libor + 9.50%; Floor 2,500 2,452 2,452 10.00%), 5.0% ETP, Due 1/1/20) Nanocomp Technologies, Inc. (2) Networking Term Loan (11.50% cash, 3.00% ETP, Due 11/1/17) 701 693 693 Powerhouse Dynamics, Inc. (2) PowerManagement Term Loan (11.20% cash (Libor + 10.70%; Floor 2,500 2,456 2,456 11.20%), 3.0% ETP, Due 3/1/19) Avalanche Technology, Inc. (2) Semiconductors Term Loan (10.00% cash (Libor + 9.25%; Floor 10.00%; 1,565 1,561 1,561 Ceiling 11.75%), 2.40% ETP, Due 4/1/17) Term Loan (10.00% cash (Libor + 9.25%; Floor 10.00%; 2,003 1,997 1,997 Ceiling 11.75%) ,2.40% ETP, Due 10/1/18) Term Loan (10.00% cash (Libor + 9.25%; Floor 10.00%; 2,202 2,157 2,157 Ceiling 11.75%), 2.00% ETP, Due 2/1/19) InVisage Technologies, Inc. (2) Semiconductors Term Loan (12.00% cash (Libor + 11.50%; Floor 2,380 2,345 2,242 12.00%; Ceiling 14.00%), 2.00% ETP, Due 4/1/18) Term Loan (12.00% cash (Libor + 11.50%; Floor 850 835 798 12.00%; Ceiling 14.00%), 2.0% ETP, Due 10/1/18) Luxtera, Inc. (2) Semiconductors Term Loan (10.25% cash (Libor + 9.75%; Floor 10.25%; 1,646 1,645 1,645 Ceiling 12.25%), 13.00% ETP, Due 7/1/17) Term Loan (10.25% cash (Libor + 9.75%; Floor 10.25%; 951 926 926 Ceiling 12.25%), 13.00% ETP, Due 7/1/17) Term Loan (9.00% cash (Libor + 8.50%; Floor 9.00%), 833 828 828 4.50% ETP, Due 12/1/18) Term Loan (9.00% cash (Libor + 8.50%; Floor 9.00%), 833 827 827 4.50% ETP, Due 12/1/18) Xtera Communications, Inc. (2)(5) Semiconductors Term Loan (12.50% cash, 15.65% ETP, Due 12/31/16) 4,157 4,114 4,114 Term Loan (12.50% cash, 21.75% ETP, Due 12/31/16) 1,155 1,142 1,142 Bridge2 Solutions, Inc. Software Term Loan (11.50% cash (Libor + 11.00%; Floor 4,000 3,966 3,966 11.50%; Ceiling 14.50%), 2.00% ETP, Due 7/1/19) Term Loan (11.50% cash (Libor + 11.00%; Floor 1,000 995 995 11.50%; Ceiling 14.50%), 2.00% ETP, Due 1/1/20) Crowdstar, Inc. (2) Software Term Loan (10.75% cash (Libor + 10.25%; Floor 1,939 1,915 1,915 10.75%), 3.00% ETP, Due 9/1/18) Decisyon, Inc. (2) Software Term Loan (12.69% cash (Libor + 12.308%; Floor 1,603 1,599 1,514 12.50%), 6.50% ETP, Due 10/1/17) Term Loan (12.69% cash (Libor + 12.308%; Floor 853 847 802 12.50%), 6.50% ETP, Due 1/1/18) Digital Signal Corporation Software Term Loan (10.54% cash (Libor + 10.25%; Floor 1,500 1,421 1,421 10.43%), 5.00% ETP, Due 7/1/19) Term Loan (10.54% cash (Libor + 10.25%; Floor 1,500 1,457 1,457 10.43%), 5.00% ETP, Due 7/1/19) Education Elements, Inc. (2) Software Term Loan (10.50% cash (Libor + 10.00%; Floor 2,000 1,967 1,967 10.50%), 4.00% ETP, Due 1/1/19) Term Loan (10.50% cash (Libor + 10.00%; Floor 1,500 1,470 1,470 10.50%), 4.00% ETP, Due 8/1/19) See Notes to Consolidated Financial Statements 80  Horizon Technology Finance Corporation and Subsidiaries Consolidated Schedule of InvestmentsDecember 31, 2015(In thousands) Portfolio Company (1) Sector Type of Investment (3)(4)(7)(9)(10) PrincipalAmount Cost ofInvestments (6) FairValue Netuitive, Inc. (2) Software Term Loan (12.75% cash, Due 7/1/16) 1,000 998 998 ScoreBig, Inc. (2) Software Term Loan (10.50% cash (Libor + 10.00%; Floor 3,500 3,449 3,449 10.50%), 4.00% ETP, Due 4/1/19) Term Loan (10.50% cash (Libor + 10.00%; Floor 3,500 3,449 3,449 10.50%), 4.00% ETP, Due 4/1/19) SIGNiX, Inc. (2) Software Term Loan (11.50% cash (Libor + 11.00%; Floor 3,000 2,953 2,953 11.50%), Due 7/1/18) SilkRoad Technology, Inc. (2) Software Term Loan (10.85% cash (Libor + 10.35%; Floor 7,500 7,436 7,436 10.85%; Ceiling 12.85%), 3.00% ETP, Due 6/1/19) Skyword, Inc. Software Term Loan (11.45% cash (Libor + 10.95%; Floor 4,000 3,900 3,900 11.45%), 3.00% ETP, Due 8/1/19) Social Intelligence Corp. (2) Software Term Loan (11.00% cash (Libor + 10.50%; Floor 1,091 1,076 1,067 11.00%; Ceiling 13.00%), 3.50% ETP, Due 12/1/17) SpringCM, Inc. (2) Software Term Loan (11.50% cash (Libor + 11.00%; Floor 4,500 4,450 4,450 11.50%; Ceiling 13.00%), 2.00% ETP, Due 1/1/18) Sys-Tech Solutions, Inc. (2) Software Term Loan (11.65% cash (Libor + 11.15%; Floor 5,200 5,168 5,168 11.65%; Ceiling 12.65%), 4.50% ETP, Due 3/1/18) Term Loan (11.65% cash (Libor + 11.15%; Floor 4,667 4,633 4,633 11.65%; Ceiling 12.65%), 9.00% ETP, Due 5/1/18) VBrick Systems, Inc. (2) Software Term Loan (11.50% cash (Libor + 11.00%; Floor 1,900 1,887 1,887 11.50%; Ceiling 13.50%), 5.00% ETP, Due 7/1/17) Vidsys, Inc. (2) Software Term Loan (13.00% cash, 7.58% ETP, Due 12/1/17) 2,810 2,810 2,810 xTech Holdings, Inc. (2) Software Term Loan (11.00% cash (Libor + 10.50%; Floor 2,000 1,957 1,957 11.00%), 3.00% ETP, Due 4/1/19) Total Debt Investments — Technology 128,933 128,654 Debt Investments — Cleantech — 7.5% (8) Renmatix, Inc. (2) AlternativeEnergy Term Loan (10.25% cash, 3.00% ETP, Due 2/1/16) 173 173 173 Term Loan (10.25% cash, 3.00% ETP, Due 2/1/16) 173 173 173 Term Loan (10.25% cash, Due 10/1/16) 1,667 1,663 1,663 Semprius, Inc. (2) AlternativeEnergy Term Loan (10.25% cash, 5.00% ETP, Due 6/1/16) 860 840 840 Rypos, Inc. (2) EnergyEfficiency Term Loan (11.80% cash, 4.25% ETP, Due 6/1/17) 2,430 2,314 2,314 Term Loan (11.80% cash, 4.25% ETP, Due 1/1/18) 947 913 913 Lehigh Technologies, Inc. (2) WasteRecycling Term Loan (9.96% cash (Libor + 9.72%), 6.75% ETP, 3,000 2,961 2,961 Due 8/1/19) Term Loan (9.96% cash (Libor + 9.72%), 6.75% ETP, 3,000 2,975 2,975 Due 8/1/19) Total Debt Investments — Cleantech 12,012 12,012 Debt Investments — Healthcare information and services — 27.0% (8) Interleukin Genetics, Inc. (2)(5) Diagnostics Term Loan (9.00% cash (Libor + 8.50%; Floor 9.00%) 5,000 4,881 4,881 4.50% ETP, Due 10/1/18) LifePrint Group, Inc. (2) Diagnostics Term Loan (11.00% cash (Libor + 10.50%; Floor 2,400 2,366 2,366 11.00%; Ceiling 12.50%), 3.00% ETP, Due 1/1/18) Watermark Medical, Inc. (2) OtherHealthcare Term Loan (10.00% cash (Libor + 9.50%; Floor 10.00%; 3,500 3,494 3,494 Ceiling 11.00%); 4.00% ETP, Due 4/1/18) Term Loan (10.00% cash (Libor + 9.50%; Floor 10.00%; 3,500 3,494 3,494 Ceiling 11.00%); 4.00% ETP, Due 4/1/18) Term Loan (10.00% cash (Libor + 9.50%; Floor 10.00%; 1,250 1,248 1,248 Ceiling 11.00%); 4.00% ETP, Due 4/1/18) Innovatient Solutions, Inc. (2) Software Term Loan (11.00% cash (Libor + 10.50%; Floor 1,000 977 977 11.00%, Ceiling 13.00%); 4.00% ETP, Due 7/1/18) MedAvante, Inc. (2) Software Term Loan (9.75% cash (Libor + 9.25%; Floor 3,000 2,957 2,957 9.75%), 4.00% ETP, Due 1/1/19) Term Loan (9.75% cash (Libor + 9.25%; Floor 3,000 2,957 2,957 9.75%), 4.00% ETP, Due 1/1/19) Term Loan (9.75% cash (Libor + 9.25%; Floor 4,000 3,934 3,934 9.75%), 4.00% ETP, Due 7/1/19) Medsphere Systems Corporation (2) Software Term Loan (10.50% cash (Libor + 10.00%; Floor 5,000 4,921 4,921 10.50%), 7.00% ETP, Due 7/1/19) Term Loan (10.50% cash (Libor + 10.00%; Floor 2,500 2,461 2,461 10.50%), 7.00% ETP, Due 7/1/19) See Notes to Consolidated Financial Statements 81  Horizon Technology Finance Corporation and Subsidiaries Consolidated Schedule of InvestmentsDecember 31, 2015(In thousands) Portfolio Company (1) Sector Type of Investment (3)(4)(7)(9)(10) PrincipalAmount Cost ofInvestments (6) FairValue Recondo Technology, Inc. (2) Software Term Loan (11.50% cash (Libor + 11.00%; Floor 1,384 1,380 1,380 11.50%), 6.60% ETP, Due 12/1/17) Term Loan (11.00% cash (Libor + 10.50%; Floor 2,500 2,494 2,494 11.00%), 4.50% ETP, Due 12/1/17) Term Loan (10.50% cash (Libor + 10.00%; Floor 2,500 2,495 2,495 10.50%), 2.75% ETP, Due 12/1/17) Term Loan (10.50% cash (Libor + 10.00%; Floor 3,000 2,965 2,965 10.50%), 2.50% ETP, Due 1/1/19) Total Debt Investments — Healthcare informationand services 43,024 43,024 Total Debt Investments 244,899 242,167 Warrant Investments — 4.2% (8) Warrants — Life Science — 0.8% (8) ACT Biotech Corporation Biotechnology 1,521,820 Preferred Stock Warrants 83 — Argos Therapeutics, Inc. (2)(5) Biotechnology 33,112 Common Stock Warrants 33 — Celsion Corporation (5) Biotechnology 5,708 Common Stock Warrants 15 — Inotek Pharmaceuticals Corporation (5) Biotechnology 28,204 Preferred Stock Warrants 17 149 New Haven Pharmaceuticals, Inc. (2) Biotechnology 103,982 Preferred Stock Warrants 88 178 Nivalis Theraputics, Inc. (5) Biotechnology 18,534 Common Stock Warrants 122 — Ocera Therapeutics, Inc. (2)(5) Biotechnology 6,460 Common Stock Warrants 6 — Palatin Technologies, Inc. (2)(5) Biotechnology 608,058 Common Stock Warrants 51 16 Revance Therapeutics, Inc. (5) Biotechnology 34,377 Common Stock Warrants 68 684 Sample6, Inc. (2) Biotechnology 351,018 Preferred Stock Warrants 45 40 Sunesis Pharmaceuticals, Inc. (5) Biotechnology 12,302 Common Stock Warrants 5 — AccuVein Inc. (2) Medical Device 75,769 Preferred Stock Warrants 24 30 Direct Flow Medical, Inc. Medical Device 176,922 Preferred Stock Warrants 144 41 EnteroMedics, Inc. (5) Medical Device 141,025 Common Stock Warrants 347 — IntegenX, Inc. (2) Medical Device 158,006 Preferred Stock Warrants 33 25 Lantos Technologies, Inc. (2) Medical Device 1,287,817 Preferred Stock Warrants 38 43 Mederi Therapeutics, Inc. (2) Medical Device 248,736 Preferred Stock Warrants 26 41 Mitralign, Inc. (2) Medical Device 641,909 Preferred Stock Warrants 52 38 NinePoint Medical, Inc. (2) Medical Device 566,038 Preferred Stock Warrants 33 34 OraMetrix, Inc. (2) Medical Device 812,348 Preferred Stock Warrants 78 — Tryton Medical, Inc. (2) Medical Device 122,362 Preferred Stock Warrants 15 12 ViOptix, Inc. Medical Device 375,763 Preferred Stock Warrants 13 — ZetrOZ, Inc. (2) Medical Device 475,561 Preferred Stock Warrants 25 — Total Warrants — Life Science 1,361 1,331 Warrants — Technology — 2.6% (8) Ekahau, Inc. (2) Communications 978,261 Preferred Stock Warrants 33 19 OpenPeak, Inc. Communications 18,997 Common Stock Warrants 89 — Overture Networks, Inc. Communications 385,617 Preferred Stock Warrants 55 386 Additech, Inc. (2) Consumer-relatedTechnologies 150,000 Preferred Stock Warrants 32 27 Everyday Health, Inc. (5) Consumer-relatedTechnologies 43,783 Common Stock Warrants 69 1 Gwynnie Bee, Inc. (2) Consumer-relatedTechnologies 268,591 Preferred Stock Warrants 68 634 If(we), Inc. Consumer-relatedTechnologies 190,868 Preferred Stock Warrants 27 62 Rhapsody International Inc. (2) Consumer-relatedTechnologies 852,273 Common Stock Warrants 164 165 SavingStar, Inc. (2) Consumer-relatedTechnologies 79,088 Preferred Stock Warrants 48 49 XIOtech, Inc. Data Storage 2,217,979 Preferred Stock Warrants 22 19 SimpleTuition, Inc. Internet andmedia 189,573 Preferred Stock Warrants 63 69 The NanoSteel Company, Inc. (2) Materials 147,424 Preferred Stock Warrants 93 95 IntelePeer, Inc. Networking 141,549 Common Stock Warrants 39 27 Nanocomp Technologies, Inc. (2) Networking 272,728 Preferred Stock Warrants 25 20 Aquion Energy, Inc. PowerManagement 115,051 Preferred Stock Warrants 7 57 Powerhouse Dynamics, Inc. (2) PowerManagement 290,698 Preferred Stock Warrants 27 28 Avalanche Technology, Inc. (2) Semiconductors 202,602 Preferred Stock Warrants 101 45 eASIC Corporation (2) Semiconductors 40,445 Preferred Stock Warrants 25 29 InVisage Technologies, Inc. (2) Semiconductors 185,790 Preferred Stock Warrants 48 47 Kaminario, Inc. Semiconductors 1,087,203 Preferred Stock Warrants 59 65 Luxtera, Inc.(2) Semiconductors 2,304,667 Preferred Stock Warrants 48 103 Soraa, Inc. (2) Semiconductors 180,000 Preferred Stock Warrants 80 102 See Notes to Consolidated Financial Statements 82  Horizon Technology Finance Corporation and Subsidiaries Consolidated Schedule of InvestmentsDecember 31, 2015(In thousands) Portfolio Company (1) Sector Type of Investment (3)(4)(7)(9)(10) Cost ofInvestments (6) FairValue Xtera Communications, Inc. (5) Semiconductors 37,831 Preferred Stock Warrants 206 — Bolt Solutions Inc. (2) Software 202,892 Preferred Stock Warrants 113 119 Bridge2 Solutions, Inc. Software 1,769 Common Stock Warrants 18 688 Clarabridge, Inc. Software 53,486 Preferred Stock Warrants 14 82 Crowdstar, Inc. (2) Software 75,428 Preferred Stock Warrants 14 14 Decisyon, Inc. (2) Software 2,526,909 Common Stock Warrants 46 — Digital Signal Corporation Software 85,308 Common Stock Warrants 32 32 Education Elements, Inc. (2) Software 238,122 Preferred Stock Warrants 28 29 Lotame Solutions, Inc. (2) Software 288,115 Preferred Stock Warrants 22 271 Lytx, Inc. Software 71,639 Preferred Stock Warrants 20 121 Netuitive, Inc. Software 41,569 Common Stock Warrants 48 — Riv Data Corp. (2) Software 237,361 Preferred Stock Warrants 13 12 ScoreBig, Inc. (2) Software 481,198 Preferred Stock Warrants 55 57 SIGNiX, Inc. (2) Software 63,365 Preferred Stock Warrants 48 49 Skyword, Inc. Software 301,056 Preferred Stock Warrants 48 48 SpringCM, Inc. (2) Software 2,385,686 Preferred Stock Warrants 55 54 Sys-Tech Solutions, Inc. Software 375,000 Preferred Stock Warrants 242 524 Vidsys, Inc. Software 37,346 Preferred Stock Warrants 23 — Visage Mobile, Inc. Software 1,692,047 Preferred Stock Warrants 19 — xTech Holdings, Inc. (2) Software 111,111 Preferred Stock Warrants 30 32 Total Warrants — Technology 2,316 4,181 Warrants — Cleantech — 0.2% (8) Renmatix, Inc. AlternativeEnergy 53,022 Preferred Stock Warrants 68 68 Semprius, Inc. AlternativeEnergy 519,981 Preferred Stock Warrants 25 21 Rypos, Inc. (2) EnergyEfficiency 5,627 Preferred Stock Warrants 44 32 Tigo Energy, Inc. (2) EnergyEfficiency 804,604 Preferred Stock Warrants 100 111 Lehigh Technologies, Inc. (2) Waste Recycling 272,727 Preferred Stock Warrants 32 34 Total Warrants — Cleantech 269 266 Warrants — Healthcare information and services— 0.6% (8) Accumetrics, Inc. Diagnostics 100,928 Preferred Stock Warrants 108 63 BioScale, Inc. (2) Diagnostics 315,618 Common Stock Warrants 54 — Candescent Health, Inc. (2) Diagnostics 519,992 Preferred Stock Warrants 378 — Helomics Corporation Diagnostics 13,461Common Stock Warrants 73 — Interleukin Genetics, Inc. (2)(5) Diagnostics 2,492,523 Common Stock Warrants 112 2 LifePrint Group, Inc. (2) Diagnostics 49,000 Preferred Stock Warrants 29 24 Singulex, Inc. Other Healthcare 293,632 Preferred Stock Warrants 43 167 Verity Solutions Group, Inc. Other Healthcare 300,360 Preferred Stock Warrants 100 36 Watermark Medical, Inc. (2) Other Healthcare 27,373 Preferred Stock Warrants 74 65 Innovatient Solutions, Inc. (2) Software 157,895 Preferred Stock Warrants 35 35 MedAvante, Inc. (2) Software 114,285 Preferred Stock Warrants 66 68 Medsphere Systems Corporation (2) Software 7,097,791 Preferred Stock Warrants 60 210 Recondo Technology, Inc. (2) Software 556,796 Preferred Stock Warrants 95 197 Total Warrants — Healthcare information andservices 1,227 867 Total Warrants 5,173 6,645 Other Investments — 0.2% (8) Vette Technology, LLC Data Storage Royalty Agreement Due 4/18/2019 4,422 300 Total Other Investments 4,422 300 Equity — 0.7% (8) Insmed Incorporated (5) Biotechnology 33,208 Common Stock 238 603 Revance Therapeutics, Inc.