Horizon Finance
Annual Report 2016

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2023 Report
2022 Report
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2020 Report
2019 Report

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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, 2016 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 ClassName of Each Exchange on Which RegisteredCommon Stock, par value $0.001 per shareThe NASDAQ Stock Market LLC 7.375% Senior Notes due 2019The 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 ¨ No ¨ 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. ¨ 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, 2016 based on the closing price on that date of $12.20on the Nasdaq Global Select Market was $139.1 million. For the purposes of calculating this amount only, all directors and executive officers of theRegistrant have been treated as affiliates. There were 11,513,516 shares of the Registrant’s common stock outstanding as of March 1, 2017. Documents Incorporated by Reference: Portions of the Registrant’s Proxy Statement relating to the Registrant’s 2017 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, 2016 TABLE OF CONTENTS Page PART I Item 1.Business3Item 1A.Risk Factors25Item 1B.Unresolved Staff Comments51Item 2.Properties51Item 3.Legal Proceedings51Item 4.Mine Safety Disclosures51 PART II Item 5.Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities52Item 6.Selected Financial Data56Item 7.Management’s Discussion and Analysis of Financial Condition and Results of Operations57Item 7A.Quantitative and Qualitative Disclosures About Market Risk70Item 8.Consolidated Financial Statements and Supplementary Data71Item 9.Changes in and Disagreements with Accountants on Accounting and Financial Disclosure113Item 9A.Controls and Procedures113Item 9B.Other Information113 PART III Item 10.Directors, Executive Officers and Corporate Governance114Item 11.Executive Compensation114Item 12.Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters114Item 13.Certain Relationships and Related Transactions, and Director Independence114Item 14.Principal Accounting Fees and Services114 PART IV Item 15.Exhibits, Financial Statement Schedules115 Signatures117 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 andour direct 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; ·“2013-1 Securitization” refers to the $189.3 million securitization of secured loans we completed on June 28, 2013; ·“Asset-Backed Notes” refers to the $90 million aggregate principal amount of fixed-rate asset-backed notes that were issued in conjunctionwith the 2013-1 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 maximize our investmentportfolio’s total return by generating current income from the debt investments we make and capital appreciation from the warrants we receive when makingsuch debt investments. We are focused on making secured debt investments, which we refer to as “Venture Loans,” to venture capital backed companies inour Target Industries, which we refer to as “Venture Lending.” We also selectively provide Venture Loans to publicly traded companies in our TargetIndustries. Our debt investments are typically secured by first liens or first liens behind a secured revolving line of credit, or “Senior Term Loans.” VentureLending is typically characterized by (1) the making of a secured debt investment after a venture capital or equity investment in the portfolio company hasbeen made, which investment provides a source of cash to fund the portfolio company’s debt service obligations under the Venture Loan, (2) the seniorpriority of the Venture Loan which requires repayment of the Venture Loan prior to the equity investors realizing a return on their capital, (3) the relativelyrapid amortization of the Venture Loan and (4) the lender’s receipt of warrants or other success fees with the making of the Venture Loan. We are an externally managed, closed-end, non-diversified management investment company that has elected to be regulated as a 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 a portion of our investments through borrowings. However, as a BDC, we are only generally allowed to borrow amounts such that our asset coverage,as defined in the 1940 Act, equals at least 200% after such borrowing. The amount of leverage that we employ depends on our assessment of marketconditions and other factors at the time of any proposed borrowing. As a RIC, we generally do not have to pay corporate-level federal income taxes on ourinvestment company taxable income and our net capital gain that we distribute to our stockholders as long as we meet certain source-of-income, distribution,asset diversification and 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 the commencement of operations of our predecessor on March 4, 2008 through December 31, 2016, we funded 146 portfolio companies andinvested $839.6 million in debt investments. As of December 31, 2016, our debt investment portfolio consisted of 44 debt investments with an aggregate fairvalue of $186.2 million. As of December 31, 2016, 97.4%, or $181.4 million, of our debt investment portfolio at fair value consisted of Senior Term Loans.As of December 31, 2016, our net assets were $139.2 million, and all of our debt investments were secured by all or a portion of the tangible and intangibleassets of the applicable portfolio company. The debt investments in our portfolio are generally not rated by any rating agency. If the individual debtinvestments in our portfolio were rated, they would be rated below “investment grade”. Debt investments that are unrated or rated below investment grade aresometimes referred to as “junk bonds” and have predominantly speculative characteristics with respect to the issuer’s capacity to pay interest and repayprincipal. For the year ended December 31, 2016, our debt investment portfolio had a dollar-weighted annualized yield of 14.9% (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, 2016, our debt investments had a dollar-weighted average term of 44 months from inception and a dollar-weighted average remaining term of 28 months. As of December 31, 2016, substantially allof our debt investments had an original committed principal amount of between $2 million and $15 million, repayment terms of between 28 and 48 monthsand bore current pay interest at annual interest rates of between 9% and 13%. For the year ended December 31, 2016, our total return based on market value was 1.5%. Total return based on market value is calculated as (x) the sumof (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, 2016, we held warrants to purchase stock, predominantly preferred stock, in 78 portfoliocompanies, equity positions in five portfolio companies and success fee arrangements in 11 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, or NASDAQ, 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 portfolio of investments. In addition to theexperience gained from the years that they have worked together both at our Advisor and prior to the formation of our Advisor, the members of ourinvestment team have broad lending backgrounds, with substantial experience at a variety of commercial finance companies, technology banks and privatedebt funds, and have developed a broad network of contacts within the venture capital and private equity community. This network of contacts provides aprincipal 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, John C.Bombara, our Senior Vice President, General Counsel and Chief Compliance Officer, Daniel S. Devorsetz, our Senior Vice President and Chief InvestmentOfficer and Daniel R. Trolio, our Senior Vice President and Chief Financial 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 and public equity markets. We make loans to development-stage companies within ourTarget Industries typically in the form of secured loans. The secured debt structure provides a lower risk strategy, as compared to equity or unsecureddebt investments, to participate in the emerging technology markets because the debt structures we typically utilize provide collateral against thedownside risk of loss, provide return of capital in a much shorter timeframe through current-pay interest and amortization of principal and have asenior position to equity and unsecured debt in the borrower’s capital structure in the case of insolvency, wind down or bankruptcy. Unlike venturecapital and private equity investments, our investment returns and return of our capital do not require equity investment exits such as mergers andacquisitions or initial public offerings. Instead, we receive returns on our debt investments primarily through regularly scheduled payments ofprincipal and interest and, if necessary, liquidation of the collateral supporting the debt investment upon a default. Only the potential gains fromwarrants depend upon equity investment exits. •“Enterprise value” lending. We and our Advisor take an enterprise value approach to structuring and underwriting loans. Enterprise value includesthe implied valuation based upon recent equity capital invested as well as the intrinsic value of the applicable portfolio company’s particulartechnology, 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 frequently obtain warrantsto purchase the equity of our portfolio companies as additional consideration for making debt investments. The warrants we obtain generally includea “cashless exercise” provision to allow us to exercise these rights without requiring us to make any additional cash investment. Obtaining warrantsin our portfolio companies has allowed us to participate in the equity appreciation of our portfolio companies, which we expect will enable us togenerate higher 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. For public companies, our Advisor typically relies on publicly reported quarterly financials. •Use of leverage. We use leverage to increase returns on equity through our Key Facility and our 2019 Notes. See “Item 7 — Management’sDiscussion and Analysis of Financial Condition and Results of Operations — Liquidity and capital resources” for additional information about ouruse 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 discovery, drugdelivery, bioinformatics and medical devices. The healthcare information and services sectors we focus on include diagnostics, medical record services andsoftware and other healthcare related services and technologies that improve efficiency and quality of administered healthcare. The cleantech sectors wefocus on include alternative energy, water purification, energy efficiency, green building materials and waste recycling. We refer to all of these companies as“technology-related” companies because the companies are developing or offering goods and services to businesses and consumers which utilize scientificknowledge, including techniques, skills, methods, devices and processes, to solve problems. We intend, under normal market conditions, to invest at least80% of the value of our total assets in such companies. 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 or access to publicequity markets to access capital; •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 orother liquidity 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 $1.3 billion to more than 210 companies since operations commenced in2004. Robust direct origination capabilities. Our Advisor has significant experience originating Venture Loans in our Target Industries. This experiencehas given our Advisor a deep knowledge of our Target Industries and an extensive base of transaction sources and references. Highly experienced and cohesive management team. Our Advisor’s senior management team of experienced professionals has been together sinceits inception. This consistency allows companies, their management teams and their investors to rely on consistent and predictable service, loanproducts and 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 210 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 vary by their stage of development, their Target Industries and sectors of Target Industries and their geographicallocation, as well as by the venture capital and private equity sponsors that support our portfolio companies. While we invest in companies at various stages ofdevelopment, we require that prospective portfolio companies be beyond the seed stage of development and have received at least their first round of venturecapital or private equity financing before we will consider making an investment. We expect a prospective portfolio company to demonstrate its ability toadvance 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 committed partners 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 its 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 market opportunities that capitalize on their competitiveadvantages. Competitive advantages may include unique technology, protected intellectual property, superior clinical results or significant markettraction. As part of our investment analysis, we typically also consider potential realization of our warrants through merger, acquisition or initial publicoffering 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 materials from the prospective portfolio company and from those materials, as well asother available information, determines whether it is appropriate for our Advisor to issue a non-binding term sheet. The managing director bases thisdecision to proceed on his or her experience, the competitive environment and the prospective portfolio company’s needs and also seeks the counsel ofour 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. 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. 8 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 publicly available information fromindependent third parties that have knowledge of the prospective portfolio company’s business, including, to the extent available analysts that followthe technology market, thought leaders in our Target Industries and important customers or partners, if any. Outside sources of information are reviewed,including industry publications, scientific and market articles, internet publications, publicly available information on competitors or competingtechnologies and information known to our Advisor’s investment team from their experience in the technology markets. A primary element of the due diligence process is interviewing key existing investors of 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 then submitted to our Advisor’s investmentcommittee for approval. 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 financing statements and, as applicable, may also include a landlord agreement, patent and trademark security grants, asubordination agreement, an intercreditor agreement and other standard agreements for commercial loans in the Venture Lending industry. Fundingrequires final approval by 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, typically monthly. For public companies, our Advisor typically relies on publicly reported quarterly financials. This allows our Advisor toidentify any unexpected 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 quarterly 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 than existed at the time of its originalunderwriting. A rating of 2 or 1 represents a deteriorating credit quality and an increased risk of loss of principal. Newly funded investments aretypically assigned a rating of 3, unless extraordinary circumstances require otherwise. These investment ratings are generated internally by our Advisor,and we cannot guarantee that others would assign the same ratings to 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 as demonstrated by exceeding revenue milestones, clinicalmilestones or other operating metrics or as a result of raising capital well in excess of our underwriting assumptions. Generally theportfolio company displays one or more of the following: its enterprise value greatly exceeds our loan balance; it has achieved cashflow positive operations or has sufficient cash resources to cover the remaining balance of the loan; there is strong potential forwarrant gains from our warrants; and there is a high likelihood that the borrower will receive favorable future financing to supportoperations. 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 as demonstrated by meeting revenue milestones, clinical milestones orother operating metrics. It has raised, or is expected to raise, capital consistent with our underwriting assumptions. Generally theportfolio company displays one or more of the following: its enterprise value comfortably exceeds our loan balance; it has sufficientcash resources to operate according to its plan; it is expected to raise additional capital as needed; and there continues to bepotential for warrant gains from our warrants. New loans are typically rated 3 when approved and thereafter 3-rated loans represent astandard risk profile, with no principal loss currently expected.2 The portfolio company has performed below our expectations as demonstrated by missing revenue milestones, delayed clinicalprogress or otherwise failing to meet projected operating metrics. It may have raised capital in support of the poorer performance butgenerally 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 levelof risk of loss of principal. 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 enterprisevalue may not exceed our loan balance; it has insufficient cash to operate according to its plan and liquidity may be tight; and thereare uncertain plans to raise additional capital or the portfolio company is being sold under distressed conditions. There is nopotential for warrant gains from our warrants. Loans rated 1 are generally put on non-accrual status and represent a high degree of riskof loss of principal. 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 such changes; •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, or the 2015 Offering, to the extent such fee is not otherwise waived and regardless of the application of the proceeds raised, until the earlierto occur of (i) March 31, 2016 or (ii) the last day of the second consecutive calendar quarter in which our net investment income exceeds distributionsdeclared on shares of our common stock for the applicable quarter. As of December 31, 2015, condition (ii) above had been met, as our net investment incomeexceeded distributions declared for the quarters ended September 30, 2015 and December 31, 2015, and our Advisor is not obligated to waive the basemanagement fee with respect to proceeds from the 2015 Offering 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 expenses for the quarter (including the base management fee, expenses payable under the Administration Agreement, and any interest expense and anydividends paid on any issued and outstanding preferred stock, but excluding the incentive fee). Pre-Incentive Fee Net Investment Income includes, in thecase of investments with a deferred interest feature (such as original issue discount, debt instruments with payment-in-kind interest and zero couponsecurities), accrued income we have not yet received in cash. The incentive fee with respect to the Pre-Incentive Fee Net Investment Income is 20.00% of theamount, if any, by which the Pre-Incentive Fee Net Investment Income for the immediately preceding calendar quarter exceeds a hurdle rate of 1.75% (whichis 7.00% annualized) of our net assets at the end of the immediately preceding calendar quarter, subject to a “catch-up” provision measured as of the end ofeach calendar quarter. Under this provision, in any calendar quarter, the Advisor receives no incentive fee until the Pre-Incentive Fee Net Investment Incomeequals the hurdle rate of 1.75%, but then receives, as a “catch-up,” 100.00% of the Pre-Incentive Fee Net Investment Income with respect to that portion ofsuch Pre-Incentive Fee Net Investment Income, if any, that exceeds the hurdle rate but is less than 2.1875% quarterly (which is 8.75% annualized). The effectof this “catch-up” provision is that, if Pre-Incentive Fee Net Investment Income exceeds 2.1875% in any calendar quarter, the Advisor will receive 20.00% ofthe Pre-Incentive Fee Net Investment Income as if the hurdle rate 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 look-backperiod for the incentive fee based on Pre-Incentive Fee Net Investment Income (the “Incentive Fee Look-back Period”) commenced on July 1, 2014 andincreases 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 includethe relevant calendar quarter and the 11 preceding full calendar quarters. Each quarterly incentive fee payable on Pre-Incentive Fee Net Investment Income issubject to a cap (the “Incentive Fee Cap”) and a deferral mechanism through which the Advisor may recoup a portion of such deferred incentive fees(collectively, the “Incentive Fee Cap and Deferral Mechanism”). The Incentive Fee Cap is equal to (a) 20.00% of Cumulative Pre-Incentive Fee Net Return(as defined below) during the Incentive Fee Look-back Period less (b) cumulative incentive fees of any kind paid to the Advisor during the Incentive FeeLook-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-IncentiveFee Net Investment Income to the Advisor in that quarter. To the extent that the payment of incentive fees on Pre-Incentive Fee Net Investment Income islimited by the Incentive Fee Cap, the payment of such fees will be deferred and paid in subsequent calendar quarters up to three years after their date ofdeferment, subject to certain limitations, which are set forth in the Investment Management Agreement. We only pay incentive fees on Pre-Incentive Fee NetInvestment Income to the extent allowed by the Incentive Fee Cap and Deferral Mechanism. “Cumulative Pre-Incentive Fee Net Return” during any IncentiveFee Look-back Period means the sum of (a) Pre-Incentive Fee Net Investment Income and the base management fee for each calendar quarter during theIncentive Fee Look-back Period and (b) the sum of cumulative realized capital gains and losses, cumulative unrealized capital appreciation and cumulativeunrealized 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 through the end of such year, 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 Income as if ahurdle rate did not apply when our Pre-Incentive Fee 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.) = 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% 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%, no incentive fee is payable because 20.0% of the cumulativenet increase in net assets resulting from operations since July 1, 2014 did not exceed the cumulative income and capital gains incentive fees accruedand/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% 14 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%. 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 Investment Income as if ahurdle rate did not apply when our Pre-Incentive Fee 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”) 15 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 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 the Investment Management Agreement were terminated on a date other than our fiscal year end ofany year, we may have paid aggregate capital gains incentive fees that are more than the amount of such fees that would be payable if theInvestment Management Agreement were terminated on the fiscal year end of such year. (2)As noted above, it is possible that the cumulative aggregate capital gains fee received by the 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 portfoliocompanies, 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; 16 •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; •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 overheadunder the Administration Agreement, including rent, the fees and expenses associated with performing compliance functions and our allocableportion of the 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, 2016 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, and a majority of our independent directors, on July 29, 2016. Unlessterminated earlier as described below, it will continue in effect from year to year thereafter if approved annually by our Board including a majority of ourdirectors who are not interested persons or by the affirmative vote of the holders of a majority of our outstanding voting securities and a majority of ourdirectors who are not interested persons. The Investment Management Agreement will automatically terminate in the event of its assignment. The InvestmentManagement Agreement may be terminated by either party without penalty by delivering notice of termination upon not more than 60 days’ written notice tothe other party. See “Item 1A — Risk Factors — Risks related to our business and structure — Our Advisor can resign on 60 days’ notice, and we may not beable to find a suitable replacement within that time, resulting in a disruption in our operations that could adversely affect our business, results of operationsor financial condition.” Administration Agreement The Administration Agreement was considered and reapproved by our Board, and a majority of our independent directors, on July 29, 2016. Under theAdministration Agreement, the Administrator furnishes us with office facilities and equipment, provides us clerical, bookkeeping and record keeping servicesat such facilities and provides us with other administrative services necessary to conduct our day-to-day operations. We reimburse the Administrator for ourallocable portion of overhead and other expenses incurred by the Administrator in performing its obligations under the Administration Agreement, includingrent, the fees and expenses associated with performing compliance functions and our allocable portion of the costs of compensation and related expenses ofour Chief Financial Officer and Chief Compliance Officer and their respective staffs. The Board reviews the allocation of expenses shared with the Advisor orother clients of the Advisor, if any, on a periodic basis to confirm that the allocations are reasonable and appropriate in light of the provisions of theInvestment Management Agreement and Administration Agreement and then-current circumstances. License agreement We have entered into a license agreement with Horizon Technology Finance, LLC pursuant to which we were granted a non-exclusive, royalty-freeright and license to use the service mark “Horizon Technology Finance.” Under this agreement, we have a right to use the “Horizon Technology Finance”service mark for so long as the Investment Management Agreement with our Advisor is in effect. Other than with respect to this limited license, we have nolegal 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. 18 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. 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. On January 23, 2017,we filed an application for exemptive relief with the SEC, which, if granted, would permit us to co-invest subject to certain conditions. 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 isdefined in 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 19 •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 financingarrangements. •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. We may seek approval 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 requirements 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 relevant code of ethics’ requirements. You may read and copy each code of ethics atthe SEC’s Public Reference Room in Washington, D.C. You may obtain information on the operation of the Public Reference Room by calling the SEC at(202) 551-8090. In addition, each code of ethics is attached as an exhibit to this report and is available on the SEC’s Internet site at www.sec.gov. You mayalso obtain copies of the code of ethics, after paying a duplicating fee, by electronic request at the following e-mail address: publicinfo@sec.gov, or bywriting the SEC’s Public Reference 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. 