UNITED STATES SECURITIES AND EXCHANGE
COMMISSION

Washington, D.C. 20549



Form 10-K



|(Mark One)
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|x         
|          
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|OR        
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COMMISSION FILE NUMBER: 814-00802



HORIZON TECHNOLOGY FINANCE CORPORATION

(Exact name of registrant as specified
in its charter)





|DELAWARE                                                               | 27-2114934                                  
|---------------------------------------------------------------------- | --------------------------------------------
|(State or other jurisdiction of
        incorporation or organization) | (I.R.S. Employer
        Identification No.)
|                                                                       |                                             
|312 Farmington Avenue,                                                 |                                             
|Farmington, CT                                                         | 06032                                       
|(Address of principal executive offices)                               | (Zip Code)                                  



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



Securities registered pursuant to Section 12(b)
of the Act:



|Title of each class                      |  | Ticker symbol(s) |  | Name of each exchange on which registered
|---------------------------------------- |  | ---------------- |  | -----------------------------------------
|Common Stock, par value $0.001 per share |  | HRZN             |  | The Nasdaq Stock Market LLC              
|6.25% Notes due 2022                     |  | HTFA             |  | The New York Stock Exchange              



Securities registered pursuant to Section 12(g)
of the Act:

None



Indicate by check mark
if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  Yes  ̈     No x.



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 x.



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



Indicate by check mark
whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405
of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that
the registrant was required to submit such files).  Yes  ̈     No  ̈



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



|Large accelerated filer  ̈ | Accelerated filer x | Non-accelerated filer  ̈ | Smaller Reporting Company  ̈
|------------------------- | ------------------- | ----------------------- | ---------------------------
|Emerging Growth Company  ̈ |                    



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



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



The aggregate market
value of common stock held by non-affiliates of the Registrant on June 28, 2019 based on the closing price on that date of $11.80
on the Nasdaq Global Select Market was $157.3 million. For the purposes of calculating this amount only, all directors and executive
officers of the Registrant have been treated as affiliates. There were 16,764,191 shares of the Registrant’s common stock
outstanding as of February 28, 2020.



Documents Incorporated
by Reference: Portions of the Registrant’s Proxy Statement relating to the Registrant’s 2020 Annual Meeting of Stockholders
to be 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 this Annual Report on Form 10-K.






















HORIZON TECHNOLOGY FINANCE CORPORATION



FORM 10-K

FOR THE YEAR ENDED DECEMBER 31, 2019



TABLE OF CONTENTS



|         |                                                                                                              | Page
|-------- | ------------------------------------------------------------------------------------------------------------ | ----
|         | PART I                                                                                                       |     
|Item 1.  | Business                                                                                                     | 3   
|Item 1A. | Risk Factors                                                                                                 | 26  
|Item 1B. | Unresolved Staff Comments                                                                                    | 58  
|Item 2.  | Properties                                                                                                   | 58  
|Item 3.  | Legal Proceedings                                                                                            | 58  
|Item 4.  | Mine Safety Disclosures                                                                                      | 58  
|         |                                                                                                              |     
|         | PART II                                                                                                      |     
|Item 5.  | Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities | 59  
|Item 6.  | Selected Financial Data                                                                                      | 62  
|Item 7.  | Management’s Discussion and Analysis of Financial Condition and Results of Operations                        | 63  
|Item 7A. | Quantitative and Qualitative Disclosures About Market Risk                                                   | 82  
|Item 8.  | Consolidated Financial Statements and Supplementary Data                                                     | 84  
|Item 9.  | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure                         | 136 
|Item 9A. | Controls and Procedures                                                                                      | 136 
|Item 9B. | Other Information                                                                                            | 136 
|         |                                                                                                              |     
|         | PART III                                                                                                     |     
|Item 10. | Directors, Executive Officers and Corporate Governance                                                       | 137 
|Item 11. | Executive Compensation                                                                                       | 137 
|Item 12. | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters               | 137 
|Item 13. | Certain Relationships and Related Transactions, and Director Independence                                    | 137 
|Item 14. | Principal Accounting Fees and Services                                                                       | 137 
|         |                                                                                                              |     
|         | PART IV                                                                                                      |     
|Item 15. | Exhibits, Financial Statement Schedules                                                                      | 138 
|         | Signatures                                                                                                   | 141 





2









PART I



In 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 Delaware
corporation, and its consolidated subsidiaries;
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | The “Advisor” and the “Administrator”
refer to Horizon Technology Finance Management LLC, a Delaware limited liability company;
| | - | -------------------------------------------------------------------------------------------------------------------------------



| | · | “Credit II” refers to Horizon Credit II
LLC, a Delaware limited liability company, which is a special purpose bankruptcy remote entity and our direct subsidiary;
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | “Key” refers to KeyBank National Association
and “Key Facility” refers to the revolving credit facility with Key;
| | - | -----------------------------------------------------------------------------------------------------------------



| | · | “2022 Notes” or “Debt Securities”
refers to the $37.4 million aggregate principal amount of our 6.25% unsecured notes due 2022, which were issued in September and
October 2017;
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | “2019 Notes” refers to the $33.0 million
aggregate principal amount of our 7.375% senior unsecured notes due 2019, which were redeemed in full in October 2017;
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | “2019-1 Securitization” refers to the $160.0
million securitization of secured loans we completed on August 13, 2019;
| | - | ---------------------------------------------------------------------------------------------------------------------



| | · | “Asset-Backed Notes” refers to $100.0 million
in aggregate principal amount of fixed rate asset-backed notes that were issued in conjunction with the 2019-1 Securitization;
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | The “2019-1 Trust” refers to Horizon Funding
Trust 2019-1, a Delaware trust; and
| | - | --------------------------------------------------------------------------------



| | · | “HSLFI” refers to Horizon Secured Loan
Fund I, a joint venture formed with Arena Sunset SPV, LLC, or “Arena”.
| | - | -------------------------------------------------------------------------------------------------------------



Some of the statements in this annual
report on Form 10-K constitute forward-looking statements which apply to both us and our consolidated subsidiaries and relate to
future events, future performance or financial condition. The forward-looking statements involve risks and uncertainties for both
us and our consolidated subsidiaries and actual results could differ materially from those projected in the forward-looking statements
for any reason, including those factors 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 information
and services and sustainability industries, which we refer to as our “Target Industries.” Our investment objective
is to maximize our investment portfolio’s total return by generating current income from the debt investments we make and
capital appreciation from the warrants we receive when making such debt investments. We are focused on making secured debt investments,
which we refer to as “Venture Loans,” to venture capital and private equity backed companies and publicly traded companies
in our Target Industries, which we refer to as “Venture Lending.” Our debt investments are typically secured by first
liens or first liens behind a secured revolving line of credit, or “Senior Term Loans.” Venture Lending is typically
characterized by (1) the making of a secured debt investment after a venture capital or equity investment in the portfolio
company has been made, which investment provides a source of cash to fund the portfolio company’s debt service obligations
under the Venture Loan, (2) the senior priority of the Venture Loan which requires repayment of the Venture Loan prior to
the equity investors realizing a return on their capital, (3) the 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 business
development company, or BDC, under the Investment Company Act of 1940, as amended, or the 1940 Act. In addition, for U.S.
federal income tax purposes, we have elected to be treated as a regulated investment company, or RIC, under Subchapter M of
the Internal Revenue Code of 1986, as amended, or the Code. As a BDC, we are required to comply with regulatory requirements,
including limitations on our use of debt. We are permitted to, and expect to, finance our investments through borrowings.
Section 61(a)(2) of the 1940 Act enables BDCs to reduce their asset coverage requirements from 200% to 150%, as a result of
the enactment of the Small Business Credit Availability Act, or SBCAA, in March 2018. This provision permits a BDC to double
the maximum amount of leverage that it is permitted to incur. As defined in the 1940 Act, asset coverage of 150% means that
for every $100 of net assets a BDC holds, it may raise up to $200 from borrowing and issuing senior securities. We received
approval from our stockholders to reduce our asset coverage requirement from 200% to 150% on October 30, 2018. The amount of
leverage that we may employ will depend on our assessment of market conditions and other factors at the time of any proposed
borrowing. As a RIC, we generally are not subject to pay corporate-level income taxes on our investment company taxable
income, determined without regard to any deductions for dividends paid, and our net capital gain that we distribute as
dividends for U.S. federal income tax purposes 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 are a Delaware corporation organized
in March 2010 for the purpose of acquiring Compass Horizon and continuing its business as a public entity.



From the commencement
of operations of Compass Horizon on March 4, 2008 through December 31, 2019, we funded 181 portfolio companies and invested $1.3 billion
in debt investments. As of December 31, 2019, our debt investment portfolio consisted of 35 debt investments with an aggregate
fair value of $288.4 million. As of December 31, 2019, 100.0%, or $288.4 million, of our debt investment portfolio at fair
value consisted of Senior Term Loans. As of December 31, 2019, 56.7%, or $163.4 million, of our total debt investment portfolio
at fair value was held through our 2019-1 Securitization. As of December 31, 2019, our net assets were $184.1 million, and
all of our debt investments were secured by all or a portion of the tangible and intangible assets of the applicable portfolio
company. The debt investments in our portfolio are generally not rated by any rating agency. If the individual debt investments
in our portfolio were rated, they would be rated below “investment grade”. Debt investments that are unrated or rated
below investment grade are sometimes referred to as “junk bonds” and have predominantly speculative characteristics
with respect to the issuer’s capacity to pay interest and repay principal.



For the year ended
December 31, 2019, our dollar-weighted annualized yield on average debt investments (excluding any yield from warrants, equity,
other investments and HSLFI) was 16.7%. We calculate the dollar-weighted yield on average debt investments for any period as (1)
total investment income (excluding income from HSLFI) 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 on average debt investments is higher than what investors
will realize because it does not reflect our expenses or any sales load paid by investors.



For the year ended
December 31, 2019, our investment portfolio (including any yield from warrants, equity, other investments and HSLFI) had an overall
total yield of 15.7%. We calculate the dollar-weighted yield on average investments for any period as (1) total investment income
during the period divided by (2) the average of the fair value of 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 on average investments is higher than what investors will realize because it does not reflect our expenses or
any sales load paid by investors.



As of December 31,
2019, our debt investments had a dollar-weighted average term of 47 months from inception and a dollar-weighted average remaining
term of 38 months. As of December 31, 2019, substantially all of our debt investments had an original committed principal
amount of between $3 million and $20 million, repayment terms of between 4 and 60 months and bore current pay interest
at annual interest rates of between 9% and 16%.



For the year ended
December 31, 2019, our total return based on market value was 25.6%. Total return based on market value is calculated as (x) the
sum of (i) the closing sales price of our common stock on the last day of the period plus (ii) the aggregate amount of distributions
paid per share during the period, less (iii) the closing sales 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, 2019, we held warrants to purchase stock, predominantly preferred stock, in 66 portfolio companies,
equity positions in nine portfolio companies and success fee arrangements in eight portfolio companies.





4







On June, 1 2018,
we and Arena formed a joint venture, HSLFI, to make investments, either directly or indirectly through subsidiaries, primarily
in the form of secured loans to development-stage companies our Target Industries. HSLFI was formed as a Delaware limited liability
company and is not consolidated by either us or Arena for financial reporting purposes. Investments held by HSLFI are measured
at fair value. As of December 31, 2019, HSLFI had total assets of $48.3 million. HSLFI’s portfolio consisted of debt investments
in eight portfolio companies as of December 31, 2019. As of December 31, 2019, the largest investment in a single portfolio company
in the HSLFI’s portfolio in aggregate principal amount was $11.3 million and the five largest investments in portfolio companies
in HSLFI’s portfolio totaled $30.3 million. As of December 31, 2019, HSLFI had no investments on non-accrual status. HSLFI
invests in portfolio companies in the same industries in which we may directly invest.



We invest cash or
securities in portfolio companies in HSLFI in exchange for limited liability company equity interests in HSLFI. As of December
31, 2019, we and Arena each owned 50.0% of the equity interests of HSLFI. We had an original commitment to fund $25.0 million of
equity interests in HSLFI. As of December 31, 2019, $9.8 million was unfunded. Our investment in HSLFI consisted of an equity contribution
of $15.2 million as of December 31, 2019.



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 a majority
of the members are independent of us. Under an investment management agreement dated March 7, 2019, or the Investment Management
Agreement, 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 an administration agreement, or the Administration Agreement, with our Advisor under which we have agreed to
reimburse our Advisor for our allocable portion of 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 our
internet address is www.horizontechfinance.com. We make available, free of charge, on our website our annual report on Form 10-K,
quarterly reports on Form 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, or furnish it to, the U.S. Securities and Exchange Commission, or the SEC.
Information contained on our website is not incorporated by reference into this annual 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 other report we file
with the SEC.



The SEC also maintains
a website that contains reports, proxy and information statements and other information we file with the SEC at www.sec.gov. Copies
of these reports, proxy and information statements and other information may also be obtained, after paying a duplicating fee,
by electronic request at publicinfo@sec.gov.



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 investment
opportunities, conduct diligence on and value prospective investments, negotiate investments and manage our portfolio of investments.
In addition to the experience gained from the years that they have worked together both at our Advisor and prior to the formation
of our Advisor, the members of our investment team have broad lending backgrounds, with substantial experience at a variety of
commercial finance companies, technology banks and private debt funds, and have developed a broad network of contacts within the
venture capital and private equity community. This network of contacts provides a principal source of investment opportunities.



Our Advisor is led
by six senior managers including Robert D. Pomeroy, Jr., our Chief Executive Officer, Gerald A. Michaud, our President, Daniel
R. Trolio, our Senior Vice President and Chief Financial Officer, John C. Bombara, our Senior Vice President, General Counsel and
Chief Compliance Officer, Daniel S. Devorsetz, our Senior Vice President and Chief Investment Officer and Diane Earle, our Senior
Vice President and Chief Credit Officer.





5







Our strategy



Our investment objective
is to maximize our investment portfolio’s total return by generating current income from the loans we make and capital appreciation
from the warrants we receive when making such loans. To further implement our business strategy, we expect our Advisor to continue
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 our Target Industries typically in the form of secured loans. The secured debt
structure provides a lower risk strategy, as compared to equity or unsecured debt investments, to participate in the emerging technology
markets because the debt structures we typically utilize provide collateral against the downside risk of loss, provide return of
capital in a much shorter timeframe through current-pay interest and amortization of principal and have a senior position to equity
in the borrower’s capital structure in the case of insolvency, wind down or bankruptcy. Unlike venture capital and private
equity investments, our investment returns and return of our capital do not require equity investment exits such as mergers and
acquisitions or initial public offerings. Instead, we receive returns on our debt investments primarily through regularly scheduled
payments of principal and interest and, if necessary, liquidation of the collateral supporting the debt investment upon a default.
Only the potential gains from warrants depend upon equity investment exits.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | “Enterprise value” lending.  We and our Advisor take an enterprise
value approach to structuring and underwriting loans. Enterprise value includes the implied valuation based upon recent equity
capital invested as well as the intrinsic value of the applicable portfolio company’s particular technology, service or customer
base. We secure our lien position against the enterprise value of each portfolio company.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | Creative products with attractive risk-adjusted pricing.  Each of our existing
and prospective portfolio companies has its own unique funding needs for the capital provided from the proceeds of our Venture
Loans. These funding needs include funds for additional development “runways”, funds to hire or retain sales staff
or funds to invest in research and development in order to reach important technical milestones in advance of raising additional
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 warrants to purchase the equity of our portfolio companies as additional
consideration for making debt investments. The warrants we obtain generally include a “cashless exercise” provision
to allow us to exercise these rights without requiring us to make any additional cash investment. Obtaining warrants in our portfolio
companies has allowed us to participate in the equity appreciation of our portfolio companies, which we expect will enable us to
generate higher returns for our investors.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | Direct origination.  We originate transactions directly with technology, life
science, healthcare information and services and sustainability companies. These transactions are referred to our Advisor from
a number of sources, including referrals from, or direct solicitation of, venture capital and private equity firms, portfolio company
management teams, legal firms, accounting firms, investment banks, portfolio company advisors and other lenders that represent
companies within our Target Industries. Our Advisor has been the sole or lead originator in substantially all transactions in which
the funds it manages have invested.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | Disciplined and balanced underwriting and portfolio management.  We use a disciplined
underwriting process that includes obtaining information validation from multiple sources, extensive knowledge of our Target Industries,
comparable industry valuation metrics and sophisticated financial analysis related to development-stage companies. Our Advisor’s
due diligence on investment prospects includes obtaining and evaluating information 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 cycles associated with any particular
industry or sector, development-stage or geographic area by quarterly reviewing each criteria and, in the event there is an overconcentration,
seeking investment opportunities to reduce such overconcentration. Our Advisor employs a “hands on” approach to portfolio
management, requiring private portfolio companies to provide monthly financial information and to participate in regular updates
on performance and 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, through our 2022 Notes and through our 2019-1 Securitization. See “Item 7 — Management’s Discussion
and Analysis of Financial Condition and Results of Operations — Liquidity and capital resources” for additional
information about our use of leverage. In addition, we may issue additional debt securities or preferred stock in one or more series
in the future.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------





6







Market opportunity



We focus our investments
primarily in our Target Industries. The technology sectors we focus on include communications, networking, data storage, software,
cloud computing, semiconductor, internet and media and consumer-related technologies. The life science sectors we focus on include
biotechnology, drug discovery, drug delivery, bioinformatics and medical devices. The healthcare information and services sectors
we focus on include diagnostics, electronic medical record services and software and other healthcare related services and technologies
that improve efficiency and quality of administered healthcare. The sustainability sectors we focus on include alternative energy,
power management, 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 scientific
knowledge, including techniques, skills, methods, devices and processes, to solve problems. We intend, under normal market conditions,
to invest at least 80% 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 associated with
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 financing transactions;
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | the debt investment support provided by cash proceeds from equity capital invested by venture capital
and private equity firms or access to public equity markets to access capital;
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | 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 capital investors,
as it:



| | • | is typically less dilutive to the equity holders than additional equity financing;
| | - | ----------------------------------------------------------------------------------



| | • | extends the time period during which a portfolio company can operate before seeking additional
equity capital or pursuing a sale transaction or other 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, which include the following:



Consistently
execute commitments and close transactions.  Our Advisor and its senior management and investment professionals have
an extensive track record of originating, underwriting and managing Venture Loans. Our Advisor and its predecessor have directly
originated, underwritten and managed Venture Loans with an aggregate original principal amount over $1.7 billion to more than
245 companies since operations commenced in 2004.



Robust
direct origination capabilities.  Our Advisor has significant experience originating Venture Loans in our Target
Industries. This experience has 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.  Most of our Advisor’s senior management team of experienced
professionals has been together since our inception. This consistency allows companies, their management teams and their
investors to rely on consistent and predictable service, loan products and terms and underwriting standards.





7







Relationships
with venture capital and private equity investors.  Our Advisor has developed strong relationships with venture capital
and private equity firms and their partners.



Well-known
brand name.  Our Advisor has originated Venture Loans to more than 245 companies in our Target Industries under
the “Horizon Technology 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 well as
traditional financial services companies such as commercial banks and other financing sources. Some of our competitors are larger
and have greater financial and other resources than we do. We believe we compete effectively with these entities primarily on the
basis of the experience, industry knowledge and contacts of our Advisor’s investment professionals, our Advisor’s responsiveness,
efficient investment analysis and decision-making processes, its creative financing products and its customized investment terms.
We do not intend to compete primarily on the interest rates we offer and believe that some competitors make loans with rates that
are comparable to or lower than our rates. For additional information concerning our competitive position and competitive risks,
see “Item 1A — Risk Factors — Risks related to our business and structure — We operate in a highly
competitive market for investment opportunities, and if we are not able to compete effectively, our business, results of operations
and financial condition may be adversely affected and the value 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 geographical
location, as well as by the venture capital and private equity sponsors that support our portfolio companies. While we invest in
companies at various stages of development, we require that prospective portfolio companies be beyond the seed stage of development
and have received at least their first round of venture capital or private equity financing before we will consider making an investment.
We expect a prospective portfolio company to demonstrate its ability to advance technology and increase its value over time.



We have identified
several criteria that we believe have proven, and will continue to prove, important in achieving our investment objective. These
criteria provide general guidelines for our investment decisions. However, we caution you that not all of these criteria are met
by each portfolio company in which we choose to invest.



Management.Our portfolio companies are generally led by experienced management that has in-market expertise in the Target
Industry in which the company operates, as well as extensive experience with development-stage companies. The adequacy and completeness
of the management team is assessed relative to the stage of development and the challenges facing the potential portfolio company.



Continuing
support from one or more venture capital and private equity investors.We typically invest in companies in which
one or more established venture capital and private equity investors have previously invested and continue to make a contribution
to the management of the business. We believe that established venture capital and private equity investors can serve as committed
partners and will assist their portfolio companies 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 capital to support leverage, demonstrate an operating plan capable of generating cash flows or the ability to raise the
additional capital necessary to cover its operating expenses and service its debt. Our review of the operating plan will take into
consideration existing cash, cash burn, cash runway and the milestones 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 the principal balance of debt borrowed by the company. Enterprise value includes the implied valuation
based upon recent equity capital invested as well as the intrinsic value of the company’s particular technology,
service or customer base.





8







Market
opportunity and exit strategy.We seek portfolio companies that are addressing market opportunities that capitalize
on their competitive advantages. Competitive advantages may include unique technology, legally protected intellectual property,
superior clinical results or significant market traction. As part of our investment analysis, we typically also consider potential
realization of our warrants through merger, acquisition or initial public offering based upon comparable exits in the company’s
Target Industry.



Investment process



Our Board has delegated
authority for all investment decisions to our Advisor. Our Advisor, in turn, has created an integrated approach to the loan origination,
underwriting, approval and documentation process that we believe effectively combines the skills of our Advisor’s professionals.
This process allows our Advisor to achieve an efficient and timely closing of an investment from the initial contact with a prospective
portfolio company through the investment decision, close of documentation and funding of the investment, while ensuring that our
Advisor’s rigorous underwriting standards are consistently maintained. We believe that the high level of involvement by our
Advisor’s staff in the various phases of the investment process allows us to minimize 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 for identifying, contacting and screening prospects. These managing directors meet with key decision makers and deal
referral sources such as venture capital and private equity firms and management teams, legal firms, accounting firms, investment
banks, portfolio company advisors and other lenders to source prospective portfolio companies. We believe our brand name and management
team are well known within the Venture Lending community, as well as by many repeat entrepreneurs and board members of prospective
portfolio companies. These broad relationships, which reach across the Venture Lending industry, 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 as
other available information, determines whether it is appropriate for our Advisor to issue a non-binding term sheet. The managing
director bases this decision to proceed on his or her experience, the competitive environment and the prospective portfolio company’s
needs and also seeks the counsel of our Advisor’s senior management and investment team.



Term
sheet.If the managing director determines, after review and consultation with senior management, that the potential
transaction meets our Advisor’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
market dynamics, the quality of the management team, the venture capital and private equity investors involved or ability to access
public equity and applicable credit criteria, which may include the prospective portfolio company’s existing cash resources,
the development of its technology and the anticipated timing for the next round of equity financing.



Underwriting.Once the term sheet has been negotiated and executed and the prospective portfolio company has remitted a good
faith deposit, we request 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 the prospective portfolio company’s senior management team. The process includes obtaining and analyzing
publicly available information from independent third parties that have knowledge of the prospective portfolio company’s
business, including, to the extent available, analysts that follow the technology market, thought leaders in our Target Industries
and important customers or partners, if any. Outside sources of information are reviewed, including industry publications, scientific
and market articles, internet publications, publicly available information on competitors or competing technologies 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 also members of the prospective portfolio company’s board of directors. While these board members and/or
investors are not independent sources of information, their support for management and willingness to support the prospective
portfolio company’s further development are critical elements of our decision making process.





9







Investment
memorandum.Upon completion of the due diligence process and review and analysis of all of the information provided
by the prospective portfolio company and obtained externally, our Advisor’s assigned credit officer prepares an investment
memorandum for review and approval. The investment memorandum is reviewed by our Advisor’s Chief Investment Officer and then
submitted to our Advisor’s investment committee for approval.



Investment
committee.Our Advisor’s investment committee is responsible for overall credit policy, portfolio management,
approval of all investments, portfolio monitoring and reporting and managing of problem accounts. The committee interacts with
the entire staff of our Advisor to review 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 by the 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. Loan documentation is based upon standard templates created by our Advisor and is customized for each transaction
to reflect the specific deal terms. The transaction documents typically include a loan and security agreement, warrant agreement
and applicable perfection documents, including applicable Uniform Commercial Code financing statements and, as applicable, may
also include a landlord agreement, patent and trademark security grants, a subordination agreement, an intercreditor agreement
and other standard agreements for commercial loans in the Venture Lending industry. Funding requires final approval by our Advisor’s
General Counsel, Chief Executive Officer or President, Chief Financial Officer and Chief Investment Officer or Chief Credit Officer.



Portfolio
management and reporting.Our Advisor maintains a “hands on” approach to maintain communication with
our portfolio companies. At least quarterly, our Advisor contacts our portfolio companies for operational and financial updates
by phone and performs reviews. Our Advisor may contact portfolio companies deemed to have greater credit risk on a monthly or more
frequent basis. Our Advisor requires all private companies to provide financial statements, typically monthly. For public companies,
our Advisor typically relies on publicly reported quarterly financials. This allows our Advisor to identify 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
Advisor analyzes 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 3 representing 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 original underwriting. A rating of 2 or 1 represents a deteriorating credit quality
and an increased risk of loss of principal. Newly funded investments are typically 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.



Our Advisor
closely monitors portfolio companies rated a 1 or 2 for adverse developments. In addition, our Advisor maintains regular contact
with the management, board of directors and major equity holders of these portfolio companies in order to discuss strategic initiatives
to correct the deterioration of the portfolio company.





10







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, clinical milestones or other operating metrics or as a result of raising capital well in excess of our underwriting assumptions. Generally the portfolio company displays one or more of the following: its enterprise value greatly exceeds our loan balance; it has achieved cash flow positive operations or has sufficient cash resources to cover the remaining balance of the loan; there is strong potential for warrant gains from our warrants; and there is a high likelihood that the borrower will receive favorable future financing to support operations. Loans rated 4 are the lowest risk profile in our portfolio and have no expected risk of principal loss.                                                                                                                                                                    
|       |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|3      |  | The portfolio company has performed to our expectations as demonstrated by meeting revenue milestones, clinical milestones or other operating metrics. It has raised, or is expected to raise, capital consistent with our underwriting assumptions. Generally the portfolio company displays one or more of the following: its enterprise value comfortably exceeds our loan balance; it has sufficient cash resources to operate according to its plan; it is expected to raise additional capital as needed; and there continues to be potential for warrant gains from our warrants. New loans are typically rated 3 when approved and thereafter 3-rated loans represent a standard risk profile, with no principal loss currently expected.                                                                                                                                                                                                                      
|       |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|2      |  | The portfolio company has performed below our expectations as demonstrated by missing revenue milestones, delayed clinical progress or otherwise failing to meet projected operating metrics. It may have raised capital in support of the poorer performance but generally on less favorable terms than originally contemplated at the time of underwriting. Generally the portfolio company displays one or more of the following: its enterprise value exceeds our loan balance but at a lower multiple than originally expected; it has sufficient cash to operate according to its plan but liquidity may be tight; and it is planning to raise additional capital but there is uncertainty and the potential for warrant gains from our warrants are possible, but unlikely. Loans rated 2 represent an increased level of 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 failed clinical progress or otherwise failing to meet operating metrics. The portfolio company has not raised sufficient capital to operate effectively or retire its debt obligation to us. Generally the portfolio company displays one or more of the following: its enterprise value may not exceed our loan balance; it has insufficient cash to operate according to its plan and liquidity may be tight; and there are uncertain plans to raise additional capital or the portfolio company is being sold under distressed conditions. There is no potential for warrant gains from our warrants. Loans rated 1 are generally put on non-accrual status and represent a high degree of risk of 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 of Operations — 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 assistance
may involve monitoring the operations of the portfolio companies, participating in board of directors and management meetings,
consulting with and advising officers of portfolio companies and providing other organizational and financial guidance.



Although we
may receive fees for these services, pursuant to the Administration Agreement, we will reimburse our Advisor for its expenses related
to providing 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 by our
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;
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------





11











| | • | identifies, evaluates and negotiates the structure of the investments we make (including performing due diligence on our prospective portfolio companies); 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 long as 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 base management
fee and an incentive fee.



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



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



Pre-Incentive Fee
Net Investment Income does not include any realized capital gains, realized capital losses or unrealized capital appreciation or
depreciation. Because of the structure of the incentive fee, it is possible that we may pay an incentive fee in a quarter in which
we incur a loss. For example, if we receive Pre-Incentive Fee Net Investment Income in excess of the quarterly minimum hurdle rate,
we will pay the applicable incentive fee up to the Incentive Fee Cap, defined below, even if we have incurred a loss in that quarter
due to realized and unrealized capital losses. Our net investment income used 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. These calculations are appropriately
prorated for any period of less than three months and adjusted for any share issuances or repurchases during the applicable quarter.





12







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



On March 5, 2019,
the Advisor irrevocably waived the receipt of incentive fees related to the amounts previously deferred that it may be entitled
to receive under the Investment Management Agreement for the period commencing on January 1, 2019 and ending on December 31, 2019.
Such waived incentive fees will not be subject to recoupment.



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



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 Investment
Management 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 our election to be a BDC through the end of each calendar year, computed net of all realized capital losses and
unrealized capital depreciation on a cumulative basis through the end of such year, less all previous amounts paid in respect of
the capital gain incentive fee.



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%





13







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 related
portion 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%



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
of the incentive fee is 0.46%.





14
















| | (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 a hurdle 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
cumulative net increase in net assets resulting from operations since July 1, 2014 did not exceed the cumulative income and capital
gains incentive fees accrued and/or paid since July 1, 2014.



Alternative 2



Assumptions:



Investment income (including interest, distributions,
fees, etc.) = 2.80%



Hurdle rate(1) = 1.75%



Management fee(2) = 0.50%



Other expenses (legal, accounting, custodian, transfer
agent, etc.)(3) = 0.20%



Pre-Incentive Fee Net Investment Income (investment
income - (management fee + other expenses)) = 2.10%



Incentive fee = 100.00% × Pre-Incentive Fee
Net Investment Income (subject to ‘‘catch-up’’)(4)



=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 related portion of the incentive fee is 0.35%.



Cumulative incentive compensation accrued
and/or paid since July 1, 2014 = $9,000,000





15







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 assets resulting from operations since July 1, 2014 exceeds the cumulative income and capital gains incentive fees accrued
and/or paid since July 1, 2014, an incentive 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 a hurdle 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, or Investment A, and $30 million investment made in Company B, or Investment B



Year 2: Investment A sold for
$50 million and fair market value, or 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, or Investment A, $30 million investment made in Company B, or Investment B and $25 million investment
made in Company C, or Investment C



Year 2: Investment A sold for
$50 million, FMV of Investment B determined to be $25 million and FMV of Investment C determined to be $25 million



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:





16







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 unrealized
capital 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 positive returns
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 of any year, we may have paid aggregate capital gains incentive fees that are more than the amount of such fees that would be payable if the Investment 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, and the compensation
and routine overhead expenses of its personnel allocable to such services, are provided and paid for by our Advisor. We bear all
other costs and expenses of our operations and transactions, including those relating to:



| | • | our organization;
| | - | -----------------



| | • | calculating our net asset value, or NAV (including the cost and expenses of any independent valuation
firms);
| | - | -------------------------------------------------------------------------------------------------------------



| | • | expenses, including travel expense, incurred by our Advisor or payable to third parties performing
due diligence on prospective portfolio companies, monitoring our investments and, if necessary, enforcing our rights;
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | interest payable on debt, if any, incurred to finance our investments;
| | - | ----------------------------------------------------------------------



| | • | the costs of all future offerings and repurchases of our common stock and other securities, if
any;
| | - | ---------------------------------------------------------------------------------------------------



| | • | the base management fee and any incentive fee;
| | - | ----------------------------------------------



| | • | distributions on our shares;
| | - | ----------------------------



| | • | administration fees payable under the Administration Agreement;
| | - | ---------------------------------------------------------------



| | • | the allocated costs incurred by our Advisor as our Administrator in providing managerial assistance
to those portfolio companies that request it;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------



| | • | amounts payable to third parties relating to, or associated with, making investments;
| | - | -------------------------------------------------------------------------------------



| | • | transfer agent and custodial fees;
| | - | ----------------------------------



| | • | registration fees;
| | - | ------------------





17







| | • | listing fees;
| | - | -------------



| | • | fees and expenses associated with marketing efforts;
| | - | ----------------------------------------------------



| | • | taxes;
| | - | ------



| | • | independent director fees and expenses;
| | - | ---------------------------------------



| | • | brokerage commissions;
| | - | ----------------------



| | • | costs of preparing and filing reports or other documents with the SEC;
| | - | ----------------------------------------------------------------------



| | • | the costs of any reports, proxy statements or other notices to our stockholders, including printing
costs;
| | - | ----------------------------------------------------------------------------------------------------------



| | • | the fidelity bond;
| | - | ------------------



| | • | directors and officers/errors and omissions liability insurance, and any other insurance premiums;
| | - | --------------------------------------------------------------------------------------------------



| | • | indemnification payments;
| | - | -------------------------



| | • | direct costs and expenses of administration, including audit and legal costs; and
| | - | ---------------------------------------------------------------------------------



| | • | all other expenses incurred by us or the Administrator in connection with administering our business,
such as the allocable portion of overhead under the Administration Agreement, including rent, the fees and expenses associated
with performing compliance functions and our allocable portion of the costs of compensation and related expenses of our Chief Financial
Officer and Chief Compliance Officer and their respective staffs.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



From time to time,
our Advisor may pay amounts owed by us to third party providers of goods or services. We subsequently reimburse our Advisor for
such amounts paid on our behalf. Generally, our expenses are expensed as incurred in accordance with U.S. generally accepted accounting
principles, or GAAP. To the extent we incur costs that should be capitalized and amortized into expense we also do so in accordance
with GAAP, which may include amortizing such amount on a straight 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 any other
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 investment activities or for any loss sustained by us except for acts or omissions constituting willful misfeasance, bad
faith, gross negligence or reckless disregard of its obligations under the Investment Management Agreement. The Investment Management
Agreement also provides, subject to certain conditions, for indemnification by us of our Advisor and its officers, managers, partners,
agents, employees, controlling persons and any other person or entity affiliated with our Advisor for liabilities incurred by them
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), but excluding liabilities for acts or omissions constituting willful misfeasance, bad faith or gross negligence
or reckless disregard of their duties under the Investment Management Agreement.



Board Recommendation and Approval of the Investment Management
Agreement



At a special
meeting of the stockholders on October 30, 2018, the stockholders, upon the recommendation of the Board, approved a new
Investment Management Agreement which became effective on March 7, 2019. The Investment Management Agreement is effective for
two years from the date of approval and then must be annually reapproved by our Board for a one-year period. When it
considered recommending the approval of the Investment Management Agreement, our Board held an in-person meeting at which it
focused on information it 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 similar expenses paid by other BDCs with
similar investment objectives; (c) our projected expenses and expense ratio compared to BDCs with similar investment
objectives; (d) any existing and potential sources of indirect income to our Advisor or the Administrator from their
relationships with us and the profitability of those relationships; (e) information about the services to be performed and
the personnel performing such services under the Investment Management Agreement; (f) the organizational capability and
financial condition of our Advisor and its affiliates; (g) our Advisor’s practices regarding the selection and
compensation of brokers that may execute our portfolio transactions and the brokers’ provision of brokerage and
research services to our Advisor; and (h) the possibility of obtaining similar services from other third party service
providers or through an internally managed structure.





18







Based on the information
reviewed and its discussions related thereto, our Board, including a majority of the directors who are not interested persons of
us, determined that the investment management fee rates payable pursuant to the terms of the Investment Management Agreement were
reasonable in relation to the services to be provided.



Duration and termination



Unless terminated
earlier as described below, it will continue in effect from year to year after the initial two-year term if approved annually by
our Board including a majority of our directors 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 our directors who are not interested persons. The Investment Management
Agreement will automatically terminate in the event of its assignment. The Investment Management Agreement may be terminated by
either party without penalty by delivering notice of termination upon not more than 60 days’ written notice to the 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 be able to find a suitable replacement within that time, resulting in a disruption in
our operations that could adversely affect our business, results of operations or financial condition.”



Administration Agreement



The Administration
Agreement was considered and reapproved by our Board, and a majority of our independent directors, on July 27, 2018. Under the
Administration Agreement, the Administrator furnishes us with office facilities and equipment, provides us clerical, bookkeeping
and record keeping services at such facilities and provides us with other administrative services necessary to conduct our day-to-day
operations. We reimburse the Administrator for our allocable portion of overhead and other expenses incurred by the Administrator
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 costs of compensation and related expenses of our Chief Financial Officer
and Chief Compliance Officer and their respective staffs. The Board reviews the allocation of expenses shared with the Advisor
or other 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 the Investment Management Agreement and Administration Agreement and then-current circumstances.



License agreement



We have entered into
a license agreement with Horizon Technology Finance, LLC, or HTF, pursuant to which we were granted a non-exclusive, royalty-free
right and license to use the service mark “Horizon Technology Finance.” Under this agreement, we have a right to use
the “Horizon 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 no legal right to the “Horizon Technology Finance”
service mark.



Regulation



We have elected to
be regulated as a BDC under the 1940 Act and elected to be treated as a RIC under Subchapter M of the Code. As with other companies
regulated by the 1940 Act, a BDC must adhere to certain substantive regulatory requirements. The 1940 Act contains prohibitions
and restrictions relating to transactions between BDCs and their affiliates (including any investment advisers or sub-advisers),
principal underwriters and affiliates of those affiliates 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. In addition, 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 approved by “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 under the 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 are present 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 of stockholders 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.





19







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 for registered money market funds, we
generally cannot acquire more than 3% of the voting stock of any investment company, invest more than 5% of the value of 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 one investment company. With regard to that portion of our portfolio invested in securities issued by
investment companies, it should be noted that such investments might subject our stockholders to additional expenses. None of
our investment policies are fundamental and any may be changed without stockholder approval.



We may also be prohibited
under the 1940 Act from knowingly participating in certain transactions with our affiliates without the prior approval of our directors
who are not interested persons and, in some cases, prior approval by the SEC. For example, under the 1940 Act, absent receipt of
exemptive relief from the SEC, we and our affiliates may be precluded from co-investing in transactions for which terms other than
price are negotiated by our affiliates. As a result of one or more of these situations, we may 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 November 27, 2017, the SEC
granted us, our Advisor and certain of our affiliates an exemptive relief order permitting us to co-invest with certain affiliated
funds in negotiated investments, subject to the terms and conditions of the order.



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
willful misfeasance, 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 securities
laws and review these policies and procedures annually for their adequacy and the effectiveness of their implementation. We and
our Advisor have designated 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 as qualifying assets, unless, at the time the acquisition is made, qualifying assets represent at least 70% of the company’s
total assets. The principal categories of qualifying 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 limited exceptions) is an eligible portfolio company, or from any person who is, or
has been during the preceding 13 months, an affiliated person of an eligible portfolio company, or from any other person,
subject to such rules as may be prescribed by the SEC. An eligible portfolio company is defined 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 an investment 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 or policies of the eligible portfolio company, and, as a result thereof, the BDC has an affiliated
person who is a director of the eligible portfolio company; or
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | is a small and solvent company having total assets of not more than $4 million and capital
and surplus of not less than $2 million.
| | - | -----------------------------------------------------------------------------------------------------------------------------------





20







| | • | 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 in transactions incident thereto, if the issuer is in bankruptcy and subject
to reorganization or if the issuer, immediately prior to the purchase of its securities was unable to meet its obligations as they
came due without material assistance other than conventional lending or financing arrangements.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | Securities of an eligible portfolio company purchased from any person in a private transaction
if there is no ready market for such securities and we already 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 rights relating 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 advantage of 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 making investments
in the types of securities described in “Qualifying assets.” However, in order to count portfolio securities as qualifying
assets for the purpose of 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 and solvent companies described above) significant managerial assistance. Where
the BDC purchases such securities in conjunction with one or more other persons acting together, the BDC will satisfy this test
if one of the other persons in the group makes available such managerial assistance. Making available managerial assistance means,
among other things, any arrangement whereby the BDC, through its directors, officers or employees, offers to provide, and, if accepted,
does so provide, significant guidance and counsel concerning the management, operations or business objectives and policies of
a portfolio company.



Issuance of additional shares



We are not generally
able to issue and sell our common stock at a price below NAV per share. We may, however, issue and sell our common stock, at a
price below the current NAV of the common stock, or issue and sell warrants, options or rights to acquire such common stock, at
a price below the current NAV of the common stock if our Board determines that such sale is in our best interest and in the best
interests of our stockholders, and our stockholders have approved our policy and practice of making such sales within the preceding
12 months. In any such case, the price at which 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 of such securities. We have not sought the approval of
our stockholders in the preceding 12 months but we may seek approval from our stockholders to offer shares of our common stock
below its NAV 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. Government securities 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 in
repurchase agreements relating to such securities that are fully collateralized by cash or securities issued by the
U.S. Government or its agencies. A repurchase agreement 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 percentage restriction
on the proportion of our assets that may be invested in such repurchase agreements. However, subject to certain exceptions,
if more than 25% of our total assets constitute repurchase agreements from a single counterparty, we generally would not meet
the diversification tests in order to qualify as a RIC for federal income tax purposes. Thus, we do not intend to enter into
repurchase agreements with a single counterparty in excess of this limit. Our Advisor monitors the creditworthiness of the
counterparties with which we enter into repurchase agreement transactions.





21







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
asset coverage, as defined in the 1940 Act, is at least equal to 150% 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 asset coverage 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 temporary purposes without regard to asset coverage. For
a discussion of the risks associated with leverage, see “Item 1A — Risk Factors — Risks related to our business
and 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
Act of 1940, as amended, or the Advisers Act, respectively, that establishes procedures for personal investments and restricts
certain personal securities transactions. Personnel subject to each code may invest in securities for their personal investment
accounts, including securities that may be purchased or held by us, so long as such investments are made in accordance with the
relevant code of ethics’ requirements. Each code of ethics is published on our website at www.horizontechfinance.com. We
intend to disclose any substantive amendments to, or waivers from, the codes of conduct within four business days of the waiver
or amendment through a web site posting.



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. The
guidelines 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, our Advisor
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 interest and in our best interests and the best interests of our stockholders. Our Advisor’s proxy voting
policies and procedures have been formulated to ensure decision-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 Advisor
reviews 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 our Advisor generally votes against proposals that may have a negative effect on our portfolio securities,
our Advisor may vote for such a proposal if there exist compelling long-term reasons to do so.



Our Advisor’s
proxy voting decisions are made by those senior officers who are responsible for monitoring each of our investments. To ensure
that a vote is not the product of a conflict of interest, our Advisor requires that (1) anyone involved in the decision-making
process disclose to our Chief Compliance 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 vote and (2) employees involved in the decision-making process or vote
administration are prohibited from revealing how we intend to vote on a proposal in order to reduce any attempted influence from
interested parties.





22







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, as amended, or the Sarbanes-Oxley Act, imposes a wide variety of regulatory requirements on publicly held companies
and their insiders. 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 principal financial officer must certify the accuracy of the financial statements contained
in our periodic reports;
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | pursuant to Item 307 of Regulation S-K under the Securities Act, our periodic reports must disclose
our conclusions about the effectiveness of our disclosure controls and procedures;
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | pursuant to Rule 13a-15 under the Exchange Act, our management must prepare an annual report regarding
its assessment of our internal control over financial reporting, which must be audited by our independent registered public accounting
firm; and
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | pursuant to Item 308 of Regulation S-K under the Securities Act and Rule 13a-15 under the Exchange
Act, our periodic reports must disclose whether there were significant changes in our internal controls over financial reporting
or in other factors that could significantly affect these controls subsequent to the date of their evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The Sarbanes-Oxley
Act requires us to review our current policies and procedures to determine whether we comply with the Sarbanes-Oxley Act and the
regulations promulgated thereunder. We will continue to monitor our compliance with all regulations under the Sarbanes-Oxley Act
and intend to take actions 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 corporate governance
listing standards. We intend to monitor our compliance with all future listing standards and to take all necessary actions to ensure
that we are in compliance therewith.



Privacy principles



We are committed to
maintaining the privacy of stockholders and to safeguarding our non-public personal information. The following information is provided
to help you understand what personal information we collect, how we protect that information and why, in certain cases, we may
share information with select other parties.



Generally, we do not
receive any nonpublic personal information relating to our stockholders, although certain nonpublic personal information of our
stockholders may become available to us. We do not disclose any nonpublic personal information about our stockholders or former
stockholders, except as permitted 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 the
information. We maintain physical, electronic and procedural safeguards designed to protect the nonpublic personal information
of our stockholders. For a discussion of the risks associated with cyber incidents, see “Item 1A — Risk Factors —
Risks related to our business and structure — We are highly dependent on information systems and systems failures could significantly
disrupt our business, which may, in turn, negatively affect the market price of our common stock and our ability to pay distributions.”





23







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 the Code. To maintain our RIC status, we must, among other requirements, meet certain source-of-income and quarterly
asset diversification requirements (as described 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 our realized 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 of the assets
legally available for distribution, which we refer to as the “Annual Distribution Requirement.” Although not
required for us to maintain our RIC tax status, in order to preclude the imposition of a 4% nondeductible federal excise tax
imposed on RICs, we are required to distribute dividends in respect of each 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) for the
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 the one-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 distributed during 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 the assets legally available for such distributions, we may decide to retain such
net capital gains or ordinary income to provide us with additional liquidity. In order 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 the sale of stock or other securities, net income from certain qualified publicly
traded partnerships or other income derived with respect to our business of investing in such stock or securities, or the Qualifying
Income Test; and
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | diversify our holdings so that at the end of each quarter of the tax year:
| | - | --------------------------------------------------------------------------



| | • | at least 50% of the value of our assets consists of cash, cash equivalents, U.S. government
securities, securities of other RICs, and other securities if 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 voting securities of the issuer; and
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | no more than 25% of the value of our assets is invested in the securities, other than U.S. government
securities or securities of other RICs, of one issuer or of two or more issuers that are controlled, as determined under applicable
tax rules, by us and that are engaged in the same or similar or related trades or businesses or in certain qualified publicly traded
partnerships, or the Diversification Tests.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Taxation as a RIC



If we qualify as a
RIC, and satisfy the Annual Distribution Requirement, then we will not be subject to entity-level income taxes on the portion of
our investment company taxable income as well as any net capital gain (i.e., realized net long-term capital gains in excess of
realized net short-term capital losses) we distribute as dividends to stockholders. We may retain for investment all or a portion
of our net capital gain. However, if we retain any investment company taxable income or net capital gains, and fail to satisfy
the Annual Distribution Requirement, we will be subject to entity-level taxation at regular corporate rates on any amounts retained.
If we fail to qualify as a RIC for a period greater than two consecutive tax years, to qualify as a RIC in a 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, including items of income, over aggregate losses that would have been realized with respect to such assets
if we had sold the property at fair market value at the end of the tax year) that we elect to recognize on requalification or when
recognized over the next five tax years.



We may be required
to recognize taxable income in circumstances in which we do not receive cash. For example, if we hold debt securities that are
treated under applicable tax rules as having original issue discount (such as debt instruments with PIK interest or, in certain
cases, increasing interest 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 debt security, regardless of whether cash representing such income is received by us
in the same tax year. Because any original issue discount accrued will be included 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 to satisfy the Annual Distribution
Requirement or the Excise Tax Avoidance Requirement, even though we will not have received any corresponding cash amount.





24







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
capital gain 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 securities are outstanding unless certain “asset coverage” tests are met. Moreover, our ability to
dispose of assets to meet our distribution requirements may be limited by (1) the illiquid nature of our portfolio and/or
(2) other requirements relating to our status as a RIC, including the Diversification Tests. If we dispose of assets in order
to meet the Annual Distribution Requirement or the Excise Tax Avoidance Requirement, we may make such dispositions at times that,
from an investment 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
of certain 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 our stockholders. In that case, all of our income will be subject to corporate-level federal income tax, reducing
the amount available to be distributed to our stockholders. 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 able to deduct distributions to stockholders, nor would they be required to be made. Distributions would generally be taxable
to our stockholders as ordinary distribution income eligible for the 15% or 20% maximum rate to the extent of our current and accumulated
earnings and profits. Subject to certain limitations under the Code, dividends paid by us to certain corporate stockholders would
be eligible for the dividends received deduction. Distributions in excess 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 our common stock, and any remaining
distributions would be treated as a capital gain.





25







| | 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,
you should consider carefully the following information before making an investment in our securities. The risks set out below
are not the only risks we face. If any of the following events occur, our business, financial condition and results of operations
could be materially and adversely affected. In such case, our 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 the identification,
evaluation, final selection, structuring, closing and monitoring of our investments. These employees have critical industry experience
and relationships that we rely on to implement our business plan to originate Venture Loans in our Target Industries. Our future
success depends on the continued service 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’s management 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 our business, results of operations or financial
condition to suffer.



In addition, if
any two of the three of Mr. Pomeroy, our Chief Executive Officer, Mr. Michaud, our President, or Mr. Trolio, our Chief
Financial Officer, 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 outstanding obligations 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
sell investments 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 our existing 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 our Advisor is not successful in identifying, attracting and retaining such employees, we may not be able to operate our business
as we expect. In addition, our Advisor may in the future manage investment funds with investment objectives similar to ours thereby
diverting the time and attention of its investment professionals 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 investment professionals
or its relationships. We would be required to obtain shareholder approval for a new investment management agreement in the event
that (1) the Advisor 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 a new investment management agreement or new investment adviser would provide the same or equivalent
services on the same or on as favorable of terms as the 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 operations and 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
commercial banks and other financing sources. Some of our competitors are larger and have greater financial, technical,
marketing and other resources than we have. For example, 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 to make commercial loans with interest rates
that are comparable to, or lower than, the rates we typically offer. We may lose prospective portfolio companies if we do not
match our competitors’ pricing, terms and structure. If we do match our competitors’ pricing, terms or structure,
we may experience decreased net interest income and increased risk of credit losses. In addition, some of our competitors may
have higher risk tolerances or different risk assessments, which could allow them to consider a wider variety of investments,
establish more relationships than us and build their market shares. Furthermore, many of our competitors 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
able to 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 fully invest our available capital. If this occurs, our business, financial condition and
results of operations could be materially adversely affected.





26







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 use
of 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 debt securities have fixed dollar claims on our assets that are superior
to the claims of our common stockholders. If the value of our assets increases, then leveraging would cause the NAV attributable
to our common stock to increase more sharply than it would have had we not leveraged. However, any decrease in 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
to make 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 a favorable 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 and competitive
pressures. Moreover, as our Advisor’s management fee is payable to our Advisor based on our gross assets less cash and cash
equivalents, including those assets acquired through the use of leverage, our Advisor may have a financial incentive to incur leverage
which may not be consistent with our stockholders’ interests. As leverage magnifies gains, if any, on our portfolio, as discussed
above, our Pre-Incentive Fee Net Investment Income may exceed the quarterly hurdle rate for the incentive fee on income payable.
Thus, if we incur additional leverage, the incentive fees payable to the Advisor may increase without any corresponding increase
in our performance. Holders of our common stock bear the burden of any increase in our expenses, as a result of leverage, including
any increase in the management fee or incentive 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
new investments and may seek to securitize additional debt investments in the future to the extent permitted by the 1940 Act and
the risk retention rules adopted pursuant to Section 941 of the Dodd-Frank Wall Street Reform and Consumer Protection Act, or the
Dodd-Frank Act. To securitize additional debt investments in the future, we may create a wholly-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 on a non-recourse
basis to purchasers, who we would expect to be willing to accept a lower interest rate to invest in investment grade loan pools.
We would retain all 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 our ability to grow our business, fully execute our business strategy and increase our earnings.
Moreover, certain types of securitization transactions may expose us to greater risk of loss than would other types of financing.



On June
7, 2018, a “required majority” (as defined in Section 57(o) of the 1940 Act) of our Board approved the reduced asset
coverage requirements and separately recommended that our stockholders approve the reduced asset coverage requirements at a special
meeting of our stockholders. The Company held a special meeting on October 30, 2018 during which the reduced asset coverage requirements
were approved by stockholders. The reduced asset coverage requirements took effect October 31, 2018.





