What changed in this filing

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

2021-03-02 compared with 2020-03-03 · 1177 added, 2071 removed, 1045 unchanged (76% of the section changed)

Quantitative and Qualitative

Disclosures About Market Risk

We are subject to

financial market risks, including changes in interest rates.

During the periods covered by our financial statements, the interest

rates on the debt investments within our portfolio were primarily at floating rates.

We expect that our debt investments in the

future will primarily have floating interest rates.

As of December 31, 2019 and 2018, 99% of the outstanding principal amount of

our debt investments bore interest at floating rates.

The initial commitments to lend to our portfolio companies are usually based

on a floating LIBOR index.

Based on our December

31, 2019 consolidated statement of assets and liabilities (without adjustment for potential changes in the credit market, credit

quality, size and composition of assets on the consolidated statement of assets and liabilities or other business developments

that could affect net income) and the base index rates at December 31, 2019, the following table shows the annual impact on the

change in net assets resulting from operations of changes in interest rates, which assumes no changes in our investments and borrowings:

Change in basis points

Quantitative and Qualitative Disclosures About Market Risk

We are subject to financial market risks, including changes in interest rates.

During the periods covered by our financial statements, the interest rates on the debt investments within our portfolio were primarily at floating rates.

We expect that our debt investments in the future will primarily have floating interest rates.

As of December 31, 2020 and 2019, 100% and 99%, respectively, of the outstanding principal amount of our debt investments bore interest at floating rates.

The initial commitments to lend to our portfolio companies are usually based on a floating LIBOR index or the Prime Rate as published in the Wall Street Journal.

Based on our December 31, 2020 consolidated statement of assets and liabilities (without adjustment for potential changes in the credit market, credit quality, size and composition of assets on the consolidated statement of assets and liabilities or other business developments that could affect net income) and the base index rates at December 31, 2020, the following table shows the annual impact on the change in net assets resulting from operations of changes in interest rates, which assumes no changes in our investments and borrowings:

Change in Net

Change in basis points

(In thousands)

5 unchanged sentences

Down 100 basis points

(1) Excludes the impact of

incentive fees based on pre-incentive fee net investment income.

While our 2022

Notes and our Asset-Backed Notes bear interest at a fixed rate, our Key Facility has a floating interest rate provision,

subject to a floor of 0.75% per annum, based on a LIBOR index which resets monthly, and any other credit facilities into

which we enter in the future may have floating interest rate provisions.

We have used hedging instruments in the past to

protect us against interest rate fluctuations, and we may use them in the future.

Such instruments may include caps, swaps,

futures, options and forward contracts.

While hedging activities may insulate us against adverse changes in interest rates,

they may also limit our ability to participate in the benefits of lower interest rates with respect to the investments in our

portfolio with fixed interest rates.

Engaging in commodity interest transactions such as swap transactions or futures

contracts for the Company may cause the Investment Adviser to fall within the definition of “commodity pool

operator”

under the Commodity Exchange Act (the “CEA”) and related Commodity Futures Trading Commission

(the “CFTC”) regulations.

On January 31, 2020, the Investment Adviser claimed an exclusion from the definition of

the term “commodity pool operator”

under the CEA and the CFTC regulations in connection with its management of

the Company and, therefore, is not subject to CFTC registration or regulation under the CEA as a commodity pool operator with

respect to its management of the Company.

Because we currently

fund, and expect to continue to fund, our investments with borrowings, our net income is dependent upon the difference between

the rate at which we borrow funds and the rate at which we invest the funds borrowed.

Accordingly, there can be no assurance that

a significant change in market interest rates will not have a material adverse effect on our net income.

In periods of rising interest

rates, our cost of funds could increase, which would reduce our net investment income.

Financial Statements and Supplementary Data

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

While our 2022 Notes and our Asset-Backed Notes bear interest at a fixed rate, our Credit Facilities have a floating interest rate provision.

The Key Facility is subject to a floor of 1.00% per annum, based on a LIBOR index which resets monthly and the NYL Facility is based on the three year USD mid-market swap rate plus a margin of between 3.55% and 5.15% with an interest rate floor, depending on the rating of such notes at the time of issuance.

Any other credit facilities into which we enter in the future may have floating interest rate provisions.

We have used hedging instruments in the past to protect us against interest rate fluctuations, and we may use them in the future.

Such instruments may include caps, swaps, futures, options and forward contracts.

While hedging activities may insulate us against adverse changes in interest rates, they may also limit our ability to participate in the benefits of lower interest rates with respect to the investments in our portfolio with fixed interest rates.

Engaging in commodity interest transactions such as swap transactions or futures contracts for the Company may cause the Investment Adviser to fall within the definition of “commodity pool operator”

under the Commodity Exchange Act (the “CEA”) and related Commodity Futures Trading Commission (the “CFTC”) regulations.

On January 31, 2020, the Investment Adviser claimed an exclusion from the definition of the term “commodity pool operator” under the CEA and the CFTC regulations in connection with its management of the Company and, therefore, is not subject to CFTC registration or regulation under the CEA as a commodity pool operator with respect to its management of the Company.

Because we currently fund, and expect to continue to fund, our investments with borrowings, our net income is dependent upon the difference between the rate at which we borrow funds and the rate at which we invest the funds borrowed.

Accordingly, there can be no assurance that a significant change in market interest rates will not have a material adverse effect on our net income.

In periods of rising interest rates, our cost of funds could increase, which would reduce our net investment income.

Consolidated Financial Statements and Supplementary Data

Index to Consolidated Financial Statements

Management’s Report on Internal Control over Financial Reporting

Report of Independent Registered Public Accounting Firm

Report of Independent Registered Public Accounting Firm on Internal Control over Financial Reporting

Consolidated Statements of Assets and Liabilities as of December 31, 2020 and 2019

Consolidated Statements of Operations for the Years Ended December 31, 2020, 2019 and 2018

Consolidated Statements of Changes in Net Assets for the Years Ended December

31, 2019, 2018 and 2017

Consolidated Statements of Changes in Net Assets for the Years Ended December 31, 2020, 2019 and 2018

Consolidated Statements of Cash Flows for the Years Ended December 31, 2020, 2019 and 2018

1 unchanged sentence

Notes to the Consolidated Financial Statements

Management’s Report on Internal

Control over Financial Reporting

Management of Horizon

Technology Finance Corporation (the “Company”) is responsible for establishing and maintaining adequate internal control

over the Company’s financial reporting.

The Company’s internal control system is a process designed to provide reasonable

assurance to management and the board of directors regarding the preparation and fair presentation of published financial statements.

The Company’s

internal control over financial reporting includes policies and procedures that pertain to the maintenance of records that, in

reasonable detail, accurately and fairly reflect transactions recorded necessary to permit the preparation of financial statements

in accordance with U.S.

Management’s Report on Internal Control over Financial Reporting

Management of Horizon Technology Finance Corporation (the “Company”) is responsible for establishing and maintaining adequate internal control over the Company’s financial reporting.

The Company’s internal control system is a process designed to provide reasonable assurance to management and the board of directors regarding the preparation and fair presentation of published financial statements.

The Company’s internal control over financial reporting includes policies and procedures that pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect transactions recorded necessary to permit the preparation of financial statements in accordance with U.S.

generally accepted accounting principles.

The Company’s policies and procedures also provide reasonable

assurance that receipts and expenditures are being made only in accordance with authorizations of management and the directors

of the Company, and provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition

of the Company’s assets that could have a material effect on the Company’s financial statements.

All internal control

systems, no matter how well designed, have inherent limitations.

Therefore, even those systems determined to be effective can provide

only reasonable assurance with respect to financial statement preparation and presentation.

Also, projections of any evaluation

of effectiveness as to future periods are subject to the risk that controls may become inadequate because of changes in conditions,

or that the degree of compliance with the policies or procedures may deteriorate.

Management assessed

the effectiveness of the Company’s internal control over financial reporting as of December 31, 2019.

In making this assessment,

we used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control —

Integrated Framework issued in 2013.

Based on the assessment, management believes that, as of December 31, 2019, the Company’s

internal control over financial reporting is effective based on those criteria.

The Company’s

independent registered public accounting firm that audited the financial statements has issued an audit report on the effectiveness

of the Company’s internal control over financial reporting as of December 31, 2019, which appears in this annual report on

Report of Independent Registered Public

Accounting Firm

To the Stockholders and the Board of Directors

Horizon Technology Finance Corporation

The Company’s policies and procedures also provide reasonable assurance that receipts and expenditures are being made only in accordance with authorizations of management and the directors of the Company, and provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the Company’s financial statements.

All internal control systems, no matter how well designed, have inherent limitations.

Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.

Also, projections of any evaluation of effectiveness as to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2020.

In making this assessment, we used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control — Integrated Framework issued in 2013.

Based on the assessment, management believes that, as of December 31, 2020, the Company’s internal control over financial reporting is effective based on those criteria.

Pursuant to rules established by the SEC, this annual report does not include an attestation report of our independent registered public accounting firm regarding internal control over financial reporting.

Report of Independent Registered Public Accounting Firm

To the Stockholders and the Board of Directors of Horizon Technology Finance Corporation

Opinion on the Financial Statements

We have audited the accompanying consolidated

statements of assets and liabilities, including the consolidated schedules of investments, of Horizon Technology Finance Corporation

and Subsidiaries (the Company) as of December 31, 2019 and 2018, the related consolidated statements of operations, changes in

net assets and cash flows for each of the three years in the period ended December 31, 2019, and the related notes to the consolidated

financial statements (collectively, the financial statements).

In our opinion, the financial statements present fairly, in all

material respects, the financial position of the Company as of December 31, 2019 and 2018, and the results of its operations and

its cash flows for each of the three years in the period ended December 31, 2019, in conformity with accounting principles generally

accepted in the United States of America.

We have also audited, in accordance with

the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial

reporting as of December 31, 2019, based on criteria established in Internal Control —

Integrated Framework issued by the

Committee of Sponsoring Organizations of the Treadway Commission in 2013, and our report dated March 3, 2020, expressed an unqualified

opinion on the effectiveness of the Company’s internal control over financial reporting.

We have audited the accompanying consolidated statements of assets and liabilities of Horizon Technology Finance Corporation and its subsidiaries (the Company), including the consolidated schedules of investments, as of December 31, 2020 and 2019, the related consolidated statements of operations, changes in net assets, and cash flows for each of the three years in the period ended December 31, 2020, and the related notes to the consolidated financial statements (collectively, the financial statements).

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations, changes in net assets, and cash flows for each of the three years in the period ended December 31, 2020, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These financial statements are the responsibility

of the Company’s management.

Our responsibility is to express an opinion on the Company’s financial statements based

on our audits.

We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the

Company in accordance with U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange

Commission and the PCAOB.

We conducted our audits in accordance with

the standards of the PCAOB.

Those standards require that we plan and perform the audits to obtain reasonable assurance about whether

the financial statements are free of material misstatement, whether due to error or fraud.

Our audits included performing procedures

to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures

that respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures

in the financial statements.

Our audits also included evaluating the accounting principles used and significant estimates made

by management, as well as evaluating the overall presentation of the financial statements.

Our procedures included confirmation

of investments owned as of December 31, 2019 and 2018, by correspondence with the custodian or borrower or by other appropriate

auditing procedures where replies from the custodian or borrower were not received.

We believe that our audits provide a reasonable

basis for our opinion.

These financial statements are the responsibility of the Company’s management.

Our responsibility is to express an opinion on the Company’s financial statements based on our audits.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.

The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.

As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.

Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.

Our procedures included confirmation of investments owned as of December 31, 2020 and 2019, by correspondence with the custodian and/or brokers or the underlying investee.

Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that:

(1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing separate opinions on the critical audit matter or on the accounts or disclosures to which it relates.

Valuation of Level 3 investments

The fair value of the Company’s Level 3 investments was $350.0 million as of December 31, 2020.

As described in Notes 2 and 6 to the consolidated financial statements, there is not a readily available market value for most of the investments in the Company’s portfolio.

Such investments include debt, warrant, equity, and other investments in venture capital and private equity backed companies.

The valuation techniques used in estimating the fair value of these investments may vary based on the specific characteristics of the investments and require the use of certain significant unobservable inputs, such as the Company’s internally developed credit risk ratings, discounted expected future cash flows, hypothetical market

yields, multiple probability weighted expected cash flow scenarios, and portfolio company financial performance, among others.

We identified the valuation of Level 3 investments as a critical audit matter due to the subjective nature of the judgments necessary for management to select valuation techniques and the use of significant unobservable inputs to estimate the fair value.

Auditing the reasonableness of management’s selection of valuation technique and the related unobservable inputs required a high degree of auditor judgement and increased audit effort, including evaluation of the nature of audit evidence obtained and the use of internal valuation specialists.

The primary procedures we performed to address this critical audit matter included the following, among others:

We obtained an understanding of the relevant controls related to management’s internally developed credit risk ratings and tested such controls for design and operating effectiveness.

We assessed the reasonableness of a sample of management’s credit risk ratings by inspecting underlying source data and comparing to the Company’s credit risk policy.

We assessed the reasonableness of discounted expected future cash flows, multiple probability weighted scenarios, and portfolio management company performance used in the Company’s valuation models through comparison to internal and external data.

With the assistance of our internal valuation specialists, we evaluated the reasonableness of the hypothetical market yields used by the Company by comparing to market data for comparable companies.

With the assistance of our internal valuation specialists, we evaluated the appropriateness of the selected valuation techniques, and any changes to selected valuation techniques from prior periods, used for Level 3 investments.

We evaluated management’s historical ability to estimate fair value through comparison of previous estimates to the transaction price of available transactions occurring subsequent to the previous valuation date.

/s/ RSM US LLP

We have served as the Company's auditor since 2008.

New York, New York

March 3, 2020

Independent Registered Public Accounting Firm

To the Stockholders and the Board of Directors

Horizon Technology Finance Corporation

Opinion on the Internal Control Over Financial Reporting

We have audited Horizon Technology Finance

Corporation and Subsidiaries’

(the Company) internal control over financial reporting as of December 31, 2019, based on criteria

established in Internal Control —

Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway

Commission in 2013.

In our opinion, the Company maintained, in all material respects, effective internal control over financial

reporting as of December 31, 2019, based on criteria established in Internal Control —

Integrated Framework issued by the

Committee of Sponsoring Organizations of the Treadway Commission in 2013.

We have also audited, in accordance with

the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated statements of assets and

liabilities of the Company, including the consolidated schedules of investments, as of December 31, 2019 and 2018, the related

consolidated statements of operations, changes in net assets and cash flows for each of the three years in the period ended December

31, 2019, and our report dated March 3, 2020, expressed an unqualified opinion.

Basis for Opinion

The Company’s management is responsible

for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control

over financial reporting in the accompanying Management’s Report on Internal Control Over Financial Reporting.

Our responsibility

is to express an opinion on the Company’s internal control over financial reporting based on our audit.

We are a public accounting

firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with U.S.

federal securities

laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with

the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether

effective internal control over financial reporting was maintained in all material respects.

Our audit included obtaining an understanding

of internal control over financial reporting, assessing the risk that a material weakness exists and testing and evaluating the

design and operating effectiveness of internal control based on the assessed risk.

Our audit also included performing such other

procedures as we considered necessary in the circumstances.

We believe that our audit provides a reasonable basis for our opinion.

Definition and Limitations of Internal

Control Over Financial Reporting

A company's internal control over financial

reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation

of financial statements for external purposes in accordance with generally accepted accounting principles.

A company's internal

control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in

reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company;

(2) provide reasonable

assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally

accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations

of management and directors of the company;

and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized

acquisition, use or disposition of the company's assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal

control over financial reporting may not prevent or detect misstatements.

Also, projections of any evaluation of effectiveness

to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree

of compliance with the policies or procedures may deteriorate.

/s/ RSM US LLP

New York, New York

New Haven, Connecticut

March 2, 2021

Horizon Technology Finance Corporation

and Subsidiaries

Consolidated Statements of Assets and

Horizon Technology Finance Corporation and Subsidiaries

Consolidated Statements of Assets and Liabilities

(In thousands, except share and per share data)

12 unchanged sentences

Total liabilities

Commitments and contingencies (Notes 8 and 9)

Commitments and contingencies (Note 8)

Preferred stock, par value $0.001 per share, 1,000,000 shares authorized, zero shares issued and outstanding as of December 31, 2020 and 2019

6 unchanged sentences

See Notes to Consolidated Financial Statements

Horizon Technology Finance Corporation

and Subsidiaries

Horizon Technology Finance Corporation and Subsidiaries

Consolidated Statements of Operations

21 unchanged sentences

Total expenses

Performance based incentive fees waived (Note 3)

Performance based incentive fee waived (Note 3)

Net investment income before excise tax

3 unchanged sentences

Net realized (loss) gain on non-affiliate investments

Net realized loss on controlled affiliate investments

Net realized (loss) gain on investments

Net unrealized appreciation (depreciation) on non-affiliate investments

Net unrealized appreciation (depreciation) on affiliate investments

Net unrealized (depreciation) appreciation on non-controlled affiliate investments

Net unrealized depreciation on controlled affiliate investments

2 unchanged sentences

Net increase in net assets resulting from operations

See Notes to Consolidated Financial Statements

Horizon Technology Finance Corporation

and Subsidiaries

Consolidated Statements of Operations

(In thousands,

except share and per share data)

Year Ended December 31,

Net investment income per common share

3 unchanged sentences

See Notes to Consolidated Financial Statements

Horizon Technology Finance Corporation

and Subsidiaries

Consolidated Statements of Changes in

Horizon Technology Finance Corporation and Subsidiaries

Consolidated Statements of Changes in Net Assets

(In thousands, except share data)

2 unchanged sentences

Balance at December 31, 2017

Net decrease in net assets resulting from operations, net of excise tax:

Net increase in net assets resulting from operations, net of excise tax:

Net investment income, net of excise tax

Net realized loss on investments

Net unrealized appreciation on investments

Net realized gain on investments

Net unrealized depreciation on investments

Financing costs

Issuance of common stock under dividend reinvestment plan

Repurchase of common stock

Distributions declared

1 unchanged sentence

Balance at December 31, 2018

Issuance of common stock, net of offering costs

Net increase in net assets resulting from operations, net of excise tax:

Net investment income, net of excise tax

Net realized gain on investments

Net unrealized depreciation on investments

Financing costs

Net realized loss on investments

Net unrealized appreciation on investments

Issuance of common stock under dividend reinvestment plan

12 unchanged sentences

See Notes to Consolidated Financial Statements

Horizon Technology Finance Corporation

and Subsidiaries

Horizon Technology Finance Corporation and Subsidiaries

Consolidated Statements of Cash Flow

(In thousands)

Year Ended December 31,

For the year ended December 31,

Cash flows from operating activities:

6 unchanged sentences

Principal payments received on investments

Investments in controlled affiliate investments

Proceeds from sale of investments

Dividend income from controlled affiliate investments

Distributions from controlled affiliate investments

Investment in controlled affiliate investments

Distributions from controlled affiliate investment

Dividends from controlled affiliate investment

Equity received in settlement of fee income

1 unchanged sentence

Changes in assets and liabilities:

(Increase) decrease in interest receivable

(Increase) decrease in end-of-term payments

Decrease (increase) in interest receivable

Increase in end-of-term payments

Decrease in unearned income

(Increase) decrease in other assets

Increase (decrease) in other accrued expenses

Increase in other assets

Increase in other accrued expenses

Increase in base management fee payable

Increase in incentive fee payable

(Decrease) increase in incentive fee payable

Net cash used in operating activities

1 unchanged sentence

Proceeds from issuance of common stock, net of offering costs

Proceeds from issuance of 2022 Notes

Repayment of 2019 Notes

Proceeds from issuance of Asset-Backed Notes

Advances on credit facility

Repayment of credit facility

Distributions paid

Repurchase of common stock

Proceeds from Asset-Backed Notes

Advances on credit facilities

Repayment of credit facilities

Debt issuance costs

Distributions paid

Financing costs

Net cash provided by (used in) financing activities

Net increase (decrease) in cash, cash equivalents and restricted cash

Net cash provided by financing activities

Net increase in cash, cash equivalents and restricted cash

Cash, cash equivalents and restricted cash:

1 unchanged sentence

End of period

See Notes to Consolidated Financial Statements

Horizon Technology Finance Corporation

and Subsidiaries

Consolidated Statements of Cash Flow

(In thousands)

Year Ended December 31,

Supplemental disclosure of cash flow information:

3 unchanged sentences

Distributions payable

Acquisition of controlled affiliate investment

End-of-term payments receivable

5 unchanged sentences

See Notes to Consolidated Financial Statements

Horizon Technology Finance Corporation

and Subsidiaries

Horizon Technology Finance Corporation and Subsidiaries

Consolidated Schedule of Investments

1 unchanged sentence

(In thousands)

Company (1)(3)

of Investment (4)(7)(9)(10)

Non-Affiliate

Investments —

Non-Affiliate

Debt Investments —

Non-Affiliate

Debt Investments —

Life Science —

Corporation (2)(5)(12)

Portfolio Company (1)(3)

Type of Investment (4)(7)(9)(10)

Investments (6)

Non-Affiliate Investments — 161.6% (8)

Non-Affiliate Debt Investments — 154.2% (8)

Non-Affiliate Debt Investments — Life Science — 71.4% (8)

Castle Creek Pharmaceuticals Holdings, Inc.(2)(12)

Biotechnology

Loan (9.63% cash (Libor + 7.63%;

Term Loan (9.30% cash (Libor + 7.50%;

Floor 9.30%), 5.00% ETP, Due 3/1/24)

Loan (9.63% cash (Libor + 7.63%;

Term Loan (9.30% cash (Libor + 7.50%;

Floor 9.30%), 5.00% ETP, Due 3/1/24)

Dermatology, Inc.

Term Loan (9.30% cash (Libor + 7.50%;

Floor 9.30%), 5.00% ETP, Due 3/1/24)

Term Loan (9.30% cash (Libor + 7.50%;

Floor 9.30%), 5.00% ETP, Due 3/1/24)

Celsion Corporation (2)(5)(12)

Biotechnology

Loan (10.00% cash (Libor + 7.50%;

Term Loan (9.63% cash (Libor + 7.63%;

Floor 9.63%), 5.50% ETP, Due 4/1/23)

Loan (10.00% cash (Libor + 7.50%;

Term Loan (9.63% cash (Libor + 7.63%;

Floor 9.63%), 5.50% ETP, Due 4/1/23)

BioPharma, Inc.

Emalex Biosciences, Inc.

Biotechnology

Loan (12.00% cash (Libor + 9.25%;

Term Loan (9.75% cash (Libor + 7.90%;

Floor 9.75%), 5.00% ETP, Due 12/1/23)

Loan (12.00% cash (Libor + 9.25%;

Term Loan (9.75% cash (Libor + 7.90%;

Floor 9.75%), 5.00% ETP, Due 12/1/23)

Inc.(2)(5)(12)

LogicBio, Inc.(2)(5)(12)

Biotechnology

Loan (8.75 % cash (Libor + 6.25%;

Term Loan (8.75% cash (Libor + 6.25%;

Floor 8.75%), 4.50% ETP, Due 6/1/24)

Provivi, Inc.