21 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. 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 and principalfinancial 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 controls andprocedures; •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 were significantchanges in our internal controls over financial reporting or in other factors that could significantly affect these controls subsequent to the date oftheir 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 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. 22 Election to be taxed as a RIC We have elected to be subject to tax, and intend to qualify annually to maintain our election to be subject to tax, as a RIC under Subchapter M of theCode. To maintain our RIC status, we must, among other requirements, meet certain source-of-income and quarterly asset diversification requirements (asdescribed below). 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 ourrealized net short-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 ofthe assets legally available for distribution, which we refer to as the “Annual Distribution Requirement.” Although not required for us to maintain our RIC taxstatus, in order to preclude the imposition of a 4% nondeductible federal excise tax imposed on RICs, we are required to distribute dividends in respect ofeach calendar 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) forthe calendar 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 theone-year period ending on October 31 of the calendar year and (3) any ordinary income or net capital gains for preceding years that was not distributedduring such years and on which we previously did not incur any U.S. federal corporate income tax, or the Excise Tax Avoidance Requirement. In addition,although we may 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 theassets legally available for such distributions, we may decide to retain such net capital gains or ordinary income to provide us with additional liquidity. Inorder to qualify as a RIC, we must: •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 our businessof 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 other securitiesif such other securities of any one issuer neither represents more than 5% of the value of our assets nor more than 10% of the outstanding votingsecurities 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, of oneissuer or of two or more issuers that are controlled, as determined under applicable tax rules, by us and that are engaged in the same or similar orrelated trades or businesses or in certain qualified publicly traded partnerships, or the Diversification Tests. Taxation as a RIC If we qualify as a RIC, and satisfy the Annual Distribution Requirement, then we will not be subject to entity-level income taxes on the portion of ourinvestment company taxable income as well as any net capital gain (i.e., realized net long-term capital gains in excess of realized net short-term capitallosses) we distribute as dividends to stockholders. We may retain for investment all or a portion of our net capital gain. However, if we retain any investmentcompany taxable income or net capital gains, and satisfy the Annual Distribution Requirement, we will be subject to entity-level taxation at regular corporaterates 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 subsequent tax 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, includingitems 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 at the end ofthe 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 securities 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 the debtsecurity, 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. 23 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. 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 generally not permitted to make distributions to our stockholders while our debt obligations and other senior securitiesare outstanding unless certain “asset coverage” tests are met. Moreover, our ability to dispose of assets to meet our distribution requirements may be limitedby (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 ofassets in 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 stockholders 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 either Mr. Pomeroy, our Chief Executive Officer, or Mr. Michaud, our President, ceases to be actively involved with us or our Advisor,and is not replaced by an individual satisfactory to Key within 90 days, Key could, absent a waiver or cure, demand repayment of any outstandingobligations under the Key Facility. In such an event, if we do not have sufficient cash to repay our outstanding obligations, we may be required to sellinvestments which, due to their illiquidity, may be difficult to sell on favorable terms or at all. We may also be unable to make new investments, cover ourexisting obligations to extend credit or meet other obligations as they come due, which could adversely impact our results of operations. 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 less cash, including those assetsacquired through the use of leverage, our Advisor may have a financial incentive to incur leverage which may not be consistent with our stockholders’interests. In addition, holders of our common stock bear the burden of any increase in our expenses, as a result of leverage, including any increase in themanagement fee payable to our Advisor. In addition to the leverage described above, in the past, we have securitized a large portion of our debt investments to generate cash for funding newinvestments and may seek to securitize additional debt investments in the future. To securitize additional debt investments in the future, we may create awholly-owned subsidiary and sell and/or contribute a pool of debt investments to such subsidiary. This could include the sale of interests in the subsidiary ona 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 wouldretain all or a 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 ourability to grow our business, fully execute our business strategy and increase our earnings. Moreover, certain types of securitization transactions may exposeus to greater 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 Portfolio(Net of Expenses) -10% -5% 0% 5% 10% Corresponding return to common stockholder(1) -20.97% -12.38% -3.78% 4.82% 13.41% (1)Assumes $239 million in total assets, $96 million in outstanding debt, $139 million in net assets, and an average cost of borrowed funds of 5.47% atDecember 31, 2016. Based on our outstanding indebtedness of $96 million as of December 31, 2016 and the average cost of borrowed funds of 5.47% as of that date, ourinvestment portfolio would have been required to experience an annual return of at least 2.48% to cover annual interest payments on the outstanding debt.Actual interest payments may be different. 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 or 2019 Notes, in order to obtain funds which maybe made available for investments. We may borrow under the Key Facility until August 12, 2018. After such date, we must repay the outstanding advancesunder the Key Facility in accordance with its terms and conditions. All outstanding advances under the Key Facility are due and payable 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 on March 15, 2019 unlessredeemed prior to that date. If we are unable to increase, renew or replace the Key Facility or enter into other new debt financings on commercially reasonableterms, our liquidity may be reduced significantly. In addition, if we are unable to repay amounts outstanding under any such debt financings and are declaredin default or are unable to renew or refinance these debt financings, we may not be able to make new investments or operate our business in the normalcourse. These situations may arise due to circumstances that we may be unable to control, such as lack of access to the credit markets, a severe decline in thevalue of the U.S. dollar, an economic downturn or an operational 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. 27 In addition, our subsidiaries may incur substantial additional indebtedness in the future, all of which would be structurally senior to the 2019 Notes. 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)(1)(A) as modified by Section 61(a)(l) of the 1940 Act or any successor provisions, whether or notwe continue 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 paymentto the 2019 Notes, including subordinated indebtedness, in each case other than dividends, purchases, redemptions or payments that wouldcause a violation of Section 18(a)(1)(B) as modified by Section 61(a)(l) of the 1940 Act or any successor provisions giving effect to anyexemptive relief granted to us by the SEC (these provisions generally prohibit us from declaring any cash dividend or distribution upon anyclass of our capital stock, or purchasing any such capital stock unless our asset coverage, as defined in the 1940 Act, equals at least 200% at thetime of the declaration of the dividend or distribution or the purchase and after deducting the amount of such dividend, distribution orpurchase);·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. 28 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. 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 other indebtedness to which we may be aparty that is not waived by the required lenders or holders thereunder, and the remedies sought by the holders of such indebtedness could make us unable topay principal, premium, if any, and interest on the 2019 Notes and substantially decrease the market value of the 2019 Notes. If we are unable to generatesufficient cash flow and are otherwise unable to obtain funds necessary to meet required payments of principal, premium, if any, and interest on ourindebtedness, or if we otherwise fail to comply with the various covenants, including financial and operating covenants, in the instruments governing ourindebtedness, we could be in default under the terms of the agreements governing such indebtedness. In the event of such default, the holders of suchindebtedness could elect to declare all the funds borrowed thereunder to be due and payable, together with accrued and unpaid interest, the lender under theKey Facility or other debt we may incur in the future could elect to terminate their commitments, cease making further loans and institute foreclosureproceedings against our assets, and we could be forced into bankruptcy or liquidation. If our operating performance declines, we may in the future need toseek to obtain waivers from the required lender under the Key Facility or other debt that we may incur in the future to avoid being in default. If we breach ourcovenants under the Key Facility or other debt and seek a waiver, we may not be able to obtain a waiver from the required lenders or holders. If this occurs, wewould be in default and our lenders or debt holders could exercise their rights as described above, and we could be forced into bankruptcy or liquidation. Ifwe are unable to repay debt, lenders having secured obligations, including the lender under the Key Facility, could proceed against the collateral securingthe debt. Because the Key Facility has, and any future credit facilities will likely have, customary cross-default provisions, if the indebtedness thereunder orunder any future credit facility is accelerated, we may be unable to repay or finance the amounts due. 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, incur any applicable income taxes with respect thereto, and elect to treat such retained net capital gainsas deemed 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. 29 We are subject to risks associated with a rising 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 low interest rate environment in which we now operate, because the Federal Reservehas ended its quantitative easing program and because the Federal Reserve raised its Federal Funds rate in December 2016, we will likely experience risinginterest 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. To the extent our investments have fixed interest rates or have interest rate floorsthat are higher than the floor on, or interest rates that “reset” less frequently than, the Key Facility, increases in interest rates can lead to interest ratecompression and have a material adverse effect on our net investment income. In addition to increasing the cost of borrowed funds, which may materiallyreduce our net investment income, rising interest rates may also adversely affect our ability to obtain additional debt financing on terms as favorable as underour current debt financings, or at all. See “—If we are unable to obtain additional debt financing, our business could be materially adversely affected.” If general interest rates rise, there is a risk that the portfolio companies in which we hold floating rate securities will be unable to pay escalating interestamounts, which could result in a default under their loan documents with us. Rising interests rates could also cause portfolio companies to shift cash fromother productive uses to the payment of interest, which may have a material adverse effect on their business and operations and could, over time, lead toincreased defaults. In addition, increasing payment obligations under floating rate loans may cause borrowers to refinance or otherwise repay our loansearlier than they otherwise would, requiring us to incur management time and expense to re-deploy such proceeds, including on terms that may not be asfavorable as our existing loans. In addition, rising interest rates may increase pressure on us to provide fixed rate loans to our portfolio companies, whichcould adversely affect our net investment income, as increases in our cost of borrowed funds would not be accompanied by increased interest income fromsuch fixed-rate investments. We may hedge against interest rate fluctuations by using hedging instruments such as caps, swaps, futures, options and forward contracts, subject toapplicable legal requirements, including all necessary registrations (or exemptions from registration) with the Commodity Futures Trading Commission.These activities may limit our ability to benefit from lower interest rates with respect to the hedged portfolio. Adverse developments resulting from changesin interest rates or hedging transactions or any adverse developments from our use of hedging instruments could have a material adverse effect on ourbusiness, financial condition and results of operations. In addition, we may be unable to enter into appropriate hedging transactions when desired and anyhedging transactions we enter into may not be effective. As a rise in the general level of interest rates can be expected to lead to higher interest rates applicable to our debt investments, an increase in interestrates would make it easier for us to meet or exceed the hurdle rate applicable to the incentive fee and may result in a substantial increase in the amount ofincentive fees payable to the Advisor with respect to Pre-Incentive Fee Net Investment Income. Also, an increase in interest rates on investments available to investors could make investment in our common stock less attractive if we are not able toincrease our distributions, which could materially reduce the value of our common stock. 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 independent third-party valuation firms toassist it 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 of ourAdvisor and the third-party valuation firms. The factors that may be considered in fair value pricing our investments include the nature and realizable valueof any collateral, the portfolio company’s earnings and its ability to make payments on its indebtedness, the markets in which the portfolio company doesbusiness, comparisons to publicly traded companies, discounted cash flow and other relevant factors. Because such valuations are inherently uncertain andmay be based on estimates, our determinations of fair value may differ materially from the values that would be assessed if a ready market for these securitiesexisted. Our NAV could be adversely affected if our determinations regarding the fair value of our investments are materially higher than the values that weultimately realize upon the disposal of these investments. 30 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. While there have been some recent improvements in the condition of the overall capital markets, lending standards(including for extending new credit, refinancing existing credit and granting waivers of de minimis defaults) for smaller companies, including both us andour portfolio companies, remain strict. If these unfavorable economic conditions, including tight capital markets for smaller borrowers, continue or worsen inthe future, it could affect our investment valuations, increase our funding costs, limit our access to the capital markets or result in a decision by lenders not toextend credit to us or our portfolio companies. We may in the future have difficulty accessing debt and equity capital on attractive terms, or at all, and asevere disruption and instability in the global financial markets or deteriorations in credit and financing conditions may cause us to reduce the volume ofdebt investments we originate and/or fund, adversely affect the value of our portfolio investments or otherwise have a material 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 maintain RIC tax treatment. Moreover, if the value of our assetsdeclines, we may be unable to satisfy this asset coverage test. If that happens, we may be required to liquidate a portion of our investments and repay aportion 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. If our common stocktrades at a price below NAV per share and we do not receive approval from our stockholders and our independent directors to issue common stock at a pricebelow NAV per share, we cannot raise capital through the issuance of equity securities. This may limit our ability: to grow and make new investments; toattract and retain top investment professionals; to maintain deal flow and relations with top companies in our Target Industries and related entities such asventure capital and private equity sponsors; and to sustain a minimum efficient scale for a public company. The stockholder approval requirement does notapply 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. 31 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 by decreasing the required asset coverage from 200% to 150%. As a result, we may be able to incur additional indebtedness in the future, andtherefore the risk of an investment in us may increase. If we are unable to satisfy the requirements under the Code for qualification as a RIC, we will be subject to corporate-level income taxes. To qualify as a RIC under the Code, we must meet the Qualifying Income Test, the Diversification Test, as well as maintain our election to be regulatedas a BDC under the 1940 Act. We must also meet the Annual Distribution Requirement in order to avoid the imposition of corporate-level income taxes onall of our taxable income, regardless of whether we make any distributions to our stockholders. 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 quarter of our tax year. Failure to meet these tests may result in ourhaving to (1) dispose of certain investments quickly; (2) raise additional capital to prevent the loss of RIC status; or (3) engage in certain remedial actionsthat may entail the disposition of certain investments at disadvantageous prices that could result in substantial losses, and the payment of penalties, if wequalify to take such actions. Because most of our investments are and will be in development-stage companies within our Target Industries, any suchdispositions could be made at disadvantageous prices and may result in substantial losses. If we raise additional capital to satisfy the Diversification Tests, itcould take a longer time to invest such capital. During this period, we will invest in temporary investments, such as money market funds, which we expectwill earn yields substantially lower than the interest income that we anticipate receiving in respect of our investments in secured and amortizing debtinvestments. The Annual Distribution Requirement is satisfied if we distribute dividends to our stockholders in each tax year of an amount generally equal to at least90% of our investment company taxable income. If we borrow money, we may be subject to certain asset coverage requirements under the 1940 Act and loancovenants that could, under certain circumstances, restrict us from making distributions necessary to qualify as a RIC. If we are unable to obtain cash fromother sources, we may fail to be eligible to be subject to tax as a RIC, assuming we do not qualify for or take advantage of certain remedial provisions, and,thus, may be subject to corporate-level income taxes. If we were to fail to qualify as a RIC for any reason and become subject to a corporate-level income taxes, the resulting taxes could substantially reduceour net assets, the amount of income available for distribution to our stockholders, and the actual amount of our distributions. Such a failure would have amaterial adverse effect on us, the NAV of our common stock and the total return, if any, obtainable from your investment in our common stock. In addition,we could be required to recognize unrealized gains, pay substantial taxes and interest and make substantial distributions before requalifying as a RIC. See“Item 1. Business—Regulation.” 32 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. 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 become subject to a corporate-level income taxes on all of our income. The proportion of our income, consistingof interest and fee income that resulted from the portion of original issue discount classified as such in accordance with GAAP not received in cash for theyears ended December 31, 2016, 2015 and 2014 was 12.6%, 8.9% and 9.5%, 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 reputation in the market and our ability to generateincremental lending activity and subject us to lender liability claims. A commitment to extend credit is an agreement to lend funds to our portfolio companies as long as there is no violation of any condition establishedunder the agreement. Because of the credit profile of our portfolio companies, we typically have a substantial amount of total unfunded credit commitments,which amount is not reflected on our balance sheet. The actual borrowing needs of our portfolio companies may exceed our expected funding requirements,especially during a challenging economic environment when our portfolio companies may be more dependent on our credit commitments due to the lack ofavailable credit elsewhere, an increasing cost of credit or the limited availability of equity financing from venture capital firms or otherwise. In addition,limited partner investors of some of our portfolio companies may fail to meet their underlying investment commitments due to liquidity or other financingissues, which may increase our portfolio companies’ borrowing needs. Any failure to meet our unfunded credit commitments in accordance with the actualborrowing needs of our portfolio companies may have a material adverse effect on our reputation in the market and our ability to generate incrementallending activity and subject us to lender liability claims. 33 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. Subject to certain exceptions for follow-on investments and distressedcompanies, an investment in an issuer that has outstanding securities listed on a national securities exchange may be treated as a qualifying asset only if suchissuer has a market capitalization that is less than $250 million at the time of such investment and meets the other specified requirements. As of December 31,2016 and 2015, 100% of our assets were qualifying assets, and we expect that substantially all of our assets that we may acquire in the future will bequalifying assets, although we may decide to make other investments 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 outstanding marginable securities at the time we make an investment, these acquired assetsmay not be treated as qualifying assets. This result is dictated by the definition of “eligible portfolio company” under the 1940 Act, which in part looks towhether 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 not maintain 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, wewould be subject to substantially more regulatory restrictions under the 1940 Act, which would significantly decrease our operating flexibility. 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 has required the development andadoption of many implementing regulations over several years. The effects of Dodd-Frank on the financial services industry will depend, in large part, uponthe approaches regulators take in implementing regulations. The likely impact 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, or uncertainty regarding such changes, could have amaterial adverse effect on our results of operations 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, obligations to these other entitiesmay cause our executive officers and directors and those of our Advisor to divert their time and attention away from us or otherwise cause them not todedicate a significant portion of their time to our businesses which could slow our rate of investment. In addition, our Advisor manages other funds, and may manage additional funds in the future, that have investment objectives that are similar, in wholeor in part, to ours. Our Advisor may determine that an investment is appropriate for us and for one or more of those other funds. In such an event, dependingon the availability of the investment and other appropriate factors, our Advisor will endeavor to allocate investment opportunities in a fair and equitablemanner and act in accordance with its written allocation policy to address and, if necessary, resolve any conflict of interests. It is also possible that we maynot be given the opportunity to participate in these other investment opportunities. 34 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. In addition, if any of the other funds managedby our Advisor have a different fee structure than we do, our Advisor may, in certain circumstances, have an incentive to devote more time and resources,and/or recommend the allocation of investment opportunities, to such fund. For example, to the extent our Advisor’s incentive compensation is not subject toa total return requirement with respect to another fund, it may have an incentive to devote time and resources to such fund. 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. 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, which may limit the scope of investments available to us. We are prohibited under the 1940 Act from participating in certain transactions with our affiliates without the prior approval of our independentdirectors and, in some cases, of the SEC. Any person that owns, directly or indirectly, 5% or more of our outstanding voting securities is our affiliate forpurposes of the 1940 Act, and we are generally prohibited from buying or selling any security from or to, or entering into certain “joint” transactions (whichcould include investments in the same portfolio company) with, such affiliates, absent the prior approval of our independent directors or, in certain cases, theSEC. 