27







Illustration:The
following table illustrates the effect of leverage on returns from an investment in our common stock assuming that we employ leverage
such that our asset coverage equals (1) our actual asset coverage as of December 31, 2019 and (2) 150% at 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%                                          |       
|Corresponding return to common stockholder assuming
 actual asset coverage as of December 31, 2019(1) |  |                                               | (22.84
|Corresponding return to common stockholder assuming 
150% asset coverage(2)                           |  |                                               | (40.24














|(1) | Assumes $344 million in total assets, $154 million in outstanding debt, $184 million in net assets, and an average cost of borrowed funds of 4.96% at December 31, 2019.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(2) | Assumes $558 million in total assets, $368 million in outstanding debt, $184 million in net assets, and an average cost of borrowed funds of 4.96% at December 31, 2019.



Based on our outstanding
indebtedness of $154 million as of December 31, 2019 and the average cost of borrowed funds of 4.96% as of that date, our
investment portfolio would have needed to experience an annual return of at least 2.62% to cover annual interest payments on the
outstanding debt. Actual interest payments may be different.



Based on
an outstanding indebtedness of $368 million on an assumed 150% asset coverage ratio and an average cost of borrowed funds of 4.96%,
our investment portfolio would need to experience an annual return of at least 3.59% 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 materially adversely
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 our failure to make payments when due under the Key Facility, unless cured within the applicable grace period, would result
in a default under the Key Facility that 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 to repay such indebtedness and the lender may exercise rights available to
them, including to the extent permitted under applicable law, the seizure of such assets without adjudication.



The Key Facility also
requires Credit II and our Advisor to comply with various financial covenants, including maintenance by our Advisor of a minimum
tangible net worth and limitations on the value of, and modifications to, the loan collateral that secures the Key Facility. Complying
with these restrictions 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 corporate activities, 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’s Discussion and Analysis
of Financial Condition and Results of Operations — Liquidity and capital resources” for additional information
regarding our credit arrangements.



An event of default
or acceleration under the Key Facility could also cause a cross-default or cross-acceleration of other debt instruments or contractual
obligations, which would adversely impact our liquidity. We may not be granted waivers or amendments to the Key Facility, if for
any reason we are unable to 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, 2022 Notes or the Asset-Backed Notes,
in order to obtain funds which may be made available for investments. We may borrow under the Key Facility until April 6,
2021. After such date, we must repay the outstanding advances under the Key Facility in accordance with its terms and
conditions. All outstanding advances under the Key Facility are due and payable on April 6, 2023, unless such date is
extended in accordance with the terms of the Key Facility. All outstanding amounts on our 2022 Notes are due and payable on
September 15, 2022 unless redeemed prior to that date. The Asset-Backed Notes have a stated maturity of September 15, 2027.
If we are unable to increase, renew or replace the Key Facility or enter into other new debt financings on commercially
reasonable terms, our liquidity may be reduced significantly. In addition, if we are unable to repay amounts outstanding
under any such debt financings and are declared in 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 normal course. 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 the value
of the U.S. dollar, an economic downturn or an operational problem that affects third parties or us, and could
materially damage our business.





28







We are subject to certain risks as
a result of our interests in connection with the 2019-1 Securitization and our equity interest in the 2019-1 Trust.



On August 13, 2019,
in connection with the 2019-1 Securitization and the offering of the Asset-Backed Notes by the 2019-1 Trust, we sold and/or contributed
to Horizon Funding 2019-1, LLC or the Trust Depositor, certain loans, or the Trust Loans, which the Trust Depositor in turn sold
and/or contributed to the 2019-1 Trust in exchange for 100% of the equity interest in the 2019-1 Trust, cash proceeds and other
consideration. Following these transfers, the 2019-1 Trust, and not the Trust Depositor or us, holds all of the ownership interest
in the Trust Loans.



As a result of the
2019-1 Securitization, we hold, indirectly through the Trust Depositor, 100% of the equity interest of the 2019-1 Trust. As a result,
we consolidate the financial statements of the Trust Depositor and the 2019-1 Trust, as well as our other subsidiaries, in our
consolidated financial statements. Because each of the Trust Depositor and the 2019-1 Trust is disregarded as an entity separate
from its owner for U.S. federal income tax purposes, the sale or contribution by us to the Trust Depositor, and by the Trust Depositor
to the 2019-1 Trust, did not constitute a taxable event for U.S. federal income tax purposes. If the U.S. Internal Revenue Service
were to take a contrary position, there could be a material adverse effect on our business, financial condition, results of operations
or cash flows. Further, a failure of the 2019-1 Trust to be treated as a disregarded entity for U.S. federal income tax purposes
would constitute an event of default pursuant to the indenture under the 2019-1 Securitization, upon which the trustee under the
2019-1 Securitization, or the Trustee, may, and will at the direction of a supermajority of the holders of the Asset-Backed Notes
(collectively, the “Noteholders”), declare the Asset-Backed Notes to be immediately due and payable and exercise remedies
under the indenture, including (i) institute proceedings for the collection of all amounts then payable on the Asset-Backed Notes
or under the indenture, enforce any judgment obtained, and collect from the 2019-1 Trust and any other obligor upon the Asset-Backed
Notes monies adjudged due; (ii) institute proceedings from time to time for the complete or partial foreclosure of the indenture
with respect to the property of the 2019-1 Trust; (iii) exercise any remedies as a secured party under the relevant provisions
of the applicable jurisdiction’s UCC and take other appropriate action under applicable law to protect and enforce the rights
and remedies of the Trustee and the Noteholders; or (iv) sell the property of the 2019-1 Trust or any portion thereof or rights
or interest therein at one or more public or private sales called and conducted in any matter permitted by law. Any such exercise
of remedies could have a material adverse effect on our business, financial condition, results of operations or cash flows.



An event of default in connection
with the 2019-1 Securitization could give rise to a cross-default under our other material indebtedness.



The documents governing
our other material indebtedness contain customary cross-default provisions that could be triggered if an event of default occurs
in connection with the 2019-1 Securitization. An event of default with respect to our other indebtedness could lead to the acceleration
of such indebtedness and the exercise of other remedies as provided in the documents governing such other indebtedness. This could
have a material adverse effect on our business, financial condition, results of operations and cash flows and may result in our
inability to make distributions sufficient to maintain our status as a RIC.



We may not receive cash distributions
in respect of our indirect ownership interest in the 2019-1 Trust.



Apart from fees
payable to us in connection with our role as servicer of the Trust Loans and the reimbursement of related amounts under the
2019-1 Securitization documents, we receive cash in connection with the 2019-1 Securitization only to the extent that the
Trust Depositor receives payments in respect of its equity interest in the 2019-1 Trust. The holder of the equity interest in
the 2019-1 Trust is the residual claimant on distributions, if any, made by the 2019-1 Trust after the Noteholders and other
claimants have been paid in full on each payment date or upon maturity of the Asset-Backed Notes, subject to the priority of
payment provisions under the 2019-1 Securitization documents. To the extent that the value of the 2019-1 Trust’s
portfolio of Trust Loans is reduced as a result of conditions in the credit markets (relevant in the event of a liquidation
event), other macroeconomic factors, distressed or defaulted Trust Loans or the failure of individual portfolio companies to
otherwise meet their obligations in respect of the Trust Loans, or for any other reason, the ability of the 2019-1 Trust to
make cash distributions in respect of the Trust Depositor’s equity interest would be negatively affected and,
consequently, the value of the equity interest in the 2019-1 Trust would also be reduced. In the event that we fail to
receive cash indirectly from the 2019-1 Trust, we could be unable to make distributions in amounts sufficient to maintain our
status as a RIC or at all.





29







The interests of the Noteholders
may not be aligned with our interests.



The Asset-Backed Notes
are debt obligations ranking senior in right of payment to the rights of the holder of the equity interest in the 2019-1 Trust
(currently the Trust Depositor, our wholly owned subsidiary), as residual claimant in respect of distributions, if any, made by
the 2019-1 Trust. As such, there are circumstances in which the interests of the Noteholders may not be aligned with the interests
of the holder of the equity interest in the 2019-1 Trust. For example, under the terms of the documents governing the 2019-1 Securitization,
the Noteholders have the right to receive payments of principal and interest prior to the holder of the equity interest in the
2019-1 Trust.



For as long as the
Asset-Backed Notes remain outstanding, the Noteholders have the right to act in certain circumstances with respect to the Trust
Loans in ways that may benefit their interests but not the interests of holder of the equity interest in the 2019-1 Trust, including
by exercising remedies under the documents governing the 2019-1 Securitization.



If an event of default
occurs, the Noteholders will be entitled to determine the remedies to be exercised, subject to the terms of the documents governing
the 2019-1 Securitization. For example, upon the occurrence of an event of default with respect to the Asset-Backed Notes, the
Trustee may, and will at the direction of the holders of a supermajority of the Asset-Backed Notes, declare the principal, together
with any accrued interest, of the Asset-Backed Note to be immediately due and payable. This would have the effect of accelerating
the principal on such Asset-Backed Note, triggering a repayment obligation on the part of the 2019-1 Trust. The Asset-Backed Notes
then outstanding will be paid in full before any further payment or distribution is made to the holder of the equity interest in
2019-1 Trust. There can be no assurance that there will be sufficient funds through collections on the Trust Loans or through the
proceeds of the sale of the Trust Loans in the event of a bankruptcy or insolvency to repay in full the obligations under the Asset-Backed
Notes, or to make any distribution payment to holder of the equity interest in the 2019-1 Trust.



Remedies pursued by
the Noteholders could be adverse to our interests as the indirect holder of the equity interest in the 2019-1 Trust. The Noteholders
have no obligation to consider any possible adverse effect on such other interests. Thus, there can be no assurance that any remedies
pursued by the Noteholders will be consistent with the best interests of the Trust Depositor or that we will receive, indirectly
through the Trust Depositor, any payments or distributions upon an acceleration of the Asset-Backed Notes. Any failure of the 2019-1
Trust to make distributions in respect of the equity interest that we indirectly hold through the Trust Depositor, whether as a
result of an event of default and the acceleration of payments on the Asset-Backed Notes or otherwise, could have a material adverse
effect on our business, financial condition, results of operations and cash flows and may result in our inability to make distributions
sufficient to maintain our status as a RIC.



Certain events related to the performance
of Trust Loans could lead to the acceleration of principal payments on the Asset-Backed Notes.



The following constitute
rapid amortization events, or Rapid Amortization Events, under the documents governing the 2019-1 Securitization: (i) the aggregate
outstanding principal balance of all delinquent Trust Loans exceeds twenty percent (20%) of the aggregate outstanding principal
balance of the Trust Loans; (ii) the aggregate outstanding principal balance of defaulted Trust Loans plus the aggregate outstanding
principal balance of all liquidated Trust Loans exceeds fifteen percent (15%) of the aggregate outstanding principal balance of
the Trust Loans; (iii) the aggregate outstanding principal balance of the Asset-Backed Notes exceeds the borrowing base (which
is a percentage of the outstanding principal balance of the Trust Loans less delinquent Trust Loans and Trust Loans to issuers
that exceed given thresholds) for a period of sixty consecutive days; (iv) the 2019-1 Trust’s pool of Trust Loans contains
Trust Loans to nine or fewer obligors during the amortization period; (v) the occurrence of an event of default under the documents
governing the 2019-1 Securitization; (vi) the downgrade of the rating of the Asset-Backed Notes by the rating agency to below
 “BB”; and the downgrade of the rating of the Asset-Backed Notes by the rating agency to below investment-grade and
failure to cure such downgrade within 180 days of such downgrade. After a Rapid Amortization Event has occurred, subject to the
priority of payment provisions under the documents governing the 2019-1 Securitization, principal collections on the Trust Loans
will be used to make accelerated payments of principal on the Asset-Backed Notes until the payment of principal balance of the
Asset-Backed Notes is reduced to zero. Such an event could delay, reduce or eliminate the ability of the 2019-1 Trust to make
payments or distributions in respect of the equity interest that we indirectly hold, which could have a material adverse effect
on our business, financial condition, results of operations and cash flows and may result in our inability to make distributions
sufficient to maintain our status as a RIC.





30







We have certain repurchase obligations
with respect to the Trust Loans transferred in connection with the 2019-1 Securitization.



As part of the 2019-1
Securitization, we entered into a sale and contribution agreement and a sale and servicing agreement under which we would be required
to repurchase any Trust Loan (or participation interest therein) which was sold to the 2019-1 Trust in breach of certain customary
representations and warranties made by us or by the Trust Depositor with respect to such Trust Loan or the legal structure of the
2019-1 Securitization. To the extent that there is such a breach of such representations and warranties and we fail to satisfy
any such repurchase obligation, the Trustee may, on behalf of the 2019-1 Trust, bring an action against us to enforce these repurchase
obligations.



Because we distribute all or substantially
all of our investment company taxable income to our stockholders, we will need additional capital to finance our growth. 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 incurring excise taxes and to minimize or to avoid incurring corporate-level federal income 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 gains as deemed distributions to our stockholders. As a BDC, we generally are required to maintain
coverage of total assets to total senior securities, which includes all of our borrowings and any preferred stock we may issue
in the future, of at least 150%, subject to certain disclosures. This requirement limits the amount that we may borrow. Because
we continue to need capital to grow our debt investment portfolio, this limitation may prevent us from incurring debt and require
us to raise additional equity at 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 equity securities 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 and investment activities,
and our NAV could decline.



As a BDC, we generally are not able to issue our common
stock at a price below the then-current NAV per share without first obtaining the approval of our stockholders and our independent
directors. If our common stock trades at a price below NAV per share and we do not receive such approval, our business could be
materially adversely affected.



As a BDC, we generally
are not able to issue our common stock at a price below the then-current NAV per share without first obtaining the approval of
our stockholders and our independent directors. Stockholder approval to offer our common stock at a price below NAV per share expired
in January 2016, but we may seek such approval again in the future. If our common stock trades at a price below NAV per share and
we do not receive approval from our stockholders and our independent directors to issue common stock at a price below NAV per share,
we cannot raise capital through the issuance of common stock. This may limit our ability: to grow and make new investments; to
attract and retain top investment professionals; to maintain deal flow and relations with top companies in our Target Industries
and related entities such as venture capital and private equity sponsors; and to sustain a minimum efficient scale for a public
company.



We are subject to risks associated with a rising interest
rate environment that may affect our cost of capital and net investment income.



While interest rates
remain relatively low, due to several factors, including longer-term inflationary pressure that may result from the U.S. government’s
fiscal policies, the end of the Federal Reserve quantitative easing program and recent increases in the Federal Funds rate, we
expect to experience rising interest rates, rather than falling rates in the future.





31







Because we currently
incur indebtedness to fund our investments, a portion of our income depends upon the difference between the interest rate at which
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 floors that 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 rate compression and have a material adverse effect on our
net investment income. In addition to increasing the cost of borrowed funds, which may materially reduce our net investment income,
rising interest rates may also adversely affect our ability to obtain additional debt financing on terms as favorable as under
our current debt financings, or at all.  See “—If we are unable to obtain additional debt financing, our business
could be materially adversely affected.”



In a rising interest
rate environment, there is a risk that the portfolio companies in which we hold floating rate securities will be unable to pay
escalating interest amounts, which could result in a default under their loan documents with us. Rising interests rates could also
cause portfolio companies to shift cash from other productive uses to the payment of interest, which may have a material adverse
effect on their business and operations and could, over time, lead to increased defaults on our investments in such portfolio companies. In
addition, increasing payment obligations under floating rate loans may cause borrowers to refinance or otherwise repay our loans
earlier than they otherwise would, requiring us to incur management time and expense to re-deploy such proceeds, including on terms
that may not be as favorable as our existing loans. In addition, rising interest rates may increase pressure on us to provide fixed
rate loans to our portfolio companies, which could adversely affect our net investment income, as increases in our cost of borrowed
funds would not be accompanied by increased interest income from such fixed-rate investments.



We may hedge against
interest rate fluctuations by using hedging instruments such as caps, swaps, futures, options and forward contracts, subject to
applicable legal requirements, including all necessary registrations (or exemptions from registration) with the Commodity Futures
Trading Commission. See Item 7A. Quantitative and Qualitative Disclosures About Market Risk. These activities may limit our ability
to benefit from lower interest rates with respect to the hedged portfolio. Adverse developments resulting from changes in interest
rates or hedging transactions or any adverse developments from our use of hedging instruments could have a material adverse effect
on our business, financial condition and results of operations. In addition, we may be unable to enter into appropriate hedging
transactions when desired and any hedging 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 interest
rates 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 of incentive 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 to increase our distributions, which could materially reduce the value of our common stock.



In July 2017, the
head of the United Kingdom Financial Conduct Authority announced the phase out of the use of LIBOR by the end of 2021. To identify
a successor rate for U.S. dollar LIBOR, the Alternative Reference Rates Committee or ARRC, a U.S. based group convened by the Federal
Reserve Board and the Federal Reserve Bank of New York, was formed. Similarly, financial regulators in the UK, the European Union,
Japan, and Switzerland formed working groups with the aim of recommending alternatives to LIBOR denominated in their local currencies.
The ARRC is comprised of a diverse set of private-sector entities and a wide array of official-sector entities, banking regulators,
and other financial sector regulators. The ARRC has identified the Secured Overnight Financing Rate or SOFR as its preferred
alternative rate for LIBOR. SOFR is a measure of the cost of borrowing cash overnight, collateralized by U.S. Treasury securities,
and is based on directly observable U.S. Treasury-backed repurchase transactions. Although SOFR appears to be the preferred
replacement rate for U.S. dollar LIBOR, it is unclear if other benchmarks may emerge or if other rates will be adopted outside
of the U.S.



The expected
discontinuation of LIBOR could have a significant impact on our business. The dollar amount of our outstanding debt
investments and borrowings that are linked to LIBOR with maturity dates after the anticipated discontinuation date of 2021 is
material. We anticipate significant operational challenges for the transition away from LIBOR including, but not limited to,
amending existing loan agreements with borrowers on investments that may have not been modified with fallback language and
adding effective fallback language to new agreements in the event that LIBOR is discontinued before maturity. Beyond these
challenges, we anticipate there may be additional risks to our current processes and information systems that will need to be
identified and evaluated by us. Due to the uncertainty of the replacement for LIBOR, the potential effect of any such event
on our cost of capital and net investment income cannot yet be determined. In addition, any further changes or reforms to the
determination or supervision of LIBOR may result in a sudden or prolonged increase or decrease in reported LIBOR, which could
have an adverse impact on the market value for or value of any LIBOR-linked securities, loans, and other financial
obligations or extensions of credit held by or due to us and could have a material adverse effect on our business, financial
condition and results of operations.





32







Because many of our investments are
not and typically will not be in publicly traded securities, the value of our investments may not be readily determinable, 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 held companies.
As these investments are not publicly traded, their fair value may not be readily determinable. In addition, we are not permitted
to maintain a general reserve for anticipated debt investment losses. Instead, we are required by the 1940 Act to specifically
value each investment and record an unrealized 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 frequently as circumstances require, in accordance with our valuation
policy and consistent with GAAP. Our Board employs independent third-party valuation firms to assist 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 our
Advisor and the third-party valuation firms. The factors that may be considered in fair value pricing our investments include the
nature and realizable value of any collateral, the portfolio company’s earnings and its ability to make payments on its indebtedness,
the markets in which the portfolio company does business, comparisons to publicly traded companies, discounted cash flow and other
relevant factors. Because such valuations are inherently uncertain and may be based on estimates, our determinations of fair value
may differ materially from the values that would be assessed if a ready market for these securities existed. Our NAV could be adversely
affected if our determinations regarding the fair value of our investments are materially higher than the values that we ultimately
realize upon the disposal of these investments.



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 additional risks.



Our business plans
contemplate a need for a substantial amount of capital in addition to our current amount of capital. We may obtain additional capital
through the issuance of debt securities or preferred stock, and we may borrow money from banks or other financial institutions,
which we refer to collectively as “senior securities,” up to the maximum amount permitted by the 1940 Act. If we issue
senior securities, we would be exposed to typical risks associated with 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 and preferred stockholders would have
separate voting rights and may have rights, preferences or privileges more favorable than those of holders of our common stock.



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 150% after each
issuance of senior securities, subject to certain disclosure requirements. If our asset coverage is not at least 150%, we are not
permitted to pay distributions or issue additional senior securities. As a result, we may have difficulty meeting the Annual Distribution
Requirement necessary to maintain RIC tax treatment. Moreover, if the value of our assets declines, we may be unable to satisfy
this asset coverage test. If that happens, we may be required to liquidate a portion of our investments and repay a portion of
our indebtedness at a time when we may be unable to do so or unable to do so on favorable terms.



As a BDC, we generally
are not able to issue our common stock at a price below NAV per share without first obtaining the approval of our stockholders
and our independent directors. Our stockholder approval expired in January 2016, but we may seek such approval again in the future.
If our common stock trades at a price below NAV per share and we do not receive approval from our stockholders and our independent
directors to issue common stock at a price below NAV per share, we cannot raise capital through the issuance of equity securities.
This may limit our ability: to grow and make new investments; to attract and retain top investment professionals; to maintain deal
flow and relations with top companies in our Target Industries and related entities such as venture capital and private equity
sponsors; and to sustain a minimum efficient scale for a public company. The stockholder approval requirement does not apply to
stock issued upon the exercise of options, warrants or rights that we may issue from time to time. If we raise additional funds
by issuing more common stock or senior securities convertible into, or exchangeable for, our common stock, the percentage ownership
of our stockholders at that time would decrease, and you may experience dilution.





33







Because we intend to distribute substantially
all of our income to our stockholders to maintain our ability to be subject to tax as a RIC, we will need to raise additional capital
to finance our growth. If funds are not available to us, we may need to curtail new investments, and our common stock value could
decline.



In
order to satisfy the requirements to be treated as a RIC for federal income tax purposes, we intend to distribute to our stockholders
substantially all of our investment company taxable income and net capital gains each taxable year. However, we may retain all
or a portion of our net capital gains and pay applicable income taxes with respect thereto and elect to treat such retained net
capital gains as deemed dividend distributions to our stockholders.



As a BDC, we are required
to meet a 150% asset coverage ratio, subject to certain disclosure requirements of total assets to total senior securities, which
includes all of our borrowings, and any preferred stock we may issue in the future. This requirement limits the amount we may borrow.
If the value of our assets declines, we may be unable to satisfy this test. If that happens, we may be required to sell a portion
of our investments or sell additional common stock and, depending on the nature of our leverage, to repay a portion of our indebtedness
at a time when such sales and repayments may be disadvantageous. In addition, the issuance of additional securities could dilute
the percentage ownership of our current stockholders in us.



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 certain source-of-income and asset diversification requirements contained in Subchapter M of the Code,
as well as maintain our election to be regulated as a BDC under the 1940 Act. We must also meet the Annual Distribution Requirement
in order to avoid the imposition of corporate-level income taxes on all 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-exempt
interest), 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 or currencies, or net income derived from interests in “qualified publicly
traded partnerships.” The status of certain forms of income we receive could be subject to 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 we do 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 our having to (1) dispose of certain investments quickly; (2) raise additional capital to prevent the loss of RIC
status; or (3) engage in certain remedial actions that may entail the disposition of certain investments at disadvantageous
prices that could result in substantial losses, and the payment of penalties, if we qualify to take such actions. Because most
of our investments are and will be in development-stage companies within our Target Industries, any such dispositions could be
made at disadvantageous prices and may result in substantial losses. If we raise additional capital to satisfy the asset diversification
requirements, it could take a longer time to invest such capital. During this period, we will invest in temporary investments,
such as money market funds, which we expect will earn yields substantially lower than the interest income that we anticipate receiving
in respect of our investments in secured and amortizing debt investments.



The Annual Distribution
Requirement is satisfied if we distribute dividends to our stockholders in each tax year of an amount generally equal to at least
90% of our investment company taxable income, determined without regard to any deductions for dividends paid. If we borrow money,
we may be subject to certain asset coverage requirements under the 1940 Act and loan covenants that could, under certain circumstances,
restrict us from making distributions necessary to qualify as a RIC. If we are unable to obtain cash from other sources, we may
fail to be eligible to be subject to taxation 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 reduce our net assets, the amount of income available for distribution to our stockholders, and the actual
amount of our distributions. Such a failure would have a material adverse effect on us, the NAV of our common stock and the
total return, if any, obtainable from your investment in our common stock. In addition, we could be required to recognize
unrealized gains, incur substantial taxes and interest and make substantial distributions before requalifying as a RIC. See
 “Item 1. Business—Regulation.”





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Impact of 2017 Federal Tax Legislation



Significant U.S. federal
tax reform legislation was enacted in 2017 that, among many other changes, permanently reduced the maximum federal corporate income
tax rate, reduced the maximum individual income tax rate (effective for taxable years through 2025), restricted the deductibility
of business interest expense, changed the rules regarding the use of net operating losses, and under certain circumstances required
accrual method taxpayers to recognize income for U.S. federal income tax purposes no later than the income is taken into account
as revenue in an applicable financial statement. The impact of this 2017 legislation on us and our portfolio companies is uncertain.
Prospective investors are urged to consult their tax advisors regarding the effects of the 2017 legislation.



Changes to U.S. tariff and import/export regulations may
have a negative effect on our portfolio companies and, in turn, harm us.



There has been ongoing
discussion and commentary regarding potential significant changes to U.S. trade policies, treaties and tariffs. The current U.S.
presidential administration, along with the U.S. Congress, has created significant uncertainty about the future relationship between
the United States and other countries with respect to trade policies, treaties and tariffs. These developments, or the perception
that any of them could occur, may have a material adverse effect on global economic conditions and the stability of global financial
markets, and may significantly reduce global trade and, in particular, trade between the impacted nations and the United States.
Any of these factors could depress economic activity and restrict our portfolio companies' access to suppliers or customers and
have a material adverse effect on their business, financial condition and results of operations, which in turn would negatively
impact us.



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 are
treated under applicable tax rules as having original issue discount (such as debt instruments with PIK, or, in certain cases,
increasing interest 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 the debt 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 to invest in original issue discount instruments, including
PIK debt investments. Because in certain cases we may recognize taxable income before or 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 forego
new investment opportunities or otherwise take actions that are disadvantageous to our business (or be unable to take actions that
we believe are necessary or advantageous to our business) in order to satisfy the Annual Distribution Requirement. If we are unable
to obtain cash from other sources to satisfy the Annual Distribution Requirement, we may become subject to a corporate-level income
taxes on all of our income. The proportion of our income, consisting of 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 the years ended December 31, 2019,
2018 and 2017 was 10.2%, 10.4% 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 principal and/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
investments requiring payments of all principal and accrued interest at regular intervals over the life of the debt
investment. For example, even if the accounting conditions for income accrual were met during the period when the obligation
was outstanding, the borrower could still default when our actual collection is scheduled to occur upon maturity of the
obligation. The amount of ETPs due under our investments having such a feature currently represents a small portion of the
applicable borrowers’ total repayment obligations under such investments. However, deferred payment arrangements
increase the incremental risk that we will not receive a portion of the amount due at maturity. Additionally, because
investments with a deferred payment feature may have the effect of deferring a portion of the borrower’s payment
obligation until maturity of the debt investment, it may be difficult for us to identify and address developing problems 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.





35







In addition, debt
investments providing for ETPs are subject to the risks associated with debt investments having original issue discount (such as
debt instruments with PIK interest or, in certain cases, increasing interest rates or issued with warrants). See “—We
may have difficulty paying our required 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 meet our unfunded commitments
to extend credit, which could have a material adverse effect on our reputation in the market and our ability to generate incremental
lending activity and may 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 established under
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 of available 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 financing issues,
which may increase our portfolio companies’ borrowing needs. Any failure to meet our unfunded credit commitments in accordance
with the actual borrowing needs of our portfolio companies may have a material adverse effect on our reputation in the market and
our ability to generate incremental lending activity and may subject us to lender liability claims.



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 our current
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 after giving
effect to such acquisition, at least 70% of our total assets are qualifying assets. Subject to certain exceptions for follow-on
investments and distressed companies, an investment in an issuer that has outstanding securities listed on a national securities
exchange may be treated as a qualifying asset only if such issuer has a market capitalization that is less than $250 million at
the time of such investment and meets the other specified requirements. 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
assets may 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 to whether a company has outstanding marginable securities. See Item 1 above, “Regulation —
Qualifying assets.”



If we do not invest
a sufficient portion of our assets in qualifying assets, we could lose our status as a BDC. If we do 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, we would 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 at the U.S. local, state and federal level. We are also subject to federal,
state and local laws and are subject to judicial and administrative decisions that affect our operations, including maximum
interest rates, fees and other charges, disclosures to portfolio companies, the terms of secured transactions, collection and
foreclosure proceedings and other trade practices. If these laws, regulations or decisions change, or if we expand our
business into additional jurisdictions, we may have to incur significant expenses in order to comply or we might have to
restrict our operations. New legislation may be enacted or new interpretations, rulings or regulations could be adopted,
including those governing the types of investments we or our portfolio companies are permitted to make, any of which could
harm us and our stockholders, potentially with retroactive effect. In particular, the impact of the Dodd-Frank Act, and any
amendments thereto that may be enacted, on us and our portfolio companies is subject to continuing uncertainty. The
Dodd-Frank Act, including future rules implementing its provisions and the interpretation of those rules, along with other
legislative and regulatory proposals directed at the financial services industry or affecting taxation that are proposed or
pending in the U.S. Congress, may negatively impact the operations, cash flows or financial condition of us or our portfolio
companies, impose additional costs on us or our portfolio companies, intensify the regulatory supervision of us or our
portfolio companies or otherwise adversely affect our business or the business of our portfolio companies. President Trump
and certain members of Congress have indicated they will seek to amend or repeal portions of the Dodd-Frank Act, among other
federal laws. We cannot predict the ultimate effect on us or our portfolio companies that changes in the laws and regulations
would have as a result of the Dodd-Frank Act, or whether and the extent to which the Dodd-Frank Act may remain in its current
form. In addition, uncertainty regarding legislation and regulations affecting the financial services industry or taxation
could also adversely impact our business or the business of our portfolio companies. If we do not comply with applicable laws
and regulations, we could lose any licenses that we then hold for the conduct of our business and may be subject to civil
fines and criminal penalties.



36









Changes to or repeal
of the laws and regulations governing our operations related to permitted investments may cause us to alter our investment strategy
in order to avail ourselves of new or different opportunities. Such changes could result in material differences to our strategies
and plans and may shift our investment focus from the areas of expertise of our Advisor to other types of investments in which
our Advisor may have little or no expertise or experience. Any such changes, if they occur, could have a material adverse effect
on our results of operations and the value of your investment.



Additionally, on February
3, 2017, President Trump signed Executive Order 13772 announcing the Administration's policy to regulate the U.S. financial system
in a manner consistent with certain "Core Principles," including regulation that is efficient, effective and appropriately
tailored. The Executive Order directed the Secretary of the Treasury, in consultation with the heads of the member agencies of
the Financial Stability Oversight Council, to report to the President on the extent to which existing laws, regulations and other
government policies promote the Core Principles and to identify any laws, regulations or other government policies that inhibit
federal regulation of the U.S. financial system. On June 12, 2017, the U.S. Department of the Treasury published the first of several
reports in response to the Executive Order on the depository system covering banks and other savings institutions. On October 6,
2017, the Treasury released a second report outlining ways to streamline and reform the U.S. regulatory system for capital markets,
followed by a third report, on October 26, 2017, examining the current regulatory framework for the asset management and insurance
industries. The Treasury released a fourth report on July 31, 2018 describing recommendations relating to non-bank financial institutions,
financial technology and innovation. Subsequent reports are expected to address retail and institutional investment products and
vehicles.



On May 24, 2018, President
Trump signed into law the Economic Growth, Regulatory Relief, and Consumer Protection Act, which increased from $50 billion to
$250 billion the asset threshold for designation of "systemically important financial institutions" or "SIFIs"
subject to enhanced prudential standards set by the Federal Reserve Board, staggering application of this change based on the size
and risk of the covered bank holding company. On January 30, 2020, the Federal Reserve Board released proposed changes to the Volcker
Rule that would loosen compliance requirements for all banks. The effect of these changes and any further rules or regulations
are and could be complex and far-reaching, and the change and any future laws or regulations or changes thereto could negatively
impact our operations, cash flows or financial condition, impose additional costs on us, intensify the regulatory supervision of
us or otherwise adversely affect our business, financial condition and results of operations.



Over the last several
years, there also has been an increase in regulatory attention to the extension of credit outside of the traditional banking sector,
raising the possibility that some portion of the non-bank financial sector will be subject to new regulation. While it cannot be
known at this time whether any regulation will be implemented or what form it will take, increased regulation of non-bank credit
extension could negatively impact our operations, cash flows or financial condition, impose additional costs on us, intensify the
regulatory supervision of us or otherwise adversely affect our business, financial condition and results of operations.



Uncertainty about presidential administration initiatives
could negatively impact our business, financial condition and results of operations.



The Trump
administration has called for significant changes to U.S. trade, healthcare, immigration, foreign and government regulatory
policy. In this regard, there is significant uncertainty with respect to legislation, regulation and government policy at the
federal level, as well as the state and local levels. Recent events have created a climate of heightened uncertainty and
introduced new and difficult-to-quantify macroeconomic and political risks with potentially far-reaching implications. There
has been a corresponding meaningful increase in the uncertainty surrounding interest rates, inflation, foreign exchange
rates, trade volumes and fiscal and monetary policy. To the extent the U.S. Congress or the Trump administration implements
changes to U.S. policy, those changes may impact, among other things, the U.S. and global economy, international trade and
relations, unemployment, immigration, corporate taxes, healthcare, the U.S. regulatory environment, inflation and other
areas. Although we cannot predict the impact, if any, of these changes to our business, they could adversely affect our
business, financial condition, operating results and cash flows. Until we know what policy changes are made and how those
changes impact our business and the business of our competitors over the long term, we will not know if, overall, we will
benefit from them or be negatively affected by them.





37







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, giving
rise 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 or may 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 obligations to investors in those entities, the fulfillment of which might
not be in the best interests of our stockholders. In addition, obligations to these other entities may 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 to dedicate
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 whole
or 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, depending on the availability of the investment and other appropriate factors, our Advisor will endeavor to allocate
investment opportunities in a fair and equitable manner 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 may not be given the opportunity to participate in
these other investment opportunities.



We pay management
and incentive fees to our Advisor and reimburse our Advisor for certain expenses it incurs. As a result, investors in our common
stock 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 achieve through direct investments. Also, 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 more speculative than would
be the case in the absence of such compensation arrangements. In addition, if any of the other funds managed by 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 to a 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 HTF 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 Technology
Finance” service mark for so long as the Investment Management Agreement is in effect between us and our Advisor. In addition,
we pay our Advisor, our allocable 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 and Chief Compliance Officer and their respective staffs.
Any potential conflict of interest arising as a result of our arrangements with our Advisor could have a material 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 more speculative than would be the case in the absence of such compensation arrangement. The incentive fee payable to our
Advisor is calculated based on a percentage of our return on invested capital. This may encourage our Advisor to use leverage
to increase the return on our investments. Under certain circumstances, the use of leverage may increase the likelihood of
default, which would impair the value of our common stock. In addition, our Advisor receives 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 is
no 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 capital in investments that are likely to result in capital gains as compared to income-producing
securities. Such a practice could result in our investing in more speculative investments than would otherwise be the case,
which could result in higher investment losses, particularly during economic downturns. In addition, the incentive fee may
encourage our Advisor to pursue different types of investments or structure investments in ways that are more likely to
result in warrant gains or gains on equity investments, including upon exercise of equity participation rights, which are
inconsistent with our investment strategy and disciplined underwriting process.





38







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, we would 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 investment income used to calculate the income portion of our investment fee, however,
includes accrued interest. Thus, a portion of this incentive fee would be based on 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 defer interest
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 derive from 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 independent
directors 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 for purposes of the 1940 Act, and we are generally prohibited from buying or selling any security from or to,
or entering into certain “joint” transactions (which could include investments in the same portfolio company) with,
such affiliates, absent the prior approval of our independent directors or, in certain cases, the SEC.



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. We are
generally prohibited from buying or selling any security from or to, or entering into “joint” transactions with, such
affiliates without prior approval of our independent directors and, in some cases, 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 staff interpretations
and/or exemptive relief issued by the SEC. For example, we may invest alongside such accounts consistent with guidance promulgated
by the staff 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 are met, 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 our Advisor’s other clients as otherwise permissible under regulatory
guidance and applicable regulations. Such investments will be allocated in accordance with our Advisor’s allocation policy,
and this allocation policy is periodically approved by our Advisor and reviewed by our independent directors. We expect that allocation
determinations will be made similarly for other accounts sponsored or managed by our Advisor. If sufficient securities or loan
amounts are available 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,
the opportunity will generally be allocated pro rata based on each affiliate’s initial allocation 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.



On November 27, 2017,
we were granted exemptive relief from the SEC that permits greater flexibility to negotiate the terms of co-investments if our
Board determines in advance that it would be advantageous for us to co-invest with other accounts sponsored or managed by our Advisor
in a manner consistent with our investment objective, positions, policies, strategies and restrictions, as well as regulatory requirements
and other relevant factors. We cannot assure you, however, that we will develop opportunities that comply with such limitations.



In situations where
co-investment with other accounts managed by our Advisor is not permitted or appropriate, our Advisor will need to decide which
client will proceed with the investment. Our Advisor’s allocation policy provides, in such circumstances, for investments
to be allocated to assure that all clients have fair and equitable access to such investment opportunities over time. Moreover,
except in certain circumstances, we will be unable to invest in any issuer in which a fund managed by our Advisor has previously
invested. Similar restrictions limit our ability to transact business with our officers or directors or their affiliates. These
restrictions may limit the scope of investment opportunities that would otherwise be available to us.





39







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 will
determine 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 in publicly traded securities, the value of our investments may not be readily determinable,
which could adversely affect the determination of our NAV.” In connection with that determination, investment professionals
from the Advisor may provide the Board with portfolio company valuations based upon the most recent portfolio company financial
statements available and projected financial results of each portfolio company. The participation of the Advisor’s investment
professionals in our valuation process could result in a conflict of interest as the Advisor’s management fee is based, in
part, on our gross assets less cash and cash equivalents, 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 riskier
manner 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 under that
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 the terms of the Investment Management Agreement, our Advisor, its officers, members, personnel and any
person controlling or controlled by our Advisor are not liable to us, any subsidiary of ours, our directors, our stockholders or
any subsidiary’s stockholders or partners for acts or omissions performed in accordance 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
Advisor and each of its officers, directors, members, managers and employees from and against any claims or liabilities, including
reasonable legal fees and other expenses reasonably incurred, arising out of or in connection with our business and operations
or any action taken or omitted on our behalf pursuant to authority granted by the Investment Management Agreement, except where
attributable to gross negligence, willful misconduct, bad faith or reckless disregard of such person’s duties under the Investment
Management Agreement. These protections may lead our Advisor to act in a riskier manner when acting on our behalf than it would
when acting for its own account.



If we are unable to manage our future
growth effectively, we may be unable to achieve our investment objective, which could adversely affect our business, results of
operations and financial condition and cause the value of your investment in us to decline.



Our ability to achieve
our investment objective depends on our ability to achieve and sustain growth, which depends, in turn, on our Advisor’s direct
origination capabilities and disciplined underwriting process in identifying, evaluating, financing, investing in and monitoring
suitable companies that meet our investment criteria. Accomplishing this result on a cost-effective basis is largely a function
of our Advisor’s marketing capabilities, management of the investment process, ability to provide efficient services and
access to financing sources on acceptable terms. In addition to monitoring the performance of our existing investments, our Advisor
may also be called upon to provide managerial assistance to our portfolio companies. These demands on their time may distract them
or slow the rate of investment. If we fail to manage our future growth effectively, our business, results of operations and financial
condition could 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 effects of 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 without stockholder
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 a BDC 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 days before the date of such meeting). We cannot predict the effect any changes to our
current operating policies and strategies would have on our business, results of 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 which could negatively impact
our ability to pay distributions or cause you to lose all or part of your investment in us.





40







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 rate on these investments, the level of our expenses, variations in, and the timing of, the recognition of realized
and unrealized gains or losses, the degree to which we encounter competition in our markets and general economic conditions. For
example, we have historically experienced greater investment activity during 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 being indicative of our performance in
future periods.



Our business plan and growth strategy
depend to a significant extent upon our Advisor’s referral relationships. If our Advisor is unable to develop new or maintain
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 business
objectives, 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 investment opportunities. If they fail to maintain their existing relationships or develop new relationships
with other firms or sources of investment opportunities, we may not be able to grow our investment portfolio. In addition, persons
with whom our Advisor has relationships are not obligated to provide us with investment opportunities, and, therefore, there is
no assurance that such relationships will lead to the origination of debt or other investments.



Our Advisor can resign on 60 days’
notice, and we may not be able to find a suitable replacement within that time, resulting in a disruption in our operations 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 than 60 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 or administrator or hire internal management with similar expertise and ability to provide the same or equivalent services
on acceptable terms within 60 days, or at all. If we are unable to do so, our operations are likely to be disrupted, our business,
results of operations and financial condition and our ability to pay distributions may be adversely affected and the market price
of our shares may decline. In addition, the coordination of our internal management and investment activities is likely to suffer
if we are unable to identify and reach an agreement with a single institution or group of executives having the expertise possessed
by our Advisor and its affiliates. Even if we are able to retain comparable management, whether internal or external, the integration
of new management and their lack of familiarity with our investment objective may result in additional costs and time delays that
may adversely affect our business, results of operations or financial condition.



We incur significant costs as a result
of being a publicly traded company.



As a publicly traded
company, we incur legal, accounting and other expenses, including costs associated with the periodic reporting requirements applicable
to a company whose securities are registered under the Exchange Act as well as additional corporate governance requirements, including
requirements 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-Oxley Act
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
Act and related rules and regulations of the SEC. As a result, we incur additional expenses that negatively impact our financial
performance and our ability to make 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 our annual re-evaluation, testing and remediation actions or the impact
of the same on our operations, and we cannot assure you that our internal control over financial 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 related rules, we and
the market price of our securities may be adversely affected.





41







We are highly dependent on information
systems and systems failures could significantly disrupt our business, which may, in turn, negatively affect the market 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 those
systems, 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 a result 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, floods, 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 our ability to pay distributions to our stockholders.



In addition,
these communications and information systems are subject to potential attacks, including through adverse events that threaten the
confidentiality, integrity or availability of our information resources (i.e., cyber incidents). These attacks could involve gaining
unauthorized access to our information systems for purposes of misappropriating assets, stealing confidential information, corrupting
data or causing operational disruption and result in disrupted operations, misstated or unreliable financial data, liability for
stolen assets or information, increased cybersecurity protection and insurance costs, litigation and damage to our business
relationships, any of which could have a material adverse effect on our business, financial condition and results of operations.
As our reliance on technology has increased, so have the risks posed to our information systems, both internal and those provided
by the Advisor and third-party service providers. We, along with our Advisor, have implemented processes, procedures and internal
controls to help mitigate cybersecurity risks and cyber intrusions, but these measures, as well as our increased awareness of the
nature and extent of the risk of a cyber incident, may be ineffective and do not guarantee that a cyber incident will not occur
or that our financial results, operations or confidential information will not be negatively impacted by such an incident. In addition,
the costs related to cyber or other security threats or disruptions may not be fully insured or indemnified by other means. Furthermore,
cybersecurity has become a top priority for regulators around the world, and some jurisdictions have enacted laws requiring companies
to notify individuals of data security breaches involving certain types of personal data. If we fail to comply with the relevant
laws and regulations, we could suffer financial losses, a disruption of our businesses, liability to investors, regulatory intervention
or reputational damage.



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 our
Advisor’s investment decisions. As a result, our stockholders are unable to evaluate any of our future portfolio company
investments. These factors increase the 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 proportion of 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 Act
with respect to the proportion of our assets that we may invest in securities of a single issuer, excluding limitations on stake
holdings in investment companies. Beyond our income tax diversification requirements, we do not have fixed guidelines for diversification,
and our investments could be focused on relatively few portfolio companies. Although we are classified as a non-diversified investment
company within the meaning of the 1940 Act, we maintain the flexibility to operate as a diversified investment company and have
done so for an extended period of time. To the extent that we operate as a non-diversified investment company in the future,
we may be subject to greater risk





42









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
a diversified 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 or more portfolio companies fails to perform as expected, our financial results could be more
negatively affected and the magnitude of the loss could be more significant than if we had made smaller investments in more portfolio
companies. We may also be more susceptible to any single economic or regulatory occurrence 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 particular industry.



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
also significantly impact the aggregate returns we realize. Our Target Industries are susceptible to changes in government policy
and economic assistance, which could adversely affect the returns we receive.



If our investments do not meet our performance expectations,
you may not receive distributions.



We intend to make
distributions of income on a monthly basis to our stockholders. We may not be able to achieve operating results that will allow
us to make 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 to us 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 our ability 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 tax consequences, 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 requirements and
service the interest and principal payments on our investments. We cannot predict the circumstances or market conditions under
which our portfolio companies will seek additional capital. Each round of institutional equity financing is typically intended
to provide a company with only enough capital to reach 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 to do 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 of these companies may be unable
to obtain sufficient financing from private investors, public capital markets or lenders, thereby requiring these companies to
cease or curtail business operations. Accordingly, investing in these types of companies generally entails a higher risk of loss
than investing in companies that do not have significant incremental capital raising requirements.



Our failure to make follow-on investments in our portfolio
companies could impair the value of our portfolio.



Following an initial
investment in a portfolio company, we may have opportunities to make additional investments in that portfolio company as “follow-on”
investments, in seeking to:



| | • | increase or maintain in whole or in part our position
as a creditor or equity ownership percentage in a portfolio company;
| | - | --------------------------------------------------------------------------------------------------------------------------



| | • | exercise warrants, options or convertible securities
that were acquired in the original or subsequent financing; or
| | - | -------------------------------------------------------------------------------------------------------------------



| | • | preserve or enhance the value of our investment.
| | - | ------------------------------------------------



We have discretion
to make follow-on investments, subject to the availability of capital resources. Failure on our part to make follow-on investments
may, in some circumstances, jeopardize the continued viability of a portfolio company and our initial investment, or may result
in a missed opportunity for us to increase our participation in a successful portfolio company. Even if we have sufficient capital
to make a desired follow-on investment, we may elect not to make a follow-on investment because we may not want to increase our
level of risk, because we prefer other opportunities or because of regulatory or other considerations. Our ability to make follow-on
investments may also be limited by our Advisors’ allocation policy.



43







Economic recessions or downturns
could adversely affect our business and that of our portfolio companies which may have an adverse effect on our business, 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 may result in
a decrease of institutional equity investment, which would limit our lending opportunities. Furthermore, many of our portfolio
companies are susceptible to economic or industry centric slowdowns or recessions and may be unable to repay our debt investments
during these periods. Therefore, our non-performing assets are likely to increase and the value of our portfolio is likely to decrease
during these periods. Adverse economic conditions may also decrease the value of collateral securing some of our debt investments
and the value of our equity investments. Economic slowdowns or recessions could lead to financial losses in our portfolio and a
material decrease in revenues, net income and assets. Unfavorable economic conditions could also increase our funding costs, limit
our access 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
portfolio company’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 default or to negotiate new terms with a defaulting portfolio company. These events could harm our
financial condition and operating results.



A period of market
disruption may have a material adverse effect on our business, financial condition, results of operations and cash flows. In addition,
unfavorable economic conditions, including rising interest rates, may also increase our funding costs, limit our access to capital
markets or negatively impact our ability to obtain financing, particularly from the debt markets.



Our investment strategy focuses on
investments in development-stage companies in our Target Industries, which are subject to many risks, including volatility, 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 narrow product 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 in our Target Industries can and often do fluctuate
suddenly and dramatically. For these reasons, investments in our portfolio companies, if rated by one or more ratings agency, would
typically be rated below “investment grade,” which refers to securities rated by ratings agencies below the four highest
rating categories. These companies may also have more limited access to capital and higher funding costs. In addition, development-stage
technology markets are generally characterized by abrupt business cycles and intense competition, and the competitive environment
can change abruptly due to rapidly evolving technology. Therefore, our portfolio companies may face considerably more risk than
companies in other industry sectors. Accordingly, these factors could impair their cash flow or result in other events, such as
bankruptcy, which could limit their ability to repay their obligations to us and may materially adversely 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 our Target Industries
have historically decreased over their productive lives. These decreases could adversely affect their operating results and cash
flow, their ability 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 income available 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, at the fair value as determined in good faith pursuant to procedures approved by our Board in accordance with
our valuation policy. We are not permitted to maintain a reserve for debt investment losses. Decreases in the fair values of
our investments, which can occur rapidly based upon developments affecting our portfolio companies, are recorded as
unrealized depreciation. Any unrealized depreciation in our debt investments could be an indication of a portfolio
company’s inability to meet its repayment obligations to us with respect to the affected debt investments. This could
result in realized losses in the future and ultimately reduces our income available for distribution in future periods.



44







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 upon foreclosure.



We believe our portfolio
companies generally are and will be able to repay our debt investments from their available capital, from future capital-raising
transactions 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 our portfolio 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 a timely manner and may fluctuate in value based upon the
business and market conditions, including as a result of an inability of the portfolio company to raise additional capital, and,
in some circumstances, our lien could be subordinated to claims of other creditors. In addition, deterioration of a portfolio company’s
financial condition and prospects, including its inability to raise additional capital, may be accompanied by deterioration of
the value of the collateral for the debt investment. Consequently, although such debt investment is secured, we may not receive
principal and interest payments according to the 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
may be in the form of intellectual property, if any, inventory, equipment, cash and accounts receivables. Intellectual property,
if any, which secures a debt investment could lose value if the company’s rights to the intellectual property are challenged
or if the company’s license to the intellectual property is revoked 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 all assets of the portfolio
company other than intellectual property and also obtain a commitment by the portfolio company not to grant liens to any other
creditor 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 in new equipment that render the particular equipment obsolete or of limited value
or if the company fails to adequately maintain or repair the equipment. Any one or more of the preceding factors could materially
impair our ability to recover principal in a foreclosure, which may adversely affect our ability to pay distributions 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 our investment in these companies.



We structure the debt
investments in our portfolio companies to include business and financial covenants placing affirmative and negative obligations
on the operation of such companies’ business 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 upon the financial condition and prospects of the particular portfolio company. These actions
may reduce the likelihood of our receiving the full amount of future payments of interest or principal and be accompanied by a
deterioration in the value of the underlying collateral as many of these companies may have limited financial resources, may be
unable to meet future obligations and may go bankrupt. These events could harm our financial condition and operating results.



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 a favorable 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 we do not expect that our related holdings of equity securities will provide us with liquidity opportunities in
the near-term. We expect to primarily invest in companies whose securities are not publicly-traded, and whose securities are
subject to legal and other restrictions on resale or are otherwise less liquid than publicly traded securities. The
illiquidity of these investments may make it difficult for us to sell these investments when desired. We may also face other
restrictions on our ability to liquidate an investment in a public portfolio company to the extent that we possess material
non-public information regarding the 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 at which 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 be required 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
respective regulatory 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 RIC and/or BDC, or we may not be able to dispose of them at favorable prices, and as a
result, we may suffer losses.



45







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 the
portfolio company typical of those made in connection with the sale of a business. We may also be required to indemnify the purchasers
of such debt investment to the extent that any such representations turn out to be inaccurate or with respect to potential liabilities.
These arrangements may result in contingent 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 debt
that ranks equally with, or senior to, our debt investments in the portfolio company. By their terms, these debt instruments may
provide that the holders thereof 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 debt investments. 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 a portfolio company, holders
of debt instruments ranking senior to our investment in that portfolio company would typically be entitled to receive payment in
full before we receive any payment in respect of our investment. After repaying senior creditors, a portfolio company may not have
any remaining assets to use for repaying its obligation to us. In the case of debt ranking equally with our debt investments, we
would have to share on a pro rata basis any distributions 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 liability claims.



Even though certain
of our investments are structured as senior debt investments, if one of our portfolio companies were to go bankrupt, depending
on the facts and circumstances, including the extent to which we actually provided managerial assistance to that portfolio company,
a bankruptcy court might recharacterize our debt investment and subordinate all or a portion of our claim to that of other creditors
or an out-of-court restructuring might enable other lenders to become effectively senior to our claims. We may also be subject
to lender liability claims for actions taken by us with respect to a portfolio company’s business, including in rendering
significant managerial assistance, or instances where we exercise control over the portfolio company.



An investment strategy that primarily
includes investments in privately held companies presents certain challenges, including a lack of available information about these
companies, a dependence on the talents and efforts of only a few key portfolio company personnel and a greater vulnerability to
economic downturns.



