##### Table of Contents





UNITED STATES SECURITIES AND
    EXCHANGE COMMISSIONWashington, D.C.
    20549
  Form 10-K
  (Mark One)þ

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934FOR THE FISCAL YEAR ENDED
    DECEMBER 31,
    2010ORo

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934FOR THE TRANSITION PERIOD
    FROM          TO   COMMISSION FILE NUMBER:
    814-00802
  HORIZON TECHNOLOGY FINANCE
    CORPORATION
 (Exact name of registrant as
    specified in its charter)
  DELAWARE

27-2114934(State or other jurisdiction of
    
    incorporation or organization)

(I.R.S. Employer 
    Identification No.)   76 Batterson Park Road,
    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

Name of Each Exchange on Which RegisteredCommon Stock, par value $0.001 per share

The NASDAQ Global Market   Securities registered pursuant to Section 12(g) of the
    Act:
 None
  o þ
  o þ
  þ o
  Regulation S-T o o
  Regulation S-K Form 10-K Form 10-K. þ
  Rule 12b-2
  Large accelerated
    filer o

Accelerated
    filer o

Non-accelerated
    filer þ

Smaller Reporting Company o(Do not check if a smaller
    reporting company)   Rule 12b-2 o þ
  over-the-counter
  Form 10-K Form 10-K.




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##### 





HORIZON
    TECHNOLOGY FINANCE CORPORATION
  FORM 10-K
 FOR THE
    YEAR ENDED DECEMBER 31, 2010
  TABLE OF
    CONTENTS
  PagePART IItem 1.


Business


4Item 1A.


Risk Factors


25Item 1B.


Unresolved Staff Comments


43Item 2.


Properties


43Item 3.


Legal Proceedings


43Item 4.


[Removed and Reserved]


44PART IIItem 5.


Market For Registrants Common Equity,
    Related Stockholder Matters and Issuer Purchases of Equity
    Securities


44Item 6.


Selected Financial Data


47Item 7.


Managements Discussion and Analysis of
    Financial Condition and Results of Operations


48Item 7A.


Quantitative And Qualitative Disclosures About
    Market Risk


58Item 8.


Consolidated Financial Statements and
    Supplementary Data


60Item 9.


Changes in and Disagreements with Accountants on
    Accounting and Financial Disclosure


88Item 9A.


Controls and Procedures


88Item 9B.


Other Information


88PART IIIItem 10.


Directors, Executive Officers and Corporate
    Governance


88Item 11.


Executive Compensation


88Item 12.


Security Ownership of Certain Beneficial Owners
    and Management and Related Stockholder Matters


89Item 13.


Certain Relationships and Related Transactions,
    and Director Independence


89Item 14.


Principal Accountant Fees and Services


89PART IVItem 15.


Exhibits and Financial Statement Schedules


89Signatures


91   2




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Forward-Looking
    Statements
  Form 10-K, Form 10-K
  
    our future operating results, including the performance of our
    existing loans and warrants;
    the introduction, withdrawal, success and timing of business
    initiatives and strategies;
    changes in political, economic or industry conditions, the
    interest rate environment or financial and capital markets,
    which could result in changes 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;
    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;
    our ability to cause a subsidiary to become a licensed SBIC;
    the impact of legislative and regulatory actions and reforms and
    regulatory supervisory or enforcement actions of government
    agencies relating to us or our Advisor;
    our contractual arrangements and relationships with third
    parties;
    our ability to access capital and any future financings by us;
    the ability of our Advisor to attract and retain highly talented
    professionals; and
    the impact of changes to tax legislation and, generally, our tax
    position.  Form 10-K.
  Form 10-K, Form 10-Q Form 8-K.
 3




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##### Table of Contents



PART I  In this annual report on
    Form 10-K,
    except where the context suggests otherwise, the terms
    we, us, our and
    Horizon Technology Finance refer to Horizon
    Technology Finance Corporation and its consolidated
    subsidiaries; Horizon Technology Finance Management
    LLC or the Advisor or the
    Administrator refer to Horizon Technology Finance
    Management LLC. Some of the statements in this annual report
    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 discussed in
    Risk Factors and elsewhere in this annual report on
    Form 10-K.
  Item 1.
    Business  General
        source-of-income,
  day-to-day
  (860) 676-8654, www.horizontechnologyfinancecorp.com
 4




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##### Table of Contents



Form 10-K, Form 10-Q, Form 8-K Form 10-K Form 10-K
  Our
    Advisor
      Our
    Strategy
    
    Structured Investments in the Venture Capital and Private
    Equity Markets.  We make loans to
    development-stage companies within our Target Industries
    typically in the form of secured amortizing loans. The secured
    amortizing debt structure provides a lower risk strategy, as
    compared to equity 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 loan principal and have
    a senior position in the capital structure to equity 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 loans primarily through
    regularly scheduled payments of principal and interest and, if
    necessary, liquidation of the collateral supporting the loan.
    Only the potential gains from warrants are dependent upon exits.
    Enterprise Value Lending.  We take
    an enterprise value approach to the loan structuring and
    underwriting process. We secure a senior or subordinated lien
    position against the enterprise value of a 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 Technology Loans.
    These funding needs include, but are not limited to, 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, pre-payment fees and non-utilization fees. We
    believe we have developed pricing tools, structuring techniques
    and valuation metrics that satisfy our portfolio companies
    requirements while mitigating risk and maximizing returns on our
    investments.
    Opportunity for Enhanced Returns.  To enhance
    our loan portfolio returns, in addition to interest and fees, we
    obtain warrants to purchase the equity of our portfolio
    companies, as additional consideration for making 5




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loans. 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 cleantech 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 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. 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.
    Use of Leverage; SBA Debenture Program.  Since
    our inception, we have employed leverage to increase returns on
    equity through a revolving credit facility provided by WestLB
    AG, which we refer to as the Credit Facility. The
    Credit Facility allowed us to borrow up to $125 million,
    and we were able to request advances under the Credit Facility
    through March 4, 2011. As of the date hereof, we are no
    longer able to request advances under the Credit Facility, as
    described in Item 7 below, Managements
    Discussion and Analysis of Financial Condition and Results of
    Operations  Liquidity and Capital Resources.    Market
    Opportunity
   6




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
    interest rates that typically exceed rates that would be
    available to portfolio companies if they could borrow in
    traditional commercial financing transactions;
    the loan support provided by cash proceeds from equity capital
    invested by venture capital and private equity firms;
    relatively rapid amortization of loans;
    senior ranking to equity and collateralization of loans to
    minimize potential loss of capital; and
    potential equity appreciation through warrants.    
    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
    Consistently Execute Commitments and Close
    Transactions.
  Robust Direct Origination Capabilities.
  Access to Capital.
  Highly Experienced and Cohesive Management
    Team.
  Relationships with Venture Capital and Private Equity
    Investors.
 7




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Well-Known Brand Name.
  Competition
    Investment
    Criteria
    Portfolio Composition.
  Continuing Support from One or More Venture Capital and
    Private Equity Investors.
  Company Stage of Development.
  Operating Plan.
  Liquidation Value of Assets.
 8




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Terms.
  Warrants and Equity Participation Rights.
  Experienced Management of Portfolio
    Companies.
  Exit Strategy.
  Investment
    Process
    Portfolio
    Management and Reporting
       9




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##### Table of Contents



Rating4

The portfolio company has performed in excess of our
    expectations at underwriting 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 there is no expected risk of principal loss.3

The portfolio company has performed to our expectations at
    underwriting as demonstrated by hitting 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 per its plan; it is expected to raise
    additional capital as needed; and there continues to be
    potential for warrant gains from our warrants. All new loans are
    rated 3 when approved and thereafter 3 rated loans represent a
    standard risk profile, with no loss currently expected.2

The portfolio company has performed below our expectations at
    underwriting as demonstrated by missing revenue milestones,
    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 per 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. 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 per 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 and represent a high degree of risk of loss. The
    fair value of 1 rated loans is reduced to the amount that is
    expected to be recovered from liquidation of the collateral.   Managerial
    Assistance
    Employees
  day-to-day
 10




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Investment
    Management Agreement
  day-to-day
  
    determines the composition of our portfolio, the nature and
    timing of the changes to our portfolio and the manner of
    implementing such changes;
    identifies, evaluates and negotiates the structure of the
    investments we make (including performing due diligence on our
    prospective portfolio companies); and
    closes and monitors the investments we make.    Organization
    of the Advisor
    Investment
    Advisory Fees
    Base Management Fee.
  Incentive Fee.
  payment-in-kind catch-up catch-up,
 11




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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
    Examples
    of Incentive Fee Calculation
  Example
    1: Income Related Portion of Incentive Fee for Each Fiscal
    Quarter
  Alternative
    1
  Assumptions
         12




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Alternative
    2
  Assumptions
       catch-up)(4)
    catch-up
  Alternative
    3
  Assumptions
        catch-up)(4)
  catch-up
           catch-up
    (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 net investment income
    exceeds 2.1875% in any fiscal quarter.  Example
    2: Capital Gains Portion of Incentive Fee
  Alternative
    1
  Assumptions
   13




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Alternative
    2
  Assumptions
                             (1)
    
    As illustrated in Year 3 of Alternative 1 above, if we were to
    be wound up on a date other than its 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 we had been wound up on its fiscal year end of such year.(2)
    
    As noted above, it is possible that the cumulative aggregate
    capital gains fee received by the Investment Manager
    ($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)). 14