(5) Biotechnology 4,861 Common Stock 73 166 Sunesis Pharmaceuticals, Inc. (5) Biotechnology 78,493 Common Stock 83 70 Overture Networks Inc. Communications 772,382 Common Stock 482 — SnagAJob.com, Inc. Consumer-relatedTechnologies 151,655 Common Stock 23 215 Decisyon, Inc. Technology 2,301,717 Common Stock 101 101 Total Equity 1,000 1,155 Total Portfolio Investment Assets — 156.7% (8) $255,494 $250,267 See Notes to Consolidated Financial Statements 83  Horizon Technology Finance Corporation and Subsidiaries Consolidated Schedule of InvestmentsDecember 31, 2015(In thousands) Portfolio Company (1) Sector Type of Investment (3)(4)(7)(9)(10) Cost ofInvestments (6) FairValue Short Term Investments — Money Market Funds— 0.2% (8) US Bank Money Market Deposit Account $285 $285 Total Short Term Investments — Money MarketFunds $285 $285 Short Term Investments — Restricted Investments— 0.7% (8) US Bank Money Market Deposit Account (2) $1,091 $1,091 Total Short Term Investments — RestrictedInvestments $1,091 $1,091 (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 theUnited States. (2) Has been pledged as collateral under the Key Facility or the 2013-1 Securitization. (3) All investments are less than 5% ownership of the class and ownership of the portfolio company. (4) All interest is payable in cash due monthly in arrears, unless otherwise indicated, and applies only to the Company’s debt investments. Interest rate isthe annual interest rate on the debt investment and does not include end-of-term payments (“ETPs”) and any additional fees related to the investments,such as deferred interest, commitment fees or prepayment fees. All debt investments are at fixed rates for the term of the debt investment, unlessotherwise indicated. Debt investments based on LIBOR are based on one-month LIBOR. For each debt investment, the current interest rate in effect as ofDecember 31, 2015 is provided. (5) Portfolio company is a public company. (6) For debt investments, represents principal balance less unearned income. (7) Warrants, Equity and Other Investments are non-income producing. (8) Value as a percent of net assets. (9) The Company did not have any non-qualifying assets under Section 55(a) of the Investment Company Act of 1940, as amended (the “1940 Act”) as ofDecember 31, 2015. Under the 1940 Act, the Company may not acquire any non-qualifying assets unless, at the time the acquisition is made, qualifyingassets 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, andare a fixed percentage of the original principal balance of the debt investments unless otherwise noted. Interest will accrue during the life of the debtinvestment 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 maypay its Advisor will be based on income that the Company has not yet received in cash. (11) Debt investment is on non-accrual status at December 31, 2015. See Notes to Consolidated Financial Statements 84  Horizon Technology Finance Corporation and Subsidiaries Consolidated Schedule of InvestmentsDecember 31, 2014(In thousands) Principal Cost of Fair Portfolio Company (1) Sector Type of Investment (3)(4)(7)(10)(11) Amount Investments (6) Value Debt Investments — 144.1% (9) Debt Investments — Life Science — 31.4% (9) Argos Therapeutics, Inc. (2)(5) Biotechnology Term Loan (9.25% cash (Libor + 8.75%; Floor $5,000 $4,872 $4,872 9.25%; Ceiling 10.75%), 5.00% ETP, Due 10/1/18) Inotek Pharmaceuticals Corporation (2) Biotechnology Term Loan (11.00% cash, 3.00% ETP, Due 10/1/16) 2,795 2,777 2,777 New Haven Pharmaceuticals, Inc. (2) Biotechnology Term Loan (11.50% cash (Libor + 11.00%; Floor 1,301 1,292 1,292 11.50%), 6.50% ETP, Due 11/1/17) Term Loan (11.50% cash (Libor + 11.00%; Floor 434 431 431 11.50%), 6.50% ETP, Due 11/1/17) Term Loan (10.50% cash (Libor + 10.00%; Floor 2,000 1,967 1,967 10.50%), 4.00% ETP, Due 7/1/18) Palatin Technologies, Inc. (2)(5) Biotechnology Term Loan (9.00% cash (Libor + 8.50%; Floor 5,000 4,919 4,919 9.00%), 5.00% ETP, Due 1/1/19) Sample6, Inc. (2) Biotechnology Term Loan (9.50% cash (Libor + 9.00%; Floor 1,555 1,548 1,548 9.50%; Ceiling 11.00%), 4.00% ETP, Due 4/1/18) Term Loan (9.50% cash (Libor + 9.00%; Floor 945 912 912 9.50%; Ceiling 11.00%), 4.00% ETP, Due 4/1/18) Sunesis Pharmaceuticals, Inc. (2)(5) Biotechnology Term Loan (8.95% cash, 3.75% ETP, Due 10/1/15) 677 675 675 Term Loan (9.00% cash, 3.75% ETP, Due 10/1/15) 1,016 1,008 1,008 Xcovery Holding Company, LLC (2) Biotechnology Term Loan (12.50% cash, Due 8/1/15) 292 292 292 Term Loan (12.50% cash, Due 8/1/15) 459 459 459 Term Loan (12.50% cash, Due 10/1/15) 101 101 101 AccuVein Inc. (2) Medical Device Term Loan (10.40% cash (Libor + 9.90%; Floor 4,000 3,956 3,956 10.40%; Ceiling 11.90%), 5.00% ETP, Due 2/1/18) Term Loan (10.00% cash (Libor + 9.50%; Floor 1,000 981 981 10.00%; Ceiling 12.50%), 4.00% ETP, Due 7/1/18) IntegenX Inc. (2) Medical Device Term Loan (10.75% cash (Libor + 10.25%; Floor 3,750 3,685 3,685 10.75%; Ceiling 12.75%), 3.50% ETP, Due 7/1/18) Lantos Technologies, Inc. (2) Medical Device Term Loan (10.50% cash (Libor + 10.00%; Floor 3,500 3,449 3,449 10.50%; Ceiling 12.00%), 3.00% ETP, Due 2/1/18) Mederi Therapeutics, Inc. (2) Medical Device Term Loan (10.75% cash (Libor + 10.25%; Floor 3,000 2,969 2,969 10.75%; Ceiling 12.75%), 4.00% ETP, Due 7/1/17) Term Loan (10.75% cash (Libor + 10.25%; Floor 3,000 2,969 2,969 10.75%; Ceiling 12.75%), 4.00% ETP, Due 7/1/17) Tryton Medical, Inc. (2) Medical Device Term Loan (10.41% cash (Prime + 7.16%), 2.50% 2,813 2,789 2,789 ETP, Due 9/1/16) ZetrOZ, Inc. (2) Medical Device Term Loan (11.00% cash (Libor + 10.50%; Floor 1,500 1,427 1,427 11.00%; Ceiling 12.50%), 3.00% ETP, Due 4/1/18) Total Debt Investments — Life Science 43,478 43,478 Debt Investments — Technology — 78.9% (9) Ekahau, Inc. (2) Communications Term Loan (11.75% cash, 2.50% ETP, Due 2/1/17) 1,279 1,267 1,267 Term Loan (11.75% cash, 2.50% ETP, Due 2/1/17) 426 422 422 mBlox, Inc. (2) Communications Term Loan (11.50% cash (Libor + 11.00%; Floor 5,000 4,967 4,967 11.50%; Ceiling 13.00%), 2.5% ETP, Due 7/1/18) Term Loan (11.50% cash (Libor + 11.00%; Floor 5,000 4,967 4,967 11.50%; Ceiling 13.00%), 2.5% ETP, Due 7/1/18) Overture Networks, Inc. (2) Communications Term Loan (10.75% cash, (Libor + 10.25%; Floor 4,104 4,071 4,071 10.75%), 5.75% ETP, Due 12/1/17) Term Loan (10.75% cash (Libor + 10.25%; Floor 2,052 2,038 2,038 10.75%), 5.75% ETP, Due 12/1/17) Additech, Inc. (2) Consumer-relatedTechnologies Term Loan (11.75% cash (Libor + 11.25%; Floor 2,500 2,417 2,417 11.75%; Ceiling 13.25%), 4.00% ETP, Due 7/1/18) Gwynnie Bee, Inc. (2) Consumer-relatedTechnologies Term Loan (11.00% cash (Libor + 10.50%; Floor 2,000 1,966 1,966 11.00%; Ceiling 12.50%), 2.00% ETP, Due 11/1/17) Term Loan (11.00% cash (Libor + 10.50%; Floor 1,000 974 974 11.00%; Ceiling 12.50%), 2.00% ETP, Due 2/1/18) Term Loan (11.00% cash (Libor + 10.50%; Floor 1,000 980 980 11.00%; Ceiling 12.50%), 2.00% ETP, Due 4/1/18) Nanocomp Technologies, Inc. (2) Networking Term Loan (11.50% cash, 3.00% ETP, Due 11/1/17) 1,000 981 981 Avalanche Technology, Inc. (2) Semiconductors Term Loan (10.00% cash (Libor + 9.25%; Floor 1,983 1,972 1,972 10.00%; Ceiling 11.75%), 2.40% ETP, Due 4/1/17) Term Loan (10.00% cash (Libor + 9.25%; Floor 2,246 2,179 2,179 See Notes to Consolidated Financial Statements 85  Horizon Technology Finance Corporation and Subsidiaries Consolidated Schedule of InvestmentsDecember 31, 2014(In thousands) Principal Cost of Fair Portfolio Company (1) Sector Type of Investment (3)(4)(7)(10)(11) Amount Investments (6) Value 10.00%; Ceiling 11.75%), 2.40% ETP, Due 10/1/18) eASIC Corporation (2) Semiconductors Term Loan (11.00% cash, 2.50% ETP, Due 4/1/17) 2,000 1,982 1,982 Term Loan (10.75% cash, 2.50% ETP, Due 4/1/18) 2,000 1,983 1,983 InVisage Technologies, Inc. (2) Semiconductors Term Loan (12.00% cash (Libor + 11.50%; Floor 2,550 2,469 2,469 12.00%; Ceiling 14.00%), 2.00% ETP, Due 4/1/18) Kaminario, Inc. (2) Semiconductors Term Loan (10.50% cash, 2.50% ETP, Due 11/1/16) 2,275 2,255 2,255 Term Loan (10.50% cash, 2.50% ETP, Due 11/1/16) 2,275 2,255 2,255 Luxtera, Inc. (2) Semiconductors Term Loan (10.25% cash, 13.00% ETP, Due 7/1/17) 2,632 2,590 2,590 Term Loan (10.25% cash, 13.00% ETP, Due 7/1/17) 1,469 1,462 1,462 NexPlanar Corporation (2) Semiconductors Term Loan (10.50% cash, 2.50% ETP, Due 12/1/16) 2,368 2,352 2,352 Term Loan (10.50% cash, 2.50% ETP, Due 12/1/16) 1,579 1,564 1,564 Xtera Communications, Inc. (2) Semiconductors Term Loan (11.50% cash, 15.65% ETP, Due 12/31/16) 5,846 5,708 5,708 Term Loan (11.50% cash, 21.75% ETP, Due 12/31/16) 1,624 1,584 1,584 Courion Corporation (2) Software Term Loan (11.45% cash, Due 10/1/15) 1,279 1,277 1,277 Term Loan (11.45% cash, Due 10/1/15) 1,279 1,277 1,277 Crowdstar, Inc. (2) Software Term Loan (10.75% cash (Libor + 10.25%; Floor 2,000 1,956 1,956 10.75%), 3.00% ETP, Due 9/1/18) Decisyon, Inc. (2) Software Term Loan (11.65% cash, 5.00% ETP, Due 9/1/16) 2,919 2,899 2,899 Term Loan (11.65% cash, 5.00% ETP, Due 11/1/17) 1,000 986 986 Lotame Solutions, Inc. (2) Software Term Loan (11.50% cash (Libor + 11.00%; Floor 3,410 3,390 3,390 11.50%), 5.25% ETP, Due 9/1/17) Term Loan (11.50% cash (Libor + 11.00%; Floor 1,500 1,491 1,491 11.50%), 5.25% ETP, Due 9/1/17) Term Loan (11.50% cash (Libor + 11.00%; Floor 2,100 2,070 2,070 11.50%), 3.00% ETP, Due 4/1/18) Netuitive, Inc. (2) Software Term Loan (12.75% cash, Due 7/1/16) 1,717 1,707 1,707 Raydiance, Inc. (2) Software Term Loan (11.50% cash, 2.75% ETP, Due 9/1/16) 3,490 3,468 3,468 Term Loan (11.50% cash, 2.75% ETP, Due 9/1/16) 698 688 688 Term Loan (11.50% cash (Libor + 11.00%; Floor 3,000 2,955 2,955 11.50%; Ceiling 13.50%), 2.75% ETP, Due 2/1/18) Razorsight Corporation (2) Software Term Loan (11.75% cash, 3.00% ETP, Due 11/1/16) 1,142 1,132 1,132 Term Loan (11.75% cash, 3.00% ETP, Due 8/1/16) 1,000 990 990 Term Loan (11.75% cash, 3.00% ETP, Due 7/1/17) 1,000 988 988 SIGNiX, Inc. (2) Software Term Loan (11.50% cash (Libor + 11.00%; Floor 3,000 2,902 2,902 11.50%), Due 7/1/18) Social Intelligence Corp. (2) Software Term Loan (11.00% cash (Libor + 10.50%; Floor 1,500 1,477 1,477 11.00%; Ceiling 13.00%), 3.50% ETP, Due 12/1/17) SpringCM, Inc. (2) Software Term Loan (11.50% cash (Libor + 11.00%; Floor 4,500 4,412 4,412 11.50%; Ceiling 13.00%), 2.00% ETP, Due 1/1/18) Sys-Tech Solutions, Inc. (2) Software Term Loan (11.65% cash (Libor + 11.15%; Floor 6,000 5,954 5,954 11.65%; Ceiling 12.65%), 4.50% ETP, Due 3/1/18) Term Loan (11.65% cash (Libor + 11.15%; Floor 5,000 4,952 4,952 11.65%; Ceiling 12.65%), 9.00% ETP, Due 5/1/18) VBrick Systems, Inc. (2) Software Term Loan (11.50% cash (Libor + 11.00%; Floor 3,000 2,979 2,979 11.50%; Ceiling 13.50%), 5.00% ETP, Due 7/1/17) Vidsys, Inc. (2) Software Term Loan (11.00% cash, 7.58% ETP, Due 4/1/15) 3,000 2,993 2,993 Visage Mobile, Inc. (2) Software Term Loan (12.00% cash, 3.50% ETP, Due 9/1/16) 645 640 640 Total Debt Investments — Technology 108,988 108,988 Debt Investments — Cleantech — 9.3% (9) Renmatix, Inc. (2) AlternativeEnergy Term Loan (10.25% cash, 3.00% ETP, Due 2/1/16) 1,148 1,145 1,145 Term Loan (10.25% cash, 3.00% ETP, Due 2/1/16) 1,148 1,145 1,145 Term Loan (10.25% cash, Due 10/1/16) 3,488 3,469 3,469 Semprius, Inc. (2)(8) AlternativeEnergy Term Loan (10.25% cash, 2.50% ETP, Due 6/1/16) 2,432 2,432 2,250 Aurora Algae, Inc. (2) Consumer-relatedTechnologies Term Loan (10.50% cash, 2.00% ETP, Due 5/1/15) 397 396 396 Rypos, Inc. (2) EnergyEfficiency Term Loan (11.80% cash, Due 1/1/17) 2,670 2,643 2,643 Term Loan (11.80% cash, Due 9/1/17) 1,000 986 986 Tigo Energy, Inc. (2) EnergyEfficiency Term Loan (13.00% cash, 3.16% ETP, Due 6/1/15) 786 785 785 Total Debt Investments — Cleantech 13,001 12,819 Debt Investments — Healthcare information andservices — 24.5% (9) Interleukin Genetics, Inc. (2)(5) Diagnostics Term Loan (9.00% cash (Libor + 8.50%; Floor 9.00%) 5,000 4,837 4,837 4.50% ETP, Due 10/1/18) See Notes to Consolidated Financial Statements 86  Horizon Technology Finance Corporation and Subsidiaries Consolidated Schedule of InvestmentsDecember 31, 2014(In thousands) Portfolio Company (1) Sector Type of Investment (3)(4)(7)(10)(11) PrincipalAmount Cost ofInvestments (6) FairValue LifePrint Group, Inc. (2) Diagnostics Term Loan (11.00% cash (Libor + 10.50%; Floor 3,000 2,949 2,747 11.00%; Ceiling 12.50%), 3.00% ETP, Due 1/1/18) Radisphere National Radiology Group, Inc. (2) Diagnostics Revolver (11.25% cash (Prime + 8.00%), 10,092 10,053 10,053 Due 10/1/15) Watermark Medical, Inc. (2) Other Healthcare Term Loan (12.00% cash, 4.00% ETP, Due 4/1/17) 3,500 3,473 3,473 Term Loan (12.00% cash, 4.00% ETP, Due 4/1/17) 3,500 3,473 3,473 Recondo Technology, Inc. (2) Software Term Loan (11.50% cash (Libor + 11.00%; Floor 1,384 1,379 1,379 11.50%), 6.60% ETP, Due 12/1/17) Term Loan (11.00% cash (Libor + 10.50%; Floor 2,500 2,490 2,490 11.00%), 4.50% ETP, Due 12/1/17) Term Loan (10.50% cash (Libor + 10.00%; Floor 2,500 2,490 2,490 10.50%), 2.75% ETP, Due 12/1/17) Term Loan (10.50% cash (Libor + 10.00%; Floor 3,000 2,953 2,953 10.50%), 2.50% ETP, Due 1/1/19) Total Debt Investments — Healthcare information and services 34,097 33,895 Total Debt Investments 199,564 199,180 Warrant Investments — 3.4% (9) Warrants — Life Science — 0.6% (9) ACT Biotech Corporation Biotechnology 1,521,820 Preferred Stock Warrants 83 — Argos Therapeutics, Inc. (2)(5) Biotechnology 16,556 Common Stock Warrants 33 31 Celsion Corporation (5) Biotechnology 5,708 Common Stock Warrants 15 — Inotek Pharmaceuticals Corporation Biotechnology 33,762 Preferred Stock Warrants 17 15 N30 Pharmaceuticals, Inc. Biotechnology 53,550 Common Stock Warrants 122 — New Haven Pharmaceuticals, Inc. (2) Biotechnology 55,347 Preferred Stock Warrants 42 136 Palatin Technologies, Inc. (2)(5) Biotechnology 333,333 Common Stock Warrants 31 31 Revance Therapeutics, Inc. (5) Biotechnology 34,377 Common Stock Warrants 68 120 Sample6, Inc. (2) Biotechnology 351,018 Preferred Stock Warrants 45 39 Supernus Pharmaceuticals, Inc. (2)(5) Biotechnology 42,083 Common Stock Warrants 93 165 Tranzyme, Inc. (2)(5) Biotechnology 6,460 Common Stock Warrants 6 — AccuVein Inc. (2) Medical Device 75,769 Preferred Stock Warrants 24 29 Direct Flow Medical, Inc. Medical Device 176,922 Preferred Stock Warrants 144 40 EnteroMedics, Inc. (5) Medical Device 141,026 Common Stock Warrants 347 — IntegenX, Inc. (2) Medical Device 158,006 Preferred Stock Warrants 33 31 Lantos Technologies, Inc. (2) Medical Device 858,545 Preferred Stock Warrants 24 23 Mederi Therapeutics, Inc. (2) Medical Device 248,736 Preferred Stock Warrants 26 40 Mitralign, Inc. (2) Medical Device 641,909 Preferred Stock Warrants 52 37 OraMetrix, Inc. (2) Medical Device 812,348 Preferred Stock Warrants 78 — Tengion, Inc. (2)(5) Medical Device 1,864,876 Common Stock Warrants 123 — Tryton Medical, Inc. (2) Medical Device 122,362 Preferred Stock Warrants 15 13 ViOptix, Inc. Medical Device 375,763 Preferred Stock Warrants 13 — ZetrOZ, Inc. (2) Medical Device 475,561 Preferred Stock Warrants 25 24 Total Warrants — Life Science 1,459 774 Warrants — Technology — 2.2% (9) Ekahau, Inc. (2) Communications 978,261 Preferred Stock Warrants 33 19 OpenPeak, Inc. Communications 18,997 Common Stock Warrants 89 — Overture Networks, Inc. Communications 385,617 Preferred Stock Warrants 56 — Additech, Inc. (2) Consumer-relatedTechnologies 150,000 Preferred Stock Warrants 33 33 Everyday Health, Inc. (5) Consumer-relatedTechnologies 43,783 Common Stock Warrants 69 179 Gwynnie Bee, Inc. (2) Consumer-relatedTechnologies 268,591 Preferred Stock Warrants 68 312 SnagAJob.com, Inc. Consumer-relatedTechnologies 365,396 Preferred Stock Warrants 23 305 Tagged, Inc. Consumer-relatedTechnologies 190,868 Preferred Stock Warrants 26 62 XIOtech, Inc. Data Storage 2,217,979 Preferred Stock Warrants 22 18 Cartera Commerce, Inc. Internet andmedia 90,909 Preferred Stock Warrants 16 159 SimpleTuition, Inc. Internet andmedia 189,573 Preferred Stock Warrants 63 29 IntelePeer, Inc. Networking 141,549 Preferred Stock Warrants 39 33 Nanocomp Technologies, Inc. (2) Networking 272,728 Preferred Stock Warrants 25 24 Aquion Energy, Inc. PowerManagement 115,051 Preferred Stock Warrants 7 56 Avalanche Technology, Inc. (2) Semiconductors 352,828 Preferred Stock Warrants 101 98 eASIC Corporation (2) Semiconductors 40,445 Preferred Stock Warrants 25 28 InVisage Technologies, Inc. (2) Semiconductors 165,147 Preferred Stock Warrants 43 41 See Notes to Consolidated Financial Statements  87  Horizon Technology Finance Corporation and Subsidiaries Consolidated Schedule of InvestmentsDecember 31, 2014(In thousands) Cost of Fair Portfolio Company (1) Sector Type of Investment (3)(4)(7)(10)(11) Investments (6) Value Kaminario, Inc. Semiconductors 1,087,203 Preferred Stock Warrants 59 64 Luxtera, Inc. Semiconductors 2,087,766 Preferred Stock Warrants 43 105 NexPlanar Corporation Semiconductors 216,001 Preferred Stock Warrants 36 56 Soraa, Inc. (2) Semiconductors 180,000 Preferred Stock Warrants 80 77 Xtera Communications, Inc. Semiconductors 983,607 Preferred Stock Warrants 206 — Bolt Solutions, Inc. (2) Software 202,892 Preferred Stock Warrants 113 118 Clarabridge, Inc. Software 53,486 Preferred Stock Warrants 14 104 Courion Corporation Software 772,543 Preferred Stock Warrants 107 — Crowdstar, Inc. (2) Software 75,428 Preferred Stock Warrants 14 14 Decisyon, Inc. (2) Software 457,876 Preferred Stock Warrants 46 28 DriveCam, Inc. Software 71,639 Preferred Stock Warrants 20 121 Lotame Solutions, Inc. (2) Software 288,115 Preferred Stock Warrants 23 160 Netuitive, Inc. Software 41,569 Preferred Stock Warrants 48 — Raydiance, Inc. (2) Software 1,051,120 Preferred Stock Warrants 71 67 Razorsight Corporation (2) Software 259,404 Preferred Stock Warrants 43 44 SIGNiX, Inc. (2) Software 63,365 Preferred Stock Warrants 48 48 Riv Data Corp. (2) Software 237,361 Preferred Stock Warrants 13 12 SpringCM, Inc. (2) Software 2,385,686 Preferred Stock Warrants 55 53 Sys-Tech Solutions, Inc. Software 375,000 Preferred Stock Warrants 242 536 Vidsys, Inc. Software 37,346 Preferred Stock Warrants 23 — Visage Mobile, Inc. Software 1,692,047 Preferred Stock Warrants 19 17 Total Warrants — Technology 2,061 3,020 Warrants — Cleantech — 0.1% (9) Renmatix, Inc. AlternativeEnergy 52,296 Preferred Stock Warrants 67 67 Semprius, Inc. AlternativeEnergy 519,981 Preferred Stock Warrants 25 — Rypos, Inc. (2) EnergyEfficiency 5,627 Preferred Stock Warrants 44 40 Tigo Energy, Inc. (2) EnergyEfficiency 804,604 Preferred Stock Warrants 99 33 Total Warrants — Cleantech 235 140 Warrants — Healthcare information and services— 0.5% (9) Accumetrics, Inc. Diagnostics 100,928 Preferred Stock Warrants 107 63 BioScale, Inc. (2) Diagnostics 315,618 Preferred Stock Warrants 55 — LifePrint Group, Inc. (2) Diagnostics 49,000 Preferred Stock Warrants 29 29 Interleukin Genetics, Inc. (2)(5) Diagnostics 2,492,523 Common Stock Warrants 112 112 Helomics Corporation Diagnostics 13,461 Preferred Stock Warrants 73 — Radisphere National Radiology Group, Inc. (2) Diagnostics 519,992 Preferred Stock Warrants 378 — Singulex, Inc. Other Healthcare 293,632 Preferred Stock Warrants 44 141 Talyst, Inc. Other Healthcare 300,360 Preferred Stock Warrants 100 52 Watermark Medical, Inc. Other Healthcare 12,216 Preferred Stock Warrants 67 62 Recondo Technology, Inc. (2) Software 556,796 Preferred Stock Warrants 95 210 Total Warrants — Healthcare information andservices 1,060 669 Total Warrants 4,815 4,603 Other Investments — 0.2% (9) Vette Technology, LLC Data Storage Royalty Agreement Due 4/18/2019 4,582 300 Total Other Investments 4,582 300 Equity — 0.7% (9) Insmed Incorporated (5) Biotechnology 33,208 Common Stock 239 514 Revance Therapeutics, Inc.