We currently invest,
and plan to invest, in privately held companies. Generally, very little public information exists about these companies, and we
are required to rely on the ability of our Advisor to obtain adequate information to evaluate the potential returns from investing
in these companies. If we are unable to uncover all material information about these companies, we may not make a fully informed
investment decision, and we may lose money on our investments. Also, privately held companies frequently have less diverse product
lines and a smaller market presence than larger competitors. Thus, they are generally more vulnerable to economic downturns and
may experience substantial variations in operating results. These factors could affect our investment returns.



In addition, our success
depends, in large part, upon the abilities of the key management personnel of our portfolio companies, who are responsible for
the day-to-day operations of our portfolio companies. Competition for qualified personnel is intense at any stage of a company’s
development. The loss of one or more key managers can hinder or delay a company’s implementation of its business plan and
harm its financial condition. Our portfolio companies may not be able to attract and retain qualified managers and personnel. Any
inability to do so may negatively affect our investment returns.





46







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 are purchased
or sold on our behalf. If we obtain material non-public information with respect to such portfolio companies, or we become subject
to trading restrictions under the internal trading policies of those portfolio companies or as a result of applicable law or regulations,
we could be prohibited for a period of time from purchasing or disposing of the securities of such portfolio companies, and this
prohibition may have an adverse effect on us.



We may hold the debt securities of
leveraged companies that may, due to the significant volatility of such companies, experience bankruptcy or similar financial distress.



Leveraged companies
may experience bankruptcy, receivership or similar financial distress. The debt investments of distressed companies may not produce
income, may require us to bear certain expenses or to make additional advances in order to protect our investment and may subject
us to uncertainty as to when, in what manner (e.g., through liquidation, reorganization, receivership or bankruptcy) and for what
value such distressed debt will eventually be satisfied. Proceeds received from such proceedings may not be income that satisfies
the Qualifying Income Test for RICs and may not be in an amount sufficient 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 debt investment 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. In addition, if we take control of a distressed company
in connection with a reorganization, it could require additional costs and significant amounts 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 bankruptcy proceeding
are the product of contested matters and adversarial proceedings and are beyond the control of the creditors. A bankruptcy filing
by an issuer may adversely and permanently affect the issuer. If the proceeding is converted to a liquidation, the value of the
issuer may not equal the liquidation value that was 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 investment can be adversely affected by delays until
the plan of reorganization or liquidation ultimately becomes effective. The administrative costs of a bankruptcy proceeding 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 claims under 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 and amount 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 the extent 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 debt
investments 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 temporary investments, pending their future investment in new portfolio
companies. These temporary investments have substantially lower yields than the debt being prepaid, and we could experience significant
delays in reinvesting these amounts. Any future investment in a new portfolio company may also be at lower yields 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
companies elects to prepay amounts owed to us. Additionally, prepayments could negatively impact our return on equity, which could
result in a decline in the market price of our common stock.



47







Our business and growth strategy
could be adversely affected if government regulations, priorities and resources impacting the industries in which our portfolio
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 or regulations, or judicial or administrative interpretations thereof, or uncertainty regarding such
changes or new laws, rules or regulations could have an adverse impact on the business and industries of our portfolio
companies. In addition, changes in government priorities or limitations on government resources could also adversely impact
our portfolio companies. 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 on our 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 portfolio companies
face intense competition as their businesses are rapidly evolving and intensely competitive, and are subject to changing technology,
shifting user needs, 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 in our portfolio companies in such sectors being subject to new regulations.



Portfolio companies
in the technology industry may also have a limited number of suppliers of necessary components or a limited number of manufacturers
for their products, and therefore face a risk of disruption to their manufacturing process if they are unable to find alternative
suppliers when needed. In addition, litigation regarding intellectual property rights is common in the sectors of the technology
industry in which we focus. See “–If our portfolio companies are unable to protect their intellectual property rights,
our business and prospects could be harmed, and if portfolio companies are required to devote significant resources to protecting
their intellectual property rights, the value of our investment could be reduced.” Any of these factors could materially
and adversely affect the operations of a portfolio company in this industry and, in turn, impair our ability to timely collect
principal and interest 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 that industry.



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 state agencies.
If any of these portfolio companies fail to comply with applicable regulations, they could be subject to significant penalties
and claims that could materially and adversely affect their operations. In addition, new laws, regulations or judicial interpretations
of existing laws and regulations might adversely affect 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 technologies
and introduce new products. The success of new product offerings will depend, in turn, on many factors, including the ability to
properly anticipate and satisfy customer needs, obtain regulatory approvals on a timely basis, develop and manufacture products
in an economic and timely manner, obtain or maintain advantageous positions with respect to intellectual property, and differentiate
products from those of competitors.



Further, the development
of products (including medical devices or drugs) 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 (including Medicare and Medicaid) and abroad, or gain and maintain market approval of products.
In addition, patents attained by others can preclude or delay the commercialization of a product. There can be no assurance that
any products now in development will achieve technological feasibility, obtain regulatory approval, or gain 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
clinical outcomes, inability to obtain necessary regulatory approvals, failure to achieve market adoption, limited scope of approved
uses, excessive costs to manufacture, failure to establish or maintain intellectual property rights, infringement by others of
a company’s intellectual property rights, or infringement by 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 of manufacturers for their products, and therefore face a risk of disruption to their manufacturing process if they
are unable to find alternative suppliers when needed. Any of these factors could materially and adversely affect the
operations of a portfolio company in this industry and, in turn, impair our ability to timely collect principal and interest
payments owed to us.



48







Our portfolio companies operating
in the healthcare information and services industry are subject to extensive government regulation and certain other 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 healthcare information and services industry.
Such portfolio companies provide technology to companies that are subject to extensive regulation, including Medicare and Medicaid
payment rules and regulation, the False Claims Act and federal and state laws regarding the collection, use and disclosure of patient
health information and the storage, handling and administration of pharmaceuticals. If any of our portfolio companies or the companies
to which they provide such technology fail to comply with applicable regulations, they could be subject to significant penalties
and claims that could materially and adversely affect their operations. Portfolio companies in the healthcare information or services
industry are also subject to the risk that changes in applicable regulations will render their technology obsolete or less desirable
in the marketplace.



Portfolio companies
in the healthcare information and services industry may also have a limited number of suppliers of necessary components or a limited
number of manufacturers for their products, and therefore face a risk of disruption to their manufacturing process if they are
unable to find alternative suppliers when needed. Any of these factors could materially and adversely affect the operations of
a portfolio company in this industry and, in turn, impair our ability to timely collect principal and interest payments owed to
us.



Our investments in the sustainability
industry are subject to many risks, including volatility, intense competition, unproven technologies, periodic downturns and potential
litigation.



Our investments in
sustainability 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 solutions compared
to traditional energy products. In addition, energy companies employ a variety of means of increasing cash flow, including increasing
utilization of existing facilities, expanding operations through new construction or acquisitions, or securing additional long-term
contracts. Thus, some energy companies may be subject to construction risk, acquisition risk or other risks arising from their
specific business strategies. Furthermore, production levels for solar, wind and other renewable energies may be dependent upon
adequate sunlight, wind, or biogas production, which can vary from market to market and period to period, resulting in volatility
in production levels and profitability. In addition, our sustainability companies may have narrow product lines and small market
shares, which tend to render them more vulnerable to competitors’ actions and market conditions, as well as to general economic
downturns. The revenues, income (or losses) and valuations of sustainability companies can and often do fluctuate suddenly and
dramatically and the markets in which sustainability companies operate are generally characterized by abrupt business cycles and
intense competition. Demand for sustainability and renewable energy 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 energy products could reduce demand for alternative
energy. Sustainability companies face potential litigation, including significant warranty and product liability claims, as well
as class action and government claims. Such litigation could adversely affect the business and results of operations of our sustainability
portfolio companies.



Sustainability companies are subject
to extensive government regulation and certain other risks particular to the sectors in which they operate and our business and
growth strategy could be adversely affected if government regulations, priorities and resources impacting such sectors change or
if our portfolio companies fail to comply with such regulations.



As part of our
investment strategy we invest in portfolio companies in sustainability 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 regarding such changes or new laws, rules or regulations could have an
adverse impact on the business and industries of our portfolio companies. In addition, changes in government priorities or
limitations on government resources could also adversely impact our portfolio companies. 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 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 could materially and adversely affect their
operations. Our portfolio companies may be subject to the expense, delay and uncertainty of the regulatory approval process
for their products and, even if approved, these products may not be accepted in the marketplace.



49







In particular, there
is considerable uncertainty about whether foreign, U.S., state and/or local governmental entities will enact or maintain legislation
or regulatory programs that mandate reductions in greenhouse gas emissions or provide incentives for sustainability companies.
Without such regulatory policies, investments in sustainability companies may not be economical and financing for sustainability
companies may become unavailable, which could materially adversely affect the ability of our portfolio companies to repay the debt
they owe to us. Any of these factors could materially and adversely affect the operations and financial condition of a portfolio
company and, in turn, the ability of the portfolio company to repay the debt they owe to us.



If our portfolio companies are unable
to commercialize their technologies, products, business concepts or services, the returns on our investments could be adversely
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
or product line at the time of our investment, technology-related products and services often have a more limited market or life
span than products in other industries. Thus, the ultimate success of these companies often depends on their ability to innovate
continually in increasingly competitive markets. If they are 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 be impaired. Our portfolio companies may
be unable to acquire or develop successful new technologies and the intellectual property they currently hold may not remain viable.
Even if our portfolio companies are able to develop commercially viable products, the market for new products and services is highly
competitive and rapidly changing. Neither our portfolio companies nor we have any control over the pace of technology development.
Commercial success is 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 continue development
on that licensed intellectual property, it can be difficult to ascertain who has title to the intellectual property. We may also
rely upon the portfolio company’s management team’s representations as to the nature of the licensing agreement. There
are implications in workouts and in bankruptcy where intellectual property is not wholly owned by a portfolio company. Further,
the licensor may have an actual or contingent claim on the intellectual property (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 companies are 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 proprietary
technology used in their products and services. The intellectual property held by our portfolio companies often represents a substantial
portion of the collateral securing our investments and/or constitutes a significant portion of the portfolio companies’ value
that may be available in a downside scenario to repay our debt investments. Our portfolio companies rely, in part, on patent, trade
secret and trademark law to protect that technology, but competitors may misappropriate their intellectual property, and disputes
as to ownership of intellectual property may arise. Portfolio companies may, from time to time, be required to institute litigation
to enforce their patents, copyrights or other intellectual property rights, protect their trade secrets, determine the validity
and scope 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
a third 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 the third party and/or cease activities utilizing the proprietary rights, including making
or selling products utilizing the proprietary rights. Any of the foregoing events could negatively affect both the portfolio company’s
ability to service our debt investment and the value of any related debt and equity securities that we own, as well as the value
of any collateral securing our investment.



50







In some cases, we
collateralize our debt investments with a secured collateral position in a portfolio company's assets, which may include a negative
pledge or, to a lesser extent, no security interest on their intellectual property. In the event of a default on a debt investment,
the intellectual property of the portfolio company would most likely be liquidated to provide proceeds to pay the creditors of
the portfolio company. There can be no assurance that our security interest, 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 senior or 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 restrictive
covenants 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 to the 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 make business decisions with which we disagree and the management of such
company, as representatives of the holders of their common equity, may take risks or otherwise 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 portfolio companies,
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 a decrease in the value of our investments.



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 with headquarters
and primary operations located within the United States may be secured by the assets of a portfolio company’s foreign subsidiary.
Investments involving foreign companies may involve greater risks. These risks include: (i) less publicly available information;
(ii) varying levels of governmental regulation and supervision; and (iii) the difficulty of enforcing legal rights in a foreign
jurisdiction and uncertainties as to the status, interpretation and application of laws. Moreover, foreign companies are generally
not subject to uniform accounting, auditing and financial reporting standards, practices and requirements comparable to those applicable
to United States companies. Debt investments secured by the assets of a portfolio company’s foreign subsidiary may be subject
to various laws enacted in their home countries for the protection of debtors or creditors, which could adversely affect our ability
to recover amounts owed. These insolvency considerations will differ depending on the country in which each foreign subsidiary
is located and may differ depending on 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 subsidiary could
face risks which would not pertain to debt investments solely in U.S. portfolio companies.



We may not realize expected returns on warrants received
in connection with our debt investments.



As discussed above,
we generally receive warrants in connection with our debt investments. If we do not receive the returns that are anticipated on
the warrants, our investment returns on our portfolio companies, and the value of your investment in us, may be lower than expected.



We currently invest a portion of
our capital in high-quality short-term investments, which generate lower rates of return than those expected from investments 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-term investments. These securities may earn yields substantially lower than the income that we anticipate receiving once
these proceeds are fully invested in accordance with our investment objective.



Risks related to our securities



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 of distributions 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 we will 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 to pay 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 test applicable 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
depend on our earnings, our financial condition, maintenance of our ability to be subject to tax as a RIC, compliance with
BDC regulation and such other factors as our Board may deem relevant 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 of assets in equity securities that
do not pay current dividends, the amount available for distribution could be reduced.



51







On an annual basis,
we must determine the extent to which any distributions we made were paid out of current or accumulated earnings, recognized capital
gains or capital. Distributions that represent a return of capital (which is the return of your original investment in us, after
subtracting sales load, fees and 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 tax purposes, which may result in higher tax liability when the shares
are sold, even if they have not increased in value or have lost value.



Our common stock price may be volatile and may decrease
substantially.



The trading price
of our common stock may fluctuate substantially and the liquidity of our common stock may be limited, in each case depending on
many 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 or other financial services companies;
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| | • | our inability to raise capital, borrow money or deploy or invest our capital;
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| | • | fluctuations in interest rates;
| | - | -------------------------------



| | • | any shortfall in revenue or net income or any increase in losses from levels expected by investors
or securities analysts;
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| | • | 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 for other reasons. The outcome of any such proceedings could materially adversely affect our business, financial condition and/or
operating results and could continue without resolution for long periods of time. Any litigation or other similar claims could
consume substantial amounts of our management’s time and attention, and that time and attention and the devotion of associated
resources could, at times, be disproportionate to the amounts at stake. Litigation and other claims are subject to inherent uncertainties,
and a material adverse impact on our financial statements could occur for the period in which the effect of an unfavorable final
outcome in litigation or other similar claims becomes probable and reasonably estimable. In addition, we could incur expenses associated
with defending ourselves against litigation and other similar claims, and these expenses could be material to our earnings in future
periods.



52







Shares of closed-end investment companies,
including BDCs, frequently trade at a discount to their NAV, which is separate and distinct from the risk that our 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
a discount to their NAV and our stock may also be discounted in the market. This characteristic of closed-end investment companies
is separate and distinct from 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 first obtaining the approval of our stockholders and our
independent directors.



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 than alternative
investment options. Our investments in portfolio companies may be highly speculative and aggressive, and therefore, an investment
in our common 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 an acquisition
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 to
realize 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 of the 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 the directors 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 on certain 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 the directors if distributions on such preferred stock are in arrears by two years or more, until such
arrearage is eliminated. In addition, certain matters under the 1940 Act require the separate vote of the holders of any
issued and outstanding preferred stock, including changes in fundamental investment restrictions and conversion to open-end
status and, accordingly, preferred stockholders could veto any such changes. Restrictions imposed on the declarations and
payment of distributions to the holders of our common stock and preferred stock, both by the 1940 Act and by requirements
imposed by rating agencies, might impair our ability to maintain our ability to be subject to tax as a RIC.



53







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 less than
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 rights
offering, own a smaller proportional interest in us than would otherwise be the case if they fully exercised their rights. Such
dilution is not currently determinable because it is not known what proportion of the shares will be purchased as a result of such
rights offering. Any such dilution will disproportionately affect nonexercising stockholders. If the subscription price per share
is substantially less than the current NAV per share, this dilution could 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
of their 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 subscription price 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 rights offering. 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 an amount 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 immediate decrease 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 a disproportionately 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 stock trades.



Stockholders 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 our common stock. As a result, stockholders that do not participate in the DRIP will experience dilution in their ownership
interest over time.



Stockholders may receive shares of
our common stock as dividends, which could result in adverse tax consequences to them.



In order to satisfy
the Annual Distribution Requirement, we have the ability to declare a large portion of a dividend in shares of our common stock
instead of in cash. As long as a portion of such dividend is paid in cash (which portion may be as low as 20% of such dividend)
and certain requirements are met, the entire distribution will be treated as a dividend for U.S. federal income tax purposes. As
a result, a stockholder generally would be subject to tax on 100% of the fair market value of the dividend on the date the dividend
is received by the stockholder in the same manner as a cash dividend, even though most of the dividend was paid in shares of our
common stock. We currently do not intend to pay dividends in shares of our common stock.



54







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 trading market for our publicly issued Debt Securities will ever develop or, if developed, will be maintained. In addition
to our creditworthiness, many factors may materially 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 our Debt Securities;
| | - | ------------------------------------------------------------------------------------------------



| | • | the supply of debt securities trading in the secondary market, if any;
| | - | ----------------------------------------------------------------------



| | • | the redemption or repayment features, if any, of our 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 our Debt Securities.
| | - | -----------------------------------------------------------------------------------



You should
also be aware that there may be a limited number of buyers when you decide to sell your debt securities. This too may materially
adversely affect the market value of our Debt Securities or the trading market for our 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 are lower than the interest rate paid on our Debt Securities. In addition, if such debt securities are subject to mandatory
redemption, we may be required to redeem our Debt Securities at times when prevailing interest rates are lower than the interest
rate paid on our Debt Securities. In this circumstance, you may not be able to 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,
real or anticipated changes in our credit ratings will generally affect the market value of Debt Securities that we may issue.
Credit ratings provided by third party credit rating agencies, however, may not reflect the potential impact of risks related to
market conditions generally or other factors discussed above on the market value of or trading market for any publicly issued debt
securities that we may issue. Because we approved increasing the amount we are permitted to borrow under the 1940 Act, our credit
rating may decline and we may incur additional costs in borrowing.



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 the registration 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 adversely affect
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 of equity securities should we desire to do so.



Our Debt Securities are unsecured
and therefore are effectively subordinated to any secured indebtedness we have currently incurred or may incur in the future.



Our
Debt Securities are not secured by any of our assets or any of the assets of our subsidiaries. As a result, our Debt Securities
are effectively subordinated to any secured indebtedness we or our subsidiaries have currently incurred and may incur in the future
(or any indebtedness that is initially unsecured to which we subsequently grant security) to the extent of the value of the assets
securing such indebtedness. In any liquidation, dissolution,
bankruptcy or other similar proceeding, the
holders of any of our existing or future secured indebtedness and the secured indebtedness of our subsidiaries may assert rights
against the assets pledged to secure that indebtedness in order to receive full payment of their indebtedness before the assets
may be used to pay other creditors, including the holders of our Debt Securities.



55







Our Debt Securities are structurally
subordinated to the indebtedness and other liabilities of our subsidiaries.



Our
Debt Securities are obligations exclusively of Horizon Technology Finance Corporation, and not of any of our subsidiaries.
None of our subsidiaries is a guarantor of our Debt Securities and our Debt Securities are not required to be guaranteed by
any subsidiaries we may acquire or create in the future. The assets of such subsidiaries are not directly available to
satisfy the claims of our creditors, including holders of our Debt Securities.



Except
to the extent we are a creditor with recognized claims against our subsidiaries, all claims of creditors (including trade creditors)
and holders of preferred stock, if any, of our subsidiaries have priority over our equity interests in such subsidiaries (and therefore
the claims of our creditors, including holders of our Debt Securities) with respect to the assets of such subsidiaries. Even if
we are recognized as a creditor of one or more of our subsidiaries, our claims are effectively subordinated to any security interests
in the assets of any such subsidiary and to any indebtedness or other liabilities of any such subsidiary senior to our claims.
Consequently, our Debt Securities are structurally subordinated to all indebtedness and other liabilities (including trade payables)
of any of our subsidiaries and any subsidiaries that we may in the future acquire or establish as financing vehicles or otherwise.



In
addition, our subsidiaries may incur substantial additional indebtedness in the future, all of which would be structurally senior
to our Debt Securities.



The indenture governing our Debt
Securities contains limited protection for holders of our Debt Securities.



The
indenture governing our Debt Securities offers limited protection to holders of our Debt Securities. The terms of the indenture
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 events that could have a material adverse impact on investments in our Debt Securities. In particular,
the terms of the indenture do not place any restrictions 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 would be equal in
right of payment to our Debt Securities, (2) any indebtedness orother obligations
that would be secured and therefore rank effectively senior
in right of payment to our Debt Securities to the extent
of the values of the assets securing such debt, (3) indebtedness
of ours that is guaranteed by one or more of our subsidiaries and which therefore is structurally senior to our Debt Securities
and (4) securities, indebtedness or obligations issued or incurred by our subsidiariesthat
would besenior to our equity interests in oursubsidiaries and therefore rank structurally senior
to our Debt Securities with respect to
the assets ofour subsidiaries, in each case other than
an incurrence of indebtedness or other obligation that would cause a violation of Section
18(a)(1)(A) of the 1940 Act as modified by Section 61(a)(l) of the 1940 Act or any successorprovisions, whether or not we continue to be subject to such provisions ofthe 1940 Act, (these provisions generally prohibit us from making additional borrowings, including
through the issuance of additional debt or the sale of additional debt securities, unless
our asset coverage, as defined in the 1940 Act, equals at least 150% after such
borrowings);
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | pay dividends on, or purchase or redeem or make any
payments in respect of capital stock or other securities ranking junior in right of payment to our Debt Securities, including
subordinated indebtedness, in each case other than dividends, purchases, redemptions or payments that would cause a violation
of Section 18(a)(1)(B) of the 1940 Act as modified by Section 61(a)(l) of the 1940 Act or any successor provisions giving effect
to any exemptive relief granted to us by the SEC (these provisions generally prohibit us from declaring any cash dividend or distribution
upon any class of our capital stock, or purchasing any such capital stock unless our asset coverage, as defined in the 1940 Act,
equals at least 150% at the time of the declaration of the dividend or distribution or the purchase and after deducting the amount
of such dividend, distribution or purchase);
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | sell assets (other than certain limited restrictions
on our ability to consolidate, merge or sell all or substantially all of our assets);
| | - | ------------------------------------------------------------------------------------------------------------------------------------------



| | · | enter into transactions with affiliates;
| | - | ----------------------------------------



| | · | create liens (including liens on the shares of our
subsidiaries) or enter into sale and leaseback transactions;
| | - | ---------------------------------------------------------------------------------------------------------------



| | · | make investments; or
| | - | --------------------



| | · | create restrictions on the payment of dividends or
other amounts to us from our subsidiaries.
| | - | ---------------------------------------------------------------------------------------------



In
addition, the indenture does not require us to offer to purchase our Debt Securities in connection with a change of control or
any other event.



56







Furthermore,
the terms of the indenture do not protect holders of our Debt Securities in the event that we experience changes (including significant
adverse changes) in our financial condition, results of operations or credit ratings, as they do not require that we or our subsidiaries
adhere to any financial 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 our Debt
Securities may have important consequences for holders of our Debt Securities, including making it more difficult for us to satisfy
our obligations with respect to our Debt Securities or negatively affecting the trading value of our Debt Securities.



Certain
of our current debt instruments include more protections for their holders than the indenture. In addition, other debt we issue
or incur in the future could contain more protections for its holders than the indenture, including additional covenants and events
of default. The issuance or incurrence of any such debt with incremental protections could affect the market for and trading levels
and prices of our Debt Securities.



An active trading market for our
Debt Securities may not exist, which could limit holders’ ability to sell our Debt Securities or affect the market price
of our Debt Securities.



We
cannot provide any assurances that an active trading market for our Debt Securities will exist in the future or that you will be
able to sell our Debt Securities. Even if an active trading market does exist, our Debt Securities may trade at a discount from
their initial offering price depending on prevailing interest rates, the market for similar securities, our credit ratings, if
any, general economic conditions, our financial condition, performance and prospects and other factors. To the extent an active
trading market does not exist, the liquidity and trading price for our Debt Securities may be harmed. Accordingly, you may be required
to bear the financial risk of an investment in our Debt Securities for an indefinite period of time.



The optional
redemption provision may materially adversely affect the return on our Debt Securities.



Our
Debt Securities may provide that such securities are redeemable in whole or in part prior to their maturity date at our sole option.
We may choose to redeem our Debt Securities at times when prevailing interest rates are lower than the interest rate paid on our
Debt Securities. In this circumstance, the holders of our Debt Securities may not be able to reinvest the redemption proceeds in
a comparable security at an effective interest rate as high as our Debt Securities being redeemed.



If we default on our obligations
to pay our other indebtedness, we may not be able to make payments on our Debt Securities.



Any
default under the agreements governing our indebtedness, including a default under the Key Facility or the 2019-1 Securitization,
or other indebtedness to which we may be a party that is not waived by the required lenders or holders thereunder, and the remedies
sought by the holders of such indebtedness could make us unable to pay principal, premium, if any, and interest on our Debt Securities
and substantially decrease the market value of our Debt Securities. If we are unable to generate sufficient cash flow and are otherwise
unable to obtain funds necessary to meet required payments of principal, premium, if any, and interest on our indebtedness, or
if we otherwise fail to comply with the various covenants, including financial and operating covenants, in the instruments governing
our indebtedness, we could be in default under the terms of the agreements governing such indebtedness. In the event of such default,
the holders of such indebtedness could elect to declare all the funds borrowed thereunder to be due and payable, together with
accrued and unpaid interest, the lenders under the Key Facility and the 2019-1 Securitization or other debt we may incur in the
future could elect to terminate their commitments, cease making further loans and institute foreclosure proceedings against our
assets, and we could be forced into bankruptcy or liquidation. If our operating performance declines, we may in the future need
to seek to obtain waivers from the required lenders under the Key Facility and the 2019-1 Securitization or other debt that we
may incur in the future to avoid being in default. If we breach our covenants under the Key Facility or the 2019-1 Securitization
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, we
would 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. If we are unable to repay debt, lenders having secured obligations, including the lenders under the
Key Facility and the 2019-1 Securitization, could proceed against the collateral securing the debt. Because the Key Facility and
the 2019-1 Securitization have, and any future credit facilities will likely have, customary cross-default provisions, if the indebtedness
thereunder or under any future credit facility is accelerated, we may be unable to repay or finance the amounts due.



57







FATCA withholding
may apply to payments to certain foreign entities.



Payments
made under our Debt Securities to a foreign financial institution, or “FFI,” or non-financial foreign entity, or “NFFE”
(including such an institution or entity acting as an intermediary), may be subject to a U.S. withholding tax of 30% under U.S.
Foreign Account Tax Compliance Act provisions of the Code (commonly referred to as “FATCA”). This withholding tax may
apply to payments of interest on our Debt Securities, unless the FFI or NFFE complies with certain information reporting, withholding,
identification, certification and related requirements imposed by FATCA. Depending upon the status of a holder and the status of
an intermediary through which any Debt Securities are held, the holder could be subject to this 30% withholding tax in respect
of any interest paid on our Debt Securities. Holders of our Debt Securities should consult their own tax advisors regarding FATCA
and how it may affect their investment in our Debt Securities.



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 are currently 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



58









PART II



| | Item 5. | Market for Registrant’s Common Equity, Related
Stockholder Matters and Issuer Purchases of Equity Securities
| | ------- | ------------------------------------------------------------------------------------------------------------



Common stock



Our common stock
is traded on Nasdaq, under the symbol “HRZN.” The last reported price for our common stock on March 2, 2020 was
$12.30 per share, which represented a 4% premium to NAV per share. As of March 2, 2020 we had 16 stockholders of
record, which did not 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
stock will 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. It is 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, 2019, 2018 and 2017.



Issuer Purchases of Equity Securities



On April 26, 2019,
our Board extended a previously authorized stock repurchase plan which allows us to repurchase up to $5.0 million of our outstanding
common stock. Unless extended by our Board, the repurchase program will expire on the earlier of June 30, 2020 and the repurchase
of $5.0 million of common stock. During the quarter ended December 31, 2019, we did not repurchase any shares of our common stock.
During the years ended December 31, 2019 and 2018, we did not repurchase any shares of our common stock. During the year ended
December 31, 2017, we repurchased 5,923 shares of our common stock at an average price of $9.97 on the open market at a total
cost of $0.1 million. From the inception of the stock repurchase program through December 31, 2019, we repurchased 167,465 shares
of our common stock at an average price of $11.22 on the open market at a total cost of $1.9 million.



Any shares repurchased
by us may have the effect of maintaining the market price of our common stock or retarding a decline in the market price of the
common stock, and, as a result, the price of our common stock may be higher than the price that otherwise might exist in the open
market. In addition, as any shares repurchased pursuant to the stock repurchase plan will be purchased at a price below the NAV
per share as reported in our most recent financial statements, share repurchases may have the effect of increasing our NAV per
share.



Distributions



We intend to continue
making monthly distributions to our stockholders. The timing and amount of our monthly distributions, if any, is determined by
our Board. Any distributions to our stockholders are declared out of assets legally available for distribution. We monitor available
net investment income to determine 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 any given 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. Stockholders should read any written
disclosure accompanying a distribution payment carefully and should not assume that the source of any distribution is our ordinary
income 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 respect to certain securities, loans, gains from the sale or other disposition of stock, securities
or foreign currencies, or other income derived with respect to our business 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 to prevent
the loss of RIC status. Any such dispositions could be made at disadvantageous prices or times, and may cause us to incur substantial
losses.





59







In
addition, in order to be eligible for the special tax treatment accorded to RICs and to avoid the imposition of corporate level
tax on the income and gains we distribute to our stockholders, each tax year we are required under the Code to distribute as dividends
of an amount generally at least 90% of our investment company taxable income, determined without regard to any deduction for dividends
paid to our stockholders. We refer to such amount as the Annual Distribution Requirement in
this annual report on Form 10-K. Additionally, we must 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 ending on 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
years and on which we previously did not incur any U.S. federal income tax in order to avoid the imposition of a 4% U.S. federal
excise tax. If we fail to qualify as a RIC for any reason and become subject to corporate income tax, the resulting corporate
income taxes could substantially reduce our net assets, the amount of income available for distribution and the amount of our
distributions. Such a failure would have a material adverse effect on us and our stockholders. In addition, we could be required
to recognize unrealized gains, incur substantial taxes and interest and make substantial distributions in order to re-qualify
as a RIC. We cannot assure stockholders that they will receive any distributions.



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 distributions
into 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 made through 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 was generated 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 Distribution Requirement 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 payment of 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 asset coverage stipulated by the 1940 Act or if distributions are limited by the terms of any of our borrowings.
See “Item 1. Business — Regulation — Taxation as a RIC.”



We have adopted an
 “opt out” DRIP for our common stockholders. As a result, if we make a distribution, then stockholders’ cash
distributions are automatically reinvested in additional shares of our common stock, unless they specifically opt out of the DRIP.
If a stockholder opts out, that stockholder receives cash distributions. Although distributions paid in the form of additional
shares of common stock are generally subject to U.S. federal, state and local taxes, stockholders participating in our DRIP do
not receive any corresponding cash distributions with which to pay any such applicable taxes. We may use newly issued shares to
implement the DRIP, or we may purchase shares in the open market in connection with our obligations under the DRIP.





60







Stock performance graph



The following graph
compares the return on our common stock with that of the Standard & Poor’s 500 Stock Index and the Wells Fargo
BDC Index, for the period from December 31, 2014 through December 31, 2019. The graph assumes that, on December 31, 2014,
a person invested $100 in each of our common stock, the S&P 500 Index and the Wells Fargo BDC Index. The graph measures total
stockholder return, which takes into account both changes in stock price and distributions. It assumes that distributions paid
are invested in like securities. The graph and other information furnished under this Part II Item 5 of our annual report
on Form 10-K shall not be deemed to be “soliciting material” or to be “filed” with the SEC or subject
to Regulation 14A or 14C, or to the liabilities of Section 18 of the Exchange Act. The stock price performance included
in this graph is not necessarily indicative of future stock price performance.









61







| | Item 6. | Selected Financial Data
| | ------- | -----------------------



The following selected
consolidated financial data of the Company as of December 31, 2019, 2018, 2017, 2016 and 2015, and for the years ended December
31, 2019, 2018, 2017, 2016 and 2015 are derived from the consolidated financial statements that have been audited by RSM US LLP,
an independent registered public accounting firm. These selected financial data should be read in conjunction with our financial
statements and related notes thereto and “Management’s Discussion and Analysis of Financial Condition and Results
of Operations.”



|                                                                           |  | As of and for the years ended December 31, |        
|-------------------------------------------------------------------------- |  | ------------------------------------------ | -------
|(Dollars in thousands, except per share data and portfolio company counts) |  | 2019                                       |        
|Statement of Operations Data:                                              |  |                                            |        
|Total investment income                                                    |  | $                                          | 43,125 
|Base management fee                                                        |  |                                            | 5,556  
|Performance based incentive fee                                            |  |                                            | 6,966  
|All other expenses                                                         |  |                                            | 11,742 
|Base management and performance based incentive fees waived                |  |                                            | (1,848 
|Net investment income before excise tax                                    |  |                                            | 20,709 
|Provision (credit) for excise tax                                          |  |                                            | 239    
|Net investment income                                                      |  |                                            | 20,470 
|Net realized (loss) gain on investments                                    |  |                                            | (4,173 
|Net unrealized appreciation (depreciation) on investments                  |  |                                            | 3,201  
|Net increase (decrease) in net assets resulting from operations            |  | $                                          | 19,498 
|Dollar amount of distributions declared                                    |  | $                                          | 16,987 
|Per Share Data:                                                            |  |                                            |        
|Net asset value                                                            |  | $                                          | 11.83  
|Net investment income                                                      |  |                                            | 1.52   
|Net realized (loss) gain on investments                                    |  |                                            | (0.31  
|Net change in unrealized appreciation (depreciation) on investments        |  |                                            | 0.24   
|Net increase (decrease) in net assets resulting from operations            |  |                                            | 1.45   
|Per share distributions declared                                           |  |                                            | 1.20   
|Statement of Assets and Liabilities Data:                                  |  |                                            |        
|Investments, at fair value                                                 |  | $                                          | 319,551
|Other assets                                                               |  |                                            | 24,450 
|Total assets                                                               |  |                                            | 344,001
|Borrowings                                                                 |  |                                            | 152,050
|Total liabilities                                                          |  |                                            | 159,946
|Total net assets                                                           |  | $                                          | 184,055
|Other data:                                                                |  |                                            |        
|Weighted yield on debt investments at fair value                           |  |                                            | 16.7   
|Weighted yield on all investments at fair value                            |  |                                            | 15.7   
|Number of portfolio companies at period end:                               |  |                                            |        
|Debt investments                                                           |  |                                            | 35     
|Warrants investments                                                       |  |                                            | 66     
|Equity investments                                                         |  |                                            | 9      
|Other investments                                                          |  |                                            | 1      





62







| | 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 thereto appearing
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,
contains statements that constitute forward-looking statements, which relate to future events or our future performance or financial
condition. These forward-looking statements are not historical facts, but rather are based on current expectations, estimates
and projections about our industry, our beliefs and our assumptions. The forward-looking statements contained in this 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, warrants and other investments;
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | • | the introduction, withdrawal,
                                         success and timing of business initiatives and strategies;
| | - | ---------------------------------------------------------------------------------------------------------------------------------

| | • | changes in political, economic
                                         or industry conditions, the interest rate environment or financial and capital markets,
                                         which could result in changes in the value of our assets;
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | • | the relative and absolute
                                         investment performance and operations of our Advisor;
| | - | ------------------------------------------------------------------------------------------------------------------------

| | • | the impact of increased competition;
| | - | ------------------------------------

| | • | the impact of investments
                                         we intend to make and future acquisitions and divestitures;
| | - | ------------------------------------------------------------------------------------------------------------------------------

| | • | the unfavorable resolution
                                         of legal proceedings;
| | - | -----------------------------------------------------------------------------------------

| | • | our business prospects and
                                         the prospects of our portfolio companies;
| | - | -------------------------------------------------------------------------------------------------------------

| | • | the impact, extent and timing
                                         of technological changes and the adequacy of intellectual property protection;
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------

| | • | our regulatory structure and
                                         tax status;
| | - | ---------------------------------------------------------------------------------

| | • | our ability to qualify and
                                         maintain qualification as a RIC and as a BDC;
| | - | -----------------------------------------------------------------------------------------------------------------

| | • | the adequacy of our cash resources
                                         and working capital;
| | - | ------------------------------------------------------------------------------------------------

| | • | the timing of cash flows,
                                         if any, from the operations of our portfolio companies;
| | - | --------------------------------------------------------------------------------------------------------------------------

| | • | the impact of interest rate
                                         volatility on our results, particularly if we use leverage as part of our investment
                                         strategy;
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | • | the ability of our portfolio
                                         companies to achieve their objective;
| | - | -----------------------------------------------------------------------------------------------------------

| | • | the impact of legislative
                                         and regulatory actions and reforms and regulatory supervisory or enforcement actions
                                         of government agencies relating to us or our Advisor;
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | • | the impact of the SBCAA on
                                         our operations and the BDC industry;
| | - | --------------------------------------------------------------------------------------------------------

| | • | 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;
| | - | ------------------------------------------------------------------------------------------------------------------------

| | • | the impact of changes to tax
                                         legislation and, generally, our tax position; and
| | - | -----------------------------------------------------------------------------------------------------------------------

| | • | our ability to fund unfunded
                                         commitments, including unfunded commitments.
| | - | ------------------------------------------------------------------------------------------------------------------



We use words such
as “anticipates,” “believes,” “expects,” “intends,” “seeks” and similar
expressions to identify forward-looking statements. Undue influence should not be placed on the forward looking statements as
our actual results could differ materially from those projected in the forward-looking statements for any reason, including the
factors 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 no
obligation to update any such forward-looking statements. Although we undertake no obligation to revise or update any forward-looking
statements in this annual 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 we may 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 on Form 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 “safe harbor” 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 quarterly reports we file under the Exchange Act.





63







Overview



We are a specialty
finance company that lends to and invests in development-stage companies in our Target Industries. Our investment objective is
to maximize our investment portfolio’s total return by generating current income from the debt investments we make and capital
appreciation from the warrants we receive when making such debt investments. We are focused on making Venture Loans to venture
capital and private equity backed companies and publicly traded companies in our Target Industries, which we refer to as “Venture
Lending.” Our debt investments are typically secured by first liens or first liens behind a secured revolving line of credit,
or Senior Term Loans. As of December 31, 2019, 100%, or $288.4 million, of our debt investment portfolio at fair value consisted
of Senior Term Loans. Venture Lending is typically characterized by (1) the making of a secured debt investment after a venture
capital or equity investment in the portfolio company has been made, which investment provides a source of cash to fund the portfolio
company’s debt service obligations under the Venture Loan, (2) the senior priority of the Venture Loan which requires repayment
of the Venture 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’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 BDC under the 1940 Act.
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 to comply with regulatory requirements, including limitations on our use of debt. We are permitted to, and
expect to, finance our investments through borrowings. Section 61(a)(2) of the 1940 Act enables BDCs to reduce their asset coverage
requirements from 200% to 150%. This provision permits a BDC to double the maximum amount of leverage that it is permitted to
incur. As defined in the 1940 Act, asset coverage of 150% means that for every $100 of net assets a BDC holds, it may raise up
to $200 from borrowing and issuing senior securities. We received approval from our stockholders to reduce our asset coverage
requirement from 200% to 150% on October 30, 2018. The amount of leverage that we may employ will depend on our assessment of
market conditions and other factors at the time of any proposed borrowing. As a RIC, we generally are not subject to corporate-level
income taxes on our investment company taxable income, determined without regard to any deductions for dividends paid, and our
net capital gain that we distribute as dividends for U.S. federal income tax purposes to our stockholders as long as we meet certain
source-of-income, distribution, asset diversification and other requirements.



Compass Horizon,
our predecessor company, commenced operations in March 2008. We were formed in March 2010 for the purpose of acquiring Compass
Horizon and continuing its business as a public entity.



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



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 members are
independent of us. Under the Investment Management Agreement, 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 the Administration Agreement with our Advisor under which we have
agreed to reimburse our Advisor for our 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, 2019 and 2018:



|                         |  | December 31, 2019     |    |  | December 31, 2018 |  
|------------------------ |  | --------------------- | -- |  | ----------------- | -
|                         |  | Number of Investments |    |  | Fair Value        |  
|                         |  |                       |    |  |                   |  
|Debt investments         |  |                       | 35 |  |                   | $
|Warrants                 |  |                       | 66 |  |                   |  
|Other investments        |  |                       | 1  |  |                   |  
|Equity                   |  |                       | 9  |  |                   |  
|Equity interest in HSLFI |  |                       | 1  |  |                   |  
|Total                    |  |                       |    |  |                   | $





64







The following table
shows total portfolio investment activity as of and for the years ended December 31, 2019 and 2018:



|                                                          |  | December 31,   |        
|--------------------------------------------------------- |  | -------------- | -------
|                                                          |  | 2019           |        
|                                                          |  | (In thousands) |        
|Beginning portfolio                                       |  | $              | 248,441
|New debt investments                                      |  |                | 200,832
|Less refinanced debt investments                          |  |                | (17,500
|Net new debt investments                                  |  |                | 183,332
|Investment in controlled affiliate investments            |  |                | 1,900  
|Principal payments received on investments                |  |                | (17,369
|Early pay-offs                                            |  |                | (94,321
|Accretion of debt investment fees                         |  |                | 3,865  
|New debt investment fees                                  |  |                | (2,669 
|New equity                                                |  |                | 240    
|Warrants received in settlement of fee income             |  |                | —      
|Proceeds from sale of investments                         |  |                | (4,548 
|Dividend income from controlled affiliate investment      |  |                | 2,236  
|Distributions from controlled affiliate investment        |  |                | (715   
|Net realized (loss) gain on investments                   |  |                | (4,192 
|Net unrealized appreciation (depreciation) on investments |  |                | 3,201  
|Other                                                     |  |                | 150    
|Ending portfolio                                          |  | $              | 319,551



We receive payments
on our debt investments based on scheduled amortization of the outstanding balances. In addition, we receive repayments of some
of our debt investments prior to their scheduled maturity date. The frequency or volume of these repayments may fluctuate significantly
from period to period.



The following table
shows our debt investments by industry sector as of December 31, 2019 and 2018:



|                                    |  | December 31, 2019              |         |  | December 31, 2018             | 
|----------------------------------- |  | ------------------------------ | ------- |  | ----------------------------- | 
|                                    |  | Debt Investments at Fair Value |         |  | Percentage of Total Portfolio | 
|                                    |  |                                |         |  | (Dollars in thousands)        | 
|Life Science                        |  |                                |         |  |                               | 
|Biotechnology                       |  | $                              | 41,789  |  |                               | 
|Drug Delivery                       |  |                                | 1,533   |  |                               | 
|Medical Device                      |  |                                | 59,477  |  |                               | 
|Technology                          |  |                                |         |  |                               | 
|Communications                      |  |                                | 1,500   |  |                               | 
|Consumer-Related                    |  |                                | 42,779  |  |                               | 
|Data Storage                        |  |                                | 24,452  |  |                               | 
|Internet and Media                  |  |                                | 22,504  |  |                               | 
|Materials                           |  |                                | 8,410   |  |                               | 
|Power Management                    |  |                                | 11,207  |  |                               | 
|Semiconductors                      |  |                                | —       |  |                               | 
|Software                            |  |                                | 51,069  |  |                               | 
|Healthcare Information and Services |  |                                |         |  |                               | 
|Other Healthcare                    |  |                                | 9,771   |  |                               | 
|Software                            |  |                                | 13,864  |  |                               | 
|Total                               |  | $                              | 288,355 |  |                               | 





65







The largest debt
investments in our portfolio may vary from year to year as new debt investments are originated and existing debt investments are
repaid. Our five largest debt investments represented 28% and 32% of total debt investments outstanding as of December 31, 2019
and 2018, respectively. No single debt investment represented more than 10% of our total debt investments as of December 31, 2019
or 2018.



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 being the rating for a standard level of risk. A rating of 2 represents an increased level of risk and, while no loss is currently
anticipated for a 2-rated debt investment, 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 rating system. As of
December 31, 2019 and 2018, our debt investments had a weighted average credit rating of 3.1. The following table shows the classification
of our debt investment portfolio by credit rating as of December 31, 2019 and 2018:



|              |  | December 31, 2019     |    |  | December 31, 2018              |  
|------------- |  | --------------------- | -- |  | ------------------------------ | -
|              |  | Number of Investments |    |  | Debt Investments at Fair Value |  
|              |  |                       |    |  |                                |  
|Credit Rating |  |                       |    |  |                                |  
|4             |  |                       | 4  |  |                                | $
|3             |  |                       | 26 |  |                                |  
|2             |  |                       | 3  |  |                                |  
|1             |  |                       | 2  |  |                                |  
|Total         |  |                       | 35 |  |                                | $



As of December 31,
2019, there were two debt investments with an internal credit rating of 1, with an aggregate cost of $5.7 million and an aggregate
fair value of $2.0 million. As of December 31, 2018, there were no debt investments with an internal credit rating of 1.



Horizon Secured Loan Fund I LLC



On June, 1 2018,
we and Arena formed a joint venture, or HSLFI, to make investments, either directly or indirectly through subsidiaries, primarily
in the form of secured loans to development-stage companies in the technology, life science, healthcare information and services
and sustainability industries. HSLFI was formed as a Delaware limited liability company and is not consolidated by either us or
Arena for financial reporting purposes. Investments held by HSLFI are measured at fair value. As of December 31, 2019 and 2018,
HSLFI had total assets of $48.3 million and $26.4 million, respectively. HSLFI’s portfolio consisted of debt investments
in eight and four portfolio companies as of December 31, 2019 and 2018, respectively. As of December 31, 2019 and 2018, the largest
investment in a single portfolio company in the HSLFI’s portfolio in aggregate principal amount was $11.3 million and $8.3
million, respectively. As of December 31, 2019, the five largest investments in portfolio companies in HSLFI’s portfolio
totaled $30.3 million. As of December 31, 2018, HSLFI only had four investments in portfolio companies that totaled $25.0 million.
As of December 31, 2019 and 2018, HSLFI had no investments on non-accrual status. HSLFI invests in portfolio companies in the
same industries in which we may directly invest.



We invest cash or
securities in portfolio companies in HSLFI in exchange for limited liability company equity interests in HSLFI. As of December
31, 2019 and 2018, we and Arena each owned 50.0% of the equity interests of HSLFI. We had an original commitment to fund $25.0
million of equity interests in HSLFI. As of December 31, 2019 and 2018, $9.8 million and $11.7 million, respectively, was unfunded.
Our investment in HSLFI consisted of an equity contribution of $15.2 million and $13.3 million as of December 31, 2019 and 2018,
respectively. During the year ended December 31, 2019, HSLFI distributed $1.4 million. For the period June 1, 2018 (the commencement
of HSLFI’s operations) through December 31, 2018, HSLFI distributed $0.5 million.



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





66







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



In addition, on June
1, 2018, HSLFI entered into a sale and servicing agreement with HFI, as Issuer, and us, as Servicer, pursuant to which HSLFI will
sell or contribute to HFI certain secured loans made to certain portfolio companies. HFI entered into a Note Funding Agreement,
or the NYL Facility, with several entities owned or affiliated with New York Life Insurance Company, or the Noteholders, for an
aggregate purchase price of up to $100.0 million, with an accordion feature of up to $200.0 million at the mutual discretion and
agreement of HSLFI and the Noteholders. The Note Funding Agreement’s investment period has ended and the loan thereunder
is in rapid amortization. Any notes issued by HFI will be collateralized by all investments held by HFI and permit an advance
rate of up to 67% of the aggregate principal amount of eligible debt investments. The interest rate on the notes issued under
the NYL Facility is based on the three year USD mid-market swap rate plus a margin of between 2.75% and 3.25% depending on the
rating of such notes at the time of issuance. There were $15.0 million in advances made by the Noteholders as of December 31,
2019 at an interest rate of 4.98%. There were no advances made by the Noteholders as of December 31, 2018.