35 Our Advisor is considered to be our affiliate under the 1940 Act, as is any person that controls, or is under common control with us or our Advisor. Weare generally prohibited from buying or selling any security from or to, or entering into “joint” transactions with, such affiliates without prior approval of ourindependent directors and, in some cases, additional exemptive relief from the SEC. We may, however, invest alongside other clients of our Advisor in certain circumstances where doing so is consistent with applicable law, SEC staffinterpretations and/or exemptive relief issued by the SEC. For example, we may invest alongside such accounts consistent with guidance promulgated by thestaff of the SEC permitting us and such other accounts to purchase interests in a single class of privately placed securities so long as certain conditions aremet, including that our Advisor, acting on our behalf and on behalf of other clients, negotiates no term other than price. We may also invest alongside ourAdvisor’s other clients as otherwise permissible under regulatory guidance and applicable regulations. Such investments will be allocated in accordance withour Advisor’s allocation policy, and this allocation policy is periodically approved by our Advisor and reviewed by our independent directors. We expectthat allocation determinations will be made similarly for other accounts sponsored or managed by our Advisor. If sufficient securities or loan amounts areavailable to satisfy our and each such account’s proposed demand, we expect that the opportunity will be allocated in accordance with our Advisor’s pre-transaction determination; however, if insufficient securities or loan amounts are available, we will generally be allocated pro rata based on each affiliate’savailable capital in the asset class being allocated. We cannot assure you that investment opportunities will be allocated to us fairly or equitably in the short-term or over time. We have submitted an exemptive relief application to the SEC to permit greater flexibility to negotiate the terms of co-investments if our Boarddetermines in advance that it would be advantageous for us to co-invest with other accounts sponsored or managed by our Advisor in a manner consistentwith our investment objective, positions, policies, strategies and restrictions, as well as regulatory requirements and other relevant factors. We cannot assureyou, however, that we will obtain such exemptive relief on terms favorable to us or at all. In situations where co-investment with other accounts managed by our Advisor is not permitted or appropriate, our Advisor will need to decide whichclient will proceed with the investment. Our Advisor’s allocation policy provides, in such circumstances, for investments to be allocated on a random orrotational basis to assure that all clients have fair and equitable access to such investment opportunities. Moreover, except in certain circumstances, we willbe unable to invest in any issuer in which a fund managed by our Advisor has previously invested. Similar restrictions limit our ability to transact businesswith our officers or directors or their affiliates. These restrictions may limit the scope of investment opportunities that would otherwise be available to us. 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. 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 arenot liable to us, any subsidiary of ours, our directors, our stockholders or any subsidiary’s stockholders or partners for acts or omissions performed inaccordance with and pursuant to the Investment Management Agreement, except those resulting from acts constituting gross negligence, willful misconduct,bad faith or reckless disregard of our Advisor’s duties under the Investment Management Agreement. In addition, we have agreed to indemnify our Advisorand each of its officers, directors, members, managers and employees from and against any claims or liabilities, including reasonable legal fees and otherexpenses reasonably incurred, arising out of or in connection with our business and operations or any action taken or omitted on our behalf pursuant toauthority granted by the Investment Management Agreement, except where attributable to gross negligence, willful misconduct, bad faith or recklessdisregard of such person’s duties under the Investment Management Agreement. These protections may lead our Advisor to act in a riskier manner whenacting on our behalf than it would when acting for its own account. 36 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. 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. 37 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, upon not more than60 days’ written notice, whether we have found a replacement or not. If our Advisor resigns, we may not be able to find a new investment adviser oradministrator or hire internal management with similar expertise and ability to provide the same or equivalent services on acceptable terms within 60 days, orat all. If we are unable to do so, our operations are likely to be disrupted, our business, results of operations and financial condition and our ability to paydistributions may be adversely affected and the market price of our shares may decline. In addition, the coordination of our internal management andinvestment activities is likely to suffer if we are unable to identify and reach an agreement with a single institution or group of executives having theexpertise possessed by our Advisor and its affiliates. Even if we are able to retain comparable management, whether internal or external, the integration ofnew management and their lack of familiarity with our investment objective may result in additional costs and time delays that may adversely affect ourbusiness, 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: •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. 38 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. Beyond our income tax diversification requirements, we do not have fixed guidelines for diversification, and our investments could be focusedon relatively few portfolio companies. 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. If a significant investment in one ormore portfolio companies fails to perform as expected, our financial results could be more negatively affected and the magnitude of the loss could be moresignificant than if we had made smaller investments in more portfolio companies. We may also be more susceptible to any single economic or regulatoryoccurrence than a diversified investment company. Our portfolio may be focused on a limited number of industries, which will subject us to a risk of significant loss if there is a downturn in a particularindustry. Our portfolio may be focused on a limited number of industries. As a result, a downturn in any particular industry in which we are invested could alsosignificantly impact the aggregate returns we realize. Our Target Industries are susceptible to changes in government policy and economic assistance, whichcould 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 our ability to be subject to tax as a RIC. 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. 39 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. 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. 40 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. There is a risk that the collateral securing our debt investments may decrease in value over time, may be difficult to appraise or sell in atimely manner and may fluctuate in value based upon the business and market conditions, including as a result of an inability of the portfolio company toraise additional capital, and, in some circumstances, our lien could be subordinated to claims of other creditors. In addition, deterioration of a portfoliocompany’s financial condition and prospects, including its inability to raise additional capital, may be accompanied by deterioration of the value of thecollateral for the debt investment. Consequently, although such debt investment is secured, we may not receive principal and interest payments according tothe debt investment’s terms and the value of the collateral may not be sufficient to recover our investment 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 such companies’ businesses and 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. 41 The disposition of our debt investments may result in contingent liabilities. In connection with the disposition of a debt investment, we may be required to make representations about the business and financial affairs of theportfolio company typical of those made in connection with the sale of a business. We may also be required to indemnify the purchasers of such debtinvestment to the extent that any such representations turn out to be inaccurate or with respect to potential liabilities. These arrangements may result incontingent liabilities that ultimately result in funding obligations that we must satisfy through our return of distributions previously made to us. 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 that includes investments in privately held companies presents certain challenges, including a lack of available information aboutthese companies, a dependence on the talents and efforts of only a few key portfolio company personnel and a greater vulnerability to economicdownturns. We currently invest, and plan to invest, in privately held companies. Generally, very little public information exists about these companies, and we arerequired to rely on the ability of our Advisor to obtain adequate information to evaluate the potential returns from investing in these companies. If we areunable to uncover all material information about these companies, we may not make a fully informed investment decision, and we may lose money on ourinvestments. Also, privately held companies frequently have less diverse product lines and a smaller market presence than larger competitors. Thus, they aregenerally more vulnerable to economic downturns and may experience substantial variations in operating results. These factors could affect our investmentreturns. 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. Our Advisor may, from time to time, possess material non-public information regarding our portfolio companies, limiting our investment discretion. Officers and employees of our Advisor may serve as directors of, or in a similar capacity with, our portfolio companies, the securities of which arepurchased or sold on our behalf. If we obtain material non-public information with respect to such portfolio companies, or we become subject to tradingrestrictions under the internal trading policies of those portfolio companies or as a result of applicable law or regulations, we could be prohibited for a periodof time from purchasing or selling the securities of such portfolio companies, and this prohibition may have an adverse effect on us. 42 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, receivership or similar financial distress. The debt investments of distressed companies may notproduce income, may require us to bear certain expenses or to make additional advances in order to protect our investment and may subject us to uncertaintyas to when, in what manner (e.g., through liquidation, reorganization, receivership or bankruptcy) and for what value such distressed debt will eventually besatisfied. Proceeds received from such proceedings may not be income that satisfies the Qualifying Income Test for RICs and may not be in an amountsufficient to repay such expenses or advances. In the event that a plan of reorganization is adopted or a receivership is established, in exchange for the debtinvestment we currently hold, we may receive non-cash proceeds, including equity securities or license or royalty agreements with contingent payments,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 technology industry are subject to risks particular to that industry. As part of our investment strategy, we have invested, and plan to invest in the future, in companies in the technology industry. Such portfoliocompanies face intense competition as their businesses are rapidly evolving and intensely competitive, and are subject to changing technology, shifting userneeds, and frequent introductions of new products and services. The growth of certain technology sectors in which we focus (such as communications,networking, data storage, software, cloud computing, and internet and media) into a variety of new fields implicates new regulatory issues and may result inour portfolio companies in such sectors being subject to new regulations. 43 Portfolio companies in the technology industry may also have a limited number of suppliers of necessary components or a limited number ofmanufacturers for their products, and therefore face a risk of disruption to their manufacturing process if they are unable to find alternative suppliers whenneeded. In addition, litigation regarding intellectual property rights is common in the sectors of the technology industry in which we focus. See “–If ourportfolio companies are unable to protect their intellectual property rights, our business and prospects could be harmed, and if portfolio companies arerequired to devote significant resources to protecting their intellectual property rights, the value of our investment could be reduced.” Any of these factorscould materially and adversely affect the operations of a portfolio company in this industry and, in turn, impair our ability to timely collect principal andinterest payments owed to us. 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. Such portfolio companies are subject to extensive regulation by the Food and Drug Administration and to a lesser extent, other federal and stateagencies. If any of these portfolio companies fail to comply with applicable regulations, they could be subject to significant penalties and claims that couldmaterially and adversely affect their operations. In addition, new laws, regulations or judicial interpretations of existing laws and regulations might adverselyaffect a portfolio company in this industry. The successful and timely implementation of the business model of life science companies depends on their ability to adapt to changing technologiesand introduce new products. The success of new product offerings will depend, in turn, on many factors, including the ability to properly anticipate andsatisfy customer needs, obtain regulatory approvals on a timely basis, develop and manufacture products in an economic and timely manner, obtain ormaintain advantageous positions with respect to intellectual property, and differentiate products from those of competitors. Further, the development of products (including medical devices or drug) by life science companies requires significant research and development,clinical trials and regulatory approvals. The results of product development efforts may be affected by a number of factors, including the ability to innovate,develop and manufacture new products, complete clinical trials, obtain regulatory approvals and reimbursement by insurers in the United States (includingMedicare and Medicaid) and abroad, or gain and maintain market approval of products. In addition, patents attained by others can preclude or delay thecommercialization of a product. There can be no assurance that any products now in development will achieve technological feasibility, obtain regulatoryapproval, or gain market acceptance. Failure can occur at any point in the development process, including after significant funds have been invested.Products may fail to reach the market or may have only limited commercial success because of efficacy or safety concerns, failure to achieve positive clinicaloutcomes, inability to obtain necessary regulatory approvals, failure to achieve market adoption, limited scope of approved uses, excessive costs tomanufacture, failure to establish or maintain intellectual property rights, infringement by others of a company’s intellectual property rights, or infringementby a company of intellectual property rights of others. Portfolio companies in the life science industry may also have a limited number of suppliers of necessary components or a limited number ofmanufacturers for their products, and therefore face a risk of disruption to their manufacturing process if they are unable to find alternative suppliers whenneeded. Any of these factors could materially and adversely affect the operations of a portfolio company in this industry and, in turn, impair our ability totimely collect principal and interest payments owed to us. Our portfolio companies operating in the healthcare information and services industry are subject to extensive government regulation and certain otherrisks particular to that industry. As part of our investment strategy, we have invested, and plan to invest in the future, in companies in the healthcare information and services industry.Such portfolio companies provide technology to companies that are subject to extensive regulation, including Medicare and Medicaid payment rules andregulation, the False Claims Act and federal and state laws regarding the collection, use and disclosure of patient health information and the storage handlingand administration of pharmaceuticals. If any of our portfolio companies or the companies to which they provide such technology fail to comply withapplicable regulations, they could be subject to significant penalties and claims that could materially and adversely affect their operations. Portfoliocompanies in the healthcare information or services industry are also subject to the risk that changes in applicable regulations will render their technologyobsolete or less desirable in the marketplace. 44 Portfolio companies in the healthcare information and services industry may also have a limited number of suppliers of necessary components or alimited number of manufacturers for their products, and therefore face a risk of disruption to their manufacturing process if they are unable to find alternativesuppliers when needed. Any of these factors could materially and adversely affect the operations of a portfolio company in this industry and, in turn, impairour ability to timely collect 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. 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, uncertainty regardingsuch changes or new laws, rules or regulations could have an adverse impact on the business and industries of our portfolio companies. In addition, changesin government priorities or limitations on government resources could also adversely impact our portfolio companies. We are unable to predict whether anysuch changes in laws, rules or 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 our portfolio companies fail to comply with applicable regulations, they could be subject to significant penalties and claims that couldmaterially and adversely affect their operations. Our portfolio companies may be subject to the expense, delay and uncertainty of the regulatory approvalprocess for their products and, even if approved, these products may not be accepted in the marketplace. In particular, 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. 45 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. 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. In some cases, we collateralize our debt investments with a secured collateral position in a portfolio company's assets, which may include a negativepledge or, to a lesser extent, no security on their intellectual property. In the event of a default on a debt investment, the intellectual property of the portfoliocompany would most likely be liquidated to provide proceeds to pay the creditors of the portfolio company. There can be no assurance that our securityinterest, if any, in the proceeds of the intellectual property will be enforceable in a court of law or bankruptcy court or that there will not be others with senioror pari passu credit interests. 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. 46 We may invest in foreign portfolio companies or secure our investments with the assets of our portfolio companies’ foreign subsidiaries. We may invest in securities of foreign companies. Additionally, certain debt investments consisting of secured loans to portfolio companies withheadquarters and primary operations located within the United States may be secured by the assets of a portfolio company’s foreign subsidiary. Investmentsinvolving foreign companies may involve greater risks. These risks include: (i) less publicly available information; (ii) varying levels of governmentalregulation and supervision; and (iii) the difficulty of enforcing legal rights in a foreign jurisdiction and uncertainties as to the status, interpretation andapplication of laws. Moreover, foreign companies are generally not subject to uniform accounting, auditing and financial reporting standards, practices andrequirements comparable to those applicable to United States companies. Debt investments secured by the assets of a portfolio company’s foreign subsidiarymay be subject to various laws enacted in their home countries for the protection of debtors or creditors, which could adversely affect our ability to recoveramounts owed. These insolvency considerations will differ depending on the country in which each foreign subsidiary is located and may differ dependingon whether the foreign subsidiary is a non-sovereign or a sovereign entity. 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 of inflation, 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 subsidiarycould 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. 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. 47 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: •actual or anticipated changes in our earnings or fluctuations in our operating results; •changes in the value of our portfolio of investments; •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 orother financial 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; •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. Shares of closed-end investment companies, including BDCs, frequently trade at a discount to their NAV, which is separate and distinct from the risk thatour NAV per share may decline. 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. 48 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. 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 ability to be subject to tax as a RIC. 49 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; •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. 50 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 and distributions Our common stock is traded on NASDAQ, under the symbol “HRZN.” The following table sets forth, for each fiscal quarter since January 1, 2015, therange of high and low closing sales price of our common stock, the premium or discount of the closing sales price to our NAV and the distributions declaredper share by us. Closing Sales Price Premium/Discount ofHigh SalesPrice to Premium/Discount of Low Sales Price to DistributionsDeclaredPer Period NAV(1) High Low NAV(2) NAV(2) Share (3) Year ended December 31, 2016 Fourth Quarter $12.09 $13.74 $9.83 14% (19)% $ 0.30(4)Third Quarter $12.44 $13.86 $12.43 11% —% $0.345 Second Quarter $13.27 $12.20 $11.23 (8)% (15)% $0.345 First Quarter $13.62 $12.02 $9.42 (12)% (31)% $0.345 Year ended December 31, 2015 Fourth Quarter $13.85 $12.41 $9.32 (10)% (33)% $0.345 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 (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 low salesprices. 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)$0.10 of which is payable on March 15, 2017. The last reported price for our common stock on March 1, 2017 was $11.20 per share. As of March 1, 2017 we had 11 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, 2016, 2015 and 2014. 52 Issuer Purchases of Equity Securities The following table provides information regarding our purchases of our common stock for each month in the quarter ended December 31, 2016: Period TotalNumber ofSharesPurchased Average PricePaid per Share Total Numberof SharesPurchased asPart of PubliclyAnnouncedPlans orPrograms(1) ApproximateDollar Value ofShares that MayYet BePurchased Underthe Plans orPrograms (In thousands, except share and per share data) October 1, 2016 through October 31, 2016 — $— — $3,678 November 1, 2016 through November 30, 2016 16,608 $10.51 16,608 $3,503 December 1, 2016 through December 31, 2016 30,233 $10.70 30,233 $3,180 Total 46,841 $10.63 46,841 (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. Theplan was extended by the Board on July 29, 2016 and will expire on the earlier of June 30, 2017 and the repurchase of $5.0 million 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 considered a return of capital to our common stockholders for U.S. federal income tax purposes.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 to be subject to tax as a RIC, we must meet certain source-of-income, asset diversification and annual distribution requirements.Generally, in order to qualify as a RIC, we must derive at least 90% of our gross income during 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 ourbusiness 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, each tax year we are required under the Code to distribute as dividends 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 or capital gain net income for preceding years that was not distributed during such yearsand on which we previously did not incur any U.S. federal income tax in order to avoid a 4% U.S. federal excise tax. If we fail to qualify as a RIC for anyreason and become subject to corporate tax, the resulting corporate taxes could substantially reduce our net assets, the amount of income available fordistribution and the amount of our distributions. Such a failure would have a material adverse effect on us and our stockholders. In addition, we could berequired to recognize unrealized gains, pay substantial taxes and interest and make substantial distributions in order to re-qualify as a RIC. We cannot assurestockholders that they will receive any distributions. 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% U.S. federal excise tax on such undistributed income. Distributions of any such carryover taxable income must be madethrough a distribution 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 wasgenerated or the 15th day of the ninth month following the end of such tax year, in order to count towards the satisfaction of the Annual DistributionRequirement for the tax year in which such taxable income was generated. We can offer no assurance that we will achieve results that will permit the paymentof any cash distributions and, if we issue senior securities, we may be prohibited from making distributions if doing so causes us to fail to maintain the assetcoverage stipulated by the 1940 Act or if distributions are limited by the terms of any of our borrowings. See “Item 1. Business — Regulation — Taxation asa 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, 2015, including shares issued under our DRIP, on our common stock: RecordDates Payment Date DistributionsDeclared Year ended December 31, 2016 February 22, 2017 March 15, 2017 $0.10 January 19, 2017 February 15, 2017 0.10 December 20, 2016 January 13, 2017 0.10 November 18, 2016 December 15, 2016 0.115 October 20, 2016 November 15, 2016 0.115 September 20, 2016 October 17, 2016 0.115 August 19, 2016 September 15, 2016 0.115 July 20, 2016 August 15, 2016 0.115 June 20, 2016 July 15, 2016 0.115 May 19, 2016 June 15, 2016 0.115 April 20, 2016 May 16, 2016 0.115 March 18, 2016 April 15, 2016 0.115 Total $1.335 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, 2015 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 54 On March 3, 2017, our Board declared distributions as set forth in the following table: Ex-Dividend Date Record Date Payment Date Distributions Declared May 17, 2017 May 19, 2017 June 15, 2017 $0.10 April 19, 2017 April 21, 2017 May 16, 2017 $0.10 March 16, 2017 March 20, 2017 April 18, 2017 $0.10 Stock performance graph The following graph compares the return on our common stock with that of the Standard & Poor’s 500 Stock Index, the Wells Fargo BDC Index and theS&P BDC Index, for the period from December 30, 2011 through December 31, 2016. The graph assumes that, on December 30, 2011, a person invested $100in each of our common stock, the S&P 500 Index, the Wells Fargo BDC Index and the S&P BDC Index. The graph measures total stockholder return, whichtakes into account both changes in stock price and distributions. It assumes that distributions paid are invested in like securities. The graph and otherinformation 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 toRegulation 14A or 14C, or to the liabilities of Section 18 of the Exchange Act. The stock price performance included in this graph is not necessarilyindicative of future stock price performance. 