Biotechnology

Loan (9.00% cash (Libor + 6.50%;

Term Loan (9.50% cash (Libor + 8.50%;

Floor 9.50%), 5.50% ETP, Due 12/1/24)

Loan (9.00% cash (Libor + 6.50%;

Term Loan (9.50% cash (Libor + 8.50%;

Floor 9.50%), 5.50% ETP, Due 12/1/24)

Therapeutics Inc.

Biotechnology

Loan (11.69% cash (Libor + 10.00%;

Bardy Diagnostics, Inc.

Medical Device

Term Loan (8.90% cash (Libor + 7.00%;

Floor 8.90%), 5.00% ETP, Due 9/1/24)

Loan (11.69% cash (Libor + 10.00%;

Term Loan (8.90% cash (Libor + 7.00%;

Floor 8.90%), 5.00% ETP, Due 9/1/24)

Pharmaceuticals, Inc.

Loan (10.09% cash (Libor + 8.40%;

Term Loan (8.90% cash (Libor + 7.00%;

Floor 8.90%), 5.00% ETP, Due 9/1/24)

Orthopaedics, Inc.

Loan (9.69% cash (Libor + 8.00%;

Term Loan (8.90% cash (Libor + 7.00%;

Floor 8.90%), 5.00% ETP, Due 9/1/24)

Loan (9.69% cash (Libor + 8.00%;

Term Loan (8.90% cash (Libor + 7.00%;

Floor 8.90%), 5.00% ETP, Due 9/1/24)

Medical, Inc.

Loan (10.00% cash (Libor + 8.20%;

Term Loan (8.90% cash (Libor + 7.00%;

Floor 8.90%), 5.00% ETP, Due 9/1/24)

Loan (10.00% cash (Libor + 8.20%;

Term Loan (8.90% cash (Libor + 7.00%;

Floor 8.90%), 5.00% ETP, Due 9/1/24)

Loan (10.00% cash (Libor + 7.80%;

Canary Medical Inc.

Medical Device

Term Loan (9.00% cash (Prime + 5.75%;

Floor 9.00%), 7.00% ETP, Due 11/1/24)

Loan (10.00% cash (Libor + 7.80%;

Ceribell, Inc.

Medical Device

Term Loan (8.25% cash (Libor + 6.70%;

Floor 8.25%), 5.50% ETP, Due 10/1/24)

Loan (10.00% cash (Libor + 7.80%;

Term Loan (8.25% cash (Libor + 6.70%;

Floor 8.25%), 5.50% ETP, Due 10/1/24)

Loan (10.00% cash (Libor + 7.80%;

Conventus Orthopaedics, Inc.

Medical Device

Term Loan (9.25% cash (Libor + 8.00%;

Floor 9.25%), 10.36% ETP, Due 7/1/25)

Technologies, Inc.

Loan (10.12% cash (Libor + 8.43%;

Term Loan (9.25% cash (Libor + 8.00%;

Floor 9.25%), 10.36% ETP, Due 7/1/25)

Loan (10.08% cash (Libor + 7.68%;

Corinth Medtech, Inc.

Medical Device

Term Loan (8.50% cash (Prime + 5.25%;

Floor 8.50%), 20.00% ETP, Due 4/1/22)

Loan (10.08% cash (Libor + 7.68%;

Term Loan (8.50% cash (Prime + 5.25%;

Floor 8.50%), 20.00% ETP, Due 4/1/22)

Loan (9.70% cash (Libor + 7.10%;

CSA Medical, Inc.

Medical Device

Term Loan (10.00% cash (Libor + 8.20%;

Floor 10.00%), 5.00% ETP, Due 1/1/24)

Biotech LLC (2)(12)

Loan (9.69% cash (Libor + 8.00%;

Term Loan (10.00% cash (Libor + 8.20%;

Floor 10.00%), 5.00% ETP, Due 1/1/24)

Loan (9.69% cash (Libor + 8.00%;

Term Loan (10.00% cash (Libor + 8.20%;

Floor 10.00%), 5.00% ETP, Due 3/1/24)

Non-Affiliate Debt Investments —

Non-Affiliate

Debt Investments —

Technology —

Corporation (2)(12)(15)

Communications

Loan (9.59% cash (Libor + 7.90%;

Medical Device

Term Loan (10.00% cash (Libor + 7.80%;

Floor 10.00%), 3.50% ETP, Due 10/1/24)

Loan (9.59% cash (Libor + 7.90%;

Floor 9.50%), Due 2/1/20)

Corporation (2)(12)

Consumer-related

Loan (10.05% cash (Libor + 7.50%;

Term Loan (10.00% cash (Libor + 7.80%;

Floor 10.00%), 3.50% ETP, Due 10/1/24)

Term Loan (10.00% cash (Libor + 7.80%;

Floor 10.00%), 3.50% ETP, Due 10/1/24)

Term Loan (10.00% cash (Libor + 7.80%;

Floor 10.00%), 3.50% ETP, Due 10/1/24)

See Notes to Consolidated Financial Statements

Horizon Technology Finance Corporation

and Subsidiaries

Horizon Technology Finance Corporation and Subsidiaries

Consolidated Schedule of Investments

1 unchanged sentence

(In thousands)

Company (1)(3)

of Investment (4)(7)(9)(10)

Loan (10.05% cash (Libor + 7.50%;

Floor 10.05%), 4.50% ETP, Due 9/1/23)

Group Holdings, Inc.

Consumer-related

Loan (9.90% cash (Libor + 7.40%;

Floor 9.90%), 4.00% ETP, Due 1/1/23)

Loan (9.90% cash (Libor + 7.40%;

Portfolio Company (1)(3)

Type of Investment (4)(7)(9)(10)

Investments (6)

MacuLogix, Inc.

Medical Device

Term Loan (10.08% cash (Libor + 7.68%;

Floor 10.08%), 5.50% ETP, Due 10/1/23)

Loan (9.90% cash (Libor + 7.40%;

Term Loan (10.08% cash (Libor + 7.68%;

Floor 10.08%), 5.50% ETP, Due 10/1/23)

Consumer-related

Loan (11.50% cash (Prime + 5.75%;

Floor 11.50%, Ceiling 14.00%),0.56% ETP, Due 12/20/24)

Loan (11.50% cash (Prime + 5.75%;

Floor 11.50%, Ceiling 14.00%), 0.56% ETP, Due 12/20/24)

Loan (11.50% cash (Prime + 5.75%;

Floor 11.50%, Ceiling 14.00%), 0.56% ETP, Due 12/20/24)

Loan (11.00% cash (Libor + 8.60%;

Magnolia Medical Technologies, Inc.

Medical Device

Term Loan (9.75% cash (Prime + 5.00%;

Floor 9.75%), 4.00% ETP, Due 3/1/25)

Loan (11.00% cash (Libor + 8.60%;

Term Loan (9.75% cash (Prime + 5.00%;

Floor 9.75%), 4.00% ETP, Due 3/1/25)

Loan (10.65% cash (Libor + 8.40%;

Term Loan (9.75% cash (Prime + 5.00%;

Floor 9.75%), 4.00% ETP, Due 3/1/25)

Loan (10.65% cash (Libor + 8.40%;

Term Loan (9.75% cash (Prime + 5.00%;

Floor 9.75%), 4.00% ETP, Due 3/1/25)

Loan (10.65% cash (Libor + 8.40%;

Sonex Health, Inc.

Medical Device

Term Loan (9.25% cash (Prime + 6.00%;

Floor 9.25%), 5.00% ETP, Due 6/1/24)

Loan (11.92% cash (Libor + 10.23%;

Term Loan (9.25% cash (Prime + 6.00%;

Floor 9.25%), 5.00% ETP, Due 6/1/24)

Loan (11.92% cash (Libor + 10.23%;

Term Loan (9.25% cash (Prime + 6.00%;

Floor 9.25%), 5.00% ETP, Due 6/1/24)

Loan (11.92% cash (Libor + 10.23%;

Total Non-Affiliate Debt Investments — Life Science

Non-Affiliate Debt Investments — Technology — 71.2% (8)

Alula Holdings, Inc.

Consumer-related Technologies

Term Loan (10.00% cash (Prime + 6.75%;

Floor 10.00%), 3.00% ETP, Due 1/1/25)

Loan (11.92% cash (Libor + 10.23%;

Term Loan (10.00% cash (Prime + 6.75%;

Floor 10.00%), 3.00% ETP, Due 1/1/25)

Loan (9.50% cash (Libor + 7.50%;

Term Loan (10.00% cash (Prime + 6.75%;

Floor 10.00%), 3.00% ETP, Due 1/1/25)

Loan (9.50% cash (Libor + 7.50%;

Betabrand Corporation (2)(12)

Consumer-related Technologies

Term Loan (10.05% cash (Libor + 7.50%;

Floor 10.05%), 5.75% ETP, Due 9/1/23)

Loan (9.50% cash (Libor + 7.50%;

Term Loan (10.05% cash (Libor + 7.50%;

Floor 10.05%), 5.75% ETP, Due 9/1/23)

Wireless, Inc.

Loan (15.80% cash (Libor + 8.80%;

Term Loan (10.05% cash (Libor + 7.50%;

Floor 10.05%), 5.75% ETP, Due 9/1/23)

NanoSteel Company, Inc.

Loan (11.00% cash (Libor + 8.50%;

Getaround, Inc.

Consumer-related Technologies

Term Loan (10.50% cash (Prime + 7.25%;

Floor 10.50%), 4.50% ETP, Due 12/1/24)

Loan (11.00% cash (Libor + 8.50%;

Term Loan (10.50% cash (Prime + 7.25%;

Floor 10.50%), 4.50% ETP, Due 12/1/24)

Technologies, Inc.(2)(12)

Loan (9.95% cash (Libor + 7.75%;

Term Loan (10.50% cash (Prime + 7.25%;

Floor 10.50%), 4.50% ETP, Due 12/1/24)

Loan (9.95% cash (Libor + 7.75%;

Updater, Inc.

Consumer-related Technologies

Term Loan (11.50% cash (Prime + 5.75%;

Floor 11.50%, Ceiling 14.00%),0.56% ETP, Due 12/20/24)

Term Loan (11.50% cash (Prime + 5.75%;

Floor 11.50%, Ceiling 14.00%), 0.56% ETP, Due 12/20/24)

Term Loan (11.50% cash (Prime + 5.75%;

Floor 11.50%, Ceiling 14.00%), 0.56% ETP, Due 12/20/24)

CPG Beyond, Inc.

Term Loan (11.00% cash (Libor + 8.60%;

Floor 11.00%), 2.00% ETP, Due 8/1/23)

Solutions, LLC.

Loan (11.00% cash (Libor + 8.40%;

Term Loan (11.00% cash (Libor + 8.60%;

Floor 11.00%), 2.00% ETP, Due 8/1/23)

Loan (11.00% cash (Libor + 8.40%;

Term Loan (10.65% cash (Libor + 8.40%;

Floor 10.65%), 4.00% ETP, Due 1/1/23)

Loan (11.00% cash (Libor + 8.40%;

Term Loan (10.65% cash (Libor + 8.40%;

Floor 10.65%), 4.00% ETP, Due 1/1/23)

Signature US, Inc.

Loan (10.50% cash (Libor + 8.50%;

Term Loan (10.65% cash (Libor + 8.40%;

Floor 10.65%), 4.00% ETP, Due 7/1/23)

Loan (10.50% cash (Libor + 8.50%;

IgnitionOne, Inc.

Internet and Media

Term Loan (10.38% cash (Libor + 10.23%;

Floor 10.23%), 6.00% ETP, Due 4/1/22)

OutboundEngine,

Loan (11.15% cash (Libor + 8.40%;

Term Loan (10.38% cash (Libor + 10.23%;

Floor 10.23%), 6.00% ETP, Due 4/1/22)

See Notes to Consolidated Financial Statements

Horizon Technology Finance Corporation

and Subsidiaries

Horizon Technology Finance Corporation and Subsidiaries

Consolidated Schedule of Investments

1 unchanged sentence

(In thousands)

Company (1)(3)

of Investment (4)(7)(9)(10)

Loan (11.15% cash (Libor + 8.40%;

Portfolio Company (1)(3)

Type of Investment (4)(7)(9)(10)

Investments (6)

Term Loan (10.38% cash (Libor + 10.23%;

Floor 10.23%), 6.00% ETP, Due 4/1/22)

Loan (9.50% cash (Libor + 7.00%;

Term Loan (10.38% cash (Libor + 10.23%;

Floor 10.23%), 6.00% ETP, Due 4/1/22)

Loan (9.50% cash (Libor + 7.00%;

The NanoSteel Company, Inc.

Term Loan (11.00% cash (Libor + 8.50%;

Floor 11.00%), 14.88% ETP, Due 6/1/22)

Loan (12.69% cash (Libor + 11.00%;

Term Loan (11.00% cash (Libor + 8.50%;

Floor 11.00%), 14.88% ETP, Due 6/1/22)

Loan (10.39% cash (Libor + 8.70%;

Liqid, Inc.(2)(12)

Term Loan (9.50% cash (Prime + 6.25%;

Floor 9.50%), 4.00% ETP, Due 9/1/24)

Loan (10.39% cash (Libor + 8.70%;

Term Loan (9.50% cash (Prime + 6.25%;

Floor 9.50%), 4.00% ETP, Due 9/1/24)

Loan (10.39% cash (Libor + 8.70%;

BriteCore Holdings, Inc.

Term Loan (10.50% cash (Prime + 7.25%;

Floor 10.50%), 4.00% ETP, Due 10/1/24)

Loan (10.39% cash (Libor + 8.70%;

Term Loan (10.50% cash (Prime + 7.25%;

Floor 10.50%), 4.00% ETP, Due 10/1/24)

Non-Affiliate Debt Investments —

Non-Affiliate

Debt Investments —

Healthcare information and services —

Loan (9.75% cash (Libor + 7.45%;

Keypath Education, LLC (2)(12)

Term Loan (10.50% cash (Libor + 8.50%;

Floor 10.50%), 2.50% ETP, Due 10/1/24)

Loan (9.75% cash (Libor + 7.45%;

Term Loan (10.50% cash (Libor + 8.50%;

Floor 10.50%), 2.50% ETP, Due 10/1/24)

Software, Inc.

Loan (9.94% cash (Libor + 8.25%;

Term Loan (10.50% cash (Libor + 8.50%;

Floor 10.50%), 2.50% ETP, Due 10/1/24)

Loan (9.94% cash (Libor + 8.25%;

OutboundEngine, Inc.

Term Loan (11.15% cash (Libor + 8.40%;

Floor 11.15%), 3.63% ETP, Due 7/1/23)

Loan (9.94% cash (Libor + 8.25%;

Term Loan (11.15% cash (Libor + 8.40%;

Floor 11.15%), 3.63% ETP, Due 7/1/23)

Loan (9.94% cash (Libor + 8.25%;

Term Loan (11.15% cash (Libor + 8.40%;

Floor 11.15%), 3.63% ETP, Due 7/1/23)

Non-Affiliate Debt Investments —

Healthcare information and services

Non- Affiliate Debt Investments

Non-Affiliate

Warrant Investments —

Non-Affiliate

Warrants —

Life Science —

Immune Sciences, Inc.

Biotechnology

Common Stock Warrants

Corporation (2)(5)(12)

Revinate, Inc.

Term Loan (9.50% cash (Libor + 7.00%;

Floor 9.50%), 4.00% ETP, Due 11/1/23)

Term Loan (9.50% cash (Libor + 7.00%;

Floor 9.50%), 4.00% ETP, Due 11/1/23)

Term Loan (9.50% cash (Libor + 7.00%;

Floor 9.50%), 4.00% ETP, Due 11/1/23)

Topia Mobility, Inc.

Term Loan (10.00% cash (Prime + 6.75%;

Floor 10.00%), 4.00% ETP, Due 9/1/24)

Term Loan (10.00% cash (Prime + 6.75%;

Floor 10.00%), 4.00% ETP, Due 9/1/24)

Term Loan (10.00% cash (Libor + 8.70%;

Floor 10.00%), 5.0% ETP, Due 1/1/22)

Term Loan (10.00% cash (Libor + 8.70%;

Floor 10.00%), 5.0% ETP, Due 1/1/22)

Term Loan (10.00% cash (Libor + 8.70%;

Floor 10.00%), 5.0% ETP, Due 1/1/22)

Term Loan (10.00% cash (Libor + 8.70%;

Floor 10.00%), 5.0% ETP, Due 1/1/22)

Total Non-Affiliate Debt Investments — Technology

Non-Affiliate Debt Investments — Healthcare information and services — 11.6% (8)

IDbyDNA, Inc.(2)(12)

Term Loan (9.00% cash (Prime + 5.75%;

Floor 9.00%), 5.50% ETP, Due 1/1/25)

Term Loan (9.00% cash (Prime + 5.75%;

Floor 9.00%), 5.50% ETP, Due 1/1/25)

Kate Farms, Inc.

Other Healthcare

Term Loan (9.75% cash (Libor + 7.45%;

Floor 9.75%), 5.00% ETP, Due 10/1/23)

Term Loan (9.75% cash (Libor + 7.45%;

Floor 9.75%), 5.00% ETP, Due 10/1/23)

Term Loan (9.75% cash (Libor + 7.45%;

Floor 9.75%), 5.00% ETP, Due 10/1/23)

Term Loan (9.75% cash (Libor + 7.45%;

Floor 9.75%), 5.00% ETP, Due 10/1/23)

Total Non-Affiliate Debt Investments — Healthcare information and services

Total Non- Affiliate Debt Investments

Non-Affiliate Warrant Investments — 6.6% (8)

Non-Affiliate Warrants — Life Science — 1.8% (8)

Alpine Immune Sciences, Inc.

Biotechnology

4,632 Common Stock Warrants

Biotechnology

Preferred Stock Warrants

Dermatology, Inc.

Castle Creek Pharmaceuticals, Inc.

Biotechnology

2,428 Preferred Stock Warrants

BioPharma, Inc.

Celsion Corporation (2)(5)(12)

Biotechnology

295,053 Common Stock Warrants

Corvium, Inc.

Biotechnology

Common Stock Warrants

661,956 Preferred Stock Warrants

Emalex Biosciences, Inc.

Biotechnology

Common Stock Warrants

Pharmaceuticals Corporation (5)(12)

73,602 Preferred Stock Warrants

LogicBio, Inc.

Biotechnology

7,843 Common Stock Warrants

Technologies, Inc.

Mustang Bio, Inc.

Biotechnology

252,161 Common Stock Warrants

Therapeutics, Inc.

Provivi, Inc.

Biotechnology

Common Stock Warrants

123,457 Preferred Stock Warrants

Rocket Pharmaceuticals Corporation (5)(12)

Biotechnology

7,051 Common Stock Warrants

Pharmaceuticals, Inc.

Strongbridge U.S.

Biotechnology

160,714 Common Stock Warrants

Therapeutics Inc.

vTv Therapeutics Inc.

Biotechnology

95,293 Common Stock Warrants

Pharmaceuticals, Inc.

Common Stock Warrants

See Notes to Consolidated Financial Statements

Horizon Technology Finance Corporation and Subsidiaries

Consolidated Schedule of Investments

December 31, 2020

(In thousands)

Portfolio Company (1)(3)

Type of Investment (4)(7)(9)(10)

Investments (6)

AccuVein Inc.

Medical Device

1,175 Preferred Stock Warrants

Medical, Inc.

Aerin Medical, Inc.

Medical Device

1,818,183 Preferred Stock Warrants

Orthopaedics, Inc.

Bardy Diagnostics, Inc.

Medical Device

346,154 Preferred Stock Warrants

Medical, Inc.

Canary Medical Inc.

Medical Device

7,292 Preferred Stock Warrants

Ceribell, Inc.

Medical Device

117,521 Preferred Stock Warrants

Technologies, Inc.

Conventus Orthopaedics, Inc.

Medical Device

6,313,788 Preferred Stock Warrants

CSA Medical, Inc.

Medical Device

1,375,727 Preferred Stock Warrants

CVRx, Inc.(2)(12)

Medical Device

750,000 Preferred Stock Warrants

Medical, Inc.

MacuLogix, Inc.

Medical Device

454,460 Preferred Stock Warrants

See Notes to Consolidated Financial Statements

Horizon Technology Finance Corporation

and Subsidiaries

Consolidated Schedule of Investments

December 31, 2019

(In thousands)

Company (1)(3)

of Investment (4)(7)(9)(10)

Biotech LLC (2)(12)

Magnolia Medical Technologies, Inc.

Medical Device

378,363 Preferred Stock Warrants

Non-Affiliate Warrants —

Non-Affiliate

Warrants —

Technology —

Audacy Corporation (2)(12)

Communications

1,545,575 Preferred Stock

Meditrina, Inc.

Medical Device

221,510 Preferred Stock Warrants

Sonex Health, Inc.

Medical Device

484,250 Preferred Stock Warrants

VERO Biotech LLC (2)(12)

Medical Device

408 Common Stock Warrants

Total Non-Affiliate Warrants — Life Science

Non-Affiliate Warrants — Technology — 3.9% (8)

Intelepeer Holdings, Inc.

Communications

2,134,617 Preferred Stock

3,078,084 Preferred and Common Stock Warrants

PebblePost, Inc.

1 unchanged sentence

598,850 Preferred Stock Warrants

Alula Holdings, Inc.

Consumer-related Technologies

20,000 Preferred Stock Warrants

Betabrand Corporation (2)(12)

4 unchanged sentences

268,591 Preferred Stock Warrants

Le Tote, Inc.

Getaround, Inc.

Consumer-related Technologies

3 unchanged sentences

76,923 Common Stock Warrants

Rhapsody International Inc.

Consumer-related Technologies

852,273 Common Stock Warrants

Updater, Inc.(2)(12)

1 unchanged sentence

108,333 Common Stock Warrants

CPG Beyond, Inc.

500,000 Preferred Stock Warrants

Kaminario, Inc.

18,616,925 Preferred Stock

44,211,003 Preferred and Common Stock Warrants

Global Worldwide LLC (2)(12)

1 unchanged sentence

245,810 Preferred Stock Warrants

IgnitionOne, Inc.

Internet and Media

262,910 Preferred Stock Warrants

Rocket Lawyer Incorporated (2)(12)

4 unchanged sentences

139,073 Preferred Stock Warrants

Verve Wireless, Inc.

Internet and Media

112,805 Common Stock Warrants

The NanoSteel Company, Inc.

Liqid, Inc.(2)(12)

243,942 Preferred Stock Warrants

1 unchanged sentence

Power Management

3,454,774 Preferred Stock

5,002,574 Preferred Stock Warrants

Avalanche Technology, Inc.