The following table
shows a summary of HSLFI’s investment portfolio for the year ended December 31, 2019 and the period June 1, 2018 through
December 31, 2018:



|                                                                |  | For the year ended December 31, 2019 |        |   | For the period June 1, 2018 through December 31, 2018 |  
|--------------------------------------------------------------- |  | ------------------------------------ | ------ | - | ----------------------------------------------------- | -
|                                                                |  | (Dollars in thousands)               |       
|Total investments at fair value                                 |  | $                                    | 34,829 |   |                                                       | $
|Dollar-weighted annualized yield on average debt investments(1) |  |                                      | 15.8   | % |                                                       |  
|Number of portfolio companies in HSLFI                          |  |                                      | 10     |   |                                                       |  
|Largest portfolio company investment at fair value              |  | $                                    | 11,186 |   |                                                       | $










| | (1) | HSLFI calculates 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 yield on dollar-weighted average
debt investments represents the portfolio yield and does not reflect HSLFI’s expenses.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The following table
shows HSLFI’s total portfolio investment activity as of and for the year ended December 31, 2019 and the period June 1,
2018 through December 31, 2018:



|                                           |  | For the year ended |        |   | For the period June 1, 2018 through |  
|------------------------------------------ |  | ------------------ | ------ | - | ----------------------------------- | -
|                                           |  | December 31, 2019  |        |   | December 31, 2018                   |  
|                                           |  | (In thousands)     |       
|Beginning portfolio                        |  | $                  | 24,734 |   |                                     | $
|New debt investments                       |  |                    | 19,727 |   |                                     |  
|Early pay-offs                             |  |                    | (9,727 | ) |                                     |  
|Accretion of debt investment fees          |  |                    | 311    |   |                                     |  
|New debt investment fees                   |  |                    | (188   | ) |                                     |  
|Net unrealized depreciation on investments |  |                    | (28    | ) |                                     |  
|Ending portfolio                           |  | $                  | 34,829 |   |                                     | $





67







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



|                                                                |  |                |  |                                                                                  |  | Principal |        |  | Cost of        |   |        | Fair  |    
|--------------------------------------------------------------- |  | -------------- |  | -------------------------------------------------------------------------------- |  | --------- | ------ |  | -------------- | - | ------ | ----- | ---
|Portfolio Company (1)                                           |  | Sector         |  | Type of Investment (2)(3)(4)                                                     |  | Amount    |        |  | Investments(5) |   |        | Value |    
|(Dollars in thousands)                                         
|Debt Investments — Life science                                 |  |                |  |                                                                                  |  |           |        |  |                |   |        |       |    
|Celsion Corporation (6)(7)(8)                                   |  | Biotechnology  |  | Term Loan (9.63% cash (Libor + 7.63%; Floor 9.63%), 4.00% ETP, Due
    7/1/22)   |  | $         | 2,500  |  |                | $ | 2,464  |       |    
|                                                                |  |                |  | Term Loan (9.63% cash (Libor + 7.63%; Floor 9.63%), 4.00% ETP, Due 7/1/22)       |  |           | 2,500  |  |                |   | 2,464  |       |    
|Encore Dermatology, Inc. (6)(7)                                 |  | Biotechnology  |  | Term Loan (10.00% cash (Libor + 7.50%; Floor 10.00%), 3.00% ETP, Due
    4/1/23) |  |           | 5,000  |  |                |   | 4,929  |       |    
|Mustang Bio, Inc. (6)(7)(8)                                     |  | Biotechnology  |  | Term Loan (9.00% cash (Libor + 6.50%; Floor 9.00%), 5.00% ETP, Due 10/1/22)      |  |           | 5,000  |  |                |   | 4,924  |       |    
|Total Debt Investments — Life science                           |  |                |  |                                                                                  |  |           | 14,781 |  |                |   | 14,781 |      
|Debt Investments — Technology                                   |  |                |  |                                                                                  |  |           |        |  |                |   |        |       |    
|Bridge2 Solutions, LLC (6)(7)                                   |  | Software       |  | Term Loan (11.00% cash (Libor + 8.4%; Floor 11.00%), 2.00% ETP, Due 9/1/23)      |  |           | 500    |  |                |   | 481    |       |    
|New Signature US, Inc. (6)(7)(9)                                |  | Software       |  | Term Loan (10.50% cash (Libor + 8.50%; Floor 10.50%), 3.50% ETP, Due 7/1/22)     |  |           | 8,250  |  |                |   | 8,163  |       |    
|                                                                |  |                |  | Term Loan (10.60% cash (Libor + 8.50%; Floor 10.50%), 3.50% ETP, Due 2/1/23)     |  |           | 3,000  |  |                |   | 2,961  |       |    
|OutboundEngine, Inc. (6)(7)                                     |  | Software       |  | Term Loan (11.15% cash (Libor + 8.40%; Floor 11.15%), 3.00% ETP, Due 7/1/23)     |  |           | 500    |  |                |   | 491    |       |    
|Revinate, Inc. (6)(7)                                           |  |                |  | Term Loan (9.50% cash (Libor + 7.00%, Floor 9.50%), 3.00% ETP, Due 6/1/23)       |  |           | 4,000  |  |                |   | 3,952  |       |    
|Total Debt Investments — Technology                             |  |                |  |                                                                                  |  |           | 16,048 |  |                |   | 16,048 |      
|Debt Investments — Healthcare information and services          |  |                |  |                                                                                  |  |           |        |  |                |   |        |      
|HealthEdge Software, Inc. (6)(7)                                |  | Software       |  | Term Loan (9.94% cash (Libor + 8.25%; Floor 9.25%), 3.00% ETP, Due 10/1/23)      |  |           | 3,750  |  |                |   | 3,709  |       |    
|Total Debt Investments — Healthcare information and services    |  |                |  |                                                                                  |  |           | 3,709  |  |                |   | 3,709  |      
|Total Debt Investments                                          |  |                |  |                                                                                  |  |           |        |  |                |   | 34,538 |       |    
|                                                                |  |                |  |                                                                                  |  |           |        |  |                |   |        |       |    
|Warrant Investments — Life science                              |  |                |  |                                                                                  |  |           |        |  |                |   |        |       |    
|Celsion Corporation (6)(7)(8)                                   |  | Biotechnology  |  | 95,057 Common Stock Warrants                                                     |  |           |        |  |                |   | 58     |       |    
|Encore Dermatology, Inc. (6)(7)                                 |  | Biotechnology  |  | 503,626 Preferred Stock Warrants                                                 |  |           |        |  |                |   | 38     |       |    
|Mustang Bio, Inc. (6)(7)(8)                                     |  | Biotechnology  |  | 72,046 Common Stock Warrants                                                     |  |           |        |  |                |   | 45     |       |    
|CSA Medical, Inc. (6)(7)                                        |  | Medical Device |  | 17,751 Preferred Stock Warrants                                                  |  |           |        |  |                |   | 2      |       |    
|Total Warrant Investments — Life science                        |  |                |  |                                                                                  |  |           |        |  | 143            |   |        |       | 82 
|Warrant Investments — Technology                                |  |                |  |                                                                                  |  |           |        |  |                |   |        |       |    
|Intelepeer Holdings, Inc. (6)(7)                                |  | Communications |  | 2,081,934 Preferred Stock Warrants                                               |  |           |        |  |                |   | 82     |       |    
|Bridge2 Solutions, LLC (6)(7)                                   |  | Software       |  | 2,500 Common Stock Warrants                                                      |  |           |        |  |                |   | 18     |       |    
|BSI Platform Holdings, LLC (6)(7)(9)                            |  | Software       |  | 562,500 Preferred Stock Warrants                                                 |  |           |        |  |                |   | 77     |       |    
|OutboundEngine, Inc. (6)(7)                                     |  | Software       |  | 40,000 Preferred Stock Warrants                                                  |  |           |        |  |                |   | 5      |       |    
|Revinate, Inc. (6)(7)                                           |  | Software       |  | 216,362 Preferred Stock Warrants                                                 |  |           |        |  |                |   | 16     |       |    
|Total Warrant Investments — Technology                          |  |                |  |                                                                                  |  |           |        |  | 198            |   |        |       | 192
|Warrant Investments — Healthcare information and services       |  |                |  |                                                                                  |  |           |        |  |                |   |        |      
|HealthEdge Software, Inc. (6)(7)                                |  | Software       |  | 47,418 Preferred Stock Warrants                                                  |  |           |        |  |                |   | 16     |       |    
|Total Warrant Investments — Healthcare information and services |  |                |  |                                                                                  |  |           | 16     |  |                |   | 17     |      
|Total Warrant Investments                                       |  |                |  |                                                                                  |  |           |        |  |                |   | 357    |       |    
|                                                                |  |                |  |                                                                                  |  |           |        |  |                |   |        |       |    
|Total Portfolio Investment Assets                               |  |                |  |                                                                                  |  | $         | 34,895 |  |                | $ | 34,829 |      





68







|                                                             |  |        |  |                              |  | Principal |        |   | Cost of        |   |        | Fair  |       
|------------------------------------------------------------ |  | ------ |  | ---------------------------- |  | --------- | ------ | - | -------------- | - | ------ | ----- | ------
|Portfolio Company (1)                                        |  | Sector |  | Type of Investment (2)(3)(4) |  | Amount    |        |   | Investments(5) |   |        | Value |       
|(Dollars in thousands)                                      
|Short Term Investments — Unrestricted Investments            |  |        |  |                              |  |           |        |   |                |  
|US Bank Money Market Deposit Account (6)                     |  |        |  |                              |  |           |        | $ | 11,201         |   |        | $     | 11,201
|Total Short Term Investments — Unrestricted Investments      |  |        |  |                              |  | $         | 11,201 |   |                | $ | 11,201 |      
|                                                             |  |        |  |                              |  |           |        |   |                |   |        |       |       
|Short Term Investments — Restricted Money Market Funds       |  |        |  |                              |  |           |        |   |                |   |        |      
|US Bank Money Market Deposit Account (6)                     |  |        |  |                              |  |           |        | $ | 138            |   |        | $     | 138   
|Total Short Term Investments — Restricted Money Market Funds |  |        |  |                              |  | $         | 138    |   |                | $ | 138    |      










|(1) | All investments of HSLFI are in entities which are organized under the laws of the United States and have a principal place of business in the United States.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|(2) | All interest is payable in cash due monthly in arrears, unless otherwise indicated, and applies only to HSLFI’s debt investments. Interest rate is the annual interest rate on the debt investment and does not include end-of-term payments, or ETPs, and any additional fees related to the investments, such as deferred interest, commitment fees or prepayment fees. Debt investments are at variable rates for the term of the debt investment, unless otherwise indicated. All debt investments based on the London InterBank Offered Rate, or LIBOR, are based on one-month LIBOR. For each debt investment, the current interest rate in effect as of December 31, 2019 is provided.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|(3) | ETPs are contractual fixed-interest payments due in cash at the maturity date of the applicable debt investment, including upon any prepayment, and are a fixed percentage of the original principal balance of the debt investments unless otherwise noted. Interest will accrue during the life of the debt investment on each ETP and will be recognized as non-cash income until it is actually paid.                                                                                                                                                                                                                                                                                    
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|(4) | Warrants are non-income producing.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|(5) | For debt investments, represents principal balance less unearned income.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|(6) | Has been pledged as collateral under the NYL Facility.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|(7) | The fair value of the investment was valued using significant unobservable inputs.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|(8) | Portfolio company is a public company.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|(9) | New Signature US, Inc. is a subsidiary of BSI Platform Holdings, LLC.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        



The following table shows HSLFI’s
investments as of December 31, 2018:



|                                                             |  |                |  |                                                                              |  | Principal |       |  | Cost of        |   |        | Fair  |       
|------------------------------------------------------------ |  | -------------- |  | ---------------------------------------------------------------------------- |  | --------- | ----- |  | -------------- | - | ------ | ----- | ------
|Portfolio Company (1)                                        |  | Sector         |  | Type of Investment (2)(3)(4)                                                 |  | Amount    |       |  | Investments(5) |   |        | Value |       
|(Dollars in thousands)                                      
|Debt Investments — Life science                              |  |                |  |                                                                              |  |           |       |  |                |   |        |       |       
|Celsion Corporation (6)(7)(8)                                |  | Biotechnology  |  | Term Loan (9.98% cash (Libor + 7.63%; Floor 9.63%), 4.00% ETP, Due 7/1/22)   |  | $         | 2,500 |  |                | $ | 2,449  |       |       
|                                                             |  |                |  | Term Loan (9.98% cash (Libor + 7.63%; Floor 9.63%), 4.00% ETP, Due 7/1/22)   |  |           | 2,500 |  |                |   | 2,449  |       |       
|Total Debt Investments — Life science                        |  |                |  |                                                                              |  |           |       |  | 4,898          |   |        |       | 4,898 
|Debt Investments — Technology                                |  |                |  |                                                                              |  |           |       |  |                |   |        |       |       
|Intelepeer Holdings, Inc. (6)(7)                             |  | Communications |  | Term Loan (12.30% cash (Libor + 9.95%; Floor 11.25%), 2.50% ETP, Due 7/1/21) |  |           | 4,000 |  |                |   | 3,948  |       |       
|                                                             |  |                |  | Term Loan (12.30% cash (Libor + 9.95%; Floor 11.25%), 2.50% ETP, Due 7/1/21) |  |           | 4,000 |  |                |   | 3,948  |       |       
|New Signature US, Inc. (6)(7)(9)                             |  | Software       |  | Term Loan (10.85% cash (Libor + 8.50%; Floor 10.50%), 3.50% ETP, Due 7/1/22) |  |           | 8,250 |  |                |   | 8,098  |       |       
|Total Debt Investments — Technology                          |  |                |  |                                                                              |  |           |       |  | 15,994         |   |        |       | 15,994
|Debt Investments — Healthcare information and services       |  |                |  |                                                                              |  |           |       |  |                |   |        |      
|HealthEdge Software, Inc. (6)(7)                             |  | Software       |  | Term Loan (10.60% cash (Libor + 8.25%; Floor 9.25%), 3.00% ETP, Due 10/1/23) |  |           | 3,750 |  |                |   | 3,699  |       |       
|Total Debt Investments — Healthcare information and services |  |                |  |                                                                              |  |           | 3,699 |  |                |   | 3,699  |      
|Total Debt Investments                                       |  |                |  |                                                                              |  |           |       |  |                |   | 24,591 |       |       





69







|                                                                |  |                |  |                                    |   | Principal |    |    | Cost of        |        |     | Fair  |    
|--------------------------------------------------------------- |  | -------------- |  | ---------------------------------- | - | --------- | -- | -- | -------------- | ------ | --- | ----- | ---
|Portfolio Company (1)                                           |  | Sector         |  | Type of Investment (2)(3)(4)       |   | Amount    |    |    | Investments(5) |        |     | Value |    
|(Dollars in thousands)                                         
|Warrant Investments — Life science                              |  |                |  |                                    |   |           |    |    |                |        |     |       |    
|Celsion Corporation (6)(7)(8)                                   |  | Biotechnology  |  | 95,057 Common Stock Warrants       |   |           |    |    |                |        | 58  |       |    
|Total Warrant Investments — Life science                        |  |                |  |                                    |   |           |    |    | 58             |        |     |       | 1  
|Warrant Investments — Technology                                |  |                |  |                                    |   |           |    |    |                |        |     |       |    
|Intelepeer Holdings, Inc. (6)(7)                                |  | Communications |  | 1,280,000 Preferred Stock Warrants |   |           |    |    |                |        | 49  |       |    
|BSI Platform Holdings, LLC (6)(7)(9)                            |  | Software       |  | 412,500 Preferred Stock Warrants   |   |           |    |    |                |        | 57  |       |    
|Total Warrant Investments — Technology                          |  |                |  |                                    |   |           |    |    | 106            |        |     |       | 126
|Warrant Investments — Healthcare information and services       |  |                |  |                                    |   |           |    |    |                |        |     |      
|HealthEdge Software, Inc. (6)(7)                                |  | Software       |  | 47,418 Preferred Stock Warrants    |   |           |    |    |                |        | 16  |       |    
|Total Warrant Investments — Healthcare information and services |  |                |  |                                    |   |           | 16 |    |                |        | 16  |      
|Total Warrant Investments                                       |  |                |  |                                    |   |           |    |    |                |        | 180 |       |    
|                                                                |  |                |  |                                    |   |           |    |    |                |        |     |       |    
|Total Portfolio Investment Assets                               |  |                |  |                                    | $ | 24,771    |    |    | $              | 24,734 |    
|                                                                |  |                |  |                                    |   |           |    |    |                |        |     |       |    
|Short Term Investments — Unrestricted Investments               |  |                |  |                                    |   |           |    |    |                |        |     |      
|US Bank Money Market Deposit Account (6)                        |  |                |  |                                    |   |           | $  | 74 |                |        | $   | 74    |    
|Total Short Term Investments — Unrestricted Investments         |  |                |  |                                    |   | $         | 74 |    |                | $      | 74  |      










|(1) | All investments of HSLFI are in entities which are organized under the laws of the United States and have a principal place of business in the United States.                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(2) | All interest is payable in cash due monthly in arrears, unless otherwise indicated, and applies only to HSLFI’s debt investments. Interest rate is the annual interest rate on the debt investment and does not include ETPs and any additional fees related to the investments, such as deferred interest, commitment fees or prepayment fees. Debt investments are at variable rates for the term of the debt investment, unless otherwise indicated. All debt investments based on LIBOR are based on one-month LIBOR. For each debt investment, the current interest rate in effect as of December 31, 2018 is provided.
|(3) | ETPs are contractual fixed-interest payments due in cash at the maturity date of the applicable debt investment, including upon any prepayment, and are a fixed percentage of the original principal balance of the debt investments unless otherwise noted. Interest will accrue during the life of the debt investment on each ETP and will be recognized as non-cash income until it is actually paid.                                                                                                                                                                                                                   
|(4) | Warrants are non-income producing.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|(5) | For debt investments, represents principal balance less unearned income.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|(6) | Has been pledged as collateral under the NYL Facility.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|(7) | The fair value of the investment was valued using significant unobservable inputs.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|(8) | Portfolio company is a public company.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|(9) | New Signature US, Inc. is a subsidiary of BSI Platform Holdings, LLC.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       





70







The following tables show certain summarized
financial information for HSLFI as of December 31, 2019 and 2018 and for the year ended December 31, 2019 and the period June 1,
2018 through December 31, 2018:



|                                                                            |  | December 31,   |       
|--------------------------------------------------------------------------- |  | -------------- | ------
|                                                                            |  | 2019           |       
|                                                                            |  | (In thousands) |       
|Selected Statement of Assets and Liabilities Information                    |  |                |       
|Total investments at fair value (cost of $34,895 and $24,771, respectively) |  | $              | 34,829
|Investments in money market funds                                           |  |                | 11,201
|Cash and cash equivalents                                                   |  |                | 503   
|Restricted investments in money market funds                                |  |                | 138   
|Interest receivable                                                         |  |                | 477   
|Other assets                                                                |  |                | 1,109 
|Total assets                                                                |  | $              | 48,257
|                                                                            |  |                |       
|Borrowings                                                                  |  | $              | 14,955
|Other liabilities                                                           |  |                | 126   
|Total liabilities                                                           |  |                | 15,081
|                                                                            |  |                |       
|Members’ equity                                                             |  |                | 33,176
|Total liabilities and members’ equity                                       |  | $              | 48,257



|                                                     |  | For
the year
ended 
December 31,
2019 |       |   | For the period
 June 1, 2018
 through
 December 31,
 2018 |  
|---------------------------------------------------- |  | ------------------------------------- | ----- | - | --------------------------------------------------------- | -
|                                                     |  | (In thousands)                        |      
|Selected Statements of Operations Information        |  |                                       |       |   |                                                           |  
|Interest income on investments                       |  | $                                     | 5,291 |   |                                                           | $
|Total investment income                              |  | $                                     | 5,699 |   |                                                           | $
|Total expenses                                       |  | $                                     | 1,227 |   |                                                           | $
|Net investment income                                |  | $                                     | 4,472 |   |                                                           | $
|Net unrealized depreciation on investments           |  | $                                     | (28   | ) |                                                           | $
|Net increase in net assets resulting from operations |  | $                                     | 4,444 |   |                                                           | $





71







Consolidated results of operations of
Horizon Technology Finance Corporation



The consolidated 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, 2019, 2018 and 2017:



|                                                          |  | 2019           |         |   | 2018 |   |         | 2017 | 
|--------------------------------------------------------- |  | -------------- | ------- | - | ---- | - | ------- | ---- | 
|                                                          |  | (In thousands) |        
|Total investment income                                   |  | $              | 43,125  |   |      | $ | 31,090  |      | 
|Total expenses                                            |  |                | 24,264  |   |      |   | 18,374  |      | 
|Performance based incentive fees waived                   |  |                | (1,848  | ) |      |   | (1,184  | )    | 
|Net expenses                                              |  |                | 22,416  |   |      |   | 17,190  |      | 
|Net investment income before excise tax                   |  |                | 20,709  |   |      |   | 13,900  |      | 
|Provision for excise tax                                  |  |                | 239     |   |      |   | 34      |      | 
|Net investment income                                     |  |                | 20,470  |   |      |   | 13,866  |      | 
|Net realized (loss) gain on investments                   |  |                | (4,173  | ) |      |   | 645     |      | 
|Net unrealized appreciation (depreciation) on investments |  |                | 3,201   |   |      |   | (1,501  | )    | 
|Net increase in net assets resulting from operations      |  | $              | 19,498  |   |      | $ | 13,010  |      | 
|Average debt investments, at fair value                   |  | $              | 244,940 |   |      | $ | 200,911 |      | 
|Average borrowings outstanding                            |  | $              | 135,419 |   |      | $ | 99,415  |      | 



Net increase in net
assets resulting from operations can vary substantially from period to period for various reasons, including the recognition of
realized gains and losses and unrealized appreciation and depreciation on investments. As a result, annual comparisons of net increase
in net assets resulting from operations may not be meaningful.



Investment income



Total investment income
increased by $12.0 million, or 38.7%, to $43.1 million for the year ended December 31, 2019 as compared to the year ended
December 31, 2018. For the year ended December 31, 2019, total investment income consisted primarily of $37.1 million
in interest income from investments, which included $10.4 million in income from the accretion of origination fees and ETP,
$3.8 million in fee income and $2.2 million in dividend income. Interest income on debt investments increased by $8.3 million,
or 28.8%, to $37.1 million for the year ended December 31, 2019 as compared to the year ended December 31, 2018. Interest
income on investments for the year ended December 31, 2019 as compared to the year ended December 31, 2018 increased primarily
due to an increase of $44.0 million, or 21.9%, in the average size of our debt investment portfolio and an increase in accelerated
fees earned on higher principal prepayments received. Fee income, which includes success fee, other fee and prepayment fee income
on debt investments, increased by $1.8 million, or 85.6%, to $3.8 million for the year ended December 31, 2019 compared to the
year ended December 31, 2018 primarily due to an increase in fees earned on higher principal prepayments received.



Total investment income
increased by $5.3 million, or 20.6%, to $31.1 million for the year ended December 31, 2018 as compared to the year ended December 31,
2017. For the year ended December 31, 2018, total investment income consisted primarily of $28.8 million in interest
income from investments, which included $6.0 million in income from the accretion of origination fees and ETP, $2.0 million
in fee income and $0.3 million in dividend income. Interest income on debt investments increased by $5.0 million, or 21.1%, to
$28.8 million for the year ended December 31, 2018 as compared to the year ended December 31, 2017. Interest income on
investments for the year ended December 31, 2018 as compared to the year ended December 31, 2017 increased primarily due to an
increase of $30.2 million, or 17.7%, in the average size of our debt investment portfolio and an increase in LIBOR which is the
base rate for most of our variable rate debt investments for the year ended December 31, 2018 as compared to the year ended December
31, 2017. Fee income, which includes success fee and prepayment fee income on debt investments, remained flat at $2.0 million for
the year ended December 31, 2018 compared to the year ended December 31, 2017.





72







The following table
shows our dollar-weighted annualized yield for the years ended December 31, 2019, 2018 and 2017:



|                                                       |  | For
the years ended
December 31, |     
|------------------------------------------------------ |  | -------------------------------- | ----
|Investment type:                                       |  | 2019                             |     
|Debt investments(1)(2)                                 |  |                                  | 16.7
|Equity interest in HSLFI and debt investments(1)(3)(4) |  |                                  | 16.7
|Equity interest in HSLFI(1)(4)(5)                      |  |                                  | 16.2
|All investments(1)(6)                                  |  |                                  | 15.7










|(1) | We calculate the dollar-weighted annualized yield on average investment type for any period as (1) total related investment income during the period divided by (2) the average of the fair value of the investment type 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 on average investment type is higher than what investors will realize because it does not reflect our expenses or any sales load paid by investors
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(2) | Excludes any yield from warrants, equity, other investments and equity interest in HSLFI. Related investment income includes interest income and fee income from debt investments.                                                                                                                                                                                                                                                                                                                                                                                                     
|(3) | Excludes any yield from warrants, equity and other investments. Related investment income includes interest income and fee income from debt investments and dividend income from equity interest in HSLFI.                                                                                                                                                                                                                                                                                                                                                                             
|(4) | HSLFI was formed on June 1, 2018. There was no yield from equity interest in HSLFI for the year ended December 31, 2017.                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|(5) | Excludes any yield from debt investments, warrants, equity and other investments. Related investment income includes dividend income from equity interest in HSLFI.                                                                                                                                                                                                                                                                                                                                                                                                                    
|(6) | Includes any yield from debt investments, warrants, equity, other investments and equity interest in HSFLI. Related investment income includes interest income, fee income and dividend income.                                                                                                                                                                                                                                                                                                                                                                                        



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%, 25% and 14% of investment income for
the years ended December 31, 2019, 2018 and 2017, respectively.



Expenses



Net expenses increased
by $5.2 million, or 30.4%, to $22.4 million for the year ended December 31, 2019 as compared to the year ended December 31,
2018. Net expenses increased by $3.7 million, or 27.8%, to $17.2 million for the year ended December 31, 2018 as
compared to the year ended December 31, 2017. Total expenses for each period consisted of interest expense, base management
fee, incentive and administrative fees, professional fees and general and administrative expenses.



Interest expense increased
by $2.0 million, or 30.9%, to $8.3 million for the year ended December 31, 2019 as compared to the year ended December 31,
2018. Interest expense, which includes the amortization of debt issuance costs, increased primarily due to an increase in average
borrowings of $36.0 million, or 36.2%, which was partially offset by a decrease in LIBOR. Interest expense increased by $1.2 million,
or 23.1%, to $6.4 million for the year ended December 31, 2018 as compared to the year ended December 31, 2017.
Interest expense, which includes the amortization of debt issuance costs, increased primarily due to an increase in average borrowings
of $23.5 million, or 30.9%, which was partially offset by the acceleration of $0.2 million of unamortized debt issuance costs related
to the redemption of the 2019 Notes.



Base management fee
expense increased by $1.0 million, or 21.4%, to $5.6 million for the year ended December 31, 2019 as compared to the year
ended December 31, 2018 primarily due to an increase of $44.0 million, or 21.9%, in the average size of our investment portfolio
for the year ended December 31, 2019 as compared to the year ended December 31, 2018. Base management fee expense increased
by $0.8 million, or 20.9%, to $4.6 million for the year ended December 31, 2018 as compared to the year ended December 31,
2017 primarily due to an increase of $30.2 million, or 17.7%, in the average size of our investment portfolio for the year ended
December 31, 2018 as compared to the year ended December 31, 2017.



On March 5,
2019, our Advisor irrevocably waived the receipt of incentive fees related to the amounts previously deferred that it may be
entitled to receive under the Investment Management Agreement for the period commencing on January 1, 2019 and ending on
December 31, 2019. Such waived incentive fees will not be subject to recoupment. During the year ended December 31, 2019, our
Advisor waived performance based incentive fees of $1.8 million which our Advisor would have otherwise been paid. This
resulted in $1.8 million of reduced expense and additional net investment income for the year ended December 31, 2019.





73







On March 6, 2018,
our Advisor irrevocably waived the receipt of incentive fees related to the amounts previously deferred that it may be entitled
to receive under the Investment Management Agreement for the period commencing on January 1, 2018 and ending on December 31, 2018.
Such waived incentive fees will not be subject to recoupment. During the year ended December 31, 2018, our Advisor waived performance
based incentive fees of $1.2 million which our Advisor would have otherwise earned. This resulted in $1.2 million of reduced expense
and additional net investment income for the year ended December 31, 2018.



Performance based
incentive fee expense, net of the waiver above, increased by $1.9 million, or 59.5%, to $5.1 million for the year ended December
31, 2019 as compared to the year ended December 31, 2018. This increase was due to (i) an increase of $8.5 million, or 49.9%, in
Pre-Incentive Fee Net Investment Income for the year ended December 31, 2019 compared to the year ended December 31, 2018 and (ii)
an increase in the Incentive Fee Cap calculated based on the incentive fee cap and deferral mechanism in our Investment Management
Agreement for the year ended December 31, 2019 compared to the year ended December 31, 2018. The incentive fee on pre-incentive
fee net investment income was subject to the Incentive Fee Cap for the year ended December 31, 2018 due to the cumulative incentive
fees paid exceeding 20% of cumulative pre-incentive fee net return during the applicable quarter and the 11 preceding full calendar
quarters. Performance based incentive fee expense, net of waiver above, increased by $1.6 million, or 96.3%, to $3.2 million for
the year ended December 31, 2018 as compared to the year ended December 31, 2017. This increase was due to (i) an increase of $3.1
million, or 22.6%, to $17.1 million in Pre-Incentive Fee Net Investment Income for the year ended December 31, 2018 as compared
to the year ended December 31, 2017 and (ii) an increase in the Incentive Fee Cap calculated based on the incentive fee cap
and deferral mechanism in our Investment Management Agreement for the year ended December 31, 2018 compared to the year ended December
31, 2017. The incentive fee on pre-incentive fee net investment income was subject to the Incentive Fee Cap for the year ended
December 31, 2018 due to the cumulative incentive fees paid exceeding 20% of cumulative pre-incentive fee net return during the
applicable quarter and the 11 preceding full calendar quarters.



In 2019 and 2018,
we elected to carry forward taxable income in excess of current year distributions into the next tax year and pay a 4% excise tax
on such income. For the years ended December 31, 2019 and 2018, we elected to carry forward taxable income in excess of current
year distributions of $6.5 million and $1.3 million, respectively. At December 31, 2019 and 2018, excise tax payable of $0.2 million
and $0.03 million, respectively, was recorded.



Administrative fee
expense, professional fees and general and administrative expenses were $3.4 million, $3.0 million and $2.9 million for the years
ended December 31, 2019, 2018 and 2017, respectively.



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
our investments without regard to unrealized appreciation or depreciation previously recognized. Realized gains or losses on investments
include investments charged off during the period, net of recoveries. The net change in unrealized appreciation or depreciation
on investments primarily reflects the change in portfolio investment fair values during the reporting period, including the reversal
of previously recorded unrealized appreciation or depreciation when gains or losses are realized.



During the year ended
December 31, 2019, we realized net losses totaling $4.2 million primarily due to the expiration of one of our royalty agreements
and the sale of one of our license agreements, which were included in other investments, which was partially offset by a gain on
the sale of our equity investment in one portfolio company and from the consideration we received from the termination of warrants
upon the sale of three portfolio companies. During the year ended December 31, 2018, we realized net gains totaling $0.6 million
primarily due to gains realized on the sale of equity received upon the exercise of warrants. During the year ended December 31,
2017, we realized net losses totaling $21.2 million primarily due to the resolution of four debt investments partially offset by
realized gains on the sale of equity received upon the exercise of warrants. One debt investment was settled, which resulted in
a realized loss of $5.8 million and unrealized appreciation of $5.8 million. One debt investment was settled for net cash proceeds
of $1.3 million, which resulted in a realized loss of $3.0 million and unrealized appreciation of $2.8 million. Two debt investments
were settled for a royalty and sale agreements collectively fair valued at $7.5 million, which resulted in a realized loss of $12.4
million and unrealized appreciation of $11.8 million.





74







During the year ended
December 31, 2019, net unrealized appreciation on investments totaled $3.2 million which was primarily due to the unrealized appreciation
on one of our equity investments and the reversal of previously recorded unrealized depreciation from the expiration of one of
our royalty agreements, which was included in other investments, partially offset by the unrealized depreciation on one of our
debt investments. During the year ended December 31, 2018, net unrealized depreciation on investments totaled $1.5 million
which was primarily due to the unrealized depreciation on our warrant and equity investments in public companies. During the year
ended December 31, 2017, net unrealized appreciation on investments totaled $18.5 million which was primarily due to the reversal
of previously recorded unrealized depreciation on four debt investments that were settled during the period.



Liquidity and capital resources



As of December 31,
2019 and 2018, we had cash and investments in money market funds of $16.3 million and $12.6 million, respectively. Cash
and investments 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, 2019, we had $1.1 million of restricted investments in money market
funds. Restricted investments in money market funds may be used to make monthly interest and principal payments on our Asset-Backed
Notes. Our primary sources of capital have been from our public and private equity offerings, use of our revolving credit facilities,
issuance of our public debt offerings and issuance of our Asset-Backed Notes.



On March 26, 2019,
we completed a follow-on public offering of 2,000,000 shares of our common stock at a public offering price of $12.14 per share,
for total net proceeds to us of $23.1 million, after deducting underwriting commission and discounts and other offering expenses.



On August 2, 2019,
we entered into an At-The-Market (“ATM”) sales agreement (the “Equity Distribution Agreement”), with Goldman
Sachs & Co. LLC and B. Riley FBR, Inc. (each a “Sales Agent” and, collectively, the “Sales Agents”).
The Equity Distribution Agreement provides that we may offer and sell shares of common stock from time to time through the Sales
Agents representing up to $50.0 million worth of our common stock, in amounts and at times to be determined by us.



During the year ended
December 31, 2019, we sold 2,012,844 shares of common stock under the Equity Distribution Agreement. For the same period, we received
total accumulated net proceeds of approximately $24.0 million, including $0.6 million of offering expenses, from these sales.



On April 26, 2019,
our Board extended a previously authorized stock repurchase program which allows us to repurchase up to $5.0 million of our common
stock at prices below our NAV 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 to time. 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, 2020 or the repurchase of $5.0 million of our common stock. During the years ended December 31, 2019 and 2018,
we did not repurchase any shares of our common stock. During the year ended December 31, 2017, we repurchased 5,923 shares of our
common stock at an average price of $9.97 on the open market at a total cost of $0.1 million. From the inception of the stock repurchase
program through December 31, 2019, we repurchased 167,465 shares of our common stock at an average price of $11.22 on the open
market at a total cost of $1.9 million.



At December 31, 2019
and 2018, the outstanding principal balance under the Key Facility was $17.0 million and $90.5 million, respectively. As of December
31, 2019 and 2018, we had borrowing capacity under the Key Facility of $108.0 million and $34.5 million, respectively. At December
31, 2019 and 2018, $24.2 million and $0.9 million, respectively, were available, subject to existing terms and advance rates.



Our operating activities
used cash of $51.4 million for the year ended December 31, 2019, and our financing activities provided cash of $56.2 million
for the same period. Our operating activities used cash primarily to purchase investments in portfolio companies partially offset
by principal payments received on our debt investments. Our financing activities provided cash primarily from the sale of shares
through a follow-on public offering and our ATM for net proceeds of $47.1 million, after deducting underwriting commission and
discounts and other offering expenses and the completion of our Asset-Backed Notes, partially offset by cash used to pay distributions
to our stockholders.





75







Our operating activities
used cash of $12.1 million for the year ended December 31, 2018, and our financing activities provided cash of $18.1 million
for the same period. Our operating activities used cash primarily for investments made in portfolio companies and HSLFI, partially
offset by principal payments received on our debt investments. Our financing activities provided cash primarily from advances on
our Key Facility partially offset by repayment of our Key Facility and payment of distributions to our stockholders.



Our operating activities
used cash of $14.8 million for the year ended December 31, 2017, and our financing activities used cash of $15.7 million
for the same period. Our operating activities used cash primarily for investments made in portfolio companies, partially offset
by principal payments received on our debt investments. Our financing activities used cash primarily to redeem the 2019 Notes,
pay down the Key Facility and pay distributions to our stockholders, partially offset by the issuance of the 2022 Notes.



Our primary use of
available funds is to make debt investments in portfolio companies and for general corporate purposes. We expect to raise additional
equity and debt capital opportunistically as needed, and subject to market conditions, to support our future growth to the extent
permitted by the 1940 Act.



In order to remain
subject to taxation as a RIC, we intend to distribute to our stockholders all or substantially all of our investment company taxable
income. In addition, as a BDC, we are required to maintain asset coverage of at least 150%. 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 working
capital and capital expenditure commitments for at least the next 12 months.



Current borrowings



The following table
shows our borrowings as of December 31, 2019 and 2018:



|                                                                |  | December 31, 2019 |         |  | December 31, 2018    |  
|--------------------------------------------------------------- |  | ----------------- | ------- |  | -------------------- | -
|                                                                |  | Total
 Commitment |         |  | Balance
 Outstanding |  
|                                                                |  |                   |         |  |                      |  
|Key Facility                                                    |  | $                 | 125,000 |  |                      | $
|Asset-Backed Notes                                              |  |                   | 100,000 |  |                      |  
|2022 Notes                                                      |  |                   | 37,375  |  |                      |  
|Total before debt issuance costs                                |  |                   | 262,375 |  |                      |  
|Unamortized debt issuance costs attributable to term borrowings |  |                   | —       |  |                      |  
|Total borrowings outstanding, net                               |  | $                 | 262,375 |  |                      | $



We entered into the
Key Facility effective November 4, 2013. The interest rate on the Key Facility is based upon the one-month LIBOR plus a spread
of 3.25%, with a LIBOR floor of 0.75%. The LIBOR rate was 1.76% and 2.50% as of December 31, 2019 and 2018, respectively. The interest
rates in effect were 4.94% and 5.60% as of December 31, 2019 and 2018, respectively. The Key Facility requires the payment of an
unused line fee in an amount equal to 0.50% of any unborrowed amount available under the facility annually.



The Key Facility
has an accordion feature which allows for an increase in the total loan commitment to $150 million. On December 28, 2018, we
amended the Key Facility, increasing the aggregate commitments under the Key Facility by $25 million to $125 million. The Key
Facility is collateralized by debt investments held by Credit II and permits an advance rate of up to fifty percent (50%) of
eligible debt investments held by Credit II. The Key Facility contains covenants that, among other things, require us to
maintain a minimum net worth, to restrict the debt investments securing the Key Facility to certain criteria for qualified
debt investments and to comply with portfolio company concentration limits as defined in the related loan agreement. The
period during which we may request advances under the Key Facility, or the Revolving Period, extends through April 6, 2021.
After the Revolving Period, we may not request new advances, and we must repay the outstanding advances under the Key
Facility as of such date, at such times and in such amounts as are necessary to maintain compliance with the terms and
conditions of the Key Facility, particularly the condition that the principal balance of the Key Facility not exceed fifty
percent (50%) of the aggregate principal balance of our eligible debt investments to our portfolio companies. The maturity of
the Key Facility, the date on which all outstanding advances under the Key Facility are due and payable is on April 6,
2023.





76







On September 29, 2017,
we issued and sold an aggregate principal amount of $32.5 million 2022 Notes, and on October 11, 2017, pursuant to the underwriters’
30-day option to purchase additional notes, we sold an additional $4.9 million of the 2022 Notes. The 2022 Notes have a stated
maturity of September 15, 2022 and may be redeemed in whole or in part at our option at any time or from time to time on or after
September 15, 2019 at a redemption price of $25 per security plus accrued and unpaid interest. The 2022 Notes bear interest at
a rate of 6.25% per year payable quarterly on March 15, June 15, September 15 and December 15 of each year. The 2022 Notes are
our direct, unsecured obligations and (1) rank equally in right of payment with our current and future unsecured indebtedness;
(2) are senior in right of payment to any of our future indebtedness that expressly provides it is subordinated to the 2022 Notes;
(3) are effectively subordinated to all of our existing and future secured indebtedness (including indebtedness that is initially
unsecured to which we subsequently grant security), to the extent of the value of the assets securing such indebtedness and (4)
are structurally subordinated to all existing and future indebtedness and other obligations of any of our subsidiaries. As
of December, 31, 2019, we were in material compliance with the terms of the 2022 Notes.The 2022 Notes are listed on the
New York Stock Exchange under the symbol “HTFA”.



On August 13, 2019,
the Asset-Backed Notes were issued by the 2019-1 Trust pursuant to a note purchase agreement, dated as of August 13, 2019, by and
among us and Keybanc Capital Markets Inc. as Initial Purchaser, and are backed by a pool of loans made to certain portfolio companies
of ours and secured by certain assets of those portfolio companies and are to be serviced by us. Interest on the Asset-Backed Notes
will be paid, to the extent of funds available, at a fixed rate of 4.21% per annum. The Asset-Backed Notes have a two-year reinvestment
period and a stated maturity of September 15, 2027. The Asset-Backed Notes were rated A+(sf) by Morningstar Credit Ratings, LLC.



At December 31, 2019,
the Asset-Backed Notes had an outstanding principal balance of $100.0 million. The Asset-Backed Notes did not exist at December
31, 2018.



Under the terms of
the Asset-Backed Notes, we are required to maintain a reserve cash balance, funded through proceeds from the sale of the Asset-Backed
Notes, which may be used to pay monthly interest and principal payments on the Asset-Backed Notes. The Company has segregated these
funds and classified them as restricted investments in money market funds. At December 31, 2019, there was approximately $1.1 million
of restricted investments. There were no funds segregated as restricted investments related to the Asset-Backed Notes at December
31, 2018.



Other assets



As of December 31,
2019 and 2018, other assets were $1.5 million and $1.8 million, respectively, which is primarily comprised of debt issuance
costs and 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, 2019:



|                     |  | Payments due by period |        
|-------------------- |  | ---------------------- | -------
|                     |  | Total                  |        
|                     |  | (In thousands)         |        
|Borrowings           |  | $                      | 154,375
|Unfunded commitments |  |                        | 49,500 
|Total                |  | $                      | 203,875



In the normal
course of business, we are party to financial instruments with off-balance sheet risk. These consist primarily of unfunded
commitments to extend credit, in the form of loans, to our portfolio companies. Unfunded commitments to provide funds to
portfolio companies are not reflected on our balance sheet. Our unfunded commitments may be significant from time to time. As
of December 31, 2019, we had such unfunded commitments of $49.5 million. This includes no undrawn revolver commitments. These
commitments are subject to the same underwriting and ongoing portfolio maintenance requirements as are the financial
instruments that we hold on our balance sheet. In addition, these commitments are often subject to financial or non-financial
milestones and other conditions to borrowing that must be achieved before the commitment can be drawn. Since these
commitments may expire without being drawn upon, the total commitment amount does not necessarily 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, 2019, we reasonably believed
that our assets would provide adequate financial resources to satisfy all of our unfunded commitments.





77









In addition to the
Key Facility, we have certain commitments pursuant to our Investment Management Agreement entered into with our Advisor. We have
agreed to pay a fee for investment advisory and management services consisting of two components (1) a base management fee
equal to a percentage of the 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 as our administrator. Payments under the Administration Agreement are
equal to an amount based upon our allocable portion of our Advisor’s overhead in performing its obligations under the agreement,
including rent, fees and other expenses inclusive of our allocable portion of the compensation of our Chief Financial Officer and
Chief Compliance Officer and their respective staffs. See Note 3 to our consolidated financial statements for additional information
regarding our Investment Management Agreement and our Administration Agreement.



Distributions



In order to qualify
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 to certain securities, loans, gains from the sale or other disposition of stock, securities or foreign currencies,
income derived from certain publicly traded partnerships, or other income derived with respect to its business 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 to prevent 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 subject to tax as a RIC and to avoid the imposition of corporate-level tax on the income and gains we distribute to our stockholders
in respect of 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 an amount generally at least equal to 90% of the sum 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 our stockholders 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 net ordinary income and capital gain net income for preceding calendar years that were not distributed during
such calendar years and on which we previously did not incur any 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 could substantially reduce our net assets, the amount
of income available for distribution and the amount of our distributions. Such a failure would have a material adverse effect on
us and our stockholders. In addition, we could be required to recognize unrealized gains, incur substantial taxes and interest
and make substantial 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 in a tax year fall below the total amount of our distributions made to stockholders in respect of such tax year,
a portion of those distributions may be deemed a return of capital to our stockholders for U.S. federal income tax purposes.
Thus, the source of a distribution to our stockholders may be the original capital invested by the stockholder rather than our
income or gains. Stockholders should review any written disclosure accompanying a distribution payment 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 be automatically reinvested in additional shares of our common stock unless a
stockholder specifically “opts out” of our DRIP. If a stockholder opts out, that stockholder will receive cash
distributions. Although distributions paid in the form of additional shares of our common stock will generally be subject to
U.S. federal, state and local taxes, stockholders participating in our DRIP will not receive any corresponding cash
distributions with which to pay any such applicable taxes. If our common stock is trading above NAV, a stockholder receiving
distributions in the form of additional shares of our common stock 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 issued shares to implement the DRIP, or
we may purchase shares in the open market in connection with our obligations under the DRIP.





78







Related party transactions



We have entered into
the Investment Management Agreement with the Advisor. The Advisor is registered as an investment adviser under the Investment Advisers
Act of 1940, as amended. Our investment activities are managed by the Advisor and supervised by the Board, the majority of whom
are independent directors. Under the Investment Management Agreement, we have agreed to pay the Advisor a base management fee as
well as an incentive fee. During the years ended December 31, 2019, 2018 and 2017, we paid the Advisor $10.7 million, $7.8 million
and $5.4 million, respectively, pursuant to the Investment Management Agreement.



Through March 6, 2019,
our Advisor was 60% owned by HTF Holdings LLC, which was wholly-owned by Horizon Technology Finance Principals LLC f/k/a Horizon
Technology Finance, LLC (“HTF Principals”). HTF Principals was wholly-owned by Robert D. Pomeroy, Jr. and Gerald A.
Michaud. By virtue of their ownership interest in HTF Principals, our Chief Executive Officer, Robert D. Pomeroy, Jr. and our President,
Gerald A. Michaud controlled our Advisor. Effective as of March 7, 2019, HTF Principals owns seventy-five percent (75%) of the
Advisor. By virtue of their ownership interest in Horizon Principals, our Chief Executive Officer, Robert D. Pomeroy, Jr. and our
President, Gerald A. Michaud control our Advisor.



We have also entered
into the Administration Agreement with the Advisor. Under the Administration Agreement, we have agreed to reimburse the Advisor
for our allocable portion of overhead and other expenses incurred by the Advisor in performing its obligations under the Administration
Agreement, including rent and our allocable portion of the costs of compensation and related expenses of our Chief Financial Officer
and Chief Compliance Officer and their respective staffs. In addition, pursuant to the terms of the Administration Agreement the
Advisor provides us with the office facilities and administrative services necessary to conduct our day-to-day operations. During
the years ended December 31, 2019, 2018 and 2017, we paid the Advisor $0.9 million, $0.7 million and $0.7 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 Advisor
Funds, 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, absent receipt of exemptive relief from the SEC, we and our affiliates are precluded from co-investing in negotiated
investments. On November 27, 2017, we were granted exemptive relief from the SEC which permits us to co-invest with Advisor Funds,
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
with GAAP. The preparation of these consolidated financial statements requires management to make estimates and assumptions that
affect the reported amounts of assets, liabilities, revenues and expenses. Changes in the economic environment, financial markets
and any other parameters used in determining such estimates could cause actual results to differ. In addition to the discussion
below, we describe our significant accounting policies in the notes to our consolidated financial statements.



We have identified
the following items as critical accounting policies.



Valuation of investments



Investments are
recorded at fair value. Our Board determines the fair value of our portfolio investments. We apply fair value to
substantially all of our investments in accordance with Topic 820, Fair Value Measurement, of the Financial Accounting
Standards Board’s, or FASB’s, Accounting Standards Codification as amended, or ASC, which establishes a framework
used to measure fair value and requires disclosures for fair value measurements. We have categorized our investments carried
at fair value, based on the priority of the valuation technique, into a three-level fair value hierarchy. Fair value is a
market-based measure considered from the perspective of the market participant who holds the financial instrument rather than
an entity specific measure. Therefore, when market assumptions are not readily available, our own assumptions are set to
reflect those that management believes market participants would use in pricing the financial instrument at the measurement
date.





79







The availability of
observable inputs can vary depending on the financial instrument and is affected by a wide variety of factors, including, for example,
the type of product, whether the product is new, whether the product is traded on an active exchange or in the secondary market
and the current market conditions. To the extent that the valuation is based on models or inputs that are less observable or unobservable
in the market, the determination of fair value requires more judgment. The three categories within the hierarchy are as follows:



| | Level 1 | Quoted prices in active markets for identical assets
and liabilities.
| | ------- | ---------------------------------------------------------------------



| | Level 2 | Observable inputs other than Level 1 prices such
as quoted prices for similar assets or liabilities in active markets, quoted prices in markets that are not active and model-based
valuation techniques for which all significant inputs are observable or can be corroborated by observable market data for substantially
the full term of the assets or liabilities.
| | ------- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



Our
Board determines the fair value of investments in good faith, based on the input of management, the audit committee and independent
valuation firms that have been engaged at the direction of our Board to assist in the valuation of each portfolio investment without
a readily available market quotation at least once during a trailing twelve-month period under our valuation policy and a consistently
applied valuation process. The Board conducts this valuation process at the end of each fiscal quarter, with 25% (based on fair
value) of our valuation of portfolio companies that do not have a readily available market quotations subject to review by an independent
valuation firm.



Income recognition



Interest on debt investments
is accrued and included in income based on contractual rates applied to principal amounts outstanding. Interest income is determined
using a method that results in a level rate of return on principal amounts outstanding. Generally, when a debt investment becomes
90 days or more past due, or if we otherwise do not expect to receive interest and principal repayments, the debt investment
is placed on non-accrual status and the recognition of interest income may be discontinued. Interest payments received on non-accrual
debt investments may be recognized as income, on a cash basis, or applied to principal depending upon management’s judgment
at the time the debt investment is placed on non-accrual status. For the year ended December 31, 2019 and 2018, we did not recognize
any interest income from debt investments on non-accrual status. For the year ended December 31, 2017, we recognized as interest
income interest payments of $0.1 million received from one portfolio company whose debt investment was on non-accrual status.



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



Certain debt investment
agreements also require the borrower to make an ETP that is accrued into income over the life of the debt investment to the extent
such amounts are expected to be collected. We will generally cease accruing the income if there is insufficient value to support
the accrual or if we do not expect the borrower to be able to pay all principal and interest due.



In connection
with substantially all lending arrangements, we receive warrants to purchase shares of stock from the borrower. We record the
warrants as assets at estimated fair value on the grant date using the Black-Scholes valuation model. We consider the
warrants as loan fees and record them as unearned income on the grant date. The unearned income is recognized as interest
income over the contractual life of the related debt investment in accordance with our income recognition policy. Subsequent
to origination, the warrants are also measured at fair value using the Black-Scholes valuation model. Any adjustment to fair
value is recorded through earnings as net unrealized gain or loss on investments. Gains and losses from the disposition of
the warrants or stock acquired from the exercise of warrants are recognized as realized gains and losses on investments.





80







Distributions from
HSLFI are evaluated at the time of distribution to determine if the distribution should be recorded as dividend income or a return
of capital. Generally, we will not record distributions from HSLFI as dividend income unless there are sufficient accumulated tax-basis
earnings and profit in HSLFI prior to distribution. Distributions that are classified as a return of capital are recorded as a
reduction in the cost basis of the investment. For the year ended December 31, 2019, HSLFI distributed $0.7 million classified
as dividend income to us. For the period June 1, 2018 (the commencement of HSLFI’s operations) through December 31, 2018,
HSLFI distributed $0.3 million classified as dividend income to us.



Realized gains or
losses on the sale of investments, or upon the determination that an investment balance, or portion thereof, is not recoverable,
are calculated using the specific identification method. We measure realized gains or losses by calculating the difference between
the net proceeds from the repayment or sale and the amortized cost basis of the investment. Net change in unrealized appreciation
or depreciation reflects the change in the fair values of our portfolio investments during the reporting period, including any
reversal of previously recorded unrealized appreciation or depreciation, when gains or losses 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 to
RICs. In order to qualify as a RIC and to avoid the imposition of corporate-level U.S. federal income tax on the amounts we distribute
to our stockholders, among other things, we are required to meet certain source of income and asset diversification requirements,
and we must timely distribute dividends to our stockholders out of assets legally available for distribution each tax year of an
amount generally at least equal to 90% of our investment company taxable income, as defined by the Code and determined without
regard to any deduction for dividends paid. We, among other things, have made and intend to continue to make the requisite distributions
to our stockholders, which will generally relieve us from incurring any material liability for U.S. federal income taxes.



Depending on the level
of taxable income earned in a tax year, we may choose to carry forward taxable income in excess of current year distributions into
the next tax year and incur a 4% excise tax on such income, as required. To the extent that we determine that our estimated current
year annual taxable income will be in excess of estimated current year distributions, we will accrue excise tax, if any, on estimated
excess taxable income as taxable income is earned.



We evaluate tax positions
taken in the course of preparing our tax returns to determine whether the tax positions are “more-likely-than-not”
to be sustained by the applicable tax authority in accordance with ASC Topic 740, Income Taxes, as modified by ASC Topic
946, Financial Services – Investment Companies. Tax benefits of positions not deemed to meet the more-likely-than-not
threshold, or uncertain tax positions, are recorded as a tax expense in the current year. It is our policy to recognize accrued
interest and penalties related to uncertain tax benefits in income tax expense. We had no material uncertain tax positions at December
31, 2019 and 2018.



Recently adopted accounting pronouncement



In July 2019, the
FASB issued Accounting Standards Update 2019-07, Codification Updates to SEC Sections: Amendments to SEC Paragraphs Pursuant to
SEC Final Rule Releases No. 33-10532, Disclosure Update and Simplification, and Nos. 33-10231 and 33-10442, Investment Company
Reporting Modernization, and Miscellaneous Updates which amends the codification to reflect changes adopted by the SEC. The SEC
adopted final rules that amend certain disclosure requirements that were redundant, duplicative, overlapping, outdated or superseded.
We have adopted these amendments and the changes are reflected in our consolidated financial statements. Certain prior year information
has been adjusted to conform to these amendments.



Recent developments



Subsequent to
December 31, 2019, and as of March 3, 2020, we sold 1,198,552 shares of common stock for total accumulated net proceeds of
approximately $15.1 million, net of offering expenses, under the Equity Distribution Agreement. As of March 3, 2020, shares
representing approximately $10.0 million of its common stock remain available for issuance and
sale under the Equity Distribution Agreement.





81







On January 29, 2020,
we received proceeds of $2.3 million in connection with the termination of our warrants in Sys-Tech Solutions, Inc. (“Sys-Tech”)
upon Sys-Tech’s sale to Dover Fluids, Inc.



On February 12, 2020,
we received proceeds of $0.4 million in connection with the sale of our equity investment in Revance Therapeutics, Inc.



On February 21, 2020,
Bridge2 Solutions, LLC (“Bridge2”) prepaid its outstanding principal balance of $14.5 million on its venture loan,
plus interest and end-of-term payment. On February 26, 2020, we received proceeds of $2.9 million in connection
with the termination of our warrants in Bridge2 upon Bridge2’s sale to Intercontinental Exchange, Inc.



On February 26, 2020,
we funded a $20.0 million loan to a new portfolio company, Castle Creek Biosciences, Inc., a clinical stage biopharmaceutical company
developing therapies for patients with rare and debilitating dermatological conditions.



On February 28, 2020,
we funded a $4.0 million loan to an existing portfolio company, CSA Medical, Inc., a developer of novel, patent-protected cryotherapy
medical devices.



On February 28, 2020,
we funded a $1.1 million loan to an existing portfolio company, Betabrand Corporation, a crowdfunded online clothing community
that designs, manufactures, and consistently releases new products.



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 on the debt investments within our portfolio were primarily at floating rates. We expect that our debt investments in the
future will primarily have floating interest rates. As of December 31, 2019 and 2018, 99% of the outstanding principal amount of
our debt investments bore interest at floating rates. The initial commitments to lend to our portfolio companies are usually based
on a floating LIBOR index.



Based on our December
31, 2019 consolidated statement of assets and liabilities (without adjustment for potential changes in the credit market, credit
quality, size and composition of assets on the consolidated statement of assets and liabilities or other business developments
that could affect net income) and the base index rates at December 31, 2019, 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 in our investments and borrowings:



|Change in basis points |  | Investment Income |       |   | Interest Expense |   |      | Change in Net Assets(1) | 
|---------------------- |  | ----------------- | ----- | - | ---------------- | - | ---- | ----------------------- | 
|                       |  |                   |       |   | (In thousands)   |   |      |                         | 
|Up 300 basis points    |  | $                 | 7,607 |   |                  | $ | 517  |                         | 
|Up 200 basis points    |  | $                 | 4,663 |   |                  | $ | 345  |                         | 
|Up 100 basis points    |  | $                 | 1,623 |   |                  | $ | 172  |                         | 
|Down 300 basis points  |  | $                 | (298  | ) |                  | $ | (162 | )                       | 
|Down 200 basis points  |  | $                 | (298  | ) |                  | $ | (162 | )                       | 
|Down 100 basis points  |  | $                 | (284  | ) |                  | $ | (162 | )                       | 



| | (1) | Excludes the impact of
incentive fees based on pre-incentive fee net investment income.
| | --- | ---------------------------------------------------------------------------------------





82







While our 2022
Notes and our Asset-Backed Notes bear interest at a fixed rate, our Key Facility has a floating interest rate provision,
subject to a floor of 0.75% per annum, based on a LIBOR index which resets monthly, and any other credit facilities into
which we enter in the future may have floating interest rate provisions. We have used hedging instruments in the past to
protect us against interest rate fluctuations, and we may use them in the future. Such instruments may 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 participate in the benefits of lower interest rates with respect to the investments in our
portfolio with fixed interest rates. Engaging in commodity interest transactions such as swap transactions or futures
contracts for the Company may cause the Investment Adviser to fall within the definition of “commodity pool
operator” under the Commodity Exchange Act (the “CEA”) and related Commodity Futures Trading Commission
(the “CFTC”) regulations. On January 31, 2020, the Investment Adviser claimed an exclusion from the definition of
the term “commodity pool operator” under the CEA and the CFTC regulations in connection with its management of
the Company and, therefore, is not subject to CFTC registration or regulation under the CEA as a commodity pool operator with
respect to its management of the Company.