(5) Biotechnology 4,861 Common Stock 73 82 Sunesis Pharmaceuticals, Inc. (5) Biotechnology 78,493 Common Stock 83 200 Overture Networks Inc. Communications 386,191 Common Stock 482 222 Total Equity 877 1,018 Total Portfolio Investment Assets — 148.4% (9) $209,838 $205,101 Short Term Investments — Money Market Funds— 0.0% (9) US Bank Money Market Deposit Account $27 $27 Total Short Term Investments — Money MarketFunds $27 $27 See Notes to Consolidated Financial Statements 88  Horizon Technology Finance Corporation and Subsidiaries Consolidated Schedule of InvestmentsDecember 31, 2014(In thousands) Cost of Fair Portfolio Company (1) Sector Type of Investment (3)(4)(7)(10)(11) Investments (6) Value Short Term Investments — Restricted Investments— 2.1% (9) US Bank Money Market Deposit Account (2) $2,906 $2,906 Total Short Term Investments — Restricted Investments $2,906 $2,906 (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 theUnited States. (2) Has been pledged as collateral under the Key Facility or 2013-1 Securitization. (3) All investments are less than 5% ownership of the class and ownership of the portfolio company. (4) All interest is payable in cash due monthly in arrears, unless otherwise indicated, and applies only to the Company’s debt investments. Interest rate isthe annual interest rate on the debt investment and does not include ETP and any additional fees related to the investments, such as deferred interest,commitment fees or prepayment fees. All debt investments are at fixed rates for the term of the debt investment, unless otherwise indicated. Debtinvestments based on LIBOR are based on one-month LIBOR. For each debt investment, the current interest rate in effect as of December 31, 2014 isprovided. (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) Debt investment is on non-accrual status at December 31, 2014, and interest payments received were recognized as income on a cash basis. (9) Value as a percent of net assets. (10) The Company did not have any non-qualifying assets under Section 55(a) of the 1940 Act as of December 31, 2014. Under the 1940 Act, the Companymay not acquire any non-qualifying assets unless, at the time the acquisition is made, qualifying assets represent at least 70% of the Company’s totalassets. (11) ETPs are contractual fixed-interest payments due in cash at the maturity date of the applicable debt investment, including upon any prepayment, andare a fixed percentage of the original principal balance of the debt investments unless otherwise noted. Interest will accrue during the life of the debtinvestment 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 maypay its Advisor will be based on income that the Company has not yet received in cash. See Notes to Consolidated Financial Statements 89  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 theInvestment Company Act of 1940, as amended (the “1940 Act”). In addition, for tax purposes, the Company has elected to be treated as a regulatedinvestment company (“RIC”) as defined under Subchapter M of the Internal Revenue Code of 1986, as amended (the “Code”). As a RIC, the Companygenerally is not subject to corporate-level federal income tax on the portion of its taxable income and capital gains the Company distributes to itsstockholders. The Company primarily makes secured debt investments to development-stage companies in the technology, life science, healthcareinformation and services and cleantech industries. All of the Company’s debt investments consist of loans secured by all of, or a portion of, the applicabledebtor 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 Marketunder the symbol “HRZN.” The Company was formed to continue and expand the business of Compass Horizon Funding Company LLC (“CHF”), a Delawarelimited liability company, which commenced operations in March 2008 and became the Company’s wholly owned subsidiary upon the completion of theCompany’s IPO. Horizon Credit I LLC (“Credit I”) was formed as a Delaware limited liability company on January 23, 2008, with CHF as its sole equity member. Credit Iwas a separate legal entity from the Company and CHF. Credit I has been dissolved as of December 31, 2015. 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 tocreditors of the Company or any other entity other than Credit II’s lenders. Horizon Credit III LLC (“Credit III”) was formed as a Delaware limited liability company on May 30, 2012, with the Company as the sole equitymember. Credit III was a special purpose bankruptcy remote entity and was a separate legal entity from the Company. Credit III has been dissolved as ofDecember 31, 2015. Longview SBIC GP LLC and Longview SBIC LP (collectively, “Horizon SBIC”) were formed as a Delaware limited liability company and Delawarelimited partnership, respectively, on February 11, 2011. Horizon SBIC are wholly owned subsidiaries of the Company and were formed in anticipation ofobtaining a license to operate a small business investment company from the U. S. Small Business Administration. There has been no activity in HorizonSBIC since its inception. The Company formed Horizon Funding 2013-1 LLC (“2013-1 LLC”) as a Delaware limited liability company on June 7, 2013 and Horizon FundingTrust 2013-1 (“2013-1 Trust” and, together with 2013-1 LLC, the “2013-1 Entities”) as a Delaware trust on June 18, 2013. The 2013-1 Entities are specialpurpose bankruptcy remote entities and are separate legal entities from the Company. The Company formed the 2013-1 Entities for purposes of securitizing$189.3 million of secured loans (the “2013-1 Securitization”) and issuing fixed-rate asset-backed notes in an aggregate principal amount of $90 million (the“Asset-Backed Notes”). The Company has also established an additional wholly owned subsidiary, which is structured as a Delaware limited liability company, to hold theassets 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 theCompany makes and capital appreciation from the warrants the Company receives when making such debt investments. The Company has entered into aninvestment management agreement, which was amended and restated effective July 1, 2014 (the “Investment Management Agreement”), with HorizonTechnology Finance Management LLC (the “Advisor”), under which the Advisor manages the day-to-day operations of, and provides investment advisoryservices to, the Company. 90  Horizon Technology Finance Corporation and Subsidiaries Notes to Consolidated Financial Statements On March 24, 2015, the Company completed a public offering of 2,000,000 shares of its common stock at a public offering price of $13.95 per share, fortotal net proceeds to the Company of $26.5 million, after deducting underwriting commission and discounts and other offering expenses (the “2015Offering”). 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-K and Articles 6 and 10 of Regulation S-X under the Securities Act of 1933, as amended(“Regulation S-X”). In the opinion of management, the consolidated financial statements reflect all adjustments and reclassifications that are necessary forthe fair presentation of financial results as of and for the periods presented. All intercompany balances and transactions have been eliminated. Certain priorperiod amounts have been reclassified to conform to the current period presentation. 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 companysubsidiary or a controlled operating company whose business consists of providing services to the Company. Accordingly, the Company consolidated theresults of the Company’s subsidiaries in its consolidated financial statements. Use of estimates In preparing the consolidated financial statements in accordance with GAAP, management is required to make estimates and assumptions that affect thereported amounts of assets and liabilities, and disclosures of contingent assets and liabilities, as of the date of the balance sheet and income and expenses forthe period. Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant change in the near term relate tothe 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 valueand requires disclosures for fair value measurements. The Company has categorized its investments carried at fair value, based on the priority of the valuationtechnique, into a three-level fair value hierarchy as more fully described in Note 5. Fair value is a market-based measure considered from the perspective ofthe market participant who holds the financial instrument rather than an entity specific measure. Therefore, when market assumptions are not readilyavailable, the Company’s own assumptions are set to reflect those that management believes market participants would use in pricing the financialinstrument 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 marketconditions. To the extent that the valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fairvalue requires more judgment. Accordingly, the degree of judgment exercised by the Company in determining fair value is greatest for financial instrumentsclassified as Level 3. See Note 5 for additional information regarding fair value. Segments The Company has determined that it has a single reporting segment and operating unit structure. The Company lends to and invests in portfoliocompanies in various technology, life science, healthcare information and services and cleantech industries. The Company separately evaluates theperformance of each of its lending and investment relationships. However, because each of these debt investments and investment relationships has similarbusiness and economic characteristics, they have been aggregated into a single lending and investment segment. 91  Horizon Technology Finance Corporation and Subsidiaries Notes to Consolidated Financial Statements Investments Investments are recorded at fair value. The Company’s board of directors (the “Board”) determines the fair value of the Company’s portfolioinvestments. 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 isdetermined using a method that results in a level rate of return on principal amounts outstanding. Generally, when a debt investment becomes 90 days ormore past due, or if the Company otherwise does not expect to receive interest and principal repayments, the debt investment is placed on non-accrual statusand the recognition of interest income may be discontinued. Interest payments received on non-accrual debt investments may be recognized as income, on acash basis, or applied to principal depending upon management’s judgment at the time the debt investment is placed on non-accrual status. As of December31, 2015, there was one investment on non-accrual status with a cost of $2.7 million and a fair value of $0.5 million. As of December 31, 2014, there was oneinvestment on non-accrual status with a cost of $2.4 million and a fair value of $2.3 million. For the years ended December 31, 2015 and 2014, we recognizedinterest income payments of $0.2 million and $0.3 million, respectively, received from one portfolio company whose debt investment was on non-accrualstatus. 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 depositearned upon the termination of a transaction. Debt investment origination fees, net of certain direct origination costs, are deferred and, along with unearnedincome, are amortized as a level-yield adjustment over the respective term of the debt investment. All other income is recognized when earned. Fees forcounterparty debt investment commitments with multiple debt investments are allocated to each debt investment based upon each debt investment’s relativefair value. When a debt investment is placed on non-accrual status, the amortization of the related fees and unearned income is discontinued until the debtinvestment is returned to accrual status. Certain debt investment agreements also require the borrower to make an end-of-term payment (“ETP”), that is accrued into interest receivable andtaken into income over the life of the debt investment to the extent such amounts are expected to be collected. The Company will generally cease accruingthe 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. Theproportion of the Company’s total investment income that resulted from the portion of ETPs not received in cash for the years ended December 31, 2015,2014 and 2013 was 7.1%, 6.5% and 7.4%, respectively. In connection with substantially all lending arrangements, the Company receives warrants to purchase shares of stock from the borrower. The warrantsare 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 alsorecorded as unearned income on the grant date. The unearned income is recognized as interest income over the contractual life of the related debt investmentin accordance with the Company’s income recognition policy. Subsequent to debt investment origination, the fair value of the warrants is determined usingthe 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 oninvestments. Realized gains or losses on the sale of investments, or upon the determination that an investment balance, or portion thereof, is not recoverable, arecalculated using the specific identification method. The Company measures realized gains or losses by calculating the difference between the net proceedsfrom the repayment or sale and the amortized cost basis of the investment. Net change in unrealized appreciation or depreciation reflects the change in thefair values of the Company’s portfolio investments during the reporting period, including any reversal of previously recorded unrealized appreciation ordepreciation when gains or losses are realized. 92  Horizon Technology Finance Corporation and Subsidiaries Notes to Consolidated Financial Statements 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 debtsecurities. Debt issuance costs are recognized as assets and are amortized as interest expense over the term of the related debt financing. The unamortizedbalance of debt issuance costs as of December 31, 2015 and 2014, included in other assets, was $1.9 million and $2.4 million, respectively. The accumulatedamortization balances as of December 31, 2015 and 2014 were $3.9 million and $3.0 million, respectively. The amortization expense for the years endedDecember 31, 2015, 2014 and 2013 was $0.9 million, $2.7 million and $1.5 million, respectively. 