Semiconductors

202,602 Preferred Stock Warrants

6,753 Preferred and Common Stock Warrants

Semiconductors

203,616 Preferred Stock Warrants

Bridge2 Solutions, Inc.

172,958 Common Stock Warrants

BSI Platform Holdings, LLC

187,500 Preferred Stock Warrants

Clarabridge, Inc.

BriteCore Holdings, Inc.

12,857 Preferred Stock Warrants

1 unchanged sentence

238,121 Preferred Stock Warrants

Keypath Education, Inc.(2)(12)

900,000 Preferred Stock Warrants

Lotame Solutions, Inc.

6 unchanged sentences

321,428 Preferred Stock Warrants

ShopKeep.com, Inc.

186,045 Preferred Stock Warrants

133,560 Preferred Stock Warrants

Skyword, Inc.

301,055 Preferred and Common Stock Warrants

Topia Mobility, Inc.

3,049,607 Preferred Stock Warrants

Sys-Tech Solutions, Inc.

375,000 Common Stock Warrants

Weblinc Corporation (2)(12)

1 unchanged sentence

4,343,348 Preferred Stock Warrants

Non-Affiliate Warrants —

Non-Affiliate

Warrants —

Sustainability —

Total Non-Affiliate Warrants — Technology

Non-Affiliate Warrants — Sustainability — 0.0% (8)

Tigo Energy, Inc.

Energy Efficiency

804,604 Preferred Stock Warrants

Non-Affiliate Warrants —

Sustainability

Non-Affiliate

Warrants —

Healthcare information and services —

ProterixBio, Inc.

2,676 Common Stock Warrants

Total Non-Affiliate Warrants — Sustainability

Non-Affiliate Warrants — Healthcare information and services — 0.9% (8)

IDbyDNA, Inc.(2)(12)

363,082 Preferred Stock Warrants

Kate Farms, Inc.

4 unchanged sentences

27,373 Preferred Stock Warrants

Catasys, Inc.

51,185 Common Stock Warrants

HealthEdge Software, Inc.

205,481 Preferred Stock Warrants

Systems Corporation (2)(12)

Medsphere Systems Corporation (2)(12)

7,097,792 Preferred Stock Warrants

Non-Affiliate Warrants —

Healthcare information and services

Non-Affiliate Warrants

Non-Affiliate

Other Investments —

10,906 Common Stock Warrants

Total Non-Affiliate Warrants — Healthcare information and services

Total Non-Affiliate Warrants

Non-Affiliate Other Investments — 0.1% (8)

Non-Affiliate

Equity —

Palatin Technologies, Inc.

Biotechnology

5,249 Common Stock

Revance Therapeutics, Inc.(5)

Biotechnology

5,125 Common Stock

Medical Device

Royalty Agreement

Total Non-Affiliate Other Investments

See Notes to Consolidated Financial Statements

Horizon Technology Finance Corporation and Subsidiaries

Consolidated Schedule of Investments

December 31, 2020

(In thousands)

Portfolio Company (1)(3)

Type of Investment (4)(7)(9)(10)

Investments (6)

Non-Affiliate Equity — 0.7% (8)

Sunesis Pharmaceuticals, Inc.

4 unchanged sentences

82,974 Common Stock

See Notes to Consolidated Financial Statements

Horizon Technology Finance Corporation

and Subsidiaries

Consolidated Schedule of Investments

December 31, 2019

(In thousands)

Company (1)(3)

of Investment (4)(7)(9)(10)

Verve Wireless,

Internet and Media

100,598 Preferred

Zeta Global Holdings Corp.

1 unchanged sentence

18,405 Common Stock

Non-Affiliate Equity

Non-Affiliate Portfolio Investment Assets

Non-controlled

Affiliate Investments —

Non-controlled

Affiliate Debt Investments —

Technology —

Formetrix, Inc.

74,286 Common Stock

Clarabridge, Inc.

17,142 Preferred Stock

Lightspeed POS Inc.

17,037 Common Stock

Total Non-Affiliate Equity

Total Non-Affiliate Portfolio Investment Assets

Non-controlled Affiliate Investments — 3.5% (8)

Non-controlled Affiliate Debt Investments — Technology — 2.7% (8)

Decisyon, Inc.

11 unchanged sentences

Floor 8.50%), 15.63% ETP, Due 1/1/22)

Non-controlled Affiliate Debt Investments —

Non-controlled

Affiliate Warrants —

Technology —

Total Non-controlled Affiliate Debt Investments — Technology

Non-controlled Affiliate Warrants — Technology — 0.0% (8)

Decisyon, Inc.

82,967 Common Stock Warrants

Non-controlled Affiliate Warrants —

Non-controlled

Affiliate Equity —

Technology —

Total Non-controlled Affiliate Warrants — Technology

Non-controlled Affiliate Equity — Technology — 0.8% (8)

Decisyon, Inc.

45,365,936 Common Stock

Imaging, Inc.

Non-controlled Affiliate Equity

Non-controlled Affiliate Portfolio Investment Assets

Affiliate Investments —

Affiliate Equity —

Financial —

Secured Loan Fund I LLC (12)(14)

Controlled Affiliate Equity

Controlled Affiliate Portfolio Investment Assets

Portfolio Investment Assets —

Term Investments —

Unrestricted Investments —

Bank Money Market Deposit Account

Short Term Investments —Unrestricted Investments

Term Investments —

Restricted Investments—0.6% (8)

Bank Money Market Deposit Account

Short Term Investments —

Restricted Investments

All investments of the Company are in

entities which are organized under the laws of the United States and have a principal place of business in the United States.

Has been pledged as collateral under

the revolving credit facility with KeyBank National Association (the “Key Facility”) and/or the term debt securitization

in connection with which an affiliate of the Company made an offering of $100.0 million in aggregate principal amount of fixed

rate asset-backed notes that were issued in conjunction with the $160.0 million securitization of secured loans the Company

completed on August 13, 2019 (“the Asset-Backed Notes”).

72,638,663 Preferered and Common Stock

StereoVision Imaging, Inc.

1,943,572 Preferred and Common Stock

Total Non-controlled Affiliate Equity

Total Non-controlled Affiliate Portfolio Investment Assets

Controlled Affiliate Investments — 0.7% (8)

Controlled Affiliate Other Investments — Biotechnology — 0.7% (8)

HESP LLC (2)(12)(14)

Biotechnology

Other Investment

Total Controlled Affiliate Other Investments

Total Controlled Affiliate Portfolio Investment Assets

Total Portfolio Investment Assets — 165.8% (8)

Short Term Investments — Unrestricted Investments — 12.8% (8)

US Bank Money Market Deposit Account

Total Short Term Investments —Unrestricted Investments

Short Term Investments — Restricted Investments—0.5% (8)

US Bank Money Market Deposit Account

Total Short Term Investments —Restricted Investments

(1) All investments of the Company are in entities which are organized under the laws of the United States and have a principal place of business in the United States.

(2) Has been pledged as collateral under the revolving credit facility (the “Key Facility”) with KeyBank National Association (“Key”), the Note Funding Agreement (the “NYL Facility”) with several entities owned or affiliated with New York Life Insurance Company (“NYL Noteholders”) and/or the term debt securitization in connection with which an affiliate of the Company made an offering of $100.0 million in aggregate principal amount of fixed rate asset-backed notes that were issued in conjunction with the $160.0 million securitization of secured loans the Company completed on August 13, 2019 (“the Asset-Backed Notes”).

See Notes to Consolidated Financial Statements

Horizon Technology Finance Corporation

and Subsidiaries

Consolidated Schedule of Investments

December 31, 2019

(In thousands)

(3) All non-affiliate investments are investments in which the Company owns less than 5% of the voting securities of the portfolio company.

All non-controlled affiliate investments are investments in which the Company owns 5% or more of the voting securities of the portfolio company but not more than 25% of the voting securities of the portfolio company.

All controlled affiliate investments are investments in which the Company owns more than 25% of the portfolio company’s outstanding voting securities or has the power to exercise control over management or policies of such portfolio company (including through a management agreement).

All interest is payable in cash due monthly in arrears, unless otherwise indicated, and applies only to the Company’s debt investments.

Interest rate is the annual interest rate on the debt investment and does not include end-of-term payments (“ETPs”), and any additional fees related to the investments, such as deferred interest, commitment fees or prepayment fees.

(4) All interest is payable in cash due monthly in arrears, unless otherwise indicated, and applies only to the Company’s debt investments.

Debt investments are at variable rates for the term of the debt investment, unless otherwise indicated.

All debt investments based on the London InterBank Offered Rate (“LIBOR”) are based on one-month LIBOR.

For each debt investment, the current interest rate in effect as of December 31, 2020 is provided.

3 unchanged sentences

(8) Value as a percent of net assets.

As of December 31, 2019, 4.9% and 4.8% of the Company’s total assets on a cost and fair value basis, respectively, are in non-qualifying assets.

Under the Investment Company Act of 1940, as amended (the “1940 Act”), the Company may not acquire any non-qualifying assets unless, at the time the acquisition is made, qualifying assets represent at least 70% of the Company’s total assets.

ETPs are contractual fixed-interest

payments due in cash at the maturity date of the applicable debt investment, including upon any prepayment, and are a fixed percentage

of the original principal balance of the debt investments unless otherwise noted.

Interest will accrue during the life of the

debt investment on each ETP and will be recognized as non-cash income until it is actually paid.

Therefore, a portion of the incentive

fee the Company may pay its Advisor will be based on income that the Company has not yet received in cash.

Debt investment has a payment-in-kind (“PIK”) feature.

(9) The Company did not have any non-qualifying assets under Section 55(a) of the Investment Company Act of 1940, as amended (the “1940 Act) as of December 31, 2020.

Under the 1940 Act, the Company may not acquire any non-qualifying assets unless, at the time the acquisition is made, qualifying assets represent at least 70% of the Company’s total assets.

(10) ETPs are contractual fixed-interest payments due in cash at the maturity date of the applicable debt investment, including upon any prepayment, and are a fixed percentage of the original principal balance of the debt investments unless otherwise noted.

Interest will accrue during the life of the debt investment on each ETP and will be recognized as non-cash income until it is actually paid.

Therefore, a portion of the incentive fee the Company may pay its Advisor will be based on income that the Company has not yet received in cash.

(11) Debt investment has a payment-in-kind (“PIK”) feature.

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

New Signature US, Inc.

is a subsidiary of BSI Platform Holdings, LLC.

On June 1, 2018, the Company entered into an agreement with Arena Sunset SPV, LLC (“Arena”) to co-invest through Horizon Secured Loan Fund I (“HSLFI”), a joint venture, which is expected to make investments, either directly or indirectly through subsidiaries, primarily in the form of secured loans to development-stage companies in the technology, life science, healthcare information and services and sustainability industries.

All HSLFI investment decisions require unanimous approval of a quorum of HSLFI’s board of managers, which consists of two representatives of the Company and Arena.

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

(13) Debt investment is on non-accrual status as of December 31, 2020.

(14) On July 8, 2020, Espero BioPharma, Inc.

and its affiliates, Jacksonville Pharmaceuticals, Inc.

and Espero Pharmaceuticals, Inc.

(collectively, “Espero”) assigned substantially all of their assets to their respective assignment estates and respectively appointed PSE (ABC), LLC, PS PJAX (ABC), LLC, and PPSE (ABC), LLC (collectively, “Espero ABC”) to administer their respective estates and to facilitate the orderly sale and liquidation of their property and assets.

On October 6, 2020, the Court of Chancery of the State of Delaware approved the transfer of the assets of Espero to the Company and Credit II or their designees in consideration for the Company and Credit II’s credit bid at auction of $7.0 million.

On October 22, 2020, Espero ABC transferred the assets of Espero to HESP LLC, a Delaware limited liability company, wholly owned by the Company.

See Notes to Consolidated Financial Statements

5 unchanged sentences

Type of Investment (4)(7)(9)(10)

(4)(7)(9)(10)

Non-Affiliate Investments —

Non-Affiliate Debt Investments —

Life Science —

Investments (6)

Non-Affiliate Investments — 160.0% (8)

Non-Affiliate Debt Investments — 153.5% (8)

Non-Affiliate Debt Investments — Life Science — 55.9% (8)

Celsion Corporation (2)(5)(12)

3 unchanged sentences

Term Loan (9.98% cash (Libor + 7.63%;

Floor 9.63%),

4.00% ETP, Due 7/1/22)

Floor 9.63%), 4.00% ETP, Due 7/1/22)

Encore Dermatology, Inc.

Biotechnology

Term Loan (10.00% cash (Libor + 7.50%;

Floor 10.00%), 3.00% ETP, Due 4/1/23)

Term Loan (10.00% cash (Libor + 7.50%;

Floor 10.00%), 3.00% ETP, Due 4/1/23)

Espero BioPharma, Inc.

1 unchanged sentence

Term Loan (12.00% cash (Libor + 9.25%;

Floor 12.00%),

4.00% ETP, Due 6/30/19)

Palatin Technologies, Inc.

Floor 12.00%), 5.10% ETP, Due 3/31/20) (11)

Term Loan (12.00% cash (Libor + 9.25%;

Floor 12.00%), 5.10% ETP, Due 3/31/20) (11)

LogicBio, Inc.(2)(5)(12)

Biotechnology

Term Loan (8.75 % cash (Libor + 6.25%;

Floor 9.00%),

5.00% ETP, Due 8/1/19)

Floor 8.75%), 4.50% ETP, Due 6/1/24

Mustang Bio, Inc.

Biotechnology

Term Loan (9.00% cash (Libor + 6.50%;

Floor 9.00%),

3.27% ETP, Due 8/1/19)

Floor 9.00%), 5.00% ETP, Due 10/1/22)

Term Loan (9.00% cash (Libor + 6.50%;

Floor 9.00%), 5.00% ETP, Due 10/1/22)

vTv Therapeutics Inc.

1 unchanged sentence

Term Loan (11.69% cash (Libor + 10.00%;

Floor 10.50%),

6.00% ETP, Due 5/1/20)

Floor 10.50%), 6.00% ETP, Due 5/1/20)

Term Loan (11.69% cash (Libor + 10.00%;

Floor 10.50%),

6.00% ETP, Due 10/1/20)

Floor 10.50%), 6.00% ETP, Due 10/1/20)

Titan Pharmaceuticals, Inc.

1 unchanged sentence

Term Loan (10.09% cash (Libor + 8.40%;

Floor 9.50%),

5.00% ETP, Due 6/1/21)

Aerin Medical, Inc.

Floor 9.50%), 5.00% ETP, Due 6/1/22)

Conventus Orthopaedics, Inc.

Medical Device

Term Loan (9.69% cash (Libor + 8.00%;

Floor 8.75%),

4.00% ETP, Due 1/1/22)

Floor 9.25%), 8.33% ETP, Due 7/1/23)

Term Loan (9.69% cash (Libor + 8.00%;

Floor 8.75%),

4.00% ETP, Due 1/1/22)

Floor 9.25%), 8.33% ETP, Due 7/1/23)

CSA Medical, Inc.

Medical Device

Term Loan (10.00% cash (Libor + 8.20%;

Floor 8.75%),

4.00% ETP, Due 1/1/22)

Conventus Orthopaedics, Inc.

Floor 10.00%), 5.00% ETP, Due 1/1/24)

Term Loan (10.00% cash (Libor + 8.20%;

Floor 10.00%), 5.00% ETP, Due 1/1/24)

Medical Device

Term Loan (10.00% cash (Libor + 7.80%;

Floor 9.25%),

6.00% ETP, Due 6/1/21)

Floor 10.00%), 3.50% ETP, Due 4/1/24)

Term Loan (10.00% cash (Libor + 7.80%;

Floor 9.25%),

6.00% ETP, Due 6/1/21)

Floor 10.00%), 3.50% ETP, Due 4/1/24)

Term Loan (10.00% cash (Libor + 7.80%;

Floor 9.25%),

6.00% ETP, Due 6/1/21)

CSA Medical, Inc.

Medical Device

Floor 10.00%), 3.50% ETP, Due 4/1/24)

Term Loan (10.00% cash (Libor + 7.80%;

Floor 10.00%),

5.00% ETP, Due 10/1/22)

Floor 10.00%), 3.50% ETP, Due 4/1/24)

Lantos Technologies, Inc.

1 unchanged sentence

Term Loan (10.12% cash (Libor + 8.43%;

Floor 10.00%),

6.00% ETP, Due 9/1/21)

Floor 10.00%), 10.00% ETP, Due 4/1/21)

MacuLogix, Inc.

1 unchanged sentence

Term Loan (10.08% cash (Libor + 7.68%;

Floor 9.50%),

4.00% ETP, Due 8/1/22)

Floor 10.08%), 4.00% ETP, Due 10/1/23)

Term Loan (10.08% cash (Libor + 7.68%;

Floor 9.50%),

4.00% ETP, Due 8/1/22)

Floor 10.08%), 4.00% ETP, Due 10/1/23)

Meditrina, Inc.

Medical Device

Term Loan (9.70% cash (Libor + 7.10%;

Floor 9.70%), 4.00% ETP, Due 5/1/20)

VERO Biotech LLC (2)(12)

1 unchanged sentence

Term Loan (9.69% cash (Libor + 8.00%;

Floor 9.25%),

5.00% ETP, Due 1/1/22)

Floor 9.25%), 5.00% ETP, Due 1/1/22)

Term Loan (10.35% cash (Libor + 8.00%;

Floor 9.25%), 5.00% ETP, Due 1/1/22)

Total Non-Affiliate Debt Investments —

Non-Affiliate Debt Investments —

Technology —

Total Non-Affiliate Debt Investments — Life Science

Non-Affiliate Debt Investments — Technology — 84.8% (8)

Audacy Corporation (2)(12)(15)

1 unchanged sentence

Term Loan (9.59% cash (Libor + 7.90%;

Floor 9.50%),

5.00% ETP, Due 7/1/22)

Intelepeer Holdings, Inc.

Communications

Term Loan (12.30% cash (Libor + 9.95%;

Floor 11.25%),

2.50% ETP, Due 7/1/21)

Floor 9.50%), 5.00% ETP, Due 7/1/22)

Term Loan (9.59% cash (Libor + 7.90%;

Floor 11.25%),

2.50% ETP, Due 2/1/21)

Floor 9.50%), Due 2/1/20)

Betabrand Corporation (2)(12)

Consumer-related Technologies

Term Loan (10.05% cash (Libor + 7.50%;

Floor 10.90%),

3.00% ETP, Due 1/1/23)

Floor 10.05%), 4.50% ETP, Due 9/1/23)

Term Loan (10.05% cash (Libor + 7.50%;

Floor 10.90%),

3.00% ETP, Due 1/1/23)

Floor 10.05%), 4.50% ETP, Due 9/1/23)

Mohawk Group Holdings, Inc.

1 unchanged sentence

Term Loan (9.90% cash (Libor + 7.40%;

Floor 9.90%),

4.00% ETP, Due 1/1/23)

Term Loan (9.90% cash (Libor + 7.40%;

Floor 9.90%),

4.00% ETP, Due 1/1/23)

Term Loan (9.90% cash (Libor + 7.40%;

Floor 9.90%),

4.00% ETP, Due 1/1/23)

Kaminario, Inc.

Floor 9.90%), 4.00% ETP, Due 1/1/23)

Term Loan (9.90% cash (Libor + 7.40%;

Floor 10.65%),

3.00% ETP, Due 1/1/23)

Floor 9.90%), 4.00% ETP, Due 1/1/23)

Term Loan (9.90% cash (Libor + 7.40%;

Floor 9.90%), 4.00% ETP, Due 1/1/23)

Updater, Inc.(2)(12)

Consumer-related Technologies

Term Loan (11.50% cash (Prime + 5.75%;

Floor 11.50%, Ceiling 14.00%),0.56% ETP, Due 12/20/24)

Term Loan (11.50% cash (Prime + 5.75%;

Floor 11.50%, Ceiling 14.00%), 0.56% ETP, Due 12/20/24)

See Notes to Consolidated Financial Statements

Horizon Technology Finance Corporation

and Subsidiaries

Horizon Technology Finance Corporation and Subsidiaries

Consolidated Schedule of Investments

3 unchanged sentences

Type of Investment (4)(7)(9)(10)

(4)(7)(9)(10)

IgnitionOne, Inc.

Internet and Media

Investments (6)

Term Loan (11.50% cash (Prime + 5.75%;

Floor 11.50%, Ceiling 14.00%), 0.56% ETP, Due 12/20/24)

Term Loan (11.00% cash (Libor + 8.60%;

2 unchanged sentences

Floor 11.00%), 1.00% ETP, Due 2/1/23)

Kaminario, Inc.

Term Loan (10.65% cash (Libor + 8.40%;

2 unchanged sentences

Floor 10.65%), 3.00% ETP, Due 1/1/23)

Jump Ramp Games, Inc.

Internet and Media

Term Loan (12.08% cash (Libor + 9.73%), 3.00% ETP, Due 4/1/21)

Internet and Media

Term Loan (10.65% cash (Libor + 8.40%;

Floor 10.65%), 3.00% ETP, Due 1/1/23)

IgnitionOne, Inc.

Internet and Media

Term Loan (11.92% cash (Libor + 10.23%;

Floor 10.23%), 2.00% ETP, Due 4/1/22)

Rocket Lawyer Incorporated (2)(12)

Internet and Media

Term Loan (11.92% cash (Libor + 10.23%;

4 unchanged sentences

Floor 10.23%), 2.00% ETP, Due 4/1/22)

Verve Wireless, Inc.

Skillshare, Inc.(2)(12)

Internet and Media

1 unchanged sentence

Floor 9.50%), 5.00% ETP, Due 1/1/25)

Zinio Holdings, LLC (2)(12)

Term Loan (9.50% cash (Libor + 7.50%;

Floor 9.50%), 5.00% ETP, Due 1/1/25)

Term Loan (9.50% cash (Libor + 7.50%;

Floor 9.50%), 5.00% ETP, Due 1/1/25)

Verve Wireless, Inc.

Internet and Media

6 unchanged sentences

Floor 11.00%), 4.00% ETP, Due 6/1/22)

Powerhouse Dynamics, Inc.

Kinestral Technologies, Inc.(2)(12)

Power Management

1 unchanged sentence

Floor 9.95%), 5.00% ETP, Due 12/1/22)

Luxtera, Inc.

Semiconductors

Term Loan (12.00% cash (Prime + 6.75%), Due 3/28/20)

Term Loan (9.95% cash (Libor + 7.75%;

Floor 9.95%), 5.00% ETP, Due 12/1/22)

Bridge2 Solutions, LLC.

3 unchanged sentences

Floor 11.00%), 2.00% ETP, Due 6/1/23)

Education Elements, Inc.

Term Loan (11.00% cash (Libor + 8.40%;

5 unchanged sentences

Floor 10.50%), 3.50% ETP, Due 2/1/23)

OutboundEngine, Inc.