Because we currently
fund, and expect to continue to fund, our investments with borrowings, our net income is dependent upon the difference between
the rate at which we borrow funds and the rate at which we invest the funds borrowed. Accordingly, there can be no assurance that
a significant change in market interest rates will not have a material adverse effect on our net income. In periods of rising interest
rates, our cost of funds could increase, which would reduce our net investment income.





83







Item 8.  Consolidated
Financial Statements and Supplementary Data



Index to Consolidated Financial Statements



|                                                                                                          |  | Page |    
|--------------------------------------------------------------------------------------------------------- |  | ---- | ---
|Management’s Report on Internal Control over Financial Reporting                                          |  |      | 85 
|Report of Independent Registered Public Accounting Firm                                                   |  |      | 86 
|Report of Independent Registered Public Accounting Firm on Internal Control over Financial Reporting      |  |      | 87 
|Consolidated Statements of Assets and Liabilities as of December 31, 2019 and 2018                        |  |      | 88 
|Consolidated Statements of Operations for the Years Ended December 31, 2019, 2018 and 2017                |  |      | 89 
|Consolidated Statements of Changes in Net Assets for the Years Ended December
    31, 2019, 2018 and 2017 |  |      | 91 
|Consolidated Statements of Cash Flows for the Years Ended December 31, 2019, 2018 and 2017                |  |      | 92 
|Consolidated Schedules of Investments as of December 31, 2019 and 2018                                    |  |      | 94 
|Notes to the Consolidated Financial Statements                                                            |  |      | 105





84









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 control
over the Company’s financial reporting. The Company’s internal control system is a process designed to provide reasonable
assurance to management and the 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
reasonable detail, accurately and fairly reflect transactions recorded necessary to permit the preparation of financial statements
in accordance with U.S. generally accepted accounting principles. The Company’s policies and procedures also provide reasonable
assurance that receipts and expenditures are being made only in accordance with authorizations of management and the directors
of the Company, and provide reasonable assurance regarding prevention or timely detection 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 can provide
only reasonable assurance with respect to financial statement preparation and presentation. Also, projections of any evaluation
of effectiveness as to future periods are subject to the risk that controls may become inadequate because of changes in conditions,
or that the degree of compliance with the policies or procedures may deteriorate.



Management assessed
the effectiveness of the Company’s internal control over financial reporting as of December 31, 2019. In making this assessment,
we used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control —
Integrated Framework issued in 2013. Based on the assessment, management believes that, as of December 31, 2019, the Company’s
internal control over financial reporting is effective 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
of the Company’s internal control over financial reporting as of December 31, 2019, which appears in this annual report on
Form 10-K.





85







Report of Independent Registered Public
Accounting Firm



To the Stockholders and the Board of Directors

Horizon Technology Finance Corporation



Opinion on the Financial Statements



We have audited the accompanying consolidated
statements of assets and liabilities, including the consolidated schedules of investments, of Horizon Technology Finance Corporation
and Subsidiaries (the Company) as of December 31, 2019 and 2018, 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, 2019, and the related notes to the consolidated
financial statements (collectively, the financial statements). In our opinion, the financial statements present fairly, in all
material respects, the financial position of the Company as of December 31, 2019 and 2018, and the results of its operations and
its cash flows for each of the three years in the period ended December 31, 2019, in conformity with accounting principles generally
accepted in the United States of America.



We have also audited, in accordance with
the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial
reporting as of December 31, 2019, 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 3, 2020, expressed an unqualified
opinion on the effectiveness of the Company’s internal control over financial reporting.



Basis for Opinion



These financial statements are the responsibility
of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based
on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the
Company in accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange
Commission and the PCAOB.



We conducted our audits in accordance with
the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether
the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures
to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures
that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures
in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made
by management, as well as evaluating the overall presentation of the financial statements. Our procedures included confirmation
of investments owned as of December 31, 2019 and 2018, by correspondence with the custodian or borrower or by other appropriate
auditing procedures where replies from the custodian or borrower were not received. We believe that our audits provide a reasonable
basis for our opinion.



|/s/ RSM US LLP                                      | 
|--------------------------------------------------- | 
|                                                    | 
|We have served as the Company's auditor since 2008. | 
|                                                    | 
|New York, New York                                  | 
|March 3, 2020                                       | 





86







Report of
Independent Registered Public Accounting Firm



To the Stockholders and the Board of Directors

Horizon Technology Finance Corporation



Opinion on the Internal Control Over Financial Reporting



We have audited Horizon Technology Finance
Corporation and Subsidiaries’ (the Company) internal control over financial reporting as of December 31, 2019, based on criteria
established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission in 2013. In our opinion, the Company maintained, in all material respects, effective internal control over financial
reporting as of December 31, 2019, based on criteria established in Internal Control — Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission in 2013.



We have also audited, in accordance with
the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated statements of assets and
liabilities of the Company, including the consolidated schedules of investments, as of December 31, 2019 and 2018, 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, 2019, and our report dated March 3, 2020, expressed an unqualified opinion.



Basis for Opinion



The Company’s management is responsible
for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control
over financial reporting in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility
is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting
firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with U.S. federal securities
laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.



We conducted our audit in accordance with
the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether
effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding
of internal control over financial reporting, assessing the risk that a material weakness exists and testing and evaluating the
design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other
procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.



Definition and Limitations of Internal
Control Over Financial Reporting



A company's internal control over financial
reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation
of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal
control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in
reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable
assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally
accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations
of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely 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 of effectiveness
to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.



|/s/ RSM US LLP     | 
|------------------ | 
|New York, New York | 
|March 3, 2020      | 





87









Horizon Technology Finance Corporation
and Subsidiaries



Consolidated Statements of Assets and
Liabilities

(In thousands, except share and per share data)



|                                                                                                                                                                                                                 |  | December 31, |        
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------ | -------
|                                                                                                                                                                                                                 |  | 2019         |        
|Assets                                                                                                                                                                                                           |  |              |        
|Non-affiliate investments at fair value (cost of $295,256 and $229,772, respectively)                                                                                                                            |  | $            | 294,304
|Non-controlled affiliate investments at fair value (cost of $6,891and $7,887, respectively) (Note 5)                                                                                                             |  |              | 8,597  
|Controlled affiliate investments at fair value (cost of $16,684 and $13,262, respectively) (Note 5)                                                                                                              |  |              | 16,650 
|Total investments at fair value (cost of $318,831 and $250,921, respectively) (Note 4)                                                                                                                           |  |              | 319,551
|Cash                                                                                                                                                                                                             |  |              | 6,465  
|Investments in money market funds                                                                                                                                                                                |  |              | 9,787  
|Restricted investments in money market funds                                                                                                                                                                     |  |              | 1,133  
|Interest receivable                                                                                                                                                                                              |  |              | 5,530  
|Other assets                                                                                                                                                                                                     |  |              | 1,535  
|Total assets                                                                                                                                                                                                     |  | $            | 344,001
|                                                                                                                                                                                                                 |  |              |        
|Liabilities                                                                                                                                                                                                      |  |              |        
|Borrowings (Note 7)                                                                                                                                                                                              |  | $            | 152,050
|Distributions payable                                                                                                                                                                                            |  |              | 4,669  
|Base management fee payable (Note 3)                                                                                                                                                                             |  |              | 519    
|Incentive fee payable (Note 3)                                                                                                                                                                                   |  |              | 1,613  
|Other accrued expenses                                                                                                                                                                                           |  |              | 1,095  
|Total liabilities                                                                                                                                                                                                |  |              | 159,946
|                                                                                                                                                                                                                 |  |              |        
|Commitments and contingencies (Notes 8 and 9)                                                                                                                                                                    |  |              |        
|                                                                                                                                                                                                                 |  |              |        
|Net assets                                                                                                                                                                                                       |  |              |        
|Preferred stock, par value $0.001 per share, 1,000,000 shares authorized, zero shares issued and outstanding as of December 31, 2019 and 2018                                                                    |  |              | —      
|Common stock, par value $0.001 per share, 100,000,000 shares authorized, 15,730,755 and 11,702,594 shares issued and 15,563,290 and 11,535,129 shares outstanding as of December 31, 2019 and 2018, respectively |  |              | 16     
|Paid-in capital in excess of par                                                                                                                                                                                 |  |              | 226,660
|Distributable earnings                                                                                                                                                                                           |  |              | (42,621
|Total net assets                                                                                                                                                                                                 |  |              | 184,055
|Total liabilities and net assets                                                                                                                                                                                 |  | $            | 344,001
|Net asset value per common share                                                                                                                                                                                 |  | $            | 11.83  



See Notes to Consolidated Financial Statements







88







Horizon Technology Finance Corporation
and Subsidiaries



Consolidated Statements of Operations

(In thousands, except share and per share data)



|                                                                        |  | Year Ended December 31, |       
|----------------------------------------------------------------------- |  | ----------------------- | ------
|                                                                        |  | 2019                    |       
|Investment income                                                       |  |                         |       
|Interest income on investments                                          |  |                         |       
|Interest income on non-affiliate investments                            |  | $                       | 36,247
|Interest income on affiliate investments                                |  |                         | 839   
|Total interest income on investments                                    |  |                         | 37,086
|Fee income                                                              |  |                         |       
|Prepayment fee income on non-affiliate investments                      |  |                         | 2,296 
|Fee income on non-affiliate investments                                 |  |                         | 1,490 
|Fee income on affiliate investments                                     |  |                         | 17    
|Total fee income                                                        |  |                         | 3,803 
|Dividend income                                                         |  |                         |       
|Dividend income on controlled affiliate investments                     |  |                         | 2,236 
|Total dividend income                                                   |  |                         | 2,236 
|Total investment income                                                 |  |                         | 43,125
|Expenses                                                                |  |                         |       
|Interest expense                                                        |  |                         | 8,330 
|Base management fee (Note 3)                                            |  |                         | 5,556 
|Performance based incentive fee (Note 3)                                |  |                         | 6,966 
|Administrative fee (Note 3)                                             |  |                         | 907   
|Professional fees                                                       |  |                         | 1,537 
|General and administrative                                              |  |                         | 968   
|Total expenses                                                          |  |                         | 24,264
|Performance based incentive fees waived (Note 3)                        |  |                         | (1,848
|Net expenses                                                            |  |                         | 22,416
|Net investment income before excise tax                                 |  |                         | 20,709
|Provision for excise tax (Note 8)                                       |  |                         | 239   
|Net investment income                                                   |  |                         | 20,470
|Net realized and unrealized loss on investments                         |  |                         |       
|Net realized (loss) gain on non-affiliate investments                   |  |                         | (4,173
|Net realized (loss) gain on investments                                 |  |                         | (4,173
|Net unrealized appreciation (depreciation) on non-affiliate investments |  |                         | 1,196 
|Net unrealized appreciation (depreciation) on affiliate investments     |  |                         | 2,019 
|Net unrealized depreciation on controlled affiliate investments         |  |                         | (14   
|Net unrealized appreciation (depreciation) on investments               |  |                         | 3,201 
|Net realized and unrealized loss on investments                         |  |                         | (972  
|Net increase in net assets resulting from operations                    |  | $                       | 19,498





See Notes to Consolidated Financial Statements









89









Horizon Technology Finance Corporation
and Subsidiaries



Consolidated Statements of Operations

(In thousands,
except share and per share data)



|                                            |  | Year Ended December 31, |           
|------------------------------------------- |  | ----------------------- | ----------
|                                            |  | 2019                    |           
|Net investment income per common share      |  | $                       | 1.52      
|Net increase in net assets per common share |  | $                       | 1.45      
|Distributions declared per share            |  | $                       | 1.20      
|Weighted average shares outstanding         |  |                         | 13,478,234





See Notes to Consolidated Financial Statements







90









Horizon Technology Finance Corporation
and Subsidiaries



Consolidated Statements of Changes in
Net Assets

(In thousands, except share data)



|                                                                         |  | Common Stock |            |   | Paid-In Capital
 in Excess of |   |    | Distributable |  |   | Total Net |  
|------------------------------------------------------------------------ |  | ------------ | ---------- | - | ----------------------------- | - | -- | ------------- |  | - | --------- | -
|                                                                         |  | Shares       |            |   | Amount                        |   |    | Par           |  |   | Earnings  |  
|Balance at December 31, 2016                                             |  |              | 11,510,424 |   |                               | $ | 12 |               |  | $ | 179,551   |  
|Net decrease in net assets resulting from operations, net of excise tax: |  |              |            |   |                               |   |    |               |  |   |           |  
|Net investment income, net of excise tax                                 |  |              | —          |   |                               |   | —  |               |  |   | —         |  
|Net realized loss on investments                                         |  |              | —          |   |                               |   | —  |               |  |   | —         |  
|Net unrealized appreciation on investments                               |  |              | —          |   |                               |   | —  |               |  |   | —         |  
|Issuance of common stock under dividend reinvestment plan                |  |              | 15,905     |   |                               |   | —  |               |  |   | 174       |  
|Repurchase of common stock                                               |  |              | (5,923     | ) |                               |   | —  |               |  |   | (59       | )
|Distributions declared                                                   |  |              | —          |   |                               |   | —  |               |  |   | —         |  
|Reclassification of permanent tax differences (Note 2)                   |  |              | —          |   |                               |   | —  |               |  |   | (25       | )
|Balance at December 31, 2017                                             |  |              | 11,520,406 |   |                               | $ | 12 |               |  | $ | 179,641   |  
|Net increase in net assets resulting from operations, net of excise tax: |  |              |            |   |                               |   |    |               |  |   |           |  
|Net investment income, net of excise tax                                 |  |              | —          |   |                               | $ | —  |               |  | $ | —         |  
|Net realized gain on investments                                         |  |              | —          |   |                               |   | —  |               |  |   | —         |  
|Net unrealized depreciation on investments                               |  |              | —          |   |                               |   | —  |               |  |   | —         |  
|Financing costs                                                          |  |              | —          |   |                               |   | —  |               |  |   | (155      | )
|Issuance of common stock under dividend reinvestment plan                |  |              | 14,723     |   |                               |   | —  |               |  |   | 164       |  
|Distributions declared                                                   |  |              | —          |   |                               |   | —  |               |  |   | —         |  
|Reclassification of permanent tax differences (Note 2)                   |  |              | —          |   |                               |   | —  |               |  |   | (34       | )
|Balance at December 31, 2018                                             |  |              | 11,535,129 |   |                               | $ | 12 |               |  | $ | 179,616   |  
|Issuance of common stock, net of offering costs                          |  |              | 4,012,844  |   |                               | $ | 4  |               |  | $ | 47,097    |  
|Net increase in net assets resulting from operations, net of excise tax: |  |              |            |   |                               |   |    |               |  |   |           |  
|Net investment income, net of excise tax                                 |  |              | —          |   |                               |   | —  |               |  |   | —         |  
|Net realized loss on investments                                         |  |              | —          |   |                               |   | —  |               |  |   | —         |  
|Net unrealized appreciation on investments                               |  |              | —          |   |                               |   | —  |               |  |   | —         |  
|Issuance of common stock under dividend reinvestment plan                |  |              | 15,317     |   |                               |   | —  |               |  |   | 186       |  
|Distributions declared                                                   |  |              | —          |   |                               |   | —  |               |  |   | —         |  
|Reclassification of permanent tax differences (Note 2)                   |  |              | —          |   |                               |   | —  |               |  |   | (239      | )
|Balance at December 31, 2019                                             |  |              | 15,563,290 |   |                               | $ | 16 |               |  | $ | 226,660   |  



See Notes to Consolidated Financial Statements



91







Horizon Technology Finance Corporation
and Subsidiaries



Consolidated Statements of Cash Flow

(In thousands)



|                                                                                                                        |  | Year Ended December 31, |         
|----------------------------------------------------------------------------------------------------------------------- |  | ----------------------- | --------
|                                                                                                                        |  | 2019                    |         
|Cash flows from operating activities:                                                                                   |  |                         |         
|Net increase in net assets resulting from operations                                                                    |  | $                       | 19,498  
|Adjustments to reconcile net increase in net assets resulting from operations to net cash used in operating activities: |  |                         |         
|Amortization of debt issuance costs                                                                                     |  |                         | 726     
|Net realized loss (gain) on investments                                                                                 |  |                         | 4,173   
|Net unrealized (appreciation) depreciation on investments                                                               |  |                         | (3,201  
|Purchase of investments                                                                                                 |  |                         | (200,832
|Principal payments received on investments                                                                              |  |                         | 129,190 
|Investments in controlled affiliate investments                                                                         |  |                         | (1,900  
|Proceeds from sale of investments                                                                                       |  |                         | 4,578   
|Dividend income from controlled affiliate investments                                                                   |  |                         | (2,236  
|Distributions from controlled affiliate investments                                                                     |  |                         | 715     
|Equity received in settlement of fee income                                                                             |  |                         | —       
|Warrants received in settlement of fee income                                                                           |  |                         | —       
|Changes in assets and liabilities:                                                                                      |  |                         |         
|(Increase) decrease in interest receivable                                                                              |  |                         | (679    
|(Increase) decrease in end-of-term payments                                                                             |  |                         | (885    
|Decrease in unearned income                                                                                             |  |                         | (1,586  
|(Increase) decrease in other assets                                                                                     |  |                         | (16     
|Increase (decrease) in other accrued expenses                                                                           |  |                         | 330     
|Increase in base management fee payable                                                                                 |  |                         | 97      
|Increase in incentive fee payable                                                                                       |  |                         | 622     
|Net cash used in operating activities                                                                                   |  |                         | (51,406 
|Cash flows from financing activities:                                                                                   |  |                         |         
|Proceeds from issuance of common stock, net of offering costs                                                           |  |                         | 47,101  
|Proceeds from issuance of 2022 Notes                                                                                    |  |                         | —       
|Repayment of 2019 Notes                                                                                                 |  |                         | —       
|Proceeds from issuance of Asset-Backed Notes                                                                            |  |                         | 100,000 
|Advances on credit facility                                                                                             |  |                         | 51,500  
|Repayment of credit facility                                                                                            |  |                         | (125,000
|Distributions paid                                                                                                      |  |                         | (15,593 
|Repurchase of common stock                                                                                              |  |                         | —       
|Debt issuance costs                                                                                                     |  |                         | (1,808  
|Financing costs                                                                                                         |  |                         | —       
|Net cash provided by (used in) financing activities                                                                     |  |                         | 56,200  
|Net increase (decrease) in cash, cash equivalents and restricted cash                                                   |  |                         | 4,794   
|Cash, cash equivalents and restricted cash:                                                                             |  |                         |         
|Beginning of period                                                                                                     |  |                         | 12,591  
|End of period                                                                                                           |  | $                       | 17,385  



See Notes to Consolidated Financial Statements





92









Horizon Technology Finance Corporation
and Subsidiaries



Consolidated Statements of Cash Flow

(In thousands)



|                                                             |  | Year Ended December 31, |      
|------------------------------------------------------------ |  | ----------------------- | -----
|                                                             |  | 2019                    |      
|Supplemental disclosure of cash flow information:            |  |                         |      
|Cash paid for interest                                       |  | $                       | 7,671
|Supplemental non-cash investing and financing activities:    |  |                         |      
|Warrant investments received and recorded as unearned income |  | $                       | 2,723
|Distributions payable                                        |  | $                       | 4,669
|End of term payments receivable                              |  | $                       | 3,900
|Non-cash income                                              |  | $                       | 3,584



|                                                 |  | Year Ended December 31, |       
|------------------------------------------------ |  | ----------------------- | ------
|                                                 |  | 2019                    |       
|Cash                                             |  | $                       | 6,465 
|Investments in money market funds                |  |                         | 9,787 
|Restricted investments in money market funds     |  |                         | 1,133 
|Total cash, cash equivalents and restricted cash |  | $                       | 17,385



See Notes to Consolidated Financial Statements





93









Horizon Technology Finance Corporation
and Subsidiaries



Consolidated Schedule of Investments

December 31, 2019

(In thousands)



|                                                              |  |                                   |  |                                                                                        |  | Principal |       |  | Cost
    of         |   |       | Fair  |        
|------------------------------------------------------------- |  | --------------------------------- |  | -------------------------------------------------------------------------------------- |  | --------- | ----- |  | ------------------- | - | ----- | ----- | -------
|Portfolio
    Company (1)(3)                                  |  | Sector                            |  | Type
    of Investment (4)(7)(9)(10)                                                   |  | Amount    |       |  | Investments
    (6) |   |       | Value |        
|Non-Affiliate
    Investments — 160.0% (8)                    |  |                                   |  |                                                                                        |  |           |       |  |                    
|Non-Affiliate
    Debt Investments — 153.5% (8)               |  |                                   |  |                                                                                        |  |           |       |  |                    
|Non-Affiliate
    Debt Investments — Life Science — 55.9% (8) |  |                                   |  |                                                                                        |  |           |       |  |                    
|Celsion
    Corporation (2)(5)(12)                            |  | Biotechnology                     |  | Term
    Loan (9.63% cash (Libor + 7.63%; Floor 9.63%), 4.00% ETP, Due 7/1/22)         |  | $         | 2,500 |  |                     | $ | 2,464 |       |        
|                                                              |  |                                   |  | Term
    Loan (9.63% cash (Libor + 7.63%; Floor 9.63%), 4.00% ETP, Due 7/1/22)         |  |           | 2,500 |  |                     |   | 2,464 |       |        
|Encore
    Dermatology, Inc. (2)(12)                          |  | Biotechnology                     |  | Term
    Loan (10.00% cash (Libor + 7.50%; Floor 10.00%), 3.00% ETP, Due 4/1/23)       |  |           | 5,000 |  |                     |   | 4,929 |       |        
|                                                              |  |                                   |  | Term
    Loan (10.00% cash (Libor + 7.50%; Floor 10.00%), 3.00% ETP, Due 4/1/23)       |  |           | 5,000 |  |                     |   | 4,929 |       |        
|Espero
    BioPharma, Inc. (2)(12)                            |  | Biotechnology                     |  | Term
    Loan (12.00% cash (Libor + 9.25%; Floor 12.00%), 5.10% ETP, Due 3/31/20) (11) |  |           | 5,053 |  |                     |   | 5,053 |       |        
|                                                              |  |                                   |  | Term
    Loan (12.00% cash (Libor + 9.25%; Floor 12.00%), 5.10% ETP, Due 3/31/20) (11) |  |           | 4,802 |  |                     |   | 4,802 |       |        
|LogicBio,
    Inc.(2)(5)(12)                                  |  | Biotechnology                     |  | Term
    Loan (8.75 % cash (Libor + 6.25%; Floor 8.75%), 4.50% ETP, Due 6/1/24         |  |           | 5,000 |  |                     |   | 4,970 |       |        
|Mustang
    Bio, Inc. (2)(5)(12)                              |  | Biotechnology                     |  | Term
    Loan (9.00% cash (Libor + 6.50%; Floor 9.00%), 5.00% ETP, Due 10/1/22)        |  |           | 5,000 |  |                     |   | 4,827 |       |        
|                                                              |  |                                   |  | Term
    Loan (9.00% cash (Libor + 6.50%; Floor 9.00%), 5.00% ETP, Due 10/1/22)        |  |           | 5,000 |  |                     |   | 4,924 |       |        
|vTv
    Therapeutics Inc. (2)(5)(12)                          |  | Biotechnology                     |  | Term
    Loan (11.69% cash (Libor + 10.00%; Floor 10.50%), 6.00% ETP, Due 5/1/20)      |  |           | 1,042 |  |                     |   | 1,034 |       |        
|                                                              |  |                                   |  | Term
    Loan (11.69% cash (Libor + 10.00%; Floor 10.50%), 6.00% ETP, Due 10/1/20)     |  |           | 1,406 |  |                     |   | 1,393 |       |        
|Titan
    Pharmaceuticals, Inc. (2)(5)(12)                    |  | Drug
    Delivery                 |  | Term
    Loan (10.09% cash (Libor + 8.40%; Floor 9.50%), 5.00% ETP, Due 6/1/22)        |  |           | 1,600 |  |                     |   | 1,533 |       |        
|Conventus
    Orthopaedics, Inc. (2)(12)                      |  | Medical
    Device                |  | Term
    Loan (9.69% cash (Libor + 8.00%; Floor 9.25%), 8.33% ETP, Due 7/1/23)         |  |           | 5,311 |  |                     |   | 5,233 |       |        
|                                                              |  |                                   |  | Term
    Loan (9.69% cash (Libor + 8.00%; Floor 9.25%), 8.33% ETP, Due 7/1/23)         |  |           | 5,311 |  |                     |   | 5,233 |       |        
|CSA
    Medical, Inc. (2)(12)                                 |  | Medical
    Device                |  | Term
    Loan (10.00% cash (Libor + 8.20%; Floor 10.00%), 5.00% ETP, Due 1/1/24)       |  |           | 3,750 |  |                     |   | 3,637 |       |        
|                                                              |  |                                   |  | Term
    Loan (10.00% cash (Libor + 8.20%; Floor 10.00%), 5.00% ETP, Due 1/1/24)       |  |           | 250   |  |                     |   | 246   |       |        
|CVRx,
    Inc. (2)(12)                                        |  | Medical
    Device                |  | Term
    Loan (10.00% cash (Libor + 7.80%; Floor 10.00%), 3.50% ETP, Due 4/1/24)       |  |           | 5,000 |  |                     |   | 4,934 |       |        
|                                                              |  |                                   |  | Term
    Loan (10.00% cash (Libor + 7.80%; Floor 10.00%), 3.50% ETP, Due 4/1/24)       |  |           | 5,000 |  |                     |   | 4,934 |       |        
|                                                              |  |                                   |  | Term
    Loan (10.00% cash (Libor + 7.80%; Floor 10.00%), 3.50% ETP, Due 4/1/24)       |  |           | 5,000 |  |                     |   | 4,934 |       |        
|                                                              |  |                                   |  | Term
    Loan (10.00% cash (Libor + 7.80%; Floor 10.00%), 3.50% ETP, Due 4/1/24)       |  |           | 5,000 |  |                     |   | 4,934 |       |        
|Lantos
    Technologies, Inc. (2)(12)                         |  | Medical
    Device                |  | Term
    Loan (10.12% cash (Libor + 8.43%; Floor 10.00%), 10.00% ETP, Due 4/1/21)      |  |           | 3,433 |  |                     |   | 3,143 |       |        
|MacuLogix,
    Inc. (2)(12)                                   |  | Medical
    Device                |  | Term
    Loan (10.08% cash (Libor + 7.68%; Floor 10.08%), 4.00% ETP, Due 10/1/23)      |  |           | 7,500 |  |                     |   | 7,356 |       |        
|                                                              |  |                                   |  | Term
    Loan (10.08% cash (Libor + 7.68%; Floor 10.08%), 4.00% ETP, Due 10/1/23)      |  |           | 4,050 |  |                     |   | 3,993 |       |        
|Meditrina,
    Inc. (2)(12)                                   |  | Medical
    Device                |  | Term
    Loan (9.70% cash (Libor + 7.10%; Floor 9.70%), 4.00% ETP, Due 5/1/20)         |  |           | 3,000 |  |                     |   | 2,966 |       |        
|VERO
    Biotech LLC (2)(12)                                  |  | Medical
    Device                |  | Term
    Loan (9.69% cash (Libor + 8.00%; Floor 9.25%), 5.00% ETP, Due 1/1/22)         |  |           | 4,000 |  |                     |   | 3,967 |       |        
|                                                              |  |                                   |  | Term
    Loan (9.69% cash (Libor + 8.00%; Floor 9.25%), 5.00% ETP, Due 1/1/22)         |  |           | 4,000 |  |                     |   | 3,967 |       |        
|Total
    Non-Affiliate Debt Investments — Life Science       |  |                                   |  |                                                                                        |  |           |       |  | 102,799             |   |       |       | 102,799
|Non-Affiliate
    Debt Investments — Technology — 84.8% (8)   |  |                                   |  |                                                                                        |  |           |       |  |                     |   |       |      
|Audacy
    Corporation (2)(12)(15)                            |  | Communications                    |  | Term
    Loan (9.59% cash (Libor + 7.90%; Floor 9.50%), 5.00% ETP, Due 7/1/22)         |  |           | 3,641 |  |                     |   | 3,580 |       |        
|                                                              |  |                                   |  | Term
    Loan (9.59% cash (Libor + 7.90%; Floor 9.50%), Due 2/1/20)                    |  |           | 550   |  |                     |   | 550   |       |        
|Betabrand
    Corporation (2)(12)                             |  | Consumer-related
    Technologies |  | Term
    Loan (10.05% cash (Libor + 7.50%; Floor10.05%), 4.50% ETP, Due 9/1/23)        |  |           | 4,250 |  |                     |   | 4,115 |       |        



See Notes to Consolidated Financial Statements





94







Horizon Technology Finance Corporation
and Subsidiaries



Consolidated Schedule of Investments

December 31, 2019

(In thousands)



|                                           |  |                                   |  |                                                                                                    |  | Principal |        |  | Cost
    of         |  |       | Fair  | 
|------------------------------------------ |  | --------------------------------- |  | -------------------------------------------------------------------------------------------------- |  | --------- | ------ |  | ------------------- |  | ----- | ----- | 
|Portfolio
    Company (1)(3)               |  | Sector                            |  | Type
    of Investment (4)(7)(9)(10)                                                               |  | Amount    |        |  | Investments
    (6) |  |       | Value | 
|                                           |  |                                   |  | Term
    Loan (10.05% cash (Libor + 7.50%; Floor 10.05%), 4.50% ETP, Due 9/1/23)                   |  |           | 4,250  |  |                     |  | 4,182 |       | 
|Mohawk
    Group Holdings, Inc. (2)(5)(12) |  | Consumer-related
    Technologies |  | Term
    Loan (9.90% cash (Libor + 7.40%; Floor 9.90%), 4.00% ETP, Due 1/1/23)                     |  |           | 5,000  |  |                     |  | 4,914 |       | 
|                                           |  |                                   |  | Term
    Loan (9.90% cash (Libor + 7.40%; Floor 9.90%), 4.00% ETP, Due 1/1/23)                     |  |           | 5,000  |  |                     |  | 4,914 |       | 
|                                           |  |                                   |  | Term
    Loan (9.90% cash (Libor + 7.40%; Floor 9.90%), 4.00% ETP, Due 1/1/23)                     |  |           | 5,000  |  |                     |  | 4,914 |       | 
|Updater,
    Inc.(2)(12)                   |  | Consumer-related
    Technologies |  | Term
    Loan (11.50% cash (Prime + 5.75%; Floor 11.50%, Ceiling 14.00%),0.56% ETP, Due 12/20/24)  |  |           | 5,000  |  |                     |  | 4,935 |       | 
|                                           |  |                                   |  | Term
    Loan (11.50% cash (Prime + 5.75%; Floor 11.50%, Ceiling 14.00%), 0.56% ETP, Due 12/20/24) |  |           | 5,000  |  |                     |  | 4,935 |       | 
|                                           |  |                                   |  | Term
    Loan (11.50% cash (Prime + 5.75%; Floor 11.50%, Ceiling 14.00%), 0.56% ETP, Due 12/20/24) |  |           | 10,000 |  |                     |  | 9,870 |       | 
|Canara,
    Inc. (2)(12)                   |  | Data
    Storage                  |  | Term
    Loan (11.00% cash (Libor + 8.60%; Floor 11.00%), 1.00% ETP, Due 2/1/23)                   |  |           | 5,000  |  |                     |  | 4,868 |       | 
|                                           |  |                                   |  | Term
    Loan (11.00% cash (Libor + 8.60%; Floor 11.00%), 1.00% ETP, Due 2/1/23)                   |  |           | 5,000  |  |                     |  | 4,868 |       | 
|Kaminario,
    Inc. (2)(12)                |  | Data
    Storage                  |  | Term
    Loan (10.65% cash (Libor + 8.40%; Floor 10.65%), 3.00% ETP, Due 1/1/23)                   |  |           | 5,000  |  |                     |  | 4,938 |       | 
|                                           |  |                                   |  | Term
    Loan (10.65% cash (Libor + 8.40%; Floor 10.65%), 3.00% ETP, Due 1/1/23)                   |  |           | 5,000  |  |                     |  | 4,938 |       | 
|                                           |  |                                   |  | Term
    Loan (10.65% cash (Libor + 8.40%; Floor 10.65%), 3.00% ETP, Due 7/1/23)                   |  |           | 5,000  |  |                     |  | 4,840 |       | 
|IgnitionOne,
    Inc. (2)(12)              |  | Internet
    and Media            |  | Term
    Loan (11.92% cash (Libor + 10.23%; Floor 10.23%), 2.00% ETP, Due 4/1/22)                  |  |           | 3,000  |  |                     |  | 2,911 |       | 
|                                           |  |                                   |  | Term
    Loan (11.92% cash (Libor + 10.23%; Floor 10.23%), 2.00% ETP, Due 4/1/22)                  |  |           | 3,000  |  |                     |  | 2,911 |       | 
|                                           |  |                                   |  | Term
    Loan (11.92% cash (Libor + 10.23%; Floor 10.23%), 2.00% ETP, Due 4/1/22)                  |  |           | 3,000  |  |                     |  | 2,812 |       | 
|                                           |  |                                   |  | Term
    Loan (11.92% cash (Libor + 10.23%; Floor 10.23%), 2.00% ETP, Due 4/1/22)                  |  |           | 3,000  |  |                     |  | 2,911 |       | 
|Skillshare,
    Inc.(2)(12)                |  | Internet
    and Media            |  | Term
    Loan (9.50% cash (Libor + 7.50%; Floor 9.50%), 5.00% ETP, Due 1/1/25)                     |  |           | 3,000  |  |                     |  | 2,747 |       | 
|                                           |  |                                   |  | Term
    Loan (9.50% cash (Libor + 7.50%; Floor 9.50%), 5.00% ETP, Due 1/1/25)                     |  |           | 3,000  |  |                     |  | 2,946 |       | 
|                                           |  |                                   |  | Term
    Loan (9.50% cash (Libor + 7.50%; Floor 9.50%), 5.00% ETP, Due 1/1/25)                     |  |           | 3,000  |  |                     |  | 2,946 |       | 
|Verve
    Wireless, Inc. (2)(12)           |  | Internet
    and Media            |  | Term
    Loan (15.80% cash (Libor + 8.80%; Floor 10.80%), 3.33% ETP, Due 9/1/21)                   |  |           | 2,400  |  |                     |  | 2,320 |       | 
|The
    NanoSteel Company, Inc. (2)(12)    |  | Materials                         |  | Term
    Loan (11.00% cash (Libor + 8.50%; Floor 11.00%), 4.00% ETP, Due 6/1/22)                   |  |           | 4,250  |  |                     |  | 4,205 |       | 
|                                           |  |                                   |  | Term
    Loan (11.00% cash (Libor + 8.50%; Floor 11.00%), 4.00% ETP, Due 6/1/22)                   |  |           | 4,250  |  |                     |  | 4,205 |       | 
|Kinestral
    Technologies, Inc.(2)(12)    |  | Power
    Management              |  | Term
    Loan (9.95% cash (Libor + 7.75%; Floor 9.95%), 5.00% ETP, Due 12/1/22)                    |  |           | 6,000  |  |                     |  | 5,442 |       | 
|                                           |  |                                   |  | Term
    Loan (9.95% cash (Libor + 7.75%; Floor 9.95%), 5.00% ETP, Due 12/1/22)                    |  |           | 6,000  |  |                     |  | 5,765 |       | 
|Bridge2
    Solutions, LLC. (2)(12)        |  | Software                          |  | Term
    Loan (11.00% cash (Libor + 8.40%; Floor 11.00%), 2.00% ETP, Due 6/1/23)                   |  |           | 6,250  |  |                     |  | 6,120 |       | 
|                                           |  |                                   |  | Term
    Loan (11.00% cash (Libor + 8.40%; Floor 11.00%), 2.00% ETP, Due 6/1/23)                   |  |           | 6,250  |  |                     |  | 6,120 |       | 
|                                           |  |                                   |  | Term
    Loan (11.00% cash (Libor + 8.40%; Floor 11.00%), 2.00% ETP, Due 9/1/23)                   |  |           | 2,000  |  |                     |  | 1,926 |       | 
|New
    Signature US, Inc. (2)(12)(13)     |  | Software                          |  | Term
    Loan (10.50% cash (Libor + 8.50%; Floor 10.50%), 3.50% ETP, Due 7/1/22)                   |  |           | 2,750  |  |                     |  | 2,721 |       | 
|                                           |  |                                   |  | Term
    Loan (10.50% cash (Libor + 8.50%; Floor 10.50%), 3.50% ETP, Due 2/1/23)                   |  |           | 1,000  |  |                     |  | 987   |       | 
|OutboundEngine,
    Inc. (2)(12)           |  | Software                          |  | Term
    Loan (11.15% cash (Libor + 8.40%; Floor11.15%), 3.00% ETP, Due 7/1/23)                    |  |           | 4,000  |  |                     |  | 3,929 |       | 



See Notes to Consolidated Financial Statements





95







Horizon Technology Finance Corporation
and Subsidiaries



Consolidated Schedule of Investments

December 31, 2019

(In thousands)



|                                                                                     |  |                      |  |                                                                                   |  | Principal |         |  | Cost
    of         |  |         | Fair  | 
|------------------------------------------------------------------------------------ |  | -------------------- |  | --------------------------------------------------------------------------------- |  | --------- | ------- |  | ------------------- |  | ------- | ----- | 
|Portfolio
    Company (1)(3)                                                         |  | Sector               |  | Type
    of Investment (4)(7)(9)(10)                                              |  | Amount    |         |  | Investments
    (6) |  |         | Value | 
|                                                                                     |  |                      |  | Term
    Loan (11.15% cash (Libor + 8.40%; Floor 11.15%), 3.00% ETP, Due 7/1/23)  |  |           | 3,500   |  |                     |  | 3,438   |       | 
|Revinate,
    Inc. (2)(12)                                                           |  | Software             |  | Term
    Loan (9.50% cash (Libor + 7.00%; Floor 9.50%), 4.00% ETP, Due 6/1/23)    |  |           | 1,000   |  |                     |  | 928     |       | 
|                                                                                     |  |                      |  | Term
    Loan (9.50% cash (Libor + 7.00%; Floor 9.50%), 4.00% ETP, Due 11/1/23)   |  |           | 5,000   |  |                     |  | 4,932   |       | 
|SIGNiX,
    Inc. (12)(15)                                                            |  | Software             |  | Term
    Loan (12.69% cash (Libor + 11.00%; Floor 11.50%), 8.67% ETP, Due 2/1/20) |  |           | 1,571   |  |                     |  | 1,569   |       | 
|xAd,
    Inc. (2)(12)                                                                |  | Software             |  | Term
    Loan (10.39% cash (Libor + 8.70%; Floor 10.00%), 4.75% ETP, Due 11/1/21) |  |           | 4,583   |  |                     |  | 4,533   |       | 
|                                                                                     |  |                      |  | Term
    Loan (10.39% cash (Libor + 8.70%; Floor 10.00%), 4.75% ETP, Due 11/1/21) |  |           | 4,583   |  |                     |  | 4,533   |       | 
|                                                                                     |  |                      |  | Term
    Loan (10.39% cash (Libor + 8.70%; Floor 10.00%), 4.75% ETP, Due 11/1/21) |  |           | 2,750   |  |                     |  | 2,720   |       | 
|                                                                                     |  |                      |  | Term
    Loan (10.39% cash (Libor + 8.70%; Floor 10.00%), 4.75% ETP, Due 11/1/21) |  |           | 1,833   |  |                     |  | 1,813   |       | 
|Total
    Non-Affiliate Debt Investments — Technology                                |  |                      |  |                                                                                   |  |           | 159,751 |  |                     |  | 156,052 |      
|                                                                                     |  |                      |  |                                                                                   |  |           |         |  |                     |  |         |       | 
|Non-Affiliate
    Debt Investments — Healthcare information and services — 12.8% (8) |  |                      |  |                                                                                   |  |           |         |  |                     |  |         |      
|Kate
    Farms, Inc. (2)(12)                                                         |  | Other
    Healthcare |  | Term
    Loan (9.75% cash (Libor + 7.45%; Floor 9.75%), 5.00% ETP, Due 10/1/23)   |  |           | 5,000   |  |                     |  | 4,852   |       | 
|                                                                                     |  |                      |  | Term
    Loan (9.75% cash (Libor + 7.45%; Floor 9.75%), 5.00% ETP, Due 10/1/23)   |  |           | 5,000   |  |                     |  | 4,919   |       | 
|HealthEdge
    Software, Inc. (2)(12)                                                |  | Software             |  | Term
    Loan (9.94% cash (Libor + 8.25%; Floor 9.25%), 3.00% ETP, Due 7/1/22)    |  |           | 3,571   |  |                     |  | 3,533   |       | 
|                                                                                     |  |                      |  | Term
    Loan (9.94% cash (Libor + 8.25%; Floor 9.25%), 3.00% ETP, Due 1/1/23)    |  |           | 3,214   |  |                     |  | 3,180   |       | 
|                                                                                     |  |                      |  | Term
    Loan (9.94% cash (Libor + 8.25%; Floor 9.25%), 3.00% ETP, Due 4/1/23)    |  |           | 3,482   |  |                     |  | 3,444   |       | 
|                                                                                     |  |                      |  | Term
    Loan (9.94% cash (Libor + 8.25%; Floor 9.25%), 3.00% ETP, Due 1/1/24)    |  |           | 3,750   |  |                     |  | 3,707   |       | 
|Total
    Non-Affiliate Debt Investments — Healthcare information and services       |  |                      |  |                                                                                   |  |           | 23,635  |  |                     |  | 23,635  |      
|Total
    Non- Affiliate Debt Investments                                            |  |                      |  |                                                                                   |  |           | 286,185 |  |                     |  | 282,486 |      
|                                                                                     |  |                      |  |                                                                                   |  |           |         |  |                     |  |         |       | 
|Non-Affiliate
    Warrant Investments — 5.9% (8)                                     |  |                      |  |                                                                                   |  |           |         |  |                     |  |         |      
|Non-Affiliate
    Warrants — Life Science — 0.7% (8)                                 |  |                      |  |                                                                                   |  |           |         |  |                     |  |         |      
|Alpine
    Immune Sciences, Inc. (5)(12)                                             |  | Biotechnology        |  | 4,632
    Common Stock Warrants                                                   |  |           |         |  |                     |  | 122     |       | 
|Celsion
    Corporation (2)(5)(12)                                                   |  | Biotechnology        |  | 95,057
    Common Stock Warrants                                                  |  |           |         |  |                     |  | 65      |       | 
|Corvium,
    Inc. (2)(12)                                                            |  | Biotechnology        |  | 661,956
    Preferred Stock Warrants                                              |  |           |         |  |                     |  | 52      |       | 
|Encore
    Dermatology, Inc. (2)(12)                                                 |  | Biotechnology        |  | 1,510,878
    Preferred Stock Warrants                                            |  |           |         |  |                     |  | 113     |       | 
|Espero
    BioPharma, Inc. (2)(12)                                                   |  | Biotechnology        |  | 1,507,917
    Common Stock Warrants                                               |  |           |         |  |                     |  | 184     |       | 
|LogicBio,
    Inc. (2)(5)(12)                                                        |  | Biotechnology        |  | 7,843
    Common Stock Warrants                                                   |  |           |         |  |                     |  | 8       |       | 
|Mustang
    Bio, Inc. (2)(5)(12)                                                     |  | Biotechnology        |  | 216,138
    Common Stock Warrants                                                 |  |           |         |  |                     |  | 140     |       | 
|Rocket
    Pharmaceuticals Corporation (5)(12)                                       |  | Biotechnology        |  | 7,051
    Common Stock Warrants                                                   |  |           |         |  |                     |  | 17      |       | 
|Palatin
    Technologies, Inc. (2)(5)(12)                                            |  | Biotechnology        |  | 274,725
    Common Stock Warrants                                                 |  |           |         |  |                     |  | 20      |       | 
|Revance
    Therapeutics, Inc. (5)(12)                                               |  | Biotechnology        |  | 34,113
    Common Stock Warrants                                                  |  |           |         |  |                     |  | 68      |       | 
|Strongbridge
    U.S. Inc. (2)(5)(12)                                                |  | Biotechnology        |  | 160,714
    Common Stock Warrants                                                 |  |           |         |  |                     |  | 72      |       | 
|Sunesis
    Pharmaceuticals, Inc. (5)(12)                                            |  | Biotechnology        |  | 2,050
    Common Stock Warrants                                                   |  |           |         |  |                     |  | 5       |       | 
|vTv
    Therapeutics Inc. (2)(5)(12)                                                 |  | Biotechnology        |  | 95,293
    Common Stock Warrants                                                  |  |           |         |  |                     |  | 44      |       | 
|Titan
    Pharmaceuticals, Inc. (2)(5)(12)                                           |  | Drug
    Delivery    |  | 373,333
    Common Stock Warrants                                                 |  |           |         |  |                     |  | 95      |       | 
|AccuVein
    Inc. (2)(12)                                                            |  | Medical
    Device   |  | 1,174,881
    Preferred Stock Warrants                                            |  |           |         |  |                     |  | 24      |       | 
|Aerin
    Medical, Inc. (2)(12)                                                      |  | Medical
    Device   |  | 1,818,183
    Preferred Stock Warrants                                            |  |           |         |  |                     |  | 66      |       | 
|Conventus
    Orthopaedics, Inc. (2)(12)                                             |  | Medical
    Device   |  | 1,145,000
    Preferred Stock Warrants                                            |  |           |         |  |                     |  | 149     |       | 
|CSA
    Medical, Inc. (2)(12)                                                        |  | Medical
    Device   |  | 1,260,345
    Preferred Stock Warrants                                            |  |           |         |  |                     |  | 147     |       | 
|CVRx,
    Inc.(2)(12)                                                                |  | Medical
    Device   |  | 750,000
    Preferred Stock Warrants                                              |  |           |         |  |                     |  | 76      |       | 
|Lantos
    Technologies, Inc. (2)(12)                                                |  | Medical
    Device   |  | 560,832
    Preferred Stock Warrants                                              |  |           |         |  |                     |  | 253     |       | 
|MacuLogix,
    Inc. (2)(12)                                                          |  | Medical
    Device   |  | 454,460
    Preferred Stock Warrants                                              |  |           |         |  |                     |  | 238     |       | 
|Meditrina,
    Inc. (2)(12)                                                          |  | Medical
    Device   |  | 221,510
    Preferred Stock Warrants                                              |  |           |         |  |                     |  | 83      |       | 
|NinePoint
    Medical, Inc. (2)(12)                                                  |  | Medical
    Device   |  | 29,102
    Preferred Stock Warrants                                               |  |           |         |  |                     |  | 33      |       | 