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 taxtreatment applicable to RICs. In order to qualify as a RIC and to avoid corporate-level U.S. federal income tax on the income distributed to stockholders,among other things, the Company is required to meet certain source of income and asset diversification requirements and to timely distribute dividends outof assets legally available for distribution to its stockholders of an amount generally at least equal to 90% of its investment company taxable income, asdefined by the Code, for each tax year. The Company, among other things, has made and intends to continue to make the requisite distributions to itsstockholders, which will generally relieve the Company from corporate-level U.S. federal income taxes. Accordingly, no provision for federal income tax hasbeen recorded in the financial statements. Differences between taxable income and net increase in net assets resulting from operations either can betemporary, meaning they will reverse in the future, or permanent. In accordance with Section 946-205-45-3 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 reclassifiedfrom distributions in excess of net investment income and net realized loss on investments to paid-in-capital at the end of each year. These permanent book-to-tax differences are reclassified on the consolidated statements of changes in net assets to reflect their tax character but have no impact on total net assets.For the year ended December 31, 2015, the Company reclassified $1.0 million to paid-in capital from distributions in excess of net investment income of $0.9million and net realized loss on investments of $0.1 million, which related to excise taxes paid in prior years. 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 yeardistributions into the next tax year and pay a 4% U.S. federal excise tax on such income, as required. To the extent that the Company determines that itsestimated current year annual taxable income will be in excess of estimated current year distributions, the Company accrues excise tax, if any, on estimatedexcess taxable income as taxable income is earned. For the year ended December 31, 2015, there was no U.S. federal excise tax recorded. For each of the yearsended December 31, 2014 and 2013, $0.2 million was recorded for U.S. federal excise tax. The Company evaluates tax positions taken in the course of preparing the Company’s tax returns to determine whether the tax positions are “more-likely-than-not” to be sustained by the applicable tax authority in accordance with ASC Topic 740, as modified by ASC Topic 946. Tax benefits of positionsnot 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’spolicy to recognize accrued interest and penalties related to uncertain tax benefits in income tax expense. The Company had no material uncertain taxpositions at December 31, 2015 and 2014. The 2014, 2013 and 2012 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. Netrealized long-term capital gains, if any, are distributed at least annually, although the Company may decide to retain such capital gains for investment. The Company has adopted a dividend reinvestment plan that provides for reinvestment of cash distributions and other distributions on behalf of itsstockholders, unless a stockholder elects to receive cash. As a result, if the Board authorizes, and the Company declares, a cash distribution, then stockholderswho have not “opted out” of the dividend reinvestment plan will have their cash distributions automatically reinvested in additional shares of theCompany’s common stock, rather than receiving the cash distribution. The Company may use newly issued shares to implement the plan (especially if theCompany’s shares are trading at a premium to net asset value), or the Company may purchase shares in the open market to fulfill its obligations under theplan. 93  Horizon Technology Finance Corporation and Subsidiaries Notes to Consolidated Financial Statements Stock Repurchase Program On September 28, 2015, the Board authorized a stock repurchase program which allows the Company to repurchase up to $5.0 million of its commonstock 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 fromtime to time. Any repurchases by the Company will comply with the requirements of Rule 10b-18 under the Securities Exchange Act of 1934, as amended,and any applicable requirements of the 1940 Act. Unless extended by the Board, the repurchase program will terminate on the earlier of September 30, 2016or the repurchase of $5.0 million of the Company’s common stock. During the year ended December 31, 2015, the Company repurchased 113,382 shares ofits common stock at an average price of $11.53 on the open market at a total cost of $1.3 million. Transfers of financial assets Assets related to transactions that do not meet ASC Topic 860 — Transfers and Servicing requirements for accounting sale treatment are reflected in theCompany’s consolidated statements of assets and liabilities as investments. Those assets are owned by special purpose entities that are consolidated in theCompany’s financial statements. The creditors of the special purpose entities have received security interests in such assets and such assets are not intendedto 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 besurrendered when (1) the assets have been isolated from the Company — put presumptively beyond the reach of the transferor and its creditors, even inbankruptcy or other receivership, (2) the transferee obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge orexchange the transferred assets and (3) the transferor does not maintain effective control over the transferred assets through either (a) an agreement that bothentitles and obligates the transferor to repurchase or redeem the assets before maturity or (b) the ability to unilaterally cause the holder to return specificassets, other than through a cleanup call. New accounting pronouncement In April 2015, the FASB issued Accounting Standards Update (“ASU”) 2015-03, Interest—Imputation of Interest (Subtopic 835-30): Simplifying thePresentation of Debt Issuance Costs (“ASU 2015-03”) containing new guidance that will require debt issuance costs related to a recognized debt liability tobe presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, instead of being recorded as a separate asset. Thisguidance will be effective for annual and interim periods beginning on or after December 15, 2015. The Company is evaluating the impact ASU 2015-03 willhave on its consolidated financial position and disclosures. In August 2015, the FASB issued ASU 2015-15, Interest Imputation of Interest (Subtopic 835-30): Presentation and Subsequent Measurement of DebtIssue Costs Associated with Line-of-Credit Arrangements – Amendments to SEC Paragraphs Pursuant to Staff Announcement at June 18, 2015 EITFMeeting (“ASU 2015-15”) which addresses presentation and subsequent measurement of debt issuance costs associated with line-of-credit arrangements,omitted from ASU 2015-03. This update states that the SEC staff would not object to an entity deferring and presenting debt issuance costs as an asset andsubsequently amortizing the deferred debt issuance costs ratably over the term of the line-of-credit arrangement, regardless of whether there are anyoutstanding borrowings on the line-of-credit arrangement. The Company is evaluating the impact ASU 2015-15 will have on its consolidated financialposition and disclosures. 94  Horizon Technology Finance Corporation and Subsidiaries Notes to Consolidated Financial Statements Note 3. Related party transactions Investment Management Agreement The Investment Management Agreement was reapproved by the Board on July 29, 2015. 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 themanner of implementing such changes; identifies, evaluates and negotiates the structure of the investments the Company makes (including performing duediligence on the Company’s prospective portfolio companies); and closes, monitors and administers the investments the Company makes, including theexercise 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 similarservices to other entities so long as its services to the Company are not impaired. The Advisor is a registered investment adviser with the U.S. Securities andExchange Commission (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. The base management fee under the Investment Management Agreement through and including June 30, 2014 was calculated at an annual rate of2.00% of the Company’s gross assets, payable monthly in arrears. As a result of an amendment and restatement of the Investment Management Agreement,the base management fee on and after July 1, 2014 is calculated at an annual rate of 2.00% of (i) the Company’s gross assets, less (ii) assets consisting of cashand cash equivalents, and is payable monthly in arrears. For purposes of calculating the base management fee, the term “gross assets” includes any assetsacquired with the proceeds of leverage. In addition, the Advisor agreed to waive its base management fee relating to the proceeds raised in the 2015 Offering,to the extent such fee is not otherwise waived and regardless of the application of the proceeds raised, until the earlier to occur of (i) March 31, 2016 or (ii)the last day of the second consecutive calendar quarter in which the Company’s net investment income exceeds distributions declared on its shares ofcommon stock for the applicable quarter. As of December 31, 2015, condition (ii) above has been met, as the Company’s net investment income exceededdistributions declared for the quarters ended September 30, 2015 and December 31, 2015. During the year ended December 31, 2015, the Advisor waived base management fees of $0.3 million, which the Advisor would have otherwise earnedon the proceeds raised in the 2015 Offering. During the first six months of the year ended December 31, 2014, the Advisor waived base management fees of$0.2 million, which the Advisor would have otherwise earned on cash held by the Company at the time of calculation. The base management fee payable atDecember 31, 2015 and 2014 was $0.4 million. After giving effect of the waivers, the base management fee expense was $4.4 million, $4.4 million and $5.2million for the years ended December 31, 2015, 2014 and 2013, respectively. 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 arrearsbased on the Company’s pre-incentive fee net investment income for the immediately preceding calendar quarter. For this purpose, “Pre-Incentive FeeNet Investment Income” means interest income, dividend income and any other income (including any other fees (other than fees for providingmanagerial 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 AdministrationAgreement (as defined below), and any interest expense and any dividends paid on any issued and outstanding preferred stock, but excluding theincentive fee). Pre-Incentive Fee Net Investment Income includes, in the case of investments with a deferred interest feature (such as original issuediscount, debt instruments with payment-in-kind interest and zero coupon securities), accrued income the Company has not yet received in cash. Theincentive 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 NetInvestment Income for the immediately preceding calendar quarter exceeds a 1.75% (which is 7.00% annualized) hurdle rate and a “catch-up” provisionmeasured 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 NetInvestment Income with respect to that portion of such Pre-Incentive Fee Net Investment Income, if any, that exceeds the hurdle rate but is less than2.1875%. The effect of this “catch-up” provision is that, if Pre-Incentive Fee Net Investment Income exceeds 2.1875% in any calendar quarter, theAdvisor will receive 20.00% of the Pre-Incentive Fee Net Investment Income as if the hurdle rate did not apply. 95  Horizon Technology Finance Corporation and Subsidiaries Notes to Consolidated Financial Statements Pre-Incentive Fee Net Investment Income does not include any realized capital gains, realized capital losses or unrealized capital appreciation ordepreciation. 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 Companyincurs a loss. For example, if the Company receives Pre-Incentive Fee Net Investment Income in excess of the quarterly minimum hurdle rate, theCompany 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 dueto realized and unrealized capital losses. The Company’s net investment income used to calculate this part of the incentive fee is also included in theamount of the Company’s gross assets used to calculate the 2.00% base management fee. These calculations are appropriately prorated for any period ofless 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 feecap 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 onJuly 1, 2014 and increases by one quarter in length at the end of each calendar quarter until June 30, 2017, after which time, the Incentive Fee Look-back Period will include the relevant calendar quarter and the 11 preceding full calendar quarters. Each quarterly incentive fee payable on Pre-IncentiveFee Net Investment Income is subject to a cap (the “Incentive Fee Cap”) and a deferral mechanism through which the Advisor may recoup a portion ofsuch deferred incentive fees (collectively, the “Incentive Fee Cap and Deferral Mechanism”). The Incentive Fee Cap is equal to (a) 20.00% ofCumulative Pre-Incentive Fee Net Return (as defined below) during the Incentive Fee Look-back Period less (b) cumulative incentive fees of any kindpaid 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 ofincentive 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 insubsequent calendar quarters up to three years after their date of deferment, subject to certain limitations, which are set forth in the InvestmentManagement Agreement. The Company only pays incentive fees on Pre-Incentive Fee Net Investment Income to the extent allowed by the IncentiveFee 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 sumof cumulative realized capital gains and losses, cumulative unrealized capital appreciation and cumulative unrealized capital depreciation during theapplicable Incentive Fee Look-back Period. As of December 31, 2015 and 2014, the quarterly incentive fee payable on Pre-Incentive Fee NetInvestment Income was not limited by the Incentive Fee Cap and Deferral Mechanism. 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 InvestmentManagement Agreement, as of the termination date), and equals 20.00% of the Company’s realized capital gains, if any, on a cumulative basis from thedate of the election to be a BDC through the end of each calendar year, computed net of all realized capital losses and unrealized capital depreciationon a cumulative basis through the end of such year, less all previous amounts paid in respect of the capital gain incentive fee. However, in accordancewith GAAP, the Company is required to include the aggregate unrealized capital appreciation on investments in the calculation and accrue a capitalgain incentive fee on a quarterly basis, as if such unrealized capital appreciation were realized, even though such unrealized capital appreciation is notpermitted to be considered in calculating the fee actually payable under the Investment Management Agreement. 96  Horizon Technology Finance Corporation and Subsidiaries Notes to Consolidated Financial Statements During the year ended December 31, 2014, the Advisor waived performance based incentive fees of $0.1 million which the Advisor would haveotherwise earned. After giving effect of the waiver in 2014, the performance based incentive fee expense was $3.5 million, $2.0 million and $3.3 million forthe years ended December 31, 2015, 2014 and 2013, respectively. The performance based incentive fee payable for December 31, 2015 and 2014 was $1.0million and $0.8 million, respectively. The entire incentive fee payable as of December 31, 2015 and 2014 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 theCompany. For providing these services, facilities and personnel, the Company reimburses the Advisor for the Company’s allocable portion of overhead andother expenses incurred by the Advisor in performing its obligations under the Administration Agreement, including rent, the fees and expenses associatedwith performing compliance functions and the Company’s allocable portion of the costs of compensation and related expenses of the Company’s ChiefFinancial Officer and Chief Compliance Officer and their respective staffs. The administrative fee expense was $1.1 million, $1.1 million and $1.2 million forthe years ended December 31, 2015, 2014 and 2013, respectively. Note 4. Investments The following table shows the Company’s investments as of December 31, 2015 and 2014: December 31, 2015 December 31, 2014 Cost Fair Value Cost Fair Value (In thousands) Money market funds $285 $285 $27 $27 Restricted investments in money market funds $1,091 $1,091 $2,906 $2,906 Non-affiliate investments Debt $244,899 $242,167 $199,564 $199,180 Warrants 5,173 6,645 4,815 4,603 Other 4,422 300 4,582 300 Equity 1,000 1,155 877 1,018 Total non-affiliate investments $255,494 $250,267 $209,838 $205,101 97  Horizon Technology Finance Corporation and Subsidiaries Notes to Consolidated Financial Statements The following table shows the Company’s non-affiliate investments by industry sector as of December 31, 2015 and 2014: December 31, 2015 December 31, 2014 Cost Fair Value Cost Fair Value (In thousands) Life Science Biotechnology $36,932 $37,911 $22,203 $22,586 Medical Device 25,753 22,736 23,129 22,462 Technology Communications 20,170 19,916 18,392 17,973 Consumer-Related 18,699 19,421 6,556 7,228 Data Storage 4,444 319 4,604 318 Internet and Media 63 69 79 188 Materials 9,918 9,920 — — Networking 757 740 1,045 1,038 Power Management 2,490 2,541 7 56 Semiconductors 18,944 18,628 30,948 30,824 Software 60,792 61,897 54,482 54,905 Cleantech Alternative Energy 2,942 2,938 8,283 8,076 Consumer-Related — — 396 396 Energy Efficiency 3,371 3,370 4,557 4,487 Waste Recycling 5,968 5,970 — — Healthcare Information and Services Diagnostics 8,001 7,336 18,593 17,841 Other 8,453 8,504 7,157 7,201 Software 27,797 28,051 9,407 9,522 Total non-affiliate investments $255,494 $250,267 $209,838 $205,101 Note 5. Fair value The Company uses fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. Fairvalue is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurementdate. Fair value is best determined based upon quoted market prices. However, in certain instances, there are no quoted market prices for certain assets orliabilities. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Thosetechniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. Accordingly, the fair valueestimates may not be realized in an immediate settlement of the asset or liability. Fair value measurements focus on exit prices in an orderly transaction (that is, not a forced liquidation or distressed sale) between market participants atthe measurement date under current market conditions. If there has been a significant decrease in the volume and level of activity for the asset or liability, achange in valuation technique or the use of multiple valuation techniques may be appropriate. In such instances, determining the price at which willingmarket participants would transact at the measurement date under current market conditions depends on the facts and circumstances and requires the use ofsignificant judgment. The Company’s fair value measurements are classified into a fair value hierarchy based on the markets in which the assets and liabilities are traded andthe reliability of the assumptions used to determine fair value. The three categories within the hierarchy are as follows: Level 1Quoted prices in active markets for identical assets and liabilities. Level 2Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities in active markets, quoted prices in marketsthat are not active, and model-based valuation techniques for which all significant inputs are observable or can be corroborated byobservable market data for substantially the full term of the assets or liabilities. 98  Horizon Technology Finance Corporation and Subsidiaries Notes to Consolidated Financial Statements Level 3Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.Level 3 assets and liabilities include financial instruments whose value is determined using pricing models, discounted cash flowmethodologies or similar techniques, as well as instruments for which the determination of fair value requires significant managementjudgment or estimation. Investments are valued at fair value as determined in good faith by the Board, based on input of management, the audit committee and independentvaluation firms which are engaged at the direction of the Board to assist in the valuation of each portfolio investment lacking a readily available marketquotation at least once during a trailing twelve-month period under a valuation policy and a consistently applied valuation process. This valuation process isconducted at the end of each fiscal quarter, with 25% (based on fair value) of the Company’s valuation of portfolio companies lacking readily availablemarket quotations subject to review by an independent valuation firm. Because there is not a readily available market value for most of the investments in its portfolio, the Company values substantially all of its portfolioinvestments at fair value as determined in good faith by the Board, as described herein. Due to the inherent uncertainty of determining the fair value ofinvestments that do not have a readily available market value, the fair value of the Company's investments may fluctuate from period to period. Additionally,the fair value of the Company's investments may differ significantly from the values that would have been used had a ready market existed for suchinvestments and may differ materially from the values that the Company may ultimately realize. Further, such investments are generally subject to legal andother restrictions on resale or otherwise are less liquid than publicly traded securities. If the Company was required to liquidate a portfolio investment in aforced or liquidation sale, the Company could realize significantly less than the value at which the Company has recorded such portfolio investment. Cash and interest receivable: The carrying amount is a reasonable estimate of fair value. These financial instruments are not recorded at fair value on arecurring basis and are categorized as Level 1 within the fair value hierarchy described above. Money market funds: The carrying amounts are valued at their net asset value as of the close of business on the day of valuation. These financialinstruments are recorded at fair value on a recurring basis and are categorized as Level 2 within the fair value hierarchy described above as these funds can beredeemed daily. Debt investments: For variable rate debt investments which re-price frequently and have no significant change in credit risk, carrying values are areasonable estimate of fair values. The fair value of fixed rate debt investments is estimated by discounting the expected future cash flows using the year endrates at which similar debt investments would be made to borrowers with similar credit ratings and for the same remaining maturities. At December 31, 2015and 2014, the hypothetical market yield used ranged from 11% to 25% and 11% to 18%, respectively. Significant increases (decreases) in this unobservableinput would result in a significantly lower (higher) fair value measurement. These assets are recorded at fair value on a recurring basis and are categorized asLevel 3 within the fair value hierarchy described above. Under certain circumstances, the Company may use an alternative technique to value debt investments that better reflects its fair value such as the useof multiple probability weighted cash flow models when the expected future cash flows contain elements of variability. Warrant investments: The Company values its warrants using the Black-Scholes valuation model incorporating the following material assumptions: •Underlying asset value of the issuer is estimated based on information available, including any information regarding the most recent rounds ofborrower funding. Significant increases (decreases) in this unobservable input would result in a significantly higher (lower) fair value measurement. 99  Horizon Technology Finance Corporation and Subsidiaries Notes to Consolidated Financial Statements •Volatility, or the amount of uncertainty or risk about the size of the changes in the warrant price, is based on indices of publicly traded companiessimilar in nature to the underlying company issuing the warrant. A total of seven such indices are used. Significant increases (decreases) in thisunobservable input would result in a significantly higher (lower) fair value measurement. •The risk-free interest rates are derived from the U.S. Treasury yield curve. The risk-free interest rates are calculated based on a weighted average of therisk-free interest rates that correspond closest to the expected remaining life of the warrant. •Other adjustments, including a marketability discount on private company warrants, are estimated based on management’s judgment about thegeneral industry environment. •Historical portfolio experience on cancellations and exercises of the Company’s warrants are utilized as the basis for determining the estimated timeto exit of the warrants in each financial reporting period. Warrants may be exercised in the event of acquisitions, mergers or IPOs, and cancelled due toevents such as bankruptcies, restructuring activities or additional financings. These events cause the expected remaining life assumption to be shorterthan the contractual term of the warrants. Significant increases (decreases) in this unobservable input would result in significantly higher (lower) fairvalue measurement. Under certain circumstances the Company may use an alternative technique to value warrants that better reflects the warrants’ fair value, such as anexpected settlement of a warrant in the near term or a model that incorporates a put feature associated with the warrant. The fair value may be determinedbased on the expected proceeds to be received from such settlement or based on the net present value of the expected proceeds from the put option. The fair value of the Company’s warrants held in publicly traded companies is determined based on inputs that are readily available in public marketsor can be derived from information available in public markets. Therefore, the Company has categorized these warrants as Level 2 within the fair valuehierarchy described above. The fair value of the Company’s warrants held in private companies is determined using both observable and unobservable inputsand represents management’s best estimate of what market participants would use in pricing the warrants at the measurement date. Therefore, the Companyhas categorized these warrants as Level 3 within the fair value hierarchy described above. These assets are recorded at fair value on a recurring basis. Equity investments: The fair value of an equity investment in a privately held company is initially the face value of the amount invested. The Companyadjusts the fair value of equity investments in private companies upon the completion of a new third-party round of equity financing. The Company maymake adjustments to fair value, absent a new equity financing event, based upon positive or negative changes in a portfolio company’s financial oroperational performance. Significant increases (decreases) in this unobservable input would result in a significantly higher (lower) fair value measurement.The Company has categorized these equity investments as Level 3 within the fair value hierarchy described above. The fair value of an equity investment ina publicly traded company is based upon the closing public share price on the date of measurement. Therefore, the Company has categorized these equityinvestments as Level 1 within the fair value hierarchy described above. These assets are recorded at fair value on a recurring basis. Other investments: Other investments are valued based on the facts and circumstances of the underlying agreement. The Company currently values onecontractual agreement using a multiple probability weighted cash flow model as the contractual future cash flows contain elements of variability. Significantchanges in the estimated cash flows and probability weightings would result in a significantly higher or lower fair value measurement. The Company hascategorized this other investment as Level 3 within the fair value hierarchy described above. This asset is recorded at fair value on a recurring basis. The following tables provide a summary of quantitative information about the Company’s Level 3 fair value measurements of its investments as ofDecember 31, 2015 and 2014. In addition to the techniques and inputs noted in the table below, according to the Company’s valuation policy, the Companymay also use other valuation techniques and methodologies when determining its fair value measurements. 100  Horizon Technology Finance Corporation and Subsidiaries Notes to Consolidated Financial Statements The following table is not intended to be all-inclusive, but rather provides information on the significant Level 3 inputs as they relate to the Company’sfair value measurements as of December 31, 2015: December 31, 2015 Fair Valuation Techniques/ Unobservable Weighted Investment Type Value Methodologies Input Range Average (Dollars in thousands, except per share data)Debt investments $241,667 Discounted Expected FutureCash Flows Hypothetical Market Yield 11% – 25% 13% 500 Liquidation Scenario Discount Rate 25% 25% Probability Weighting 0% – 100% 30% Warrant investments 5,407 Black-Scholes ValuationModel Price Per Share $0.00 – $615.46 $81.27 Average Industry VolatilityVolatility 18% 18% Marketability Discount 20% 20% Estimated Time to Exit 1 to 5 years 3 years 386 Expected AcquisitionSettlement Price Per Share $2.09 $2.09 Other investments 300 Multiple Probability WeightedCash Flow Model Discount Rate 25% 25% Probability Weighting 100% 100% Equity investments 101 New Equity Financing Price Per Share $0.04 $0.04 215 Expected Settlement Price Per Share $0.00 – $1.41 $1.41 Total Level 3 investments $248,576 The following table is not intended to be all-inclusive, but rather provides information on the significant Level 3 inputs as they relate to the Company’sfair value measurements as of December 31, 2014: December 31, 2014 Fair Valuation Techniques/ Unobservable Weighted Investment Type Value Methodologies Input Range Average (Dollars in thousands, except per share data)Debt investments $193,937 Discounted Expected FutureCash Flows Hypothetical Market Yield 11% – 18% 13% 5,243 Multiple Probability WeightedCash Flow Model Probability Weighting 10% – 65% 33% Warrant investments 3,966 Black-Scholes ValuationModel Price Per Share Average Industry $0.04 – $63.98 $3.81 Volatility 18% 18% Marketability Discount 20% 20% Estimated Time to Exit 1 to 5 years 3 years Other investments 300 Multiple Probability WeightedCash Flow Model Discount Rate 25% 25% Probability Weighting 100% 100% Equity investments 222 Market ComparableCompanies Price Per Share $0.57 $0.57 Total Level 3 investments $203,668 Borrowings: The carrying amount of borrowings under the Company’s revolving credit facility (the “Key Facility”) with KeyBank NationalAssociation (“Key”) approximates fair value due to the variable interest rate of the Key Facility and is categorized as Level 2 within the fair value hierarchydescribed above. Additionally, the Company considers its creditworthiness in determining the fair value of such borrowings. The fair value of the fixed rate2019 Notes (as defined in Note 6) is based on the closing public share price on the date of measurement. On December 31, 2015, the closing price of the 2019Notes on the New York Stock Exchange was $25.21 per note, or $33.3 million. Therefore, the Company has categorized this borrowing as Level 1 within thefair value hierarchy described above. Based on market quotations on December 31, 2015, the Asset-Backed Notes (as defined in Note 6) were trading at parvalue, or $14.5 million, and are categorized as Level 3 within the fair value hierarchy described above. These borrowings are not recorded at fair value on arecurring basis. Off-balance-sheet instruments: Fair values for off-balance-sheet lending commitments are based on fees currently charged to enter into similaragreements, taking into account the remaining terms of the agreements and the counterparties’ credit standings. Therefore, the Company has categorizedthese instruments as Level 3 within the fair value hierarchy described above. 