Term Loan (11.15% cash (Libor + 8.40%;

2 unchanged sentences

Floor 11.15%), 3.00% ETP, Due 7/1/23)

Revinate, Inc.

Term Loan (9.50% cash (Libor + 7.00%;

2 unchanged sentences

Floor 9.50%), 4.00% ETP, Due 11/1/23)

Total Non-Affiliate Debt Investments —

Non-Affiliate Debt Investments —

Healthcare information and services —

Catasys, Inc.

Term Loan (12.69% cash (Libor + 11.00%;

2 unchanged sentences

Floor 10.00%), 4.75% ETP, Due 11/1/21)

Term Loan (10.39% cash (Libor + 8.70%;

Floor 10.00%), 4.75% ETP, Due 11/1/21)

Term Loan (10.39% cash (Libor + 8.70%;

Floor 10.00%), 4.75% ETP, Due 11/1/21)

Term Loan (10.39% cash (Libor + 8.70%;

Floor 10.00%), 4.75% ETP, Due 11/1/21)

Total Non-Affiliate Debt Investments — Technology

Non-Affiliate Debt Investments — Healthcare information and services — 12.8% (8)

Kate Farms, Inc.

Other Healthcare

Term Loan (9.75% cash (Libor + 7.45%;

Floor 9.75%), 5.00% ETP, Due 10/1/23)

Term Loan (9.75% cash (Libor + 7.45%;

Floor 9.75%), 5.00% ETP, Due 10/1/23)

See Notes to Consolidated Financial Statements

Horizon Technology Finance Corporation

and Subsidiaries

Horizon Technology Finance Corporation and Subsidiaries

Consolidated Schedule of Investments

3 unchanged sentences

Type of Investment (4)(7)(9)(10)

(4)(7)(9)(10)

Term Loan (10.10% cash (Libor + 7.75%;

Floor 9.75%), 6.00% ETP, Due 3/1/22)

Investments (6)

HealthEdge Software, Inc.

7 unchanged sentences

Floor 9.25%), 3.00% ETP, Due 1/1/24)

Total Non-Affiliate Debt Investments —

Healthcare information and services

Affiliate Debt Investments

Non-Affiliate Warrant Investments —

Non-Affiliate Warrants —

Life Science —

ACT Biotech Corporation

Biotechnology

130,872 Preferred Stock Warrants

Total Non-Affiliate Debt Investments — Healthcare information and services

Total Non- Affiliate Debt Investments

Non-Affiliate Warrant Investments — 5.9% (8)

Non-Affiliate Warrants — Life Science — 0.7% (8)

Alpine Immune Sciences, Inc.

4 unchanged sentences

95,057 Common Stock Warrants

Corvium, Inc.

Biotechnology

661,956 Preferred Stock Warrants

Encore Dermatology, Inc.

Biotechnology

1,510,878 Preferred Stock Warrants

Espero BioPharma, Inc.

1 unchanged sentence

1,507,917 Common Stock Warrants

LogicBio, Inc.

Biotechnology

7,843 Common Stock Warrants

Mustang Bio, Inc.

Biotechnology

216,138 Common Stock Warrants

Rocket Pharmaceuticals Corporation (5)(12)

7 unchanged sentences

34,113 Common Stock Warrants

Sample6, Inc.

Biotechnology

661,956 Preferred Stock Warrants

Strongbridge U.S.

22 unchanged sentences

1,260,345 Preferred Stock Warrants

CVRx, Inc.(2)(12)

Medical Device

750,000 Preferred Stock Warrants

Lantos Technologies, Inc.

Medical Device

1,715,926 Common Stock Warrants

560,832 Preferred Stock Warrants

MacuLogix, Inc.

1 unchanged sentence

454,460 Preferred Stock Warrants

Mitralign, Inc.

Medical Device

64,190 Common Stock Warrants

NinePoint Medical, Inc.

Meditrina, Inc.

Medical Device

221,510 Preferred Stock Warrants

ReShape Lifesciences Inc.

Medical Device

121 Common Stock Warrants

Tryton Medical, Inc.

NinePoint Medical, Inc.

Medical Device

3 unchanged sentences

408 Common Stock Warrants

Total Non-Affiliate Warrants —

Non-Affiliate Warrants —

Technology —

Total Non-Affiliate Warrants — Life Science

Non-Affiliate Warrants — Technology — 4.8% (8)

Audacy Corporation (2)(12)

7 unchanged sentences

598,850 Preferred Stock Warrants

Betabrand Corporation (2)(12)

Consumer-related Technologies

248,210 Preferred Stock Warrants

Gwynnie Bee, Inc.

Caastle, Inc.

Consumer-related Technologies

9 unchanged sentences

852,273 Common Stock Warrants

Updater, Inc.(2)(12)

Consumer-related Technologies

108,333 Common Stock Warrants

500,000 Preferred Stock Warrants

Kaminario, Inc.

18,616,925 Preferred Stock Warrants

IgnitionOne, Inc.

Global Worldwide LLC (2)(12)

Internet and Media

245,810 Preferred Stock Warrants

Jump Ramp Games, Inc.

IgnitionOne, Inc.

Internet and Media

262,910 Preferred Stock Warrants

Rocket Lawyer Incorporated (2)(12)

Internet and Media

261,721 Preferred Stock Warrants

Rocket Lawyer Incorporated (2)(12)

Skillshare, Inc.

Internet and Media

5 unchanged sentences

467,277 Preferred Stock Warrants

Powerhouse Dynamics, Inc.

Kinestral, Inc.

Power Management

3 unchanged sentences

202,602 Preferred Stock Warrants

Luxtera, Inc.

Semiconductors

203,616 Preferred Stock Warrants

Semiconductors

203,616 Preferred Stock Warrants

See Notes to Consolidated Financial Statements

Horizon Technology Finance Corporation

and Subsidiaries

Consolidated Schedule of Investments

December 31, 2018

(In thousands)

Portfolio Company

Type of Investment

(4)(7)(9)(10)

Bolt Solutions Inc.

202,892 Preferred Stock Warrants

Bridge2 Solutions, Inc.

8 unchanged sentences

288,115 Preferred Stock Warrants

Metricly, Inc.

41,569 Common Stock Warrants

OutboundEngine, Inc.

600,000 Preferred Stock Warrants

Revinate, Inc.

459,770 Preferred Stock Warrants

Riv Data Corp.

321,428 Preferred Stock Warrants

See Notes to Consolidated Financial Statements

Horizon Technology Finance Corporation and Subsidiaries

Consolidated Schedule of Investments

December 31, 2019

(In thousands)

Portfolio Company (1)(3)

Type of Investment (4)(7)(9)(10)

Investments (6)

ShopKeep.com, Inc.

7 unchanged sentences

195,122 Preferred Stock Warrants

4,343,350 Preferred Stock

Total Non-Affiliate Warrants —

Non-Affiliate Warrants —

Sustainability —

Renmatix, Inc.

Alternative Energy

4,343,348 Preferred Stock Warrants

Total Non-Affiliate Warrants — Technology

Non-Affiliate Warrants — Sustainability — 0.1% (8)

Tigo Energy, Inc.

1 unchanged sentence

804,604 Preferred Stock Warrants

Total Non-Affiliate Warrants —

Sustainability

Non-Affiliate

Warrants —

Healthcare information and services —

LifePrint Group, Inc.

49,000 Preferred Stock Warrants

Total Non-Affiliate Warrants — Sustainability

Non-Affiliate Warrants — Healthcare information and services — 0.4% (8)

ProterixBio, Inc.

2,676 Common Stock Warrants

Singulex, Inc.

Other Healthcare

294,231 Preferred Stock Warrants

Verity Solutions Group, Inc.

Kate Farms, Inc.

Other Healthcare

3 unchanged sentences

27,373 Preferred Stock Warrants

Catasys, Inc.

51,185 Common Stock Warrants

HealthEdge Software, Inc.

2 unchanged sentences

7,097,792 Preferred Stock Warrants

Recondo Technology, Inc.

556,796 Preferred Stock Warrants

Total Non-Affiliate Warrants —

Healthcare information and services

Total Non-Affiliate

Non-Affiliate

Other Investments —

Espero Pharmaceuticals, Inc.

Biotechnology

Royalty Agreement

Total Non-Affiliate Warrants — Healthcare information and services

Total Non-Affiliate Warrants

Non-Affiliate Other Investments — 0.3% (8)

Medical Device

Royalty Agreement

Vette Technology, LLC (12)

Royalty Agreement Due 4/18/2019

Triple Double Holdings, LLC

License Agreement

Total Non-Affiliate Other Investments

Non-Affiliate Equity —

Insmed Incorporated (5)

Non-Affiliate Equity — 0.3% (8)

Palatin Technologies, Inc.

Biotechnology

12 unchanged sentences

100,598 Preferred Stock

Formetrix, Inc.

Zeta Global Holdings Corp.

Internet and Media

18,405 Common Stock

TruSignal, Inc.

Formetrix, Inc.

74,286 Common Stock

Total Non-Affiliate

Non-Affiliate Portfolio Investment Assets

Non-controlled Affiliate

Investments —

Non-controlled Affiliate

Debt Investments —

Technology —

Total Non-Affiliate Equity

Total Non-Affiliate Portfolio Investment Assets

Non-controlled Affiliate Investments — 4.7% (8)

Non-controlled Affiliate Debt Investments — Technology — 3.2% (8)

Decisyon, Inc.

Term Loan (13.998% cash (Libor + 12.31%;

12.50%), 8.00% ETP, Due 12/1/20)

Floor 12.50%), 12.00% ETP, Due 6/1/21)

Term Loan (14.41% cash (Libor + 12.31%;

12.50%), 8.00% ETP, Due 12/1/20)

Floor 12.50%), 12.00% ETP, Due 6/1/21)

Term Loan (12.02% cash, Due 6/1/21)

3 unchanged sentences

Term Loan (13.10% cash, Due 6/1/21)

See Notes to Consolidated Financial Statements

Horizon Technology Finance Corporation

and Subsidiaries

Consolidated Schedule of Investments

December 31, 2018

(In thousands)

Company (1)(3)

of Investment (4)(7)(9)(10)

StereoVision Imaging, Inc.

1 unchanged sentence

Floor 8.50%), 8.50% ETP, Due 9/1/21) (11)

Total Non-controlled

Affiliate Debt Investments —

Non-controlled Affiliate

Warrants —

Technology —

Total Non-controlled Affiliate Debt Investments — Technology

Non-controlled Affiliate Warrants — Technology — 0.0% (8)

Decisyon, Inc.

82,967 Common Stock Warrants

Total Non-controlled

Affiliate Warrants —

Non-controlled Affiliate

Equity —

Technology —

Total Non-controlled Affiliate Warrants — Technology

Non-controlled Affiliate Equity — Technology — 1.5% (8)

Decisyon, Inc.

2 unchanged sentences

1,943,572 Common Stock

Non-controlled Affiliate Equity

Non-controlled Affiliate Portfolio Investment Assets

Controlled Affiliate

Investments —

Controlled Affiliate

Equity —

Financial —

Horizon Secured

Loan Fund I LLC (12)(14) Investment funds

Total Controlled

Affiliate Equity

Controlled Affiliate Portfolio Investment Assets

Portfolio Investment Assets —

Total Non-controlled Affiliate Equity

Total Non-controlled Affiliate Portfolio Investment Assets

Controlled Affiliate Investments — 9.0% (8)

Controlled Affiliate Equity — Financial — 9.0% (8)

Horizon Secured Loan Fund I LLC (12)(14)

Investment funds

Total Controlled Affiliate Equity

Total Controlled Affiliate Portfolio Investment Assets

Total Portfolio Investment Assets — 173.7% (8)

See Notes to Consolidated Financial Statements

Horizon Technology Finance Corporation and Subsidiaries

Consolidated Schedule of Investments

December 31, 2019

(In thousands)

Portfolio Company (1)(3)

Type of Investment (4)(7)(9)(10)

Investments (6)

Short Term Investments — Unrestricted Investments — 5.3% (8)

US Bank Money Market Deposit Account

Total Short Term Investments —Unrestricted Investments

Short Term Investments — Restricted Investments—0.6% (8)

US Bank Money Market Deposit Account

Total Short Term Investments —Restricted Investments

(1) All investments of the Company are in entities which are organized under the laws of the United States and have a principal place of business in the United States.

2 unchanged sentences

All interest is payable in cash due monthly in arrears, unless otherwise indicated, and applies only to the Company’s debt investments.

(4) All interest is payable in cash due monthly in arrears, unless otherwise indicated, and applies only to the Company’s debt investments.

Interest rate is the annual interest rate on the debt investment and does not include ETPs, and any additional fees related to the investments, such as deferred interest, commitment fees or prepayment fees.

6 unchanged sentences

(8) Value as a percent of net assets.

As of December 31, 2018, 5.0% of the Company’s total investments on a cost and fair value basis are in non-qualifying assets.

Under the 1940 Act, the Company may not acquire any non-qualifying assets unless, at the time the acquisition is made, qualifying assets represent at least 70% of the Company’s total assets.

(9) As of December 31, 2019, 4.9% and 4.8% of the Company’s total assets on a cost and fair value basis, respectively, are in non-qualifying assets.

Under the 1940 Act, the Company may not acquire any non-qualifying assets unless, at the time the acquisition is made, qualifying assets represent at least 70% of the Company’s total assets.

3 unchanged sentences

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

See Notes to Consolidated Financial Statements

(13) New Signature US, Inc.

is a subsidiary of BSI Platform Holdings, LLC.

On June 1, 2018, the Company entered into an agreement with Arena to co-invest through HSLFI, a joint venture, which is expected to make investments, either directly or indirectly through subsidiaries, primarily in the form of secured loans to development-stage companies in the technology, life science, healthcare information and services and sustainability industries.

All HSLFI investment decisions require unanimous approval of a quorum of HSLFI’s board of managers.

Although the Company owns more than 25% of the voting securities of HSLFI, the Company does not believe it controls HSLFI for purposes of the 1940 Act or otherwise.

(14) On June 1, 2018, the Company entered into an agreement with Arena Sunset SPV, LLC (“Arena”) to co-invest through Horizon Secured Loan Fund I LLC (“HSLFI”), a joint venture, which is expected to make investments, either directly or indirectly through subsidiaries, primarily in the form of secured loans to development-stage companies in the technology, life science, healthcare information and services and sustainability industries.

All HSLFI investment decisions require unanimous approval of a quorum of HSLFI’s board of managers, which consists of two representatives of the Company and Arena.

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

(15) Debt investment is on non-accrual status as of December 31, 2019.

See Notes to Consolidated Financial Statements

Horizon Technology Finance Corporation

and Subsidiaries

Horizon Technology Finance Corporation and Subsidiaries

Notes to Consolidated Financial Statements

Horizon Technology

Finance Corporation (the “Company”) was organized as a Delaware corporation on March 16, 2010 and is an externally

managed, non-diversified, closed-end investment company.

The Company has elected to be regulated as a business development company

(“BDC”) under the 1940 Act.

In addition, for tax purposes, the Company has elected to be treated as a regulated investment

company (“RIC”) as defined under Subchapter M of the Internal Revenue Code of 1986, as amended (the “Code”).

As a RIC, the Company generally is not subject to corporate-level federal income tax on the portion of its taxable income (including

net capital gains) the Company distributes to its stockholders.

The Company primarily makes secured debt investments to development-stage

companies in the technology, life science, healthcare information and services and sustainability industries.

All of the Company’s

debt investments consist of loans secured by all of, or a portion of, the applicable debtor company’s tangible and intangible

On October 28,

2010, the Company completed an initial public offering (“IPO”) and its common stock trades on the Nasdaq Global Select

Market under the symbol “HRZN”.

The Company was formed to continue and expand the business of Compass Horizon Funding

Company LLC, a Delaware limited liability company, which commenced operations in March 2008 and became the Company’s wholly

owned subsidiary upon the completion of the Company’s IPO.

Horizon Credit II

LLC (“Credit II”) was formed as a Delaware limited liability company on June 28, 2011, with the Company as its sole

equity member.

Horizon Technology Finance Corporation (the “Company”) was organized as a Delaware corporation on March 16, 2010 and is an externally managed, non-diversified, closed-end investment company.

The Company has elected to be regulated as a business development company (“BDC”) under the 1940 Act.

In addition, for tax purposes, the Company has elected to be treated as a regulated investment company (“RIC”) as defined under Subchapter M of the Internal Revenue Code of 1986, as amended (the “Code”).

As a RIC, the Company generally is not subject to corporate-level federal income tax on the portion of its taxable income (including net capital gains) the Company distributes to its stockholders.

The Company primarily makes secured debt investments to development-stage companies in the technology, life science, healthcare information and services and sustainability industries.

All of the Company’s debt investments consist of loans secured by all of, or a portion of, the applicable debtor company’s tangible and intangible assets.

On October 28, 2010, the Company completed an initial public offering (“IPO”) and its common stock trades on the Nasdaq Global Select Market under the symbol “HRZN”.

The Company was formed to continue and expand the business of Compass Horizon Funding Company LLC, a Delaware limited liability company, which commenced operations in March 2008 and became the Company’s wholly owned subsidiary upon the completion of the Company’s IPO.

Horizon Credit II LLC (“Credit II”) was formed as a Delaware limited liability company on June 28, 2011, with the Company as its sole equity member.

Credit II is a special purpose bankruptcy-remote entity and is a separate legal entity from the Company.

conveyed to Credit II are not available to creditors of the Company or any other entity other than Credit II’s lenders.

The Company formed

Horizon Funding 2019-1 LLC (“2019-1 LLC”) as a Delaware limited liability company on May 2, 2019 and Horizon Funding

Trust 2019-1 on May 15, 2019 (“2019-1 Trust”

and, together with the 2019-1 LLC, the “2019-1 Entities”).

2019-1 Entities are special purpose bankruptcy remote entities and are separate legal entities from the Company.

The Company formed

the 2019-1 Entities for purposes of securitizing $160.0 million of secured loans and issuing the Asset-Backed Notes.

The Company has also

established an additional wholly owned subsidiary, which is structured as a Delaware limited liability company, to hold the assets

of a portfolio company acquired in connection with foreclosure or bankruptcy, which is a separate legal entity from the Company.

The Company’s

investment strategy is to maximize the investment portfolio’s return by generating current income from the debt investments

the Company makes and capital appreciation from the warrants the Company receives when making such debt investments.

has entered into an investment management agreement (the “Investment Management Agreement”) with Horizon Technology

Finance Management LLC (the “Advisor”) under which the Advisor manages the day-to-day operations of, and provides investment

advisory services to, the Company.

Any assets conveyed to Credit II are not available to creditors of the Company or any other entity other than Credit II’s lenders.

The Company formed Horizon Funding 2019-1 LLC (“2019-1 LLC”) as a Delaware limited liability company on May 2, 2019 and Horizon Funding Trust 2019-1 on May 15, 2019 (“2019-1 Trust” and, together with the 2019-1 LLC, the “2019-1 Entities”).

The 2019-1 Entities are special purpose bankruptcy remote entities and are separate legal entities from the Company.

The Company formed the 2019-1 Entities for purposes of securitizing the Asset-Backed Notes.

The Company formed Horizon Funding I, LLC (“HFI”) as a Delaware limited liability company on May 9, 2018, with HSLFI as its sole member.

HFI is a special purpose bankruptcy-remote entity and is a separate legal entity from HSLFI.

Any assets conveyed to HFI are not available to creditors of HSLFI or any other entity other than HFI’s lenders.

On April 21, 2020, the Company purchased all of the limited liability company interests of Arena in HSLFI, including, without limitation, undistributed amounts owed to Arena and interest accrued and unpaid on the debt investments of HSLFI through the date of purchase.

As of April 21, 2020, HSLFI and its subsidiary, HFI, are consolidated by the Company.

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

The Company’s investment strategy is to maximize the investment portfolio’s return by generating current income from the debt investments the Company makes and capital appreciation from the warrants the Company receives when making such debt investments.

The Company has entered into an investment management agreement (the “Investment Management Agreement”) with Horizon Technology Finance Management LLC (the “Advisor”) under which the Advisor manages the day-to-day operations of, and provides investment advisory services to, the Company.

Basis of presentation and significant accounting policies

The consolidated financial

statements of the Company have been prepared in accordance with U.S.

generally accepted accounting principles (“GAAP”)

and pursuant to the requirements for reporting on Form 10-K and Articles 6 and 10 of Regulation S-X (“Regulation

S-X”) under the Securities Act of 1933, as amended (the “Securities Act”).

In the opinion of management, the

consolidated financial statements reflect all adjustments and reclassifications that are necessary for the fair presentation of

financial results as of and for the periods presented.

The consolidated financial statements of the Company have been prepared in accordance with U.S.

generally accepted accounting principles (“GAAP”) and pursuant to the requirements for reporting on Form 10-K and Articles 6 and 10 of Regulation S-X (“Regulation S-X”) under the Securities Act of 1933, as amended (the “Securities Act”).

In the opinion of management, the consolidated financial statements reflect all adjustments and reclassifications, consisting solely of normal

recurring accruals, that are necessary for the fair presentation of financial results as of and for the periods presented.

All intercompany balances and transactions have been eliminated.

Principles of consolidation

under GAAP and Regulation S-X, the Company will generally consolidate its investment in a company that is an investment

company subsidiary or a controlled operating company whose business consists of providing services to the Company.

Accordingly, the Company consolidated the results of the Company’s wholly-owned subsidiaries in its consolidated

financial statements.

Although the Company owns more than 25% of the voting securities of HSLFI, the Company does not have

sole control over significant actions of HSLFI for purposes of the 1940 Act or otherwise, and thus does not consolidate its

Horizon Technology Finance Corporation

and Subsidiaries

Notes to Consolidated Financial Statements

Assets related to

transactions that do not meet Accounting Standards Codification (“ASC”) Topic 860, Transfers and Servicing requirements

for accounting sale treatment are reflected in the Company’s Consolidated Statements of Financial Condition as investments.

Those assets are owned by special purpose entities, including 2019-1 Entities that are consolidated in the Company’s consolidated

financial statements.

The creditors of the special purpose entities have received security interests in such assets and such assets

are not intended to be available to the creditors of the Company (or any affiliate of the Company).

As required under GAAP and Regulation S-X, the Company will generally consolidate its investment in a company that is an investment company subsidiary or a controlled operating company whose business consists of providing services to the Company.

Accordingly, the Company consolidated the results of the Company’s wholly-owned subsidiaries in its consolidated financial statements.

Although the Company owned more than 25% of the voting securities of HSLFI through April 21, 2020, the Company did not have sole control over significant actions of HSLFI for purposes of the 1940 Act or otherwise, and thus did not consolidate its interest prior to April 21, 2020.

Assets related to transactions that do not meet Accounting Standards Codification (“ASC”) Topic 860, Transfers and Servicing requirements for accounting sale treatment are reflected in the Company’s Consolidated Statements of Assets and Liabilities as investments.

Those assets are owned by special purpose entities, including 2019-1 Entities, that are consolidated in the Company’s consolidated financial statements.