See Notes to Consolidated Financial Statements





96







Horizon Technology Finance Corporation
and Subsidiaries



Consolidated Schedule of Investments

December 31, 2019

(In thousands)



|                                                                            |  |                               |  |                                         |  |    | Cost
    of         |       |  | Fair  | 
|--------------------------------------------------------------------------- |  | ----------------------------- |  | --------------------------------------- |  | -- | ------------------- | ----- |  | ----- | 
|Portfolio
    Company (1)(3)                                                |  | Sector                        |  | Type
    of Investment (4)(7)(9)(10)    |  |    | Investments
    (6) |       |  | Value | 
|VERO
    Biotech LLC (2)(12)                                                |  | Medical
    Device            |  | 408
    Preferred Stock Warrants        |  |    |                     | 53    |  |       | 
|Total
    Non-Affiliate Warrants — Life Science                             |  |                               |  | 2,127                                   |  |    |                     | 1,215 | 
|Non-Affiliate
    Warrants — Technology — 4.8% (8)                          |  |                               |  |                                         |  |    |                     |       | 
|Audacy Corporation (2)(12)                                                  |  | Communications                |  | 1,545,575 Preferred Stock
    Warrants  |  |    |                     | 193   |  |       | 
|Intelepeer Holdings, Inc.
    (2)(12)                                       |  | Communications                |  | 2,134,617 Preferred Stock
    Warrants  |  |    |                     | 145   |  |       | 
|PebblePost, Inc. (2)(12)                                                    |  | Communications                |  | 598,850 Preferred Stock Warrants        |  |    |                     | 93    |  |       | 
|Betabrand Corporation (2)(12)                                               |  | Consumer-related Technologies |  | 248,210 Preferred Stock Warrants        |  |    |                     | 101   |  |       | 
|Caastle, Inc. (2)(12)                                                       |  | Consumer-related Technologies |  | 268,591 Preferred Stock Warrants        |  |    |                     | 67    |  |       | 
|Le Tote, Inc. (2)(12)                                                       |  | Consumer-related Technologies |  | 202,974 Preferred Stock Warrants        |  |    |                     | 63    |  |       | 
|Mohawk Group Holdings, Inc.
    (2)(5)(12)                                  |  | Consumer-related Technologies |  | 76,923 Common Stock Warrants            |  |    |                     | 195   |  |       | 
|Rhapsody International Inc.
    (2)(12)                                     |  | Consumer-related Technologies |  | 852,273 Common Stock Warrants           |  |    |                     | 164   |  |       | 
|Updater, Inc.(2)(12)                                                        |  | Consumer-related Technologies |  | 108,333 Common Stock Warrants           |  |    |                     | 34    |  |       | 
|Canara, Inc. (2)(12)                                                        |  | Data Storage                  |  | 500,000 Preferred Stock Warrants        |  |    |                     | 242   |  |       | 
|Kaminario, Inc. (2)(12)                                                     |  | Data Storage                  |  | 18,616,925 Preferred Stock
    Warrants |  |    |                     | 234   |  |       | 
|Global Worldwide LLC (2)(12)                                                |  | Internet and Media            |  | 245,810 Preferred Stock Warrants        |  |    |                     | 75    |  |       | 
|IgnitionOne, Inc. (2)(12)                                                   |  | Internet and Media            |  | 262,910 Preferred Stock Warrants        |  |    |                     | 672   |  |       | 
|Rocket Lawyer Incorporated
    (2)(12)                                      |  | Internet and Media            |  | 261,721 Preferred Stock Warrants        |  |    |                     | 91    |  |       | 
|Skillshare, Inc. (2)(12)                                                    |  | Internet and Media            |  | 173,717 Preferred Stock Warrants        |  |    |                     | 162   |  |       | 
|Verve Wireless, Inc. (2)(12)                                                |  | Internet and Media            |  | 112,805 Common Stock Warrants           |  |    |                     | 121   |  |       | 
|The NanoSteel Company, Inc.
    (2)(12)                                     |  | Materials                     |  | 467,277 Preferred Stock Warrants        |  |    |                     | 233   |  |       | 
|Kinestral, Inc. (2)(12)                                                     |  | Power Management              |  | 3,454,774 Preferred Stock
    Warrants  |  |    |                     | 606   |  |       | 
|Avalanche Technology, Inc.
    (2)(12)                                      |  | Semiconductors                |  | 202,602 Preferred Stock Warrants        |  |    |                     | 101   |  |       | 
|Soraa, Inc. (2)(12)                                                         |  | Semiconductors                |  | 203,616 Preferred Stock Warrants        |  |    |                     | 80    |  |       | 
|Bridge2 Solutions, Inc. (2)(12)                                             |  | Software                      |  | 172,958 Common Stock Warrants           |  |    |                     | 768   |  |       | 
|BSI Platform Holdings, LLC
    (2)(12)(13)                                  |  | Software                      |  | 187,500 Preferred Stock Warrants        |  |    |                     | 26    |  |       | 
|Clarabridge, Inc. (12)                                                      |  | Software                      |  | 53,486 Preferred Stock Warrants         |  |    |                     | 17    |  |       | 
|Education Elements, Inc. (2)(12)                                            |  | Software                      |  | 238,121 Preferred Stock Warrants        |  |    |                     | 28    |  |       | 
|Lotame Solutions, Inc. (2)(12)                                              |  | Software                      |  | 288,115 Preferred Stock Warrants        |  |    |                     | 22    |  |       | 
|OutboundEngine, Inc. (2)(12)                                                |  | Software                      |  | 600,000 Preferred Stock Warrants        |  |    |                     | 77    |  |       | 
|Revinate, Inc. (2)(12)                                                      |  | Software                      |  | 459,770 Preferred Stock Warrants        |  |    |                     | 36    |  |       | 
|Riv Data Corp. (2)(12)                                                      |  | Software                      |  | 321,428 Preferred Stock Warrants        |  |    |                     | 12    |  |       | 
|ShopKeep.com, Inc. (2)(12)                                                  |  | Software                      |  | 193,962 Preferred Stock Warrants        |  |    |                     | 118   |  |       | 
|SIGNiX, Inc. (12)                                                           |  | Software                      |  | 133,560 Preferred Stock Warrants        |  |    |                     | 225   |  |       | 
|Skyword, Inc. (12)                                                          |  | Software                      |  | 301,056 Preferred Stock Warrants        |  |    |                     | 48    |  |       | 
|Sys-Tech Solutions, Inc. (2)(12)                                            |  | Software                      |  | 375,000 Common Stock Warrants           |  |    |                     | 242   |  |       | 
|Weblinc Corporation (2)(12)                                                 |  | Software                      |  | 195,122 Preferred Stock Warrants        |  |    |                     | 42    |  |       | 
|xAd,
    Inc. (2)(12)                                                       |  | Software                      |  | 4,343,348
    Preferred Stock Warrants  |  |    |                     | 177   |  |       | 
|Total
    Non-Affiliate Warrants — Technology                               |  |                               |  | 5,510                                   |  |    |                     | 8,891 | 
|Non-Affiliate
    Warrants — Sustainability — 0.0% (8)                      |  |                               |  |                                         |  |    |                     |       | 
|Tigo
    Energy, Inc. (2)(12)                                               |  | Energy
    Efficiency         |  | 804,604
    Preferred Stock Warrants    |  |    |                     | 100   |  |       | 
|Total
    Non-Affiliate Warrants — Sustainability                           |  |                               |  | 100                                     |  |    |                     | —     | 
|Non-Affiliate
    Warrants — Healthcare information and services — 0.4% (8) |  |                               |  |                                         |  |    |                     |       | 
|ProterixBio, Inc. (2)(12)                                                   |  | Diagnostics                   |  | 2,676 Common Stock Warrants             |  |    |                     | 42    |  |       | 
|Kate Farms, Inc. (2)(12)                                                    |  | Other Healthcare              |  | 69,137 Preferred Stock Warrants         |  |    |                     | 86    |  |       | 
|Watermark Medical, Inc. (2)(12)                                             |  | Other Healthcare              |  | 27,373 Preferred Stock Warrants         |  |    |                     | 74    |  |       | 
|Catasys, Inc. (2)(5)(12)                                                    |  | Software                      |  | 51,185 Common Stock Warrants            |  |    |                     | 193   |  |       | 
|HealthEdge Software, Inc.
    (2)(12)                                       |  | Software                      |  | 205,481 Preferred Stock Warrants        |  |    |                     | 84    |  |       | 
|Medsphere
    Systems Corporation (2)(12)                                   |  | Software                      |  | 7,097,792
    Preferred Stock Warrants  |  |    |                     | 60    |  |       | 
|Total
    Non-Affiliate Warrants — Healthcare information and services      |  |                               |  | 539                                     |  |    |                     | 723   | 
|Total
    Non-Affiliate Warrants                                            |  |                               |  |                                         |  |    |                     | 8,276 |  |       | 
|                                                                            |  |                               |  |                                         |  |    |                     |       |  |       | 
|Non-Affiliate
    Other Investments — 0.3% (8)                              |  |                               |  |                                         |  |    |                     |       |  |       | 
|ZetrOZ,
    Inc. (12)                                                       |  | Medical
    Device            |  | Royalty
    Agreement                   |  |    |                     | 61    |  |       | 
|Total
    Non-Affiliate Other Investments                                   |  |                               |  |                                         |  | 61 |                     |       |  | 500   | 
|                                                                            |  |                               |  |                                         |  |    |                     |       |  |       | 
|Non-Affiliate
    Equity — 0.3% (8)                                         |  |                               |  |                                         |  |    |                     |       |  |       | 
|Palatin Technologies, Inc.
    (2)(5)                                       |  | Biotechnology                 |  | 5,249 Common Stock                      |  |    |                     | 31    |  |       | 
|Revance Therapeutics, Inc.(5)                                               |  | Biotechnology                 |  | 5,125 Common Stock                      |  |    |                     | 73    |  |       | 
|Sunesis Pharmaceuticals, Inc.
    (5)                                       |  | Biotechnology                 |  | 13,082 Common Stock                     |  |    |                     | 83    |  |       | 
|SnagAJob.com, Inc. (12)                                                     |  | Consumer-related Technologies |  | 82,974 Common Stock                     |  |    |                     | 9     |  |       | 



See Notes to Consolidated Financial Statements





97







Horizon Technology Finance Corporation
and Subsidiaries



Consolidated Schedule of Investments

December 31, 2019

(In thousands)



|                                                                      |  |                    |  |                                                                                     |  | Principal |         |   | Cost
    of         |   |         | Fair  |       
|--------------------------------------------------------------------- |  | ------------------ |  | ----------------------------------------------------------------------------------- |  | --------- | ------- | - | ------------------- | - | ------- | ----- | ------
|Portfolio
    Company (1)(3)                                          |  | Sector             |  | Type
    of Investment (4)(7)(9)(10)                                                |  | Amount    |         |   | Investments
    (6) |   |         | Value |       
|Verve Wireless,
    Inc. (2)(12)                                      |  | Internet and Media |  | 100,598 Preferred
    Stock                                                         |  |           |         |   |                     |   | 224     |       |       
|Zeta Global Holdings Corp.
    (2)(12)                                |  | Internet and Media |  | 18,405 Common Stock                                                                 |  |           |         |   |                     |   | 240     |       |       
|Formetrix,
    Inc. (2)(12)                                           |  | Materials          |  | 74,286
    Common Stock                                                             |  |           |         |   |                     |   | 74      |       |       
|Total
    Non-Affiliate Equity                                        |  |                    |  |                                                                                     |  |           |         |   |                     |   | 734     |       |       
|Total
    Non-Affiliate Portfolio Investment Assets                   |  |                    |  |                                                                                     |  | $         | 295,256 |   |                     | $ | 294,304 |      
|                                                                      |  |                    |  |                                                                                     |  |           |         |   |                     |   |         |       |       
|Non-controlled
    Affiliate Investments — 4.7% (8)                   |  |                    |  |                                                                                     |  |           |         |   |                     |   |         |      
|Non-controlled
    Affiliate Debt Investments — Technology — 3.2% (8) |  |                    |  |                                                                                     |  |           |         |   |                     |   |         |      
|Decisyon, Inc. (12)                                                   |  | Software           |  | Term Loan (13.998% cash (Libor
    + 12.31%; Floor 12.50%), 12.00% ETP, Due 6/1/21) |  | $         | 1,206   |   |                     | $ | 1,206   |       |       
|                                                                      |  |                    |  | Term Loan (14.41% cash (Libor
    + 12.31%; Floor 12.50%), 12.00% ETP, Due 6/1/21)  |  |           | 660     |   |                     |   | 639     |       |       
|                                                                      |  |                    |  | Term Loan (12.02% cash, Due
    6/1/21)                                             |  |           | 234     |   |                     |   | 234     |       |       
|                                                                      |  |                    |  | Term Loan (12.03% cash, Due
    6/1/21)                                             |  |           | 234     |   |                     |   | 234     |       |       
|                                                                      |  |                    |  | Term Loan (12.24% cash, Due
    6/1/21)                                             |  |           | 704     |   |                     |   | 704     |       |       
|                                                                      |  |                    |  | Term Loan (13.08% cash, Due
    6/1/21)                                             |  |           | 283     |   |                     |   | 283     |       |       
|                                                                      |  |                    |  | Term Loan (13.10% cash, Due
    6/1/21)                                             |  |           | 187     |   |                     |   | 187     |       |       
|StereoVision Imaging, Inc.
    (12)                                   |  | Software           |  | Term Loan (8.72% Cash (Libor
    + 7.03%; Floor 8.50%), 8.50% ETP, Due 9/1/21) (11) |  |           | 2,783   |   |                     |   | 2,382   |       |       
|Total
    Non-controlled Affiliate Debt Investments — Technology      |  |                    |  |                                                                                     |  |           | 5,869   |   |                     |   | 5,869   |      
|                                                                      |  |                    |  |                                                                                     |  |           |         |   |                     |   |         |       |       
|Non-controlled
    Affiliate Warrants — Technology — 0.0% (8)         |  |                    |  |                                                                                     |  |           |         |   |                     |   |         |      
|Decisyon,
    Inc. (12)                                               |  | Software           |  | 82,967
    Common Stock Warrants                                                    |  |           |         |   |                     |   | 46      |       |       
|Total
    Non-controlled Affiliate Warrants — Technology              |  |                    |  |                                                                                     |  |           | 46      |   |                     |   | —       |      
|                                                                      |  |                    |  |                                                                                     |  |           |         |   |                     |   |         |       |       
|Non-controlled
    Affiliate Equity — Technology — 1.5% (8)           |  |                    |  |                                                                                     |  |           |         |   |                     |   |         |      
|Decisyon, Inc. (12)                                                   |  | Software           |  | 45,365,936 Common Stock                                                             |  |           |         |   |                     |   | 185     |       |       
|StereoVision
    Imaging, Inc. (12)                                   |  | Software           |  | 1,943,572
    Common Stock                                                          |  |           |         |   |                     |   | 791     |       |       
|Total
    Non-controlled Affiliate Equity                             |  |                    |  |                                                                                     |  |           |         |   | 976                 |   |         |       | 2,728 
|Total
    Non-controlled Affiliate Portfolio Investment Assets        |  |                    |  |                                                                                     |  | $         | 6,891   |   |                     | $ | 8,597   |      
|                                                                      |  |                    |  |                                                                                     |  |           |         |   |                     |   |         |       |       
|Controlled
    Affiliate Investments — 9.0% (8)                       |  |                    |  |                                                                                     |  |           |         |   |                     |   |         |      
|Controlled
    Affiliate Equity — Financial — 9.0% (8)                |  |                    |  |                                                                                     |  |           |         |   |                     |   |         |      
|Horizon
    Secured Loan Fund I LLC (12)(14)                          |  |                    |  |                                                                                     |  |           |         | $ | 16,684              |   |         | $     | 16,650
|Total
    Controlled Affiliate Equity                                 |  |                    |  |                                                                                     |  |           |         |   | 16,684              |   |         |       | 16,650
|Total
    Controlled Affiliate Portfolio Investment Assets            |  |                    |  |                                                                                     |  | $         | 16,684  |   |                     | $ | 16,650  |      
|                                                                      |  |                    |  |                                                                                     |  |           |         |   |                     |   |         |       |       
|Total
    Portfolio Investment Assets — 173.7%(8)                     |  |                    |  |                                                                                     |  | $         | 318,831 |   |                     | $ | 319,551 |      
|                                                                      |  |                    |  |                                                                                     |  |           |         |   |                     |   |         |       |       
|Short
    Term Investments — Unrestricted Investments — 5.3% (8)      |  |                    |  |                                                                                     |  |           |         |   |                     |   |         |      
|US
    Bank Money Market Deposit Account                              |  |                    |  |                                                                                     |  |           |         | $ | 9,787               |   |         | $     | 9,787 
|Total
    Short Term Investments —Unrestricted Investments            |  |                    |  |                                                                                     |  | $         | 9,787   |   |                     | $ | 9,787   |      
|                                                                      |  |                    |  |                                                                                     |  |           |         |   |                     |   |         |       |       
|Short
    Term Investments — Restricted Investments—0.6% (8)          |  |                    |  |                                                                                     |  |           |         |   |                     |   |         |      
|US
    Bank Money Market Deposit Account                              |  |                    |  |                                                                                     |  | $         | 1,133   |   |                     | $ | 1,133   |      
|Total
    Short Term Investments — Restricted Investments             |  |                    |  |                                                                                     |  | $         | 1,133   |   |                     | $ | 1,133   |      












|(1) | All investments of the Company are in
    entities which are organized under the laws of the United States and have a principal place of business in the United States.                                                                                                                                                                                                                                                                                                                          
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|(2) | Has been pledged as collateral under
    the revolving credit facility with KeyBank National Association (the “Key Facility”) and/or the term debt securitization
    in connection with which an affiliate of the Company made an offering of $100.0 million in aggregate principal amount of fixed
    rate asset-backed notes that were issued in conjunction with the $160.0 million securitization of secured loans the Company
    completed on August 13, 2019 (“the Asset-Backed Notes”).



See Notes to Consolidated Financial Statements





98







Horizon Technology Finance Corporation
and Subsidiaries



Consolidated Schedule of Investments

December 31, 2019

(In thousands)



|(3)  | All non-affiliate investments are investments in which the Company owns less than 5% of the voting securities of the portfolio company. All non-controlled affiliate investments are investments in which the Company owns 5% or more of the voting securities of the portfolio company but not more than 25% of the voting securities of the portfolio company. All controlled affiliate investments are investments in which the Company owns more than 25% of the portfolio company’s outstanding voting securities or has the power to exercise control over management or policies of such portfolio company (including through a management agreement).                                                                                                                                                    
|---- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|(4)  | All interest is payable in cash due monthly in arrears, unless otherwise indicated, and applies only to the Company’s debt investments. Interest rate is the annual interest rate on the debt investment and does not include end-of-term payments (“ETPs”), and any additional fees related to the investments, such as deferred interest, commitment fees or prepayment fees. Debt investments are at variable rates for the term of the debt investment, unless otherwise indicated. All debt investments based on the London InterBank Offered Rate (“LIBOR”) are based on one-month LIBOR. For each debt investment, the current interest rate in effect as of December 31, 2019 is provided.                                                                                                               
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|(5)  | Portfolio company is a public company.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|(6)  | For debt investments, represents principal balance less unearned income.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|(7)  | Warrants, Equity and Other Investments are non-income producing.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|(8)  | Value as a percent of net assets.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|(9)  | As of December 31, 2019, 4.9% and 4.8% of the Company’s total assets on a cost and fair value basis, respectively, are in non-qualifying assets. Under the Investment Company Act of 1940, as amended (the “1940 Act”), the Company may not acquire any non-qualifying assets unless, at the time the acquisition is made, qualifying assets represent at least 70% of the Company’s total assets.                                                                                                                                                                                                                                                                                                                                                                                                               
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|(10) | ETPs are contractual fixed-interest
payments due in cash at the maturity date of the applicable debt investment, including upon any prepayment, and are a fixed percentage
of the original principal balance of the debt investments unless otherwise noted. Interest will accrue during the life of the
debt investment on each ETP and will be recognized as non-cash income until it is actually paid. Therefore, a portion of the incentive
fee the Company may pay its Advisor will be based on income that the Company has not yet received in cash.                                                                                                                                                                                                                                                       
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|(11) | Debt investment has a payment-in-kind (“PIK”) feature.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|(12) | The fair value of the investment was valued using significant unobservable inputs.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|(13) | New Signature US, Inc. is a subsidiary of BSI Platform Holdings, LLC.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|(14) | On June 1, 2018, the Company entered into an agreement with Arena Sunset SPV, LLC (“Arena”) to co-invest through Horizon Secured Loan Fund I (“HSLFI”), a joint venture, which is expected to make investments, either directly or indirectly through subsidiaries, primarily in the form of secured loans to development-stage companies in the technology, life science, healthcare information and services and sustainability industries.  All HSLFI investment decisions require unanimous approval of a quorum of HSLFI’s board of managers, which consists of two representatives of the Company and Arena. Although the Company owns more than 25% of the voting securities of HSLFI, the Company does not have sole control over significant actions of HSLFI for purposes of the 1940 Act or otherwise.
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|(15) | Debt investment is on non-accrual status as of December 31, 2019.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                



See Notes to Consolidated Financial Statements





99







Horizon Technology Finance Corporation and Subsidiaries



Consolidated Schedule of Investments

December 31, 2018

(In thousands)



|                                                              |  |                               |  |                                                                                    |  | Principal |       |  | Cost of             |   |       | Fair  |       
|------------------------------------------------------------- |  | ----------------------------- |  | ---------------------------------------------------------------------------------- |  | --------- | ----- |  | ------------------- | - | ----- | ----- | ------
|Portfolio Company
    (1)(3)                                  |  | Sector                        |  | Type of Investment
    (4)(7)(9)(10)                                               |  | Amount    |       |  | Investments
    (6) |   |       | Value |       
|Non-Affiliate Investments — 169.6% (8)                        |  |                               |  |                                                                                    |  |           |       |  |                     |   |      
|Non-Affiliate Debt Investments —
    156.3% (8)               |  |                               |  |                                                                                    |  |           |       |  |                     |   |      
|Non-Affiliate Debt Investments —
    Life Science — 49.9% (8) |  |                               |  |                                                                                    |  |           |       |  |                     |   |      
|Celsion Corporation (2)(5)(12)                                |  | Biotechnology                 |  | Term Loan (9.98% cash (Libor + 7.63%;
    Floor 9.63%), 4.00% ETP, Due 7/1/22)     |  | $         | 2,500 |  |                     | $ | 2,450 |       |       
|                                                              |  |                               |  | Term Loan (9.98% cash (Libor + 7.63%; Floor 9.63%),
    4.00% ETP, Due 7/1/22)     |  |           | 2,500 |  |                     |   | 2,450 |       |       
|Espero BioPharma, Inc. (2)(12)                                |  | Biotechnology                 |  | Term Loan (12.25% cash (Libor + 9.9%; Floor 12.00%),
    4.00% ETP, Due 6/30/19)   |  |           | 5,000 |  |                     |   | 4,760 |       |       
|Palatin Technologies, Inc. (2)(5)(12)                         |  | Biotechnology                 |  | Term Loan (10.85% cash (Libor + 8.50%; Floor 9.00%),
    5.00% ETP, Due 8/1/19)    |  |           | 1,167 |  |                     |   | 1,156 |       |       
|                                                              |  |                               |  | Term Loan (10.85% cash (Libor + 8.50%; Floor 9.00%),
    3.27% ETP, Due 8/1/19)    |  |           | 1,167 |  |                     |   | 1,167 |       |       
|vTv Therapeutics Inc. (2)(5)(12)                              |  | Biotechnology                 |  | Term Loan (12.35% cash (Libor + 10.00%; Floor 10.50%),
    6.00% ETP, Due 5/1/20)  |  |           | 4,167 |  |                     |   | 4,136 |       |       
|                                                              |  |                               |  | Term Loan (12.35% cash (Libor + 10.00%; Floor 10.50%),
    6.00% ETP, Due 10/1/20) |  |           | 3,281 |  |                     |   | 3,250 |       |       
|Titan Pharmaceuticals, Inc. (2)(5)(12)                        |  | Drug Delivery                 |  | Term Loan (10.75% cash (Libor + 8.40%; Floor 9.50%),
    5.00% ETP, Due 6/1/21)    |  |           | 1,600 |  |                     |   | 1,495 |       |       
|Aerin Medical, Inc. (2)(12)                                   |  | Medical Device                |  | Term Loan (9.80% cash (Libor + 7.45%; Floor 8.75%),
    4.00% ETP, Due 1/1/22)     |  |           | 4,000 |  |                     |   | 3,891 |       |       
|                                                              |  |                               |  | Term Loan (9.80% cash (Libor + 7.45%; Floor 8.75%),
    4.00% ETP, Due 1/1/22)     |  |           | 3,000 |  |                     |   | 2,966 |       |       
|                                                              |  |                               |  | Term Loan (9.80% cash (Libor + 7.45%; Floor 8.75%),
    4.00% ETP, Due 1/1/22)     |  |           | 3,000 |  |                     |   | 2,966 |       |       
|Conventus Orthopaedics, Inc. (2)(12)                          |  | Medical Device                |  | Term Loan (10.35% cash (Libor + 8.00%; Floor 9.25%),
    6.00% ETP, Due 6/1/21)    |  |           | 4,000 |  |                     |   | 3,949 |       |       
|                                                              |  |                               |  | Term Loan (10.35% cash (Libor + 8.00%; Floor 9.25%),
    6.00% ETP, Due 6/1/21)    |  |           | 4,000 |  |                     |   | 3,949 |       |       
|                                                              |  |                               |  | Term Loan (10.35% cash (Libor + 8.00%; Floor 9.25%),
    6.00% ETP, Due 6/1/21)    |  |           | 4,000 |  |                     |   | 3,949 |       |       
|CSA Medical, Inc. (2)(12)                                     |  | Medical Device                |  | Term Loan (10.28% cash (Libor + 7.93%; Floor 10.00%),
    5.00% ETP, Due 10/1/22)  |  |           | 6,000 |  |                     |   | 5,768 |       |       
|Lantos Technologies, Inc. (2)(12)                             |  | Medical Device                |  | Term Loan (10.78% cash (Libor + 8.43%; Floor 10.00%),
    6.00% ETP, Due 9/1/21)   |  |           | 4,000 |  |                     |   | 3,563 |       |       
|MacuLogix, Inc. (2)(12)                                       |  | Medical Device                |  | Term Loan (10.02% cash (Libor + 7.68%; Floor 9.50%),
    4.00% ETP, Due 8/1/22)    |  |           | 3,750 |  |                     |   | 3,623 |       |       
|                                                              |  |                               |  | Term Loan (10.14% cash (Libor + 7.68%; Floor 9.50%),
    4.00% ETP, Due 8/1/22)    |  |           | 3,750 |  |                     |   | 3,638 |       |       
|VERO Biotech LLC (2)(12)                                      |  | Medical Device                |  | Term Loan (10.35% cash (Libor + 8.00%; Floor 9.25%),
    5.00% ETP, Due 1/1/22)    |  |           | 4,000 |  |                     |   | 3,950 |       |       
|                                                              |  |                               |  | Term Loan (10.35% cash (Libor
    + 8.00%; Floor 9.25%), 5.00% ETP, Due 1/1/22)    |  |           | 4,000 |  |                     |   | 3,950 |       |       
|Total Non-Affiliate Debt Investments — Life Science           |  |                               |  |                                                                                    |  |           |       |  | 67,026              |   |       |       | 67,026
|Non-Affiliate Debt Investments — Technology — 88.9% (8)       |  |                               |  |                                                                                    |  |           |       |  |                     |   |       |       |       
|Audacy Corporation (2)(12)                                    |  | Communications                |  | Term Loan (10.25% cash (Libor + 7.90%; Floor 9.50%),
    5.00% ETP, Due 7/1/22)    |  |           | 4,000 |  |                     |   | 3,936 |       |       
|Intelepeer Holdings, Inc. (2)(12)                             |  | Communications                |  | Term Loan (12.30% cash (Libor + 9.95%; Floor 11.25%),
    2.50% ETP, Due 7/1/21)   |  |           | 4,000 |  |                     |   | 3,948 |       |       
|                                                              |  |                               |  | Term Loan (12.30% cash (Libor + 9.95%; Floor 11.25%),
    2.50% ETP, Due 2/1/21)   |  |           | 3,000 |  |                     |   | 2,955 |       |       
|Food52, Inc. (2)(12)                                          |  | Consumer-related Technologies |  | Term Loan (10.90% cash (Libor + 8.40%; Floor 10.90%),
    3.00% ETP, Due 1/1/23)   |  |           | 3,000 |  |                     |   | 2,918 |       |       
|                                                              |  |                               |  | Term Loan (10.90% cash (Libor + 8.40%; Floor 10.90%),
    3.00% ETP, Due 1/1/23)   |  |           | 3,000 |  |                     |   | 2,918 |       |       
|Mohawk Group Holdings, Inc. (2)(12)                           |  | Consumer-related Technologies |  | Term Loan (9.90% cash (Libor + 7.40%; Floor 9.90%),
    4.00% ETP, Due 1/1/23)     |  |           | 5,000 |  |                     |   | 4,885 |       |       
|                                                              |  |                               |  | Term Loan (9.90% cash (Libor + 7.40%; Floor 9.90%),
    4.00% ETP, Due 1/1/23)     |  |           | 5,000 |  |                     |   | 4,885 |       |       
|                                                              |  |                               |  | Term Loan (9.90% cash (Libor + 7.40%; Floor 9.90%),
    4.00% ETP, Due 1/1/23)     |  |           | 5,000 |  |                     |   | 4,885 |       |       
|Kaminario, Inc. (2)(12)                                       |  | Data Storage                  |  | Term Loan (10.87% cash (Libor + 8.40%; Floor 10.65%),
    3.00% ETP, Due 1/1/23)   |  |           | 5,000 |  |                     |   | 4,918 |       |       
|                                                              |  |                               |  | Term Loan (10.87% cash (Libor + 8.40%;
    Floor 10.65%), 3.00% ETP, Due 1/1/23)   |  |           | 5,000 |  |                     |   | 4,917 |       |       



See Notes to Consolidated Financial Statements





100







Horizon Technology Finance Corporation
and Subsidiaries



Consolidated Schedule of Investments

December 31, 2018

(In thousands)





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



See Notes to Consolidated Financial Statements



101









Horizon Technology Finance Corporation
and Subsidiaries



Consolidated Schedule of Investments

December 31, 2018

(In thousands)





|                                                                           |  |                               |  |                                                                                 |  | Principal |       |  | Cost of             |  |         | Fair  |       
|-------------------------------------------------------------------------- |  | ----------------------------- |  | ------------------------------------------------------------------------------- |  | --------- | ----- |  | ------------------- |  | ------- | ----- | ------
|Portfolio Company
    (1)(3)                                               |  | Sector                        |  | Type of Investment
    (4)(7)(9)(10)                                            |  | Amount    |       |  | Investments
    (6) |  |         | Value |       
|                                                                           |  |                               |  | Term Loan (10.10% cash (Libor + 7.75%; Floor 9.75%), 6.00% ETP, Due 3/1/22)     |  |           | 2,500 |  |                     |  | 2,477   |       |       
|HealthEdge Software, Inc. (2)(12)                                          |  | Software                      |  | Term Loan (10.60% cash (Libor + 8.25%; Floor 9.25%), 3.00% ETP, Due 7/1/22)     |  |           | 5,000 |  |                     |  | 4,948   |       |       
|                                                                           |  |                               |  | Term Loan (10.60% cash (Libor + 8.25%; Floor 9.25%), 3.00% ETP, Due 1/1/23)     |  |           | 3,750 |  |                     |  | 3,704   |       |       
|                                                                           |  |                               |  | Term Loan (10.60% cash (Libor + 8.25%; Floor 9.25%), 3.00% ETP, Due 4/1/23)     |  |           | 3,750 |  |                     |  | 3,701   |       |       
|                                                                           |  |                               |  | Term Loan (10.69% cash (Libor + 8.25%; Floor 9.25%), 3.00% ETP, Due
    1/1/24) |  |           | 3,750 |  |                     |  | 3,696   |       |       
|Total Non-Affiliate Debt Investments — Healthcare information and services |  |                               |  |                                                                                 |  |           |       |  | 23,482              |  |         |       | 23,482
|Total Non-
    Affiliate Debt Investments                                  |  |                               |  |                                                                                 |  |           |       |  |                     |  | 210,228 |       |       
|                                                                           |  |                               |  |                                                                                 |  |           |       |  |                     |  |         |       |       
|Non-Affiliate Warrant Investments — 6.9% (8)                               |  |                               |  |                                                                                 |  |           |       |  |                     |  |         |       |       
|Non-Affiliate Warrants — Life Science — 1.5% (8)                           |  |                               |  |                                                                                 |  |           |       |  |                     |  |         |       |       
|ACT Biotech Corporation                                                    |  | Biotechnology                 |  | 130,872 Preferred Stock Warrants                                                |  |           |       |  |                     |  | 12      |       |       
|Alpine Immune Sciences, Inc. (5)(12)                                       |  | Biotechnology                 |  | 4,634 Common Stock Warrants                                                     |  |           |       |  |                     |  | 122     |       |       
|Celsion Corporation (2)(5)(12)                                             |  | Biotechnology                 |  | 95,465 Common Stock Warrants                                                    |  |           |       |  |                     |  | 79      |       |       
|Espero BioPharma, Inc. (2)(5)(12)                                          |  | Biotechnology                 |  | 1,506,937 Common Stock Warrants                                                 |  |           |       |  |                     |  | 184     |       |       
|Rocket Pharmaceuticals Corporation (5)(12)                                 |  | Biotechnology                 |  | 7,051 Common Stock Warrants                                                     |  |           |       |  |                     |  | 17      |       |       
|Palatin Technologies, Inc. (2)(5)(12)                                      |  | Biotechnology                 |  | 608,058 Common Stock Warrants                                                   |  |           |       |  |                     |  | 51      |       |       
|Revance Therapeutics, Inc. (5)(12)                                         |  | Biotechnology                 |  | 34,113 Common Stock Warrants                                                    |  |           |       |  |                     |  | 68      |       |       
|Sample6, Inc. (2)(12)                                                      |  | Biotechnology                 |  | 661,956 Preferred Stock Warrants                                                |  |           |       |  |                     |  | 53      |       |       
|Strongbridge U.S. Inc. (2)(5)(12)                                          |  | Biotechnology                 |  | 160,714 Common Stock Warrants                                                   |  |           |       |  |                     |  | 72      |       |       
|Sunesis Pharmaceuticals, Inc. (5)(12)                                      |  | Biotechnology                 |  | 2,050 Common Stock Warrants                                                     |  |           |       |  |                     |  | 5       |       |       
|vTv Therapeutics Inc. (2)(5)(12)                                           |  | Biotechnology                 |  | 95,293 Common Stock Warrants                                                    |  |           |       |  |                     |  | 44      |       |       
|Titan Pharmaceuticals, Inc. (2)(5)(12)                                     |  | Drug Delivery                 |  | 2,240,000 Common Stock Warrants                                                 |  |           |       |  |                     |  | 95      |       |       
|AccuVein Inc. (2)(12)                                                      |  | Medical Device                |  | 1,174,881 Preferred Stock Warrants                                              |  |           |       |  |                     |  | 24      |       |       
|Aerin Medical, Inc. (2)(12)                                                |  | Medical Device                |  | 1,818,182 Preferred Stock Warrants                                              |  |           |       |  |                     |  | 66      |       |       
|Conventus Orthopaedics, Inc. (2)(12)                                       |  | Medical Device                |  | 720,000 Preferred Stock Warrants                                                |  |           |       |  |                     |  | 95      |       |       
|CSA Medical, Inc. (12)                                                     |  | Medical Device                |  | 745,562 Preferred Stock Warrants                                                |  |           |       |  |                     |  | 89      |       |       
|Lantos Technologies, Inc. (2)(12)                                          |  | Medical Device                |  | 1,715,926 Common Stock Warrants                                                 |  |           |       |  |                     |  | 253     |       |       
|MacuLogix, Inc. (2)(12)                                                    |  | Medical Device                |  | 234,742 Preferred Stock Warrants                                                |  |           |       |  |                     |  | 179     |       |       
|Mitralign, Inc. (2)(12)                                                    |  | Medical Device                |  | 64,190 Common Stock Warrants                                                    |  |           |       |  |                     |  | 52      |       |       
|NinePoint Medical, Inc. (2)(12)                                            |  | Medical Device                |  | 29,102 Preferred Stock Warrants                                                 |  |           |       |  |                     |  | 33      |       |       
|ReShape Lifesciences Inc. (5)(12)                                          |  | Medical Device                |  | 121 Common Stock Warrants                                                       |  |           |       |  |                     |  | 341     |       |       
|Tryton Medical, Inc. (2)(12)                                               |  | Medical Device                |  | 122,362 Preferred Stock Warrants                                                |  |           |       |  |                     |  | 15      |       |       
|VERO Biotech LLC (2)(12)                                                   |  | Medical Device                |  | 800 Common Stock Warrants                                                       |  |           |       |  |                     |  | 53      |       |       
|Total Non-Affiliate Warrants — Life Science                                |  |                               |  |                                                                                 |  |           |       |  | 2,002               |  |         |       | 1,909 
|Non-Affiliate Warrants — Technology — 4.8% (8)                             |  |                               |  |                                                                                 |  |           |       |  |                     |  |         |       |       
|Audacy Corporation (2)(12)                                                 |  | Communications                |  | 1,545,575 Preferred Stock Warrants                                              |  |           |       |  |                     |  | 194     |       |       
|Intelepeer Holdings, Inc. (2)(12)                                          |  | Communications                |  | 1,171,549 Preferred Stock Warrants                                              |  |           |       |  |                     |  | 94      |       |       
|PebblePost, Inc. (2)(12)                                                   |  | Communications                |  | 598,850 Preferred Stock Warrants                                                |  |           |       |  |                     |  | 92      |       |       
|Food52, Inc. (2)(12)                                                       |  | Consumer-related Technologies |  | 102,941 Preferred Stock Warrants                                                |  |           |       |  |                     |  | 104     |       |       
|Gwynnie Bee, Inc. (2)(12)                                                  |  | Consumer-related Technologies |  | 268,591 Preferred Stock Warrants                                                |  |           |       |  |                     |  | 68      |       |       
|Le Tote, Inc. (2)(12)                                                      |  | Consumer-related Technologies |  | 202,974 Preferred Stock Warrants                                                |  |           |       |  |                     |  | 63      |       |       
|Mohawk Group Holdings, Inc. (2)(12)                                        |  | Consumer-related Technologies |  | 300,000 Common Stock Warrants                                                   |  |           |       |  |                     |  | 195     |       |       
|Rhapsody International Inc. (2)(12)                                        |  | Consumer-related Technologies |  | 852,273 Common Stock Warrants                                                   |  |           |       |  |                     |  | 164     |       |       
|Kaminario, Inc. (2)(12)                                                    |  | Data Storage                  |  | 9,981,346 Preferred Stock Warrants                                              |  |           |       |  |                     |  | 124     |       |       
|IgnitionOne, Inc. (2)(12)                                                  |  | Internet and Media            |  | 262,910 Preferred Stock Warrants                                                |  |           |       |  |                     |  | 672     |       |       
|Jump Ramp Games, Inc. (2)(12)                                              |  | Internet and Media            |  | 159,766 Preferred Stock Warrants                                                |  |           |       |  |                     |  | 32      |       |       
|Kixeye, Inc. (2)(12)                                                       |  | Internet and Media            |  | 791,251 Preferred Stock Warrants                                                |  |           |       |  |                     |  | 75      |       |       
|Rocket Lawyer Incorporated (2)(12)                                         |  | Internet and Media            |  | 261,721 Preferred Stock Warrants                                                |  |           |       |  |                     |  | 92      |       |       
|Verve Wireless, Inc. (2)(12)                                               |  | Internet and Media            |  | 112,805 Common Stock Warrants                                                   |  |           |       |  |                     |  | 120     |       |       
|The NanoSteel Company, Inc. (2)(12)                                        |  | Materials                     |  | 467,277 Preferred Stock Warrants                                                |  |           |       |  |                     |  | 233     |       |       
|Powerhouse Dynamics, Inc. (2)(12)                                          |  | Power Management              |  | 348,838 Preferred Stock Warrants                                                |  |           |       |  |                     |  | 33      |       |       
|Avalanche Technology, Inc. (2)(12)                                         |  | Semiconductors                |  | 202,602 Preferred Stock Warrants                                                |  |           |       |  |                     |  | 101     |       |       
|Luxtera, Inc. (2)(12)                                                      |  | Semiconductors                |  | 3,546,553 Preferred Stock Warrants                                              |  |           |       |  |                     |  | 213     |       |       
|Soraa, Inc. (2)(12)                                                        |  | Semiconductors                |  | 203,616 Preferred Stock Warrants                                                |  |           |       |  |                     |  | 80      |       |       





See Notes to Consolidated Financial Statements



102









Horizon Technology Finance Corporation
and Subsidiaries



Consolidated Schedule of Investments

December 31, 2018

(In thousands)





|                                                                            |  |                               |  |                                               |  | Principal |         |  | Cost of             |   |         | Fair  |      
|--------------------------------------------------------------------------- |  | ----------------------------- |  | --------------------------------------------- |  | --------- | ------- |  | ------------------- | - | ------- | ----- | -----
|Portfolio Company
    (1)(3)                                                |  | Sector                        |  | Type of Investment
    (4)(7)(9)(10)          |  | Amount    |         |  | Investments
    (6) |   |         | Value |      
|Bolt Solutions Inc. (2)(12)                                                 |  | Software                      |  | 202,892 Preferred Stock Warrants              |  |           |         |  |                     |   | 113     |       |      
|Bridge2 Solutions, Inc. (2)(12)                                             |  | Software                      |  | 125,458 Common Stock Warrants                 |  |           |         |  |                     |   | 432     |       |      
|BSI Platform Holdings, LLC (2)(12)(13)                                      |  | Software                      |  | 137,500 Preferred Stock Warrants              |  |           |         |  |                     |   | 19      |       |      
|Clarabridge, Inc. (12)                                                      |  | Software                      |  | 53,486 Preferred Stock Warrants               |  |           |         |  |                     |   | 14      |       |      
|Education Elements, Inc. (2)(12)                                            |  | Software                      |  | 238,121 Preferred Stock Warrants              |  |           |         |  |                     |   | 28      |       |      
|Lotame Solutions, Inc. (2)(12)                                              |  | Software                      |  | 288,115 Preferred Stock Warrants              |  |           |         |  |                     |   | 22      |       |      
|Metricly, Inc. (12)                                                         |  | Software                      |  | 41,569 Common Stock Warrants                  |  |           |         |  |                     |   | 48      |       |      
|Riv Data Corp. (2)(12)                                                      |  | Software                      |  | 321,428 Preferred Stock Warrants              |  |           |         |  |                     |   | 12      |       |      
|ShopKeep.com, Inc. (2)(12)                                                  |  | Software                      |  | 193,962 Preferred Stock Warrants              |  |           |         |  |                     |   | 118     |       |      
|SIGNiX, Inc. (12)                                                           |  | Software                      |  | 133,560 Preferred Stock Warrants              |  |           |         |  |                     |   | 225     |       |      
|Skyword, Inc. (12)                                                          |  | Software                      |  | 301,056 Preferred Stock Warrants              |  |           |         |  |                     |   | 48      |       |      
|Sys-Tech Solutions, Inc. (2)(12)                                            |  | Software                      |  | 375,000 Preferred Stock Warrants              |  |           |         |  |                     |   | 242     |       |      
|Weblinc Corporation (2)(12)                                                 |  | Software                      |  | 195,122 Preferred Stock Warrants              |  |           |         |  |                     |   | 42      |       |      
|xAd, Inc. (2)(12)                                                           |  | Software                      |  | 4,343,350 Preferred Stock
    Warrants        |  |           |         |  |                     |   | 177     |       |      
|Total Non-Affiliate Warrants — Technology                                   |  |                               |  |                                               |  |           |         |  | 4,289               |   |         |       | 6,634
|Non-Affiliate Warrants —
    Sustainability — 0.1% (8)                      |  |                               |  |                                               |  |           |         |  |                     |   |         |      
|Renmatix, Inc. (2)(12)                                                      |  | Alternative Energy            |  | 53,022 Preferred Stock Warrants               |  |           |         |  |                     |   | 68      |       |      
|Tigo Energy, Inc. (2)(12)                                                   |  | Energy Efficiency             |  | 804,604 Preferred Stock Warrants              |  |           |         |  |                     |   | 100     |       |      
|Total Non-Affiliate Warrants — Sustainability                               |  |                               |  |                                               |  |           |         |  | 168                 |   |         |       | 112  
|Non-Affiliate
    Warrants — Healthcare information and services — 0.5% (8) |  |                               |  |                                               |  |           |         |  |                     |   |         |      
|LifePrint Group, Inc. (2)(12)                                               |  | Diagnostics                   |  | 49,000 Preferred Stock Warrants               |  |           |         |  |                     |   | 29      |       |      
|ProterixBio, Inc. (2)(12)                                                   |  | Diagnostics                   |  | 2,676 Common Stock Warrants                   |  |           |         |  |                     |   | 42      |       |      
|Singulex, Inc. (12)                                                         |  | Other Healthcare              |  | 294,231 Preferred Stock Warrants              |  |           |         |  |                     |   | 44      |       |      
|Verity Solutions Group, Inc. (12)                                           |  | Other Healthcare              |  | 300,360 Preferred Stock Warrants              |  |           |         |  |                     |   | 100     |       |      
|Watermark Medical, Inc. (2)(12)                                             |  | Other Healthcare              |  | 27,373 Preferred Stock Warrants               |  |           |         |  |                     |   | 74      |       |      
|HealthEdge Software, Inc. (2)(12)                                           |  | Software                      |  | 205,481 Preferred Stock Warrants              |  |           |         |  |                     |   | 83      |       |      
|Medsphere Systems Corporation (2)(12)                                       |  | Software                      |  | 7,097,792 Preferred Stock Warrants            |  |           |         |  |                     |   | 60      |       |      
|Recondo Technology, Inc. (2)(12)                                            |  | Software                      |  | 556,796 Preferred Stock Warrants              |  |           |         |  |                     |   | 95      |       |      
|Total Non-Affiliate Warrants — Healthcare information and services          |  |                               |  |                                               |  |           |         |  | 527                 |   |         |       | 669  
|Total Non-Affiliate
    Warrants                                            |  |                               |  |                                               |  |           |         |  |                     |   | 6,986   |       |      
|                                                                            |  |                               |  |                                               |  |           |         |  |                     |   |         |       |      
|Non-Affiliate
    Other Investments — 5.7% (8)                              |  |                               |  |                                               |  |           |         |  |                     |   |         |      
|Espero Pharmaceuticals, Inc. (12)                                           |  | Biotechnology                 |  | Royalty Agreement                             |  |           |         |  |                     |   | 5,300   |       |      
|ZetrOZ, Inc. (12)                                                           |  | Medical Device                |  | Royalty Agreement                             |  |           |         |  |                     |   | 142     |       |      
|Vette Technology, LLC (12)                                                  |  | Data Storage                  |  | Royalty Agreement Due 4/18/2019               |  |           |         |  |                     |   | 4,173   |       |      
|Triple Double Holdings, LLC
    (12)                                        |  | Software                      |  | License Agreement                             |  |           |         |  |                     |   | 2,200   |       |      
|Total Non-Affiliate Other Investments                                       |  |                               |  |                                               |  |           |         |  | 11,815              |   |         |       | 7,640
|                                                                            |  |                               |  |                                               |  |           |         |  |                     |   |         |       |      
|Non-Affiliate Equity —
    0.7% (8)                                         |  |                               |  |                                               |  |           |         |  |                     |   |         |       |      
|Insmed Incorporated (5)                                                     |  | Biotechnology                 |  | 33,208 Common Stock                           |  |           |         |  |                     |   | 238     |       |      
|Revance Therapeutics, Inc.(5)                                               |  | Biotechnology                 |  | 5,125 Common Stock                            |  |           |         |  |                     |   | 73      |       |      
|Sunesis Pharmaceuticals, Inc. (5)                                           |  | Biotechnology                 |  | 13,082 Common Stock                           |  |           |         |  |                     |   | 83      |       |      
|SnagAJob.com, Inc. (12)                                                     |  | Consumer-related Technologies |  | 82,974 Common Stock                           |  |           |         |  |                     |   | 9       |       |      
|Verve Wireless, Inc. (2)(12)                                                |  | Internet and Media            |  | 100,598 Preferred Stock                       |  |           |         |  |                     |   | 225     |       |      
|Formetrix, Inc. (2)(12)                                                     |  | Materials                     |  | 74,286 Common Stock                           |  |           |         |  |                     |   | 74      |       |      
|TruSignal, Inc. (12)                                                        |  | Software                      |  | 32,637 Common Stock                           |  |           |         |  |                     |   | 41      |       |      
|Total Non-Affiliate
    Equity                                              |  |                               |  |                                               |  |           |         |  |                     |   | 743     |       |      
|Total
    Non-Affiliate Portfolio Investment Assets                         |  |                               |  |                                               |  | $         | 229,772 |  |                     | $ | 227,624 |      
|                                                                            |  |                               |  |                                               |  |           |         |  |                     |   |         |       |      
|Non-controlled Affiliate
    Investments — 5.6% (8)                         |  |                               |  |                                               |  |           |         |  |                     |   |         |      
|Non-controlled Affiliate
    Debt Investments — Technology — 5.0% (8)       |  |                               |  |                                               |  |           |         |  |                     |   |         |      
|Decisyon, Inc. (12)                                                         |  | Software                      |  | Term Loan (14.66% cash (Libor + 12.31%; Floor |  | $         | 1,523   |  |                     | $ | 1,522   |       |      
|                                                                            |  |                               |  | 12.50%), 8.00% ETP, Due 12/1/20)              |  |           |         |  |                     |   |         |       |      
|                                                                            |  |                               |  | Term Loan (14.66% cash (Libor + 12.31%; Floor |  |           | 833     |  |                     |   | 795     |       |      
|                                                                            |  |                               |  | 12.50%), 8.00% ETP, Due 12/1/20)              |  |           |         |  |                     |   |         |       |      
|                                                                            |  |                               |  | Term Loan (12.02% cash, Due 12/31/19)         |  |           | 250     |  |                     |   | 250     |       |      
|                                                                            |  |                               |  | Term Loan (12.03% cash, Due 12/31/19)         |  |           | 250     |  |                     |   | 250     |       |      
|                                                                            |  |                               |  | Term Loan (12.24% cash, Due 12/31/19)         |  |           | 750     |  |                     |   | 750     |       |      
|                                                                            |  |                               |  | Term Loan (13.08% cash, Due 12/31/19)         |  |           | 300     |  |                     |   | 300     |       |      
|                                                                            |  |                               |  | Term Loan (13.10% cash, Due 12/31/19)         |  |           | 200     |  |                     |   | 200     |       |      



See Notes to Consolidated Financial Statements



103









Horizon Technology Finance Corporation
and Subsidiaries



Consolidated Schedule of Investments

December 31, 2018

(In thousands)





|                                                                 |  |          |  |                                                                                         |  | Principal |         |  | Cost of             |   |         | Fair  | 
|---------------------------------------------------------------- |  | -------- |  | --------------------------------------------------------------------------------------- |  | --------- | ------- |  | ------------------- | - | ------- | ----- | 
|Portfolio
    Company (1)(3)                                     |  | Sector   |  | Type
    of Investment (4)(7)(9)(10)                                                    |  | Amount    |         |  | Investments
    (6) |   |         | Value | 
|StereoVision Imaging, Inc. (12)                                  |  | Software |  | Term Loan (9.38% Cash (Libor + 7.03%;
    Floor 8.50%), 8.50% ETP, Due 9/1/21)
    (11) |  |           | 3,200   |  |                     |   | 2,798   |       | 
|Total Non-controlled
    Affiliate Debt Investments — Technology |  |          |  |                                                                                         |  |           | 6,865   |  |                     |   | 6,708   |      
|                                                                 |  |          |  |                                                                                         |  |           |         |  |                     |   |         |       | 
|Non-controlled Affiliate
    Warrants — Technology — 0.0% (8)    |  |          |  |                                                                                         |  |           |         |  |                     |   |         |      
|Decisyon, Inc. (12)                                              |  | Software |  | 82,967 Common Stock Warrants                                                            |  |           |         |  |                     |   | 46      |       | 
|Total Non-controlled
    Affiliate Warrants — Technology         |  |          |  |                                                                                         |  |           | 46      |  |                     |   | —       |      
|                                                                 |  |          |  |                                                                                         |  |           |         |  |                     |   |         |       | 
|Non-controlled Affiliate
    Equity — Technology — 0.6% (8)      |  |          |  |                                                                                         |  |           |         |  |                     |   |         |      
|Decisyon, Inc. (12)                                              |  | Software |  | 45,365,936 Common Stock                                                                 |  |           |         |  |                     |   | 185     |       | 
|StereoVision Imaging, Inc.
    (12)                              |  | Software |  | 1,943,572 Common Stock                                                                  |  |           |         |  |                     |   | 791     |       | 
|Total
    Non-controlled Affiliate Equity                        |  |          |  |                                                                                         |  |           | 976     |  |                     |   | 866     |      
|Total
    Non-controlled Affiliate Portfolio Investment Assets   |  |          |  |                                                                                         |  | $         | 7,887   |  |                     | $ | 7,574   |      
|                                                                 |  |          |  |                                                                                         |  |           |         |  |                     |   |         |       | 
|                                                                 |  |          |  |                                                                                         |  |           |         |  |                     |   |         |       | 
|Controlled Affiliate
    Investments — 9.9% (8)                  |  |          |  |                                                                                         |  |           |         |  |                     |   |         |      
|Controlled Affiliate
    Equity — Financial — 9.9% (8)           |  |          |  |                                                                                         |  |           |         |  |                     |   |         |      
|Horizon Secured
    Loan Fund I LLC (12)(14) Investment funds    |  |          |  |                                                                                         |  | $         | 13,262  |  |                     | $ | 13,243  |      
|Total Controlled
    Affiliate Equity                            |  |          |  |                                                                                         |  |           |         |  |                     |   | 13,262  |       | 
|Total
    Controlled Affiliate Portfolio Investment Assets       |  |          |  |                                                                                         |  | $         | 13,262  |  |                     | $ | 13,243  |      
|                                                                 |  |          |  |                                                                                         |  |           |         |  |                     |   |         |       | 
|Total
    Portfolio Investment Assets — 185.1% (8)               |  |          |  |                                                                                         |  | $         | 250,921 |  |                     | $ | 248,441 |      








|(1)  | All investments of the Company are in entities which are organized under the laws of the United States and have a principal place of business in the United States.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|---- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|(2)  | Has been pledged as collateral under the Key Facility.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|(3)  | All non-affiliate investments are investments in which the Company owns less than 5% of the voting securities of the portfolio company. All non-controlled affiliate investments are investments in which the Company owns 5% or more of the voting securities of the portfolio company but not more than 25% of the voting securities of the portfolio company. All controlled affiliate investments are investments in which the Company owns more than 25% of the portfolio company’s outstanding voting securities or has the power to exercise control over management or policies of such portfolio company (including through a management agreement).
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|(4)  | All interest is payable in cash due monthly in arrears, unless otherwise indicated, and applies only to the Company’s debt investments. Interest rate is the annual interest rate on the debt investment and does not include ETPs, and any additional fees related to the investments, such as deferred interest, commitment fees or prepayment fees. Debt investments are at variable rates for the term of the debt investment, unless otherwise indicated. All debt investments based on the LIBOR are based on one-month LIBOR. For each debt investment, the current interest rate in effect as of December 31, 2018 is provided.                      
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|(5)  | Portfolio company is a public company.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|(6)  | For debt investments, represents principal balance less unearned income.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|(7)  | Warrants, Equity and Other Investments are non-income producing.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|(8)  | Value as a percent of net assets.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|(9)  | As of December 31, 2018, 5.0% of the Company’s total investments on a cost and fair value basis are in non-qualifying assets. Under the 1940 Act, the Company may not acquire any non-qualifying assets unless, at the time the acquisition is made, qualifying assets represent at least 70% of the Company’s total assets.                                                                                                                                                                                                                                                                                                                                 
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|(10) | ETPs are contractual fixed-interest payments due in cash at the maturity date of the applicable debt investment, including upon any prepayment, and are a fixed percentage of the original principal balance of the debt investments unless otherwise noted. Interest will accrue during the life of the debt investment on each ETP and will be recognized as non-cash income until it is actually paid. Therefore, a portion of the incentive fee the Company may pay its Advisor will be based on income that the Company has not yet received in cash.                                                                                                   
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|(11) | Debt investment has a PIK feature.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|(12) | The fair value of the investment was valued using significant unobservable inputs.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|(13) | New Signature US, Inc. is a subsidiary of BSI Platform Holdings, LLC.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|(14) | On June 1, 2018, the Company entered into an agreement with Arena to co-invest through HSLFI, a joint venture, which is expected to make investments, either directly or indirectly through subsidiaries, primarily in the form of secured loans to development-stage companies in the technology, life science, healthcare information and services and sustainability industries.  All HSLFI investment decisions require unanimous approval of a quorum of HSLFI’s board of managers. Although the Company owns more than 25% of the voting securities of HSLFI, the Company does not believe it controls HSLFI for purposes of the 1940 Act or otherwise.