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Payment
    of Our Expenses
    
    our organization;
    calculating our net asset value (including the cost and expenses
    of any independent valuation firms);
    expenses, including travel expense, incurred by our Advisor or
    payable to third parties performing due diligence on prospective
    portfolio companies, monitoring our investments and, if
    necessary, enforcing our rights;
    interest payable on debt, if any, incurred to finance our
    investments;
    the costs of future offerings of our common stock and other
    securities, if any;
    the base management fee and any incentive management fee;
    distributions on our shares;
    administration fees payable under our Administration Agreement;
    the allocated costs incurred by Advisor as our Administrator in
    providing managerial assistance to those portfolio companies
    that request it;
    amounts payable to third parties relating to, or associated
    with, making investments;
    transfer agent and custodial fees;
    registration fees;
    listing fees;
    fees and expenses associated with marketing efforts;
    taxes;
    independent director fees and expenses;
    brokerage commissions;
    costs of preparing and filing reports or other documents with
    the SEC;
    the costs of any reports, proxy statements or other notices to
    our stockholders, including printing costs;
    our allocable portion of 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 our 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
    compliance officer and our chief financial officer and their
    respective staffs.   15




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Limitation
    of Liability and Indemnification
    Board
    Approval of the Investment Management Agreement
      Duration
    and Termination
   16




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Administration
    Agreement
    License
    Agreement
    Regulation
  sub-advisers),
   17




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Qualifying
    Assets
    
    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 business development
    company) 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 business development company or a group of
    companies including a business development company, the business
    development company actually exercises a controlling influence
    over the management or policies of the eligible portfolio
    company, and, as a result thereof, the business development
    company 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.  
    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. 18




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
    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.  and/or
  Managerial
    Assistance to Portfolio Companies
    Issuance
    of Additional Shares
    Temporary
    Investments
  agreed-upon agreed-upon
 19




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Senior
    Securities; Derivative Securities
      Code
    of Ethics
  Rule 17j-1 (202) 942-8090. Form 10-K, http://www.sec.gov e-mail address: publicinfo@sec.gov 20549-0102.
  Proxy
    Voting Policies and Procedures
    Introduction
    Rule 206(4)-6
  Proxy
    policies
  case-by-case
 20




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##### Table of Contents



Proxy
    Voting Records
    Chief
    Compliance Officer
    Horizon Technology Finance Corporation
    76 Batterson Park Road
    Farmington, Connecticut 06032
  Sarbanes-Oxley
    Act of 2002
    
    pursuant to
    Rule 13a-14
    under 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 under
    Regulation S-K,
    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
    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.    Small
    Business Investment Company Regulations
     21




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22




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NASDAQ
    Global Market Corporate Governance Regulations
    Privacy
    Principles
        Election
    to be Taxed as a RIC
  source-of-income
    
    maintain an election to be treated as a business development
    company under the 1940 Act at all times during each taxable year;
    meet any applicable securities law requirements, including
    capital structure requirements;
    derive in each taxable year at least 90% of our gross income
    from distributions, 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 (the 90%
    Income Test); and
    diversify our holdings so that at the end of each quarter of the
    taxable 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 represent 23




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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 (the Diversification Tests).  Taxation
    as a RIC
        and/or
  Failure
    to Qualify as a RIC
     24




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##### Table of Contents



Item 1A.
    Risk
    Factors  Investing in our common stock involves a number of
    significant risks. 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 common stock. The risks set out
    below are not the only risks we face. Additional risks and
    uncertainties not presently known to us or not presently deemed
    material by us might also impair our operations and performance.
    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 net asset value and the
    trading price of our common stock could decline, and you may
    lose part or all of your investment.
  Risks
    Relating to Our Business and Structure
  We
    have a limited operating history and may not be able to achieve
    our investment objective or generate sufficient revenue to make
    or sustain distributions to our stockholders and your investment
    in us could decline substantially.
    We may
    not replicate the historical results achieved by other entities
    managed or sponsored by members of our Advisor or its
    affiliates.
    We and
    our Advisor have limited experience operating under the
    constraints imposed on a business development company or
    managing an investment company, which may affect our ability to
    manage our business and impair your ability to assess our
    prospects.
   25




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and/or
  We are
    dependent upon key personnel of our Advisor and our
    Advisors ability to hire and retain qualified
    personnel.
    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.
   26




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We
    borrow money, which magnifies the potential for gain or loss on
    amounts invested and may increase the risk of investing in
    us.
      Illustration:
  Assumed Return on Our Portfolio(Net of Expenses)(10%)

(5%)

0%

5%

10%Corresponding return to stockholder(1)


(19
%)


(11
%)


(2
%)


6
%


15
%     (1)
    
    Assumes $216 million in total assets, $87 million in
    debt outstanding, $127 million in stockholders
    equity, and an average cost of funds of 3.16%. Assumptions are
    based on our financial condition and our average costs of funds
    at December 31, 2010. Actual interest payments may be
    different.  If we
    are unable to comply with the covenants or restrictions in the
    Credit Facility, our business could be materially adversely
    affected.
   27




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Because
    we will distribute all or substantially all of our income and
    any realized net short-term capital gains over realized net
    long-term capital losses to our stockholders, we will need
    additional capital to finance our growth, if any. If additional
    funds are unavailable or not available on favorable terms, our
    ability to grow will be impaired.
    If we
    are unable to obtain additional debt financing, our business
    could be materially adversely affected.
   28




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##### Table of Contents



If we
    do not receive qualification from the SBA to form an SBIC or we
    are unable to comply with SBA regulations after our SBIC
    subsidiary is formed, our business plan and investment objective
    could be materially adversely affected.
    Changes
    in interest rates may affect our cost of capital and net
    investment income.
    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 net asset value.
   29




---



##### Table of Contents



Disruption
    in the capital markets and the credit markets could adversely
    affect our business.
    We may
    not realize gains from our equity investments.
      We may
    not realize expected returns on warrants received in connection
    with our debt investments.
   30




---



##### Table of Contents



Regulations
    governing our operation as a business development company affect
    our ability to, and the way in which, we raise additional
    capital, which may expose us to additional risks.
        If we
    are unable to satisfy the requirements under the Code for
    qualification as a RIC, we will be subject to corporate-level
    federal income tax.
  source-of-income,
  source-of-income
   31




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##### Table of Contents



We may
    have difficulty paying our required distributions if we
    recognize taxable income before or without receiving
    cash.
  payment-in-kind
    If we
    do not invest a sufficient portion of our assets in qualifying
    assets, we could fail to qualify as a business development
    company or be precluded from investing according to our current
    business strategy.
   32




---



##### Table of Contents



Changes
    in laws or regulations governing our business could adversely
    affect our business, results of operations and financial
    condition.
    Our
    Advisor has significant potential conflicts of interest with us
    and our stockholders.
        Our
    incentive fee may impact our Advisors structuring of our
    investments, including by causing our Advisor to pursue
    speculative investments.
   33




---



##### Table of Contents



catch-up
  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
    board of directors 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.
   34




---



##### Table of Contents



Our
    quarterly and annual operating results may fluctuate due to the
    nature of our business.
    Our
    business plan and growth strategy depends to a significant
    extent upon our Advisors referral relationships. If our
    Advisor is unable to develop new or maintain existing
    relationships, or if these relationships fail to generate
    investment opportunities, our business could be materially
    adversely affected.
    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.
    Our
    ability to enter into transactions with our affiliates is
    restricted.
   35




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##### Table of Contents



We
    incur significant costs as a result of being a publicly traded
    company.
    Terrorist
    attacks and other catastrophic events may disrupt the businesses
    in which we invest and harm our operations and our
    profitability.
    Risks
    Related to our Investments
  We
    have not yet identified many of the potential investment
    opportunities for our portfolio.
    If our
    investments do not meet our performance expectations, you may
    not receive distributions.
    Most
    of our portfolio companies will need additional capital, which
    may not be readily available.
   36




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##### Table of Contents



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.
      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 are typically
    rated below investment grade.
      Any
    unrealized depreciation we experience on our loan portfolio may
    be an indication of future realized losses, which could reduce
    our income available for distribution.
   37




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##### Table of Contents



If the
    assets securing the loans we make decrease in value, we may not
    have sufficient collateral to cover losses and may experience
    losses upon foreclosure.
      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.
  and/or
  Our
    portfolio companies may incur debt that ranks equally with, or
    senior to, our investments in such companies.
   38




---



##### Table of Contents



There
    may be circumstances where our loans could be subordinated to
    claims of other creditors or we could be subject to lender
    liability claims.
    An
    investment strategy focused primarily on privately held
    companies presents certain challenges, including the 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.
    day-to-day
  Prepayments
    of our debt investments by our portfolio companies could
    adversely impact our results of operations and reduce our return
    on equity.
   39




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##### Table of Contents



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.
  and/or
  Our
    portfolio companies operating in the life science industry are
    subject to extensive government regulation and certain other
    risks particular to that industry.
    If our
    portfolio companies are unable to commercialize their
    technologies, products, business concepts or services, the
    returns on our investments could be adversely
    affected.
    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.
  and/or
 40




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##### Table of Contents



and/or
  We do
    not expect to control any of our portfolio
    companies.
    Risks
    Related to our Common Stock
  We
    cannot assure you that the market price of shares of our common
    stock will not decline.
    Subsequent
    sales in the public market of substantial amounts of our common
    stock issued to insiders or others may have an adverse effect on
    the market price of our common stock.
  180-day 180-day 16-day 180-day lock-up 18-day lock-up
 41




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##### Table of Contents



Our
    common stock price may be volatile and may decrease
    substantially.
    
    price and volume fluctuations in the overall stock market or in
    the market for business development companies 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, business development companies or other financial
    services companies;
    our inability to raise capital, borrow money or deploy or invest
    our capital;
    fluctuations in interest rates;
    any shortfall in revenue or net income or any increase in losses
    from levels expected by investors or securities analysts;
    operating performance of companies comparable to us;
    changes in regulatory policies or tax guidelines with respect to
    RICs, business development companies or SBICs;
    not electing or losing RIC status;
    actual or anticipated changes in our earnings or fluctuations in
    our operating results;
    changes in the value of our portfolio of investments;
    changes in the value of our portfolio of investments;
    changes in the value of our portfolio of investments;
    general economic conditions, trends and other external factors;
    departures of key personnel; or
    loss of a major source of funding.    We
    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.
    Investing
    in shares of our common stock may involve an above average
    degree of risk.
   42




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##### Table of Contents



Anti-takeover
    provisions in our charter documents and other agreements and
    certain provisions of the Delaware General Corporation Law could
    deter takeover attempts and have an adverse impact on the price
    of our common stock.
    