101  Horizon Technology Finance Corporation and Subsidiaries Notes to Consolidated Financial Statements The following tables detail the assets that are carried at fair value and measured at fair value on a recurring basis as of December 31, 2015 and 2014 andindicate the fair value hierarchy of the valuation techniques utilized by the Company to determine the fair value: December 31, 2015 Total Level 1 Level 2 Level 3 (In thousands) Money market funds $285 $— $285 $— Restricted investments in money market funds $1,091 $— $1,091 $— Debt investments $242,167 $— $— $242,167 Warrant investments $6,645 $— $852 $5,793 Other investments $300 $— $— $300 Equity investments $1,155 $839 $— $316 December 31, 2014 Total Level 1 Level 2 Level 3 (In thousands) Money market funds $27 $— $27 $— Restricted investments in money market funds $2,906 $— $2,906 $— Debt investments $199,180 $— $— $199,180 Warrant investments $4,603 $— $637 $3,966 Other investments $300 $— $— $300 Equity investments $1,018 $796 $— $222 The following table shows a reconciliation of the beginning and ending balances for Level 3 assets measured at fair value on a recurring basis for theyear ended December 31, 2015: December 31, 2015 DebtInvestments WarrantInvestments EquityInvestments OtherInvestments Total (In thousands) Level 3 assets, beginning of period $199,180 $3,966 $222 $300 $203,668 Purchase of investments 123,281 — — — 123,281 Warrants and equity received and classified asLevel 3 — 845 316 — 1,161 Principal payments received on investments (74,480) — — (160) (74,640)Proceeds from sale of investments (1,000) (168) — — (1,168)Net realized loss on investments (1,799) (228) — — (2,027)Unrealized (depreciation) appreciationincluded in earnings (2,347) 1,416 (222) 160 (993)Transfer out of Level 3 — (15) — — (15)Transfer from warrant to equity investments — (23) — — (23)Other (668) — — — (668)Level 3 assets, end of period $242,167 $5,793 $316 $300 $248,576 The Company’s transfers between levels are recognized at the end of the applicable reporting period. During the year ended December 31, 2015, therewere no transfers between Level 1 and Level 2. The transfer out of Level 3 relates to warrants held in three portfolio companies, with an aggregate fair valueof $0.02 million, that were transferred into Level 2 upon the portfolio companies becoming public companies during the period. 102  Horizon Technology Finance Corporation and Subsidiaries Notes to Consolidated Financial Statements The change in unrealized depreciation included in the consolidated statement of operations attributable to Level 3 investments still held at December31, 2015 includes $2.2 million in unrealized depreciation for debt and other investments, $1.6 million in unrealized appreciation on warrants and $0.2million in unrealized depreciation on equity. The following table shows a reconciliation of the beginning and ending balances for Level 3 assets measured at fair value on a recurring basis for theyear ended December 31, 2014: December 31, 2014 DebtInvestments WarrantInvestments EquityInvestments OtherInvestments Total (In thousands) Level 3 assets, beginning of period $213,754 $4,579 $529 $400 $219,262 Purchase of investments 95,323 — — — 95,323 Warrants and equity received and classified asLevel 3 — 659 — — 659 Principal payments received on investments (109,358) — — (147) (109,505)Proceeds from sale of investments — (1,441) (2,046) — (3,487)Net realized (loss) gain on investments (7,268) 348 (254) — (7,174)Unrealized appreciation (depreciation) includedin earnings 8,915 141 (198) 47 8,905 Transfer out of Level 3 — (320) (109) — (429)Transfer from debt to equity investments (2,300) — 2,300 — — Other 114 — — — 114 Level 3 assets, end of period $199,180 $3,966 $222 $300 $203,668 The Company’s transfers between levels are recognized at the end of the applicable reporting period. During the year ended December 31, 2014, therewas one transfer between Level 1 and Level 2. The transfer from Level 2 to Level 1 related to the exercise of warrants held in one public portfolio company topurchase equity in such portfolio company. The transfer out of Level 3 relates to warrants held in two portfolio companies and equity held in one portfoliocompany, with an aggregate fair value of $0.4 million, that were transferred into Level 2 upon the portfolio companies becoming public companies duringthe period. During the year ended December 31, 2014, there was one transfer between debt investments and equity investments. The transfer out of debtinvestments relates to the settlement of one of the Company’s debt investments for a cash payment of $2.7 million and $2.3 million in newly issued preferredstock of the applicable portfolio company. The change in unrealized appreciation included in the consolidated statement of operations attributable to Level 3 investments still held at December31, 2014 includes $0.4 million in unrealized depreciation for debt and other investments, $0.3 million in unrealized appreciation on warrants and $0.3million in unrealized depreciation on equity. The Company discloses fair value information about financial instruments, whether or not recognized in the consolidated statement of assets andliabilities, for which it is practicable to estimate that value. Certain financial instruments are excluded from the disclosure requirements. Accordingly, theaggregate fair value amounts presented do not represent the underlying value of the Company. The fair value amounts for 2015 and 2014 have been measured as of the reporting date and have not been reevaluated or updated for purposes of thesefinancial statements subsequent to that date. As such, the fair values of these financial instruments subsequent to the reporting date may be different thanamounts reported at year-end. As of December 31, 2015 and 2014, the recorded balances equaled fair values of all the Company’s financial instruments, except for the Company’s2019 Notes, as previously described. 103  Horizon Technology Finance Corporation and Subsidiaries Notes to Consolidated Financial Statements Off-balance-sheet instruments The Company assumes interest rate risk (the risk that general interest rate levels will change) as a result of its normal operations. As a result, the fairvalues of the Company’s financial instruments will change when interest rate levels change, and that change may be either favorable or unfavorable to theCompany. Management attempts to match maturities of assets and liabilities to the extent believed necessary to minimize interest rate risk. Managementmonitors rates and maturities of assets and liabilities and attempts to minimize interest rate risk by adjusting terms of new debt investments and by investingin securities with terms that mitigate the Company’s overall interest rate risk. Note 6. Borrowings The following table shows the Company’s borrowings as of December 31, 2015 and 2014: December 31, 2015 December 31, 2014 TotalCommitment BalanceOutstanding UnusedCommitment TotalCommitment BalanceOutstanding UnusedCommitment (In thousands) Asset-Backed Notes $14,546 $14,546 $— $38,753 $38,753 $— Key Facility 70,000 68,000 2,000 50,000 10,000 40,000 2019 Notes 33,000 33,000 — 33,000 33,000 — Total $117,546 $115,546 $2,000 $121,753 $81,753 $40,000 In accordance with the 1940 Act, with certain limited exceptions, the Company is only allowed to borrow amounts such that the Company’s assetcoverage, as defined in the 1940 Act, is at least 200% after such borrowings. As of December 31, 2015, the asset coverage for borrowed amounts was 238%. On November 4, 2013, the Company renewed and amended its revolving credit facility which, among other things, assigned all rights and obligationsof Wells Fargo Capital Finance LLC under the facility to Key. On August 12, 2015, the Company further amended the Key Facility to (1) add a $20 millioncommitment to the existing $50 million commitment and (2) extend the term of the Key Facility. The Key Facility has an accordion feature which allows foran increase in the total loan commitment to $150 million from the current $70 million commitment. The Key Facility is collateralized by all debt investmentsand warrants held by Credit II and permits an advance rate of up to 50% of eligible debt investments held by Credit II. The Key Facility contains covenantsthat, among other things, require the Company to maintain a minimum net worth and to restrict the debt investments securing the Key Facility to certaincriteria for qualified debt investments and includes portfolio company concentration limits as defined in the related loan agreement. The Key Facility has athree-year revolving period followed by a two-year amortization period and matures on August 12, 2020. The interest rate is based upon the one-monthLondon Interbank Offered Rate (“LIBOR”), plus a spread of 3.25%, with a LIBOR floor of 0.75%. Based on a LIBOR rate of 0.43% and 0.17% on December31, 2015 and 2014, respectively, the interest rate was 4.00% as of December 31, 2015 and 2014. The average rate for the years ended December 31, 2015 and2014 was 4.00%. As of December 31, 2015, the Company had available borrowing capacity of $2.0 million, subject to existing terms and advance rates. As ofDecember 31, 2014, the Company had borrowing capacity of $40.0 million, of which $35.6 million was available, subject to existing terms and advancerates. On March 23, 2012, the Company issued and sold an aggregate principal amount of $30 million of 7.375% senior unsecured notes due in 2019 and onApril 18, 2012, pursuant to the underwriters’ 30 day option to purchase additional notes, the Company sold an additional $3 million of such notes(collectively, the “2019 Notes”). The 2019 Notes will mature on March 15, 2019 and may be redeemed in whole or in part at the Company’s option at anytime or from time to time at a redemption price of $25 per security plus accrued and unpaid interest. The 2019 Notes bear interest at a rate of 7.375% per yearpayable quarterly on March 15, June 15, September 15 and December 15 of each year. The 2019 Notes are the Company’s direct unsecured obligations and(i) rank equally in right of payment with the Company’s future unsecured indebtedness; (ii) are senior in right of payment to any of the Company’s futureindebtedness that expressly provides it is subordinated to the 2019 Notes; (iii) are effectively subordinated to all of the Company’s existing and futuresecured indebtedness (including indebtedness that is initially unsecured to which the Company subsequently grants security), to the extent of the value ofthe assets securing such indebtedness, and (iv) are structurally subordinated to all existing and future indebtedness and other obligations of any of theCompany’s subsidiaries. As of December 31, 2015, the Company was in material compliance with the terms of the 2019 Notes. The 2019 Notes are listed onthe New York Stock Exchange under the symbol “HTF”. 104  Horizon Technology Finance Corporation and Subsidiaries Notes to Consolidated Financial Statements The Company entered into a term loan facility (the “Term Loan Facility”) with Fortress Credit Co LLC effective August 23, 2012. The Term LoanFacility was collateralized by all debt investments and warrants held by Credit III. The Term Loan Facility contained covenants that, among other things,required the Company to maintain a minimum net worth and restricted the debt investments securing the Term Loan Facility to certain criteria for qualifieddebt investments and included portfolio company concentration limits as defined in the related loan agreement. The Term Loan Facility, among other things,had a three-year term subject to two one-year extensions with a draw period of up to four years. The Term Loan Facility required the payment of an unusedline fee in an amount equal to 1.00% of unborrowed amounts available under the facility annually and had an effective advance rate of 66% against eligibledebt investments. The Term Loan Facility bore interest based upon the one-month LIBOR plus a spread of 6.00%, with a LIBOR floor of 1.00%. Effective June 17, 2014, the Company terminated the Term Loan Facility. In connection therewith, a loan and security agreement and other relateddocuments governing the Term Loan Facility were also terminated. As such, the Company had no borrowing capacity under the Term Loan Facility as ofDecember 31, 2015 and 2014. On June 28, 2013, the Company completed the 2013-1 Securitization. In connection with the 2013-1 Securitization, 2013-1 Trust, a wholly ownedsubsidiary of the Company, issued $90 million in the Asset-Backed Notes, which are rated A1(sf) by Moody’s Investors Service, Inc. The Company is thesponsor, originator and servicer for the transaction. The Asset-Backed Notes bear interest at a fixed rate of 3.00% per annum and have a stated maturity ofMay 15, 2018. As of December 31, 2015, 18.6%, or $45.1 million, of the Company’s total debt investment portfolio at fair value was held through our 2013-1Securitization. The Asset-Backed Notes were issued by 2013-1 Trust pursuant to a note purchase agreement (the “Note Purchase Agreement”), dated as of June 28,2013, by and among the Company, 2013-1 LLC, as trust depositor, 2013-1 Trust and Guggenheim Securities, LLC (“Guggenheim Securities”), as initialpurchaser, and are backed by a pool of loans made to certain portfolio companies of the Company (the “Trust Loans”) and secured by certain assets of suchportfolio companies. The Trust Loans are serviced by the Company. In connection with the issuance and sale of the Asset-Backed Notes, the Company hasmade customary representations, warranties and covenants in the Note Purchase Agreement. The Asset-Backed Notes are secured obligations of 2013-1 Trustand are non-recourse to the Company. As part of the transaction, the Company entered into a sale and contribution agreement, dated as of June 28, 2013 (the “Sale and ContributionAgreement”), with 2013-1 LLC, pursuant to which the Company sold or contributed to 2013-1 LLC the Trust Loans. The Company made customaryrepresentations, warranties and covenants in the Sale and Contribution Agreement with respect to the Trust Loans as of the date of the transfer of the TrustLoans to 2013-1 LLC. The Company also entered into a sale and servicing agreement, dated as of June 28, 2013 (the “Sale and Servicing Agreement”), with2013-1 LLC and 2013-1 Trust pursuant to which 2013-1 LLC sold or contributed the Trust Loans to 2013-1 Trust. The Company has made customaryrepresentations, warranties and covenants in the Sale and Servicing Agreement. The Company serves as administrator to 2013-1 Trust pursuant to anadministration agreement, dated as of June 28, 2013, with 2013-1 Trust, Wilmington Trust, National Association, and U.S. Bank National Association. 2013-1 Trust also entered into an indenture, dated as of June 28, 2013, which governs the Asset-Backed Notes and includes customary covenants and events ofdefault. In addition, 2013-1 LLC entered into an amended and restated trust agreement, dated as of June 28, 2013, which includes customary representations,warranties and covenants. The Asset-Backed Notes were sold through an unregistered private placement to “qualified institutional buyers” in compliancewith the exemption from registration provided by Rule 144A under the Securities Act of 1933, as amended (the “Securities Act”), and to institutional“accredited investors” (as defined in Rule 501(a)(1), (2), (3) or (7) under the Securities Act) who, in each case, were “qualified purchasers” for purposes ofSection 3(c)(7) under the 1940 Act. 105  Horizon Technology Finance Corporation and Subsidiaries Notes to Consolidated Financial Statements Under the terms of the Asset-Backed Notes, the Company is required to maintain a reserve cash balance, funded through principal collections from theunderlying securitized debt portfolio, which may be used to make monthly interest and principal payments on the Asset-Backed Notes. The Company hassegregated these funds and classified them as restricted investments in money market funds on the consolidated statements of assets and liabilities. Thebalances of restricted investments in money market funds were $1.1 million and $2.9 million as of December 31, 2015 and December 31, 2014, respectively. The following table shows information about our senior securities as of December 31, 2015, 2014, 2013, 2012 and 2011: Class and Year Total AmountOutstandingExclusive ofTreasurySecurities(1) Asset Coverageper Unit(2) InvoluntaryLiquidationPreferenceper Unit(3) AverageMarketValue perUnit(4) (In thousands, except unit data) Credit facilities 2015 $68,000 $4,048 — N/A 2014 $10,000 $22,000 — N/A 2013 $10,000 $25,818 — N/A 2012 $56,020 $4,177 — N/A 2011 $64,571 $3,012 — N/A 2019 Notes 2015 $33,000 $8,342 — $25.26 2014 $33,000 $6,667 — $25.64 2013 $33,000 $7,824 — $25.70 2012 $33,000 $7,091 — $25.38 2013-1 Securitization 2015 $14,546 $18,926 — N/A 2014 $38,753 $5,677 — N/A 2013 $79,343 $3,254 — N/A Total senior securities 2015 $115,546 $2,383 — N/A 2014 $81,753 $2,691 — N/A 2013 $122,343 $2,110 — N/A 2012 $89,020 $2,629 — N/A 2011 $64,571 $3,012 — N/A (1)Total amount of senior securities outstanding at the end of the period presented.