55 Item 6. Selected Financial Data The following selected consolidated financial data of the Company as of December 31, 2016, 2015, 2014, 2013, and 2012, and for the years endedDecember 31, 2016, 2015, 2014, 2013 and 2012 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) 2016 2015 2014 2013 2012 Statement of Operations Data: Total investment income $32,984 $31,110 $31,254 $33,643 $26,664 Base management fee 4,727 4,747 4,648 5,353 4,208 Performance based incentive fee 2,126 3,501 2,112 3,318 2,847 All other expenses 9,119 9,212 13,962 11,605 7,382 Base management and performance based incentive fees waived — (346) (345) (144) — Net investment income before excise tax 17,012 13,996 10,877 13,511 12,227 (Credit) provision for excise tax (87) — 160 240 231 Net investment income 17,099 13,996 10,717 13,271 11,996 Net realized (loss) gain on investments (7,776) (1,650) (3,576) (7,509) 108 Net unrealized (depreciation) appreciation on investments (14,236) (490) 8,289 (2,254) (8,113)Net (decrease) increase in net assets resulting from operations $(4,913) $11,856 $15,430 $3,508 $3,991 Per Share Data: Net asset value $12.09 $13.85 $14.36 $14.14 $15.15 Net investment income 1.48 1.25 1.11 1.38 1.41 Net realized (loss) gain on investments (0.67) (0.15) (0.37) (0.78) 0.01 Net change in unrealized (depreciation) appreciation on investments (1.24) (0.04) 0.86 (0.23) (0.95)Net (decrease) increase in net assets resulting from operations (0.43) 1.06 1.60 0.37 0.47 Per share distributions declared 1.335 1.38 1.38 1.38 2.15 Dollar amount of distributions declared $15,403 $15,793 $13,282 $13,236 $18,777 Statement of Assets and Liabilities Data at Period End: Investments, at fair value $194,003 $250,267 $205,101 $221,284 $228,613 Other assets 45,249 30,629 20,095 42,453 11,045 Total assets 239,252 280,896 225,196 263,737 239,658 Borrowings 95,597 114,954 81,753 122,343 89,020 Total liabilities 100,060 121,145 86,948 127,902 94,686 Total net assets $139,192 $159,751 $138,248 $135,835 $144,972 Other data: Weighted annualized yield on income producing investments at fairvalue 14.9% 14.2% 15.3% 14.4% 14.2%Number of portfolio companies at period end: Debt investments 44 52 50 49 45 Warrants investments 78 83 75 73 62 Equity investments 5 6 4 4 2 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 changesin the 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 tous or our Advisor;•our contractual arrangements and relationships with third parties;•our ability to access capital and any future financings by us;•the ability of our Advisor to attract and retain highly talented professionals; and•the impact of changes to tax legislation and, generally, our tax position. We use words such as “anticipates,” “believes,” “expects,” “intends,” “seeks” and similar expressions to identify forward-looking statements. 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. 57 Overview We are a specialty finance company that lends to and invests in development-stage companies in our Target Industries. Our investment objective is tomaximize our investment portfolio’s total return by generating current income from the debt investments we make and capital appreciation from the warrantswe receive when making such debt investments. We are focused on making Venture Loans to venture capital backed companies in our Target Industries,which we refer to as “Venture Lending.” We also selectively provide Venture Loans to publicly traded companies in our Target Industries. Our debtinvestments are typically secured by first liens or first liens behind a secured revolving line of credit, or Senior Term Loans. As of December 31, 2016, 97.4%,or $181.4 million, of our debt investment portfolio at fair value consisted of Senior Term Loans. Venture Lending is typically characterized by (1) the makingof a secured debt investment after a venture capital or equity investment in the portfolio company has been made, which investment provides a source of cashto fund the portfolio company’s debt service obligations under the Venture Loan, (2) the senior priority of the Venture Loan which requires repayment of theVenture Loan prior to the equity investors realizing a return on their capital, (3) the relatively rapid amortization of the Venture Loan and (4) the lender’sreceipt of warrants or other success fees with the making of the Venture Loan. We are an externally managed, closed-end, non-diversified management investment company that has elected to be regulated as a BDC under the 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 are not subject to corporate-level income taxes on our investment company taxable income and our net capitalgain that we distribute as dividends to our stockholders as long as we meet certain source-of-income, distribution, asset diversification and otherrequirements. 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, 2016 and 2015: December 31, 2016 December 31, 2015 Number ofInvestments FairValue Percentageof TotalPortfolio Number ofInvestments FairValue Percentageof TotalPortfolio (Dollars in thousands) Term loans 44 $186,186 96.0% 52 $242,167 96.8%Warrants 78 6,362 3.3 83 6,645 2.6 Other investments 2 600 0.3 1 300 0.1 Equity 5 855 0.4 6 1,155 0.5 Total $194,003 100.0% $250,267 100.0% 58 The following table shows total portfolio investment activity as of and for the years ended December 31, 2016 and 2015: December 31, 2016 2015 (In thousands) Beginning portfolio $250,267 $205,101 New debt investments 59,858 123,281 Principal payments received on investments (49,403) (27,016)Early pay-offs (46,357) (47,624)Accretion of debt investment fees 1,562 1,350 New debt investment fees (931) (1,147)New equity 84 101 Sale of investments (984) (1,669)Net realized loss on investments (7,696) (1,620)Net depreciation on investments (12,397) (490)Ending portfolio $194,003 $250,267 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, 2016 and 2015: December 31, 2016 December 31, 2015 DebtInvestments atFair Value Percentageof TotalPortfolio DebtInvestments atFair Value Percentageof TotalPortfolio (Dollars in thousands) Life Science Biotechnology $40,612 21.8% $36,005 14.9%Medical Device 13,003 7.0 22,472 9.2 Technology Communications 76 0.1 19,511 8.1 Consumer-Related 20,631 11.1 18,268 7.5 Internet and Media 7,933 4.2 — — Materials 9,874 5.3 9,825 4.1 Networking 3,306 1.8 693 0.3 Power Management 2,220 1.2 2,456 1.0 Semiconductors 7,528 4.0 18,237 7.5 Software 53,349 28.7 59,664 24.6 Cleantech Alternative Energy — — 2,849 1.2 Energy Efficiency 1,942 1.0 3,227 1.3 Waste Recycling 5,964 3.2 5,936 2.5 Healthcare Information and Services Diagnostics 4,081 2.2 7,247 3.0 Other 5,770 3.1 8,236 3.4 Software 9,897 5.3 27,541 11.4 Total $186,186 100.0% $242,167 100.0% 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 24% and 21% of total debt investments outstanding as of December 31, 2016 and 2015, respectively.No single debt investment represented more than 10% of our total debt investments as of December 31, 2016 or 2015. 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, 2016 and 2015, our debt investments had a weighted average credit rating of 3.0. The following table shows the classification ofour debt investment portfolio by credit rating as of December 31, 2016 and December 31, 2015: December 31, 2016 December 31, 2015 Number ofInvestments Debt Investments at Fair Value Percentageof DebtInvestments Number ofInvestments Debt Investments at Fair Value Percentageof DebtInvestments (Dollars in thousands) Credit Rating 4 6 $29,721 16.0% 7 $23,603 9.8%3 28 131,605 70.6 37 199,185 82.2 2 6 13,360 7.2 7 18,879 7.8 1 4 11,500 6.2 1 500 0.2 Total 44 $186,186 100.0% 52 $242,167 100.0% As of December 31, 2016, there were four debt investments with an internal credit rating of 1, with a cost of $26.2 million and a fair value of $11.5million. As of December 31, 2015, there was one debt investment with an internal credit rating of 1, with an aggregate cost of $2.7 million and an aggregatefair value of $0.5 million. Consolidated results of operations As a BDC and a RIC, we are subject to certain constraints on our operations, including limitations imposed by the 1940 Act and the Code. 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, 2016, 2015 and 2014: 2016 2015 2014 (In thousands) Total investment income $32,984 $31,110 $31,254 Total net expenses 15,972 17,114 20,377 Net investment income before excise tax 17,012 13,996 10,877 (Credit) provision for excise tax (87) — 160 Net investment income 17,099 13,996 10,717 Net realized loss on investments (7,776) (1,650) (3,576)Net unrealized (depreciation) appreciation on investments (14,236) (490) 8,289 Net (decrease) increase in net assets resulting from operations $(4,913) $11,856 $15,430 Average debt investments, at fair value $221,257 $219,848 $204,862 Average borrowings outstanding $102,875 $87,976 $102,754 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 increased by $1.9 million, or 6.0%, to $33.0 million for the year ended December 31, 2016 as compared to the year endedDecember 31, 2015. For the year ended December 31, 2016, total investment income consisted primarily of $31.4 million in interest income frominvestments, which included $8.3 million in income from the accretion of origination fees and ETPs and $1.6 million in fee income. Interest income oninvestments increased by $2.7 million, or 9.6%, to $31.4 million for the year ended December 31, 2016 as compared to the year ended December 31, 2015.Interest income on investments increased primarily due to the larger amount of ETPs earned during the year ended December 31, 2016 compared to the yearended December 31, 2015. Fee income, which includes success fee and prepayment fee income on debt investments, decreased by $0.9 million, or 35.5%,primarily due to a lower average prepayment fee rate earned during the year ended December 31, 2016 compared to the year ended December 31, 2015, alongwith a lower amount of success fees earned during the year ended December 31, 2016 compared to the year ended December 31, 2015. 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 fee income. Interest income on investments remained flat at $28.7million for the year ended December 31, 2015 as compared to the year ended December 31, 2014. Interest income on investments remained flat due to anincrease in the average size of our investment portfolio of $15.0 million, or 7.3%, which was offset by lower acceleration of fees and ETPs from prepayments.Fee income, which includes prepayment fee income and fee income on debt investments, decreased by $0.2 million, or 6.0%, primarily due to a loweraggregate amount of principal prepayments for the year ended December 31, 2015. For the years ended December 31, 2016, 2015 and 2014, our dollar-weighted annualized yield on average debt investments was 14.9%, 14.2% and15.3%, 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 17%, 14% and 20% of investment income for the years ended December31, 2016, 2015 and 2014, respectively. Expenses Total net expenses decreased by $1.1 million, or 6.7%, to $16.0 million for the year ended December 31, 2016 as compared to the year endedDecember 31, 2015. 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 yearended December 31, 2014. Total expenses for each period consisted of interest expense, base management fee, incentive and administrative fees, professionalfees and general and administrative expenses. Interest expense increased by $0.1 million, or 2.1%, to $5.9 million for the year ended December 31, 2016 as compared to the year ended December 31,2015. Interest expense, which includes the amortization of debt issuance costs, increased primarily due to an increase in average borrowings of $14.9 million,or 16.9%, which was partially offset by a decrease in our effective cost of debt for the year ended December 31, 2016 as compared to the year ended December31, 2015. 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 decreased primarily due to a decrease in average borrowings of $14.8 million, or 14.4%, along with a decrease in oureffective cost of debt for the year ended December 31, 2015 compared to the year ended December 31, 2014. Base management fee expense increased by $0.3 million, or 7.4%, to $4.7 million for the year ended December 31, 2016 as compared to the year endedDecember 31, 2015, after giving effect to waivers of $0.3 million in base management fees for the year ended December 31, 2015. Base management feeincreased for the year ended December 31, 2016 compared to December 31, 2015 primarily due to the waiver of base management fees of $0.3 million in2015 in connection with the 2015 Offering, as described below. Base management fee expense, net of waivers, remained flat at $4.4 million for the yearended December 31, 2015 as compared to the year ended December 31, 2014. Base management fee expense remained flat primarily due to our Advisor’swaiver of base management fees of $0.3 million relating to the 2015 Offering, as described below, offset by an increase in our average gross assets of $6.4million, or 2.6%. 61 As noted above, our Advisor agreed to waive its base management fee relating to the proceeds raised in the 2015 Offering, to the extent such fee was nototherwise 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 secondconsecutive calendar quarter in which our net investment income exceeds distributions declared on shares of 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 of December 31, 2015, condition (ii) above hadbeen met, as our net investment income exceeded distributions declared for the quarters ended September 30, 2015 and December 31, 2015. Performance based incentive fee expense decreased by $1.4 million, or 39.3%, to $2.1 million for the year ended December 31, 2016 as compared to theyear ended December 31, 2015. Performance based incentive fee expense decreased because the incentive fee expense for the three months ended September30, 2016 and December 31, 2016 was limited by the incentive fee cap and deferral mechanism under our Investment Management Agreement. This resultedin $1.7 million of reduced expense and additional net investment income for the year ended December 31, 2016. The incentive fee on pre-incentive fee netinvestment income was subject to the incentive fee cap and deferral mechanism due to net realized and unrealized losses in the portfolio during the yearended December 31, 2016 totaling $22.0 million. 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 as compared to the year ended December 31, 2014. Performance based incentive fee expense increasedprimarily due to higher Pre-Incentive Fee Net Investment Income for the year ended December 31, 2015 as compared to the year ended December 31, 2014. Administrative fee expense decreased by $0.3 million, or 22.7%, to $0.9 million for the year ended December 31, 2016 as compared to the year endedDecember 31, 2015. Administrative fee expense decreased primarily due to a decrease in our allocated costs of compensation incurred by the Advisor on ourbehalf for the year ended December 31, 2016 as compared to the year ended December 31, 2015. Administrative fee expense remained flat at $1.1 million forthe year ended December 31, 2015 as compared to the year ended December 31, 2014. In 2016 and 2015, 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, 2016 and 2015, the Company elected to carry forward taxable income in excess of current year distributionsof $1.7 million and $1.3 million, respectively. At December 31, 2016, excise tax payable of $0.1 million was recorded. At December 31, 2015, no excise taxpayable 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, 2016 were unchanged at $2.3 million compared to the year ended December 31, 2015. These expenses for the year ended December 31,2015 decreased by $1.8 million, or 43.7%, to $2.3 million compared to the year ended December 31, 2014 due to decreased legal fees and other costsassociated 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, 2016, we realized net losses totaling $7.8 million primarily due to the resolution of three debt investments. Onedebt investment was settled for net cash proceeds of $3.6 million, which resulted in a realized loss of $4.5 million and unrealized appreciation of $4.6million. One debt investment was settled for net cash proceeds of $0.2 million and a royalty and sale agreement fair valued at $0.4 million, which resulted ina realized loss of $2.2 million and unrealized appreciation of $2.2 million. One debt investment was settled for cash proceeds which resulted in a realized lossof $0.9 million and unrealized appreciation of $0.7 million. During the year ended December 31, 2015, we realized net losses totaling $1.7 million primarilydue to the resolution of one debt investment partially offset by realized gains on the sale of equity received upon the exercise of warrants. The debtinvestment 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 primarily due to the resolution of three debt investments which werepartially offset by realized gains on the sale of equity received upon the exercise of warrants. As a result of the resolution of the three debt investments, werecognized $5.0 million of realized net losses and $7.6 million of unrealized appreciation. 62 During the year ended December 31, 2016, net unrealized depreciation on investments totaled $14.2 million which was primarily due to the unrealizeddepreciation on three debt investments offset by the reversal of previously recorded unrealized depreciation on one debt investment. During the year endedDecember 31, 2015, net unrealized depreciation on investments totaled $0.5 million which was primarily due to the unrealized depreciation on one debtinvestment offset by the reversal of previously recorded unrealized depreciation on one debt investment that was settled during the period, described above.During the year ended December 31, 2014, net unrealized appreciation on investments totaled $8.3 million which was primarily due to the reversal ofpreviously recorded unrealized depreciation on four debt investments. Liquidity and capital resources As of December 31, 2016 and 2015, we had cash and investments in money market funds of $37.1 million and $21.1 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, we had $1.1 million of restricted investments in money market funds. Restricted investments in money market fundswere primarily used to make monthly interest and principal payments on our Asset-Backed Notes. Our primary sources of capital have been from our publicand private equity offerings, use of our revolving credit facilities and issuance of our 2019 Notes and the Asset-Backed Notes. 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. We generally used the net proceeds from this offering to make investments, torepurchase or pay down liabilities and for general corporate purposes. On July 29, 2016, our Board extended a previously authorized stock repurchase program which allows us to repurchase up to $5.0 million of ourcommon stock at prices below our net asset value per share as reported in our most recent consolidated financial statements. Under the repurchase program,we may, but are not obligated to, repurchase shares of our outstanding common stock in the open market or in privately negotiated transactions from time totime. Any repurchases by us will comply with the requirements of Rule 10b-18 under the Exchange Act and any applicable requirements of the 1940 Act.Unless extended by our Board, the repurchase program will terminate on the earlier of June 30, 2017 or the repurchase of $5.0 million of our common stock.During the year ended December 31, 2016, we repurchased 48,160 shares of our common stock at an average price of $10.66 on the open market for a totalcost of $0.5 million. During the year ended December 31, 2015, we repurchased 113,382 shares of our common stock at an average price of $11.53 on theopen market for a total cost of $1.3 million. From the inception of the stock repurchase program through December 31, 2016, we repurchased 161,542 sharesof our common stock at an average price of $11.27 on the open market at a total cost of $1.8 million. At December 31, 2016 and 2015, the outstanding principal balance under the Key Facility was $63.0 million and $68.0 million, respectively. As ofDecember 31, 2016 and 2015, we had borrowing capacity under the Key Facility of $32.0 million and $2.0 million, respectively. At December 31, 2016 and2015, $4.6 million and $2.0 million, respectively, was available, subject to existing terms and advance rates. Our operating activities provided cash of $52.3 million for the year ended December 31, 2016, and our financing activities used cash of $35.9 millionfor the same period. Our operating activities provided cash primarily from principal payments received on our debt investments, partially offset byinvestments made in portfolio companies. Our financing activities used cash primarily to pay off our Asset-Backed Notes and pay distributions to ourstockholders. 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. 63 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 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 be subject to tax as a RIC, we intend to distribute to our stockholders all or substantially all of our investment company taxable income. Inaddition, as a BDC, we are required to maintain asset coverage of at least 200%. This requirement limits the amount that we may borrow. We believe that our current cash, cash generated from operations, and funds available from our Key Facility will be sufficient to meet our workingcapital and capital expenditure commitments for at least the next 12 months. Current borrowings The following table shows our borrowings as of December 31, 2016 and 2015: December 31, 2016 December 31, 2015 TotalCommitment BalanceOutstanding UnusedCommitment TotalCommitment BalanceOutstanding UnusedCommitment (In thousands) Asset-Backed Notes $— $— $— $14,546 $14,546 $— Key Facility 95,000 63,000 32,000 70,000 68,000 2,000 2019 Notes 33,000 33,000 — 33,000 33,000 — Total before debt issuance costs 128,000 96,000 32,000 117,546 115,546 2,000 Unamortized debt issuance costs attributable to termborrowings — (403) — — (592) — Total borrowings outstanding, net $128,000 $95,597 $32,000 $117,546 $114,954 $2,000 On August 12, 2015, we amended the Key Facility to (1) add a $20 million commitment to the existing $50 million commitment and (2) extend the termof the Key Facility. On April 27, 2016, we further added a $25 million commitment to our existing $70 million commitment. 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%. The LIBOR rate was0.77% and 0.43% as of December 31, 2016 and 2015, respectively. The interest rate in effect was 4.00% as of December 31, 2016 and 2015. The Key Facility has an accordion feature which allows for an increase in the total loan commitment to $150 million. The Key Facility is collateralizedby debt investments held by Credit II and permits an advance rate of up to fifty percent (50%) of eligible debt investments held by Credit II. The Key Facilitycontains covenants that, among other things, require us to maintain a minimum net worth, to restrict the debt investments securing the Key Facility to certaincriteria for qualified debt investments and to comply with portfolio company concentration limits as defined in the related loan agreement. We may requestadvances under the Key Facility through August 12, 2018, or the Revolving Period. After the Revolving Period, we may not request new advances, and wemust repay the outstanding advances under the Key Facility as of such date, at such times and in such amounts as are necessary to maintain compliance withthe terms and conditions of the Key Facility, particularly the condition that the principal balance of the Key Facility not exceed fifty percent (50%) of theaggregate principal balance of our eligible debt investments to our portfolio companies. All outstanding advances under the Key Facility are due andpayable 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, 2016, we were in material compliance with the terms of the 2019 Notes. The 2019 Notes are listed on the NYSE under the symbol “HTF”. 64 We, through our wholly owned subsidiary, Horizon Credit III LLC, a Delaware limited liability company, entered into a term loan credit facility, or theTerm Loan Facility, with Fortress Credit Co LLC on August 23, 2012. The interest rate on the Term Loan Facility was based upon the one-month LIBOR plusa spread of 6.00%, with a LIBOR floor of 1.00% and provided for a four-year drawing period. The Term Loan Facility contained customary covenants for afacility of its type. Effective June 17, 2014, we terminated the Term Loan Facility and a related loan and security agreement and other documents. On June 28, 2013, we completed the 2013-1 Securitization. In connection with the 2013-1 Securitization, 2013-1 Trust, a wholly owned subsidiary ofours, issued $90 million in the Asset-Backed Notes, which were rated A1(sf) by Moody’s Investors Service, Inc. The Asset-Backed Notes were issued by 2013-1 Trust and were backed by a pool of loans made to certain portfolio companies of ours and secured by certain assets of such portfolio companies. The Asset-Backed Notes were secured obligations of 2013-1 Trust and non-recourse to us. In connection with the issuance and sale of the Asset-Backed Notes, we madecustomary representations, warranties and covenants. The Asset-Backed Notes bore interest at a fixed rate of 3.00% per annum and had a stated maturity ofMay 15, 2018. As of December 31, 2016, the Asset-Backed Notes were repaid in full. Under the terms of the Asset-Backed Notes, we were required to maintain a reserve cash balance, funded through principal collections from theunderlying securitized debt portfolio, which could have been used to make monthly interest and principal payments on the Asset-Backed Notes. As of December 31, 2016 and 2015, other assets were $2.1 million and $2.2 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, 2016: Payments due by period Total Less than1 year 1 – 3Years 3 – 5Years After 5years (In thousands) Borrowings $96,000 $21,288 $73,115 $1,597 $— Unfunded commitments 20,750 13,250 7,500 — — Total $116,750 $34,538 $80,615 $1,597 $— 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, 2016, we had unfunded commitments of $20.8 million.These commitments are subject to the same underwriting and ongoing portfolio maintenance requirements as are the financial instruments that we hold onour balance sheet. In addition, these commitments are often subject to financial or non-financial milestones and other conditions to borrowing that must beachieved before the commitment can be drawn. Since these commitments may expire without being drawn upon, the total commitment amount does notnecessarily represent future cash requirements. We regularly monitor our unfunded commitments and anticipated refinancings, maturities and capital raising,to ensure that we have sufficient liquidity to fund such unfunded commitments. As of December 31, 2016, we reasonably believed that our assets wouldprovide adequate financial resources to satisfy all of our unfunded commitments. In addition to the Key Facility, we have certain commitments pursuant to our Investment Management Agreement entered into with our Advisor. 