    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 of directors;
    authorize the issuance of blank check preferred
    stock that could be issued by our board of directors to thwart a
    takeover attempt;
    do not provide for cumulative voting;
    provide that vacancies on the board of directors, 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.  and/or
  Item 1B.
    Unresolved
    Staff Comments    Item 2.
    Properties    Item 3.
    Legal
    Proceedings   43




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##### Table of Contents



Item 4.
    [Removed
    and Reserved] PART II  Item 5.
    Market
    for Registrants Common Equity, Related Stockholder Matters
    and Issuer Purchases of Equity Securities  Price
    Range of Common Stock
    High Sales

Low SalesClosing Sales Price

Price to

Price to

DividendsPeriod

NAV(1)

High

Low

NAV(2)

NAV(2)

DeclaredYear ended December 31, 2010Fourth quarter(3)

$
16.75


$
15.59


$
13.83



93
%


83
%

$
0.22     (1)
    
    NAV per share is determined as of the last day in the relevant
    quarter and therefore may not reflect the NAV per share on the
    date of the high and low sales prices. The NAVs shown are based
    on outstanding shares at the end of each period.(2)
    
    Calculated as of the respective high or low closing sales price
    divided by the quarter end NAV.(3)
    
    From October 29, 2010 (initial public offering) to
    December 31, 2010.    Sales
    of Unregistered Securities
    Distributions
     44




---



##### Table of Contents



DividendsRecord Date

Payment Date


DeclaredYear ended December 31, 2010December 28, 2010


December 31, 2010


$
0.22Total





$
0.22  45




---



##### Table of Contents



Stock
    Performance Graph
    
  Form 10-K
 46




---



##### Table of Contents



Item 6.
    Selected
    Financial Data    Post-IPO as a

Pre-IPO Prior to becoming a BusinessBusiness

Development CompanyDevelopment





March 4,Company





2008October 29,

January 1,



(Inception)2010 to

2010 to

Year Ended

throughDecember 31,

October 28,

December 31,

December 31,2010

2010

2009

2008(In thousands, except per share data)Statement of Operations Data:Total investment income

$
3,251


$
14,956


$
15,326


$
7,021Base management fee


668



2,019



2,202



1,073Performance based incentive fee


414











All other expenses


810



3,912



4,567



2,958Net investment income


1,359



9,025



8,557



2,990Net realized gain on investments


611



69



138



22Net unrealized appreciation (depreciation) on investments


1,449



1,481



892



(73
)Credit (provision) for loan losses






739



(274
)


(1,650
)Net increase in net assets resulting from operations


3,419



11,314



9,313



1,289Per share data:Net asset value

$
16.75



N/A



N/A



N/ANet investment income


0.18



N/A



N/A



N/ANet realized gain on investments


0.08



N/A



N/A



N/ANet change in unrealized appreciation (depreciation) on
    investments


0.19



N/A



N/A



N/ANet increase/(decrease) in net assets resulting from operations


0.45



N/A



N/A



N/APer share dividends declared


0.22



N/A



N/A



N/ADollar amount of dividends declared


1,662



N/A



N/A



N/ABalance Sheet data at period end:Investments, at fair value/book value

$
136,810



N/A


$
111,954


$
92,174Cash and cash equivalents


76,793



N/A



9,892



20,024Other assets


2,602



N/A



3,022



3,017Total assets


216,205



N/A



124,868



115,215Total liabilities


89,010



N/A



65,375



65,430Total net assets/members capital


127,195



N/A



59,493



49,784Other data:Weighted average annualized yield on income producing
    investments at fair value


14.6
%


N/A



13.9
%


12.7
%Number of portfolio companies at period end


32



N/A



32



26  47




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##### Table of Contents



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 audited consolidated financial statements
    and related notes thereto appearing elsewhere in this annual
    report on
    Form 10-K.
    For periods prior to October 28, 2010, the consolidated
    financial statements and related footnotes reflect the
    performance of our predecessor, Compass Horizon Funding Company
    LLC, and its wholly owned subsidiary, Horizon Credit I LLC, both
    of which were formed in January 2008 and commenced operations in
    March 2008.
  Overview
        Current
    Market Conditions
  Current
    Market Overview
       48




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##### Table of Contents



Portfolio
    Composition and Investment Activity
      December 31, 2010


December 31, 2009% of








% of# of


Fair


Total


# of


Book


TotalInvestments


Value


Portfolio


Investments


Value


Portfolio($ in thousands)Secured term loans


31


$
127,949



93.5
%


29


$
104,295



91.6
%Secured revolving loans














2



3,665



3.2
%Equipment loans


1



2,285



1.6
%


1



3,460



3.0
%Total loans


32



130,234



95.1
%


32



111,420



97.8
%Warrants to purchase stock


43



6,225



4.6
%


37



2,458



2.2
%Equity


2



351



0.3
%










Total





$
136,810



100.0
%





$
113,878



100.0
%     December 31,2010


2009($ in thousands)Beginning portfolio

$
113,878


$
93,824New loan funding


98,267



49,934Less refinanced balances


(13,593
)


Net new loan funding


84,674



49,934Principal and stock payments received on investments


(33,149
)


(16,805
)Early pay-offs


(31,709
)


(14,582
)Accretion of loan fees


1,399



1,068New loan fees


(836
)


(449
)New equity


350



Net appreciation on investments


2,203



888Ending Portfolio

$
136,810


$
113,878    49




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##### Table of Contents



December 31, 2010


December 31, 2009Loans at


Percentage


Loans at


PercentageFair


of Total


Book


of TotalValue


Portfolio


Value


Portfolio($ in thousands)Life ScienceBiotechnology

$
30,470



23.4
%

$
21,761



19.5
%Medical Device


19,572



15.0
%


16,033



14.4
%TechnologyConsumer-related Technologies


4,460



3.4
%


15,180



13.6
%Networking


2,285



1.8
%


14,562



13.1
%Software


8,745



6.7
%


12,887



11.6
%Data Storage


7,912



6.1
%


9,024



8.1
%Internet and Media










2,483



2.2
%Communications


7,591



5.9
%


2,457



2.2
%Semiconductors










866



0.8
%CleantechEnergy Efficiency


16,570



12.7
%






Waste Recycling


2,363



1.8
%






Healthcare Information and ServicesDiagnostics


20,472



15.7
%


16,167



14.5
%Other Healthcare Related Services and Technologies


9,794



7.5
%






Total

$
130,234



100.0
%

$
111,420



100.0
%       Loan
    Portfolio Asset Quality
    December 31, 2010


December 31, 2009Loans at


Percentage


Loans at


PercentageFair


of Loan


Book


of LoanValue


Portfolio


Value


Portfolio($ in thousands)


($ in thousands)Credit Rating4

$
29,054



22.3
%

$
19,113



17.2
%3


94,200



72.3
%

$
64,224



57.6
%2


6,980



5.4
%

$
28,083



25.2
%1














Total

$
130,234



100.0
%

$
111,420



100.0
%  50




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##### Table of Contents



Consolidated
    Results of Operations
        2010


2009


2008($ in thousands)Total investment income

$
18,207


$
15,326


$
7,021Total expenses


7,823



6,769



4,031Net investment income


10,384



8,557



2,990Net realized gains


680



138



22Net unrealized appreciation (depreciation)


2,930



892



(73
)Credit (provision) for loan losses


739



(274
)


(1,650
)Net income

$
14,733


$
9,313


$
1,289Average investments, at fair value

$
124,027


$
109,561


$
63,111Average debt outstanding

$
77,174


$
70,582


$
37,010     Investment
    Income
     51




---



##### Table of Contents



Expenses
            Net
    Realized Gains and Net Unrealized Appreciation and
    Depreciation
   52




---



##### Table of Contents



Credit
    or Provision for Loan Losses
    Liquidity
    and Capital Resources
            and/or
     53




---



##### Table of Contents



Current
    Borrowings
        Future
    Borrowings
    Interest
    Rate Swaps and Hedging Activities
    Off-Balance
    Sheet Arrangements
   54




---



##### Table of Contents



Contractual
    Obligations
    Distributions
          Critical
    Accounting Policies
     55




---



##### Table of Contents



Valuation
    of Investments
        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.    Income
    Recognition
      end-of-term
 56




---



##### Table of Contents



Allowance
    for Loan Losses
    case-by-case
    Income
    taxes
     57




---



##### Table of Contents



Recently
    Issued Accounting Standards
  2010-06,
  
    Separate disclosure of the significant transfers in and out of
    Level 1 and Level 2 fair value measurements, and a
    description of the reasons for the transfers.
    In the roll forward of activity for Level 3 fair value
    measurements (significant unobservable inputs), purchases,
    sales, issuances, and settlements should be presented separately
    (on a gross basis rather than as one net number).    
    Fair value measurements and disclosures should be presented for
    each class of assets and liabilities within a line item in the
    balance sheet.
    Reporting entities should provide disclosures about the
    valuation techniques and inputs used to measure fair value for
    both recurring and nonrecurring fair value measurements that
    fall in either Level 2 or Level 3.    Item 7A.
    Quantitative
    And Qualitative Disclosures About Market Risk     58