(2)Asset coverage per unit is the ratio of the original cost less accumulated depreciation, amortization or impairment of the Company’s total consolidatedassets, less all liabilities and indebtedness not represented by senior securities, to the aggregate amount of senior securities representing indebtedness.Asset coverage per unit is expressed in terms of dollar amounts per $1,000 of indebtedness.(3)The amount which the holder of such class of senior security would be entitled upon the voluntary liquidation of the applicable issuer in preference toany security junior to it. The “ — ” in this column indicates that the SEC expressly does not require this information to be disclosed for certain types ofsecurities.(4)Not applicable to the Company’s credit facilities and 2013-1 Securitization because such securities are not registered for public trading. Note 7. Federal income tax The Company has elected to be treated as a RIC under Subchapter M of the Code and to distribute substantially all of its respective net taxable income.Accordingly, no provision for federal, state or local income tax has been recorded in the financial statements. Taxable income differs from net increase in netassets resulting from operations primarily due to unrealized appreciation on investments as investment gains and losses are not included in taxable incomeuntil they are realized. 106  Horizon Technology Finance Corporation and Subsidiaries Notes to Consolidated Financial Statements The following table reconciles net increase in net assets resulting from operations to taxable income: Years Ended December 31, 2015 2014 2013 (In thousands) Net increase in net assets resulting from operations $11,856 $15,430 $3,508 Net unrealized depreciation (appreciation) on investments 490 (8,289) 2,254 Other book-tax differences (239) 183 113 Capital loss carry forward 1,650 3,576 7,509 Taxable income before deductions for distributions $13,757 $10,900 $13,384 The tax characters of distributions paid are as follows: Years Ended December 31, 2015 2014 2013 (In thousands) Ordinary income $16,465 $13,276 $13,171 Long-term capital gains — — 52 Total $16,465 $13,276 $13,223 The components of undistributed ordinary income earnings on a tax basis were as follows: As of December 31, 2015 2014 2013 (In thousands) Undistributed ordinary income $1,256 $3,963 $6,338 Undistributed long-term gain — — — Long term capital loss carry forward (12,735) (11,085) (7,509)Unrealized appreciation 4,384 2,443 3,638 Unrealized depreciation (9,611) (7,180) (16,664)Other temporary differences (3,277) (4,187) (4,157)Total $(19,983) $(16,046) $(18,354) 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 yeardistributions into the next tax year and pay a 4% excise tax on such income, as required. For the years ended December 31, 2015 and 2014, the Companyelected to carry forward taxable income in excess of current year distributions of $1.3 million and $4.0 million, respectively. At December 31, 2015, noexcise tax payable was recorded. At December 31, 2014, an excise tax payable of $0.2 million was recorded. Capital losses in excess of capital gains earned in a tax year may generally be carried forward, without expiration, and used to offset capital gains,subject to certain limitations. During the years ended December 31, 2015, 2014 and 2013, the Company did not use any of its capital loss carry forward tooffset capital gains. For federal income tax purposes, the tax cost of investments at December 31, 2015 and 2014 was $255.5 million and $209.8 million, respectively. Thegross unrealized appreciation on investments at December 31, 2015 and 2014 was $4.4 million and $2.4 million, respectively. The gross unrealizeddepreciation on investments at December 31, 2015 and 2014 was $9.6 million and $7.2 million, respectively. Note 8. Financial instruments with off-balance-sheet risk In the normal course of business, the Company is party to financial instruments with off-balance-sheet risk to meet the financing needs of its borrowers.These financial instruments include commitments to extend credit and involve, to varying degrees, elements of credit risk in excess of the amount recognizedin the consolidated statement of assets and liabilities. The Company attempts to limit its credit risk by conducting extensive due diligence and obtainingcollateral where appropriate. 107  Horizon Technology Finance Corporation and Subsidiaries Notes to Consolidated Financial Statements The balance of unfunded commitments to extend credit was $10.0 million and $25.7 million as of December 31, 2015 and 2014, respectively.Commitments to extend credit consist principally of the unused portions of commitments that obligate the Company to extend credit, such as revolvingcredit arrangements or similar transactions. These commitments are often subject to financial or non-financial milestones and other conditions to borrow thatmust be achieved before the commitment can be drawn. In addition, the commitments generally have fixed expiration dates or other termination clauses.Since commitments may expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The following table provides the Company’s unfunded commitments by portfolio company as of December 31, 2015: December 31, 2015 PrincipalBalance Fair Value ofUnfundedCommitmentLiability (In thousands) Digital Signal Corporation. $2,000 $36 Lehigh Technologies, Inc. 1,500 14 SavingStar, Inc. 2,000 32 Skyword Inc. 1,500 23 xTech Holdings, Inc. 3,000 13 Total $10,000 $118 The table above also provides the fair value of the Company’s unfunded commitment liability as of December 31, 2015 totaling $0.1 million. The fairvalue at inception of the delay draw credit agreements is equal to the fees and/or warrants received to enter into these agreements, taking into account theremaining terms of the agreements and the counterparties’ credit profile. The unfunded commitment liability reflects the fair value of these future fundingcommitments and is included in the Company’s consolidated statement of assets and liabilities. Note 9. Concentrations of credit risk The Company’s debt investments consist primarily of loans to development-stage companies at various stages of development in the technology, lifescience, healthcare information and services and cleantech industries. Many of these companies may have relatively limited operating histories and also mayexperience variation in operating results. Many of these companies conduct business in regulated industries and could be affected by changes in governmentregulations. Most of the Company’s borrowers will need additional capital to satisfy their continuing working capital needs and other requirements, and inmany instances, to service the interest and principal payments on the loans. The Company’s largest debt investments may vary from year to year as new debt investments are recorded and existing debt investments are repaid. TheCompany’s five largest debt investments represented 21% and 24% of total debt investments outstanding as of December 31, 2015 and 2014, respectively.No single debt investment represented more than 10% of the total debt investments as of December 31, 2015 or 2014. Investment income, consisting ofinterest and fees, can fluctuate significantly upon repayment of large debt investments. Interest income from the five largest debt investments accounted for14%, 20% and 23% of total interest and fee income on investments for the years ended December 31, 2015, 2014 and 2013, respectively. 108  Horizon Technology Finance Corporation and Subsidiaries Notes to Consolidated Financial Statements Note 10. Distributions The Company’s distributions are recorded on the declaration date. The following table summarizes the Company’s distribution activity for the yearsended December 31, 2015 and 2014: DateDeclared Record Date Payment Date AmountPer Share CashDistribution DRIP SharesIssued DRIP ShareValue (In thousands, except share and per share data) Year Ended December 31, 2015 10/30/15 2/22/16 3/15/16 $0.115 $— — $— 10/30/15 1/21/16 2/17/16 0.115 1,307 1,931 19 10/30/15 12/18/15 1/15/16 0.115 1,310 1,841 19 7/29/15 11/19/15 12/15/15 0.115 1,317 1,687 20 7/29/15 10/20/15 11/16/15 0.115 1,317 1,967 22 7/29/15 9/18/15 10/15/15 0.115 1,315 2,418 24 5/1/15 8/19/15 9/15/15 0.115 1,312 2,577 26 5/1/15 7/20/15 8/14/15 0.115 1,312 2,420 27 5/1/15 6/18/15 7/15/15 0.115 1,312 2,045 26 3/6/15 5/20/15 6/15/15 0.115 1,311 2,036 28 3/6/15 4/20/15 5/15/15 0.115 1,311 1,950 28 3/6/15 3/20/15 4/15/15 0.115 1,095 877 12 $1.380 $14,219 21,749 $251 Year Ended December 31, 2014 10/31/14 2/19/15 3/16/15 $0.115 $1,096 751 $11 10/31/14 1/20/15 2/13/15 0.115 1,094 956 12 10/31/14 12/17/14 1/15/15 0.115 1,096 786 11 8/1/14 11/19/14 12/15/14 0.115 1,093 1,099 15 8/1/14 10/20/14 11/17/14 0.115 1,095 850 12 8/1/14 9/18/14 10/15/14 0.115 1,095 901 12 5/1/14 8/19/14 9/15/14 0.115 1,095 812 12 5/1/14 7/21/14 8/15/14 0.115 1,080 2,042 29 5/1/14 6/18/14 7/17/14 0.115 1,093 784 11 3/6/14 5/20/14 6/16/14 0.115 1,091 1,128 15 3/6/14 4/17/14 5/15/14 0.115 1,090 1,174 16 3/6/14 3/19/14 4/15/14 0.115 1,097 644 8 $1.380 $13,115 11,927 $164 On March 3, 2016, the Board declared monthly distributions per share, payable as set forth in the following table: Ex-Dividend Date Record Date Payment Date Distributions Declared May 17, 2016 May 19, 2016 June 15, 2016 $0.115 April 18, 2016 April 20, 2016 May 16, 2016 $0.115 March 16, 2016 March 18, 2016 April 15, 2016 $0.115 After paying distributions of $1.38 per share in 2015, declaring on October 30, 2015 a distribution of $0.115 per share payable January 15, 2016, andearning $1.25 per share in 2015, the Company’s undistributed spillover income as of December 31, 2015 was $0.11 per share. Spillover income includes anyordinary income and net capital gains from the preceding years that were not distributed during such years. Note 11. Subsequent Event On February 1, 2016, the Company exited its debt investment in ZetrOZ, Inc. The Company received net cash proceeds of $0.1 million and a royaltyand sale agreement fair valued at $0.4 million in connection with the exit of the debt investment. Future proceeds received by the Company from suchagreement are expected to be applied to the new cost basis of such agreement and any proceeds received in excess of the cost basis will be recorded asrealized gains in the period received. 109  Horizon Technology Finance Corporation and Subsidiaries Notes to Consolidated Financial Statements Note 12. Financial highlights The following table shows financial highlights for the Company: Years Ended December 31, 2015 2014 2013 2012 2011 (In thousands, except share and per share data) Per share data: Net asset value at beginning of period $14.36 $14.14 $15.15 $17.01 $16.75 Net investment income 1.25 1.11 1.38 1.41 1.38 Realized (loss) gain on investments (0.15) (0.37) (0.78) 0.01 0.81 Unrealized (depreciation) appreciation on investments (0.04) 0.86 (0.23) (0.95) (0.75)Net increase in net assets resulting from operations 1.06 1.60 0.37 0.47 1.44 Net dilution from issuance of common stock (0.18) — — (0.28) — Distributions declared(1) (1.38) (1.38) (1.38) (2.15) (1.18)From net investment income (1.38) (1.38) (1.38) (1.72) (0.70)From net realized gain on investments — — — (0.43) (0.48)Return of capital — — — — — Net accretion from repurchase of common stock 0.02 — — — — Other (2) (0.03) — — 0.10 — Net asset value at end of period $13.85 $14.36 $14.14 $15.15 $17.01 Per share market value, beginning of period $13.99 $14.21 $14.92 $16.32 $14.44 Per share market value, end of period 11.73 13.99 14.21 14.92 16.32 Total return based on a market value (3) (6.3)% 8.2% 4.5% 2.5% 21.2%Shares outstanding at end of period 11,535,212 9,628,124 9,608,949 9,567,225 7,636,532 Ratios, net of waivers, to average net assets: Expenses without incentive fees 8.6% 13.3% 11.8% 8.4% 7.9%Incentive fees 2.2% 1.5% 2.3% 2.1% 2.3%Net expenses 10.8% 14.8% 14.1% 10.5% 10.2%Net investment income with incentive fees 8.9% 7.8% 9.2% 8.7% 8.1%Ratios, without waivers, to average net assets: Expenses without incentive fees(4) 8.9% 13.5% 11.9% — — Incentive fees(4) 2.2% 1.5% 2.3% — — Net expenses(4) 11.1% 15.0% 14.2% — — Net investment income with incentive fees(4) 8.7% 7.5% 9.1% — — Net assets at the end of the period $159,751 $138,248 $135,835 $144,972 $129,884 Average net asset value $157,612 $137,848 $142,327 $137,741 $130,385 Average debt per share $7.87 $10.68 $12.06 $7.42 $10.26 Portfolio turnover ratio 56.1% 46.5% 37.9% 74.0% 59.4% (1)Distributions are determined based on taxable income calculated in accordance with income tax regulations, which may differ from amountsdetermined under GAAP due to (i) changes in unrealized appreciation and depreciation, (ii) temporary and permanent differences in income andexpense recognition, and (iii) the amount of spillover income carried over from a given year for distribution in the following year. The finaldetermination of taxable income for each tax year, as well as the tax attributes for distributions in such tax year, will be made after the close of the taxyear.(2)Includes the impact of the different share amounts as a result of calculating per share data based on the weighted average basic shares outstandingduring the period and certain per share data based on the shares outstanding as of a period end or transaction date.(3)The total return equals the change in the ending market value over the beginning of period price per share plus distributions paid per share during theperiod, divided by the beginning price.(4)During the years ended December 31, 2015, 2014, and 2013, the Advisor waived $0.3 million, $0.2 million and $0.1 million, respectively, of basemanagement fee. During the year ended December 31, 2014, the Advisor waived $0.1 million of incentive fee. 110  Horizon Technology Finance Corporation and Subsidiaries Notes to Consolidated Financial Statements Note 13. Selected quarterly financial data (unaudited) December 31,2015 September 30,2015 June 30,2015 March 31,2015 (In thousands, except per share data) Total investment income $8,560 $8,427 $6,857 $7,266 Net investment income $4,104 $4,061 $2,888 $2,943 Net realized and unrealized (loss) gain $(1,376) $(523) $(1,143) $902 Net increase in net asset resulting from operations $2,728 $3,538 $1,745 $3,845 Net investment income per share (1) $0.35 $0.35 $0.25 $0.30 Net increase in net assets per share (1) $0.22 $0.30 $0.15 $0.39 Net asset value per share at period end (2) $13.85 $13.94 $13.99 $14.19 December 31,2014 September 30,2014 June 30,2014 March 31,2014 (In thousands, except per share data) Total investment income $7,284 $7,739 $8,697 $7,534 Net investment income $3,196 $3,201 $1,836 $2,484 Net realized and unrealized (loss) gain $(91) $1,559 $599 $2,646 Net increase in net asset resulting from operations $3,105 $4,760 $2,435 $5,130 Net investment income per share (1) $0.33 $0.33 $0.19 $0.26 Net increase in net assets per share (1) $0.32 $0.50 $0.25 $0.53 Net asset value per share at period end (2) $14.36 $14.38 $14.23 $14.32 (1)Based on weighted average shares outstanding for the respective period.(2)Based on shares outstanding at the end of the respective period. 