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.Generally, in order to qualify as a RIC, we must derive at least 90% of our gross income for each tax year from dividends, interest, payments with respect tocertain securities, loans, gains from the sale or other disposition of stock, securities or foreign currencies, or other income derived with respect to its businessof 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 tomeet these diversification requirements on the last day of a quarter may result in us having to dispose of certain investments quickly in order to prevent theloss of RIC status. Any such dispositions could be made at disadvantageous prices or times, and may cause us to incur substantial losses. In addition, in order to be subject to tax as a RIC and to avoid corporate-level tax on the income and gains we distribute to our stockholders in respectof any tax year, we are required under the Code to distribute as dividends to our stockholders out of assets legally available for distribution each tax year ofan amount generally at least equal to 90% of our net ordinary income and net short-term capital gains in excess of net long-term capital losses, if any.Additionally, in order to avoid the imposition of a U.S. federal excise tax, we are required to distribute, in respect of each calendar year, dividends to 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 InvestmentAdvisers Act of 1940, as amended. Our investment activities are managed by the Advisor and supervised by the Board, the majority of whom are independentdirectors. Under the Investment Management Agreement, we have agreed to pay the Advisor a base management fee as well as an incentive fee. During theyears ended December 31, 2016, 2015 and 2014, we paid the Advisor $6.9 million, $7.9 million and $6.4 million, respectively, pursuant to the InvestmentManagement 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 Advisor. Under the Administration Agreement, we have agreed to reimburse theAdvisor for our allocable portion of overhead and other expenses incurred by the Advisor in performing its obligations under the Administration Agreement,including rent and our allocable portion of the costs of compensation and related expenses of our Chief Financial Officer and Chief Compliance Officer andtheir respective staffs. In addition, pursuant to the terms of the Administration Agreement the Advisor provides us with the office facilities and administrativeservices necessary to conduct our day-to-day operations. During the years ended December 31, 2016, 2015 and 2014, we paid the Advisor $0.9 million, $1.1million and $1.1 million, respectively, pursuant to the Administration Agreement. The predecessor of the Advisor has granted the Company a non-exclusive, royalty-free license to use the name “Horizon Technology Finance.” We believe that we derive substantial benefits from our relationship with our Advisor. Our Advisor may manage other investment vehicles, or 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. On January 23, 2017, we filed anapplication for exemptive relief with the SEC which, if granted, would permit us to co-invest subject to certain conditions. Critical accounting policies The discussion of our financial condition and results of operation is based upon our financial statements, which have been prepared in accordance 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 Topic 820, Fair Value Measurement, of the Financial Accounting Standards Board’s, or FASB’s, Accounting StandardsCodification as amended, or ASC, which establishes a framework used to measure fair value and requires disclosures for fair value measurements. We havecategorized 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 inmarkets that are not active and model-based valuation techniques for which all significant inputs are observable or can be corroboratedby observable 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 year endedDecember 31, 2016, we did not recognize interest income from debt investments on non-accrual status. For the years ended December 31, 2015 and 2014, werecognized as interest income interest payments of $0.2 million and $0.3 million, respectively, received from one portfolio company whose debt investmentwas 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 anddetermined without regard to any deduction for dividends paid, for each tax year. We, among other things, have made and intend to continue to make therequisite distributions to our stockholders, which will generally relieve us from 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 ASC Topic 740, Income Taxes, as modified by ASC Topic 946, Financial Services – InvestmentCompanies. Tax benefits of positions not deemed to meet the more-likely-than-not threshold, or uncertain tax positions, are recorded as a tax expense in thecurrent year. It is our policy to recognize accrued interest and penalties related to uncertain tax benefits in income tax expense. We had no material uncertaintax positions at December 31, 2016 and 2015. Recently adopted 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, or ASU 2015-03, as clarified by ASU 2015-15, Interest—Imputation of Interest: Presentation and SubsequentMeasurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements, or ASU 2015-15, containing guidance that requires debt issuance costsrelated to a recognized debt liability to be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, instead ofbeing recorded as a separate asset. ASU 2015-15 allows an entity to defer and present debt issuance costs for line-of-credit arrangements as an asset andsubsequently amortize these deferred costs over the term of the line-of-credit arrangement. We have adopted ASU 2015-03, as clarified by ASU 2015-15,which did not have a material impact on our consolidated financial statements other than corresponding reductions to total assets and total liabilities on theconsolidated statements of assets and liabilities. Prior to adoption, we recorded debt issuance costs in other assets as an asset on the consolidated statementsof assets and liabilities. Upon adoption, we reclassified these costs as unamortized debt issuance costs that reduce borrowings in the liabilities on theconsolidated statements of assets and liabilities and retrospectively reclassified the debt issuance costs that were previously presented in other assets as anasset as of December 31, 2015. 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 primarily at floating rates. We expect that our debt investments in the future will primarily have floatinginterest rates. As of December 31, 2016 and 2015, 96% and 93%, 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, 2016 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 $3,392 $1,840 $1,552 Up 200 basis points $2,166 $1,201 $965 Up 100 basis points $769 $562 $207 Down 300 basis points $(1,209) $— $(1,209)Down 200 basis points $(1,149) $— $(1,149)Down 100 basis points $(1,089) $— $(1,089) (1)Excludes the impact of incentive fees based on pre-incentive fee net investment income. While our 2019 Notes bear interest at a fixed rate, our Key Facility has a floating interest rate provision, subject to a floor of 0.75%, based on a LIBORindex which resets monthly, and any other credit facilities into which we enter in the future may have floating interest rate provisions. We have used hedginginstruments in the past to protect us against interest rate fluctuations, and we may use them in the future. Such instruments may include caps, swaps, futures,options and forward contracts. While hedging activities may insulate us against adverse changes in interest rates, they may also limit our ability to participatein 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 wouldreduce 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 Reporting72Report of Independent Registered Public Accounting Firm73Report of Independent Registered Public Accounting Firm on Internal Control over Financial Reporting74Consolidated Statements of Assets and Liabilities as of December 31, 2016 and 201575Consolidated Statements of Operations for the Years Ended December 31, 2016, 2015 and 201476Consolidated Statements of Changes in Net Assets for the Years Ended December 31, 2016, 2015 and 201477Consolidated Statements of Cash Flows for the Years Ended December 31, 2016, 2015 and 201478Consolidated Schedules of Investments as of December 31, 2016 and 201579Notes to the Consolidated Financial Statements91 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, 2016. In making this assessment,we used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control — Integrated Frameworkissued in 2013. Based on the assessment, management believes that, as of December 31, 2016, the Company’s internal control over financial reporting iseffective based 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, 2016, 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, 2016 and 2015, 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, 2016. 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, 2016 and 2015, 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, 2016 and 2015, and the results of their operations and their cash flows for each of the three years inthe period ended December 31, 2016, 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, 2016, 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 7, 2017expressed 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 7, 2017 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 31,2016, 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, 2016, 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 31,2016 and 2015, 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, 2016, and our report dated March 7, 2017 expressed an unqualified opinion. /s/ RSM US LLP New York, New YorkMarch 7, 2017 74 Horizon Technology Finance Corporation and Subsidiaries Consolidated Statements of Assets and Liabilities(In thousands, except share and per share data) December 31, 2016 2015 Assets Non-affiliate investments at fair value (cost of $211,627 and $255,494, respectively) (Note 4) $194,003 $250,267 Investments in money market funds — 285 Cash 37,135 20,765 Restricted investments in money market funds — 1,091 Interest receivable 6,036 6,258 Other assets 2,078 2,230 Total assets $239,252 $280,896 Liabilities Borrowings (Note 6) $95,597 $114,954 Distributions payable 3,453 3,980 Base management fee payable (Note 3) 337 385 Incentive fee payable (Note 3) — 1,028 Other accrued expenses 673 798 Total liabilities 100,060 121,145 Commitments and Contingencies (Note 7 and 8) Net assets Preferred stock, par value $0.001 per share, 1,000,000 shares authorized, zero shares issued and outstanding asof December 31, 2016 and 2015 — — Common stock, par value $0.001 per share, 100,000,000 shares authorized, 11,671,966 and 11,648,594 sharesissued and 11,510,424 and 11,535,212 shares outstanding as of December 31, 2016 and 2015, respectively 12 12 Paid-in capital in excess of par 179,551 179,707 Distributions in excess of net investment income (397) (2,006)Net unrealized depreciation on investments (19,463) (5,227)Net realized loss on investments (20,511) (12,735)Total net assets 139,192 159,751 Total liabilities and net assets $239,252 $280,896 Net asset value per common share $12.09 $13.85 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, 2016 2015 2014 Investment income Interest income on non-affiliate investments $31,397 $28,650 $28,636 Fee income on non-affiliate investments 1,587 2,460 2,618 Total investment income 32,984 31,110 31,254 Expenses Interest expense 5,878 5,757 8,707 Base management fee (Note 3) 4,727 4,747 4,648 Performance based incentive fee (Note 3) 2,126 3,501 2,112 Administrative fee (Note 3) 869 1,124 1,113 Professional fees 1,486 1,308 3,074 General and administrative 886 1,023 1,068 Total expenses 15,972 17,460 20,722 Management and performance based incentive fees waived (Note 3) — (346) (345)Net expenses 15,972 17,114 20,377 Net investment income before excise tax 17,012 13,996 10,877 (Credit) provision for excise tax (Note 7) (87) — 160 Net investment income 17,099 13,996 10,717 Net realized and unrealized (loss) gain on investments Net realized loss on investments (7,776) (1,650) (3,576)Net unrealized (depreciation) appreciation on investments (14,236) (490) 8,289 Net realized and unrealized (loss) gain on investments (22,012) (2,140) 4,713 Net (decrease) increase in net assets resulting from operations $(4,913) $11,856 $15,430 Net investment income per common share $1.48 $1.25 $1.11 Net (decrease) increase in net assets per common share $(0.43) $1.06 $1.60 Distributions declared per share $1.335 $1.38 $1.38 Weighted average shares outstanding 11,543,708 11,180,864 9,621,011 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 inExcess of AccumulatedUndistributed(Distributions inExcess of) Net Net UnrealizedDepreciation on Net RealizedLoss on Total Net Shares Amount Par Investment Income Investments Investments Assets 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 from operations, net ofexcise tax — — — 10,717 8,289 (3,576) 15,430 Issuance of common stock under dividend reinvestmentplan 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 from operations, net ofexcise tax — — — 13,996 (490) (1,650) 11,856 Issuance of common stock under dividend reinvestmentplan 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 Net decrease in net assets resulting from operations, net ofexcise tax — — — 17,099 (14,236) (7,776) (4,913)Issuance of common stock under dividend reinvestmentplan 23,372 — 273 — — — 273 Repurchase of common stock (48,160) — (516) — — — (516)Distributions declared — — — (15,403) — — (15,403)Reclassification of permanent tax differences (Note 2) — — 87 (87) — — — Balance at December 31, 2016 11,510,424 $12 $179,551 $(397) $(19,463) $(20,511) $139,192 See Notes to Consolidated Financial Statements 77 Horizon Technology Finance Corporation and Subsidiaries Consolidated Statements of Cash Flow(In thousands) Year Ended December 31, 2016 2015 2014 Cash flows from operating activities: Net (decrease) increase in net assets resulting from operations $(4,913) $11,856 $15,430 Adjustments to reconcile net increase in net assets resulting from operations to net cashprovided by (used in) operating activities: Amortization of debt issuance costs 562 911 2,682 Net realized loss on investments 7,776 1,650 3,576 Net unrealized depreciation (appreciation) on investments 14,236 490 (8,289)Purchase of investments (59,858) (123,281) (95,335)Principal payments received on investments 95,710 74,640 109,505 Proceeds from sale of investments 984 1,669 7,673 Changes in assets and liabilities: Net decrease (increase) in investments in money market funds 285 (258) 1,161 Net decrease in restricted investments in money market funds 1,091 1,815 3,045 Decrease (increase) in interest receivable 211 (199) 89 Increase in end-of-term payments (1,861) (1,301) (607)Decrease in unearned income (712) (203) (947)Decrease (increase) in other assets — 634 (936)Decrease in other accrued expenses (125) (11) (235)(Decrease) increase in base management fee payable (48) 29 (83)(Decrease) increase in incentive fee payable (1,028) 229 (53)Net cash provided by (used in) operating activities 52,310 (31,330) 36,676 Cash flows from financing activities: Proceeds from issuance of common stock, net of offering costs — 26,506 — Repayment of Asset-Backed Notes (14,546) (24,207) (40,590)Advances on credit facilities 10,000 58,000 — Repayment of credit facility (15,000) — — Distributions paid (15,657) (14,888) (13,010)Repurchase of common stock (516) (1,313) — Debt issuance costs (221) (420) — Net cash (used in) provided by financing activities (35,940) 43,678 (53,600)Net increase (decrease) in cash 16,370 12,348 (16,924)Cash: Beginning of period 20,765 8,417 25,341 End of period $37,135 $20,765 $8,417 Supplemental disclosure of cash flow information: Cash paid for interest $5,305 $4,733 $6,156 Supplemental non-cash investing and financing activities: Warrant investments received and recorded as unearned income $554 $870 $835 Distributions payable $3,453 $3,980 $3,322 End of term payments receivable $5,074 $5,086 $3,785 See Notes to Consolidated Financial Statements 78 Horizon Technology Finance Corporation and Subsidiaries Consolidated Schedule of InvestmentsDecember 31, 2016(In thousands) Principal Cost of Fair Portfolio Company (1) Sector Type of Investment (3)(4)(7)(9)(10) Amount Investments (6) Value Debt Investments — 133.8% (8) Debt Investments — Life Science — 38.5%(8) Argos Therapeutics, Inc. (2)(5) Biotechnology Term Loan (9.38% cash (Libor + 8.75%; Floor 9.25%; $4,375 $4,339 $4,339 Ceiling 10.75%), 5.00% ETP, Due 10/1/18) Term Loan (9.38% cash (Libor + 8.75%; Floor 9.25%; 5,000 4,969 4,969 Ceiling 10.75%), 5.00% ETP, Due 3/1/19) New Haven Pharmaceuticals, Inc. (11) Biotechnology Term Loan (11.63% cash (Libor + 11.00%; Floor 1,282 1,274 651 11.50%), 11.42% ETP, Due 3/1/19) Term Loan (11.63% cash (Libor + 11.00%; Floor 427 424 217 11.50%), 11.42% ETP, Due 3/1/19) Term Loan (10.63% cash (Libor + 10.00%; Floor 1,973 1,960 1,002 10.50%), 6.10% ETP, Due 3/1/19) Term Loan (10.13% cash (Libor + 9.50%; Floor 6,185 6,118 3,127 10.00%), 4.00% ETP, Due 4/1/19) Term Loan (10.13% cash (Libor + 9.50%; Floor 593 593 303 10.00%), Due 1/31/17) Palatin Technologies, Inc. (2)(5) Biotechnology Term Loan (9.13% cash (Libor + 8.50%; Floor 4,000 3,960 3,960 9.00%), 5.00% ETP, Due 1/1/19) Term Loan (9.13% cash (Libor + 8.50%; Floor 5,000 4,955 4,955 9.00%), 5.00% ETP, Due 8/1/19) Sample6, Inc. (2) Biotechnology Term Loan (9.63% cash (Libor + 9.00%; Floor 972 969 969 9.50%; Ceiling 11.00%), 4.00% ETP, Due 4/1/18) Term Loan (9.63% cash (Libor + 9.00%; Floor 591 588 588 9.50%; Ceiling 11.00%), 4.00% ETP, Due 4/1/18) Term Loan (9.63% cash (Libor + 9.00%; Floor 2,083 2,073 2,073 9.50%; Ceiling 11.00%), 4.00% ETP, Due 4/1/18) Strongbridge U.S. Inc. (5) Biotechnology Term Loan (8.84% cash (Libor + 10.00%; Floor 7,500 7,353 7,353 10.50%), 8.00% ETP, Due 12/1/20) vTv Therapeutics Inc. (2)(5) Biotechnology Term Loan (10.63% cash (Libor + 8.22%; Floor 6,250 6,106 6,106 8.75%), 6.00% ETP, Due 5/1/20) Lantos Technologies, Inc. (2) Medical Device Term Loan (11.50% cash (Libor + 10.50%; Floor 2,479 2,455 2,320 11.50%), 5.00% ETP, Due 2/1/18) Mederi Therapeutics, Inc. (2) Medical Device Term Loan (12.27% cash (Libor + 11.82%; Floor 1,352 1,344 1,344 12.00%), 4.00% ETP, Due 7/1/17) Term Loan (12.27% cash (Libor + 11.82%; Floor 1,352 1,344 1,344 12.00%), 4.00% ETP, Due 7/1/17) NinePoint Medical, Inc. (2) Medical Device Term Loan (9.38% cash (Libor + 8.75%; Floor 4,500 4,461 4,461 9.25%), 4.50% ETP, Due 3/1/19) Term Loan (9.38% cash (Libor + 8.75%; Floor 2,250 2,225 2,225 9.25%), 4.50% ETP, Due 3/1/19) Tryton Medical, Inc. (2) Medical Device Term Loan (10.66% cash (Prime + 7.16%), 2.50%ETP, 1,313 1,309 1,309 Due 3/1/17) Total Debt Investments — Life Science 58,819 53,615 Debt Investments — Technology — 75.4% (8) Ekahau, Inc. (2) Communications Term Loan (11.75% cash, 2.50% ETP, Due 2/1/17) 57 57 57 Term Loan (11.75% cash, 2.50% ETP, Due 2/1/17) 19 19 19 Gwynnie Bee, Inc. (2) Consumer-relatedTechnologies Term Loan (11.13% cash (Libor + 10.50%; Floor 667 657 657 11.00%; Ceiling 12.50%), 2.00% ETP, Due 11/1/17) Term Loan (11.13% cash (Libor + 10.50%; Floor 433 424 424 11.00%; Ceiling 12.50%), 2.00% ETP, Due 2/1/18) Term Loan (11.13% cash (Libor + 10.50%; Floor 500 492 492 11.00%; Ceiling 12.50%), 2.00% ETP, Due 4/1/18) Le Tote, Inc. (2) Consumer-relatedTechnologies Term Loan (10.28% cash (Libor + 9.65%; Floor 4,000 3,942 3,942 10.15%), 5.00% ETP, Due 3/1/20) Term Loan (10.28% cash (Libor + 9.65%; Floor 3,000 2,955 2,955 10.15%), 5.00% ETP, Due 3/1/20) Rhapsody International, Inc. (2) Consumer-relatedTechnologies Term Loan (11.13% cash (Libor + 10.50%; Floor 7,500 7,336 7,336 11.00%), 3.00% ETP, Due 10/1/19) SavingStar, Inc. (2) Consumer-relatedTechnologies Term Loan (11.03% cash (Libor + 10.40%; Floor 2,900 2,860 2,860 10.90%), 3.00% ETP, Due 6/1/19) Term Loan (11.03% cash (Libor + 10.40%; Floor 2,000 1,965 1,965 See Notes to Consolidated Financial Statements 79 Horizon Technology Finance Corporation and Subsidiaries Consolidated Schedule of InvestmentsDecember 31, 2016(In thousands) Principal Cost of Fair Portfolio Company (1) Sector Type of Investment (3)(4)(7)(9)(10) Amount Investments (6) Value 10.90%), 3.00% ETP, Due 3/1/20) MediaBrix, Inc. (2) Internet andMedia Term Loan (11.63% cash (Libor + 11.00%; Floor 4,000 3,966 3,966 11.50%), 3.00% ETP, Due 1/1/20) Zinio Holdings, LLC (2) Internet andMedia Term Loan (11.88% cash (Libor + 11.25%; Floor 4,000 3,967 3,967 11.75%), 4.00% ETP, Due 2/1/20) The NanoSteel Company, Inc. (2) Materials Term Loan (10.13% cash (Libor + 9.50%; Floor 5,000 4,940 4,940 10.00%), 5.00% ETP, Due 7/1/19) Term Loan (10.13% cash (Libor + 9.50%; Floor 2,500 2,470 2,470 10.00%), 5.00% ETP, Due 7/1/19) Term Loan (10.13% cash (Libor + 9.50%; Floor 2,500 2,464 2,464 10.00%), 5.00% ETP, Due 1/1/20) Nanocomp Technologies, Inc. (2) Networking Term Loan (11.50% cash, 3.00% ETP, Due 11/1/17) 369 367 367 Term Loan (11.63% cash (Libor + 11.00%; Floor 3,000 2,939 2,939 11.50%), 3.00% ETP, Due 4/1/20) Powerhouse Dynamics, Inc. (2) PowerManagement Term Loan (11.33% cash (Libor + 10.70%; Floor 2,250 2,220 2,220 11.20%), 3.00% ETP, Due 3/1/19) Avalanche Technology, Inc. (2) Semiconductors Term Loan (10.00% cash (Libor + 9.25%; Floor10.00%; 417 416 416 Ceiling 11.75%), 2.40% ETP, Due 4/1/17) Term Loan (10.00% cash (Libor + 9.25%; Floor10.00%; 1,335 1,331 1,331 Ceiling 11.75%), 2.40% ETP, Due 10/1/18) Term Loan (10.00% cash (Libor + 9.25%; Floor10.00%; 1,548 1,517 1,517 Ceiling 11.75%), 2.00% ETP, Due 2/1/19) Luxtera, Inc. (2) Semiconductors Term Loan (10.38% cash (Libor + 9.75%; Floor10.25%; 614 607 607 Ceiling 12.25%), 13.00% ETP, Due 7/1/17) Term Loan (10.38% cash (Libor + 9.75%; Floor10.25%; 343 341 341 Ceiling 12.25%), 13.00% ETP, Due 7/1/17) Term Loan (9.13% cash (Libor + 8.50%; Floor9.00%), 667 663 663 4.50% ETP, Due 12/1/18) Term Loan (9.13% cash (Libor + 8.50%; Floor9.00%), 667 663 663 4.50% ETP, Due 12/1/18) Term Loan (9.63% cash (Libor + 9.00%; Floor9.50%), 2,000 1,990 1,990 4.50% ETP, Due 11/1/19) Xtera Communications, Inc. (5)(11) Semiconductors Term Loan (12.50% cash, 22.92% ETP, Due 11/1/16) 3,056 3,047 — Term Loan (12.50% cash, 22.92% ETP, Due 11/1/16) 936 933 — Bridge2 Solutions, Inc. Software Term Loan (11.63% cash (Libor + 11.00%; Floor 4,000 3,976 3,976 11.50%; Ceiling 14.50%), 2.00% ETP, Due 7/1/19) Term Loan (11.63% cash (Libor + 11.00%; Floor 1,000 996 996 11.50%; Ceiling 14.50%), 2.00% ETP, Due 1/1/20) ControlScan, Inc. (2) Software Term Loan (10.88% cash (Libor + 10.25%), 4,500 4,413 4,413 3.00% ETP, Due 7/1/20) Decisyon, Inc. Software Term Loan (12.94% cash (Libor + 12.308%; Floor 1,523 1,521 1,519 12.50%), 6.50% ETP, Due 6/1/18) Term Loan (12.94% cash (Libor + 12.308%; Floor 833 715 713 12.50%), 6.50% ETP, Due 6/1/18) Digital Signal Corporation (11)(13) Software Term Loan (10.88% cash (Libor + 10.25%; Floor 1,280 1,246 928 10.43%), 5.00% ETP, Due 7/1/19) Term Loan (10.88% cash (Libor + 10.25%; Floor 1,280 1,246 928 10.43%), 5.00% ETP, Due 7/1/19) Term Loan (10.00% cash, Due 6/30/17) 194 194 144 Education Elements, Inc. (2) Software Term Loan (10.63% cash (Libor + 10.00%; Floor 1,600 1,578 1,578 10.50%), 4.00% ETP, Due 1/1/19) Term Loan (10.63% cash (Libor + 10.00%; Floor 1,500 1,479 1,479 10.50%), 4.00% ETP, Due 8/1/19) Netuitive, Inc. Software Term Loan (12.88% cash (Libor + 12.25%; Floor 461 460 460 12.50%), 3.33% ETP, Due 9/1/17) ScoreBig, Inc. (2)(11)(12) Software Term Loan (10.63% cash (Libor + 10.00%; Floor 3,403 3,332 1,526 10.50%), 4.00% ETP, Due 4/1/19) Term Loan (10.63% cash (Libor + 10.00%; Floor 3,403 3,360 1,539 10.50%), 4.00% ETP, Due 4/1/19) Term Loan (10.63% cash (Libor + 10.00%; Floor 2,000 1,950 894 See Notes to Consolidated Financial Statements 80 Horizon Technology Finance Corporation and Subsidiaries Consolidated Schedule of InvestmentsDecember 31, 2016(In thousands) Principal Cost of Fair Portfolio Company (1) Sector Type of Investment (3)(4)(7)(9)(10) Amount Investments (6) Value 10.50%), 4.00% ETP, Due 3/1/20) Term Loan (10.63% cash (Libor + 10.00%; Floor 203 203 93 10.50%), 4.00% ETP, Due 10/31/16) Term Loan (10.63% cash (Libor + 10.00%; Floor 324 324 148 10.50%), 4.00% ETP, Due 11/11/19) ShopKeep.com, Inc. (2) Software Term Loan (10.47% cash (Libor + 9.95%; Floor 6,000 5,811 5,811 10.45%), 3.00% ETP, Due 4/1/20) SIGNiX, Inc. Software Term Loan (11.63% cash (Libor + 11.00%; Floor 2,250 2,124 2,012 11.50%), Due 10/1/18) SilkRoad Technology, Inc. (2) Software Term Loan (10.98% cash (Libor + 10.35%; Floor 7,500 7,455 7,455 10.85%; Ceiling 12.85%), 3.00% ETP, Due 6/1/19) Skyword, Inc. Software Term Loan (11.58% cash (Libor + 10.95%; Floor 4,000 3,944 3,870 11.45%), 3.00% ETP, Due 8/1/19) Social Intelligence Corp. (2) Software Term Loan (11.13% cash (Libor + 10.50%; Floor 323 316 315 11.00%; Ceiling 13.00%), 3.50% ETP, Due 12/1/17) Sys-Tech Solutions, Inc. (2) Software Term Loan (11.78% cash (Libor + 11.15%; Floor 3,000 2,983 2,983 11.65%; Ceiling 12.65%), 4.50% ETP, Due 3/1/18) Term Loan (11.78% cash (Libor + 11.15%; Floor 2,833 2,814 2,814 11.65%; Ceiling 12.65%), 9.00% ETP, Due 5/1/18) VBrick Systems, Inc. (2) Software Term Loan (11.63% cash (Libor + 11.00%; Floor 700 696 696 11.50%; Ceiling 13.50%), 5.00% ETP, Due 7/1/17) Vidsys, Inc. (2) Software Term Loan (13.00% cash, 12.58% ETP, Due 12/1/17) 2,610 2,610 2,610 xTech Holdings, Inc. (2) Software Term Loan (11.13% cash (Libor + 10.50%; Floor 1,500 1,479 1,479 11.00%), 3.00% ETP, Due 4/1/19) Term Loan (11.13% cash (Libor + 10.50%; Floor 2,000 1,970 1,970 11.00%), 3.00% ETP, Due 3/1/20) Total Debt Investments — Technology 114,743 104,917 Debt Investments — Cleantech — 5.7% (8) Rypos, Inc. (2) EnergyEfficiency Term Loan (11.93% cash (Libor + 11.55%; 1,260 1,252 1,252 Floor 11.80%), 4.25% ETP, Due 6/1/17) Term Loan (11.93% cash (Libor + 11.55%; 697 690 690 Floor 11.80%), 4.25% ETP, Due 1/1/18) Lehigh Technologies, Inc. (2) Waste Recycling Term Loan (10.35% cash (Libor + 9.72%), 6.75%ETP, 3,000 2,982 2,982 Due 8/1/19) Term Loan (10.35% cash (Libor + 9.72%), 6.75%ETP, 3,000 2,982 2,982 Due 8/1/19) Total Debt Investments — Cleantech 7,906 7,906 Debt Investments — Healthcare information and services — 14.2% (8) Interleukin Genetics, Inc. (2)(5) Diagnostics Term Loan (11.13% cash (Libor + 10.50%; 4,225 4,081 4,081 Floor 11.00%), 6.50% ETP, Due 10/1/18) Watermark Medical, Inc. (2) OtherHealthcare Term Loan (10.13% cash (Libor + 9.50%; Floor10.00%; 2,333 2,330 2,330 Ceiling 11.00%); 4.00% ETP, Due 4/1/18) Term Loan (10.13% cash (Libor + 9.50%; Floor10.00%; 2,333 2,330 2,330 Ceiling 11.00%); 4.00% ETP, Due 4/1/18) Term Loan (10.13% cash (Libor + 9.50%; Floor10.00%; 1,111 1,110 1,110 Ceiling 11.00%); 4.00% ETP, Due 4/1/18) MedAvante, Inc. (2) Software Term Loan (9.88% cash (Libor + 9.25%; Floor 3,000 2,972 2,972 9.75%), 4.00% ETP, Due 1/1/19) Term Loan (9.88% cash (Libor + 9.25%; Floor 3,000 2,972 2,972 9.75%), 4.00% ETP, Due 1/1/19) Term Loan (9.88% cash (Libor + 9.25%; Floor 4,000 3,953 3,953 9.75%), 4.00% ETP, Due 7/1/19) Total Debt Investments — Healthcare information and services 19,748 19,748 Total Debt Investments 201,216 186,186 See Notes to Consolidated Financial Statements 81 Horizon Technology Finance Corporation and Subsidiaries Consolidated Schedule of InvestmentsDecember 31, 2016(In thousands) Cost of Fair Portfolio Company (1) Sector Type of Investment (3)(4)(7)(9)(10) Investments (6) Value Warrant Investments — 4.6% (8) Warrants — Life Science — 0.5% (8) ACT Biotech Corporation Biotechnology 1,521,820 Preferred Stock Warrants 83 — Argos Therapeutics, Inc. (2)(5) Biotechnology 33,112 Common Stock Warrants 33 2 Celsion Corporation (5) Biotechnology 5,708 Common Stock Warrants 15 — Inotek Pharmaceuticals Corporation (5) Biotechnology 28,204 Common Stock Warrants 17 21 New Haven Pharmaceuticals, Inc. Biotechnology 103,982 Preferred Stock Warrants 88 — Nivalis Therapeutics, Inc. (5) Biotechnology 18,534 Common Stock Warrants 122 — Ocera Therapeutics, Inc. (2)(5) Biotechnology 6,491 Common Stock Warrants 6 — Palatin Technologies, Inc. (2)(5) Biotechnology 608,058 Common Stock Warrants 51 4 Revance Therapeutics, Inc. (5) Biotechnology 34,377 Common Stock Warrants 68 241 Sample6, Inc. (2) Biotechnology 494,988 Preferred Stock Warrants 45 16 Strongbridge U.S. Inc. (5) Biotechnology 160,714 Common Stock Warrants 72 72 vTv Therapeutics Inc. (2)(5) Biotechnology 76,290 Common Stock Warrants 23 23 Sunesis Pharmaceuticals, Inc. (5) Biotechnology 2,050 Common Stock Warrants 5 — AccuVein Inc. (2) Medical Device 75,769 Preferred Stock Warrants 24 27 EnteroMedics, Inc. (5) Medical Device 134 Common Stock Warrants 347 — IntegenX, Inc. (2) Medical Device 170,646 Preferred Stock Warrants 35 31 Lantos Technologies, Inc. (2) Medical Device 66,665,256 Preferred Stock Warrants 38 41 Mederi Therapeutics, Inc. (2) Medical Device 248,736 Preferred Stock Warrants 26 39 Mitralign, Inc. (2) Medical Device 641,909 Preferred Stock Warrants 52 44 NinePoint Medical, Inc. (2) Medical Device 566,038 Preferred Stock Warrants 33 39 OraMetrix, Inc. (2) Medical Device 812,348 Preferred Stock Warrants 78 — Tryton Medical, Inc. (2) Medical Device 122,362 Preferred Stock Warrants 15 12 ViOptix, Inc. Medical Device 375,763 Preferred Stock Warrants 13 — Total Warrants — Life Science 1,289 612 Warrants — Technology — 3.3% (8) Ekahau, Inc. (2) Communications 978,261 Preferred Stock Warrants 32 23 Additech, Inc. (2) Consumer-relatedTechnologies 150,000 Preferred Stock Warrants 33 31 Gwynnie Bee, Inc. (2) Consumer-relatedTechnologies 268,591 Preferred Stock Warrants 68 698 If(we), Inc. Consumer-relatedTechnologies 190,868 Preferred Stock Warrants 27 47 Le Tote, Inc. (2) Consumer-relatedTechnologies 202,974 Preferred Stock Warrants 63 411 Rhapsody International Inc. (2) Consumer-relatedTechnologies 852,273 Common Stock Warrants 164 150 SavingStar, Inc. (2) Consumer-relatedTechnologies 98,860 Preferred Stock Warrants 60 70 XIOtech, Inc. Data Storage 2,217,979 Preferred Stock Warrants 22 — The NanoSteel Company, Inc. (2) Materials 299,211 Preferred Stock Warrants 92 348 IntelePeer, Inc. Networking 141,549 Common Stock Warrants 39 31 Nanocomp Technologies, Inc. (2) Networking 707,387 Preferred Stock Warrants 67 72 Aquion Energy, Inc. PowerManagement 115,051 Preferred Stock Warrants 7 72 Powerhouse Dynamics, Inc. (2) PowerManagement 290,698 Preferred Stock Warrants 28 26 Avalanche Technology, Inc. (2) Semiconductors 202,602 Preferred Stock Warrants 101 40 eASIC Corporation (2) Semiconductors 40,445 Preferred Stock Warrants 25 28 InVisage Technologies, Inc. (2) Semiconductors 395,009 Preferred Stock Warrants 48 45 Kaminario, Inc. Semiconductors 1,087,203 Preferred Stock Warrants 59 45 Luxtera, Inc.