See Notes to Consolidated Financial Statements





104











Horizon Technology Finance Corporation
and Subsidiaries



Notes to Consolidated Financial Statements





|Note 1. | Organization
|------- | ------------



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



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



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



The Company formed
Horizon Funding 2019-1 LLC (“2019-1 LLC”) as a Delaware limited liability company on May 2, 2019 and Horizon Funding
Trust 2019-1 on May 15, 2019 (“2019-1 Trust” and, together with the 2019-1 LLC, the “2019-1 Entities”). The
2019-1 Entities are special purpose bankruptcy remote entities and are separate legal entities from the Company. The Company formed
the 2019-1 Entities for purposes of securitizing $160.0 million of secured loans and issuing the Asset-Backed Notes.



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



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



|Note 2. | Basis of presentation and significant accounting policies
|------- | ---------------------------------------------------------



The consolidated financial
statements of the Company have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”)
and pursuant to the requirements for reporting on Form 10-K and Articles 6 and 10 of Regulation S-X (“Regulation
S-X”) under the Securities Act of 1933, as amended (the “Securities Act”). In the opinion of management, the
consolidated financial statements reflect all adjustments and reclassifications that are necessary for the fair presentation of
financial results as of and for the periods presented. All intercompany balances and transactions have been eliminated.



Principles of consolidation



As required
under GAAP and Regulation S-X, the Company will generally consolidate its investment in a company that is an investment
company subsidiary or a controlled operating company whose business consists of providing services to the Company.
Accordingly, the Company consolidated the results of the Company’s wholly-owned subsidiaries in its consolidated
financial statements. Although the Company owns more than 25% of the voting securities of HSLFI, the Company does not have
sole control over significant actions of HSLFI for purposes of the 1940 Act or otherwise, and thus does not consolidate its
interest.





105









Horizon Technology Finance Corporation
and Subsidiaries



Notes to Consolidated Financial Statements





Assets related to
transactions that do not meet Accounting Standards Codification (“ASC”) Topic 860, Transfers and Servicing requirements
for accounting sale treatment are reflected in the Company’s Consolidated Statements of Financial Condition as investments.
Those assets are owned by special purpose entities, including 2019-1 Entities that are consolidated in the Company’s consolidated
financial statements. The creditors of the special purpose entities have received security interests in such assets and such assets
are not intended to be available to the creditors of the Company (or any affiliate of the Company).



Use of estimates



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



Fair value



The Company records
all of its investments at fair value in accordance with relevant GAAP, which establishes a framework used to measure fair value
and requires disclosures for fair value measurements. The Company has categorized its investments carried at fair value, based
on the priority of the valuation technique, into a three-level fair value hierarchy as more fully described in Note 6. Fair value
is a market-based measure considered from the perspective of the market participant who holds the financial instrument rather than
an entity specific measure. Therefore, when market assumptions are not readily available, the Company’s own assumptions are
set to reflect those that management believes market participants would use in pricing the financial instrument at the measurement
date.



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



See Note
6 for additional information regarding fair value.



Segments



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



Investments



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





106









Horizon Technology Finance Corporation
and Subsidiaries



Notes to Consolidated Financial Statements



Interest on debt
investments is accrued and included in income based on contractual rates applied to principal amounts outstanding. Interest income
is determined using a method that results in a level rate of return on principal amounts outstanding. Generally, when a debt investment
becomes 90 days or more past due, or if the Company otherwise does not expect to receive interest and principal repayments,
the debt investment is placed on non-accrual status and the recognition of interest income may be discontinued. Interest payments
received on non-accrual debt investments may be recognized as income, on a cash basis, or applied to principal depending upon
management’s judgment at the time the debt investment is placed on non-accrual status. As of December 31, 2019, there were
two investments on non-accrual status with a cost of $5.7 million and a fair value of $2.0 million. As of December 31, 2018, there
were no debt investments on non-accrual status. For the years ended December 31, 2019 and 2018, the Company did not recognize
any interest income from debt investments on non-accrual status. For the year ended December 31, 2017, the Company recognized,
as interest income, payments of $0.1 million 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
deposit earned upon the termination of a transaction. Debt investment origination fees, net of certain direct origination costs,
are deferred and, along with unearned income, are amortized as a level-yield adjustment over the respective term of the debt investment.
All other income is recognized when earned. Fees for counterparty debt investment commitments with multiple debt investments are
allocated to each debt investment based upon each debt investment’s relative fair value. When a debt investment is placed
on non-accrual status, the amortization of the related fees and unearned income is discontinued until the debt investment is returned
to accrual status.



Certain debt investment
agreements also require the borrower to make an ETP, that is accrued into interest receivable and taken into income over the life
of the debt investment to the extent such amounts are expected to be collected. The Company will generally cease accruing the income
if there is insufficient value to support the accrual or the Company does not expect the borrower to be able to pay the ETP when
due. The proportion of the Company’s total investment income that resulted from the portion of ETPs not received in cash
for the years ended December 31, 2019, 2018 and 2017 was 5.3%, 6.5% and 6.0%, respectively.



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



Distributions from
HSLFI are evaluated at the time of distribution to determine if the distribution should be recorded as dividend income or a return
of capital. Generally, the Company will not record distributions from HSLFI as dividend income unless there are sufficient accumulated
tax-basis earnings and profit in HSLFI prior to distribution. Distributions that are classified as a return of capital are recorded
as a reduction in the cost basis of the investment. For the year ended December 31, 2019, HSLFI distributed $0.7 million classified
as dividend income to the Company. For the period June 1, 2018 (the commencement of HSLFI’s operations) through December
31, 2018, HSLFI distributed $0.3 million classified as dividend income to the Company.



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



Debt issuance costs



Debt issuance costs
are fees and other direct incremental costs incurred by the Company in obtaining debt financing from its lenders and issuing debt
securities. The unamortized balance of debt issuance costs as of December 31, 2019 and 2018 was $3.3 million and $2.2 million,
respectively. These amounts are amortized and included in interest expense in the consolidated
statements of operations over the life of the borrowings. The accumulated amortization balances as of December 31, 2019 and 2018
were $3.1 million and $2.4 million, respectively. The amortization expense for the years ended December 31, 2019, 2018 and 2017
was $0.7 million, $0.6 million and $0.8 million, respectively.





107









Horizon Technology Finance Corporation
and Subsidiaries



Notes to Consolidated Financial Statements



Income taxes



As a BDC, the Company
has elected to be treated as a RIC under Subchapter M of the Code and operates in a manner so as to qualify for the tax treatment
applicable to RICs. In order to qualify as a RIC and to avoid the imposition of corporate-level income tax on the portion of its
taxable income distributed to stockholders, among other things, the Company is required to meet certain source of income and asset
diversification requirements and to timely distribute dividends out of assets legally available for distribution to its stockholders
of an amount generally at least equal to 90% of its investment company taxable income, as defined by the Code and determined without
regard to any deduction for dividends paid, for each tax year. The Company, among other things, has made and intends to continue
to make the requisite distributions to its stockholders, which generally relieves the Company from corporate-level U.S. federal
income taxes. Accordingly, no provision for federal income tax has been recorded in the financial statements. Differences between
taxable income and net increase in net assets resulting from operations either can be temporary, meaning they will reverse in the
future, or permanent. In accordance with ASC Topic 946, Financial Services—Investment Companies, as amended,
of the Financial Accounting Standards Board’s (“FASB’s”), permanent tax differences, such as non-deductible
excise taxes paid, are reclassified from distributions in excess of net investment income and net realized loss on investments
to paid-in-capital at the end of each fiscal year. These permanent book-to-tax differences are reclassified on the consolidated
statements of changes in net assets to reflect their tax character but have no impact on total net assets. For the years ended
December 31, 2019, 2018 and 2017, the Company reclassified $0.2 million, $0.03 million and $0.03 million, respectively, to paid-in
capital from distributions in excess of net investment income, which related to excise taxes payable.



Depending on the level
of taxable income earned in a tax year, the Company may choose to carry forward taxable income in excess of current year distributions
into the next tax year and incur a 4% U.S. federal excise tax on such income, as required. To the extent that the Company determines
that its estimated current year annual taxable income will be in excess of estimated current year distributions, the Company accrues
excise tax, if any, on estimated excess taxable income as taxable income is earned. For the years ended December 31, 2019, 2018
and 2017, $0.2 million, $0.03 million and $0.03 million, respectively, was recorded for U.S. federal excise tax.



The Company evaluates
tax positions taken in the course of preparing the Company’s tax returns to determine whether the tax positions are “more-likely-than-not”
to be sustained by the applicable tax authority in accordance with ASC Topic 740, Income Taxes, as modified by ASC Topic
946. Tax benefits of positions not deemed to meet the more-likely-than-not threshold, or uncertain tax positions, would be recorded
as a tax expense in the current year. It is the Company’s policy to recognize accrued interest and penalties related to uncertain
tax benefits in income tax expense. The Company had no material uncertain tax positions at December 31, 2019 and 2018. The Company’s
income tax returns for the 2018, 2017 and 2016 tax years remain subject to examination by U.S. federal and state tax authorities.



Distributions



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



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



108









Horizon Technology Finance Corporation
and Subsidiaries



Notes to Consolidated Financial Statements



Stockholders’ Equity



On March 26, 2019,
the Company completed a follow-on public offering of 2,000,000 shares of its common stock at a public offering price of $12.14
per share, for total net proceeds to the Company of $23.1 million, after deducting underwriting commission and discounts and other
offering expenses.



On August 2, 2019
the Company entered into an At-The-Market (“ATM”) sales agreement (the “Equity Distribution Agreement”),
with Goldman Sachs & Co. LLC and B. Riley FBR, Inc. (each a “Sales Agent” and, collectively, the “Sales Agents”).
The Equity Distribution Agreement provides that Horizon may offer and sell its shares from time to time through the Sales Agents
up to $50.0 million worth of its common stock, in amounts and at times to be determined by the Company. Sales of the Company’s
common stock, if any, may be made in negotiated transactions or transactions that are deemed to be “at-the-market,”
as defined in Rule 415 under the Securities Act, including sales made directly on the NASDAQ or similar securities exchange or
sales made to or through a market maker other than on an exchange, at prices related to the prevailing market prices or at negotiated
prices.



During the year ended
December 31, 2019, the Company sold 2,012,844 shares of common stock under the Equity Distribution Agreement. For the same period,
the Company received total accumulated net proceeds of approximately $24.0 million, including $0.6 million of offering expenses,
from these sales.



The Company generally
uses net proceeds from these offerings to make investments, to pay down liabilities and for general corporate purposes. As
of December 31, 2019, shares representing approximately $25.4 million of its common stock remain available for issuance
and sale under the Equity Distribution Agreement. See Note 12 – Subsequent Events.



Stock Repurchase Program



On April 26, 2019,
the Board extended a previously authorized stock repurchase program which allows the Company to repurchase up to $5.0 million of
its common stock at prices below the Company’s net asset value per share as reported in its most recent consolidated financial
statements. Under the repurchase program, the Company may, but is not obligated to, repurchase shares of its outstanding common
stock in the open market or in privately negotiated transactions from time to time. Any repurchases by the Company will comply
with the requirements of Rule 10b-18 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and
any applicable requirements of the 1940 Act. Unless extended by the Board, the repurchase program will terminate on the earlier
of June 30, 2020 or the repurchase of $5.0 million of the Company’s common stock. During the years ended December 31, 2019
and 2018, the Company did not repurchase any shares of its common stock. During the year ended December 31, 2017, the Company repurchased
5,923 shares of its common stock at an average price of $9.97 on the open market at a total cost of $0.1 million. From the inception
of the stock repurchase program through December 31, 2019, the Company repurchased 167,465 shares of its common stock at an average
price of $11.22 on the open market at a total cost of $1.9 million.



Transfers of financial assets



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



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





109







Horizon Technology Finance Corporation
and Subsidiaries



Notes to Consolidated Financial Statements



Recently adopted accounting pronouncement



In July 2019, the
FASB issued Accounting Standards Update 2019-07, Codification Updates to SEC Sections: Amendments to SEC Paragraphs Pursuant to
SEC Final Rule Releases No. 33-10532, Disclosure Update and Simplification, and Nos. 33-10231 and 33-10442, Investment Company
Reporting Modernization, and Miscellaneous Updates which amends the codification to reflect changes adopted by the SEC. The SEC
adopted final rules that amend certain disclosure requirements that were redundant, duplicative, overlapping, outdated or superseded.
The Company has adopted these amendments and the changes are reflected in its consolidated financial statements. Certain prior
year information has been adjusted to conform to these amendments.



|Note 3. | Related party transactions
|------- | --------------------------



Investment Management Agreement



At a special meeting
of the stockholders on October 30, 2018, the stockholders approved a new Investment Management Agreement which became effective
on March 7, 2019. The new Investment Management Agreement replaced the previously effective Amended and Restated Investment Management
Agreement dated as of October 28, 2010 and amended effective July 1, 2014. Under the terms of the Investment Management Agreement,
the Advisor determines the composition of the Company’s investment portfolio, the nature and timing of the changes to the
investment portfolio and the manner of implementing such changes; identifies, evaluates and negotiates the structure of the investments
the Company makes (including performing due diligence on the Company’s prospective portfolio companies); and closes, monitors
and administers the investments the Company makes, including the exercise of any voting or consent rights.



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



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



The base management
fee payable at December 31, 2019 and 2018 was $0.5 million and $0.4 million, respectively. The base management fee expense was
$5.6 million, $4.6 million and $3.8 million for the years ended December 31, 2019, 2018 and 2017, respectively.



The incentive fee
has two parts, as follows:





110







Horizon Technology Finance Corporation
and Subsidiaries



Notes to Consolidated Financial Statements



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



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



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



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





111







Horizon Technology Finance Corporation
and Subsidiaries



Notes to Consolidated Financial Statements



On March 5, 2019,
the Advisor irrevocably waived the receipt of incentive fees related to the amounts previously deferred that it may be entitled
to receive under the Investment Management Agreement for the period commencing on January 1, 2019 and ending on December 31, 2019.
Such waived incentive fees will not be subject to recoupment. During the year ended December 31, 2019, the Advisor waived performance
based incentive fees of $1.8 million which the Advisor would have otherwise been paid by the Company.



On March 6, 2018,
the Advisor irrevocably waived the receipt of incentive fees related to the amounts previously deferred that it may be entitled
to receive under the Investment Management Agreement for the period commencing on January 1, 2018 and ending on December 31, 2018.
Such waived incentive fees are not subject to recoupment. During the years ended December 31, 2018 and 2017, the Advisor waived
performance based incentive fees of $1.2 million and $0.1 million, respectively, which the Advisor would have otherwise earned.



The net performance
based incentive fee expense was $5.1 million, $3.2 million and $1.6 million for the years ended December 31, 2019, 2018 and 2017,
respectively. The incentive fee on Pre-Incentive Fee Net Investment Income was not subject to the Incentive Fee Cap and Deferral
Mechanism for the year ended December 31, 2019. The incentive fee on Pre-Incentive Fee Net Investment Income was subject to the
Incentive Fee Cap and Deferral Mechanism for the years ended December 31, 2018 and 2017, which resulted in $0.2 million and $1.1
million, respectively, of reduced expense and additional net investment income. The performance based incentive fee payable at
December 31, 2019 and 2018 was $1.6 million and $1.0 million, respectively. The entire incentive fee payable at December 31, 2019
and 2018 represented part one of the incentive fee.



Administration Agreement



The Company entered
into an administration agreement (the “Administration Agreement”) with the Advisor to provide administrative services
to the Company. For providing these services, facilities and personnel, the Company reimburses the Advisor for the Company’s
allocable portion of overhead and other expenses incurred by the Advisor in performing its obligations under the Administration
Agreement, including rent, the fees and expenses associated with performing compliance functions and the Company’s allocable
portion of the costs of compensation and related expenses of the Company’s Chief Financial Officer and Chief Compliance Officer
and their respective staffs. The administrative fee expense was $0.9 million, $0.7 million and $0.7 million for the years ended
December 31, 2019, 2018 and 2017, respectively.



|Note 4. | Investments
|------- | -----------



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



|                         |  | December 31, 2019 |         |  | December 31, 2018 |  
|------------------------ |  | ----------------- | ------- |  | ----------------- | -
|                         |  | Cost              |         |  | Fair Value        |  
|                         |  |                   |         |  | (In thousands)    |  
|Investments              |  |                   |         |  |                   |  
|Debt                     |  | $                 | 292,054 |  |                   | $
|Warrants                 |  |                   | 8,322   |  |                   |  
|Other                    |  |                   | 61      |  |                   |  
|Equity                   |  |                   | 1,710   |  |                   |  
|Equity interest in HSLFI |  |                   | 16,684  |  |                   |  
|Total investments        |  | $                 | 318,831 |  |                   | $



112







Horizon Technology Finance Corporation
and Subsidiaries



Notes to Consolidated Financial Statements



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



|                                    |  | December 31, 2019 |         |  | December 31, 2018 |  
|----------------------------------- |  | ----------------- | ------- |  | ----------------- | -
|                                    |  | Cost              |         |  | Fair Value        |  
|                                    |  |                   |         |  | (In thousands)    |  
|Life Science                        |  |                   |         |  |                   |  
|Biotechnology                       |  | $                 | 42,886  |  |                   | $
|Drug Delivery                       |  |                   | 1,628   |  |                   |  
|Medical Device                      |  |                   | 60,660  |  |                   |  
|Technology                          |  |                   |         |  |                   |  
|Communications                      |  |                   | 4,561   |  |                   |  
|Consumer-Related                    |  |                   | 43,412  |  |                   |  
|Data Storage                        |  |                   | 24,928  |  |                   |  
|Internet and Media                  |  |                   | 24,089  |  |                   |  
|Materials                           |  |                   | 8,717   |  |                   |  
|Power Management                    |  |                   | 11,813  |  |                   |  
|Semiconductors                      |  |                   | 181     |  |                   |  
|Software                            |  |                   | 54,998  |  |                   |  
|Sustainability                      |  |                   |         |  |                   |  
|Alternative Energy                  |  |                   | —       |  |                   |  
|Energy Efficiency                   |  |                   | 100     |  |                   |  
|Healthcare Information and Services |  |                   |         |  |                   |  
|Diagnostics                         |  |                   | 42      |  |                   |  
|Other                               |  |                   | 9,931   |  |                   |  
|Software                            |  |                   | 14,201  |  |                   |  
|Investment funds                    |  |                   |         |  |                   |  
|HSLFI                               |  |                   | 16,684  |  |                   |  
|Total investments                   |  | $                 | 318,831 |  |                   | $





Horizon Secured Loan Fund I LLC



On
June 1, 2018, the Company and Arena formed a joint venture, HSLFI, to make investments, either directly or indirectly through
subsidiaries, primarily in secured loans to development-stage companies in the technology, life science, healthcare information
and services and sustainability industries. HSLFI was formed as a Delaware limited liability company and is not consolidated by
either the Company or Arena for financial reporting purposes. Investments held by HSLFI are measured at fair value using the same
valuation methodology as described in Note 6. As of December 31, 2019 and 2018, HSLFI had total assets of $48.3 million and $26.4
million, respectively. HSLFI’s portfolio consisted of debt investments in eight and four portfolio companies as of December
31, 2019 and 2018, respectively. As of December 31, 2019, the largest investment in a single portfolio company in the HSLFI’s
portfolio in aggregate principal amount was $11.3 million and the five largest investments in portfolio companies in the HSLFI
totaled $30.3 million. As of December 31, 2018, the largest investment in a single portfolio company in the HSLFI’s portfolio
in aggregate principal amount was $8.3 million and the only four investments in portfolio companies in the HSLFI totaled $25.0
million. As of December 31, 2019 and 2018, HSLFI had no investments on non-accrual status. HSLFI invests in portfolio companies
in the same industries in which the Company may directly invest.



The Company invests cash or securities in portfolio companies
in HSLFI in exchange for limited liability company equity interests in HSLFI. As of December 31, 2019 and 2018, the Company and
Arena each owned 50.0% of the equity interests of HSLFI. The Company had an original commitment to fund $25.0 million of equity
interests in HSLFI. As of December 31, 2019 and 2018, $9.8 million and $11.7 million, respectively, was unfunded. The Company’s
investment in HSLFI consisted of an equity contribution of $15.2 million and $13.3 million as of December 31, 2019 and 2018, respectively.
During the year ended December 31, 2019, HSLFI distributed $1.4 million. For the period June 1, 2018 (the commencement of HSLFI’s
operations) through December 31, 2018, HSLFI distributed $0.5 million.





113









Horizon Technology Finance Corporation
and Subsidiaries



Notes to Consolidated Financial Statements



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



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



In addition, on June
1, 2018, HSLFI entered into a sale and servicing agreement with HFI, as Issuer, and the Company, as Servicer, pursuant to which
HSLFI will sell or contribute to HFI certain secured loans made to certain portfolio companies. HFI entered into a Note Funding
Agreement (the “NYL Facility”) with several entities owned or affiliated with New York Life Insurance Company (“Noteholders”)
for an aggregate purchase price of up to $100.0 million, with an accordion feature of up to $200.0 million at the mutual discretion
and agreement of HSLFI and the Noteholders. The Note Funding Agreement’s investment period has ended and the loan thereunder
is in rapid amortization. Any notes issued by HFI will be collateralized by all investments held by HFI and permit an advance rate
of up to 67% of the aggregate principal amount of eligible debt investments. The interest rate on the notes issued under the NYL
Facility is based on the three year USD mid-market swap rate plus a margin of between 2.75% and 3.25% depending on the rating of
such notes at the time of issuance. There were $15.0 million in advances made by the Noteholders as of December 31, 2019 at an
interest rate of 4.98%. There were no advances made by the Noteholders as of December 31, 2018.



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



|                                          |  |               |  |                                                                                  |  | Principal |       |  | Cost of        |   |        | Fair  | 
|----------------------------------------- |  | ------------- |  | -------------------------------------------------------------------------------- |  | --------- | ----- |  | -------------- | - | ------ | ----- | 
|Portfolio Company
    (1)                 |  | Sector        |  | Type
    of Investment (2)(3)(4)                                                 |  | Amount    |       |  | Investments(5) |   |        | Value | 
|(Dollars in thousands)                   
|Debt Investments —
    Life science       |  |               |  |                                                                                  |  |           |       |  |                |   |        |       | 
|Celsion Corporation
    (6)(7)(8)         |  | Biotechnology |  | Term Loan (9.63%
    cash (Libor + 7.63%; Floor 9.63%), 4.00% ETP, Due 7/1/22)   |  | $         | 2,500 |  |                | $ | 2,464  |       | 
|                                          |  |               |  | Term Loan (9.63% cash (Libor
    + 7.63%; Floor 9.63%), 4.00% ETP, Due 7/1/22)   |  |           | 2,500 |  |                |   | 2,464  |       | 
|Encore Dermatology, Inc. (6)(7)           |  | Biotechnology |  | Term Loan (10.00% cash (Libor
    + 7.50%; Floor 10.00%), 3.00% ETP, Due 4/1/23) |  |           | 5,000 |  |                |   | 4,929  |       | 
|Mustang Bio, Inc. (6)(7)(8)               |  | Biotechnology |  | Term Loan (9.00% cash (Libor
    + 6.50%; Floor9.00%), 5.00% ETP, Due 10/1/22)   |  |           | 5,000 |  |                |   | 4,924  |       | 
|Total
    Debt Investments — Life science |  |               |  |                                                                                  |  |           |       |  |                |   | 14,781 |       | 
|Debt Investments —
    Technology         |  |               |  |                                                                                  |  |           |       |  |                |   |        |       | 
|Bridge2 Solutions, LLC (6)(7)             |  | Software      |  | Term Loan (11.00% cash (Libor
    + 8.4%; Floor 11.00%), 2.00% ETP, Due 9/1/23)  |  |           | 500   |  |                |   | 481    |       | 
|New Signature US, Inc. (6)(7)(9)          |  | Software      |  | Term Loan (10.50% cash (Libor
    + 8.50%; Floor 10.50%), 3.50% ETP, Due 7/1/22) |  |           | 8,250 |  |                |   | 8,163  |       | 
|                                          |  |               |  | Term Loan (10.60% cash (Libor
    + 8.50%; Floor 10.50%), 3.50% ETP, Due 2/1/23) |  |           | 3,000 |  |                |   | 2,961  |       | 
|OutboundEngine, Inc. (6)(7)               |  | Software      |  | Term Loan (11.15% cash (Libor
    + 8.40%; Floor 11.15%), 3.00% ETP, Due 7/1/23) |  |           | 500   |  |                |   | 491    |       | 
|Revinate, Inc. (6)(7)                     |  |               |  | Term Loan (9.50% cash (Libor
    + 7.00%, Floor 9.50%), 3.00% ETP, Due 6/1/23)   |  |           | 4,000 |  |                |   | 3,952  |       | 
|Total Debt Investments —
    Technology   |  |               |  |                                                                                  |  |           |       |  |                |   | 16,048 |       | 





114







Horizon Technology Finance Corporation
and Subsidiaries



Notes to Consolidated Financial Statements





|                                                                        |  |                |  |                                                                                 |  |  | Principal |     |        |     | Cost
    of    |     |        |     | Fair   | 
|----------------------------------------------------------------------- |  | -------------- |  | ------------------------------------------------------------------------------- |  |  | --------- | --- | ------ | --- | -------------- | --- | ------ | --- | ------ | 
|Portfolio
    Company (1)                                               |  | Sector         |  | Type
    of Investment (2)(3)(4)                                                |  |  | Amount    |     |        |     | Investments(5) |     |        |     | Value  | 
|(Dollars
    in thousands)                                             
|Debt
    Investments — Healthcare information and services              |  |                |  |                                                                                 |  |  |           |     |        |     |                |     |        |    
|HealthEdge Software, Inc.
    (6)(7)                                    |  | Software       |  | Term Loan (9.94% cash (Libor
    + 8.25%; Floor 9.25%), 3.00% ETP, Due 10/1/23) |  |  | 3,750     |     |        |     | 3,709          |     |        |     | 3,709  | 
|Total
    Debt Investments — Healthcare information and services        |  |                |  |                                                                                 |  |  |           |     | 3,709  |     |                |     | 3,709  |    
|Total Debt
    Investments                                              |  |                |  |                                                                                 |  |  |           |     |        |     | 34,538         |     |        |     | 34,538 | 
|                                                                        |  |                |  |                                                                                 |  |  |           |     |        |     |                |     |        |     |        | 
|Warrant
    Investments — Life science                                  |  |                |  |                                                                                 |  |  |           |     |        |     |                |     |        |     |        | 
|Celsion Corporation (6)(7)(8)                                           |  | Biotechnology  |  | 95,057 Common Stock Warrants                                                    |  |  |           |     |        |     | 58             |     |        |     | 6      | 
|Encore Dermatology, Inc. (6)(7)                                         |  | Biotechnology  |  | 503,626 Preferred Stock Warrants                                                |  |  |           |     |        |     | 38             |     |        |     | —      | 
|Mustang Bio, Inc. (6)(7)(8)                                             |  | Biotechnology  |  | 72,046 Common Stock Warrants                                                    |  |  |           |     |        |     | 45             |     |        |     | 74     | 
|CSA Medical, Inc. (6)(7)                                                |  | Medical Device |  | 17,751 Preferred Stock Warrants                                                 |  |  |           |     |        |     | 2              |     |        |     | 2      | 
|Total
    Warrant Investments — Life science                            |  |                |  |                                                                                 |  |  |           |     |        | 143 |                |     |        | 82  |       
|Warrant
    Investments — Technology                                    |  |                |  |                                                                                 |  |  |           |     |        |     |                |     |        |     |        | 
|Intelepeer Holdings, Inc.
    (6)(7)                                    |  | Communications |  | 2,081,934 Preferred Stock
    Warrants                                          |  |  |           |     |        |     | 82             |     |        |     | 72     | 
|Bridge2 Solutions, LLC (6)(7)                                           |  | Software       |  | 2,500 Common Stock Warrants                                                     |  |  |           |     |        |     | 18             |     |        |     | 34     | 
|BSI Platform Holdings, LLC
    (6)(7)(9)                                |  | Software       |  | 562,500 Preferred Stock Warrants                                                |  |  |           |     |        |     | 77             |     |        |     | 62     | 
|OutboundEngine, Inc. (6)(7)                                             |  | Software       |  | 40,000 Preferred Stock Warrants                                                 |  |  |           |     |        |     | 5              |     |        |     | 6      | 
|Revinate, Inc. (6)(7)                                                   |  | Software       |  | 216,362 Preferred Stock Warrants                                                |  |  |           |     |        |     | 16             |     |        |     | 18     | 
|Total Warrant
    Investments — Technology                              |  |                |  |                                                                                 |  |  |           |     |        | 198 |                |     |        | 192 |       
|Warrant
    Investments — Healthcare information and services           |  |                |  |                                                                                 |  |  |           |     |        |     |                |     |        |    
|HealthEdge Software, Inc.
    (6)(7)                                    |  | Software       |  | 47,418 Preferred Stock Warrants                                                 |  |  |           |     |        |     | 16             |     |        |     | 17     | 
|Total
    Warrant Investments — Healthcare information
    and services |  |                |  |                                                                                 |  |  |           |     | 16     |     |                |     | 17     |    
|Total Warrant
    Investments                                           |  |                |  |                                                                                 |  |  |           |     |        |     | 357            |     |        |     | 291    | 
|                                                                        |  |                |  |                                                                                 |  |  |           |     |        |     |                |     |        |     |        | 
|Total Portfolio
    Investment Assets                                   |  |                |  |                                                                                 |  |  |           |     |        | $   | 34,895         |     |        | $   | 34,829 | 
|                                                                        |  |                |  |                                                                                 |  |  |           |     |        |     |                |     |        |     |        | 
|Short
    Term Investments — Unrestricted Investments                   |  |                |  |                                                                                 |  |  |           |     |        |     |                |     |        |    
|US Bank Money
    Market Deposit Account (6)                            |  |                |  |                                                                                 |  |  |           | $   | 11,201 |     |                | $   | 11,201 |    
|Total
    Short Term Investments — Unrestricted Investments             |  |                |  |                                                                                 |  |  |           | $   | 11,201 |     |                | $   | 11,201 |    
|                                                                        |  |                |  |                                                                                 |  |  |           |     |        |     |                |     |        |     |        | 
|Short
    Term Investments — Restricted Money Market Funds              |  |                |  |                                                                                 |  |  |           |     |        |     |                |     |        |    
|US Bank Money
    Market Deposit Account (6)                            |  |                |  |                                                                                 |  |  |           | $   | 138    |     |                | $   | 138    |    
|Total
    Short Term Investments — Restricted Money Market Funds        |  |                |  |                                                                                 |  |  | $         | 138 |        |     | $              | 138 |       










|(1) | All investments of HSLFI are in entities
    which are organized under the laws of the United States and have a principal place of business in the United States.                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|(2) | All interest is payable in cash due
    monthly in arrears, unless otherwise indicated, and applies only to HSLFI’s debt investments. Interest rate is the annual
    interest rate on the debt investment and does not include ETPs and any additional fees related to the investments, such as
    deferred interest, commitment fees or prepayment fees. Debt investments are at variable rates for the term of the debt investment,
    unless otherwise indicated. All debt investments based on LIBOR are based on one-month LIBOR. For each debt investment, the
    current interest rate in effect as of December 31, 2019 is provided.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|(3) | ETPs are contractual fixed-interest
    payments due in cash at the maturity date of the applicable debt investment, including upon any prepayment, and are a fixed
    percentage of the original principal balance of the debt investments unless otherwise noted. Interest will accrue during the
    life of the debt investment on each ETP and will be recognized as non-cash income until it is actually paid.                                                                                                                                                                                                                           
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|(4) | Warrants are non-income producing.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              





115







Horizon Technology Finance Corporation
and Subsidiaries



Notes to Consolidated Financial Statements



|(5) | For debt investments, represents principal balance less unearned income.          
|--- | ----------------------------------------------------------------------------------
|    |                                                                                   
|(6) | Has been pledged as collateral under the NYL Facility.                            
|    |                                                                                   
|(7) | The fair value of the investment was valued using significant unobservable inputs.
|    |                                                                                   
|(8) | Portfolio company is a public company.                                            
|    |                                                                                   
|(9) | New Signature US, Inc. is a subsidiary of BSI Platform Holdings, LLC.             



The following table shows HSLFI’s
investments as of December 31, 2018:







|                                                                    |  |                |  |                                                                                  |  |   | Principal |   |       |   | Cost
    of    |   |       |   | Fair   | 
|------------------------------------------------------------------- |  | -------------- |  | -------------------------------------------------------------------------------- |  | - | --------- | - | ----- | - | -------------- | - | ----- | - | ------ | 
|Portfolio
    Company (1)                                           |  | Sector         |  | Type
    of Investment (2)(3)(4)                                                 |  |   | Amount    |   |       |   | Investments(5) |   |       |   | Value  | 
|(Dollars
    in thousands)                                          | 
|Debt Investments — Life science                                     |  |                |  |                                                                                  |  |   |           |   |       |   |                |   |       |   |        | 
|Celsion Corporation
    (6)(7)(8)                                   |  | Biotechnology  |  | Term Loan (9.98%
    cash (Libor + 7.63%; Floor 9.63%), 4.00% ETP, Due 7/1/22)   |  | $ | 2,500     |   |       | $ | 2,449          |   |       | $ | 2,449  | 
|                                                                    |  |                |  | Term Loan (9.98%
    cash (Libor + 7.63%; Floor 9.63%), 4.00% ETP, Due 7/1/22)   |  |   | 2,500     |   |       |   | 2,449          |   |       |   | 2,449  | 
|Total Debt Investments
    — Life science                           |  |                |  |                                                                                  |  |   |           |   |       |   | 4,898          |   |       |   | 4,898  | 
|Debt Investments —
    Technology                                   |  |                |  |                                                                                  |  |   |           |   |       |   |                |   |       |   |        | 
|Intelepeer Holdings,
    Inc. (6)(7)                                |  | Communications |  | Term Loan (12.30%
    cash (Libor + 9.95%; Floor 11.25%), 2.50% ETP, Due 7/1/21) |  |   | 4,000     |   |       |   | 3,948          |   |       |   | 3,948  | 
|                                                                    |  |                |  | Term Loan (12.30%
    cash (Libor + 9.95%; Floor 11.25%), 2.50% ETP, Due 7/1/21) |  |   | 4,000     |   |       |   | 3,948          |   |       |   | 3,948  | 
|New Signature US,
    Inc. (6)(7)(9)                                |  | Software       |  | Term Loan (10.85%
    cash (Libor + 8.50%; Floor 10.50%), 3.50% ETP, Due 7/1/22) |  |   | 8,250     |   |       |   | 8,098          |   |       |   | 8,098  | 
|Total
    Debt Investments — Technology                             |  |                |  |                                                                                  |  |   |           |   |       |   | 15,994         |   |       |   | 15,994 | 
|Debt
    Investments — Healthcare information and services          |  |                |  |                                                                                  |  |   |           |   |       |   |                |   |       |  
|HealthEdge Software,
    Inc. (6)(7)                                |  | Software       |  | Term Loan (10.60%
    cash (Libor + 8.25%; Floor 9.25%), 3.00% ETP, Due 10/1/23) |  |   | 3,750     |   |       |   | 3,699          |   |       |   | 3,699  | 
|Total
    Debt Investments — Healthcare information and services    |  |                |  |                                                                                  |  |   |           |   | 3,699 |   |                |   | 3,699 |  
|Total Debt Investments                                              |  |                |  |                                                                                  |  |   |           |   |       |   | 24,591         |   |       |   | 24,591 | 
|                                                                    |  |                |  |                                                                                  |  |   |           |   |       |   |                |   |       |   |        | 
|Warrant Investments —
    Life science                              |  |                |  |                                                                                  |  |   |           |   |       |   |                |   |       |   |        | 
|Celsion Corporation
    (6)(7)(8)                                   |  | Biotechnology  |  | 95,057 Common Stock
    Warrants                                                 |  |   |           |   |       |   | 58             |   |       |   | 1      | 
|Total Warrant Investments
    — Life science                        |  |                |  |                                                                                  |  |   |           |   |       |   | 58             |   |       |   | 1      | 
|Warrant Investments —
    Technology                                |  |                |  |                                                                                  |  |   |           |   |       |   |                |   |       |   |        | 
|Intelepeer Holdings,
    Inc. (6)(7)                                |  | Communications |  | 1,280,000 Preferred
    Stock Warrants                                           |  |   |           |   |       |   | 49             |   |       |   | 70     | 
|BSI Platform Holdings,
    LLC (6)(7)(9)                            |  | Software       |  | 412,500 Preferred
    Stock Warrants                                             |  |   |           |   |       |   | 57             |   |       |   | 56     | 
|Total
    Warrant Investments — Technology                          |  |                |  |                                                                                  |  |   |           |   |       |   | 106            |   |       |   | 126    | 
|Warrant
    Investments — Healthcare information and services       |  |                |  |                                                                                  |  |   |           |   |       |   |                |   |       |   |        | 
|HealthEdge Software,
    Inc. (6)(7)                                |  | Software       |  | 47,418 Preferred
    Stock Warrants                                              |  |   |           |   |       |   | 16             |   |       |   | 16     | 
|Total
    Warrant Investments — Healthcare information and services |  |                |  |                                                                                  |  |   |           |   |       |   | 16             |   |       |   | 16     | 
|Total Warrant
    Investments                                       |  |                |  |                                                                                  |  |   |           |   |       |   | 180            |   |       |   | 143    | 
|                                                                    |  |                |  |                                                                                  |  |   |           |   |       |   |                |   |       |   |        | 
|Total Portfolio
    Investment Assets                               |  |                |  |                                                                                  |  |   |           |   |       | $ | 24,771         |   |       | $ | 24,734 | 
|                                                                    |  |                |  |                                                                                  |  |   |           |   |       |   |                |   |       |   |        | 
|Short
    Term Investments — Unrestricted Investments               |  |                |  |                                                                                  |  |   |           |   |       |   |                |   |       |  
|US Bank
    Money Market Deposit Account (6)                        |  |                |  |                                                                                  |  |   |           | $ | 74    |   |                | $ | 74    |  
|Total
    Short Term Investments — Unrestricted Investments         |  |                |  |                                                                                  |  |   |           | $ | 74    |   |                | $ | 74    |  







116







Horizon Technology Finance Corporation
and Subsidiaries



Notes to Consolidated Financial Statements










|(1) | All investments of HSLFI are in entities which are organized under the laws of the United States and have a principal place of business in the United States.                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|(2) | All interest is payable in cash due monthly in arrears, unless otherwise indicated, and applies only to HSLFI’s debt investments. Interest rate is the annual interest rate on the debt investment and does not include ETPs and any additional fees related to the investments, such as deferred interest, commitment fees or prepayment fees. Debt investments are at variable rates for the term of the debt investment, unless otherwise indicated. All debt investments based on LIBOR are based on one-month LIBOR. For each debt investment, the current interest rate in effect as of December 31, 2018 is provided.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|(3) | ETPs are contractual fixed-interest payments due in cash at the maturity date of the applicable debt investment, including upon any prepayment, and are a fixed percentage of the original principal balance of the debt investments unless otherwise noted. Interest will accrue during the life of the debt investment on each ETP and will be recognized as non-cash income until it is actually paid.                                                                                                                                                                                                                   
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|(4) | Warrants are non-income producing.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|(5) | For debt investments, represents principal balance less unearned income.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|(6) | Has been pledged as collateral under the NYL Facility.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|(7) | The fair value of the investment was valued using significant unobservable inputs.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|(8) | Portfolio company is a public company.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|(9) | New Signature US, Inc. is a subsidiary of BSI Platform Holdings, LLC.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       



The following tables show certain summarized
financial information for HSLFI as of December 31, 2019 and 2018, for the year ended December 31, 2019 and for the period June
1, 2018 through December 31, 2018:



|                                                                            |  | December 31,   |       
|--------------------------------------------------------------------------- |  | -------------- | ------
|                                                                            |  | 2019           |       
|                                                                            |  | (In thousands) |       
|Selected Statement of Assets and Liabilities Information                    |  |                |       
|Total investments at fair value (cost of $34,895 and $24,771, respectively) |  | $              | 34,829
|Investments in money market funds                                           |  |                | 11,201
|Cash and cash equivalents                                                   |  |                | 503   
|Restricted investments in money market funds                                |  |                | 138   
|Interest receivable                                                         |  |                | 477   
|Other assets                                                                |  |                | 1,109 
|Total assets                                                                |  | $              | 48,257
|                                                                            |  |                |       
|Borrowings                                                                  |  | $              | 14,955
|Other liabilities                                                           |  |                | 126   
|Total liabilities                                                           |  |                | 15,081
|                                                                            |  |                |       
|Members’ equity                                                             |  |                | 33,176
|Total liabilities and members’ equity                                       |  | $              | 48,257





117







Horizon Technology Finance Corporation
and Subsidiaries



Notes to Consolidated Financial Statements



|                                                     |  | For the year ended December 31, 2019 |       |   | For the period June 1, 2018 through December 31, 2018 |  
|---------------------------------------------------- |  | ------------------------------------ | ----- | - | ----------------------------------------------------- | -
|                                                     |  | (In thousands)                       |      
|Selected Statements of Operations Information        |  |                                      |       |   |                                                       |  
|Interest income on investments                       |  | $                                    | 5,291 |   |                                                       | $
|Total investment income                              |  | $                                    | 5,699 |   |                                                       | $
|Total expenses                                       |  | $                                    | 1,227 |   |                                                       | $
|Net investment income                                |  | $                                    | 4,472 |   |                                                       | $
|Net unrealized depreciation on investments           |  | $                                    | (28   | ) |                                                       | $
|Net increase in net assets resulting from operations |  | $                                    | 4,444 |   |                                                       | $



|Note 5. | Transactions with affiliated companies
|------- | --------------------------------------



A non-controlled affiliated
company is generally a portfolio company in which the Company owns 5% or more of such portfolio company’s voting securities
but not more than 25% of such portfolio company’s voting securities. Transactions related to investments in non-controlled
affiliated companies for the year ended December 31, 2019 were as follows:



|                                |  |                                   |       |  |           |   |   | Year ended December 31, 2019 |  |   |                                    |  |  |                    |   |  |                            |  
|------------------------------- |  | --------------------------------- | ----- |  | --------- | - | - | ---------------------------- |  | - | ---------------------------------- |  |  | ------------------ | - |  | -------------------------- | -
|Portfolio Company               |  | Fair value at 
December 31,  2018 |       |  | Purchases |   |   | Principal Payments           |  |   | Transfers
 in/(out) at
 fair value |  |  | Discount accretion |   |  | Net unrealized gain/(loss) |  
|                                |  | (In thousands)                    |      
|Decisyon, Inc.                  |  | $                                 | 1,464 |  |           | $ | — |                              |  | $ | 316                                |  |  | $                  | — |  |                            | $
|                                |  |                                   | 764   |  |           |   | — |                              |  |   | 173                                |  |  |                    | — |  |                            |  
|                                |  |                                   | 240   |  |           |   | — |                              |  |   | 16                                 |  |  |                    | — |  |                            |  
|                                |  |                                   | 240   |  |           |   | — |                              |  |   | 16                                 |  |  |                    | — |  |                            |  
|                                |  |                                   | 721   |  |           |   | — |                              |  |   | 46                                 |  |  |                    | — |  |                            |  
|                                |  |                                   | 289   |  |           |   | — |                              |  |   | 17                                 |  |  |                    | — |  |                            |  
|                                |  |                                   | 192   |  |           |   | — |                              |  |   | 13                                 |  |  |                    | — |  |                            |  
|                                |  |                                   | 75    |  |           |   | — |                              |  |   | —                                  |  |  |                    | — |  |                            |  
|StereoVision, Inc.              |  |                                   | 2,798 |  |           |   | — |                              |  |   | 416                                |  |  |                    | — |  |                            |  
|                                |  |                                   | 791   |  |           |   | — |                              |  |   | —                                  |  |  |                    | — |  |                            |  
|Total non-controlled affiliates |  | $                                 | 7,574 |  |           | $ | — |                              |  | $ | 1,013                              |  |  | $                  | — |  |                            | $





118







Horizon Technology Finance Corporation
and Subsidiaries



Notes to Consolidated Financial Statements



Transactions related
to investments in non-controlled affiliated companies for the year ended December 31, 2018 were as follows:



|                                |  |                                   |       |  |           |   |       | Year ended December 31, 2018 |  |   |                                    |  |  |                    |   |  |                            |  
|------------------------------- |  | --------------------------------- | ----- |  | --------- | - | ----- | ---------------------------- |  | - | ---------------------------------- |  |  | ------------------ | - |  | -------------------------- | -
|Portfolio Company               |  | Fair value at 
December 31,  2017 |       |  | Purchases |   |       | Principal Payments           |  |   | Transfers
 in/(out) at
 fair value |  |  | Discount accretion |   |  | Net unrealized gain/(loss) |  
|                                |  | (In thousands)                    |      
|Decisyon, Inc.                  |  | $                                 | 1,449 |  |           | $ | —     |                              |  | $ | —                                  |  |  | $                  | — |  |                            | $
|                                |  |                                   | 735   |  |           |   | —     |                              |  |   | —                                  |  |  |                    | — |  |                            |  
|                                |  |                                   | 238   |  |           |   | —     |                              |  |   | —                                  |  |  |                    | — |  |                            |  
|                                |  |                                   | 238   |  |           |   | —     |                              |  |   | —                                  |  |  |                    | — |  |                            |  
|                                |  |                                   | 714   |  |           |   | —     |                              |  |   | —                                  |  |  |                    | — |  |                            |  
|                                |  |                                   | —     |  |           |   | 300   |                              |  |   | —                                  |  |  |                    | — |  |                            |  
|                                |  |                                   | —     |  |           |   | 200   |                              |  |   | —                                  |  |  |                    | — |  |                            |  
|                                |  |                                   | 125   |  |           |   | —     |                              |  |   | —                                  |  |  |                    | — |  |                            |  
|StereoVision, Inc.              |  |                                   | —     |  |           |   | 2,798 |                              |  |   | —                                  |  |  |                    | — |  |                            |  
|                                |  |                                   | —     |  |           |   | 791   |                              |  |   | —                                  |  |  |                    | — |  |                            |  
|Total non-controlled affiliates |  | $                                 | 3,499 |  |           | $ | 4,089 |                              |  | $ | —                                  |  |  | $                  | — |  |                            | $



A controlled affiliated
company is generally a portfolio company in which the Company owns more than 25% of such portfolio company’s voting securities
or has the power to exercise control over management or policies of such portfolio company (including through a management agreement).
Transactions related to investments in controlled affiliated companies for the year ended December 31, 2019 were as follows:



|                            |  |                                   |        |  |           |   |       | Year ended December 31, 2019 |  |   |                                    |   |  |                    |   |  |                            |  
|--------------------------- |  | --------------------------------- | ------ |  | --------- | - | ----- | ---------------------------- |  | - | ---------------------------------- | - |  | ------------------ | - |  | -------------------------- | -
|Portfolio Company           |  | Fair value at
 December 31, 
2018 |        |  | Purchases |   |       | Distributions                |  |   | Transfers
 in/(out) at
 fair value |   |  | Dividends declared |   |  | Net unrealized gain/(loss) |  
|                            |  | (In thousands)                    |       
|HSLFI(1)                    |  | $                                 | 13,243 |  |           | $ | 1,900 |                              |  | $ | (715                               | ) |  | $                  | — |  |                            | $
|Total controlled affiliates |  | $                                 | 13,243 |  |           | $ | 1,900 |                              |  | $ | (715                               | ) |  | $                  | — |  |                            | $










|(1) | The Company and Arena are the members of HSLFI, a joint venture formed as a Delaware limited liability company that is not consolidated by either member for financial reporting purposes. The members provide cash or securities in portfolio companies to HSLFI in exchange for limited liability company equity interests. All HSLFI investment decisions require unanimous approval of a quorum of HSLFI’s board of managers, which consists of two representatives of the Company and Arena. Because management of HSLFI is shared equally between the Company and Arena, the Company does not have sole control over significant actions of HSLFI for purposes of the 1940 Act or otherwise.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------





119







Horizon Technology
Finance Corporation and Subsidiaries



Notes to Consolidated
Financial Statements



Transactions related
to investments in controlled affiliated companies for the year ended December 31, 2018 were as follows:



|                                |  | Year ended December
    31, 2018    |   |  |           |  
|------------------------------- |  | ----------------------------------- | - |  | --------- | -
|Portfolio Company               |  | Fair
    value at December 31, 2017 |   |  | Purchases |  
|                                |  | (In thousands)                      |  
|HSLFI(1)                        |  | $                                   | — |  |           | $
|Total
    controlled affiliates |  | $                                   | — |  |           | $












| | (1) | The Company and Arena are
the members of HSLFI, a joint venture formed as a Delaware limited liability company that is not consolidated by either member
for financial reporting purposes. The members provide cash or securities in portfolio companies to HSLFI in exchange for limited
liability company equity interests. All HSLFI investment decisions require unanimous approval of a quorum of HSLFI’s board
of managers which consists of two representatives of each of the Company and Arena. Because management of HSLFI is shared equally
between the Company and Arena, the Company does not have sole control over significant actions of HSLFI for purposes of the 1940
Act or otherwise.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Note 6. | Fair value
|------- | ----------



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



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



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



| | Level 1 | Quoted prices in active markets for identical assets
and liabilities.
| | ------- | ---------------------------------------------------------------------



| | Level 2 | Observable inputs other than Level 1 prices such
as quoted prices for similar assets or liabilities in active markets, quoted prices in markets that are not active, and model-based
valuation techniques for which all significant inputs are observable or can be corroborated by observable market data for substantially
the full term of the assets or liabilities.
| | ------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



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





120







Horizon Technology
Finance Corporation and Subsidiaries



Notes to Consolidated
Financial Statements



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



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



Money market funds:  The
carrying amounts are valued at their net asset value as of the close of business on the day of valuation. These financial instruments
are recorded at fair value on a recurring basis and are categorized as Level 2 within the fair value hierarchy described above
as these funds can be redeemed daily.



Debt investments:  The
fair value of debt investments is estimated by discounting the expected future cash flows using the year end rates at which similar
debt investments would be made to borrowers with similar credit ratings and for the same remaining maturities. At December 31,
2019 and 2018, the hypothetical market yields used ranged from 10% to 16% and 11% to 25%, respectively. Significant increases (decreases)
in this unobservable input would result in a significantly lower (higher) fair value measurement. These assets are recorded at
fair value on a recurring basis and are categorized as Level 3 within the fair value hierarchy described above.



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



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



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



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



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



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



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





121







Horizon Technology
Finance Corporation and Subsidiaries



Notes to Consolidated
Financial Statements



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



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



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



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



The following tables
provide a summary of quantitative information about the Company’s Level 3 fair value measurements of its investments as
of December 31, 2019 and 2018. In addition to the techniques and inputs noted in the table below, according to the Company’s
valuation policy, the Company may also use other valuation techniques and methodologies when determining its fair value measurements.





122







Horizon Technology
Finance Corporation and Subsidiaries



Notes to Consolidated
Financial Statements



The following table
is not intended to be all-inclusive, but rather provides information on the significant Level 3 inputs as they relate to the Company’s
fair value measurements as of December 31, 2019:



|December
    31, 2019                            
|-------------------------------------------------
|                                                 
|Investment Type                                  
|(Dollars in thousands,
    except per share data)
|Debt investments                                 
|                                                 
|                                                 
|                                                 
|Warrant investments                              
|                                                 
|                                                 
|                                                 
|                                                 
|Other investments                                
|                                                 
|Equity
    investments                           
|Total Level 3 investments                        












| | (1) | Weighted average is calculated
by multiplying (a) the unobservable input for each investment in the investment type by (b) (1) the fair value of the related
investment in the investment type divided by (2) the total fair value of the investment type.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The following table
is not intended to be all-inclusive, but rather provides information on the significant Level 3 inputs as they relate to the Company’s
fair value measurements as of December 31, 2018:



|December
    31, 2018                            
|-------------------------------------------------
|                                                 
|Investment
    Type                              
|(Dollars in thousands,
    except per share data)
|Debt
    investments                             
|                                                 
|Warrant
    investments                          
|                                                 
|                                                 
|                                                 
|                                                 
|                                                 
|Other
    investments                            
|                                                 
|Equity
    investments                           
|Total
    Level 3 investments                    












| | (1) | Weighted average is calculated
by multiplying (a) the unobservable input for each investment in the investment type by (b) (1) the fair value of the related
investment in the investment type divided by (2) the total fair value of the investment type.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Borrowings:  The
carrying amount of borrowings under the Key Facility with KeyBank National Association (“Key”) approximates fair
value due to the variable interest rate of the Key Facility and is categorized as Level 2 within the fair value hierarchy
described above. Additionally, the Company considers its creditworthiness in determining the fair value of such borrowings.
The fair value of the fixed-rate 2022 Notes (as defined in Note 7) is based on the closing public share price on the date of
measurement. On December 31, 2019, the closing price of the 2022 Notes on the New York Stock Exchange was $25.55 per note, or
$38.2 million. Therefore, the Company has categorized this borrowing as Level 1 within the fair value hierarchy described
above. Based on market quotations on December 31, 2019, the Asset-Backed Notes (as defined in Note 7) were trading at par
value, or $100.0 million, and are categorized as Level 3 within the fair value hierarchy described above. These borrowings
are not recorded at fair value on a recurring basis.