---



##### Table of Contents



59




---



##### Table of Contents



Item 8.
    Consolidated
    Financial Statements and Supplementary Data  Index to
    Consolidated Financial Statements
  PageReport of Independent Registered Public
    Accounting Firm


61Consolidated Statements of Assets and Liabilities
    as of December 31, 2010 and 2009


62Consolidated Statements of Operations for the
    Period from October 29, 2010 to December 31, 2010, the
    Period from January 1, 2010 to October 28, 2010, the
    Year Ended December 30, 2009, and the Period March 4,
    2008 (Inception) to December 31, 2008


63Consolidated Statements of Changes in Net Assets
    for the Years Ended December 31, 2010, 2009, and the Period
    March 4, 2008 (Inception) to December 31, 2008


64Consolidated Statements of Cash Flows for the
    Period from October 29, 2010 to December 31, 2010, the
    Period from January 1, 2010 to October 28, 2010, the
    Year Ended December 31, 2009, and the Period March 4,
    2008 (Inception) to December 31, 2008


65Consolidated Schedules of Investments as of
    December 31, 2010 and 2009


66Notes to the Consolidated Financial Statements


72  60




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##### Table of Contents



Report of
    Independent Registered Public Accounting Firm           
    61




---



##### Table of Contents



Horizon
    Technology Finance Corporation and Subsidiaries
  Consolidated
    Statements of Assets and Liabilities
 (In thousands, except share data)
  December 31,2010


2009ASSETSNon-affiliate investments at fair value at December 31,
    2010 (cost of $133,494), at cost net of allowance for loan
    losses of $1,924 at December 31, 2009 (Note 4)

$
136,810


$
111,954Cash and cash equivalents


76,793



9,892Interest receivable


1,938



1,452Debt issuance costs (net of accumulated amortization of:December 31, 2010 $3,292 and December 31, 2009 $2,130)


194



1,355Other assets


470



215Total assets

$
216,205


$
124,868LIABILITIESBorrowings (Note 6)

$
87,425


$
64,166Base management fee payable (Note 3)


360



182Incentive fee payable (Note 3)


414



Interest rate swap liability (Note 10)


258



768Other accrued expenses


553



259Total liabilities


89,010



65,375Net assets/members capitalMembers capital

$



$
60,261Accumulated other comprehensive loss  Unrealized loss
    on interest rate swaps






(768
)Common Stock, par value $0.001 per share,
    100,000,000 shares authorized, 7,593,422 shares
    outstanding as of December 31, 2010


8



Paid-in capital in excess of par


123,836



Distributions in excess of net investment income


(143
)


Net unrealized appreciation on investments


3,043



Net realized gains on investments


451



Total net assets/members capital


127,195



59,493Total liabilities and net assets/members capital

$
216,205


$
124,868Net asset value per common share

$
16.75



N/A    62




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##### Table of Contents



Horizon
    Technology Finance Corporation and Subsidiaries
  Consolidated Statements of
    Operations
 (In thousands, except share data)
  Post-IPO as a


Pre-IPO Prior to becoming aBusiness


Business Development CompanyDevelopment








March 4, 2008Company


January 1,





(Inception)October 29, 2010


2010 to


Year Ended


throughto December 31,


October 28,


December 31,


December 31,2010


2010


2009


2008Investment incomeInterest income on non-affiliate investments

$
2,993


$
14,373


$
14,987


$
6,530Interest income on cash and cash equivalents


10



60



67



359Fee income on non-affiliate investments


248



523



272



132Total investment income


3,251



14,956



15,326



7,021ExpensesInterest expense


508



3,622



4,246



2,748Base management fee (Note 3)


668



2,019



2,202



1,073Performance based incentive fee (Note 3)


414











Administrative fee (Note 3)


88











Professional fees


92



112



131



60General and administrative


122



178



190



150Total expenses


1,892



5,931



6,769



4,031Net investment income


1,359



9,025



8,557



2,990Credit (provision) for loan losses






739



(274
)


(1,650
)Net realized and unrealized gain (loss) on investmentsNet realized gain on investments


611



69



138



22Net unrealized appreciation (depreciation) on investments


1,449



1,481



892



(73
)Net realized and unrealized gain (loss) on investments


2,060



1,550



1,030



(51
)Net increase in net assets resulting from operations

$
3,419


$
11,314


$
9,313


$
1,289Net investment income per common share

$
0.18Change in net assets per common share

$
0.45Weighted average shares outstanding


7,555,722    63




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##### Table of Contents



Horizon
    Technology Finance Corporation and Subsidiaries
  Consolidated
    Statements of Changes in Net Assets
 (In thousands, except share data)
  Distributions


NetAccumulated











in Excess of


Unrealized


NetOther








Paid-In


Net


Appreciation


RealizedMembers


Comprehensive


Common Stock


Capital in


Investment


on


Gains on


TotalCapital


Loss


Shares


Amount


Excess of Par


Income


Investments


Investments


Net AssetsMarch 4, 2008

$



$







$



$



$



$



$



$
Comprehensive income:Net income


1,289































1,289Unrealized loss on interest rate swaps






(1,163
)


























(1,163
)Total comprehensive income


































126Capital contribution, net of costs


49,659































49,659Balance at December 31, 2008


50,948



(1,163
)


























49,785Comprehensive income:Net income


9,313































9,313Unrealized gain on interest rate swaps






395



























395Total comprehensive income


































9,708Balance at December 31, 2009


60,261



(768
)


























59,493Comprehensive income:Net income


11,314































11,314Unrealized gain on interest rate swaps






409



























409Total comprehensive income


































11,723Cash distribution


(18,000
)






























(18,000
)Balance at October 28, 2010


53,575



(359
)


























53,216Election to business development company(1)


(53,575
)


359



2,645,124



3



52,456







1,594







837Issuance of common stock, net of offering costs(2)










4,910,000



5



70,815















70,820Net increase in net assets from operations






















1,359



1,449



611



3,419Issuance of common stock as stock dividend(3)










38,298







565















565Dividends declared






















(1,502
)






(160
)


(1,662
)Balance at December 31, 2010

$



$




7,593,422


$
8


$
123,836


$
(143
)

$
3,043


$
451


$
127,195     (1)
    
    Reclassification from members capital to net assets and
    net unrealized appreciation on investments upon election.
    Immediately prior to the initial public offering
    (IPO), the members of Compass Horizon Funding
    Company LLC (CHF) exchanged their membership
    interests for 2,645,124 shares of common stock of the
    Company and CHF became a wholly owned subsidiary of the Company.
    Concurrent with the IPO Compass Horizon Partners, LP, one of
    CHFs owners, sold 1,340,000 shares.(2)
    
    On October 28, 2010, the Company priced its IPO, offering
    6,250,000 shares of its common stock at a public offering
    price of $16.00 per share. Of the 6,250,000 shares offered,
    4,910,000 shares were sold by the Company and
    1,340,000 shares were sold by Compass Horizon Partners, LP,
    one of CHFs owners. Total offering costs were $7,740.(3)
    
    The Company declared a fourth quarter dividend of $0.22 per
    share, payable on December 31, 2010 to stockholders of
    record on December 28, 2010. The Companys dividend
    reinvestment plan provides for reinvestment of dividends, unless
    a shareholder elects to receive cash. Dividends were reinvested
    at $14.75 per share resulting in 38,298 additional shares.   64




---



##### Table of Contents



Horizon
    Technology Finance Corporation and Subsidiaries
  Consolidated
    Statements of Cash Flows
 (In thousands)
  Post-IPO as a


Pre-IPO Prior to becoming aBusiness


Business Development CompanyDevelopment








March 4,Company








2008October 29,


January 1,





(Inception)2010 to


2010 to


Year Ended


throughDecember 31,


October 28,


December 31,


December 31,2010


2010


2009


2008Cash flows from operating activities:Net increase in net assets resulting from operations

$
3,419


$
11,314


$
9,313


$
1,289Adjustments to reconcile net increase in net assets resulting
    from operations:(Credit) provision for loan losses






(739
)


274



1,650Amortization of debt issuance costs


200



962



1,123



953Net realized gain on investments


(611
)


(69
)


(138
)


(22
)Net unrealized (appreciation) depreciation on investments


(1,449
)


(1,481
)


(892
)


73Purchase of investments


(19,316
)


(65,357
)


(49,936
)


(112,178
)Principal payments received on investments


14,273



50,325



31,190



18,154Proceeds from sale of investments


874



135



142



32Changes in assets and liabilities:Decrease (increase) in interest receivable


675



(1,162
)


(949
)


(503
)(Decrease) increase in unearned loan income


(63
)


(500
)


(618
)


117(Increase) decrease in other assets


(151
)


(246
)


19



(35
)Increase (decrease) in other accrued expenses


220



74



(175
)


435Increase in base management fee payable


157



21



22



159Increase in incentive fee payable


414











Net cash used in operating activities


(1,358
)


(6,723
)


(10,625
)


(89,876
)Cash flows from financing activities:Proceeds from shares sold, net of offering costs


70,820











Capital contributions, net of offering costs














49,659Dividends and distributions paid


(1,097
)


(18,000
)






Net (decrease) increase in revolving borrowings


(3,748
)


27,007



493



63,673Debt issuance costs














(3,432
)Net cash provided by financing activities


65,975



9,007



493



109,900Net increase (decrease) in cash and cash equivalents


64,617



2,284



(10,132
)


20,024Cash and cash equivalents:Beginning of period


12,176



9,892



20,024



End of period

$
76,793


$
12,176


$
9,892


$
20,024Cash paid for interest

$
393


$
2,655


$
3,096


$
1,535Supplemental non-cash investing and financing activities:Warrant investments received & recorded as unearned
    loan income

$
304


$
1,212


$
876


$
776Stock received in settlement of investments

$
209


$



$
198


$
(Decrease) increase in interest rate swap liability

$



$
(409
)

$
(395
)

$
1,163    65




---



##### Table of Contents



Horizon
    Technology Finance Corporation and Subsidiaries
  Consolidated
    Schedule of Investments
 December 31,
    2010
 (In thousands)
  Type of

Interest





Cost ofPortfolio Company

Sector

Investment(2)

Rate(3)


Maturity


Investment(5)


Fair ValueDebt Investments(1)Debt Investments  Life Science 
    39.3%ACT Biotech, Inc.