(2) Semiconductors 2,508,671 Preferred Stock Warrants 49 193 Soraa, Inc. (2) Semiconductors 203,616 Preferred Stock Warrants 80 432 Xtera Communications, Inc. (5) Semiconductors 37,831 Common Stock Warrants 206 — Bolt Solutions Inc. (2) Software 202,892 Preferred Stock Warrants 113 135 Bridge2 Solutions, Inc. Software 75,458 Common Stock Warrants 18 341 Clarabridge, Inc. Software 53,486 Preferred Stock Warrants 14 81 ControlScan, Inc. (2) Software 2,295,918 Preferred Stock Warrants 19 30 Decisyon, Inc. Software 82,967 Common Stock Warrants 46 — Digital Signal Corporation Software 125,116 Common Stock Warrants 32 — Education Elements, Inc. (2) Software 238,122 Preferred Stock Warrants 28 28 Lotame Solutions, Inc. (2) Software 288,115 Preferred Stock Warrants 22 276 Netuitive, Inc. Software 41,569 Common Stock Warrants 48 — Riv Data Corp. (2) Software 237,361 Preferred Stock Warrants 12 12 ScoreBig, Inc. (2) Software 879,014 Preferred Stock Warrants 88 — ShopKeep.com, Inc. (2) Software 165,779 Preferred Stock Warrants 98 118 SIGNiX, Inc. Software 89,767 Preferred Stock Warrants 168 167 See Notes to Consolidated Financial Statements 82 Horizon Technology Finance Corporation and Subsidiaries Consolidated Schedule of InvestmentsDecember 31, 2016(In thousands) Cost of Fair Portfolio Company (1) Sector Type of Investment (3)(4)(7)(9)(10) Investments (6) Value Skyword, Inc. Software 301,056 Preferred Stock Warrants 48 56 SpringCM, Inc. (2) Software 2,385,686 Preferred Stock Warrants 55 131 Sys-Tech Solutions, Inc. Software 375,000 Preferred Stock Warrants 242 389 Vidsys, Inc. Software 85,399 Preferred Stock Warrants 23 12 Visage Mobile, Inc. Software 1,692,047 Preferred Stock Warrants 19 — xTech Holdings, Inc. (2) Software 158,730 Preferred Stock Warrants 43 52 Total Warrants — Technology 2,406 4,590 Warrants — Cleantech — 0.1% (8) Renmatix, Inc. AlternativeEnergy 53,022 Preferred Stock Warrants 68 — Semprius, Inc. AlternativeEnergy 519,981 Preferred Stock Warrants 25 — Rypos, Inc. (2) EnergyEfficiency 5,627 Preferred Stock Warrants 44 25 Tigo Energy, Inc. (2) EnergyEfficiency 804,604 Preferred Stock Warrants 100 115 Lehigh Technologies, Inc. (2) Waste Recycling 272,727 Preferred Stock Warrants 33 39 Total Warrants — Cleantech 270 179 Warrants — Healthcare information and services — 0.7% (8) Accumetrics, Inc. Diagnostics 100,928 Preferred Stock Warrants 107 180 Candescent Health, Inc. (2) Diagnostics 519,991 Preferred Stock Warrants 378 — Interleukin Genetics, Inc. (2)(5) Diagnostics 7,662,100 Common Stock Warrants 168 142 LifePrint Group, Inc. (2) Diagnostics 49,000 Preferred Stock Warrants 29 2 ProterixBio, Inc. (2) Diagnostics 3,156 Common Stock Warrants 54 — Singulex, Inc. OtherHealthcare 294,231 Preferred Stock Warrants 44 51 Verity Solutions Group, Inc. OtherHealthcare 300,360 Preferred Stock Warrants 100 42 Watermark Medical, Inc. (2) OtherHealthcare 27,373 Preferred Stock Warrants 74 76 MedAvante, Inc. (2) Software 114,285 Preferred Stock Warrants 66 79 Medsphere Systems Corporation (2) Software 7,097,791 Preferred Stock Warrants 60 205 Recondo Technology, Inc. (2) Software 556,796 Preferred Stock Warrants 95 204 Total Warrants — Healthcare information andservices 1,175 981 Total Warrants 5,140 6,362 Other Investments — 0.4% (8) ZetrOZ, Inc. Medical Device Royalty Agreement 365 500 Vette Technology, LLC Data Storage Royalty Agreement Due 4/18/2019 4,318 100 Total Other Investments 4,683 600 Equity — 0.6% (8) Insmed Incorporated (5) Biotechnology 33,208 Common Stock 238 439 Revance Therapeutics, Inc.(5) Biotechnology 4,861 Common Stock 73 101 Sunesis Pharmaceuticals, Inc. (5) Biotechnology 78,493 Common Stock 83 47 SnagAJob.com, Inc. Consumer-relatedTechnologies 82,974 Common Stock 9 83 Decisyon, Inc. Software 4,200,934 Common Stock 185 185 Total Equity 588 855 Total Portfolio Investment Assets — 139.4%(8) $211,627 $194,003 (1) All investments of the Company are in entities which are organized under the laws of the United States and have a principal place of business in theUnited States. (2) Has been pledged as collateral under the Key Facility. (3) All investments are less than 5% ownership of the class and ownership of the portfolio company. (4) All interest is payable in cash due monthly in arrears, unless otherwise indicated, and applies only to the Company’s debt investments. Interest rate 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 asof December 31, 2016 is provided. (5) Portfolio company is a public company. (6) For debt investments, represents principal balance less unearned income. (7) Warrants, Equity and Other Investments are non-income producing. See Notes to Consolidated Financial Statements 83 Horizon Technology Finance Corporation and Subsidiaries Consolidated Schedule of InvestmentsDecember 31, 2016(In thousands) (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, 2016. 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, 2016. (12) ScoreBig, Inc., a Delaware corporation (“ScoreBig”), made an assignment for the benefit of its creditors whereby ScoreBig assigned all of its assets to SB(assignment for the benefit of creditors), LLC, a California limited liability company (“SBABC”), established under California law to effectuate theAssignment for the Benefit of Creditors of ScoreBig. SBABC subsequently entered into a License Agreement with a third party (“Licensee”), wherebySBABC granted a license of certain of SBABC’s intellectual property and general intangibles to Licensee in exchange for certain royalty payments onthe future net profits, if any, of Licensee. SBABC, in consideration for the Company’s consent to the License Agreement, agreed to pay all payments dueunder the License Agreement, if any, to the Company until the payment in full in cash of the Company’s debt investments in ScoreBig. (13) Digital Signal Corporation, a Delaware corporation (“DSC”), made an assignment for the benefit of its creditors whereby DSC assigned all of its assets toDSC (assignment for the benefit of creditors), LLC, a Delaware limited liability company, established under Delaware law to effectuate the Assignmentfor the Benefit of Creditors of DSC. See Notes to Consolidated Financial Statements 84 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 85 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%; Floor10.00%; 1,565 1,561 1,561 Ceiling 11.75%), 2.40% ETP, Due 4/1/17) Term Loan (10.00% cash (Libor + 9.25%; Floor10.00%; 2,003 1,997 1,997 Ceiling 11.75%) ,2.40% ETP, Due 10/1/18) Term Loan (10.00% cash (Libor + 9.25%; Floor10.00%; 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%; Floor10.25%; 1,646 1,645 1,645 Ceiling 12.25%), 13.00% ETP, Due 7/1/17) Term Loan (10.25% cash (Libor + 9.75%; Floor10.25%; 951 926 926 Ceiling 12.25%), 13.00% ETP, Due 7/1/17) Term Loan (9.00% cash (Libor + 8.50%; Floor9.00%), 833 828 828 4.50% ETP, Due 12/1/18) Term Loan (9.00% cash (Libor + 8.50%; Floor9.00%), 833 827 827 4.50% ETP, Due 12/1/18) Xtera Communications, Inc. (2)(5) Semiconductors Term Loan (12.50% cash, 15.65% ETP, Due12/31/16) 4,157 4,114 4,114 Term Loan (12.50% cash, 21.75% ETP, Due12/31/16) 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 86 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 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) Waste Recycling 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%; Floor10.00%; 3,500 3,494 3,494 Ceiling 11.00%); 4.00% ETP, Due 4/1/18) Term Loan (10.00% cash (Libor + 9.50%; Floor10.00%; 3,500 3,494 3,494 Ceiling 11.00%); 4.00% ETP, Due 4/1/18) Term Loan (10.00% cash (Libor + 9.50%; Floor10.00%; 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 87 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 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 information and 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 88 Horizon Technology Finance Corporation and Subsidiaries Consolidated Schedule of InvestmentsDecember 31, 2015(In thousands) Cost of Fair Portfolio Company (1) Sector Type of Investment (3)(4)(7)(9)(10) Investments (6) Value 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 89 Horizon Technology Finance Corporation and Subsidiaries Consolidated Schedule of InvestmentsDecember 31, 2015(In thousands) Cost of Fair Portfolio Company (1) Sector Type of Investment (3)(4)(7)(9)(10) Investments (6) Value Short Term Investments — MoneyMarket Funds — 0.2% (8) $285 $285 US Bank Money Market Deposit Account $285 $285 Total Short Term Investments — MoneyMarket Funds Short Term Investments — RestrictedInvestments— 0.7% (8) $1,091 $1,091 US Bank Money Market Deposit Account(2) $1,091 $1,091 Total Short Term Investments —Restricted Investments (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 ETPs and any additional fees related to the investments, such as deferred interest,commitment fees or prepayment fees. All debt investments are at fixed rates for the term of the debt investment, unless otherwise indicated. Debtinvestments based on LIBOR are based on one-month LIBOR. For each debt investment, the current interest rate in effect as of December 31, 2015 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) Value as a percent of net assets. (9) The Company did not have any non-qualifying assets under Section 55(a) of the 1940 Act as of December 31, 2015. 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. (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 90 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, a Delaware limitedliability company, which commenced operations in March 2008 and became the Company’s wholly owned subsidiary upon the completion of theCompany’s IPO. Horizon Credit II LLC (“Credit II”) was formed as a Delaware limited liability company on June 28, 2011, with the Company as its sole equity member.Credit II is a special purpose bankruptcy remote entity and is a separate legal entity from the Company. Any assets conveyed to Credit II are not available tocreditors of the Company or any other entity other than Credit II’s lenders. 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. Horizon SBIC was dissolved as of December 31, 2016. 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”). 2013-1 LLC and 2013-1 Trust were dissolved as of December 31, 2016. 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 (the “Investment Management Agreement”) with Horizon Technology Finance Management LLC (the “Advisor”), underwhich the Advisor manages the day-to-day operations of, and provides investment advisory services to, the Company. 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”). 91 Horizon Technology Finance Corporation and Subsidiaries Notes to Consolidated Financial Statements 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 wholly-owned subsidiaries in its consolidated financial statements. Use of estimates In preparing the consolidated financial statements in accordance with GAAP, management is required to make estimates and assumptions that affect 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. 92 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, 2016, there were four investments on non-accrual status with a cost of $26.2 million and a fair value of $11.5 million. As of December 31, 2015, there wasone investment on non-accrual status with a cost of $2.7 million and a fair value of $0.5 million. For the year ended December 31, 2016, the Company didnot recognize interest income from debt investments on non-accrual status. For the years ended December 31, 2015 and 2014, we recognized interest incomepayments of $0.2 million and $0.3 million, respectively, received from one portfolio company whose debt investment was on non-accrual status. 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, 2016,2015 and 2014 was 10.8%, 7.1% and 6.5%, 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 arerecorded 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. 93 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. The unamortized balance of debt issuance costs as of December 31, 2016 and 2015 was $1.6 million and $1.9 million, respectively. These amountsare amortized and included in interest expense in the consolidated statements of operations over the life of the borrowings. The accumulated amortizationbalances as of December 31, 2016 and 2015 were $4.4 million and $3.9 million, respectively. The amortization expense for the years ended December 31,2016, 2015 and 2014 was $0.6 million, $0.9 million and $2.7 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 the imposition of corporate-level income tax on the income distributed tostockholders, among other things, the Company is required to meet certain source of income and asset diversification requirements and to timely distributedividends out of assets legally available for distribution to its stockholders of an amount generally at least equal to 90% of its investment company taxableincome, as defined by the Code, for each tax year. The Company, among other things, has made and intends to continue to make the requisite distributions toits stockholders, which generally relieves 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 Topic 946, Financial Services—Investment Companies, of the FinancialAccounting Standards Board’s (“FASB’s”), Accounting Standards Codification, as amended (“ASC”), permanent tax differences, such as non-deductibleexcise taxes paid, are reclassified from distributions in excess of net investment income and net realized loss on investments to paid-in-capital at the end ofeach year. These permanent book-to-tax differences are reclassified on the consolidated statements of changes in net assets to reflect their tax character buthave no impact on total net assets. For the year ended December 31, 2016, the Company reclassified $0.1 million to paid-in capital from distributions inexcess of net investment income, which related to excise taxes refunded in 2016. For the year ended December 31, 2015, the Company reclassified $1.0million to paid-in capital from distributions in excess of net investment income of $0.9 million and net realized loss on investments of $0.1 million, whichrelated 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, 2016, $0.1 million was recorded for U.S. federal excise tax. For the yearended December 31, 2015, there was no U.S. federal excise tax recorded. For the year December 31, 2014, $0.2 million was recorded for U.S. federal excisetax. The Company evaluates tax positions taken in the course of preparing the Company’s tax returns to determine whether the tax positions are “more-likely-than-not” to be sustained by the applicable tax authority in accordance with ASC Topic 740, Income Taxes, as modified by ASC Topic 946. Taxbenefits of positions not deemed to meet the more-likely-than-not threshold, or uncertain tax positions, would be recorded as a tax expense in the currentyear. It is the Company’s policy to recognize accrued interest and penalties related to uncertain tax benefits in income tax expense. The Company had nomaterial uncertain tax positions at December 31, 2016 and 2015. The 2015, 2014 and 2013 tax years remain subject to examination by U.S. federal and statetax 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. 94 Horizon Technology Finance Corporation and Subsidiaries Notes to Consolidated Financial Statements The Company has adopted a dividend reinvestment plan that provides for reinvestment of cash distributions on behalf of its stockholders, unless astockholder elects to receive cash. As a result, if the Board declares a cash distribution, then stockholders who have not “opted out” of the dividendreinvestment plan will have their cash distributions automatically reinvested in additional shares of the Company’s common stock, rather than receiving thecash distribution. The Company may use newly issued shares to implement the plan or the Company may purchase shares in the open market to fulfill itsobligations under the plan. Stock Repurchase Program On July 29, 2016, the Board extended a previously authorized stock repurchase program which allows the Company to repurchase up to $5.0 million ofits common stock at prices below the Company’s net asset value per share as reported in its most recent consolidated financial statements. Under therepurchase program, the Company may, but is not obligated to, repurchase shares of its outstanding common stock in the open market or in privatelynegotiated transactions from time to time. Any repurchases by the Company will comply with the requirements of Rule 10b-18 under the Securities ExchangeAct of 1934, as amended, and any applicable requirements of the 1940 Act. Unless extended by the Board, the repurchase program will terminate on theearlier of June 30, 2017 or the repurchase of $5.0 million of the Company’s common stock. During the year ended December 31, 2016, the Companyrepurchased 48,160 shares of its common stock at an average price of $10.66 on the open market at a total cost of $0.5 million. During the year endedDecember 31, 2015, the Company repurchased 113,382 shares of its common stock at an average price of $11.53 on the open market at a total cost of $1.3million. From the inception of the stock repurchase program through December 31, 2016, the Company repurchased 161,542 shares of its common stock at anaverage price of $11.27 on the open market at a total cost of $1.8 million. Transfers of financial assets Assets related to transactions that do not meet the requirements under ASC Topic 860, Transfers and Servicing for accounting sale treatment arereflected in the Company’s consolidated statements of assets and liabilities as investments. Those assets are owned by special purpose entities that areconsolidated in the Company’s financial statements. The creditors of the special purpose entities have received security interests in such assets and suchassets are not intended to be available to the creditors of the Company (or any other affiliate of the Company). Transfers of financial assets are accounted for as sales when control over the assets has been surrendered. Control over transferred assets is deemed to 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. Recently adopted 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”), as clarified by ASU 2015-15, Interest—Imputation of Interest: Presentation and SubsequentMeasurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements (“ASU 2015-15”), containing guidance that requires debt issuance costsrelated to a recognized debt liability to be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, instead ofbeing recorded as a separate asset. ASU 2015-15 allows an entity to defer and present debt issuance costs for line-of-credit arrangements as an asset andsubsequently amortize these deferred costs over the term of the line-of-credit arrangement. The Company has adopted ASU 2015-03, as clarified by ASU2015-15, which did not have a material impact on the Company’s consolidated financial statements other than corresponding reductions to total assets andtotal liabilities on the consolidated statements of assets and liabilities. Prior to adoption, the Company recorded debt issuance costs in other assets as an asseton the consolidated statements of assets and liabilities. Upon adoption, the Company reclassified these costs as unamortized debt issuance costs that reduceborrowings in the liabilities on the consolidated statements of assets and liabilities and retrospectively reclassified the debt issuance costs that werepreviously presented in other assets as an asset as of December 31, 2015, as discussed further in Note 6. 95 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, 2016. Under the terms of the Investment Management Agreement,the Advisor determines the composition of the Company’s investment portfolio, the nature and timing of the changes to the investment portfolio and 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 is calculated at an annual rate of 2.00% of (i) the Company’s gross assets, less(ii) assets consisting of cash and cash equivalents, and is payable monthly in arrears. For purposes of calculating the base management fee, the term “grossassets” includes any assets acquired with the proceeds of leverage. In addition, the Advisor agreed to waive its base management fee relating to the proceedsraised 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 distributionsdeclared on its shares of common stock for the applicable quarter. As of December 31, 2015, the Company had met condition (ii) above as net investmentincome exceeded distributions 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, 2016 and 2015 was $0.3 million and $0.4 million, respectively. After giving effect of the waivers, the base management fee expense was $4.7million, $4.4 million and $4.4 million for the years ended December 31, 2016, 2015 and 2014, 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 hurdle rate of 1.75% (which is 7.00% annualized) of the Company’s netassets at the end of the immediately preceding calendar quarter, subject to a “catch-up” provision measured as of the end of each calendar quarter. 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-IncentiveFee Net Investment Income, if any, that exceeds the hurdle rate but is less than 2.1875% quarterly (which is 8.75% annualized). The effect of this“catch-up” provision is that, if Pre-Incentive Fee Net Investment Income exceeds 2.1875% in any calendar quarter, the Advisor will receive 20.00% ofthe Pre-Incentive Fee Net Investment Income as if the hurdle rate did not apply. 96 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. 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. 97 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 $2.1 million, $3.5 million and $2.0 million forthe years ended December 31, 2016, 2015 and 2014, respectively. The incentive fee on Pre-Incentive Fee Net Investment Income was subject to the IncentiveFee Cap and Deferral Mechanism for the three months ended September 30, 2016 and December 31, 2016, which resulted in $1.7 million of reduced expenseand additional net investment income. As of December 31, 2015, the incentive fee on Pre-Incentive Fee Net Investment Income was not limited by theIncentive Fee Cap and Deferral Mechanism. There was no performance based incentive fee payable for December 31, 2016. The performance based incentivefee payable for December 31, 2015 was $1.0 million. The entire incentive fee payable as of December 31, 2015 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 $0.9 million, $1.1 million and $1.1 million forthe years ended December 31, 2016, 2015 and 2014, respectively. Note 4. Investments The following table shows the Company’s investments as of December 31, 2016 and 2015: December 31, 2016 December 31, 2015 Cost Fair Value Cost Fair Value (In thousands) Money market funds $— $— $285 $285 Restricted investments in money market funds $— $— $1,091 $1,091 Non-affiliate investments Debt $201,216 $186,186 $244,899 $242,167 Warrants 5,140 6,362 5,173 6,645 Other 4,683 600 4,422 300 Equity 588 855 1,000 1,155 Total non-affiliate investments $211,627 $194,003 $255,494 $250,267 98 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, 2016 and 2015: December 31, 2016 December 31, 2015 Cost Fair Value Cost Fair Value (In thousands) Life Science Biotechnology $46,703 $41,578 $36,932 $37,911 Medical Device 14,164 13,736 25,753 22,736 Technology Communications 108 99 20,170 19,916 Consumer-Related 21,055 22,121 18,699 19,421 Data Storage 4,340 100 4,444 319 Internet and Media 7,933 7,933 63 69 Materials 9,966 10,222 9,918 9,920 Networking 3,412 3,409 757 740 Power Management 2,255 2,318 2,490 2,541 Semiconductors 12,076 8,311 18,944 18,628 Software 60,516 55,362 60,792 61,897 Cleantech Alternative Energy 93 — 2,942 2,938 Energy Efficiency 2,086 2,082 3,371 3,370 Waste Recycling 5,997 6,003 5,968 5,970 Healthcare Information and Services Diagnostics 4,817 4,405 8,001 7,336 Other 5,988 5,939 8,453 8,504 Software 10,118 10,385 27,797 28,051 Total non-affiliate investments $211,627 $194,003 $255,494 $250,267 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 by observablemarket data for substantially the full term of the assets or liabilities. 99 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, 2016and 2015, the hypothetical market yields used ranged from 11% to 25%. Significant increases (decreases) in this unobservable input would result in asignificantly lower (higher) fair value measurement. These assets are recorded at fair value on a recurring basis and are categorized as Level 3 within the fairvalue 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. •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. 100 Horizon Technology Finance Corporation and Subsidiaries Notes to Consolidated Financial Statements •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 valuesthese contractual agreements using a multiple probability weighted cash flow model as the contractual future cash flows contain elements of variability.Significant changes in the estimated cash flows and probability weightings would result in a significantly higher or lower fair value measurement. TheCompany has categorized these other investments as Level 3 within the fair value hierarchy described above. These assets are recorded at fair value on arecurring 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, 2016 and 2015. 