The creditors of the special purpose entities have received security interests in such assets and such assets are not intended to be available to the creditors of the Company (or any affiliate of the Company).

Use of estimates

In preparing the consolidated

financial statements in accordance with GAAP, management is required to make estimates and assumptions that affect the reported

amounts of assets and liabilities, and disclosures of contingent assets and liabilities, as of the date of the balance sheet and

income and expenses for the period.

In preparing the consolidated financial statements in accordance with GAAP, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosures of contingent assets and liabilities, as of the date of the balance sheet and income and expenses for the period.

Actual results could differ from those estimates.

Material estimates that are particularly

susceptible to significant change in the near term relate to the valuation of investments.

The Company records

all of its investments at fair value in accordance with relevant GAAP, which establishes a framework used to measure fair value

and requires disclosures for fair value measurements.

The Company has categorized its investments carried at fair value, based

on the priority of the valuation technique, into a three-level fair value hierarchy as more fully described in Note 6.

is a market-based measure considered from the perspective of the market participant who holds the financial instrument rather than

an entity specific measure.

Therefore, when market assumptions are not readily available, the Company’s own assumptions are

set to reflect those that management believes market participants would use in pricing the financial instrument at the measurement

The availability of

observable inputs can vary depending on the financial instrument and is affected by a wide variety of factors, including, for example,

the type of product, whether the product is new, whether the product is traded on an active exchange or in the secondary market

and the current market conditions.

To the extent that the valuation is based on models or inputs that are less observable or unobservable

in the market, the determination of fair value requires more judgment.

Accordingly, the degree of judgment exercised by the Company

in determining fair value is greatest for financial instruments classified as Level 3.

6 for additional information regarding fair value.

The Company has determined

that it has a single reporting segment and operating unit structure.

The Company lends to and invests in portfolio companies in

various technology, life science, healthcare information and services and sustainability industries.

The Company separately evaluates

the performance of each of its lending and investment relationships.

However, because each of these debt investments and investment

relationships has similar business and economic characteristics, they have been aggregated into a single lending and investment

Investments are recorded

at fair value.

The Company’s board of directors (the “Board”) determines the fair value of the Company’s

portfolio investments.

The Company has the intent to hold its debt investments for the foreseeable future or until maturity or

Horizon Technology Finance Corporation

and Subsidiaries

Notes to Consolidated Financial Statements

Interest on debt

investments is accrued and included in income based on contractual rates applied to principal amounts outstanding.

Interest income

is determined using a method that results in a level rate of return on principal amounts outstanding.

Generally, when a debt investment

becomes 90 days or more past due, or if the Company otherwise does not expect to receive interest and principal repayments,

the debt investment is placed on non-accrual status and the recognition of interest income may be discontinued.

Interest payments

received on non-accrual debt investments may be recognized as income, on a cash basis, or applied to principal depending upon

management’s judgment at the time the debt investment is placed on non-accrual status.

As of December 31, 2019, there were

two investments on non-accrual status with a cost of $5.7 million and a fair value of $2.0 million.

As of December 31, 2018, there

were no debt investments on non-accrual status.

For the years ended December 31, 2019 and 2018, the Company did not recognize

any interest income from debt investments on non-accrual status.

For the year ended December 31, 2017, the Company recognized,

as interest income, payments of $0.1 million received from one portfolio company whose debt investment was on non-accrual status.

The Company receives

a variety of fees from borrowers in the ordinary course of conducting its business, including advisory fees, commitment fees, amendment

fees, non-utilization fees, success fees and prepayment fees.

In a limited number of cases, the Company may also receive a non-refundable

deposit earned upon the termination of a transaction.

Debt investment origination fees, net of certain direct origination costs,

are deferred and, along with unearned income, are amortized as a level-yield adjustment over the respective term of the debt investment.

Material estimates that are particularly susceptible to significant change in the near term relate to the valuation of investments.

The Company records all of its investments at fair value in accordance with relevant GAAP, which establishes a framework used to measure fair value and requires disclosures for fair value measurements.

The Company has categorized its investments carried at fair value, based on the priority of the valuation technique, into a three-level fair value hierarchy as more fully described in Note 6.

Fair value is a market-based measure considered from the perspective of the market participant who holds the financial instrument rather than an entity specific measure.

Therefore, when market assumptions are not readily available, the Company’s own assumptions are set to reflect those that management believes market participants would use in pricing the financial instrument at the measurement date.

The availability of observable inputs can vary depending on the financial instrument and is affected by a wide variety of factors, including, for example, the type of product, whether the product is new, whether the product is traded on an active exchange or in the secondary market and the current market conditions.

To the extent that the valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment.

Accordingly, the degree of judgment exercised by the Company in determining fair value is greatest for financial instruments classified as Level 3.

See Note 6 for additional information regarding fair value.

The Company has determined that it has a single reporting segment and operating unit structure.

The Company lends to and invests in portfolio companies in various technology, life science, healthcare information and services and sustainability industries.

The Company separately evaluates the performance of each of its lending and investment relationships.

However, because each of these debt investments and investment relationships has similar business and economic characteristics, they have been aggregated into a single lending and investment segment.

Investments are recorded at fair value.

The Company’s board of directors (the “Board”) determines the fair value of the Company’s portfolio investments.

The Company has the intent to hold its debt investments for the foreseeable future or until maturity or payoff.

Interest on debt investments is accrued and included in income based on contractual rates applied to principal amounts outstanding.

Interest income is determined using a method that results in a level rate of return on principal amounts outstanding.

Generally, when a debt investment becomes 90 days or more past due, or if the Company otherwise does not expect to receive interest and principal repayments, the debt investment is placed on non-accrual status and the recognition of interest income may be discontinued.

Interest payments received on non-accrual debt investments may be recognized as income, on a cash basis, or applied to principal depending upon management’s judgment at the time the debt investment is placed on non-accrual status.

As of December 31, 2020, there were two investments on non-accrual status with a cost of $13.9 million and a fair value of $8.8 million.

As of December 31, 2019, there were two investments on non-accrual status with a cost of $5.7 million and a fair value of $2.0 million.

For the year ended December 31, 2020, the Company recognized, as interest income, payments of $0.03 million received from one portfolio company whose debt investment was on non-accrual status.

For the years ended December 31, 2019 and 2018, the Company did not recognize any interest income from debt investments on non-accrual status.

The Company receives a variety of fees from borrowers in the ordinary course of conducting its business, including advisory fees, commitment fees, amendment fees, non-utilization fees, success fees and prepayment fees.

In a limited number of cases, the Company may also receive a non-refundable deposit earned upon the termination of a transaction.

Debt investment origination fees, net of certain direct origination costs, are deferred and, along with unearned income, are amortized as a level-yield adjustment over the respective term of the debt investment.

All other income is recognized when earned.

Fees for counterparty debt investment commitments with multiple debt investments are

allocated to each debt investment based upon each debt investment’s relative fair value.

When a debt investment is placed

on non-accrual status, the amortization of the related fees and unearned income is discontinued until the debt investment is returned

to accrual status.

Certain debt investment

agreements also require the borrower to make an ETP, that is accrued into interest receivable and taken into income over the life

of the debt investment to the extent such amounts are expected to be collected.

The Company will generally cease accruing the income

if there is insufficient value to support the accrual or the Company does not expect the borrower to be able to pay the ETP when

The proportion of the Company’s total investment income that resulted from the portion of ETPs not received in cash

for the years ended December 31, 2019, 2018 and 2017 was 5.3%, 6.5% and 6.0%, respectively.

In connection with

substantially all lending arrangements, the Company receives warrants to purchase shares of stock from the borrower.

are recorded as assets at estimated fair value on the grant date using the Black-Scholes valuation model.

The warrants are considered

loan fees and are recorded as unearned income on the grant date.

The unearned income is recognized as interest income over the

contractual life of the related debt investment in accordance with the Company’s income recognition policy.

Subsequent to

debt investment origination, the fair value of the warrants is determined using the Black-Scholes valuation model.

Any adjustment

to fair value is recorded through earnings as net unrealized appreciation or depreciation on investments.

Gains and losses from

the disposition of the warrants or stock acquired from the exercise of warrants are recognized as realized gains and losses on

Distributions from

HSLFI are evaluated at the time of distribution to determine if the distribution should be recorded as dividend income or a return

Generally, the Company will not record distributions from HSLFI as dividend income unless there are sufficient accumulated

tax-basis earnings and profit in HSLFI prior to distribution.

Distributions that are classified as a return of capital are recorded

as a reduction in the cost basis of the investment.

For the year ended December 31, 2019, HSLFI distributed $0.7 million classified

as dividend income to the Company.

For the period June 1, 2018 (the commencement of HSLFI’s operations) through December

31, 2018, HSLFI distributed $0.3 million classified as dividend income to the Company.

Realized gains or

losses on the sale of investments, or upon the determination that an investment balance, or portion thereof, is not recoverable,

are calculated using the specific identification method.

The Company measures realized gains or losses by calculating the difference

between the net proceeds from the repayment or sale and the amortized cost basis of the investment.

Net change in unrealized appreciation

or depreciation reflects the change in the fair values of the Company’s portfolio investments during the reporting period,

including any reversal of previously recorded unrealized appreciation or depreciation when gains or losses are realized.

Debt issuance costs

Fees for counterparty debt investment commitments with multiple debt investments are allocated to each debt investment based upon each debt investment’s relative fair value.

When a debt investment is placed on non-accrual status, the amortization of the related fees and unearned income is discontinued until the debt investment is returned to accrual status.

Certain debt investment agreements also require the borrower to make an ETP, that is accrued into interest receivable and taken into income over the life of the debt investment to the extent such amounts are expected to be collected.

The Company will generally cease accruing the income if there is insufficient value to support the accrual or the Company does not expect the borrower to be able to pay the ETP when due.

The proportion of the Company’s total investment income that resulted from the portion of ETPs not received in cash for the years ended December 31, 2020, 2019 and 2018 was 5.8%, 5.3% and 6.5%, respectively.

In connection with substantially all lending arrangements, the Company receives warrants to purchase shares of stock from the borrower.

The warrants are recorded as assets at estimated fair value on the grant date using the Black-Scholes valuation model.

The warrants are considered loan fees and are recorded as unearned income on the grant date.

The unearned income is recognized as interest income over the contractual life of the related debt investment in accordance with the Company’s income recognition policy.

Subsequent to debt investment origination, the fair value of the warrants is determined using the Black-Scholes valuation model.

Any adjustment to fair value is recorded through earnings as net unrealized appreciation or depreciation on investments.

Gains and losses from the disposition of the warrants or stock acquired from the exercise of warrants are recognized as realized gains and losses on investments.

Prior to consolidating the investment in HSLFI on and after April 21, 2020, distributions from HSLFI were evaluated at the time of distribution to determine if the distribution should be recorded as dividend income or a return of capital.

Generally, the Company did not record distributions from HSLFI as dividend income unless there was sufficient accumulated tax-basis earnings and profit in HSLFI prior to distribution.

Distributions that were classified as a return of capital were recorded as a reduction in the cost basis of the investment.

For the period January 1, 2020 through April 21, 2020, HSLFI made no distributions classified as dividend income or a return of capital to the Company.

For the year ended December 31, 2019, HSLFI distributed $0.7 million classified as dividend income to the Company.

For the period June 1, 2018 (the commencement of HSLFI’s operations) through December 31, 2018, HSLFI distributed $0.3 million classified as dividend income to the Company.

Realized gains or losses on the sale of investments, or upon the determination that an investment balance, or portion thereof, is not recoverable, are calculated using the specific identification method.

The Company measures realized gains or losses by calculating the difference between the net proceeds from the repayment or sale and the amortized cost basis of the investment.

Net change in unrealized appreciation or depreciation reflects the change in the fair values of the Company’s portfolio investments during the reporting period, including any reversal of previously recorded unrealized appreciation or depreciation when gains or losses are realized.

Debt issuance costs

are fees and other direct incremental costs incurred by the Company in obtaining debt financing from its lenders and issuing debt

The unamortized balance of debt issuance costs as of December 31, 2019 and 2018 was $3.3 million and $2.2 million,

respectively.

These amounts are amortized and included in interest expense in the consolidated

statements of operations over the life of the borrowings.

The accumulated amortization balances as of December 31, 2019 and 2018

were $3.1 million and $2.4 million, respectively.

The amortization expense for the years ended December 31, 2019, 2018 and 2017

was $0.7 million, $0.6 million and $0.8 million, respectively.

Horizon Technology Finance Corporation

and Subsidiaries

Notes to Consolidated Financial Statements

As a BDC, the Company

has elected to be treated as a RIC under Subchapter M of the Code and operates in a manner so as to qualify for the tax treatment

applicable to RICs.

In order to qualify as a RIC and to avoid the imposition of corporate-level income tax on the portion of its

taxable income distributed to stockholders, among other things, the Company is required to meet certain source of income and asset

diversification requirements and to timely distribute dividends out of assets legally available for distribution to its stockholders

of an amount generally at least equal to 90% of its investment company taxable income, as defined by the Code and determined without

regard to any deduction for dividends paid, for each tax year.

The Company, among other things, has made and intends to continue

to make the requisite distributions to its stockholders, which generally relieves the Company from corporate-level U.S.

income taxes.

Debt issuance costs are fees and other direct incremental costs incurred by the Company in obtaining debt financing from its lenders and issuing debt securities.

The unamortized balance of debt issuance costs as of December 31, 2020 and 2019 was $3.2 million and $3.3 million, respectively.

These amounts are amortized and included in interest expense in the consolidated statements of operations over the life of the borrowings.

The accumulated amortization balances as of December 31, 2020 and 2019 were $4.1 million and $3.1 million, respectively.

The amortization expense for the years ended December 31, 2020, 2019 and 2018 was $1.0 million, $0.7 million and $0.6 million, respectively.

As a BDC, the Company has elected to be treated as a RIC under Subchapter M of the Code and operates in a manner so as to qualify for the tax treatment applicable to RICs.

In order to qualify as a RIC and to avoid the imposition of corporate-level income tax on the portion of its taxable income distributed to stockholders, among other things, the Company is required to meet certain source of income and asset diversification requirements and to timely distribute dividends out of assets legally available for distribution to its stockholders of an amount generally at least equal to 90% of its investment company taxable income, as defined by the Code and determined without regard to any deduction for dividends paid, for each tax year.

The Company, among other things, has made and intends to continue to make the requisite distributions to its stockholders, which generally relieves the Company from corporate-level U.S.

federal income taxes.

Accordingly, no provision for federal income tax has been recorded in the financial statements.

Differences between

taxable income and net increase in net assets resulting from operations either can be temporary, meaning they will reverse in the

future, or permanent.

In accordance with ASC Topic 946, Financial Services —

Investment Companies , as amended,

of the Financial Accounting Standards Board’s (“FASB’s”), permanent tax differences, such as non-deductible

excise taxes paid, are reclassified from distributions in excess of net investment income and net realized loss on investments

to paid-in-capital at the end of each fiscal year.

These permanent book-to-tax differences are reclassified on the consolidated

statements of changes in net assets to reflect their tax character but have no impact on total net assets.

For the years ended

December 31, 2019, 2018 and 2017, the Company reclassified $0.2 million, $0.03 million and $0.03 million, respectively, to paid-in

capital from distributions in excess of net investment income, which related to excise taxes payable.

Depending on the level

of taxable income earned in a tax year, the Company may choose to carry forward taxable income in excess of current year distributions

into the next tax year and incur a 4% U.S.

Differences between taxable income and net increase in net assets resulting from operations either can be temporary, meaning they will reverse in the future, or permanent.

In accordance with ASC Topic 946, Financial Services — Investment Companies , as amended, of the Financial Accounting Standards Board’s (“FASB’s”), permanent tax differences, such as non-deductible excise taxes paid, are reclassified from distributions in excess of net investment income and net realized loss on investments to paid-in-capital at the end of each fiscal year.

These permanent book-to-tax differences are reclassified on the consolidated statements of changes in net assets to reflect their tax character but have no impact on total net assets.

For the years ended December 31, 2020, 2019 and 2018, the Company reclassified $0.2 million, $0.2 million and $0.03 million, respectively, to paid-in capital from distributions in excess of net investment income, which related to excise taxes payable.

Depending on the level of taxable income earned in a tax year, the Company may choose to carry forward taxable income in excess of current year distributions into the next tax year and incur a 4% U.S.

federal excise tax on such income, as required.

To the extent that the Company determines

that its estimated current year annual taxable income will be in excess of estimated current year distributions, the Company accrues

excise tax, if any, on estimated excess taxable income as taxable income is earned.

For the years ended December 31, 2019, 2018

and 2017, $0.2 million, $0.03 million and $0.03 million, respectively, was recorded for U.S.

To the extent that the Company determines that its estimated current year annual taxable income will be in excess of estimated current year distributions, the Company accrues excise tax, if any, on estimated excess taxable income as taxable income is earned.

For the years ended December 31, 2020, 2019 and 2018, $0.2 million, $0.2 million and $0.03 million, respectively, was recorded for U.S.

federal excise tax.

The Company evaluates

tax positions taken in the course of preparing the Company’s tax returns to determine whether the tax positions are “more-likely-than-not”

to be sustained by the applicable tax authority in accordance with ASC Topic 740, Income Taxes , as modified by ASC Topic

Tax benefits of positions not deemed to meet the more-likely-than-not threshold, or uncertain tax positions, would be recorded

as a tax expense in the current year.

It is the Company’s policy to recognize accrued interest and penalties related to uncertain

tax benefits in income tax expense.

The Company evaluates tax positions taken in the course of preparing the Company’s tax returns to determine whether the tax positions are “more-likely-than-not” to be sustained by the applicable tax authority in accordance with ASC Topic 740, Income Taxes , as modified by ASC Topic 946.

Tax benefits of positions not deemed to meet the more-likely-than-not threshold, or uncertain tax positions, would be recorded as a tax expense in the current year.

It is the Company’s policy to recognize accrued interest and penalties related to uncertain tax benefits in income tax expense.

The Company had no material uncertain tax positions at December 31, 2020 and 2019.

The Company’s

income tax returns for the 2018, 2017 and 2016 tax years remain subject to examination by U.S.

The Company’s income tax returns for the 2019, 2018 and 2017 tax years remain subject to examination by U.S.

federal and state tax authorities.

Distributions

Distributions to common

stockholders are recorded on the declaration date.

Distributions to common stockholders are recorded on the declaration date.

The amount to be paid out as distributions is determined by the Board.

capital gains, if any, may be distributed, although the Company may decide to retain such net realized gains for investment.

The Company has adopted

a dividend reinvestment plan that provides for reinvestment of cash distributions on behalf of its stockholders, unless a stockholder

elects to receive cash.

As a result, if the Board declares a cash distribution, then stockholders who have not “opted out”

of the dividend reinvestment plan will have their cash distributions automatically reinvested in additional shares of the Company’s

common stock, rather than receiving the cash distribution.

The Company may issue new shares or purchase shares in the open market

to fulfill its obligations under the plan.

Horizon Technology Finance Corporation

and Subsidiaries

Notes to Consolidated Financial Statements

Stockholders’

On March 26, 2019,

the Company completed a follow-on public offering of 2,000,000 shares of its common stock at a public offering price of $12.14

per share, for total net proceeds to the Company of $23.1 million, after deducting underwriting commission and discounts and other

offering expenses.

On August 2, 2019

the Company entered into an At-The-Market (“ATM”) sales agreement (the “Equity Distribution Agreement”),

with Goldman Sachs & Co.

Net realized capital gains, if any, may be distributed, although the Company may decide to retain such net realized gains for investment.

The Company has adopted a dividend reinvestment plan that provides for reinvestment of cash distributions on behalf of its stockholders, unless a stockholder elects to receive cash.

As a result, if the Board declares a cash distribution, then stockholders who have not “opted out” of the dividend reinvestment plan will have their cash distributions automatically reinvested in additional shares of the Company’s common stock, rather than receiving the cash distribution.

The Company may issue new shares or purchase shares in the open market to fulfill its obligations under the plan.

Stockholders’ Equity

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

On August 2, 2019, the Company entered into an At-The-Market (“ATM”) sales agreement (the “Prior Equity Distribution Agreement”), with Goldman Sachs & Co.

Riley FBR, Inc.

(each a “Sales Agent”

and, collectively, the “Sales Agents”).

The Equity Distribution Agreement provides that Horizon may offer and sell its shares from time to time through the Sales Agents

up to $50.0 million worth of its common stock, in amounts and at times to be determined by the Company.

Sales of the Company’s

common stock, if any, may be made in negotiated transactions or transactions that are deemed to be “at-the-market,”

as defined in Rule 415 under the Securities Act, including sales made directly on the NASDAQ or similar securities exchange or

sales made to or through a market maker other than on an exchange, at prices related to the prevailing market prices or at negotiated

During the year ended

December 31, 2019, the Company sold 2,012,844 shares of common stock under the Equity Distribution Agreement.

For the same period,

the Company received total accumulated net proceeds of approximately $24.0 million, including $0.6 million of offering expenses,

from these sales.

The Company generally

uses net proceeds from these offerings to make investments, to pay down liabilities and for general corporate purposes.

of December 31, 2019, shares representing approximately $25.4 million of its common stock remain available for issuance

and sale under the Equity Distribution Agreement.

See Note 12 –

Subsequent Events.

(each a “Sales Agent” and, collectively, the “Sales Agents”).

The Prior Equity Distribution Agreement provided that the Company may offer and sell its shares from time to time through the Sales Agents up to $50.0 million worth of its common stock, in amounts and at times to be determined by the Company.

On July 30, 2020, the Company terminated the Prior Equity Distribution Agreement and entered into a new ATM sales agreement (the “Equity Distribution Agreement”), with the Sales Agents.

The remaining shares available under the Prior Equity Distribution Agreement are no longer available for issuance.

The Equity Distribution Agreement provides that the Company may offer and sell its shares from time to time through the Sales Agents up to $100.0 million worth of its common stock, in amounts and at times to be determined by the Company.

Sales of the Company’s common stock, if any, may be made in negotiated transactions or transactions that are deemed to be “at-the-market,” as defined in Rule 415 under the Securities Act, including sales made directly on the NASDAQ or similar securities exchange or sales made to or through a market maker other than on an exchange, at prices related to the prevailing market prices or at negotiated prices.

During the year ended December 31, 2020, the Company sold 3,702,500 shares of common stock under the Prior Equity Distribution Agreement and the Equity Distribution Agreement.

For the same period, the Company received total accumulated net proceeds of approximately $44.6 million, including $1.0 million of offering expenses, from these sales.

During the year ended December 31, 2019, the Company sold 2,012,844 shares of common stock under the Prior Equity Distribution Agreement.

For the same period, the Company received total accumulated net proceeds of approximately $24.0 million, including $0.6 million of offering expenses, from these sales.

The Company generally uses net proceeds from these offerings to make investments, to pay down liabilities and for general corporate purposes.