Biotechnology

Term Loan


12.10
%


6/1/2013


$
958


$
958Term Loan


12.01
%


6/1/2013



957



957Term Loan


12.01
%


6/1/2013



1,478



1,478Ambit Biosciences, Inc.

Biotechnology

Term Loan


12.25
%


10/1/2013



5,898



5,898Concentric Medical, Inc.

Medical Device

Term Loan


12.04
%


9/1/2013



6,887



6,887GenturaDX, Inc.

Biotechnology

Term Loan


11.25
%


4/1/2014



1,917



1,917Novalar Pharmaceuticals, Inc.

Biotechnology

Term Loan


12.00
%


6/1/2012



3,146



3,146OraMetrix, Inc.

Medical Device

Term Loan


11.50
%


4/1/2014



4,887



4,887Pharmasset, Inc.(4)

Biotechnology

Term Loan


12.00
%


8/1/2011



868



868Term Loan


12.00
%


1/1/2012



1,448



1,448Term Loan


12.50
%


10/1/2012



2,422



2,422PixelOptics, Inc.

Medical Device

Term Loan


13.00
%


1/1/2013



4,221



4,221Revance Therapeutics, Inc.

Biotechnology

Term Loan


10.50
%


12/1/2011



1,445



1,445Term Loan


10.50
%


3/1/2013



3,478



3,478Tengion, Inc.(4)

Medical Device

Term Loan


12.26
%


9/1/2011



2,740



2,740Tranzyme, Inc.

Biotechnology

Term Loan


10.75
%


1/1/2014



4,966



4,966ViOptix, Inc.

Medical Device

Term Loan


13.55
%


11/1/2011



885



837Xcovery Holding Company, LLC

Biotechnology

Term Loan


12.00
%


10/1/2013



1,490



1,490Total Debt Investments  Life Science


50,091



50,043Debt Investments  Technology  24.4%Clarabridge, Inc.

Software

Term Loan


12.50
%


1/1/2013



1,166



1,166Term Loan


12.50
%


6/1/2013



688



688Term Loan


12.50
%


5/1/2014



743



743Courion Corporation

Software

Term Loan


11.45
%


12/1/2011



1,083



1,083Hatteras Networks, Inc.

Communications

Term Loan


12.40
%


2/1/2011



1,042



1,042IntelePeer, Inc.

Networking

Term Loan


12.43
%


4/1/2012



515



515Term Loan


12.33
%


6/1/2012



598



598Term Loan


12.33
%


10/1/2012



1,171



1,171Netuitive, Inc.

Software

Term Loan


12.90
%


4/1/2011



152



152OpenPeak, Inc.

Communications

Term Loan


11.86
%


12/1/2013



6,549



6,549Starcite, Inc.

Consumer-related technologies

Term Loan


12.05
%


9/1/2012



2,679



2,679StreamBase Systems, Inc.

Software

Term Loan


12.51
%


11/1/2013



3,934



3,934Term Loan


12.50
%


6/1/2014



977



977Tagged, Inc.

Consumer-related technologies

Term Loan


12.78
%


5/1/2012



1,284



1,284Term Loan


11.46
%


8/1/2012



498



498Vette Corp.

Data Storage

Term Loan


11.75
%


7/1/2014



4,916



4,916XIOtech, Inc.

Data Storage

Term Loan


14.00
%


5/1/2012



2,997



2,997Total Debt Investments  Technology


30,992



30,992Debt Investments  Cleantech  14.9%Cereplast, Inc.(4)

Waste Removal

Term Loan


12.00
%


4/1/2014



2,363



2,363Enphase Energy, Inc.

Energy Efficiency

Term Loan


12.60
%


10/1/2013



6,869



6,869Satcon Technology Corporation(4)

Energy Efficiency

Term Loan


12.58
%


1/1/2014



9,701



9,701Total Debt Investments  Cleantech


18,933



18,933Debt Investments  Healthcare information and
    services  23.8%BioScale, Inc.

Diagnostics

Term Loan


12.00
%


8/1/2012



2,454



2,454Term Loan


11.51
%


1/1/2014



4,908



4,908Precision Therapeutics, Inc.

Diagnostics

Term Loan


13.00
%


3/1/2012



3,255



3,255    66




---



##### Table of Contents



Horizon
    Technology Finance Corporation and Subsidiaries
  Consolidated
    Schedule of Investments
 December 31,
    2010  (Continued)
 (In thousands)
  Type of

Interest





Cost ofPortfolio Company

Sector

Investment(2)

Rate(3)


Maturity


Investment(5)


Fair ValueRadisphere National Radiology Group, Inc.

Diagnostics

Term Loan


12.75
%


1/1/2014



9,855



9,855Singulex, Inc.

Other Healthcare

Term Loan


11.00
%


3/1/2014



2,949



2,949Term Loan


11.00
%


3/1/2014



1,964



1,964Talyst, Inc.

Other Healthcare

Term Loan


12.10
%


12/1/2013



2,443



2,443Term Loan


12.05
%


12/1/2013



2,438



2,438Total Debt Investment  Healthcare information and
    services


30,266



30,266Total Debt Investments


130,282



130,234Warrant Investments(1)Warrants  Life Science  2.1%ACT Biotech, Inc.

Biotechnology

Preferred Stock Warrants










23



23Advanced BioHealing, Inc.

Biotechnology

Preferred Stock Warrants










9



1,209Ambit Biosciences, Inc.

Biotechnology

Preferred Stock Warrants










143



147Anesiva, Inc.(4)

Biotechnology

Common Stock Warrants










18



Calypso Medical Technologies, Inc.

Medical Device

Preferred Stock Warrants










17



76Concentric Medical, Inc.

Medical Device

Preferred Stock Warrants










85



89EnteroMedics, Inc.(4)

Medical Device

Common Stock Warrants










347



18GenturaDX, Inc.

Biotechnology

Preferred Stock Warrants










63



63Novalar Pharmaceuticals, Inc.

Biotechnology

Preferred Stock Warrants










69



OraMetrix, Inc.

Medical Device

Preferred Stock Warrants










78



83Pharmasset, Inc.(4)

Biotechnology

Common Stock Warrants










126



789PixelOptics, Inc.

Medical Device

Preferred Stock Warrants










61



61Revance Therapeutics, Inc.

Biotechnology

Preferred Stock Warrants










224



121Tengion, Inc.(4)

Medical Device

Common Stock Warrants










15



Tranzyme, Inc.

Biotechnology

Preferred Stock Warrants










1



1ViOptix, Inc.

Medical Device

Preferred Stock Warrants










13



Total Warrants  Life Science


1,292



2,680Warrants  Technology  1.2%Cartera Commerce, Inc.

Internet and media

Preferred Stock Warrants










16



38Clarabridge, Inc.

Software

Preferred Stock Warrants










28



25Courion Corporation

Software

Preferred Stock Warrants










7



17DriveCam, Inc.

Software

Preferred Stock Warrants










20



8Everyday Health, Inc.

Consumer related technologies

Preferred Stock Warrants










69



137Grab Networks, Inc.

Networking

Preferred Stock Warrants










74



Hatteras Networks, Inc.

Communications

Preferred Stock Warrants














35Impinj, Inc.

Semi-conductor

Preferred Stock Warrants










7



IntelePeer, Inc.

Networking

Preferred Stock Warrants










39



544Motion Computing, Inc.

Networking

Preferred Stock Warrants










7



292Netuitive, Inc.

Software

Preferred Stock Warrants










27



22OpenPeak, Inc.

Communications

Preferred Stock Warrants










89



92Plateau Systems, Ltd.

Software

Preferred Stock Warrants










7



35SnagAJob.com, Inc.

Consumer-related technologies

Preferred Stock Warrants










23



39Starcite, Inc.

Consumer-related technologies

Preferred Stock Warrants










24



28StreamBase Systems, Inc.

Technology-Software

Preferred Stock Warrants










67



69Tagged, Inc.

Consumer-related technologies

Preferred Stock Warrants










17



27Vette Corp.

Data Storage

Preferred Stock Warrants










75



49XIOtech, Inc.

Data Storage

Preferred Stock Warrants










22



81Total Warrants  Technology


618



1,538    67




---



##### Table of Contents



Horizon
    Technology Finance Corporation and Subsidiaries
  Consolidated
    Schedule of Investments
 December 31,
    2010  (Continued)
 (In thousands)
  Type of

Interest





Cost ofPortfolio Company

Sector

Investment(2)

Rate(3)


Maturity


Investment(5)


Fair ValueWarrants  Cleantech  1.0%Cereplast, Inc.(4)

Waste Removal

Common Stock Warrants










112



112Enphase Energy, Inc.

Energy Efficiency

Preferred Stock Warrants










122



122Satcon Technology Corporation(4)

Energy Efficiency

Common Stock Warrants










286



1,057Total Warrants  Cleantech


520



1,291Warrants  Healthcare information and
    services  0.6%BioScale, Inc.

Diagnostics

Preferred Stock Warrants










55



49Precision Therapeutics, Inc.

Diagnostics

Preferred Stock Warrants










52



139Radisphere National Radiology Group, Inc.