123







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 similar agreements, taking into account the remaining terms of the agreements and the counterparties’ credit standings.
Therefore, the Company has categorized these instruments as Level 3 within the fair value hierarchy described above.



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, 2019 and 2018
and indicate the fair value hierarchy of the valuation techniques utilized by the Company to determine the fair value:



|                                             |  | December 31, 2019 |   
|-------------------------------------------- |  | ----------------- | --
|                                             |  | Level 1           |   
|                                             |  | (In thousands)    |   
|Investments in money market funds            |  | $                 | — 
|Restricted investments in money market funds |  | $                 | — 
|Debt investments                             |  | $                 | — 
|Warrant investments                          |  |                   | — 
|Other investments                            |  |                   | — 
|Equity investments                           |  |                   | 92
|Equity interest in HSLFI(1)                  |  |                   | — 
|Total investments                            |  | $                 | 92










|(1) | The fair value of Company’s equity interest in HSLFI is determined using the net asset value of the Company’s ownership interest in member’s capital.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------



|                            |  | December 31, 2018 |    
|--------------------------- |  | ----------------- | ---
|                            |  | Level 1           |    
|                            |  | (In thousands)    |    
|Debt investments            |  | $                 | —  
|Warrant investments         |  |                   | —  
|Other investments           |  |                   | —  
|Equity investments          |  |                   | 544
|Equity interest in HSLFI(1) |  |                   | —  
|Total investments           |  | $                 | 544










|(1) | The fair value of Company’s equity interest in HSLFI is determined using the net asset value of the Company’s ownership interest in member’s capital.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------





124







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 the year ended December 31, 2019:



|                                                            |  | December 31, 2019 |         
|----------------------------------------------------------- |  | ----------------- | --------
|                                                            |  | Debt Investments  |         
|                                                            |  | (In thousands)    |         
|Level 3 assets, beginning of period                         |  | $                 | 216,401 
|Purchase of investments                                     |  |                   | 200,832 
|Warrants and equity received and classified as Level 3      |  |                   | —       
|Principal payments received on investments                  |  |                   | (129,079
|Proceeds from sale of investments                           |  |                   | —       
|Net realized gain (loss) on investments                     |  |                   | —       
|Unrealized (depreciation) appreciation included in earnings |  |                   | (3,004  
|Transfer out of Level 3                                     |  |                   | —       
|Transfer of investment                                      |  |                   | 4,500   
|Other                                                       |  |                   | (1,295  
|Level 3 assets, end of period                               |  | $                 | 288,355 



During the year ended
December 31, 2019, there was one transfer out of Level 3. The transfer out of Level 3 related to warrants held in one portfolio
company with an aggregate fair value of $0.2 million that was transferred to Level 2 upon the portfolio company becoming a public
company. During the year ended December 31, 2019, there were no transfers to Level 3.



The change in unrealized
appreciation included in the consolidated statement of operations attributable to Level 3 investments still held at December 31,
2019 includes $3.1 million in unrealized depreciation on debt and other investments, $1.0 million in unrealized appreciation on
warrant investments and $1.6 million in unrealized appreciation on equity investments.



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 the year ended December 31, 2018:



|                                                            |  | December 31, 2018 |        
|----------------------------------------------------------- |  | ----------------- | -------
|                                                            |  | Debt Investments  |        
|                                                            |  | (In thousands)    |        
|Level 3 assets, beginning of period                         |  | $                 | 203,793
|Purchase of investments                                     |  |                   | 101,257
|Warrants and equity received and classified as Level 3      |  |                   | —      
|Principal payments received on investments                  |  |                   | (84,224
|Proceeds from sale of investments                           |  |                   | (3,064 
|Net realized (loss) gain on investments                     |  |                   | (32    
|Unrealized (depreciation) appreciation included in earnings |  |                   | (248   
|Other                                                       |  |                   | (1,081 
|Level 3 assets, end of period                               |  | $                 | 216,401



During the year ended
December 31, 2018, there were no transfers in or out of Level 3 assets.



The change in
unrealized depreciation included in the consolidated statement of operations attributable to Level 3 investments still held
at December 31, 2018 includes $0.2 million in unrealized depreciation on debt and other investments, $0.2 million in
unrealized appreciation on warrant investments and $0.05 million in unrealized depreciation on equity investments.





125







Horizon Technology
Finance Corporation and Subsidiaries



Notes to Consolidated
Financial Statements



The Company discloses
fair value information about financial instruments, whether or not recognized in the consolidated statement of assets and liabilities,
for which it is practicable to estimate that value. Certain financial instruments are excluded from the disclosure requirements.
Accordingly, the aggregate fair value amounts presented do not represent the underlying value of the Company.



The fair value amounts
have been measured as of the reporting date and have not been reevaluated or updated for purposes of these financial statements
subsequent to that date. As such, the fair values of these financial instruments subsequent to the reporting date may be different
than amounts reported at year-end.



As of December 31,
2019 and 2018, all of the balances of all the Company’s financial instruments were recorded at fair value, except for the
Company’s 2022 Notes, as previously described.



Market risk



The Company assumes
interest rate risk (the risk that general interest rate levels will change) as a result of its normal operations. As a result,
the fair values of the Company’s financial instruments will change when interest rate levels change, and that change may
be either favorable or unfavorable to the Company. Management attempts to match maturities of assets and liabilities to the extent
believed necessary to minimize interest rate risk. Management monitors rates and maturities of assets and liabilities and attempts
to minimize interest rate risk by adjusting terms of new debt investments and by investing in securities with terms that mitigate
the Company’s overall interest rate risk.



|Note 7. | Borrowings
|------- | ----------



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



|                                                                |  | December 31, 2019 |         |  | December 31, 2018   |  
|--------------------------------------------------------------- |  | ----------------- | ------- |  | ------------------- | -
|                                                                |  | Total Commitment  |         |  | Balance Outstanding |  
|                                                                |  |                   |         |  |                     |  
|Key Facility                                                    |  | $                 | 125,000 |  |                     | $
|Asset-Backed Notes                                              |  |                   | 100,000 |  |                     |  
|2022 Notes                                                      |  |                   | 37,375  |  |                     |  
|Total before debt issuance costs                                |  |                   | 262,375 |  |                     |  
|Unamortized debt issuance costs attributable to term borrowings |  |                   | —       |  |                     |  
|Total borrowings outstanding, net                               |  | $                 | 262,375 |  |                     | $



On March 23,
2018, President Trump signed into law the Small Business Credit Availability Act as part of an omnibus spending bill, which,
among other things, amends the 1940 Act to reduce the minimum required asset coverage applicable to BDCs under the 1940 Act
from 200% to 150% if certain approval and disclosure requirements are met. Before such reduced asset coverage requirement can
apply to the Company, such reduced asset coverage requirement must be approved by either (a) a “required
majority” (as defined in Section 57(o) of the 1940 Act) of the Board, in which case such reduced asset coverage
requirement would take effect on the first anniversary of the date of such Board approval, or (b) a majority of votes cast by
the stockholders of the Company at a special or annual meeting at which a quorum is present, in which case such reduced asset
coverage requirement shall take effect on the day after such approval. On June 7, 2018, a “required majority” of
the Board approved the reduced asset coverage requirements and separately recommended that the Company’s stockholders
approve the reduced asset coverage requirements at a special meeting of the Company’s stockholders. The Company held a
special meeting on October 30, 2018 during which the reduced asset coverage requirements were approved by stockholders. The
reduced asset coverage requirements took effect October 31, 2018.





126







As of December 31,
2019, with certain limited exceptions, as a BDC, the Company is only allowed to borrow amounts such that the Company’s asset
coverage, as defined in the 1940 Act, is at least 150% after such borrowings. As of December 31, 2019, the asset coverage for borrowed
amounts was 219%.



The Company entered
into the Key Facility with Key effective November 4, 2013. On December 28, 2018, the Company amended the Key Facility, increasing
the aggregate commitments under the Key Facility by $25 million to $125 million. The Key Facility has an accordion feature which
allows for an increase in the total loan commitment to $150 million from the $125 million commitment. The Key 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 investments held
by Credit II. The Key Facility contains covenants that, among other things, require the Company to maintain a minimum net worth
and to restrict the debt investments securing the Key Facility to certain criteria for qualified debt investments and includes
portfolio company concentration limits as defined in the related loan agreement. The Key Facility has a revolving period that extends
to April 6, 2021, followed by a two-year amortization period and is scheduled to mature on April 6, 2023. The interest rate is
based upon the one-month LIBOR, plus a spread of 3.25%, with a LIBOR floor of 0.75%. The LIBOR rate was 1.76% and 2.50% on December
31, 2019 and 2018, respectively. The average interest rate for the years ended December 31, 2019 and 2018 was 5.51% and 5.23%,
respectively. The Key Facility requires the payment of an unused line fee in an amount up to 0.50% on an annualized basis of any
unborrowed amount available under the facility. As of December 31, 2019 and 2018, the Company had borrowing capacity under the
Key Facility of $108.0 million and $34.5 million, respectively. At December 31, 2019 and 2018, $24.2 million and $0.9 million,
respectively, was available, subject to existing terms and advance rates.



On September 29, 2017,
the Company issued and sold an aggregate principal amount of $32.5 million of 6.25% notes due in 2022 and on October 11, 2017,
pursuant to the underwriters’ 30 day option to purchase additional notes, the Company sold an additional $4.9 million of
such notes (collectively, the “2022 Notes”). The 2022 Notes have a stated maturity of September 15, 2022 and may be
redeemed in whole or in part at the Company’s option at any time or from time to time on or after September 15, 2019 at a
redemption price of $25 per security plus accrued and unpaid interest. The 2022 Notes bear interest at a rate of 6.25% per year,
payable quarterly on March 15, June 15, September 15 and December 15 of each year. The 2022 Notes are the Company’s direct
unsecured obligations and (i) rank equally in right of payment with the Company’s current and future unsecured indebtedness;
(ii) are senior in right of payment to any of the Company’s future indebtedness that expressly provides it is subordinated
to the 2022 Notes; (iii) are effectively subordinated to all of the Company’s existing and future secured indebtedness (including
indebtedness that is initially unsecured to which the Company subsequently grants security), to the extent of the value of the
assets securing such indebtedness, and (iv) are structurally subordinated to all existing and future indebtedness and other obligations
of any of the Company’s subsidiaries. As ofDecember 31,
2019, the Company was in material compliance with the terms of the 2022
Notes.The 2022 Notes are listed on the New York Stock Exchange under the symbol “HTFA”.



On August 13, 2019,
the Company completed a term debt securitization in connection with which an affiliate of the Company made an offering of $100.0
million in aggregate principal amount of fixed rate asset-backed notes (the “Asset-Backed Notes”). The Asset-Backed
Notes were rated A+(sf) by Morningstar Credit Ratings, LLC.



The Asset-Backed Notes
were issued by the 2019-1 Trust pursuant to a note purchase agreement, dated as of August 13, 2019, by and among the Company and
Keybanc Capital Markets Inc. as Initial Purchaser, and are backed by a pool of loans made to certain portfolio companies of the
Company and secured by certain assets of those portfolio companies and are to be serviced by the Company. Interest on the Asset-Backed
Notes will be paid, to the extent of funds available, at a fixed rate of 4.21% per annum. The Asset-Backed Notes have a two-year
reinvestment period and a stated maturity of September 15, 2027.



As of December 31,
2019, the Asset-Backed Notes had an outstanding principal balance of $100.0 million. There was no outstanding principal balance
for the Asset-Backed Notes at December 31, 2018.





127









Horizon Technology Finance Corporation
and Subsidiaries



Notes to Consolidated Financial Statements



Under the terms of
the Asset-Backed Notes, the Company is required to maintain a reserve cash balance, funded through proceeds from the sale of the
Asset-Backed Notes, which may be used to pay monthly interest and principal payments on the Asset-Backed Notes. The Company has
segregated these funds and classified them as restricted investments in money market funds. At December 31, 2019, there was approximately
$1.1 million of restricted investments. There were no funds segregated as restricted investments related to the Asset-Backed Notes
at December 31, 2018.



The following table
shows information about our senior securities as of December 31, 2018, 2018, 2017, 2016 and 2015:



|Class and Year          |  | Total Amount
Outstanding
Exclusive of
Treasury
Securities(1) |         |  | Asset Coverage
per Unit(2) |   |        | Involuntary
Liquidation
Preference 
per Unit(3) |  |  | Average 
Market 
Value per 
Unit(4) | 
|----------------------- |  | ------------------------------------------------------------ | ------- |  | -------------------------- | - | ------ | ----------------------------------------------- |  |  | ----------------------------------- | 
|                        |  | (In thousands, except unit data)                             |        
|Credit facilities       |  |                                                              |         |  |                            |   |        |                                                 |  |  |                                     | 
|2019                    |  | $                                                            | 17,000  |  |                            | $ | 19,908 |                                                 |  |  | —                                   | 
|2018                    |  | $                                                            | 90,500  |  |                            | $ | 2,896  |                                                 |  |  | —                                   | 
|2017                    |  | $                                                            | 58,000  |  |                            | $ | 3,973  |                                                 |  |  | —                                   | 
|2016                    |  | $                                                            | 63,000  |  |                            | $ | 3,733  |                                                 |  |  | —                                   | 
|2015                    |  | $                                                            | 68,000  |  |                            | $ | 4,048  |                                                 |  |  | —                                   | 
|2022 Notes              |  |                                                              |         |  |                            |   |        |                                                 |  |  |                                     | 
|2019                    |  | $                                                            | 37,375  |  |                            | $ | 9,055  |                                                 |  |  | —                                   | 
|2018                    |  | $                                                            | 37,375  |  |                            | $ | 7,014  |                                                 |  |  | —                                   | 
|2017                    |  | $                                                            | 37,375  |  |                            | $ | 6,166  |                                                 |  |  | —                                   | 
|2019 Notes              |  |                                                              |         |  |                            |   |        |                                                 |  |  |                                     | 
|2019                    |  |                                                              | —       |  |                            |   | —      |                                                 |  |  | —                                   | 
|2018                    |  |                                                              | —       |  |                            |   | —      |                                                 |  |  | —                                   | 
|2017                    |  |                                                              | —       |  |                            |   | —      |                                                 |  |  | —                                   | 
|2016                    |  | $                                                            | 33,000  |  |                            | $ | 7,127  |                                                 |  |  | —                                   | 
|2015                    |  | $                                                            | 33,000  |  |                            | $ | 8,342  |                                                 |  |  | —                                   | 
|2019-1 Securitization   |  |                                                              |         |  |                            |   |        |                                                 |  |  |                                     | 
|2019                    |  | $                                                            | 100,000 |  |                            | $ | 3,384  |                                                 |  |  | —                                   | 
|2013-1 Securitization   |  |                                                              |         |  |                            |   |        |                                                 |  |  |                                     | 
|2019                    |  |                                                              | —       |  |                            |   | —      |                                                 |  |  | —                                   | 
|2018                    |  |                                                              | —       |  |                            |   | —      |                                                 |  |  | —                                   | 
|2017                    |  |                                                              | —       |  |                            |   | —      |                                                 |  |  | —                                   | 
|2016                    |  |                                                              | —       |  |                            |   | —      |                                                 |  |  | —                                   | 
|2015                    |  | $                                                            | 14,546  |  |                            | $ | 18,926 |                                                 |  |  | —                                   | 
|Total senior securities |  |                                                              |         |  |                            |   |        |                                                 |  |  |                                     | 
|2019                    |  | $                                                            | 154,375 |  |                            | $ | 2,192  |                                                 |  |  | —                                   | 
|2018                    |  | $                                                            | 127,875 |  |                            | $ | 2,050  |                                                 |  |  | —                                   | 
|2017                    |  | $                                                            | 95,375  |  |                            | $ | 2,416  |                                                 |  |  | —                                   | 
|2016                    |  | $                                                            | 96,000  |  |                            | $ | 2,450  |                                                 |  |  | —                                   | 
|2015                    |  | $                                                            | 115,546 |  |                            | $ | 2,383  |                                                 |  |  | —                                   | 










|(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 consolidated assets, 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 to any security junior to it. The “ — ” in this column indicates that the SEC expressly does not require this information to be disclosed for certain types of securities.                                                                                
|(4) | Not applicable to the Company’s credit facilities, 2019-1 Securitization and 2013-1 Securitization because such securities are not registered for public trading.                                                                                                                                                                                                                                              





128







Horizon Technology Finance Corporation
and Subsidiaries



Notes to Consolidated Financial Statements



|Note 8. | 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 assets resulting from operations primarily due to unrealized appreciation on investments as investment gains and
losses are not included in taxable income until they are realized.



The following table
reconciles net increase in net assets resulting from operations to taxable income:



|                                                          |  | Years Ended December 31, |       
|--------------------------------------------------------- |  | ------------------------ | ------
|                                                          |  | 2019                     |       
|                                                          |  | (In thousands)           |       
|Net increase in net assets resulting from operations      |  | $                        | 19,498
|Net unrealized (appreciation) depreciation on investments |  |                          | (3,201
|Other book-tax differences                                |  |                          | 988   
|Change in capital loss carry forward                      |  |                          | 4,173 
|Taxable income before deductions for distributions        |  | $                        | 21,458



The tax characters
of distributions paid are as follows:



|                |  | Years Ended December 31, |       
|--------------- |  | ------------------------ | ------
|                |  | 2019                     |       
|                |  | (In thousands)           |       
|Ordinary income |  | $                        | 16,159
|Total           |  | $                        | 16,159



The components of
undistributed ordinary income earnings on a tax basis were as follows:



|                                     |  | As of December 31, |        
|------------------------------------ |  | ------------------ | -------
|                                     |  | 2019               |        
|                                     |  | (In thousands)     |        
|Undistributed ordinary income        |  | $                  | 6,536  
|Long term capital loss carry forward |  |                    | (45,230
|Unrealized appreciation              |  |                    | 8,352  
|Unrealized depreciation              |  |                    | (7,596 
|Other temporary differences          |  |                    | 4,700  
|Total                                |  | $                  | (33,238



Depending on the level
of taxable income earned in a tax year, the Company may choose to carry forward taxable income in excess of current year distributions
into the next tax year and incur a 4% excise tax on such income, as required. For the years ended December 31, 2019 and 2018, the
Company elected to carry forward taxable income in excess of current year distributions of $6.5 million and $1.3 million, respectively.
At December 31, 2019 and 2018, a provision for excise tax of $0.2 million and $0.03 million, respectively was recorded.



Capital losses in
excess of capital gains earned in a tax year may generally be carried forward, without expiration, and used to offset capital gains,
subject to certain limitations. During the year ended December 31, 2019, the Company did not use any of its capital loss carry
forward to offset capital gains. During the year ended December 31, 2018, the Company used $0.6 million of its capital loss carry
forward to offset capital gains. During the year ended December 31, 2017, the Company did not use any of its capital loss carry
forward to offset capital gains.



For federal
income tax purposes, the tax cost of investments at December 31, 2019 and 2018 was $318.8 million and $250.9 million,
respectively. The gross unrealized appreciation on investments at December 31, 2019 and 2018 was $8.4 million and $5.2
million, respectively. The gross unrealized depreciation on investments at December 31, 2019 and 2018 was $7.6 million and
$7.7 million, respectively.





129







Horizon Technology Finance Corporation
and Subsidiaries



Notes to Consolidated Financial Statements



|Note 9. | Financial instruments with off-balance-sheet risk
|------- | -------------------------------------------------



In the normal course
of business, the Company is party to financial instruments with off-balance-sheet risk to meet the financing needs of its borrowers.
These financial instruments include commitments to extend credit and involve, to varying degrees, elements of credit risk in excess
of the amount recognized in the consolidated statement of assets and liabilities. The Company attempts to limit its credit risk
by conducting extensive due diligence and obtaining collateral where appropriate.



The balance of unfunded
commitments to extend credit was $49.5 million and $27.5 million as of December 31, 2019 and 2018, respectively. Commitments to
extend credit consist principally of the unused portions of commitments that obligate the Company to extend credit, such as revolving
credit arrangements or similar transactions. These commitments are often subject to financial or non-financial milestones and other
conditions to borrow that must 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. This includes the undrawn revolver commitments discussed in Note 4.



The following table
provides the Company’s unfunded commitments by portfolio company as of December 31, 2019:



|                             |  | December 31, 2018                                          |       
|---------------------------- |  | ---------------------------------------------------------- | ------
|                             |  | Principal
                                         Balance |       
|                             |  | (In thousands)                                             |       
|Betabrand Corporation.       |  | $                                                          | 2,250 
|CSA Medical, Inc.            |  |                                                            | 4,000 
|Espero Biopharma, Inc.       |  |                                                            | 500   
|Kate Farms, Inc.             |  |                                                            | 5,000 
|Kinestral Technologies, Inc. |  |                                                            | 8,000 
|LogicBio Therapeutics, Inc.  |  |                                                            | 5,000 
|Maculogix, Inc.              |  |                                                            | 3,750 
|Mustang Bio, Inc.            |  |                                                            | 5,000 
|Revinate, Inc.               |  |                                                            | 5,000 
|Skillshare, Inc.             |  |                                                            | 11,000
|Total                        |  | $                                                          | 49,500



The table above also
provides the fair value of the Company’s unfunded commitment liability as of December 31, 2019 which totaled $0.9 million.
The fair 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 the remaining terms of the agreements and the counterparties’ credit profile. The unfunded
commitment liability reflects the fair value of these future funding commitments and is included in the Company’s consolidated
statement of assets and liabilities.



|Note 10. | Concentrations of credit risk
|-------- | -----------------------------



The
Company’s debt investments consist primarily of loans to development-stage companies at various stages of development
in the technology, life science, healthcare information and services and sustainability industries. Many of these companies
may have relatively limited operating histories and also may experience variation in operating results. Many of these
companies conduct business in regulated industries and could be affected by changes in government regulations. Most of the
Company’s borrowers will need additional capital to satisfy their continuing working capital needs and other
requirements, and in many instances, to service the interest and principal payments on the loans.





130







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.
The Company’s five largest debt investments, at cost, represented 28% and 32% of total debt investments outstanding as of
December 31, 2019 and 2018, respectively. No single debt investment represented more than 10% of the total debt investments as
of December 31, 2019 or 2018. Investment income, consisting of interest and fees, can fluctuate significantly upon repayment of
large debt investments. Interest income from the five largest debt investments accounted for 17%, 25% and 14% of total interest
and fee income on investments for the years ended December 31, 2019, 2018 and 2017, respectively.



|Note 11. | Distributions
|-------- | -------------



The Company’s
distributions are recorded on the declaration date. The following table summarizes the Company’s distribution activity for
the years ended December 31, 2019 and 2018:



|Date
                                         
                                         Declared |  | Record Date                                     |  | Payment Date |  | Amount
Per
Share |      |  | Cash
                                         Distribution |   |        | DRIP

Shares
Issued |  |  | DRIP
Share
Value | 
|------------------------------------------------------------------------------------------------ |  | ----------------------------------------------- |  | ------------ |  | ---------------- | ---- |  | ---------------------------------------------------------- | - | ------ | ------------------- |  |  | ---------------- | 
|                                                                                                 |  | (In thousands, except share and per share data) | 
|Year Ended December 31, 2019                                                                     |  |                                                 |  |              |  |                  |      |  |                                                            |   |        |                    
|10/25/19                                                                                         |  | 2/19/20                                         |  | 3/16/20      |  | $                | 0.10 |  |                                                            | $ | —      |                     |  |  | —                | 
|10/25/19                                                                                         |  | 1/17/20                                         |  | 2/14/20      |  |                  | 0.10 |  |                                                            |   | 1,660  |                     |  |  | 1,234            | 
|10/25/19                                                                                         |  | 12/18/19                                        |  | 1/15/20      |  |                  | 0.10 |  |                                                            |   | 1,519  |                     |  |  | 1,115            | 
|7/26/19                                                                                          |  | 11/19/19                                        |  | 12/16/19     |  |                  | 0.10 |  |                                                            |   | 1,467  |                     |  |  | 1,215            | 
|7/26/19                                                                                          |  | 10/18/19                                        |  | 11/15/19     |  |                  | 0.10 |  |                                                            |   | 1,442  |                     |  |  | 1,226            | 
|7/26/19                                                                                          |  | 9/19/19                                         |  | 10/16/19     |  |                  | 0.10 |  |                                                            |   | 1,412  |                     |  |  | 1,258            | 
|4/26/19                                                                                          |  | 8/19/19                                         |  | 9/17/19      |  |                  | 0.10 |  |                                                            |   | 1,366  |                     |  |  | 1,274            | 
|4/26/19                                                                                          |  | 7/18/19                                         |  | 8/15/19      |  |                  | 0.10 |  |                                                            |   | 1,339  |                     |  |  | 1,261            | 
|4/26/19                                                                                          |  | 6/19/19                                         |  | 7/16/19      |  |                  | 0.10 |  |                                                            |   | 1,338  |                     |  |  | 1,339            | 
|3/1/19                                                                                           |  | 5/17/19                                         |  | 6/17/19      |  |                  | 0.10 |  |                                                            |   | 1,339  |                     |  |  | 1,308            | 
|3/1/19                                                                                           |  | 4/18/19                                         |  | 5/15/19      |  |                  | 0.10 |  |                                                            |   | 1,332  |                     |  |  | 1,885            | 
|3/1/19                                                                                           |  | 3/19/19                                         |  | 4/16/19      |  |                  | 0.10 |  |                                                            |   | 1,139  |                     |  |  | 1,199            | 
|                                                                                                 |  |                                                 |  |              |  | $                | 1.20 |  |                                                            | $ | 15,353 |                     |  |  | 14,314           | 
|Year Ended December 31, 2018                                                                     |  |                                                 |  |              |  |                  |      |  |                                                            |   |        |                     |  |  |                  | 
|10/26/18                                                                                         |  | 2/20/19                                         |  | 3/15/19      |  | $                | 0.10 |  |                                                            | $ | 1,140  |                     |  |  | 1,061            | 
|10/26/18                                                                                         |  | 1/17/19                                         |  | 2/15/19      |  |                  | 0.10 |  |                                                            |   | 1,139  |                     |  |  | 1,166            | 
|10/26/18                                                                                         |  | 12/18/18                                        |  | 1/15/19      |  |                  | 0.10 |  |                                                            |   | 1,140  |                     |  |  | 1,125            | 
|7/27/18                                                                                          |  | 11/19/18                                        |  | 12/14/18     |  |                  | 0.10 |  |                                                            |   | 1,139  |                     |  |  | 1,222            | 
|7/27/18                                                                                          |  | 10/18/18                                        |  | 11/15/18     |  |                  | 0.10 |  |                                                            |   | 1,138  |                     |  |  | 1,255            | 
|7/27/18                                                                                          |  | 9/18/18                                         |  | 10/16/18     |  |                  | 0.10 |  |                                                            |   | 1,138  |                     |  |  | 1,253            | 
|4/27/18                                                                                          |  | 8/17/18                                         |  | 9/14/18      |  |                  | 0.10 |  |                                                            |   | 1,139  |                     |  |  | 1,212            | 
|4/27/18                                                                                          |  | 7/19/18                                         |  | 8/15/18      |  |                  | 0.10 |  |                                                            |   | 1,139  |                     |  |  | 1,202            | 
|4/27/18                                                                                          |  | 6/19/18                                         |  | 7/17/18      |  |                  | 0.10 |  |                                                            |   | 1,140  |                     |  |  | 1,221            | 
|3/1/18                                                                                           |  | 5/17/18                                         |  | 6/15/18      |  |                  | 0.10 |  |                                                            |   | 1,140  |                     |  |  | 1,271            | 
|3/1/18                                                                                           |  | 4/19/18                                         |  | 5/15/18      |  |                  | 0.10 |  |                                                            |   | 1,140  |                     |  |  | 1,287            | 
|3/1/18                                                                                           |  | 3/19/18                                         |  | 4/17/18      |  |                  | 0.10 |  |                                                            |   | 1,139  |                     |  |  | 1,255            | 
|                                                                                                 |  |                                                 |  |              |  | $                | 1.20 |  |                                                            | $ | 13,671 |                     |  |  | 14,530           | 





131







Horizon Technology Finance Corporation
and Subsidiaries



Notes to Consolidated Financial Statements



On February 28, 2020, the Board
declared monthly distributions per share and a special distribution for April of $0.05 per share, payable as set forth in the
following table:



Monthly distributions



|Ex-Dividend Date |  | Record Date    |  | Payment Date    |  | Distributions Declared |     
|---------------- |  | -------------- |  | --------------- |  | ---------------------- | ----
|March 17, 2020   |  | March 18, 2020 |  | April, 15, 2020 |  | $                      | 0.10
|April 16, 2020   |  | April 17, 2020 |  | May 15, 2020    |  | $                      | 0.10
|May 18, 2020     |  | May 19, 2020   |  | June 16, 2020   |  | $                      | 0.10



Special distribution



|Ex-Dividend Date |  | Record Date    |  | Payment Date    |  | Distributions Declared |     
|---------------- |  | -------------- |  | --------------- |  | ---------------------- | ----
|March 17, 2020   |  | March 18, 2020 |  | April, 15, 2020 |  | $                      | 0.05



After paying distributions
of $1.10 per share deemed paid for tax purposes in 2019, declaring on October 25, 2019 a distribution of $0.10 per share payable
January 15, 2020, and taxable earnings of $1.59 per share in 2019, the Company’s undistributed spillover income as of December
31, 2019 was $0.42 per share. Spillover income includes any ordinary income and net capital gains from the preceding tax years
that were not distributed during such tax years.



|Note 12. | Subsequent events
|-------- | -----------------



Subsequent to December
31, 2019, and as of March 3, 2020, the Company sold approximately 1,198,552 shares of common stock for total accumulated net proceeds
of approximately $15.1 million, net of offering expenses, under the Equity Distribution Agreement. As of March 3, 2020, shares
representing approximately $10.0 million of its common stock remain available for issuance and sale under the Equity Distribution
Agreement.



On January 29, 2020,
the Company received proceeds of $2.3 million in connection with the termination of its warrants in Sys-Tech Solutions, Inc. (“Sys-Tech”)
upon Sys-Tech’s sale to Dover Fluids, Inc.



On February 12, 2020,
the Company received proceeds of $0.4 million in connection with the sale of its equity investment in Revance Therapeutics, Inc.



On February 21,
2020, Bridge2 Solutions, LLC (“Bridge2”) prepaid its outstanding principal balance of $14.5 million on its
venture loan, plus interest and end-of-term payment. On February 26, 2020, the Company received proceeds
of $2.9 million in connection with the termination of its warrants in Bridge2 upon Bridge2’s sale to Intercontinental
Exchange, Inc.



On February 26, 2020,
the Company funded a $20.0 million loan to a new portfolio company, Castle Creek Biosciences, Inc., a clinical stage biopharmaceutical
company developing therapies for patients with rare and debilitating dermatological conditions.



On February 28, 2020,
the Company funded a $4.0 million loan to an existing portfolio company, CSA Medical, Inc., a developer of novel, patent-protected
cryotherapy medical devices.



On February 28, 2020, the Company funded
a $1.1 million loan to an existing portfolio company, Betabrand Corporation, a crowdfunded online clothing community that designs,
manufactures, and consistently releases new products.





132







Horizon Technology Finance Corporation
and Subsidiaries



Notes to Consolidated Financial Statements



|Note 13. | Financial highlights
|-------- | --------------------



The following table
shows financial highlights for the Company:



|                                                                |  | Years Ended December 31,                        |           
|--------------------------------------------------------------- |  | ----------------------------------------------- | ----------
|                                                                |  | 2019                                            |           
|                                                                |  | (In thousands, except share and per share data) |           
|Per share data:                                                 |  |                                                 |           
|Net asset value at beginning of period                          |  | $                                               | 11.64     
|Net investment income                                           |  |                                                 | 1.52      
|Realized (loss) gain on investments                             |  |                                                 | (0.31     
|Unrealized appreciation (depreciation) on investments           |  |                                                 | 0.24      
|Net increase (decrease) in net assets resulting from operations |  |                                                 | 1.45      
|Net dilution from issuance of common stock                      |  |                                                 | —         
|Distributions declared(1)                                       |  |                                                 | (1.20     
|From net investment income                                      |  |                                                 | (1.20     
|From net realized gain on investments                           |  |                                                 | —         
|Return of capital                                               |  |                                                 | —         
|Net accretion from repurchase of common stock                   |  |                                                 | —         
|Other (2)                                                       |  |                                                 | (0.06     
|Net asset value at end of period                                |  | $                                               | 11.83     
|Per share market value, beginning of period                     |  | $                                               | 11.25     
|Per share market value, end of period                           |  |                                                 | 12.93     
|Total return based on a market value (3)                        |  |                                                 | 25.6      
|Shares outstanding at end of period                             |  |                                                 | 15,563,290
|Ratios, net of waivers, to average net assets:                  |  |                                                 |           
|Expenses without incentive fees                                 |  |                                                 | 10.8      
|Incentive fees                                                  |  |                                                 | 3.2       
|Net expenses                                                    |  |                                                 | 14.0      
|Net investment income with incentive fees                       |  |                                                 | 12.8      
|Ratios, without waivers, to average net assets:                 |  |                                                 |           
|Expenses without incentive fees(4)                              |  |                                                 | 10.8      
|Incentive fees(4)                                               |  |                                                 | 4.4       
|Net expenses(4)                                                 |  |                                                 | 15.2      
|Net investment income with incentive fees(4)                    |  |                                                 | 11.6      
|Net assets at the end of the period                             |  | $                                               | 184,055   
|Average net asset value                                         |  | $                                               | 160,008   
|Average debt per share                                          |  | $                                               | 10.05     
|Portfolio turnover ratio                                        |  |                                                 | 82.0      










|(1) | Distributions are determined based on taxable income calculated in accordance with income tax regulations, which may differ from amounts determined under GAAP due to (i) changes in unrealized appreciation and depreciation, (ii) temporary and permanent differences in income and expense recognition, and (iii) the amount of spillover income carried over from a given tax year for distribution in the following tax year. The final determination of taxable income for each tax year, as well as the tax attributes for distributions in such tax year, will be made after the close of the 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 during the period and certain per share data based on the shares outstanding as of a period end or transaction date.                                                                                                                                                                                                                                                                                                                                       
|(3) | The total return equals the change in the ending market value over the beginning of period price per share plus distributions paid per share during the period, divided by the beginning price.                                                                                                                                                                                                                                                                                                                                                                                                                
|(4) | During the years ended December 31, 2019, 2018 and 2017, the Advisor waived $1.8 million, $1.2 million and $0.1 million, respectively, of incentive fee. During the year ended December 31, 2015, the Advisor waived $0.3 million of base management fee.                                                                                                                                                                                                                                                                                                                                                      





133







Horizon Technology Finance Corporation
and Subsidiaries



Notes to Consolidated Financial Statements



|Note 14. | Summarized financial information for HSLFI
|-------- | ------------------------------------------



Horizon Secured Loan Fund I



Statements of Assets and Liabilities

(Dollars in thousands)



|                                                                      |  | December 31, |       
|--------------------------------------------------------------------- |  | ------------ | ------
|                                                                      |  | 2019         |       
|Assets                                                                |  |              |       
|Investments at fair value (cost of $34,895 and $24,771, respectively) |  | $            | 34,829
|Investments in money market funds                                     |  |              | 11,201
|Cash and cash equivalents                                             |  |              | 503   
|Restricted investments in money market funds                          |  |              | 138   
|Interest receivable                                                   |  |              | 477   
|Other assets                                                          |  |              | 1,109 
|Total assets                                                          |  | $            | 48,257
|                                                                      |  |              |       
|Liabilities                                                           |  |              |       
|Borrowings                                                            |  | $            | 14,955
|Other liabilities                                                     |  |              | 126   
|Total liabilities                                                     |  |              | 15,081
|                                                                      |  |              |       
|Commitments and contingencies                                         |  |              |       
|                                                                      |  |              |       
|Members’ Capital                                                      |  |              |       
|Members’ capital                                                      |  |              | 33,176
|Total members’ capital                                                |  |              | 33,176
|Total liabilities and members’ capital                                |  | $            | 48,257





134







Horizon Technology
Finance Corporation and Subsidiaries



Notes to Consolidated Financial Statements



Horizon Secured Loan Fund I



Statements of Operations

(Dollars in thousands)



|                                                     |  | For the year ended 
December 31 |       |   | For the period June 1, 2018 through December 31 |  
|---------------------------------------------------- |  | ------------------------------- | ----- | - | ----------------------------------------------- | -
|                                                     |  | 2019                            |       |   | 2018                                            |  
|Investment income                                    |  |                                 |       |   |                                                 |  
|Interest income                                      |  | $                               | 5,291 |   |                                                 | $
|Prepayment fee income                                |  |                                 | 389   |   |                                                 |  
|Fee income                                           |  |                                 | 19    |   |                                                 |  
|Total investment income                              |  |                                 | 5,699 |   |                                                 |  
|Expenses                                             |  |                                 |       |   |                                                 |  
|Interest expense                                     |  |                                 | 1,101 |   |                                                 |  
|General and administrative                           |  |                                 | 126   |   |                                                 |  
|Total expenses                                       |  |                                 | 1,227 |   |                                                 |  
|Net investment income                                |  |                                 | 4,472 |   |                                                 |  
|Net unrealized depreciation on investments           |  |                                 |       |   |                                                 |  
|Net unrealized depreciation on investments           |  |                                 | (28   | ) |                                                 |  
|Net unrealized depreciation on investments           |  |                                 | (28   | ) |                                                 |  
|Net increase in net assets resulting from operations |  | $                               | 4,444 |   |                                                 | $



|Note 15. | Selected quarterly financial data (unaudited)
|-------- | ---------------------------------------------





|                                                    |  | December 31,
2019                     |        |  | September 30,
2019 |   |        | June 30,
2019 |  |   | March 31,
2019 |  
|--------------------------------------------------- |  | ------------------------------------- | ------ |  | ------------------ | - | ------ | ------------- |  | - | -------------- | -
|                                                    |  | (In thousands, except per share data) |       
|Total investment income                             |  | $                                     | 12,975 |  |                    | $ | 11,375 |               |  | $ | 10,470         |  
|Net investment income                               |  | $                                     | 6,452  |  |                    | $ | 5,773  |               |  | $ | 5,012          |  
|Net realized and unrealized gain (loss)             |  | $                                     | 277    |  |                    | $ | (567   | )             |  | $ | (474           | )
|Net increase in net asset resulting from operations |  | $                                     | 6,729  |  |                    | $ | 5,206  |               |  | $ | 4,538          |  
|Net investment income per share (1)                 |  | $                                     | 0.43   |  |                    | $ | 0.42   |               |  | $ | 0.37           |  
|Net increase in net assets per share (1)            |  | $                                     | 0.45   |  |                    | $ | 0.38   |               |  | $ | 0.34           |  
|Net asset value per share at period end (2)         |  | $                                     | 11.83  |  |                    | $ | 11.67  |               |  | $ | 11.60          |  



|                                                    |  | December 31,
2018                     |       |   | September 30,
2018 |   |       | June 30,
2018 |  |   | March 31,
2018 |  
|--------------------------------------------------- |  | ------------------------------------- | ----- | - | ------------------ | - | ----- | ------------- |  | - | -------------- | -
|                                                    |  | (In thousands, except per share data) |      
|Total investment income                             |  | $                                     | 8,805 |   |                    | $ | 7,797 |               |  | $ | 7,313          |  
|Net investment income                               |  | $                                     | 3,964 |   |                    | $ | 3,402 |               |  | $ | 3,290          |  
|Net realized and unrealized (loss) gain             |  | $                                     | (746  | ) |                    | $ | 857   |               |  | $ | (360           | )
|Net increase in net asset resulting from operations |  | $                                     | 3,218 |   |                    | $ | 4,259 |               |  | $ | 2,930          |  
|Net investment income per share (1)                 |  | $                                     | 0.34  |   |                    | $ | 0.30  |               |  | $ | 0.29           |  
|Net increase in net assets per share (1)            |  | $                                     | 0.28  |   |                    | $ | 0.37  |               |  | $ | 0.25           |  
|Net asset value per share at period end (2)         |  | $                                     | 11.64 |   |                    | $ | 11.66 |               |  | $ | 11.60          |  



|(1) | Based on weighted average shares outstanding for the respective period.
|--- | -----------------------------------------------------------------------
|(2) | Based on shares outstanding at the end of the respective period.       





135







|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,
2019, we, including our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the design and operation
of our disclosure controls and procedures (as defined in Rule 13a-15(e) of the Exchange Act). Based on that evaluation, our
management, including our Chief Executive Officer and Chief Financial Officer, concluded that our disclosure controls and procedures
were effective and provided reasonable assurance that information required to be disclosed in our periodic SEC filings is recorded,
processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information
is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate,
to allow timely decisions regarding required disclosure. However, in evaluating the disclosure controls and procedures, management
recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of
achieving the desired control objectives, and management necessarily was required to apply its judgment in evaluating the cost-benefit
relationship of such possible controls and procedures.



| | (b) | 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
are included 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 over financial reporting.



|Item 9B. | Other Information
|-------- | -----------------



None





136







PART III



We will file a definitive
Proxy Statement for our 2020 Annual Meeting of Stockholders with the SEC, pursuant to Regulation 14A, not later than 120 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 2020 Annual Meeting of
Stockholders, 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 2020 Annual Meeting of
Stockholders, 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 2020 Annual Meeting of
Stockholders, 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 2020 Annual Meeting of
Stockholders, 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 2020 Annual Meeting of
Stockholders, to be filed with the Securities and Exchange Commission not later than 120 days following the end of our fiscal
year.





137







PART IV



|Item 15. | Exhibits, Financial Statement Schedules
|-------- | ---------------------------------------



|(a)(1) | Financial statements
|------ | --------------------



| | (1) | Financial statements — Refer to Item 8
starting on page 84.
| | --- | -----------------------------------------------------------



| | (2) | Financial statement schedules — None
| | --- | ------------------------------------



| | (3) | Exhibits
| | --- | --------



|Exhibit
    No. |  | Description                                                                                                                                                                                                                                                                                                                                                                                                  | 
|--------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | 
|3.1             |  | Amended and Restated Certificate of Incorporation (Incorporated by reference to exhibit (a) of the Company’s Pre-effective Amendment No. 2 to the Registration Statement on Form N-2, filed on July 2, 2010)                                                                                                                                                                                                
|                |  |                                                                                                                                                                                                                                                                                                                                                                                                             
|3.2             |  | Amended and Restated Bylaws (Incorporated by reference to exhibit (b) of the Company’s Pre-effective Amendment No. 2 to the Registration Statement on Form N-2, filed on July 2, 2010)                                                                                                                                                                                                                      
|                |  |                                                                                                                                                                                                                                                                                                                                                                                                             
|4.1             |  | Form of Specimen Certificate (Incorporated by reference to exhibit (d) of the Company’s Pre-effective Amendment No. 3 to the Registration Statement on Form N-2, filed on July 19, 2010)                                                                                                                                                                                                                    
|                |  |                                                                                                                                                                                                                                                                                                                                                                                                             
|4.2             |  | 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)                                                                                                                         
|                |  |                                                                                                                                                                                                                                                                                                                                                                                                             
|4.3             |  | Second Supplemental Indenture, dated as of September 29, 2017, between the Company and U.S. Bank National Association (Incorporated by reference to Exhibit (d)(12) of the Company’s Post-Effective Amendment No. 5 to the Registration Statement on Form N-2, File No. 333-201886, filed on September 29, 2017)                                                                                            
|                |  |                                                                                                                                                                                                                                                                                                                                                                                                             
|4.4             |  | Form of 6.25% 2022 Notes due 2022 (included as part of Exhibit 4.3)                                                                                                                                                                                                                                                                                                                                         
|                |  |                                                                                                                                                                                                                                                                                                                                                                                                             
|4.5*            |  | Description of Securities                                                                                                                                                                                                                                                                                                                                                                                   
|                |  |                                                                                                                                                                                                                                                                                                                                                                                                             
|10.1            |  | Investment Management Agreement (Incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K, filed on March 8, 2019)                                                                                                                                                                                                                                                             
|                |  |                                                                                                                                                                                                                                                                                                                                                                                                             
|10.2            |  | Form of Custodial Agreement (Incorporated by reference to exhibit (j) of the Company’s Pre-effective Amendment No. 3 to the Registration Statement 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 the Registration Statement on Form N-2, filed on July 2, 2010)                                                                                                                                                                                                              
|                |  |                                                                                                                                                                                                                                                                                                                                                                                                             
|10.4            |  | Form of Trademark License Agreement by and between the Company and Horizon Technology Finance Management, 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 the Registration 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 by reference 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 the borrower, Alostar Bank of Commerce, as lender, and KeyBank National Association, as lender, arranger and agent (Incorporated by reference to Exhibit (k)(13) of Pre-effective Amendment No. 3 to the Company’s Registration Statement on Form N-2, filed on August 19, 2015)





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|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, Wells Fargo Capital Finance, LLC and Key Equipment Finance Inc. (Incorporated by reference to Exhibit 10.16 of the Company’s Annual Report on 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 LLC, as borrower, and the Company, as servicer (Incorporated by reference to Exhibit (k)(11) to the Post-Effective Amendment No. 2 to the Company’s Registration Statement on Form N-2, File No. 333-201886, filed on June 10, 2016)                                                                                                                                         
|      |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|10.11 |  | Amendment No. 2 to Amended and Restated Loan Agreement, dated as of April 6, 2018, by and among Horizon Credit II LLC, as the borrower, State Bank and Trust Company (successor by merger to AloStar Bank of Commerce), as lender, MUFG Union Bank, N.A., as lender, and KeyBank National Association (successor by merger to Key Equipment Finance Inc.) as lender, arranger, and agent (Incorporated by reference to Exhibit 10.01 of the Quarterly Report on Form 10-Q of the Company, filed on May 1, 2018)               
|      |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|10.12 |  | Horizon Secured Loan Fund I Limited Liability Company Agreement dated June 1, 2018, by and between the Company and Arena Sunset SPV, LLC (Incorporated by reference to Exhibit (k)(9) to the Company’s Registration Statement on Form N-2, File No. 333-225698, filed on June 18, 2018)                                                                                                                                                                                                                                       
|      |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|10.13 |  | Amendment No. 3 to Amended and Restated Loan Agreement, dated as of December 28, 2018, by and among Horizon Credit II LLC, as the borrower, State Bank and Trust Company (successor by merger to AloStar Bank of Commerce), as lender, MUFG Union Bank, N.A., as lender, and KeyBank National Association (successor by merger to Key Equipment Finance Inc.) as lender, arranger, and agent (Incorporated by reference to Exhibit 10.13 of the Company’s Annual Report on Form 10-K, filed on March 5, 2019)                 
|      |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|10.14 |  | Underwriting Agreement, dated as of March 21, 2019, by and among the Company, Horizon Technology Finance Management LLC, and Morgan Stanley & Co. LLC, as representative of the several underwriters named therein (Incorporated by reference to Exhibit (h)(3) of the Company’s Post-Effective Amendment No. 1, filed on March 26, 2019)                                                                                                                                                                                     
|      |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|10.15 |  | Equity Distribution Agreement, dated as of August 2, 2019, by and among the Company, Horizon Technology Management LLC, Goldman Sachs & Co. LLC and B. Riley FBR, Inc. (Incorporated by reference to Exhibit 1.1 of the Company’s Current Report on Form 8-K, filed on August 2, 2019)                                                                                                                                                                                                                                        
|      |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|10.16 |  | Note Purchase Agreement, dated as of August 6, 2019, by and among the Company, Horizon Funding Trust 2019-1, the Issuer, Horizon Funding 2019-1 LLC, the Trust Depositor, and KeyBanc Capital Markets Inc., as Initial Purchaser (Incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K, filed on August 13, 2019)                                                                                                                                                                            
|      |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|10.17 |  | Indenture, dated as of August 13, 2019, by and between Horizon Funding Trust 2019-1, as the Issuer, and US Bank National Association, as the Trustee (Incorporated by reference to Exhibit 10.2 of the Company’s Current Report on Form 8-K, filed on August 13, 2019).                                                                                                                                                                                                                                                       
|      |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|10.18 |  | Sale and Contribution Agreement, dated as of August 13, 2019, by and between the Company, as the Seller, and Horizon Funding 2019-1 LLC, as the Trust Depositor (Incorporated by reference to Exhibit 10.3 of the Company’s Current Report on Form 8-K, filed on August 13, 2019).                                                                                                                                                                                                                                            
|      |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|10.19 |  | Sale and Servicing Agreement, dated as of August 13, 2019, by and among the Company, as the Seller and as the Servicer, Horizon Funding Trust 2019-1, as the Issuer, Horizon Funding 2019-1 LLC, as the Trust Depositor, and US Bank National Association, as the Trustee, Backup Servicer, Custodian and Securities Intermediary (Incorporated by reference to Exhibit 10.4 of the Company’s Current Report on Form 8-K, filed on August 13, 2019).                                                                          
|      |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|10.20 |  | Administration Agreement, dated as of August 13, 2019, among Horizon Funding Trust 2019-1, as Issuer, the Company, as Administrator, Wilmington Trust, National Association, as Owner Trustee, and US Bank National Association, as Trustee (Incorporated by reference to Exhibit 10.5 of the Company’s Current Report on Form 8-K, filed on August 13, 2019).                                                                                                                                                                





139







|10.21 |  | Amended and Restated Trust Agreement, dated as of August 13, 2019, Horizon Funding 2019-1 LLC, as the Trust Depositor, and Wilmington Trust, National Association, as the Owner Trustee (Incorporated by reference to Exhibit 10.6 of the Company’s Current Report on Form 8-K, filed on August 13, 2019).
|----- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|      |  |                                                                                                                                                                                                                                                                                                           
|14.1  |  | Code of Ethics of the Company (Incorporated by reference to Exhibit 14.1 of the Company’s Annual Report on Form 10-K, filed on March 7, 2017)                                                                                                                                                             
|      |  |                                                                                                                                                                                                                                                                                                           
|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-Oxley Act of 2002                                                                                                                                                     
|      |  |                                                                                                                                                                                                                                                                                                           
|32.2* |  | Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002                                                                                                                                                     
|      |  |                                                                                                                                                                                                                                                                                                           
|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
| | - | --------------





140







SIGNATURES



Pursuant to the requirements
of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this Annual Report on Form 10-K
to be signed on its behalf by the undersigned, thereunto duly authorized.



|                    | Horizon Technology Finance Corporation
|------------------- | --------------------------------------
|                    |                                       
|Date: March 3, 2020 | By:                                   
|                    | Name:                                 
|                    | Title:                                



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 any amendments to this Annual Report on Form 10-K and to file the same, with exhibits thereto and other documents
in connection therewith, with the Securities and 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 done by virtue hereof.



Pursuant to the requirements
of the Securities Exchange Act of 1934, this Annual Report on Form 10-K has been signed below by the following persons on
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 and Chief           |  |              
|Robert D. Pomeroy, Jr.     |  | Executive Officer (Principal Executive Officer)        |  | March 3, 2020
|                           |  |                                                        |  |              
|/s/ Daniel R. Trolio       |  | Chief Financial Officer and                            |  |              
|Daniel R. Trolio           |  | Treasurer (Principal Financial and Accounting Officer) |  | March 3, 2020
|                           |  |                                                        |  |              
|/s/ Gerald A. Michaud      |  |                                                        |  |              
|Gerald A. Michaud          |  | President and Director                                 |  | March 3, 2020
|                           |  |                                                        |  |              
|/s/ James J. Bottiglieri   |  |                                                        |  |              
|James J. Bottiglieri       |  | Director                                               |  | March 3, 2020
|                           |  |                                                        |  |              
|/s/ Edmund V. Mahoney      |  |                                                        |  |              
|Edmund V. Mahoney          |  | Director                                               |  | March 3, 2020
|                           |  |                                                        |  |              
|/s/ Elaine A. Sarsynski    |  |                                                        |  |              
|Elaine A. Sarsynski        |  | Director                                               |  | March 3, 2020
|                           |  |                                                        |  |              
|/s/ Joseph J. Savage       |  |                                                        |  |              
|Joseph J. Savage           |  | Director                                               |  | March 3, 2020



141