As of December 31, 2020, shares representing approximately $76.0 million of its common stock remain available for issuance and sale under the Equity Distribution Agreement.

Stock Repurchase Program

On April 26, 2019,

the Board extended a previously authorized stock repurchase program which allows the Company to repurchase up to $5.0 million of

its common stock at prices below the Company’s net asset value per share as reported in its most recent consolidated financial

Under the repurchase program, the Company may, but is not obligated to, repurchase shares of its outstanding common

stock in the open market or in privately negotiated transactions from time to time.

Any repurchases by the Company will comply

with the requirements of Rule 10b-18 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and

any applicable requirements of the 1940 Act.

Unless extended by the Board, the repurchase program will terminate on the earlier

of June 30, 2020 or the repurchase of $5.0 million of the Company’s common stock.

During the years ended December 31, 2019

and 2018, the Company did not repurchase any shares of its common stock.

During the year ended December 31, 2017, the Company repurchased

5,923 shares of its common stock at an average price of $9.97 on the open market at a total cost of $0.1 million.

From the inception

of the stock repurchase program through December 31, 2019, the Company repurchased 167,465 shares of its common stock at an average

price of $11.22 on the open market at a total cost of $1.9 million.

On April 24, 2020, the Board extended a previously authorized stock repurchase program which allows the Company to repurchase up to $5.0 million of its common stock at prices below the Company’s net asset value per share as reported in its most recent consolidated financial statements.

Under the repurchase program, the Company may, but is not obligated to, repurchase shares of its outstanding common stock in the open market or in privately negotiated transactions from time to time.

Any repurchases by the Company will comply with the requirements of Rule 10b-18 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and any applicable requirements of the 1940 Act.

Unless extended by the Board, the repurchase program will terminate on the earlier of June 30, 2021 or the repurchase of $5.0 million of the Company’s common stock.

During the years ended December 31, 2020, 2019 and 2018, the Company did not make any repurchases of its common stock.

From the inception of the stock repurchase program through December 31, 2020, the

Company repurchased 167,465 shares of its common stock at an average price of $11.22 on the open market at a total cost of $1.9 million.

Transfers of financial assets

Assets related to

transactions that do not meet the requirements under ASC Topic 860, Transfers and Servicing for sale treatment under GAAP

are reflected in the Company’s consolidated statements of assets and liabilities as investments.

Those assets are owned by

special purpose entities that are consolidated in the Company’s financial statements.

The creditors of the special purpose

entities have received security interests in such assets and such assets are not intended to be available to the creditors of the

Company (or any other affiliate of the Company).

Transfers of financial

assets are accounted for as sales when control over the assets has been surrendered.

Control over transferred assets is deemed

to be surrendered when (1) the assets have been isolated from the Company —

put presumptively beyond the reach

of the transferor and its creditors, even in bankruptcy or other receivership, (2) the transferee obtains the right (free

of conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred assets and (3) the

transferor does not maintain effective control over the transferred assets through either (a) an agreement that both entitles

and obligates the transferor to repurchase or redeem the assets before maturity or (b) the ability to unilaterally cause the

holder to return specific assets, other than through a cleanup call.

Horizon Technology Finance Corporation

and Subsidiaries

Notes to Consolidated Financial Statements

Recently adopted accounting pronouncement

In July 2019, the

FASB issued Accounting Standards Update 2019-07, Codification Updates to SEC Sections:

Amendments to SEC Paragraphs Pursuant to

SEC Final Rule Releases No.

33-10532, Disclosure Update and Simplification, and Nos.

33-10231 and 33-10442, Investment Company

Reporting Modernization, and Miscellaneous Updates which amends the codification to reflect changes adopted by the SEC.

adopted final rules that amend certain disclosure requirements that were redundant, duplicative, overlapping, outdated or superseded.

The Company has adopted these amendments and the changes are reflected in its consolidated financial statements.

Certain prior

year information has been adjusted to conform to these amendments.

Assets related to transactions that do not meet the requirements under ASC Topic 860, Transfers and Servicing for sale treatment under GAAP are reflected in the Company’s consolidated statements of assets and liabilities as investments.

Those assets are owned by special purpose entities that are consolidated in the Company’s financial statements.

Transfers of financial assets are accounted for as sales when control over the assets has been surrendered.

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

Recently issued accounting pronouncement

In March 2020, the FASB issued Accounting Standards Update No.

2020-04, Reference Rate Reform (Topic 848):

Facilitation of the Effects of Reference Rate Reform on Financial Reporting (“ASU 2020-04”).

ASU 2020-04 provides optional expedients and exceptions for applying GAAP to contract modifications and hedging relationships, subject to meeting certain criteria, that reference LIBOR or another rate that is expected to be discontinued.

The amendments in ASU 2020-04 are effective for all entities as of March 12, 2020 through December 31, 2022.

The Company is currently assessing the impact of ASU 2020-04 and the LIBOR transition on its consolidated financial statements.

Related party transactions

Investment Management Agreement

At a special meeting

of the stockholders on October 30, 2018, the stockholders approved a new Investment Management Agreement which became effective

on March 7, 2019.

The new Investment Management Agreement replaced the previously effective Amended and Restated Investment Management

Agreement dated as of October 28, 2010 and amended effective July 1, 2014.

Under the terms of the Investment Management Agreement,

the Advisor determines the composition of the Company’s investment portfolio, the nature and timing of the changes to the

investment portfolio and the manner of implementing such changes;

identifies, evaluates and negotiates the structure of the investments

the Company makes (including performing due diligence on the Company’s prospective portfolio companies);

and closes, monitors

and administers the investments the Company makes, including the exercise of any voting or consent rights.

The Advisor’s

services under the Investment Management Agreement are not exclusive to the Company, and the Advisor is free to furnish similar

services to other entities so long as its services to the Company are not impaired.

The Advisor is a registered investment adviser

with the SEC.

The Advisor receives fees for providing services to the Company under the Investment Management Agreement, consisting

of two components, a base management fee and an incentive fee.

Through October 30,

2018, the base management fee was calculated at an annual rate of 2.00% of the Company’s gross assets (less cash and cash

equivalents) including any assets acquired with the proceeds of leverage.

From and after October 31, 2018, the first date on which

the reduced asset coverage requirements in Section 61(a)(2) of the 1940 Act applied to the Company, the base management fee was

and will be calculated at an annual rate of 2.00% of the Company’s gross assets (less cash and cash equivalents) including

any assets acquired with the proceeds of leverage;

provided, that, to the extent the Company’s gross assets (less cash and

cash equivalents) exceed $250 million, the base management fee on the amount of such excess over $250 million will be calculated

at an annual rate of 1.60% of the Company’s gross assets (less cash and cash equivalents) including any assets acquired with

the proceeds of leverage.

At a special meeting of the stockholders on October 30, 2018, the stockholders approved a new Investment Management Agreement which became effective on March 7, 2019.

The new Investment Management Agreement replaced the previously effective Amended and Restated Investment Management Agreement dated as of October 28, 2010 and amended effective July 1, 2014.

On October 26, 2020, the Board unanimously approved the renewal of the Investment Management Agreement.

Under the terms of the Investment Management Agreement, the Advisor determines the composition of the Company’s investment portfolio, the nature and timing of the changes to the investment portfolio and the manner of implementing such changes;

identifies, evaluates and negotiates the structure of the investments the Company makes (including performing due diligence on the Company’s prospective portfolio companies);

and closes, monitors and administers the investments the Company makes, including the exercise of any voting or consent rights.

The Advisor’s services under the Investment Management Agreement are not exclusive to the Company, and the Advisor is free to furnish similar services to other entities so long as its services to the Company are not impaired.

The Advisor is a registered investment adviser with the SEC.

The Advisor receives fees for providing services to the Company under the Investment Management Agreement, consisting of two components, a base management fee and an incentive fee.

Through October 30, 2018, the base management fee was calculated at an annual rate of 2.00% of the Company’s gross assets (less cash and cash equivalents) including any assets acquired with the proceeds of leverage.

From and after October 31, 2018, the first date on which the reduced asset coverage requirements in Section 61(a)(2) of the 1940 Act applied to the Company, the base management fee was and will be calculated at an annual rate of 2.00% of the Company’s gross assets (less cash and cash equivalents) including any assets acquired with the proceeds of leverage;

provided, that, to the extent the Company’s gross assets (less cash and cash equivalents) exceed $250 million, the base management fee on the amount of such excess over $250 million will be calculated at an annual rate of 1.60% of the Company’s gross

assets (less cash and cash equivalents) including any assets acquired with the proceeds of leverage.

The base management fee is payable monthly in arrears and is prorated for any partial month.

The base management

fee payable at December 31, 2019 and 2018 was $0.5 million and $0.4 million, respectively.

The base management fee expense was

$5.6 million, $4.6 million and $3.8 million for the years ended December 31, 2019, 2018 and 2017, respectively.

The incentive fee

has two parts, as follows:

Horizon Technology Finance Corporation

and Subsidiaries

Notes to Consolidated Financial Statements

part, which is subject to the Incentive Fee Cap and Deferral Mechanism, as defined below, is calculated and payable quarterly

in arrears based on the Company’s pre-incentive fee net investment income for the immediately preceding calendar quarter.

For this purpose, “Pre-Incentive Fee Net Investment Income”

means interest income, dividend income and any other income

(including any other fees (other than fees for providing managerial assistance), such as commitment, origination, structuring,

diligence and consulting fees or other fees received from portfolio companies) accrued during the calendar quarter, minus expenses

for the quarter (including the base management fee, expenses payable under the Administration Agreement (as defined below), and

any interest expense and any dividends paid on any issued and outstanding preferred stock, but excluding the incentive fee).

Pre-Incentive

Fee Net Investment Income includes, in the case of investments with a deferred interest feature (such as original issue discount,

debt instruments with PIK interest and zero coupon securities), accrued income the Company has not yet received in cash.

The incentive

fee with respect to the Pre-Incentive Fee Net Investment Income is 20.00% of the amount, if any, by which the Pre-Incentive Fee

Net Investment Income for the immediately preceding calendar quarter exceeds a hurdle rate of 1.75% (which is 7.00% annualized)

of the Company’s net assets at the end of the immediately preceding calendar quarter, subject to a “catch-up”

provision measured as of the end of each calendar quarter.

Under this provision, in any calendar quarter, the Advisor receives

no incentive fee until the Pre-Incentive Fee Net Investment Income equals the hurdle rate of 1.75%, but then receives, as a “catch-up,”

100.00% of the Pre-Incentive Fee Net Investment Income with respect to that portion of such Pre-Incentive Fee Net Investment Income,

if any, that exceeds the hurdle rate but is less than 2.1875% quarterly (which is 8.75% annualized).

The effect of this “catch-up”

provision is that, if Pre-Incentive Fee Net Investment Income exceeds 2.1875% in any calendar quarter, the Advisor will receive

20.00% of the Pre-Incentive Fee Net Investment Income as if the hurdle rate did not apply.

Pre-Incentive

Fee Net Investment Income does not include any realized capital gains, realized capital losses or unrealized capital appreciation

or depreciation.

Because of the structure of the incentive fee, it is possible that the Company may pay an incentive fee in a quarter

in which the Company incurs a loss.

For example, if the Company receives Pre-Incentive Fee Net Investment Income in excess of the

quarterly minimum hurdle rate, the Company will pay the applicable incentive fee up to the Incentive Fee Cap, defined below, even

if the Company has incurred a loss in that quarter due to realized and unrealized capital losses.

The Company’s net investment

income used to calculate this part of the incentive fee is also included in the amount of the Company’s gross assets used

to calculate the 2.00% base management fee.

These calculations are appropriately prorated for any period of less than three months

and adjusted for any share issuances or repurchases during the current quarter.

The incentive

fee on Pre-Incentive Fee Net Investment Income is subject to a fee cap and deferral mechanism which is determined based upon a

look-back period of up to three years and is expensed when incurred.

For this purpose, the look-back period for the incentive fee

based on Pre-Incentive Fee Net Investment Income (the “Incentive Fee Look-back Period”) includes the relevant calendar

quarter and the 11 preceding full calendar quarters.

Each quarterly incentive fee payable on Pre-Incentive Fee Net Investment Income

is subject to a cap (the “Incentive Fee Cap”) and a deferral mechanism through which the Advisor may recoup a portion

of such deferred incentive fees (collectively, the “Incentive Fee Cap and Deferral Mechanism”).

The Incentive Fee Cap

is equal to (a) 20.00% of Cumulative Pre-Incentive Fee Net Return (as defined below) during the Incentive Fee Look-back Period

less (b) cumulative incentive fees of any kind paid to the Advisor during the Incentive Fee Look-back Period.

To the extent the

Incentive Fee Cap is zero or a negative value in any calendar quarter, the Company will not pay an incentive fee on Pre-Incentive

Fee Net Investment Income to the Advisor in that quarter.

To the extent that the payment of incentive fees on Pre-Incentive Fee

Net Investment Income is limited by the Incentive Fee Cap, the payment of such fees will be deferred and paid in subsequent calendar

quarters up to three years after their date of deferment, subject to certain limitations, which are set forth in the Investment

Management Agreement.

The Company only pays incentive fees on Pre-Incentive Fee Net Investment Income to the extent allowed by

the Incentive Fee Cap and Deferral Mechanism.

“Cumulative Pre-Incentive Fee Net Return”

during any Incentive Fee Look-back

Period means the sum of (a) Pre-Incentive Fee Net Investment Income and the base management fee for each calendar quarter during

the Incentive Fee Look-back Period and (b) the sum of cumulative realized capital gains and losses, cumulative unrealized capital

appreciation and cumulative unrealized capital depreciation during the applicable Incentive Fee Look-back Period.

part of the incentive fee is determined and payable in arrears as of the end of each calendar year (or, upon termination of the

Investment Management Agreement, as of the termination date), and equals 20.00% of the Company’s realized capital gains,

if any, on a cumulative basis from the date of the election to be a BDC through the end of each calendar year, computed net of

all realized capital losses and unrealized capital depreciation on a cumulative basis through the end of such year, less all previous

amounts paid in respect of the capital gain incentive fee.

However, in accordance with GAAP, the Company is required to include

the aggregate unrealized capital appreciation on investments in the calculation and accrue a capital gain incentive fee on a quarterly

basis, as if such unrealized capital appreciation were realized, even though such unrealized capital appreciation is not permitted

to be considered in calculating the fee actually payable under the Investment Management Agreement.

Horizon Technology Finance Corporation

and Subsidiaries

Notes to Consolidated Financial Statements

On March 5, 2019,

the Advisor irrevocably waived the receipt of incentive fees related to the amounts previously deferred that it may be entitled

to receive under the Investment Management Agreement for the period commencing on January 1, 2019 and ending on December 31, 2019.

The base management fee payable at December 31, 2020 and 2019 was $0.6 million and $0.5 million, respectively.

The base management fee expense was $6.5 million, $5.6 million and $4.6 million for the years ended December 31, 2020, 2019 and 2018, respectively.

The incentive fee has two parts, as follows:

The first part, which is subject to the Incentive Fee Cap and Deferral Mechanism, as defined below, is calculated and payable quarterly in arrears based on the Company’s pre-incentive fee net investment income for the immediately preceding calendar quarter.

For this purpose, “Pre-Incentive Fee Net Investment Income” means interest income, dividend income and any other income (including any other fees (other than fees for providing managerial assistance), such as commitment, origination, structuring, diligence and consulting fees or other fees received from portfolio companies) accrued during the calendar quarter, minus expenses for the quarter (including the base management fee, expenses payable under the Administration Agreement (as defined below), and any interest expense and any dividends paid on any issued and outstanding preferred stock, but excluding the incentive fee).

Pre-Incentive Fee Net Investment Income includes, in the case of investments with a deferred interest feature (such as original issue discount, debt instruments with PIK interest and zero coupon securities), accrued income the Company has not yet received in cash.

The incentive fee with respect to the Pre-Incentive Fee Net Investment Income is 20.00% of the amount, if any, by which the Pre-Incentive Fee Net Investment Income for the immediately preceding calendar quarter exceeds a hurdle rate of 1.75% (which is 7.00% annualized) of the Company’s net assets at the end of the immediately preceding calendar quarter, adjusted for any share issuances or repurchases during the relevant quarter, subject to a “catch-up” provision measured as of the end of each calendar quarter.

Under this provision, in any calendar quarter, the Advisor receives no incentive fee until the Pre-Incentive Fee Net Investment Income equals the hurdle rate of 1.75%, but then receives, as a “catch-up,” 100.00% of the Pre-Incentive Fee Net Investment Income with respect to that portion of such Pre-Incentive Fee Net Investment Income, if any, that exceeds the hurdle rate but is less than 2.1875% quarterly (which is 8.75% annualized).

The effect of this “catch-up” provision is that, if Pre-Incentive Fee Net Investment Income exceeds 2.1875% in any calendar quarter, the Advisor will receive 20.00% of the Pre-Incentive Fee Net Investment Income as if the hurdle rate did not apply.

Pre-Incentive Fee Net Investment Income does not include any realized capital gains, realized capital losses or unrealized capital appreciation or depreciation.

Because of the structure of the incentive fee, it is possible that the Company may pay an incentive fee in a quarter in which the Company incurs a loss.

For example, if the Company receives Pre-Incentive Fee Net Investment Income in excess of the quarterly minimum hurdle rate, the Company will pay the applicable incentive fee up to the Incentive Fee Cap, defined below, even if the Company has incurred a loss in that quarter due to realized and unrealized capital losses.

The Company’s net investment income used to calculate this part of the incentive fee is also included in the amount of the Company’s gross assets used to calculate the 2.00% base management fee.

These calculations are appropriately prorated for any period of less than three months and adjusted for any share issuances or repurchases during the current quarter.

The incentive fee on Pre-Incentive Fee Net Investment Income is subject to a fee cap and deferral mechanism which is determined based upon a look-back period of up to three years and is expensed when incurred.

For this purpose, the look-back period for the incentive fee based on Pre-Incentive Fee Net Investment Income (the “Incentive Fee Look-back Period”) includes the relevant calendar quarter and the 11 preceding full calendar quarters.

Each quarterly incentive fee payable on Pre-Incentive Fee Net Investment Income is subject to a cap (the “Incentive Fee Cap”) and a deferral mechanism through which the Advisor may recoup a portion of such deferred incentive fees (collectively, the “Incentive Fee Cap and Deferral Mechanism”).

The Incentive Fee Cap is equal to (a) 20.00% of Cumulative Pre-Incentive Fee Net Return (as defined below) during the Incentive Fee Look-back Period less (b) cumulative incentive fees of any kind paid to the Advisor during the Incentive Fee Look-back Period.

To the extent the Incentive Fee Cap is zero or a negative value in any calendar quarter, the Company will not pay an incentive fee on Pre-Incentive Fee Net Investment Income to the Advisor in that quarter.

To the extent that the payment of incentive fees on Pre-Incentive Fee Net Investment Income is limited by the Incentive Fee Cap, the payment of such fees will be deferred and paid in subsequent calendar quarters up to three years after their date of deferment, subject to certain limitations, which are set forth in the Investment Management Agreement.

Company only pays incentive fees on Pre-Incentive Fee Net Investment Income to the extent allowed by the Incentive Fee Cap and Deferral Mechanism.

“Cumulative Pre-Incentive Fee Net Return” during any Incentive Fee Look-back Period means the sum of (a) Pre-Incentive Fee Net Investment Income and the base management fee for each calendar quarter during the Incentive Fee Look-back Period and (b) the sum of cumulative realized capital gains and losses, cumulative unrealized capital appreciation and cumulative unrealized capital depreciation during the applicable Incentive Fee Look-back Period.

The second part of the incentive fee is determined and payable in arrears as of the end of each calendar year (or, upon termination of the Investment Management Agreement, as of the termination date), and equals 20.00% of the Company’s realized capital gains, if any, on a cumulative basis from the date of the election to be a BDC through the end of each calendar year, computed net of all realized capital losses and unrealized capital depreciation on a cumulative basis through the end of such year, less all previous amounts paid in respect of the capital gain incentive fee.

However, in accordance with GAAP, the Company is required to include the aggregate unrealized capital appreciation on investments in the calculation and accrue a capital gain incentive fee on a quarterly basis, as if such unrealized capital appreciation were realized, even though such unrealized capital appreciation is not permitted to be considered in calculating the fee actually payable under the Investment Management Agreement.

On March 5, 2019, the Advisor irrevocably waived the receipt of incentive fees related to the amounts previously deferred that it may be entitled to receive under the Investment Management Agreement for the period commencing on January 1, 2019 and ending on December 31, 2019.

Such waived incentive fees will not be subject to recoupment.

During the year ended December 31, 2019, the Advisor waived performance

based incentive fees of $1.8 million which the Advisor would have otherwise been paid by the Company.

On March 6, 2018,

the Advisor irrevocably waived the receipt of incentive fees related to the amounts previously deferred that it may be entitled

to receive under the Investment Management Agreement for the period commencing on January 1, 2018 and ending on December 31, 2018.

During the year ended December 31, 2019, the Advisor waived performance based incentive fees of $1.8 million which the Advisor would have otherwise been paid by the Company.

On March 6, 2018, the Advisor irrevocably waived the receipt of incentive fees related to the amounts previously deferred that it may be entitled to receive under the Investment Management Agreement for the period commencing on January 1, 2018 and ending on December 31, 2018.

Such waived incentive fees are not subject to recoupment.

During the years ended December 31, 2018 and 2017, the Advisor waived

performance based incentive fees of $1.2 million and $0.1 million, respectively, which the Advisor would have otherwise earned.

The net performance

based incentive fee expense was $5.1 million, $3.2 million and $1.6 million for the years ended December 31, 2019, 2018 and 2017,

respectively.

The incentive fee on Pre-Incentive Fee Net Investment Income was not subject to the Incentive Fee Cap and Deferral

Mechanism for the year ended December 31, 2019.

The incentive fee on Pre-Incentive Fee Net Investment Income was subject to the

Incentive Fee Cap and Deferral Mechanism for the years ended December 31, 2018 and 2017, which resulted in $0.2 million and $1.1

million, respectively, of reduced expense and additional net investment income.

The performance based incentive fee payable at

December 31, 2019 and 2018 was $1.6 million and $1.0 million, respectively.

The entire incentive fee payable at December 31, 2019

and 2018 represented part one of the incentive fee.

During the years ended December 31, 2018, the Advisor waived performance based incentive fees of $1.2 million which the Advisor would have otherwise earned.

The net performance based incentive fee expense was $5.2 million, $5.1 million and $3.2 million for the years ended December 31, 2020, 2019 and 2018, respectively.

The incentive fee on Pre-Incentive Fee Net Investment Income was not subject to the Incentive Fee Cap and Deferral Mechanism for the years ended December 31, 2020 and 2019.

The incentive fee on Pre-Incentive Fee Net Investment Income was subject to the Incentive Fee Cap and Deferral Mechanism for the year ended December 31, 2018, which resulted in $0.2 million of reduced expense and additional net investment income.