Diagnostics

Preferred Stock Warrants










167



384Singulex, Inc.

Other Healthcare

Preferred Stock Warrants










39



39Talyst, Inc.

Other Healthcare

Preferred Stock Warrants










100



105Total Warrants  Healthcare information and services


413



716Total Warrants


2,843



6,225Equity  0.3%AFS Technologies, Inc.



Common Stock










142



142Insmed Incorporated(4)



Common Stock and 
    Convertible Preferred Stock










227



209Total equity


369



351Total investments assets

$
133,494


$
136,810Investment LiabilitiesDerivative AgreementWestLB, AG

Interest rate swap  pay fixed/receive floating,
    Notional Amount $10 million

3.58%


10/14/2011











258Total investment liabilities

$




258     (1)
    
    Substantially all debt and warrant investments have been pledged
    as collateral under the Credit Facility.(2)
    
    All investments are less than 5% ownership of the class and
    ownership of the portfolio company.(3)
    
    All interest is payable in cash due monthly in arrears, unless
    otherwise indicated and applies only to the Companys debt
    investments. Amount is the annual interest rate on the debt
    investment and does not include any additional fees related to
    the investment such as commitment fees or prepayment fees. The
    majority of the debt investments are at fixed rates for the term
    of the loan. For each debt investment we have provided the
    current interest rate in effect as of December 31, 2010.(4)
    
    Portfolio company is a public company.(5)
    
    For debt investments, represents principal balance.   68




---



##### Table of Contents



Horizon
    Technology Finance Corporation and Subsidiaries
  Consolidated
    Schedule of Investments
 December 31,
    2009
 (In thousands)
  Interest





Cost ofPortfolio Company

Sector

Type of Investment(2)

Rate(3)


Maturity


Investment(5)


Fair ValueDebt Investments(1)Debt Investments  Life Science 
    29.6%Ambit Biosciences, Inc.

Biotechnology

Term Loan


12.15
%


6/1/2011


$
1,272


$
1,272Concentric Medical, Inc.

Medical Device

Revolving Loan


Prime + 3.25
%


7/1/2010



3,333



3,333Novalar Pharmaceuticals, Inc.

Biotechnology

Term Loan


12.00
%


6/1/2012



4,770



4,770Pharmasset, Inc.(4)

Biotechnology

Term Loan


12.00
%


8/1/2011



2,201



2,201Term Loan


12.00
%


1/1/2012



2,704



2,704Term Loan


12.50
%


10/1/2012



3,284



3,284PixelOptics, Inc.

Medical Device

Term Loan


13.00
%


1/1/2013



4,889



4,889Revance Therapeutics, Inc.

Biotechnology

Term Loan


10.50
%


12/1/2011



2,705



2,705Tengion, Inc.

Medical Device

Term Loan


12.26
%


9/1/2011



5,753



5,753Transave, Inc.

Biotechnology

Term Loan


11.75
%


2/29/2012



2,730



2,730Term Loan


11.75
%


7/1/2012



1,992



1,992Convertible Note


10.00
%


6/30/2010



102



102ViOptix, Inc.

Medical Device

Term Loan


13.55
%


11/1/2011



1,727



1,626Xoft, Inc.

Medical Device

Revolving Loan


Prime + 4.25
%


11/15/2010



331



331Total debt investments  Life Science


37,793



37,692Debt Investments  Technology  44.9%Cartera Commerce, Inc.

Internet and media

Term Loan


11.75
%


6/1/2012



2,483



2,483Clarabridge, Inc.

Software

Term Loan


12.50
%


1/1/2013



1,467



1,467Term Loan


12.50
%


6/1/2013



743



743Courion Corporation

Software

Term Loan


11.45
%


12/1/2011



2,044



2,044Genesis Networks, Inc.

Networking

Term Loan


11.80
%


8/1/2012



3,955



3,555Grab Networks, Inc.

Networking

Term Loan


13.00
%


4/1/2012



3,579



3,579Hatteras Networks, Inc.

Communications

Term Loan


12.40
%


2/1/2011



2,457



2,457Impinj, Inc.

Semi-conductor

Term Loan


Prime + 4.25
%


1/1/2011



866



866IntelePeer, Inc.

Networking

Term Loan


12.43
%


4/1/2012



836



836Term Loan


12.33
%


6/1/2012



933



933Term Loan


12.33
%


10/1/2012



1,692



1,692iSkoot, Inc.

Software

Term Loan


12.75
%


5/1/2013



3,917



3,917Motion Computing, Inc.

Networking

Term Loan


12.25
%


4/1/2011



1,431



1,431Term Loan


12.25
%


1/1/2012



2,136



2,136Netuitive, Inc.

Software

Term Loan


12.90
%


4/1/2011



569



569NewRiver, Inc.

Software

Term Loan


11.60
%


1/1/2012



3,403



3,403Plateau Systems, Ltd.

Software

Term Loan


12.40
%


9/1/2010



744



744SnagAJob.com, Inc.

Consumer-related technologies

Term Loan


11.50
%


6/1/2012



3,477



3,477Starcite, Inc.

Consumer-related technologies

Term Loan


12.05
%


9/1/2012



3,960



3,960Tagged, Inc.

Consumer-related technologies

Term Loan


12.78
%


5/1/2012



2,108



2,108Term Loan


11.46
%


8/1/2012



746



746Vette Corp.

Data Storage

Term Loan


11.85
%


3/1/2012



4,530



4,530Waterfront Media, Inc.

Consumer-related technologies

Term Loan


13.00
%


5/1/2013



4,890



4,890XIOtech, Inc.

Data Storage

Term Loan


14.00
%


5/1/2012



4,494



4,494Total debt investment  Technology


57,460



57,060Healthcare information and services  12.5%BioScale, Inc.

Diagnostics

Term Loan


12.00
%


8/1/2012



3,774



3,509F & S Health Care Services, Inc.

Diagnostics

Term Loan


11.80
%


12/1/2012



7,457



7,457Precision Therapeutics, Inc.

Diagnostics

Term Loan


13.00
%


3/1/2012



4,936



4,936    69




---



##### Table of Contents



Horizon
    Technology Finance Corporation and Subsidiaries
  Consolidated
    Schedule of Investments
 December 31,
    2009  (Continued)
 (In thousands)
  Interest





Cost ofPortfolio Company

Sector

Type of Investment(2)

Rate(3)


Maturity


Investment(5)


Fair ValueTotal Debt Investments  Healthcare information and
    services


16,167



15,902Total Debt Investments


111,420



110,654Warrant Investments(1)Warrants  Life Science  0.8%Advanced BioHealing, Inc.

Biotechnology

Preferred Stock Warrants










9



42Ambit Biosciences, Inc.

Biotechnology

Preferred Stock Warrants










18



55Anesiva, Inc.(4)

Biotechnology

Common Stock Warrants










18



Calypso Medical Technologies, Inc.

Medical Device

Preferred Stock Warrants










17



75Concentric Medical, Inc.

Medical Device

Preferred Stock Warrants










9



11EnteroMedics, Inc.(4)

Medical Device

Common Stock Warrants










347



10Novalar Pharmaceuticals, Inc.

Biotechnology

Preferred Stock Warrants










69



79Pharmasset, Inc.(4)

Biotechnology

Common Stock Warrants










251



437PixelOptics, Inc.

Medical Device

Preferred Stock Warrants










61



61Revance Therapeutics, Inc.

Biotechnology

Preferred Stock Warrants










156



49Tengion, Inc.

Medical Device

Preferred Stock Warrants










15



50Transave, Inc.

Biotechnology

Preferred Stock Warrants










12



45ViOptix, Inc.

Medical Device

Preferred Stock Warrants










13



21Xoft, Inc.

Medical Device

Preferred Stock Warrants










13



51Total Warrants  Life Science


1,008



986Warrants  Technology  1.0%Arcot Systems, Inc.

Software

Preferred Stock Warrants










5



57Cartera Commerce, Inc.

Internet and media

Preferred Stock Warrants










16



35Clarabridge, Inc.

Software

Preferred Stock Warrants










28



31Courion Corporation

Software

Preferred Stock Warrants










7



16DriveCam, Inc.

Software

Preferred Stock Warrants










20



15Genesis Networks, Inc.

Networking

Preferred Stock Warrants










53



Grab Networks, Inc.

Networking

Preferred Stock Warrants










74



84Hatteras Networks, Inc.

Communications

Preferred Stock Warrants














35Impinj, Inc.

Semi-conductor

Preferred Stock Warrants










7



34IntelePeer, Inc.

Networking

Preferred Stock Warrants










39



52iSkoot, Inc.

Software

Preferred Stock Warrants










59



59Motion Computing, Inc.

Networking

Preferred Stock Warrants










9



465Netuitive, Inc.

Software

Preferred Stock Warrants










27



43Plateau Systems, Ltd.

Software

Preferred Stock Warrants










7



34SnagAJob.com, Inc.

Consumer-related technologies

Preferred Stock Warrants










23



38Starcite, Inc.

Consumer-related technologies

Preferred Stock Warrants










24



28Tagged, Inc.

Consumer-related technologies

Preferred Stock Warrants










17



28Vette Corp.

Data Storage

Preferred Stock Warrants










27



69Waterfront Media, Inc.

Consumer-related technologies

Preferred Stock Warrants










69



69XIOtech, Inc.

Data Storage

Preferred Stock Warrants










22



81Total Warrants  Technology


533



1,273Warrants  Healthcare information and
    services  0.2%BioScale, Inc.

Diagnostics

Preferred Stock Warrants










13



33F & S Health Care Services, Inc.