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. 101 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, 2016: December 31, 2016 Fair Valuation Techniques/ Unobservable Weighted Investment Type Value Methodologies Input Range Average (Dollars in thousands, except per share data)Debt investments $174,686 Discounted Expected Future Hypothetical Market Yield 11% – 25% 13% Cash Flows 11,500 Liquidation Scenario Probability Weighting 25% – 100% 40% Warrant investments 5,677 Black-Scholes Valuation Model Price Per Share $0.00 – $63.98 $4.02 Average Industry Volatility 21% 21% Marketability Discount 20% 20% Estimated Time to Exit 1 to 5 years 3 years 180 Expected Settlement Price Per Share $1.78 $1.78 Other investments 600 Multiple Probability Weighted Discount Rate 25% 25% Cash Flow Model Probability Weighting 25% – 100% 43% Equity investments 268 Last Equity Financing Price Per Share $0. 04 – $1.00 $0.34 Total Level 3 investments $192,911 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 Future Hypothetical Market Yield 11% – 25% 13% Cash Flows 500 Liquidation Scenario Discount Rate 25% 25% Probability Weighting 0% – 100% 30% Warrant investments 5,407 Black-Scholes Valuation Model Price Per Share $0.00 – $615.46 $81.27 Average Industry Volatility 18% 18% Marketability Discount 20% 20% Estimated Time to Exit 1 to 5 years 3 years 386 Expected Acquisition Price Per Share $2.09 $2.09 Settlement Other investments 300 Multiple Probability Weighted Discount Rate 25% 25% Cash Flow Model Probability Weighting 100% 100% Equity investments 101 Last 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 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, 2016, the closing price of the 2019Notes on the New York Stock Exchange was $25.50 per note, or $33.7 million. Therefore, the Company has categorized this borrowing as Level 1 within thefair value hierarchy described above. 102 Horizon Technology Finance Corporation and Subsidiaries Notes to Consolidated Financial Statements 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. 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, 2016 and 2015 andindicate the fair value hierarchy of the valuation techniques utilized by the Company to determine the fair value: December 31, 2016 Total Level 1 Level 2 Level 3 (In thousands) Debt investments $186,186 $— $— $186,186 Warrant investments $6,362 $— $505 $5,857 Other investments $600 $— $— $600 Equity investments $855 $587 $— $268 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 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, 2016: December 31, 2016 DebtInvestments WarrantInvestments EquityInvestments OtherInvestments Total (In thousands) Level 3 assets, beginning of period $242,167 $5,793 $316 $300 $248,576 Purchase of investments 59,858 — — — 59,858 Warrants and equity received and classified as Level 3 — 402 84 — 486 Principal payments received on investments (95,639) — — (121) (95,760)Proceeds from sale of investments — (855) (129) — (984)Net realized (loss) gain on investments (7,597) 340 (367) — (7,624)Unrealized (depreciation) appreciation included in earnings (12,296) 177 364 38 (11,717)Transfer from debt to other investments (383) — — 383 — Other 76 — — — 76 Level 3 assets, end of period $186,186 $5,857 $268 $600 $192,911 The Company’s transfers between levels are recognized at the end of each reporting period. During the year ended December 31, 2016, there were notransfers between levels. The change in unrealized depreciation included in the consolidated statement of operations attributable to Level 3 investments still held at December31, 2016 includes $14.7 million in unrealized depreciation on debt and other investments, $0.3 million in unrealized appreciation on warrants and $0.1million in unrealized appreciation on equity. 103 Horizon Technology Finance Corporation and Subsidiaries Notes to Consolidated Financial Statements The following table shows a reconciliation of the beginning and ending balances for Level 3 assets measured at fair value on a recurring basis for 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 as Level 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) appreciation included 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 each reporting period. During the year ended December 31, 2015, there were notransfers between Level 1 and Level 2. The transfer out of Level 3 relates to warrants held in three portfolio companies, with an aggregate fair value of $0.02million, that were transferred into Level 2 upon the portfolio companies becoming public companies during the period. 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 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 2016 and 2015 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, 2016 and 2015, the recorded balances equaled fair values of all the Company’s financial instruments, except for the Company’s2019 Notes, as previously described. Off-balance-sheet instruments The Company assumes interest rate risk (the risk that general interest rate levels will change) as a result of its normal operations. As a result, the 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. 104 Horizon Technology Finance Corporation and Subsidiaries Notes to Consolidated Financial Statements Note 6. Borrowings The following table shows the Company’s borrowings as of December 31, 2016 and 2015: December 31, 2016 December 31, 2015 TotalCommitment BalanceOutstanding UnusedCommitment TotalCommitment BalanceOutstanding Unused Commitment (In thousands) Asset-Backed Notes $— $— $— $14,546 $14,546 $— Key Facility 95,000 63,000 32,000 70,000 68,000 2,000 2019 Notes 33,000 33,000 — 33,000 33,000 — Total before debt issuance costs 128,000 96,000 32,000 117,546 115,546 2,000 Unamortized debt issuance costs attributable to termborrowings — (403) — — (592) — Total borrowings outstanding, net $128,000 $95,597 $32,000 $117,546 $114,954 $2,000 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, 2016, the asset coverage for borrowed amounts was 245%. On August 12, 2015, the Company amended the Key Facility to (1) add a $20 million commitment to the existing $50 million commitment and (2)extend the term of the Key Facility. On April 27, 2016, the Company added a $25 million commitment to the existing $70 million commitment. The KeyFacility has an accordion feature which allows for an increase in the total loan commitment to $150 million from the current $95 million commitment. TheKey Facility is collateralized by all debt investments and warrants held by Credit II and permits an advance rate of up to 50% of eligible debt investmentsheld by Credit II. The Key Facility contains covenants that, among other things, require the Company to maintain a minimum net worth and to restrict thedebt investments securing the Key Facility to certain criteria for qualified debt investments and includes portfolio company concentration limits as definedin the related loan agreement. The Key Facility has a three-year revolving period followed by a two-year amortization period and matures on August 12,2020. The interest rate is based upon the one-month London Interbank Offered Rate (“LIBOR”), plus a spread of 3.25%, with a LIBOR floor of 0.75%. TheLIBOR rate was 0.77% and 0.43% on December 31, 2016 and 2015, respectively. The average rate for the years ended December 31, 2016 and 2015 was4.00%. As of December 31, 2016, the Company had borrowing capacity of $32.0 million, of which $4.6 million was available, subject to existing terms andadvance rates. As of December 31, 2015, the Company had available borrowing capacity of $2.0 million, subject to existing terms and advance rates. 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, 2016, 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”. 105 Horizon Technology Finance Corporation and Subsidiaries Notes to Consolidated Financial Statements On August 23, 2012, the Company entered into a term loan facility (the “Term Loan Facility”) with Fortress Credit Co LLC. The interest rate on theTerm Loan Facility was based upon the one-month LIBOR plus a spread of 6.00%, with a LIBOR floor of 1.00% and provided for a four-year drawing period.The Term Loan Facility contained customary covenants for a facility of its type. Effective June 17, 2014, the Company terminated the Term Loan Facilityand a related loan and security agreement and other documents. 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 were rated A1(sf) by Moody’s Investors Service, Inc. The Asset-BackedNotes were issued by 2013-1 Trust and were backed by a pool of loans made to certain portfolio companies of the Company and secured by certain assets ofsuch portfolio companies. The Asset-Backed Notes were secured obligations of 2013-1 Trust and non-recourse to the Company. In connection with theissuance and sale of the Asset-Backed Notes, the Company made customary representations, warranties and covenants. The Asset-Backed Notes bore interestat a fixed rate of 3.00% per annum and had a stated maturity of May 15, 2018. As of December 31, 2016 the Asset-Backed Notes were repaid in full. Under the terms of the Asset-Backed Notes, the Company was required to maintain a reserve cash balance, funded through principal collections from theunderlying securitized debt portfolio, which was used to make monthly interest and principal payments on the Asset-Backed Notes. The Company hadsegregated these funds and classified them as restricted investments in money market funds on the consolidated statements of assets and liabilities. Thebalance of restricted investments in money market funds was $1.1 million as of December 31, 2015. The following table shows information about our senior securities as of December 31, 2016, 2015, 2014, 2013 and 2012: Class and Year Total AmountOutstandingExclusive ofTreasurySecurities(1) Asset Coverageper Unit(2) InvoluntaryLiquidationPreferenceper Unit(3) AverageMarketValue perUnit(4) (In thousands, except unit data) Credit facilities 2016 $63,000 $3,733 — N/A 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 2019 Notes 2016 $33,000 $7,127 — $25.42 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 2016 — — — — 2015 $14,546 $18,926 — N/A 2014 $38,753 $5,677 — N/A 2013 $79,343 $3,254 — N/A Total senior securities 2016 $96,000 $2,450 — N/A 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 (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. 106 Horizon Technology Finance Corporation and Subsidiaries Notes to Consolidated Financial Statements 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 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 net assetsresulting from operations primarily due to unrealized appreciation on investments as investment gains and losses are not included in taxable income untilthey are realized. The following table reconciles net increase in net assets resulting from operations to taxable income: Years Ended December 31, 2016 2015 2014 (In thousands) Net (decrease) increase in net assets resulting from operations $(4,913) $11,856 $15,430 Net unrealized depreciation (appreciation) on investments 14,236 490 (8,289)Other book-tax differences (844) (239) 183 Capital loss carry forward 7,776 1,650 3,576 Taxable income before deductions for distributions $16,255 $13,757 $10,900 The tax characters of distributions paid are as follows: Years Ended December 31, 2016 2015 2014 (In thousands) Ordinary income $15,759 $16,465 $13,276 Total $15,759 $16,465 $13,276 The components of undistributed ordinary income earnings on a tax basis were as follows: As of December 31, 2016 2015 2014 (In thousands) Undistributed ordinary income $1,753 $1,256 $3,963 Long term capital loss carry forward (20,511) (12,735) (11,085)Unrealized appreciation 3,830 4,384 2,443 Unrealized depreciation (23,293) (9,611) (7,180)Other temporary differences 2,169 (3,277) (4,187)Total $(36,052) $(19,983) $(16,046) 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 incur a 4% excise tax on such income, as required. For the years ended December 31, 2016 and 2015, the Companyelected to carry forward taxable income in excess of current year distributions of $1.8 million and $1.3 million, respectively. At December 31, 2016, aprovision for excise tax of $0.1 million was recorded. At December 31, 2015, no provision for excise tax was recorded. 107 Horizon Technology Finance Corporation and Subsidiaries Notes to Consolidated Financial Statements 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, 2016, 2015 and 2014, 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, 2016 and 2015 was $211.6 million and $255.5 million, respectively. Thegross unrealized appreciation on investments at December 31, 2016 and 2015 was $3.8 million and $4.4 million, respectively. The gross unrealizeddepreciation on investments at December 31, 2016 and 2015 was $23.3 million and $9.6 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. The balance of unfunded commitments to extend credit was $20.8 million and $10.0 million as of December 31, 2016 and 2015, 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, 2016: December 31, 2016 PrincipalBalance Fair Value ofUnfundedCommitmentLiability (In thousands) ControlScan, Inc. $3,000 $35 ShopKeep Inc. 4,000 79 Strongbridge U.S. Inc. 7,500 61 vTv Therapeutics Inc. 6,250 68 Total $20,750 $243 The table above also provides the fair value of the Company’s unfunded commitment liability as of December 31, 2016 which totaled $0.2 million. Thefair value at inception of the delay draw credit agreements is equal to the fees and/or warrants received to enter into these agreements, taking into account 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. 108 Horizon Technology Finance Corporation and Subsidiaries Notes to Consolidated Financial Statements 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, at cost, represented 24% and 21% of total debt investments outstanding as of December 31, 2016 and 2015,respectively. No single debt investment represented more than 10% of the total debt investments as of December 31, 2016 or 2015. Investment income,consisting of interest and fees, can fluctuate significantly upon repayment of large debt investments. Interest income from the five largest debt investmentsaccounted for 17%, 14% and 20% of total interest and fee income on investments for the years ended December 31, 2016, 2015 and 2014, respectively. 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, 2016 and 2015: DateDeclared Record Date Payment Date AmountPer Share CashDistribution DRIP SharesIssued DRIP ShareValue (In thousands, except share and per share data) Year Ended December 31, 2016 10/28/16 2/22/17 3/15/17 $0.10 $— — $— 10/28/16 1/19/17 2/15/17 0.10 1,151 1,542 18 10/28/16 12/20/16 1/13/17 0.10 1,137 1,550 17 7/29/16 11/18/16 12/15/16 0.115 1,308 1,712 19 7/29/16 10/20/16 11/15/16 0.115 1,308 1,896 21 7/29/16 9/20/16 10/17/16 0.115 1,305 1,716 22 4/28/16 8/19/16 9/15/16 0.115 1,307 1,535 21 4/28/16 7/20/16 8/15/16 0.115 1,302 1,842 25 4/28/16 6/20/16 7/15/16 0.115 1,305 1,734 23 3/3/16 5/19/16 6/15/16 0.115 1,305 1,898 23 3/3/16 4/20/16 5/16/16 0.115 1,283 3,821 44 3/3/16 3/18/16 4/15/16 0.115 1,306 1,840 21 $1.335 $14,017 21,086 $254 Year Ended December 31, 2015 10/30/15 2/22/16 3/15/16 $0.115 $1,309 1,606 $18 10/30/15 1/21/16 2/17/16 0.115 1,308 1,931 18 10/30/15 12/18/15 1/15/16 0.115 1,311 1,841 18 7/29/15 11/19/15 12/15/15 0.115 1,317 1,687 20 7/29/15 10/20/15 11/16/15 0.115 1,317 1,967 22 7/29/15 9/18/15 10/15/15 0.115 1,315 2,418 24 5/1/15 8/19/15 9/15/15 0.115 1,312 2,577 26 5/1/15 7/20/15 8/14/15 0.115 1,312 2,420 27 5/1/15 6/18/15 7/15/15 0.115 1,312 2,045 26 3/6/15 5/20/15 6/15/15 0.115 1,311 2,036 28 3/6/15 4/20/15 5/15/15 0.115 1,311 1,950 28 3/6/15 3/20/15 4/15/15 0.115 1,095 877 12 $1.380 $15,530 23,355 $267 On March 3, 2017, the Board declared monthly distributions per share, payable as set forth in the following table: Ex-Dividend Date Record Date Payment Date Distributions Declared May 17, 2017 May 19, 2017 June 15, 2017 $0.10 April 19, 2017 April 21, 2017 May 16, 2017 $0.10 March 16, 2017 March 20, 2017 April 18, 2017 $0.10 After paying distributions of $1.26 per share deemed paid for tax purposes in 2016, declaring on October 28, 2016 a distribution of $0.10 per sharepayable January 13, 2017, and taxable earnings of $1.41 per share in 2016, the Company’s undistributed spillover income as of December 31, 2016 was$0.15 per share. Spillover income includes any ordinary income and net capital gains from the preceding tax years that were not distributed during such taxyears. 109 Horizon Technology Finance Corporation and Subsidiaries Notes to Consolidated Financial Statements Note 11. Subsequent events On February 3, 2017, New Haven Pharmaceuticals, Inc., a Delaware corporation (“NHP”), made an assignment for the benefit of its creditors whereby (a)NHP assigned all of its assets and liabilities, including the Company’s debt investments in NHP (the “NHP Loans”), to New Haven (assignment for the benefitof creditors), LLC, a Delaware limited liability company (“NHABC”), in trust under Delaware law for the benefit of creditors of NHP, and (b) NHABC assumedall of the assets and liabilities of NHP. NHPABC then sold certain assets of NHABC (the “NHP Purchased Assets”) to Espero Pharmaceuticals, Inc., a Delawarecorporation (“Espero”). In consideration for the sale of the NHP Purchased Assets, Espero entered into a Royalty Agreement with NHABC, whereby Esperoagreed to pay NHABC certain milestone payments and royalty payments, if any, with respect to the commercialization and sales of the NHP Purchased Assets.NHABC, in consideration for the Company’s consent to the sale of the NHP Purchased Assets to Espero, assigned the Royalty Agreement to the Company. On November 15, 2016, Xtera Communications, Inc., a Delaware corporation (“Xtera”), filed a voluntary petition for bankruptcy in the United StatesBankruptcy Court for the District of Delaware (the “Bankruptcy Court”) under Chapter 11 of the U.S. Bankruptcy Code. On January 30, 2017, the BankruptcyCourt entered an order authorizing, among other things, the sale of all or substantially all of the assets of Xtera (the “Sale”) and on or about February 13,2017, the Sale was closed. The Company does not expect to receive any proceeds from the Sale due to the amount of such proceeds and the amount of claimsof other creditors of Xtera which have a priority over the Company in respect of such proceeds. Accordingly, the Company has fair valued its assets in Xteraat zero as of December 31, 2016. On February 22, 2017, Argos Therapeutics Inc. (“Argos”) announced that the Independent Data Monitoring Committee (“IDMC”) for Argos’ pivotalPhase 3 ADAPT clinical trial recommended that the study be discontinued for futility based on IDMC’s planned interim data analysis. On March 6, 2017,Argos paid the principal balance and accrued interest outstanding owing to the Company and issued to the Company five year warrants to purchase anaggregate of 40,000 shares of Argos’ Common Stock at an exercise price of $1.30 per share. 110 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, 2016 2015 2014 2013 2012 (In thousands, except share and per share data) Per share data: Net asset value at beginning of period $13.85 $14.36 $14.14 $15.15 $17.01 Net investment income 1.48 1.25 1.11 1.38 1.41 Realized (loss) gain on investments (0.67) (0.15) (0.37) (0.78) 0.01 Unrealized (depreciation) appreciation on investments (1.24) (0.04) 0.86 (0.23) (0.95)Net (decrease) increase in net assets resulting from operations (0.43) 1.06 1.60 0.37 0.47 Net dilution from issuance of common stock — (0.18) — — (0.28)Distributions declared(1) (1.34) (1.38) (1.38) (1.38) (2.15)From net investment income (1.34) (1.38) (1.38) (1.38) (1.72)From net realized gain on investments — — — — (0.43)Return of capital — — — — — Net accretion from repurchase of common stock 0.01 0.02 — — — Other (2) — (0.03) — — 0.10 Net asset value at end of period $12.09 $13.85 $14.36 $14.14 $15.15 Per share market value, beginning of period $11.73 $13.99 $14.21 $14.92 $16.32 Per share market value, end of period 10.53 11.73 13.99 14.21 14.92 Total return based on a market value (3) 1.5% (6.3)% 8.2% 4.5% 2.5%Shares outstanding at end of period 11,510,424 11,535,212 9,628,124 9,608,949 9,567,225 Ratios, net of waivers, to average net assets: Expenses without incentive fees 9.2% 8.6% 13.3% 11.8% 8.4%Incentive fees 1.4% 2.2% 1.5% 2.3% 2.1%Net expenses 10.6% 10.8% 14.8% 14.1% 10.5%Net investment income with incentive fees 11.4% 8.9% 7.8% 9.2% 8.7%Ratios, without waivers, to average net assets: Expenses without incentive fees(4) 9.2% 8.9% 13.5% 11.9% 8.4%Incentive fees(4) 1.4% 2.2% 1.5% 2.3% 2.1%Net expenses(4) 10.6% 11.1% 15.0% 14.2% 10.5%Net investment income with incentive fees(4) 11.4% 8.7% 7.5% 9.1% 8.7%Net assets at the end of the period $139,192 $159,751 $138,248 $135,835 $144,972 Average net asset value $150,612 $157,612 $137,848 $142,327 $137,741 Average debt per share $8.91 $7.87 $10.68 $12.06 $7.42 Portfolio turnover ratio 27.1% 56.1% 46.5% 37.9% 74.0% (1)Distributions are determined based on taxable income calculated in accordance with income tax regulations, which may differ from amounts determinedunder GAAP due to (i) changes in unrealized appreciation and depreciation, (ii) temporary and permanent differences in income and expenserecognition, and (iii) the amount of spillover income carried over from a given tax year for distribution in the following tax year. The final determinationof taxable income for each tax year, as well as the tax attributes for distributions in such tax year, will be made after the close of the tax year.(2)Includes the impact of the different share amounts as a result of calculating per share data based on the weighted average basic shares outstanding duringthe 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. 111 Horizon Technology Finance Corporation and Subsidiaries Notes to Consolidated Financial Statements Note 13. Selected quarterly financial data (unaudited) December 31,2016 September 30,2016 June 30,2016 March 31,2016 (In thousands, except per share data) Total investment income $6,987 $7,608 $9,092 $9,297 Net investment income $3,815 $4,375 $4,512 $4,397 Net realized and unrealized loss $(4,404) $(10,018) $(4,590) $(3,000)Net (decrease) increase in net asset resulting from operations $(589) $(5,643) $(78) $1,397 Net investment income per share (1) $0.33 $0.38 $0.39 $0.38 Net (decrease) increase in net assets per share (1) $(0.05) $(0.49) $(0.01) $0.12 Net asset value per share at period end (2) $12.09 $12.44 $13.27 $13.62 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 (1)Based on weighted average shares outstanding for the respective period. (2)Based on shares outstanding at the end of the respective period. 112 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, 2016, 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 113 PART III We will file a definitive Proxy Statement for our 2017 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 2017 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 2017 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 2017 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 2017 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 Accounting Fees and Services The information required by Item 14 is hereby incorporated by reference from our definitive Proxy Statement relating to our 2017 Annual Meeting ofStockholders, to be filed with the Securities and Exchange Commission not later than 120 days following the end of our fiscal year. 114 PART IV Item 15. Exhibits, 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 ExhibitNo. Description 3.1 Amended and Restated Certificate of Incorporation (Incorporated by reference to exhibit (a) of the Company’s Pre-effective Amendment No. 2to 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 the RegistrationStatement 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 the RegistrationStatement 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 (Incorporated byreference 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 March 23,2012) 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) 10.1 Amended and Restated Investment Management Agreement (Incorporated by reference to Exhibit 10.1 of the Company’s Current Report onForm 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 Loan and Security Agreement, dated as of November 4, 2013, by and among Horizon Credit II LLC, as the borrower,the Lenders that are signatories thereto, as the lenders, and Key Equipment Finance Inc,. as the arranger and the agent (Incorporated byreference to Exhibit 10.14 of the Company’s Annual Report on Form 10-K, filed on March 11, 2014) 10.7 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 by referenceto Exhibit (k)(13) of Pre-effective Amendment No. 3 to the Company’s Registration Statement on Form N-2, filed on August 19, 2015) 115 10.8 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) 10.9 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 Annual Reporton Form 10-K, filed on March 11, 2014) 10.10 Joinder Agreement, dated April 27, 2016, by and among MUFG Union Bank, N.A., as lender, KeyBank National Association as agent,Horizon Credit II, as borrower, and the Company, as servicer (Incorporated by reference to Exhibit (k)(11) to the Post-Effective AmendmentNo. 