The performance based incentive fee payable at December 31, 2020 and 2019 was $1.0 million and $1.6 million, respectively.

The entire incentive fee payable at December 31, 2020 and 2019 represented part one of the incentive fee.

Administration Agreement

The Company entered

into an administration agreement (the “Administration Agreement”) with the Advisor to provide administrative services

to the Company.

For providing these services, facilities and personnel, the Company reimburses the Advisor for the Company’s

allocable portion of overhead and other expenses incurred by the Advisor in performing its obligations under the Administration

Agreement, including rent, the fees and expenses associated with performing compliance functions and the Company’s allocable

portion of the costs of compensation and related expenses of the Company’s Chief Financial Officer and Chief Compliance Officer

and their respective staffs.

The administrative fee expense was $0.9 million, $0.7 million and $0.7 million for the years ended

December 31, 2019, 2018 and 2017, respectively.

The following table

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

The Company entered into an administration agreement (the “Administration Agreement”) with the Advisor to provide administrative services to the Company.

For providing these services, facilities and personnel, the Company reimburses the Advisor for the Company’s allocable portion of overhead and other expenses incurred by the Advisor in performing its obligations under the Administration Agreement, including rent, the fees and expenses associated with performing compliance functions and the Company’s allocable portion of the costs of compensation and related expenses of the Company’s Chief Financial Officer and Chief Compliance Officer and their respective staffs.

The administrative fee expense was $1.0 million, $0.9 million and $0.7 million for years ended December 31, 2020, 2019 and 2018, respectively.

The following table shows the Company’s investments as of December 31, 2020 and 2019:

December 31, 2020

3 unchanged sentences

Total investments

Horizon Technology Finance Corporation

and Subsidiaries

Notes to Consolidated Financial Statements

The following table

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

The following table shows the Company’s investments by industry sector as of December 31, 2020 and 2019:

December 31, 2020

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Sustainability

Alternative Energy

Energy Efficiency

3 unchanged sentences

Horizon Secured Loan Fund I LLC

June 1, 2018, the Company and Arena formed a joint venture, HSLFI, to make investments, either directly or indirectly through

subsidiaries, primarily in secured loans to development-stage companies in the technology, life science, healthcare information

and services and sustainability industries.

HSLFI was formed as a Delaware limited liability company and is not consolidated by

either the Company or Arena for financial reporting purposes.

Investments held by HSLFI are measured at fair value using the same

valuation methodology as described in Note 6.

As of December 31, 2019 and 2018, HSLFI had total assets of $48.3 million and $26.4

million, respectively.

HSLFI’s portfolio consisted of debt investments in eight and four portfolio companies as of December

31, 2019 and 2018, respectively.

As of December 31, 2019, the largest investment in a single portfolio company in the HSLFI’s

portfolio in aggregate principal amount was $11.3 million and the five largest investments in portfolio companies in the HSLFI

totaled $30.3 million.

As of December 31, 2018, the largest investment in a single portfolio company in the HSLFI’s portfolio

in aggregate principal amount was $8.3 million and the only four investments in portfolio companies in the HSLFI totaled $25.0

As of December 31, 2019 and 2018, HSLFI had no investments on non-accrual status.

HSLFI invests in portfolio companies

in the same industries in which the Company may directly invest.

The Company invests cash or securities in portfolio companies

in HSLFI in exchange for limited liability company equity interests in HSLFI.

As of December 31, 2019 and 2018, the Company and

Arena each owned 50.0% of the equity interests of HSLFI.

The Company had an original commitment to fund $25.0 million of equity

interests in HSLFI.

As of December 31, 2019 and 2018, $9.8 million and $11.7 million, respectively, was unfunded.

The Company’s

investment in HSLFI consisted of an equity contribution of $15.2 million and $13.3 million as of December 31, 2019 and 2018, respectively.

On June 1, 2018, the Company and Arena formed a joint venture, HSLFI, to make investments, either directly or indirectly through subsidiaries, primarily in secured loans to development-stage companies in the technology, life science, healthcare information and services and sustainability industries.

HSLFI was formed as a Delaware limited liability company and was not consolidated by either the Company or Arena for financial reporting purposes.

In addition, Arena received 50% of the warrants held by HSLFI or HFI at closing.

As of April 21, 2020, HSLFI is wholly-owned by the Company and the assets and liabilities of HSLFI and HFI will be

consolidated with the assets and liabilities of the Company.

The transaction is accounted for as an asset acquisition under GAAP.

Investments held by HSLFI were measured at fair value using the same valuation methodology as described in Note 6.

As of December 31, 2019, HSLFI had total assets of $48.3 million.

HSLFI’s portfolio consisted of debt investments in eight portfolio companies as of December 31, 2019.

As of December 31, 2019, the largest investment in a single portfolio company in the HSLFI’s portfolio in aggregate principal amount was $11.3 million and the five largest investments in portfolio companies in the HSLFI totaled $30.3 million.

As of December 31, 2019, HSLFI had no investments on non-accrual status.

HSLFI invested in portfolio companies in the same industries in which the Company may directly invest.

The Company invested cash or securities in portfolio companies in HSLFI in exchange for limited liability company equity interests in HSLFI.

As of December 31, 2019, the Company and Arena each owned 50.0% of the equity interests of HSLFI.

The Company had an original commitment to fund $25.0 million of equity interests in HSLFI.

As of December 31, 2019, $9.8 million was unfunded.

The Company’s investment in HSLFI consisted of an equity contribution of $15.2 million as of December 31, 2019.

During the period January 1, 2020 through April 21, 2020, there were no distributions from HSLFI.

During the year ended December 31, 2019, HSLFI distributed $1.4 million.

For the period June 1, 2018 (the commencement of HSLFI’s

operations) through December 31, 2018, HSLFI distributed $0.5 million.

Horizon Technology Finance Corporation

and Subsidiaries

Notes to Consolidated Financial Statements

The Company and

Arena each appointed two members to HSLFI’s four-person board of managers.

All material decisions with respect to

HSLFI, including those involving its investment portfolio, require unanimous approval of a quorum of the board of managers.

Quorum is defined as (i) the presence of two members of the board of managers;

provided that at least one individual is

present that was elected, designated or appointed by each member;

(ii) the presence of three members of the board of

managers, provided that the individual that was elected, designated or appointed by the member with only one individual

present will be entitled to cast two votes on each matter;

or (iii) the presence of all four members of the board of

Horizon Funding I,

LLC (“HFI”) was formed as a Delaware limited liability company on May 9, 2018, with HSLFI as its sole member.

a special purpose bankruptcy-remote entity and is a separate legal entity from HSLFI.

Any assets conveyed to HFI are not available

to creditors of HSLFI or any other entity other than HFI’s lenders.

In addition, on June

1, 2018, HSLFI entered into a sale and servicing agreement with HFI, as Issuer, and the Company, as Servicer, pursuant to which

HSLFI will sell or contribute to HFI certain secured loans made to certain portfolio companies.

HFI entered into a Note Funding

Agreement (the “NYL Facility”) with several entities owned or affiliated with New York Life Insurance Company (“Noteholders”)

for an aggregate purchase price of up to $100.0 million, with an accordion feature of up to $200.0 million at the mutual discretion

and agreement of HSLFI and the Noteholders.

The Note Funding Agreement’s investment period has ended and the loan thereunder

is in rapid amortization.

Any notes issued by HFI will be collateralized by all investments held by HFI and permit an advance rate

of up to 67% of the aggregate principal amount of eligible debt investments.

The interest rate on the notes issued under the NYL

Facility is based on the three year USD mid-market swap rate plus a margin of between 2.75% and 3.25% depending on the rating of

such notes at the time of issuance.

There were $15.0 million in advances made by the Noteholders as of December 31, 2019 at an

interest rate of 4.98%.

There were no advances made by the Noteholders as of December 31, 2018.

The following table shows HSLFI’s

investments as of December 31, 2019:

HFI entered into the NYL Facility with the NYL Noteholders for an aggregate purchase price of up to $100.0 million, with an accordion feature of up to $200.0 million at the mutual discretion and agreement of HSLFI and the NYL Noteholders.

On June 1, 2018, HSLFI sold or contributed to HFI certain secured loans made to certain portfolio companies pursuant to a sale and servicing agreement with HFI, as Issuer, and the Company, as Servicer (the “Sale and Servicing Agreement”), as amended by that certain Amendment No.

1 to the Sale and Servicing Agreement, dated June 19, 2019 (the “Amendment No.

Any notes issued by HFI were collateralized by all investments held by HFI and permitted an advance rate of up to 67% of the aggregate principal amount of eligible debt investments.

The notes were issued pursuant to that certain indenture by and between HFI and U.S.

Bank National Association, dated as of June 1, 2018 (the “Indenture”).

Prior to June 5, 2020, the interest rate on the notes issued under the NYL Facility was based on the three year USD mid-market swap rate plus a margin of between 2.75% and 3.25% depending on the rating of such notes at the time of issuance.

There were $15.0 million in advances made by the NYL Noteholders as of December 31, 2019 at an interest rate of 4.98%.

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

Portfolio Company (1)

of Investment (2)(3)(4)

Type of Investment (2)(3)(4)

Investments (5)

(Dollars in thousands)

Debt Investments —

Debt Investments — Life science

Celsion Corporation (6)(7)(8)

Biotechnology

Term Loan (9.63%

cash (Libor + 7.63%;

Term Loan (9.63% cash (Libor + 7.63%;

Floor 9.63%), 4.00% ETP, Due 7/1/22)

9 unchanged sentences

Floor 9.00%), 5.00% ETP, Due 10/1/22)

Debt Investments —

Total Debt Investments — Life science

Debt Investments — Technology

Bridge2 Solutions, LLC (6)(7)

12 unchanged sentences

Floor 9.50%), 3.00% ETP, Due 6/1/23)

Total Debt Investments —

Horizon Technology Finance Corporation

and Subsidiaries

Notes to Consolidated Financial Statements

of Investment (2)(3)(4)

Investments (5)

in thousands)

Investments —

Healthcare information and services

Total Debt Investments — Technology

Debt Investments — Healthcare information and services

HealthEdge Software, Inc.

1 unchanged sentence

Floor 9.25%), 3.00% ETP, Due 10/1/23)

Debt Investments —

Healthcare information and services

Investments —

Total Debt Investments — Healthcare information and services

Total Debt Investments

Warrant Investments — Life science

Celsion Corporation (6)(7)(8)

10 unchanged sentences

17,751 Preferred Stock Warrants

Warrant Investments —

Investments —

Total Warrant Investments — Life science

Warrant Investments — Technology

Intelepeer Holdings, Inc.

Communications

2,081,934 Preferred Stock

2,081,934 Preferred Stock Warrants

Bridge2 Solutions, LLC (6)(7)

6 unchanged sentences

216,362 Preferred Stock Warrants

Total Warrant

Investments —

Healthcare information and services

Total Warrant Investments — Technology

Warrant Investments — Healthcare information and services

HealthEdge Software, Inc.

47,418 Preferred Stock Warrants

Warrant Investments —

Healthcare information

Total Warrant

Total Portfolio

Investment Assets

Term Investments —

Unrestricted Investments

US Bank Money

Market Deposit Account (6)

Short Term Investments —

Unrestricted Investments

Term Investments —

Restricted Money Market Funds

US Bank Money

Market Deposit Account (6)

Short Term Investments —

Restricted Money Market Funds

All investments of HSLFI are in entities

which are organized under the laws of the United States and have a principal place of business in the United States.

All interest is payable in cash due

monthly in arrears, unless otherwise indicated, and applies only to HSLFI’s debt investments.

Interest rate is the annual

interest rate on the debt investment and does not include ETPs and any additional fees related to the investments, such as

deferred interest, commitment fees or prepayment fees.

Debt investments are at variable rates for the term of the debt investment,

unless otherwise indicated.

All debt investments based on LIBOR are based on one-month LIBOR.

For each debt investment, the

current interest rate in effect as of December 31, 2019 is provided.

ETPs are contractual fixed-interest

payments due in cash at the maturity date of the applicable debt investment, including upon any prepayment, and are a fixed

percentage of the original principal balance of the debt investments unless otherwise noted.

Interest will accrue during the

life of the debt investment on each ETP and will be recognized as non-cash income until it is actually paid.

Warrants are non-income producing.

Horizon Technology Finance Corporation

and Subsidiaries

Notes to Consolidated Financial Statements

For debt investments, represents principal balance less unearned income.

Has been pledged as collateral under the NYL Facility.

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

Portfolio company is a public company.

New Signature US, Inc.

is a subsidiary of BSI Platform Holdings, LLC.

The following table shows HSLFI’s

investments as of December 31, 2018:

of Investment (2)(3)(4)

Investments (5)

in thousands)

Debt Investments —

Celsion Corporation

Biotechnology

Term Loan (9.98%

cash (Libor + 7.63%;

Floor 9.63%), 4.00% ETP, Due 7/1/22)

Term Loan (9.98%

cash (Libor + 7.63%;

Floor 9.63%), 4.00% ETP, Due 7/1/22)

Total Debt Investments

Debt Investments —

Intelepeer Holdings,

Communications

Term Loan (12.30%

cash (Libor + 9.95%;

Floor 11.25%), 2.50% ETP, Due 7/1/21)

Term Loan (12.30%

cash (Libor + 9.95%;

Floor 11.25%), 2.50% ETP, Due 7/1/21)

New Signature US,

Term Loan (10.85%

cash (Libor + 8.50%;

Floor 10.50%), 3.50% ETP, Due 7/1/22)

Debt Investments —

Investments —

Healthcare information and services

HealthEdge Software,

Term Loan (10.60%

cash (Libor + 8.25%;

Floor 9.25%), 3.00% ETP, Due 10/1/23)

Debt Investments —

Healthcare information and services

Total Debt Investments

Warrant Investments —

Celsion Corporation

Biotechnology

95,057 Common Stock

Total Warrant Investments — Healthcare information and services

Total Warrant Investments

Warrant Investments —

Intelepeer Holdings,

Communications

1,280,000 Preferred

Stock Warrants

BSI Platform Holdings,

LLC (6)(7)(9)

412,500 Preferred

Stock Warrants

Warrant Investments —

Investments —

Healthcare information and services

HealthEdge Software,

47,418 Preferred

Stock Warrants

Warrant Investments —

Healthcare information and services

Total Warrant

Total Portfolio

Investment Assets

Term Investments —

Unrestricted Investments

Money Market Deposit Account (6)

Short Term Investments —

Unrestricted Investments

Horizon Technology Finance Corporation

and Subsidiaries

Notes to Consolidated Financial Statements

Total Portfolio Investment Assets

Short Term Investments — Unrestricted Investments

US Bank Money Market Deposit Account (6)

Total Short Term Investments — Unrestricted Investments

Short Term Investments — Restricted Money Market Funds

US Bank Money Market Deposit Account (6)

Total Short Term Investments — Restricted Money Market Funds

(1) All investments of HSLFI are in entities which are organized under the laws of the United States and have a principal place of business in the United States.

All interest is payable in cash due monthly in arrears, unless otherwise indicated, and applies only to HSLFI’s debt investments.

(2) All interest is payable in cash due monthly in arrears, unless otherwise indicated, and applies only to HSLFI’s debt investments.

Interest rate is the annual interest rate on the debt investment and does not include ETPs and any additional fees related to the investments, such as deferred interest, commitment fees or prepayment fees.

11 unchanged sentences

is a subsidiary of BSI Platform Holdings, LLC.

The following tables show certain summarized

financial information for HSLFI as of December 31, 2019 and 2018, for the year ended December 31, 2019 and for the period June

1, 2018 through December 31, 2018:

The following tables show certain summarized financial information for HSLFI as of December 31, 2019, for the period January 1, 2020 through April 21, 2020, for the year ended December 31, 2019 and for the period June 1, 2018 through December 31, 2018:

(In thousands)

Selected Statement of Assets and Liabilities Information

Total investments at fair value (cost of $34,895 and $24,771, respectively)

Investments in money market funds

Total investments at fair value (cost of $34,895)

Cash and cash equivalents

Investments in money market funds

Restricted investments in money market funds

2 unchanged sentences

Total liabilities

Members’

Total liabilities and members’

Horizon Technology Finance Corporation

and Subsidiaries

Notes to Consolidated Financial Statements

For the year ended

For the period June 1, 2018 through December 31, 2018

Members’ equity

Total liabilities and members’ equity

For the period

January 1, 2020

April 21, 2020

December 31, 2019

December 31, 2018

(In thousands)

4 unchanged sentences

Net investment income

Net realized gain on investments

Net unrealized depreciation on investments

Net increase in net assets resulting from operations

Net (decrease) increase in net assets resulting from operations

Transactions with affiliated companies

A non-controlled affiliated

company is generally a portfolio company in which the Company owns 5% or more of such portfolio company’s voting securities

but not more than 25% of such portfolio company’s voting securities.

Transactions related to investments in non-controlled

affiliated companies for the year ended December 31, 2019 were as follows:

A non-controlled affiliated company is generally a portfolio company in which the Company owns 5% or more of such portfolio company’s voting securities but not more than 25% of such portfolio company’s voting securities.

Transactions related to investments in non-controlled affiliated companies for the year ended December 31, 2020 were as follows:

Year ended December 31, 2020

Fair value at

Principal Payments

Net unrealized

Fair value at

Net realized gain/(loss)

Interest income

(In thousands)

2 unchanged sentences

Total non-controlled affiliates

Horizon Technology Finance Corporation

and Subsidiaries

Notes to Consolidated Financial Statements

Transactions related

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

Transactions related to investments in non-controlled affiliated companies for the year ended December 31, 2019 were as follows:

Year ended December 31, 2019

Fair value at

Principal Payments

Net unrealized

Fair value at

Net realized gain/(loss)

Interest income

(In thousands)

2 unchanged sentences

Total non-controlled affiliates

A controlled affiliated

company is generally a portfolio company in which the Company owns more than 25% of such portfolio company’s voting securities

or has the power to exercise control over management or policies of such portfolio company (including through a management agreement).

A controlled affiliated company is generally a portfolio company in which the Company owns more than 25% of such portfolio company’s voting securities or has the power to exercise control over management or policies of such portfolio company (including through a management agreement).

Transactions related to investments in controlled affiliated companies for the year ended December 31, 2020 were as follows:

1 unchanged sentence

Fair value at

Distributions

Dividends declared

Net unrealized

Net realized gain/(loss)

Dividend income

(In thousands)

Total controlled affiliates

The Company and Arena are the members of HSLFI, a joint venture formed as a Delaware limited liability company that is not consolidated by either member for financial reporting purposes.

The members provide cash or securities in portfolio companies to HSLFI in exchange for limited liability company equity interests.

All HSLFI investment decisions require unanimous approval of a quorum of HSLFI’s board of managers, which consists of two representatives of the Company and Arena.

Because management of HSLFI is shared equally between the Company and Arena, the Company does not have sole control over significant actions of HSLFI for purposes of the 1940 Act or otherwise.

Horizon Technology

Finance Corporation and Subsidiaries

Notes to Consolidated

Financial Statements

Transactions related

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

(1) The Company and Arena were the members of HSLFI, a joint venture formed as a Delaware limited liability company that was not consolidated by either member for financial reporting purposes.

The members provided cash or securities in portfolio companies to HSLFI in exchange for limited liability company equity interests.

All HSLFI investment decisions required unanimous approval of a quorum of HSLFI’s board of managers, which consisted of two representatives of the Company and Arena.

Because management of HSLFI was shared equally between the Company and Arena, the Company did not have sole control over significant actions of HSLFI for purposes of the 1940 Act or otherwise.

On April 21, 2020, the Company purchased all of the limited liability company interests of Arena in HSLFI.

As of December 31, 2020, HLSFI is consolidated by the Company.

Transactions related to investments in controlled affiliated companies for the year ended December 31, 2019 were as follows:

Year ended December 31, 2019

value at December 31, 2017

Fair value at

Distributions

in/(out) at fair value

value at December 31, 2018

realized gain/(loss)

(In thousands)

controlled affiliates

(1) The Company and Arena are

the members of HSLFI, a joint venture formed as a Delaware limited liability company that is not consolidated by either member

for financial reporting purposes.

The members provide cash or securities in portfolio companies to HSLFI in exchange for limited

liability company equity interests.

All HSLFI investment decisions require unanimous approval of a quorum of HSLFI’s board

of managers which consists of two representatives of each of the Company and Arena.

Because management of HSLFI is shared equally

between the Company and Arena, the Company does not have sole control over significant actions of HSLFI for purposes of the 1940

Act or otherwise.

The Company uses fair

value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures.

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between

market participants at the measurement date.

Total controlled affiliates

(1) The Company and Arena were the members of HSLFI, a joint venture formed as a Delaware limited liability company that was not consolidated by either member for financial reporting purposes.

The members provided cash or securities in portfolio companies to HSLFI in exchange for limited liability company equity interests.

All HSLFI investment decisions required unanimous approval of a quorum of HSLFI’s board of managers, which consisted of two representatives of the Company and Arena.

Because management of HSLFI was shared equally between the Company and Arena, the Company did not have sole control over significant actions of HSLFI for purposes of the 1940 Act or otherwise.

The Company uses fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures.

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

Fair value is best determined based upon quoted market prices.

However, in certain

instances, there are no quoted market prices for certain assets or liabilities.

In cases where quoted market prices are not available,

fair values are based on estimates using present value or other valuation techniques.

Those techniques are significantly affected

by the assumptions used, including the discount rate and estimates of future cash flows.

Accordingly, the fair value estimates

may not be realized in an immediate settlement of the asset or liability.

Fair value measurements

focus on exit prices in an orderly transaction (that is, not a forced liquidation or distressed sale) between market participants

at the measurement date under current market conditions.

If there has been a significant decrease in the volume and level of activity

for the asset or liability, a change in valuation technique or the use of multiple valuation techniques may be appropriate.

such instances, determining the price at which willing market participants would transact at the measurement date under current

market conditions depends on the facts and circumstances and requires the use of significant judgment.

The Company’s

fair value measurements are classified into a fair value hierarchy in accordance with ASC Topic 820, Fair Value Measurement ,

based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair

However, in certain instances, there are no quoted market prices for certain assets or liabilities.

In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques.

Those techniques are significantly affected by the assumptions used, including the discount rate and estimates

of future cash flows.

Accordingly, the fair value estimates may not be realized in an immediate settlement of the asset or liability.

Fair value measurements focus on exit prices in an orderly transaction (that is, not a forced liquidation or distressed sale) between market participants at the measurement date under current market conditions.

If there has been a significant decrease in the volume and level of activity for the asset or liability, a change in valuation technique or the use of multiple valuation techniques may be appropriate.

In such instances, determining the price at which willing market participants would transact at the measurement date under current market conditions depends on the facts and circumstances and requires the use of significant judgment.

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

The three categories within the hierarchy are as follows:

Level 1 Quoted prices in active markets for identical assets

and liabilities.