Diagnostics

Preferred Stock Warrants










32



105    70




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##### Table of Contents



Horizon
    Technology Finance Corporation and Subsidiaries
  Consolidated
    Schedule of Investments
 December 31,
    2009  (Continued)
 (In thousands)
  Interest





Cost ofPortfolio Company

Sector

Type of Investment(2)

Rate(3)


Maturity


Investment(5)


Fair ValuePrecision Therapeutics, Inc.

Diagnostics

Preferred Stock Warrants










52



61Warrants  Healthcare information and services


97



199Total Warrants


1,638



2,458Total investment assets(6)

$
113,058


$
113,112     (1)
    
    Substantially all debt and warrant investments have been pledged
    as collateral under the Credit Facility.(2)
    
    All investments are less than 5% ownership of the class and
    ownership of the portfolio company.(3)
    
    All interest is payable in cash due monthly in arrears, unless
    otherwise indicated and applies only to the Companys debt
    investments. Amount is the annual interest rate on the debt
    investment and does not include any additional fees related to
    the investment such as commitment fees or prepayment fees. The
    majority of the debt investments are at fixed rates for the term
    of the loan. For each debt investment we have provided the
    current interest rate in effect as of December 31, 2009.
    For variable rate debt investments we have also provided the
    reference index plus the applicable spread which resets monthly.(4)
    
    Portfolio company is a public company.(5)
    
    For debt investments, represents principal balance.(6)
    
    Total investment assets in 2009 were recorded at book value net
    of allowance for loan losses as follows:  Book value of debt investments (at cost)

$
112,572Book value of warrants investments (at fair value)


2,458Unearned income


(1,152
)Allowance for loan losses


(1,924
)Net investments at book value

$
111,954    71




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##### Table of Contents



Horizon
    Technology Finance Corporation and Subsidiaries



Notes to
    Consolidated Financial Statements

(In
    thousands, except shares and per share data)  Note 1.
    Organization        day-to-day
  Note 2.
    Basis of
    Presentation and Significant Accounting Policies  Election
    to become a Business Development Company and Basis of Financial
    Statement Presentation
    Cumulative
    Effect of Business Development Company Election
  Effect of recording loans at fair value

$
(348
)Elimination of allowance for loan losses


1,185Total cumulative effect of BDC election

$
837    72




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##### Table of Contents



Horizon
    Technology Finance Corporation and Subsidiaries
  Notes to
    Consolidated Financial
    Statements  (Continued)
 (In thousands, except shares and per share data)
   Form 10-K Regulation S-X.
  Principles
    of Consolidation
  Regulation S-X
  Use of
    Estimates
    Fair
    Value
      2010-06,
  
    Separate disclosure of the significant transfers in and out of
    Level 1 and Level 2 fair value measurements, and a
    description of the reasons for the transfers.
    In the roll forward of activity for Level 3 fair value
    measurements (significant unobservable inputs), purchases,
    sales, issuances, and settlements should be presented separately
    (on a gross basis rather than as one net number). 73




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##### Table of Contents



Horizon
    Technology Finance Corporation and Subsidiaries
  Notes to
    Consolidated Financial
    Statements  (Continued)
 (In thousands, except shares and per share data)
      
    Fair value measurements and disclosures should be presented for
    each class of assets and liabilities within a line item in the
    balance sheet.
    Reporting entities should provide disclosures about the
    valuation techniques and inputs used to measure fair value for
    both recurring and nonrecurring fair value measurements that
    fall in either Level 2 or Level 3.      Segments
    Cash
    and Cash Equivalents
    Investments
         74




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##### Table of Contents



Horizon
    Technology Finance Corporation and Subsidiaries
  Notes to
    Consolidated Financial
    Statements  (Continued)
 (In thousands, except shares and per share data)
   end-of-term
      Allowance
    for Loan Losses
    case-by-case
   75




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##### Table of Contents



Horizon
    Technology Finance Corporation and Subsidiaries
  Notes to
    Consolidated Financial
    Statements  (Continued)
 (In thousands, except shares and per share data)
   Debt
    Issuance Costs
    Income
    Taxes
          Dividends
     76




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##### Table of Contents



Horizon
    Technology Finance Corporation and Subsidiaries
  Notes to
    Consolidated Financial
    Statements  (Continued)
 (In thousands, except shares and per share data)
   Interest
    Rate Swaps and Hedging Activities
        Transfers
    of Financial Assets
      Note 3.
    Related
    Party Transactions  Investment
    Management Agreement
  day-to-day
 77




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##### Table of Contents



Horizon
    Technology Finance Corporation and Subsidiaries
  Notes to
    Consolidated Financial
    Statements  (Continued)
 (In thousands, except shares and per share data)
           payment-in-kind catch-up catch-up,
     78




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##### Table of Contents



Horizon
    Technology Finance Corporation and Subsidiaries
  Notes to
    Consolidated Financial
    Statements  (Continued)
 (In thousands, except shares and per share data)
       Administration
    Agreement
      Note 4.
    Investments    December 31, 2010


December 31, 2009Cost


Fair Value


Book Value


Fair ValueDebt

$
130,282


$
130,234


$
109,496


$
110,654Warrants


2,843



6,225



2,458



2,458Equity


369



351







Total

$
133,494


$
136,810


$
111,954


$
113,112  79




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##### Table of Contents



Horizon
    Technology Finance Corporation and Subsidiaries
  Notes to
    Consolidated Financial
    Statements  (Continued)
 (In thousands, except shares and per share data)
     December 31, 2010


December 31, 2009Cost


Fair Value


Book Value


Fair ValueLife ScienceBiotechnology

$
31,138


$
31,614


$
22,426


$
22,426Medical Device


20,472



21,317



16,355



16,255TechnologyConsumer-related Technologies


4,592



4,692



15,342



15,342Networking


2,405



3,120



15,162



14,762Software


9,042



9,062



13,143



13,143Data Storage


8,010



8,042



9,174



9,174Internet and Media


16



38



2,518



2,518Communications


7,681



7,719



2,492



2,492Semiconductors


7







900



900Healthcare Information and ServicesDiagnostics


20,745



21,044



16,366



16,100Other healthcare related services


9,934



9,938







CleantechEnergy efficiency


16,977



17,749







Waste recycling


2, 475



2,475







Total

$
133,494


$
136,810


$
113,878


$
113,112   Note 5.
    Fair
    Value        Level 1
    Quoted prices in active markets for identical assets and
    liabilities. 80




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##### Table of Contents



Horizon
    Technology Finance Corporation and Subsidiaries
  Notes to
    Consolidated Financial
    Statements  (Continued)
 (In thousands, except shares and per share data)
    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.  Cash and cash equivalents and interest
    receivable:
  Loans:
  Warrants:
  
    Underlying asset value of the issuer is estimated based on
    information available, including any information regarding the
    most recent rounds of borrower funding.
    Volatility, or the amount of uncertainty or risk about the size
    of the changes in the warrant price, is based on guideline
    publicly traded companies within indices similar in nature to
    the underlying company issuing the warrant. A total of seven
    such indices were used. The weighted average volatility
    assumptions used for the warrant valuation at December 31,
    2010, 2009 and 2008 were 30%, 29% and 25%, respectively.
    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. The
    marketability discount used for the warrant valuation at
    December 31, 2010, 2009 and 2008 was 20%.    Borrowings:
 81




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##### Table of Contents



Horizon
    Technology Finance Corporation and Subsidiaries
  Notes to
    Consolidated Financial
    Statements  (Continued)
 (In thousands, except shares and per share data)
   Interest rate swap derivatives:
  Off-balance-sheet instruments:
    December 31, 2010Total


Level 1


Level 2


Level 3Loan investments

$
130,234


$



$



$
130,234Equity investments

$
351


$
209


$



$
142Warrant investments

$
6,225


$



$
1,976


$
4,249Interest rate swap liability

$
258


$



$
258


$
   December 31, 2009Total


Level 1


Level 2


Level 3Warrant Assets

$
2,458


$



$
448


$
2,010Interest Rate Swap Liability

$
768


$



$
768


$
     Post-IPO as a BDCOctober 29, 2010 to December 31, 2010Loan


Warrant


EquityInvestments


Investments


Investments


TotalLevel 3 assets, beginning of period

$



$
3,715


$



$
3,715Transfers into Level 3 upon election to BDC


125,741







142



125,883Purchase of investments


19,316











19,316Warrants received and classified as Level 3






192







192Principal payments received on investments


(14,273
)










(14,273
)Unrealized (depreciation)/ appreciation included in earnings


(48
)


528







480Other


(502
)


(186
)






(688
)Level 3 assets, end of period

$
130,234


$
4,249


$
142


$
134,625   82




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##### Table of Contents



Horizon
    Technology Finance Corporation and Subsidiaries
  Notes to
    Consolidated Financial
    Statements  (Continued)
 (In thousands, except shares and per share data)
   Pre-IPO Prior to becoming a BDCJanuary 1,





March 4,2010





2008through


Year Ended


throughOctober 28,


December 31,


December 31,2010


2009


2008WarrantsLevel 3 assets, beginning of period

$
2,010


$
557


$
Warrants received and classified as Level 3


927



535



515Unrealized appreciation included in earnings


780



918



42Other


(2
)






Level 3 assets, end of period

$
3,715


$
2,010


$
557           December 31, 2010

December 31, 2009Recorded



RecordedBook



BookBalance

Fair Value

Balance

Fair ValueFinancial Assets:Cash & cash equivalents

$
76,793


$
76,793


$
9,892


$
9,892Investments:Debt

$
130,234


$
130,234


$
109,496


$
110,654Warrants

$
6,225


$
6,225


$
2,458


$
2,458Equity

$
351


$
351


$



$
Interest receivable

$
1,938


$
1,938


$
1,452


$
1,452Financial Liabilities:Borrowings

$
87,425


$
87,425


$
64,166


$
64,166Interest rate swap liability

$
258


$
258


$
768


$
768   Off-balance-sheet
    instruments
   83




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##### Table of Contents



Horizon
    Technology Finance Corporation and Subsidiaries
  Notes to
    Consolidated Financial
    Statements  (Continued)
 (In thousands, except shares and per share data)
     Note 6.
    Borrowings          Note 7.
    Federal
    Income Tax      Net increase in net assets resulting from operations