111  Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None Item 9A. Controls and Procedures (a) Evaluation of disclosure controls and procedures As of December 31, 2015, we, including our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the design andoperation of our disclosure controls and procedures (as defined in Rule 13a-15(e) of the Exchange Act). Based on that evaluation, our management, includingour Chief Executive Officer and Chief Financial Officer, concluded that our disclosure controls and procedures were effective and provided reasonableassurance that information required to be disclosed in our periodic SEC filings is recorded, processed, summarized and reported within the time periodsspecified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief ExecutiveOfficer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. However, in evaluating the disclosure controlsand procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assuranceof achieving the desired control objectives, and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship ofsuch possible controls and procedures. (b) Management’s Report on Internal Control Over Financial Reporting Management’s Report on Internal Control Over Financial Reporting and RSM US LLP’s Report of Independent Registered Public Accounting Firm areincluded in “Item 8. Consolidated Financial Statements and Supplementary Data” of this Annual Report on Form 10-K. (c) Changes in internal controls over financial reporting. There have been no material changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act)during our most recently completed fiscal quarter, that have materially affected, or are reasonably likely to materially affect, our internal control overfinancial reporting. Item 9B. Other Information None 112  PART III We will file a definitive Proxy Statement for our 2016 Annual Meeting of Stockholders with the SEC, pursuant to Regulation 14A, not later than120 days after the end of our fiscal year. Accordingly, certain information required by Part III has been omitted under General Instruction G(3) to Form 10-K.Only those sections of our definitive Proxy Statement that specifically address the items set forth herein are incorporated by reference. Item 10. Directors, Executive Officers and Corporate Governance The information required by Item 10 is hereby incorporated by reference from our definitive Proxy Statement relating to our 2016 Annual Meeting ofStockholders, to be filed with the Securities and Exchange Commission not later than 120 days following the end of our fiscal year. Item 11. Executive Compensation The information required by Item 11 is hereby incorporated by reference from our definitive Proxy Statement relating to our 2016 Annual Meeting ofStockholders, to be filed with the Securities and Exchange Commission not later than 120 days following the end of our fiscal year. Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters The information required by Item 12 is hereby incorporated by reference from our definitive Proxy Statement relating to our 2016 Annual Meeting ofStockholders, to be filed with the Securities and Exchange Commission not later than 120 days following the end of our fiscal year. Item 13. Certain Relationships and Related Transactions, and Director Independence The information required by Item 13 is hereby incorporated by reference from our definitive Proxy Statement relating to our 2016 Annual Meeting ofStockholders, to be filed with the Securities and Exchange Commission not later than 120 days following the end of our fiscal year. Item 14. Principal Accountant Fees and Services The information required by Item 14 is hereby incorporated by reference from our definitive Proxy Statement relating to our 2016 Annual Meeting ofStockholders, to be filed with the Securities and Exchange Commission not later than 120 days following the end of our fiscal year. 113  PART IV Item 15. Exhibits and Financial Statement Schedules (a)(1) Financial statements (1) Financial statements — Refer to Item 8 starting on page 71. (2) Financial statement schedules — None (3) Exhibits Exhibit No. Description3.1 Amended and Restated Certificate of Incorporation (Incorporated by reference to exhibit (a) of the Company’s Pre-effective AmendmentNo. 2 to the Registration Statement on Form N-2, filed on July 2, 2010) 3.2 Amended and Restated Bylaws (Incorporated by reference to exhibit (b) of the Company’s Pre-effective Amendment No. 2 to theRegistration Statement on Form N-2, filed on July 2, 2010) 4.1 Form of Specimen Certificate (Incorporated by reference to exhibit (d) of the Company’s Pre-effective Amendment No. 3 to theRegistration Statement on Form N-2, filed on July 19, 2010) 4.2 Form of Registration Rights Agreement among Compass Horizon Partners, LP, HTF-CHF Holdings LLC and the Company (Incorporatedby reference to exhibit (k)(3) of the Company’s Pre-effective Amendment No. 2 to the Registration Statement on Form N-2, filed on July 2,2010) 4.3 Form of Indenture (Incorporated by reference to Exhibit (d)(4) of the Company’s Registration Statement on Form N-2, File No. 333-178516, filed on December 15, 2011) 4.4 Indenture, dated as of March 23, 2012, between the Company and U.S. Bank National Association. (Incorporated by reference to Exhibit(d)(7) of the Company’s Post-Effective Amendment No. 2 to the Registration Statement on Form N-2, File No. 333-178516, filed on March23, 2012) 4.5 First Supplemental Indenture, dated as of March 23, 2012, between the Company and U.S. Bank National Association (Incorporated byreference to Exhibit (d)(8) of the Company’s Post-Effective Amendment No. 2 to the Registration Statement on Form N-2, File No. 333-178516, filed on March 23, 2012) 4.6 Form of 7.375% 2019 Notes due 2019 (included as part of Exhibit 4.5) 4.7 Indenture, dated as of June 28, 2013, between Horizon Technology Funding Trust 2013-1 and U.S. Bank National Association(Incorporated by reference to Exhibit 4.1 of the Company’s Quarterly Report on Form 10-Q, filed on August 6, 2013) 10.1 Amended and Restated Investment Management Agreement (Incorporated by reference to Exhibit 10.1 of the Company’s Current Reporton Form 8-K, filed on August 5, 2014) 10.2 Form of Custody Agreement (Incorporated by reference to exhibit (j) of the Company’s Pre-effective Amendment No. 3 to the RegistrationStatement on Form N-2, filed on July 19, 2010) 10.3 Form of Administration Agreement (Incorporated by reference to exhibit (k)(1) of the Company’s Pre-effective Amendment No. 2 to theRegistration Statement on Form N-2, filed on July 2, 2010) 10.4 Form of License Agreement by and between the Company and Horizon Technology Finance, LLC (Incorporated by reference to exhibit (k)(2) of the Company’s Pre-effective Amendment No. 2 to the Registration Statement on Form N-2, filed on July 2, 2010) 10.5 Form of Dividend Reinvestment Plan (Incorporated by reference to exhibit (e) of the Company’s Pre-effective Amendment No. 2 to theRegistration Statement on Form N-2, filed on July 2, 2010) 10.6 Amended and Restated Trust Agreement, dated as of June 28, 2013, by and between Horizon Funding 2013-1 LLC and Wilmington Trust,National Association (Incorporated by reference to Exhibit 10.1 of the Company’s Quarterly Report on Form 10-Q, filed on August 6,2013) 10.7 Sale and Servicing Agreement, dated as of June 28, 2013, by and among the Company, Horizon Funding Trust 2013-1, Horizon Funding2013-1 LLC and U.S. Bank National Association (Incorporated by reference to Exhibit 10.2 of the Company’s Quarterly Report on Form10-Q, filed on August 6, 2013) 114  10.8 Sale and Contribution Agreement, dated as of June 28, 2013, between the Company and Horizon Funding 2013-1 LLC (Incorporated byreference to Exhibit 10.3 of the Company’s Quarterly Report on Form 10-Q, filed on August 6, 2013) 10.9 Note Purchase Agreement, dated as of June 28, 2013, by and among the Company, Horizon Funding 2013-1 LLC, Horizon Funding Trust2013-1 and Guggenheim Securities, LLC (Incorporated by reference to Exhibit 10.4 of the Company’s Quarterly Report on Form 10-Q,filed on August 6, 2013) 10.10 Amended and Restated Loan and Security Agreement, dated as of November 4, 2013, by and among Horizon Credit II LLC, as theborrower, the Lenders that are signatories thereto, as the lenders, and Key Equipment Finance Inc,. as the arranger and the agent(Incorporated by reference to Exhibit 10.14 of the Company’s Annual Report on Form 10-K, filed on March 11, 2014) 10.11 Amendment No. 1 to Amended and Restated Loan Agreement, dated as of August 12, 2015, by and among Horizon Credit II LLC, as theborrower, Alostar Bank of Commerce, as lender, and KeyBank National Association, as lender, arranger and agent (Incorporated byreference to Exhibit (k)(13) of Pre-effective Amendment No. 3 to the Company’s Registration Statement on Form N-2, filed on August 19,2015) 10.12 Amended and Restated Sale and Servicing Agreement, dated as of November 4, 2013, by and among Horizon Credit II LLC, as the buyer,Horizon Technology Finance Corporation, as the originator and the servicer, Horizon Technology Finance Management LLC, as the sub-servicer, U.S. Bank National Association, as the collateral custodian and backup servicer, and Key Equipment Finance Inc., as the agent(Incorporated by reference to Exhibit 10.15 of the Company’s Annual Report on Form 10-K, filed on March 11, 2014) 10.13 Agreement Regarding Loan Assignment and Related Matters, dated as of November 4, 2013, by and among Horizon Credit II LLC, WellsFargo Capital Finance, LLC and Key Equipment Finance Inc. (Incorporated by reference to Exhibit 10.16 of the Company’s AnnualReport on Form 10-K, filed on March 11, 2014) 11.1* Computation of per share earnings (included in the notes to the audited financial statements included in this report) 14.1 Code of Ethics of the Company (Incorporated by reference to exhibit (r)(1) of the Company’s Pre-effective Amendment No. 3 to theRegistration Statement on Form N-2, filed on July 19, 2010) 14.2 Code of Ethics of the Advisor (Incorporated by reference to exhibit (r)(2) of the Company’s Pre-effective Amendment No. 3 to theRegistration Statement on Form N-2, filed on July 19, 2010) 21* List of Subsidiaries 24 Power of Attorney (included on signature page hereto) 31.1* Certificate of the Principal Executive Officer Pursuant to Exchange Act Rule 13a-14(a) and 15d-14(a) 31.2* Certificate of the Principal Financial and Accounting Officer Pursuant to Exchange Act Rule 13a-14(a) and 15d-14(a) 32.1* Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-OxleyAct of 2002 32.2* Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-OxleyAct of 2002 99.1 Privacy Policy of the Company (Incorporated by reference to Exhibit 99.1 of the Company’s Annual Report on Form 10-K, filed on March16, 2011) *Filed herewith 115  SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this Annual Report on Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized. Horizon Technology Finance Corporation Date: March 8, 2016By:/s/ Robert D. Pomeroy, Jr. Name:Robert D. Pomeroy, Jr. Title:Chief Executive Officer and Chairman of the Board of Directors KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Robert D. Pomeroy, Jr., ChristopherM. Mathieu and Gerald A. Michaud as his true and lawful attorneys-in-fact, each with full power of substitution, for him in any and all capacities, to sign anyamendments to this Annual Report on Form 10-K and to file the same, with exhibits thereto and other documents in connection therewith, with the Securitiesand Exchange Commission, hereby ratifying and confirming all that each of said attorneys-in-fact or their substitute or substitutes may do or cause to be doneby virtue hereof. Pursuant to the requirements of the Securities Exchange Act of 1934, this Annual Report on Form 10-K has been signed below by the following persons onbehalf of the registrant and in the capacities and on the dates indicated. Signature Title Date /s/ Robert D. Pomeroy, Jr. Chairman of the Board of Directors March 8, 2016Robert D. Pomeroy, Jr. and Chief Executive Officer(Principal Executive Officer) /s/ Christopher M. Mathieu Chief Financial Officer and March 8, 2016Christopher M. Mathieu Treasurer (Principal Financial andAccounting Officer) /s/ Gerald A. Michaud President and Director March 8, 2016Gerald A. Michaud /s/ James J. Bottiglieri Director March 8, 2016James J. Bottiglieri /s/ Edmund V. Mahoney Director March 8, 2016Edmund V. Mahoney /s/ Elaine A. Sarsynski Director March 8, 2016Elaine A. Sarsynski 116 Exhibit 21 LIST OF SUBSIDIARIES OFHORIZON TECHNOLOGY FINANCE CORPORATIONAS OF 12/31/15 Compass Horizon Funding Company LLC — Delaware Limited Liability CompanyHorizon Credit II LLC — Delaware Limited Liability CompanyLongview SBIC GP LLC — Delaware Limited Liability CompanyLongview SBIC LP — Delaware Limited PartnershipHorizon Funding 2013-1 LLC — Delaware Limited Liability CompanyHorizon Funding Trust 2013-1 – Delaware TrustHPO Assets LLC — Delaware Limited Liability Company EXHIBIT 31.1 CERTIFICATION PURSUANT TO EXCHANGE ACTRULES 13a-14 AND 15d-14, AS ADOPTED PURSUANTTO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 CHIEF EXECUTIVE OFFICER CERTIFICATION I, Robert D. Pomeroy, Jr., as Chairman of the Board and Chief Executive Officer of Horizon Technology Finance Corporation and Subsidiaries, certify that: 1. I have reviewed this Annual Report on Form 10-K of Horizon Technology Finance Corporation and Subsidiaries; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects thefinancial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined inExchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for theregistrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensurethat material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularlyduring the period in which this report is being prepared; and b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision,to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordancewith generally accepted accounting principles; and c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectivenessof the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscalquarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, theregistrant’s internal control over financial reporting; and 5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to theregistrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likelyto adversely affect the registrant’s ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control overfinancial reporting. Date: March 8, 2016 By:/s/ Robert D. Pomeroy, Jr. Chief Executive Officer and Chairman of the Board EXHIBIT 31.2 CERTIFICATION PURSUANT TO EXCHANGE ACTRULES 13a-14 AND 15d-14, AS ADOPTED PURSUANTTO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 CHIEF FINANCIAL OFFICER CERTIFICATION I, Christopher M. Mathieu, Chief Financial Officer of Horizon Technology Finance Corporation and Subsidiaries, certify that: 1. I have reviewed this Annual Report on Form 10-K of Horizon Technology Finance Corporation and Subsidiaries; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects thefinancial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined inExchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for theregistrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensurethat material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularlyduring the period in which this report is being prepared; and b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision,to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordancewith generally accepted accounting principles; and c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectivenessof the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscalquarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, theregistrant’s internal control over financial reporting; and 5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to theregistrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likelyto adversely affect the registrant’s ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control overfinancial reporting. Date: March 8, 2016 By:/s/ Christopher M. Mathieu Christopher M. Mathieu Chief Financial Officer EXHIBIT 32.1 CERTIFICATION OF CHIEF EXECUTIVE OFFICERPursuant toSection 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350) In connection with the Annual Report on Form 10-K of Horizon Technology Finance Corporation and Subsidiaries (the “Company”) for the annualperiod ended December 31, 2015 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Robert D. Pomeroy, Jr., asChairman of the Board and Chief Executive Officer of the Registrant hereby certify, to the best of my knowledge that: (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant. /s/ Robert D. Pomeroy, Jr. Name:Robert D. Pomeroy, Jr. Title:Chief Executive Officer andChairman of the Board Date: March 8, 2016 EXHIBIT 32.2 CERTIFICATION OF CHIEF FINANCIAL OFFICERPursuant toSection 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350) In connection with the Annual Report on Form 10-K of Horizon Technology Finance Corporation and Subsidiaries (the “Company”) for the annualperiod ended December 31, 2015 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Christopher M. Mathieu, asChief Financial Officer of the Registrant hereby certify, to the best of my knowledge that: (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant. /s/ Christopher M. Mathieu Name:Christopher M. Mathieu Title:Chief Financial Officer Date: March 8, 2016 

Continue reading text version or see original annual report in PDF format above