2 to the Company’s Registration Statement on Form N-2, File No. 333-201886, filed on June 10, 2016) 14.1* Code of Ethics of the Company 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-Oxley Actof 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 March 16,2011) *Filed herewith 116 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 onForm 10-K to be signed on its behalf by the undersigned, thereunto duly authorized. Horizon Technology Finance Corporation Date: March 7, 2017 By:/s/ Robert D. Pomeroy, Jr. Name:Robert D. Pomeroy, Jr. Title:Chief Executive Officer and Chairman of the Board ofDirectors KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Robert D. Pomeroy, Jr., Daniel R.Trolio 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 personson behalf 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 Robert D. Pomeroy, Jr. and Chief Executive Officer (Principal Executive Officer) March 7, 2017 /s/ Daniel R. Trolio Chief Financial Officer and Daniel R. Trolio Treasurer (Principal Financial and Accounting Officer) March 7, 2017 /s/ Gerald A. Michaud Gerald A. Michaud President and Director March 7, 2017 /s/ James J. Bottiglieri James J. Bottiglieri Director March 7, 2017 /s/ Edmund V. Mahoney Edmund V. Mahoney Director March 7, 2017 /s/ Elaine A. Sarsynski Elaine A. Sarsynski Director March 7, 2017 /s/ Joseph J. Savage Joseph J. Savage Director March 7, 2017 117 Exhibit 14.1 CODE OF ETHICS FORHORIZON TECHNOLOGY FINANCE CORPORATIONHORIZON TECHNOLOGY FINANCE MANAGEMENT LLC Section I.Statement of General Fiduciary Principles This Code of Ethics (the "Code") has been adopted by each of Horizon Technology Finance Corporation (the "Corporation"), and HorizonTechnology Finance Management LLC, the Corporation's investment adviser (the "Advisor") in compliance with Rule 17j-1 under the Investment CompanyAct of 1940, as amended (the "Act"). The purpose of the Code is to establish standards and procedures for the detection and prevention of activities by whichpersons having knowledge of the investments and investment intentions of the Corporation may abuse their fiduciary duty to the Corporation, and otherwiseto deal with the types of conflict of interest situations to which Rule 17j-1 is addressed. The Code is based on the principle that the directors and officers of the Corporation, and the managers, partners, officers and employees of theAdvisor, who provide services to the Corporation, owe a fiduciary duty to the Corporation to conduct their personal securities transactions in a manner thatdoes not interfere with the Corporation's transactions or otherwise take unfair advantage of their relationship with the Corporation. All directors, managers,partners, officers and employees of the Corporation or the Advisor (collectively, the "Covered Personnel") are expected to adhere to this general principle aswell as to comply with all of the specific provisions of this Code that are applicable to them. Any Covered Personnel who is affiliated with another entity thatis a registered investment adviser is, in addition, expected to comply with the provisions of the code of ethics that has been adopted by such other investmentadviser. The Advisor has adopted a separate code of ethics pursuant to the Investment Advisers Act of 1940, and the rules thereunder (the "Advisor's Code ofEthics"), which code of ethics has been approved by the Board of Directors of the Corporation, including a majority of the independent directors. TheAdvisor will provide a written report, at least annually, to the Corporation's board of directors describing any issues arising under the Advisor's Code ofEthics or procedures since the last report to the board, including, but not limited to, information about material violations of the Advisor's Code of Ethics orprocedures and sanctions imposed in response to material violations and certifying that the Advisor has adopted procedures reasonably necessary to preventviolations of the Advisor's Code of Ethics. Technical compliance with the Code will not automatically insulate any Covered Personnel from scrutiny of transactions that show a pattern ofcompromise or abuse of the individual's fiduciary duty to the Corporation. Accordingly, all Covered Personnel must seek to avoid any actual or potentialconflicts between their personal interests and the interests of the Corporation and its shareholders. In sum, all Covered Personnel shall place the interests ofthe Corporation before their own personal interests. All Covered Personnel must read and retain this Code of Ethics. Section II.Definitions (A) "Access Person" means any director, officer, general partner or Advisory Person (as defined below) of the Corporation or the Advisor. (B) An "Advisory Person" of the Corporation or the Advisor means: (i) any director, officer, general partner or employee of the Corporation orthe Advisor, or any company in a Control (as defined below) relationship to the Corporation or the Advisor, who in connection with his or her regularfunctions or duties makes, participates in, or obtains information regarding the purchase or sale of any Covered Security (as defined below) by theCorporation, or whose functions relate to the making of any recommendation with respect to such purchases or sales; and (ii) any natural person in a Controlrelationship to the Corporation or the Advisor, who obtains information concerning recommendations made to the Corporation with regard to the purchase orsale of any Covered Security by the Corporation. (C) "Beneficial Ownership" is interpreted in the same manner as it would be under Rule 16a- 1 (a)(2) under the Securities Exchange Act of 1934(the "1934 Act") in determining whether a person is a beneficial owner of a security for purposes of Section 16 of the 1934 Act and the rules and regulationsthereunder. (D) "Chief Compliance Officer" means the Chief Compliance Officer of the Corporation (who also may serve as the compliance officer of theAdvisor and/or one or more affiliates of the Advisor). (E) "Control" shall have the same meaning as that set forth in Section 2(a)(9) of the Act. (F) "Covered Security" means a security as defined in Section 2(a)(36) of the Act, which includes: any note, stock, treasury stock, securityfuture, bond, debenture, evidence of indebtedness, certificate of interest or participation in any profit-sharing agreement, collateral trust certificate, pre-organization certificate or subscription, transferable share, investment contract, voting-trust certificate, certificate of deposit for a security, fractionalundivided interest in oil, gas, or other mineral rights, any put, call, straddle, option, or privilege on any security (including a certificate of deposit) or on anygroup or index of securities (including any interest therein or based on the value thereof), or any put, call, straddle, option, or privilege entered into on anational securities exchange relating to foreign currency, or, in general, any interest or instrument commonly known as a "security," or any certificate ofinterest or participation in, temporary or interim certificate for, receipt for, guarantee of, or warrant or right to subscribe to or purchase, any of the foregoing.Except that "Covered Security" does not include: (i) direct obligations of the Government of the United States; (ii) bankers' acceptances, bank certificates ofdeposit, commercial paper and high quality short-term debt instruments, including repurchase agreements; and (iii) shares issued by open-end investmentcompanies registered under the Act. References to a Covered Security in this Code (e.g., a prohibition or requirement applicable to the purchase or sale of aCovered Security) shall be deemed to refer to and to include any warrant for, option in, or security immediately convertible into that Covered Security, andshall also include any instrument that has an investment return or value that is based, in whole or in part, on that Covered Security (collectively,"Derivatives"). 2 Therefore, except as otherwise specifically provided by this Code: (i) any prohibition or requirement of this Code applicable to the purchase or sale of aCovered Security shall also be applicable to the purchase or sale of a Derivative relating to that Covered Security; and (ii) any prohibition or requirement ofthis Code applicable to the purchase or sale of a Derivative shall also be applicable to the purchase or sale of a Covered Security relating to that Derivative. (G) "Independent Director" means a director of the Corporation who is not an "interested person" of the Corporation within the meaning ofSection 2(a)(l9) of the Act. (H) "Initial Public Offering" means an offering of securities registered under the Securities Act of 1933 (the "1933 Act"), the issuer of which,immediately before the registration, was not subject to the reporting requirements of Sections 13 or 15(d) of the 1934 Act. (I) "Investment Personnel" of the Corporation or the Advisor means: (i) any employee of the Corporation or the Advisor (or of any company ina Control relationship to the Corporation or the Advisor) who, in connection with his or her regular functions or duties, makes or participates in makingrecommendations regarding the purchase or sale of securities by the Corporation; and (ii) any natural person who controls the Corporation or the Advisor andwho obtains information concerning recommendations made to the Corporation regarding the purchase or sale of securities by the Corporation. (J) "Limited Offering" means an offering that is exempt from registration under the 1933 Act pursuant to Section 4(2) or Section 4(6) thereof orpursuant to Rule 504, Rule 505, or Rule 506 thereunder. (K) "Security Held or to be Acquired" by the Corporation means: (i) any Covered Security which, within the most recent 15 days: (A) is or hasbeen held by the Corporation; or (B) is being or has been considered by the Corporation or the Advisor for purchase by the Corporation; and (ii) any optionto purchase or sell, and any security convertible into or exchangeable for, a Covered Security described in Section II (K)(i). (L) "17j-1 Organization" means the Corporation or the Advisor, as the context requires. Section III.Objective and General Prohibitions Covered Personnel may not engage in any investment transaction under circumstances in which the Covered Personnel benefits from or interfereswith the purchase or sale of investments by the Corporation. In addition, Covered Personnel may not use information concerning the investments orinvestment intentions of the Corporation, or their ability to influence such investment intentions, for personal gain or in a manner detrimental to the interestsof the Corporation. Covered Personnel may not engage in conduct that is deceitful, fraudulent or manipulative, or mat involves false or misleading statements, inconnection with the purchase or sale of investments by the Corporation. In this regard, Covered Personnel should recognize that Rule 17j-1 makes it unlawfulfor any affiliated person of the Corporation, or any affiliated person of an investment adviser for the Corporation, in connection with the purchase or sale,directly or indirectly, by the person of a Security Held or to be Acquired by the Corporation to: 3 (i) employ any device, scheme or artifice to defraud the Corporation; (ii) make any untrue statement of a material fact to the Corporation or omit to state to the Corporation a material fact necessary in orderto make the statements made, in light of the circumstances under which they are made, not misleading; (iii) engage in any act, practice or course of business that operates or would operate as a fraud or deceit upon the Corporation; or (iv) engage in any manipulative practice with respect to the Corporation. Covered Personnel should also recognize that a violation of this Code or of Rule 17j-1 may result in the imposition of: (1) sanctions asprovided by Section VIII below; or (2) administrative, civil and, in certain cases, criminal fines, sanctions or penalties. Section IV.Prohibited Transactions (A) Other than securities purchased or acquired by a fund affiliated with the Corporation and pursuant to an exemptive order under Section57(i) of the Act permitting certain types of co-investments, an Access Person may not purchase or otherwise acquire direct or indirect Beneficial Ownershipof any Covered Security, and may not sell or otherwise dispose of any Covered Security in which he or she has direct or indirect Beneficial Ownership, if heor she knows or should know at the time of entering into the transaction that: (1) the Corporation has purchased or sold the Covered Security within the last15 calendar days, or is purchasing or selling or intends to purchase or sell the Covered Security in the next 15 calendar days; or (2) the Advisor has withinthe last 15 calendar days considered purchasing or selling the Covered Security for the Corporation or within the next 15 calendar days intend to considerpurchasing or selling the Covered Security for the Corporation. (B) Investment Personnel of the Corporation or the Advisor must obtain approval from the Corporation or the Advisor, as the case may be,before directly or indirectly acquiring Beneficial Ownership in any securities in an Initial Public Offering or in a Limited Offering, except when suchsecurities are acquired by a fund affiliated with the Corporation and pursuant to an exemptive order under Section 57(i) of the Act permitting certain typesof co-investments. Such approval must be obtained from the Chief Compliance Officer, unless he is the person seeking such approval, in which case it mustbe obtained from the President of the 17j-1 Organization. (C) No Access Person shall recommend any transaction in any Covered Securities by the Corporation without having disclosed to the ChiefCompliance Officer his or her interest, if any, in such Covered Securities or the issuer thereof, including: the Access Person's Beneficial Ownership of anyCovered Securities of such issuer, except when such securities transactions are to be made by a fund affiliated with the Corporation and pursuant to anexemptive order under Section 57(i) of the Act permitting certain types of co-investments; any contemplated transaction by the Access Person in suchCovered Securities; any position the Access Person has with such issuer; and any present or proposed business relationship between such issuer and theAccess Person (or a party which the Access Person has a significant interest). 4 Section V.Reports by Access Persons (A)Personal Securities Holdings Reports. All Access Persons shall within 10 days of the date on which they become Access Persons, and thereafter, within 30 days after the end ofeach calendar year, disclose the title, number of shares and principal amount of all Covered Securities in which they have a Beneficial Ownership as of thedate the person became an Access Person, in the case of such person's initial report, and as of the last day of the year, as to annual reports. A form of suchreport, which is hereinafter called a "Personal Securities Holdings Report," is attached as Schedule A. Each Personal Securities Holdings Report must alsodisclose the name of any broker, dealer or bank with whom the Access Person maintained an account in which any securities were held for the direct orindirect benefit of the Access Person as of the date the person became an Access Person or as of the last day of the year, as the case may be. Each PersonalSecurities Holdings Report shall state the date it is being submitted. (B)Quarterly Securities Transaction Reports. Within 10 days after the end of each calendar quarter, each Access Person shall make a written report to the Chief Compliance Officer of alltransactions occurring in the quarter in a Covered Security in which he or she had any Beneficial Ownership. Such report, which is hereinafter called a"Quarterly Securities Transaction Report," shall be in the form of Schedule B attached hereto or such other form approved by the Chief Compliance Officerand must contain the following information with respect to each reportable transaction: (1) Date and nature of the transaction (purchase, sale or any other type of acquisition or disposition); (2) Title, interest rate and maturity date (if applicable), number of shares and principal amount of each Covered Securityinvolved and the price of the Covered Security at which the transaction was effected; (3) Name of the broker, dealer or bank with or through whom the transaction was effected; and (4) The date the report is submitted by the Access Person. (C) Independent Directors. Notwithstanding the reporting requirements set forth in this Section V, an Independent Director who would be required to make a reportunder this Section V solely by reason of being a director of the Corporation is not required to file a Personal Securities Holding Report upon becoming adirector of the Corporation or an annual Personal Securities Holding Report. Such an Independent Director also need not file a Quarterly SecuritiesTransaction Report unless such director knew or, in the ordinary course of fulfilling his or her official duties as a director of the Corporation, should haveknown that during the 15-day period immediately preceding or after the date of the transaction in a Covered Security by the director such Covered Security isor was purchased or sold by the Corporation or the Corporation or the Advisor considered purchasing or selling such Covered Security. 5 (D)Access Persons of the Advisor. An Access Person of the Advisor need not make a Quarterly Securities Transaction Report if all of the information in the report wouldduplicate information required to be recorded pursuant to Rules 204-2(a)(12) or (13) under the Investment Advisers Act of 1940, as amended. (E)Brokerage Accounts and Statements. Access Persons, except Independent Directors, shall: (1) Within 10 days after the end of each calendar quarter, identify the name of the broker, dealer or bank with whom the AccessPerson established an account in which any securities were held during the quarter for the direct or indirect benefit of the Access Person and identify anynew account(s) and the date the account(s) were established. This information shall be included on the appropriate Quarterly Securities TransactionReport; (2) Instruct the brokers, dealers or banks with whom they maintain such an account to provide duplicate account statements tothe Chief Compliance Officer; and (3) On an annual basis, certify that they have complied with the requirements of (1) and (2) above. (F)Form of Reports. A Quarterly Securities Transaction Report may consist of broker statements or other statements that provide a list of all personal CoveredSecurities holdings and transactions in the time period covered by the report and contain the information required in a Quarterly Securities TransactionReport. (G)Responsibility to Report. Access Persons will be informed of their obligations to report; however, it is the responsibility of each Access Person to take the initiative tocomply with the requirements of this Section V. Any effort by the Corporation, or by the Advisor and its affiliates, to facilitate the reporting process does notchange or alter that responsibility. A person need not make a report hereunder with respect to transactions effected for, and Covered Securities held in, anyaccount over which the person has no direct or indirect influence or control. (H)Where to File Reports. All Quarterly Securities Transaction Reports and Personal Securities Holdings Reports must be filed with the Chief Compliance Officer. 6 (I)Disclaimers. Any report required by this Section V may contain a statement that the report will not be construed as an admission that the person makingthe report has any direct or indirect Beneficial Ownership in the Covered Security to which the report relates. Section VI.Additional Prohibitions (A)Confidentiality of the Corporation's Transactions. Until disclosed in a public report to shareholders or to the Securities and Exchange Commission in the normal course, all informationconcerning the securities "being considered for purchase or sale" by the Corporation shall be kept confidential by all Covered Personnel and disclosed bythem only on a "need to know" basis. It shall be the responsibility of the Chief Compliance Officer to report any inadequacy found in this regard to thedirectors of the Corporation. (B)Outside Business Activities and Directorships. Access Persons may not engage in any outside business activities that may give rise to conflicts of interest or jeopardize the integrity orreputation of the Corporation. Similarly, no such outside business activities may be inconsistent with the interests of the Corporation. All directorships ofpublic or private companies held by Access Persons shall be reported to the Chief Compliance Officer. (C)Gratuities. Corporation Personnel shall not, directly or indirectly, take, accept or receive gifts or other consideration in merchandise, services orotherwise of more than nominal value from any person, firm, corporation, association or other entity other than such person's employer that does business, orproposes to do business, with the Corporation. Section VII.Disclosure Obligations The Company is required by law to disclose publicly any information regarding significant developments that may impact the business, finances oroperations of the Company. The disclosure committee assists the Company’s senior management team and the Advisor in fulfilling this obligation bydetermining which information about the Company needs to be disclosed and preparing the necessary public disclosures. The disclosure committee can onlyevaluate information which its members know personally or which is reported to it, and the success of the disclosure process depends on all employees of theAdvisor contributing to the efficient communication of significant information within the Advisor and the Company. All of the Advisor’s employees have a responsibility to ensure that significant information relating to the Company and the Advisor, theirsubsidiaries, their clients and competitors is promptly forwarded to their immediate supervisor. Each employee is responsible for the accuracy andcompleteness of the information they report. Any concerns regarding the accuracy or content of the information being reported should be raised with theemployee’s immediate supervisor. If an employee is uncertain about the significance of any information, the employee is encouraged to err on the side ofreporting such information. If any employee believes that he or she may be bound by confidentiality, the employee should discuss his or her concerns withthe Advisor’s internal counsel prior to reporting it. 7 Section VIII.Annual Certification (A)Access Persons. Access Persons who are directors, managers, partners, officers or employees of the Corporation or the Advisor shall be required to certifyannually that they have read this Code and that they understand it and recognize that they are subject to it. Further, such Access Persons shall be required tocertify annually that they have complied with the requirements of this Code. (B)Board Review. No less frequently than annually, the Corporation and the Advisor must furnish to the Corporation's board of directors, and the board mustconsider, a written report that: (A) describes any issues arising under this Code of Ethics or procedures since the last report to the board, including, but notlimited to, information about material violations of the Code or procedures and sanctions imposed in response to material violations; and (B) certifies that theCorporation or the Advisor, as applicable, has adopted procedures reasonably necessary to prevent Access Persons from violating the Code. Section IX.Sanctions Any violation of this Code shall be subject to the imposition of such sanctions by the 17j-1 Organization as may be deemed appropriateunder the circumstances to achieve the purposes of Rule 17j-1 and this Code. The sanctions to be imposed shall be determined by the board of directors,including a majority of the Independent Directors, provided, however, that with respect to violations by persons who are directors, managers, partners, officersor employees of the Advisor (or of a company that controls the Advisor), the sanctions to be imposed shall be determined by the Advisor (or the controllingperson thereof). Sanctions may include, but are not limited to, suspension or termination of employment, a letter of censure and/or restitution of an amountequal to the difference between the price paid or received by the Corporation and the more advantageous price paid or received by the offending person. Section X.Administration and Construction (A)The administration of this Code shall be the responsibility of the Chief Compliance Officer. (B)The duties of the Chief Compliance Officer are as follows: (1) Continuous maintenance of a current list of the names of all Access Persons with an appropriate description of their titleor employment, including a notation of any directorships held by Access Persons who are officers or employees of the Advisor or of any company thatcontrols the Advisor, and informing all Access Persons of their reporting obligations hereunder; 8 (2) On an annual basis, providing all Covered Personnel a copy of this Code and informing such persons of their duties andobligations hereunder including any supplemental training that may be required from time to time; (3) Maintaining or supervising the maintenance of all records and reports required by this Code; (4) Reviewing all Personal Securities Holdings Reports and Quarterly Securities Transaction Reports; (5) Preparing listings of all transactions effected by Access Persons who are subject to the requirement to file QuarterlySecurities Transaction Reports and reviewing such transactions against a listing of all transactions effected by the Corporation; (6) Issuance either personally or with the assistance of counsel as may be appropriate, of any interpretation of this Code thatmay appear consistent with the objectives of Rule 17j-1 and this Code; (7) Conduct such inspections or investigations as shall reasonably be required to detect and report, with recommendations,any apparent violations of this Code to the board of directors of the Corporation; (8) Submission of a report to the board of directors of the Corporation, no less frequently than annually, a written report thatdescribes any issues arising under the Code since the last such report, including but not limited to the information described in Section VII (B); and (C) The Chief Compliance Officer shall maintain and cause to be maintained in an easily accessible place at the principal place of business ofthe 17j-1 Organization, the following records and must make these records available to the Securities and Exchange Commission at any time and from time totime for reasonable periodic, special or other examinations: (1) A copy of all codes of ethics adopted by the Corporation or the Advisor and its affiliates, as the case may be, pursuant toRule 17j-1 that have been in effect at any time during the past five (5) years; (2) A record of each violation of such codes of ethics and of any action taken as a result of such violation for at least five (5)years after the end of the fiscal year in which the violation occurs; (3) A copy of each report made by an Access Person for at least two (2) years after the end of the fiscal year in which thereport is made, and for an additional three (3) years in a place that need not be easily accessible; 9 (4) A copy of each report made by the Chief Compliance Officer to the board of directors for two (2) years from the end of thefiscal year of the Corporation in which such report is made or issued and for an additional three (3) years in a place that need not be easily accessible; (5) A list of all persons who are, or within the past five (5) years have been, required to make reports pursuant to the Rule andthis Code of Ethics, or who are or were responsible for reviewing such reports; (6) A copy of each report required by Section VII (B) for at least two(2) years after the end of the fiscal year in which it is made, and for an additional three (3) years in a place that need not be easily accessible; and (7) A record of any decision, and the reasons supporting the decision, to approve the acquisition by Investment Personnel ofsecurities in an Initial Public Offering or Limited Offering for at least five (5) years after the end of the fiscal year in which the approval is granted. (D) This Code may not be amended or modified except in a written form that is specifically approved by majority vote of the IndependentDirectors. This Code of Ethics initially was adopted and approved by the Board of Directors of the Corporation, including a majority of the IndependentDirectors, at a meeting on July , 2010 and was amended by the Board of Directors of the Corporation, including a majority of the Independent Directors, at ameeting on March 3, 2017. 10 Exhibit 21 LIST OF SUBSIDIARIES OFHORIZON TECHNOLOGY FINANCE CORPORATIONAS OF 12/31/16 Compass Horizon Funding Company LLC — Delaware Limited Liability CompanyHorizon Credit II LLC — Delaware Limited Liability CompanyHPO 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(s) 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 effectiveness ofthe 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(s) 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 7, 2017 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, Daniel R. Trolio, 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(s) 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 effectiveness ofthe 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(s) 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 7, 2017 By: /s/ Daniel R. Trolio 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, 2016 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 7, 2017 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, 2016 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Daniel R. Trolio, as ChiefFinancial 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/ Daniel R. Trolio Name: Daniel R. Trolio Title: Chief Financial Officer Date: March 7, 2017

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