$
3,419Net unrealized appreciation on investments


(1,449
)Other temporary differences


143Taxable income before deductions for distributions

$
2,113     Ordinary income

$
1,502Long-term capital gains


160Total

$
1,662  84




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##### Table of Contents



Horizon
    Technology Finance Corporation and Subsidiaries
  Notes to
    Consolidated Financial
    Statements  (Continued)
 (In thousands, except shares and per share data)
     Undistributed long-term gain


451Unrealized appreciation


1,449Total

$
1,900   Note 8.
    Financial
    Instruments with Off-Balance-Sheet Risk      Note 9.
    Concentrations
    of Credit Risk      Note 10:
    Interest
    Rate Swaps and Hedging Activities     85




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##### Table of Contents



Horizon
    Technology Finance Corporation and Subsidiaries
  Notes to
    Consolidated Financial
    Statements  (Continued)
 (In thousands, except shares and per share data)
       Note 11:
    Subsequent
    Events    Note 12:
    Financial
    Highlights    Post-IPO as aBusinessDevelopmentCompanyOctober 29, 2010 toDecember 31, 2010Per share data:Net Asset value at beginning of period


N/A
(2)Issuance of common stock and capital contributions


N/A
(2)Dividend declared and distributions to members


N/A
(2)Offering costs


N/A
(2)Net investment income


N/A
(2)Realized gain (loss) on investments


N/A
(2)Unrealized appreciation (depreciation) on investments


N/A
(2)Net asset value at end of period

$
16.75Per share market value, end of period

$
14.44Total return based on a market value


22.7
%(3)Shares outstanding at end of period


7,593,422Ratios to average net assets:Expenses without incentive fees


9.8
%(3)Incentive fees


2.8
%(3)Total expenses


12.6
%(3)Net investment income without incentive fees


11.8
%(3)Average net asset value

$
90,205     (1)
    
    Years prior to become a public company are not presented in the
    financial highlights because the Company did not record assets
    at fair value, therefore the information would not be meaningful.(2)
    
    Per share data is not provided as the Company did not have
    shares of common stock outstanding or an equivalent prior to the
    October 28, 2010 IPO.(3)
    
    Annualized. 86




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##### Table of Contents



Horizon
    Technology Finance Corporation and Subsidiaries
  Notes to
    Consolidated Financial
    Statements  (Continued)
 (In thousands, except shares and per share data)
   Note 13:
    Selected
    Quarterly Financial Data (Unaudited)  December 31,

September 30,

June 30,

March 31,2010

2010

2010

2010Total investment income

$
4,956


$
5,189


$
4,270


$
3,793Net investment income


2,507



3,256



2,508



2,113Net realized and unrealized gain (loss)


2,063



1,711



(366
)


202Net increase in net asset resulting from operations


4,570



5,287



2,259



2,617Earnings per share


N/A



N/A



N/A



N/ANet asset value per share at period end

$
16.75



N/A



N/A



N/A   December 31,

September 30,

June 30,

March 31,2009

2009

2009

2009Total investment income

$
4,155


$
4,169


$
3,746


$
3,256Net investment income


2,492



2,393



1,998



1,673Net realized and unrealized gain (loss)


498



(55
)


143



445Net increase in net asset resulting from operations


3,343



2,004



1,884



2,083Earnings per share


N/A



N/A



N/A



N/ANet asset value per share at period end


N/A



N/A



N/A



N/A  87




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##### Table of Contents



Item 9.
    Changes
    in and Disagreements with Accountants on Accounting and
    Financial Disclosure    Item 9A.
    Controls
    and Procedures  (a)
    Evaluation of Disclosure Controls and Procedures
  Rule 13a-15(e)
  (b)
    Managements Report on Internal Control Over Financial
    Reporting
    (c)
    Changes in Internal Controls Over Financial
    Reporting.
  Rules 13a-15(f) 15d-15(f)
  Item 9B.
    Other
    Information   PART III  Form 10-K.
  Item 10.
    Directors,
    Executive Officers and Corporate Governance    Item 11.
    Executive
    Compensation   88




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##### Table of Contents



Item 12.
    Security
    Ownership of Certain Beneficial Owners and Management and
    Related Stockholder Matters    Item 13.
    Certain
    Relationships and Related Transactions, and Director
    Independence    Item 14.
    Principal
    Accountant Fees and Services   PART IV  Item 15.
    Exhibits
    and Financial Statement Schedules  Financial Statements
        Exhibit No.

Description3.1

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)4.3

Form of Registration Rights Agreement among Compass Horizon
    Partners, LP, HTF-CHF Holdings LLC and the Company (Incorporated
    by reference to exhibit (k)(3) of the Companys
    Pre-effective Amendment No. 2 to the Registration Statement on
    Form N-2, filed on July 2, 2010)10.1

Form of Investment Management Agreement (Incorporated by
    reference to exhibit (g) of the Companys Pre-effective
    Amendment No. 2 to the Registration Statement on Form N-2, filed
    on July 2, 2010)10.2

Form of Custody 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 License Agreement by and between the Company and Horizon
    Technology Finance, LLC (Incorporated by reference to exhibit
    (k)(2) of the Companys Pre-effective Amendment No. 2 to
    the Registration Statement on Form N-2, filed on July 2, 2010)10.5

Credit and Security Agreement by and among Horizon Credit I LLC,
    WestLB AG, New York Branch, U.S. Bank National Association, as
    custodian and paying agent, and WestLB AG, New York Branch, as
    agent, dated as of March 4, 2008 (Incorporated by reference to
    exhibit (f)(1) of the Companys Pre-effective Amendment No.
    1 to the Registration Statement on Form N-2, filed on June 4,
    2010) 89




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##### Table of Contents



Exhibit No.

Description10.6

First Amendment of Transaction Documents by and among Horizon
    Credit I LLC, WestLB AG, New York Branch, U.S. Bank National
    Association, as custodian and paying agent, WestLB AG, New York
    Branch, as agent, Horizon Technology Finance Management LLC, and
    Lyon Financial Services, Inc., dated as of September 30, 2008
    (Incorporated by reference to exhibit (f)(2) of the
    Companys Pre-effective Amendment No. 1 to the Registration
    Statement on Form N-2, filed on June 4, 2010)10.7

Second Amendment of Transaction Documents by and among Horizon
    Credit I LLC, WestLB AG, New York Branch, as the lender and
    agent, and U.S. Bank National Association, as custodian, dated
    as of October 7, 2008 (Incorporated by reference to exhibit
    (f)(3) of the Companys Pre-effective Amendment No. 1 to
    the Registration Statement on Form N-2, filed on June 4, 2010)10.8

Third Amendment of Transaction Documents by and among Horizon
    Credit I LLC, Compass Horizon Funding Company LLC, WestLB AG,
    New York Branch, as the lender and agent, and U.S. Bank National
    Association, as custodian, dated as of June 25, 2010
    (Incorporated by reference to exhibit (f)(4) of the
    Companys Pre-effective Amendment No. 2 to the Registration
    Statement on Form N-2, filed on July 2, 2010)10.9

Sale and Contribution Agreement by and between Compass Horizon
    Funding Company LLC and Horizon Credit I LLC, dated as of March
    4, 2008 (Incorporated by reference to exhibit (f)(5) of the
    Companys Pre-effective Amendment No. 2 to the Registration
    Statement on Form N-2, filed on July 2, 2010)10.10

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)11.1*

Computation of per share earnings (included in the notes to the
    audited financial statements included in this report)14.1

Code of Ethics of the Company (Incorporated by reference to
    exhibit (r)(1) of the Companys Pre-effective Amendment No.
    3 to the Registration Statement on Form N-2, filed on July 19,
    2010)14.2

Code of Ethics of the Advisor (Incorporated by reference to
    exhibit (r)(2) of the Companys Pre-effective Amendment No.
    3 to the Registration Statement on Form N-2, filed on July 19,
    2010)21*

List of Subsidiaries24

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 200232.2*

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 200299.1*

Privacy Policy of the Company     *
    
    Filed herewith 90




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##### Table of Contents



SIGNATURES  Form 10-K
  Horizon Technology
    Finance Corporation
  By:
    /s/  Robert
    D. Pomeroy, Jr.   Title:
    Chief Executive Officer and
    Chairman of the Board    POWER OF
    ATTORNEY
  Form 10-K
  Form 10-K
  Signature

Title

Date/s/  Robert
    D. Pomeroy, Jr.Robert
    D. Pomeroy, Jr.

Chairman of the Board of Directors and Chief Executive Officer
    
    (Principal Executive Officer)

March 16, 2011/s/  Christopher
    M. MathieuChristopher
    M. Mathieu

Chief Financial Officer and Treasurer (Principal Financial and
    Accounting Officer)

March 16, 2011/s/  Gerald
    A. MichaudGerald
    A. Michaud

President and Director

March 16, 2011/s/  David
    P. SwansonDavid
    P. Swanson

Director

March 16, 2011/s/  James
    J. BottiglieriJames
    J. Bottiglieri

Director

March 16, 2011/s/  Edmund
    V. MahoneyEdmund
    V. Mahoney

Director

March 16, 2011 91




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##### Table of Contents



Signature

Title

Date/s/  Brett
    N. SilversBrett
    N. Silvers

Director

March 16, 2011/s/  Christopher
    B. WoodwardChristopher
    B. Woodward

Director

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