Level 2 Observable inputs other than Level 1 prices such

as quoted prices for similar assets or liabilities in active markets, quoted prices in markets that are not active, and model-based

valuation techniques for which all significant inputs are observable or can be corroborated by observable market data for substantially

the full term of the assets or liabilities.

Level 3 Unobservable inputs that are supported by little or no

market activity and that are significant to the fair value of the assets or liabilities.

Level 3 assets and liabilities include

financial instruments whose value is determined using pricing models, discounted cash flow methodologies or similar techniques,

as well as instruments for which the determination of fair value requires significant management judgment or estimation.

Investments are

valued at fair value as determined in good faith by the Board, based on input of management, the audit committee and

independent valuation firms which are engaged at the direction of the Board to assist in the valuation of each portfolio

investment lacking a readily available market quotation at least once during a trailing twelve-month period under a valuation

policy and a consistently applied valuation process.

This valuation process is conducted at the end of each fiscal quarter,

with at least 25% (based on fair value) of the Company’s valuation of portfolio companies lacking readily available

market quotations subject to review by an independent valuation firm.

Horizon Technology

Finance Corporation and Subsidiaries

Notes to Consolidated

Financial Statements

Because there is not

a readily available market value for most of the investments in its portfolio, the Company values substantially all of its portfolio

investments at fair value as determined in good faith by the Board, as described herein.

Due to the inherent uncertainty of determining

the fair value of investments that do not have a readily available market value, the fair value of the Company's investments may

fluctuate from period to period.

Additionally, the fair value of the Company's investments may differ significantly from the values

that would have been used had a ready market existed for such investments and may differ materially from the values that the Company

may ultimately realize.

Further, such investments are generally subject to legal and other restrictions on resale or otherwise

are less liquid than publicly traded securities.

If the Company was required to liquidate a portfolio investment in a forced or

liquidation sale, the Company could realize significantly less than the value at which the Company has recorded such portfolio

Cash and interest

Quoted prices in active markets for identical assets and liabilities.

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.

Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

Level 3 assets and liabilities include financial instruments whose value is determined using pricing models, discounted cash flow methodologies or similar techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation.

Investments are valued at fair value as determined in good faith by the Board, based on input of management, the audit committee and independent valuation firms which are engaged at the direction of the Board to assist in the valuation of each portfolio investment lacking a readily available market quotation at least once during a trailing twelve-month period under a valuation policy and a consistently applied valuation process.

This valuation process is conducted at the end of each fiscal quarter, with at least 25% (based on fair value) of the Company’s valuation of portfolio companies lacking readily available market quotations subject to review by an independent valuation firm.

Because there is not a readily available market value for most of the investments in its portfolio, the Company values substantially all of its portfolio investments at fair value as determined in good faith by the Board, as described herein.

Due to the inherent uncertainty of determining the fair value of investments that do not have a readily available market value, the fair value of the Company’s investments may fluctuate from period to period.

Additionally, the fair value of the Company’s investments may differ significantly from the values that would have been used had a ready market existed for such investments and may differ materially from the values that the Company may ultimately realize.

Further, such investments are generally subject to legal and other restrictions on resale or otherwise are less liquid than publicly traded securities.

If the Company was required to liquidate a portfolio investment in a forced or liquidation sale, the Company could realize significantly less than the value at which the Company has recorded such portfolio investment.

Cash and interest receivable:

The carrying amount is a reasonable estimate of fair value.

These financial instruments are not recorded

at fair value on a recurring basis and are categorized as Level 1 within the fair value hierarchy described above.

These financial instruments are not recorded at fair value on a recurring basis and are categorized as Level 1 within the fair value hierarchy described above.

Money market funds:

carrying amounts are valued at their net asset value as of the close of business on the day of valuation.

These financial instruments

are recorded at fair value on a recurring basis and are categorized as Level 2 within the fair value hierarchy described above

as these funds can be redeemed daily.

The carrying amounts are valued at their net asset value as of the close of business on the day of valuation.

These financial instruments are recorded at fair value on a recurring basis and are categorized as Level 2 within the fair value hierarchy described above as these funds can be redeemed daily.

Debt investments:

fair value of debt investments is estimated by discounting the expected future cash flows using the year end rates at which similar

debt investments would be made to borrowers with similar credit ratings and for the same remaining maturities.

At December 31,

2019 and 2018, the hypothetical market yields used ranged from 10% to 16% and 11% to 25%, respectively.

Significant increases (decreases)

in this unobservable input would result in a significantly lower (higher) fair value measurement.

These assets are recorded at

fair value on a recurring basis and are categorized as Level 3 within the fair value hierarchy described above.

Under certain circumstances,

the Company may use an alternative technique to value debt investments that better reflects its fair value such as the use of multiple

probability weighted cash flow models when the expected future cash flows contain elements of variability.

The fair value of debt investments is estimated by discounting the expected future cash flows using the year end rates at which similar debt investments would be made to borrowers with similar credit ratings and for the same remaining maturities.

At December 31, 2020 and 2019, the hypothetical market yields used ranged from 10% to 23% and 10% to 16%, respectively.

Significant increases (decreases) in this unobservable input would result in a significantly

lower (higher) fair value measurement.

These assets are recorded at fair value on a recurring basis and are categorized as Level 3 within the fair value hierarchy described above.

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

Warrant investments:

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

Underlying asset value of the issuer is estimated based on information available, including any

information regarding the most recent rounds of borrower funding.

Significant increases (decreases) in this unobservable input

would result in a significantly higher (lower) fair value measurement.

Volatility, or the amount of uncertainty or risk about the size of the changes in the warrant price,

is based on indices of publicly traded companies similar in nature to the underlying company issuing the warrant.

A total of seven

such indices are used.

Significant increases (decreases) in this unobservable input would result in a significantly higher (lower)

fair value measurement.

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

● Underlying asset value of the issuer is estimated based on information available, including any information regarding the most recent rounds of borrower funding.

Significant increases (decreases) in this unobservable input would result in a significantly higher (lower) fair value measurement.

● Volatility, or the amount of uncertainty or risk about the size of the changes in the warrant price, is based on indices of publicly traded companies similar in nature to the underlying company issuing the warrant.

A total of seven such indices are used.

Significant increases (decreases) in this unobservable input would result in a significantly higher (lower) fair value measurement.

● The risk-free interest rates are derived from the U.S.

Treasury yield curve.

The risk-free

interest rates are calculated based on a weighted average of the risk-free interest rates that correspond closest to the expected

remaining life of the warrant.

Other adjustments, including a marketability discount on private company warrants, are estimated

based on management’s judgment about the general industry environment.

Historical portfolio experience on cancellations and exercises of the Company’s

warrants are utilized as the basis for determining the estimated time to exit of the warrants in each financial reporting

Warrants may be exercised in the event of acquisitions, mergers or initial public offerings, and cancelled due to

events such as bankruptcies, restructuring activities or additional financings.

These events cause the expected remaining

life assumption to be shorter than the contractual term of the warrants.

Significant increases (decreases) in this

unobservable input would result in significantly higher (lower) fair value measurement.

Horizon Technology

Finance Corporation and Subsidiaries

Notes to Consolidated

Financial Statements

Under certain circumstances

the Company may use an alternative technique to value warrants that better reflects the warrants’

fair value, such as an

expected settlement of a warrant in the near term or a model that incorporates a put feature associated with the warrant.

value may be determined based on the expected proceeds to be received from such settlement or based on the net present value of

the expected proceeds from the put option.

The fair value of

the Company’s warrants held in publicly traded companies is determined based on inputs that are readily available in public

markets or can be derived from information available in public markets.

Therefore, the Company has categorized these warrants as

Level 2 within the fair value hierarchy described above.

The fair value of the Company’s warrants held in private companies

is determined using both observable and unobservable inputs and represents management’s best estimate of what market participants

would use in pricing the warrants at the measurement date.

Therefore, the Company has categorized these warrants as Level 3

within the fair value hierarchy described above.

The risk-free interest rates are calculated based on a weighted average of the risk-free interest rates that correspond closest to the expected remaining life of the warrant.

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

● Historical portfolio experience on cancellations and exercises of the Company’s warrants are utilized as the basis for determining the estimated time to exit of the warrants in each financial reporting period.

Warrants may be exercised in the event of acquisitions, mergers or initial public offerings, and cancelled due to events such as bankruptcies, restructuring activities or additional financings.

These events cause the expected remaining life assumption to be shorter than the contractual term of the warrants.

Significant increases (decreases) in this unobservable input would result in significantly higher (lower) fair value measurement.

Under certain circumstances the Company may use an alternative technique to value warrants that better reflects the warrants’ fair value, such as an expected settlement of a warrant in the near term or a model that incorporates a put feature associated with the warrant.

The fair value may be determined based on the expected proceeds to be received from such settlement or based on the net present value of the expected proceeds from the put option.

The fair value of the Company’s warrants held in publicly traded companies is determined based on inputs that are readily available in public markets or can be derived from information available in public markets.

Therefore, the Company has categorized these warrants as Level 2 within the fair value hierarchy described above.

The fair value of the Company’s warrants held in private companies is determined using both observable and unobservable inputs and represents management’s best estimate of what market participants would use in pricing the warrants at the measurement date.

Therefore, the Company has categorized these warrants as Level 3 within the fair value hierarchy described above.

These assets are recorded at fair value on a recurring basis.

1 unchanged sentence

The fair value of an equity investment in a privately held company is initially the face value of the amount invested.

adjusts the fair value of equity investments in private companies upon the completion of a new third-party round of equity financing.

The Company may make adjustments to fair value, absent a new equity financing event, based upon positive or negative changes in

a portfolio company’s financial or operational performance.

Significant increases (decreases) in this unobservable input

would result in a significantly higher (lower) fair value measurement.

The Company has categorized these equity investments as

Level 3 within the fair value hierarchy described above.

The fair value of an equity investment in a publicly traded company is

based upon the closing public share price on the date of measurement.

Therefore, the Company has categorized these equity investments

as Level 1 within the fair value hierarchy described above.

The Company adjusts the fair value of equity investments in private companies upon the completion of a new third-party round of equity financing.

The Company may make adjustments to fair value, absent a new equity financing event, based upon positive or negative changes in a portfolio company’s financial or operational performance.

Significant increases (decreases) in this unobservable input would result in a significantly higher (lower) fair value measurement.

The Company has categorized these equity investments as Level 3 within the fair value hierarchy described above.

The fair value of an equity investment in a publicly traded company is based upon the closing public share price on the date of measurement.

Therefore, the Company has categorized these equity investments as Level 1 within the fair value hierarchy described above.

These assets are recorded at fair value on a recurring basis.

1 unchanged sentence

Other investments are valued based on the facts and circumstances of the underlying contractual agreement.

The Company currently

values these contractual agreements using a multiple probability weighted cash flow model as the contractual future cash flows

contain elements of variability.

Significant changes in the estimated cash flows and probability weightings would result in a significantly

higher or lower fair value measurement.

The Company has categorized these other investments as Level 3 within the fair value hierarchy

described above.

The Company currently values these contractual agreements using a multiple probability weighted cash flow model as the contractual future cash flows contain elements of variability.

Significant changes in the estimated cash flows

and probability weightings would result in a significantly higher or lower fair value measurement.

The Company has categorized these other investments as Level 3 within the fair value hierarchy described above.

These other investments are recorded at fair value on a recurring basis.

The following tables

provide a summary of quantitative information about the Company’s Level 3 fair value measurements of its investments as

of December 31, 2019 and 2018.

In addition to the techniques and inputs noted in the table below, according to the Company’s

valuation policy, the Company may also use other valuation techniques and methodologies when determining its fair value measurements.

Horizon Technology

Finance Corporation and Subsidiaries

Notes to Consolidated

Financial Statements

The following table

is not intended to be all-inclusive, but rather provides information on the significant Level 3 inputs as they relate to the Company’s

fair value measurements as of December 31, 2019:

The following tables provide a summary of quantitative information about the Company’s Level 3 fair value measurements of its investments as of December 31, 2020 and 2019.

In addition to the techniques and inputs noted in the table below, according to the Company’s valuation policy, the Company may also use other valuation techniques and methodologies when determining its fair value measurements.

The following table is not intended to be all-inclusive, but rather provides information on the significant Level 3 inputs as they relate to the Company’s fair value measurements as of December 31, 2020:

December 31, 2020

Valuation Techniques/

1 unchanged sentence

Methodologies

(Dollars in thousands,

except per share data)

(Dollars in thousands, except per share data)

Debt investments

Discounted Expected

Future Cash Flows

Hypothetical Market

Discounted Expected Future Cash Flows

Hypothetical Market Yield

Liquidation Scenario

Probability Weighting

Multiple Probability Weighted

Cash Flow Model

Probability Weighting

Warrant investments

Black-Scholes

Valuation Model

Black-Scholes Valuation Model

Price Per Share

Industry Volatility

$0.00 –

$0.00 – $980.00

Average Industry Volatility

Marketability Discount

Estimated Time to Exit

Estimated Proceeds

Price Per Share

$6.22 –

Other investments

Multiple Probability Weighted

Cash Flow Model

Multiple Probability Weighted Cash Flow Model

Discount Rate

Probability Weighting

Liquidation Scenario

Probability Weighting

Equity investments

Last Equity Financing

Price Per Share

$0.00 –

$0.00 – $13.04

Total Level 3 investments

(1) Weighted average is calculated

by multiplying (a) the unobservable input for each investment in the investment type by (b) (1) the fair value of the related

investment in the investment type divided by (2) the total fair value of the investment type.

The following table

is not intended to be all-inclusive, but rather provides information on the significant Level 3 inputs as they relate to the Company’s

fair value measurements as of December 31, 2018:

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

December 31, 2019

Valuation Techniques/

Investment Type

Methodologies

(Dollars in thousands,

except per share data)

Discounted Expected

Future Cash Flows

Hypothetical Market

(Dollars in thousands, except per share data)

Debt investments

Discounted Expected Future Cash Flows

Hypothetical Market Yield

Liquidation Scenario

Probability Weighting

Multiple Probability Weighted Cash Flow Model

Probability Weighting

Warrant investments

Black-Scholes Valuation Model

Price Per Share

Industry Volatility

$0.00 –

$0.00 – $980.00

Average Industry Volatility

Marketability Discount

Estimated Time to Exit

Estimated Proceeds

Price Per Share

Multiple Probability Weighted

Cash Flow Model

$6.22 – $12.90

Estimated Proceeds

Discount Rate

Other investments

Multiple Probability Weighted Cash Flow Model

Discount Rate

Probability Weighting

Equity investments

Last Equity Financing

Price Per Share

$0.00 –

Level 3 investments

(1) Weighted average is calculated

by multiplying (a) the unobservable input for each investment in the investment type by (b) (1) the fair value of the related

investment in the investment type divided by (2) the total fair value of the investment type.

carrying amount of borrowings under the Key Facility with KeyBank National Association (“Key”) approximates fair

value due to the variable interest rate of the Key Facility and is categorized as Level 2 within the fair value hierarchy

described above.

$0.00 – $13.04

Total Level 3 investments

The Key Facility and the NYL Facility approximate fair value due to the variable interest rate of the facilities and are categorized as Level 2 within the fair value hierarchy described above.

Additionally, the Company considers its creditworthiness in determining the fair value of such borrowings.

The fair value of the fixed-rate 2022 Notes (as defined in Note 7) is based on the closing public share price on the date of

On December 31, 2019, the closing price of the 2022 Notes on the New York Stock Exchange was $25.55 per note, or

$38.2 million.

Therefore, the Company has categorized this borrowing as Level 1 within the fair value hierarchy described

Based on market quotations on December 31, 2019, the Asset-Backed Notes (as defined in Note 7) were trading at par

value, or $100.0 million, and are categorized as Level 3 within the fair value hierarchy described above.

These borrowings

are not recorded at fair value on a recurring basis.

Horizon Technology

Finance Corporation and Subsidiaries

Notes to Consolidated

Financial Statements

Off-balance-sheet

Fair values for off-balance-sheet lending commitments are based on fees currently charged to enter

into similar agreements, taking into account the remaining terms of the agreements and the counterparties’

credit standings.

The fair value of the fixed-rate 2022 Notes (as defined in Note 7) is based on the closing public share price on the date of measurement.

On December 31, 2020, the closing price of the 2022 Notes on the New York Stock Exchange was $25.60 per note, or $38.3 million.

Therefore, the Company has categorized this borrowing as Level 1 within the fair value hierarchy described above.

Based on market quotations on December 31, 2020, the Asset-Backed Notes (as defined in Note 7) were trading at par value, or $100.0 million, and are categorized as Level 3 within the fair value hierarchy described above.

These borrowings are not recorded at fair value on a recurring basis.

Off-balance-sheet instruments:

Fair values for off-balance-sheet lending commitments are based on fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the counterparties’ credit standings.

Therefore, the Company has categorized these instruments as Level 3 within the fair value hierarchy described above.

The following tables

detail the assets that are carried at fair value and measured at fair value on a recurring basis as of December 31, 2019 and 2018

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

The following tables detail the assets that are carried at fair value and measured at fair value on a recurring basis as of December 31, 2020 and 2019 and indicate the fair value hierarchy of the valuation techniques utilized by the Company to determine the fair value:

December 31, 2020

6 unchanged sentences

Equity investments

Equity interest in HSLFI (1)

Total investments

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

December 31, 2019

(In thousands)

Investments in money market funds

Restricted investments in money market funds

Debt investments

4 unchanged sentences

Total investments

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

Horizon Technology

Finance Corporation and Subsidiaries

Notes to Consolidated

Financial Statements

The following table

shows a reconciliation of the beginning and ending balances for Level 3 assets measured at fair value on a recurring basis

for the year ended December 31, 2019:

December 31, 2019

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

The following table shows a reconciliation of the beginning and ending balances for Level 3 assets measured at fair value on a recurring basis for the year ended December 31, 2020:

Year ended December 31, 2020

(In thousands)

4 unchanged sentences

Proceeds from sale of investments

Net realized gain (loss) on investments

Net realized (loss) gain on investments

Unrealized (depreciation) appreciation included in earnings

Transfer out of Level 3

Transfer of investment

Level 3 assets, end of period

During the year ended

December 31, 2019, there was one transfer out of Level 3.

The transfer out of Level 3 related to warrants held in one portfolio

company with an aggregate fair value of $0.2 million that was transferred to Level 2 upon the portfolio company becoming a public

During the year ended December 31, 2019, there were no transfers to Level 3.

The change in unrealized

appreciation included in the consolidated statement of operations attributable to Level 3 investments still held at December 31,

2019 includes $3.1 million in unrealized depreciation on debt and other investments, $1.0 million in unrealized appreciation on

warrant investments and $1.6 million in unrealized appreciation on equity investments.

The following table

shows a reconciliation of the beginning and ending balances for Level 3 assets measured at fair value on a recurring basis

for the year ended December 31, 2018:

December 31, 2018

During the year ended December 31, 2020, there were no transfers in or out of Level 3.

The change in unrealized appreciation included in the consolidated statement of operations attributable to Level 3 investments still held at December 31, 2020 includes $6.5 million in unrealized depreciation on debt and other investments, $5.0 million in unrealized appreciation on warrant investments and $1.0 million in unrealized depreciation on equity investments.

The following table shows a reconciliation of the beginning and ending balances for Level 3 assets measured at fair value on a recurring basis for the year ended December 31, 2019:

Year ended December 31, 2019

(In thousands)

4 unchanged sentences

Proceeds from sale of investments

Net realized (loss) gain on investments

Net realized gain (loss) on investments

Unrealized (depreciation) appreciation included in earnings

Transfer out of Level 3

Transfer of investment

Level 3 assets, end of period

During the year ended

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

The change in

unrealized depreciation included in the consolidated statement of operations attributable to Level 3 investments still held

at December 31, 2018 includes $0.2 million in unrealized depreciation on debt and other investments, $0.2 million in

unrealized appreciation on warrant investments and $0.05 million in unrealized depreciation on equity investments.

Horizon Technology

Finance Corporation and Subsidiaries

Notes to Consolidated

Financial Statements

The Company discloses

fair value information about financial instruments, whether or not recognized in the consolidated statement of assets and liabilities,

for which it is practicable to estimate that value.

During the year ended December 31, 2019, there was one transfer out of Level 3.

The transfer out of Level 3 related to warrants held in one portfolio company with an aggregate fair value of $0.2 million that was transferred to Level 2 upon the portfolio company becoming a public company.

During the year ended December 31, 2019, there were no transfers to Level 3.

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

The Company discloses fair value information about financial instruments, whether or not recognized in the consolidated statement of assets and liabilities, for which it is practicable to estimate that value.

Certain financial instruments are excluded from the disclosure requirements.

Accordingly, the aggregate fair value amounts presented do not represent the underlying value of the Company.

The fair value amounts

have been measured as of the reporting date and have not been reevaluated or updated for purposes of these financial statements

subsequent to that date.

As such, the fair values of these financial instruments subsequent to the reporting date may be different

than amounts reported at year-end.

As of December 31,

2019 and 2018, all of the balances of all the Company’s financial instruments were recorded at fair value, except for the

Company’s 2022 Notes, as previously described.

The Company assumes

interest rate risk (the risk that general interest rate levels will change) as a result of its normal operations.

the fair values of the Company’s financial instruments will change when interest rate levels change, and that change may

be either favorable or unfavorable to the Company.

Management attempts to match maturities of assets and liabilities to the extent

believed necessary to minimize interest rate risk.

Management monitors rates and maturities of assets and liabilities and attempts

to minimize interest rate risk by adjusting terms of new debt investments and by investing in securities with terms that mitigate

the Company’s overall interest rate risk.

The following table

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

The fair value amounts have been measured as of the reporting date and have not been reevaluated or updated for purposes of these financial statements subsequent to that date.

As such, the fair values of these financial instruments subsequent to the reporting date may be different than amounts reported.

As of December 31, 2020 and 2019, all of the balances of all the Company’s financial instruments were recorded at fair value, except for the Company’s borrowings, as previously described.

The Company assumes interest rate risk (the risk that general interest rate levels will change) as a result of its normal operations.

As a result, the fair values of the Company’s financial instruments will change when interest rate levels change, and that change may be either favorable or unfavorable to the Company.

Management attempts to match maturities of assets and liabilities to the extent believed necessary to minimize interest rate risk.

Management monitors rates and maturities of assets and liabilities and attempts to minimize interest rate risk by adjusting terms of new debt investments and by investing in securities with terms that mitigate the Company’s overall interest rate risk.

The following table shows the Company’s borrowings as of December 31, 2020 and 2019:

December 31, 2020

December 31, 2019

Total Commitment

Balance Outstanding

Unused Commitment

Total Commitment

Balance Outstanding

Unused Commitment

(In thousands)

3 unchanged sentences

Total borrowings outstanding, net

2018, President Trump signed into law the Small Business Credit Availability Act as part of an omnibus spending bill, which,

among other things, amends the 1940 Act to reduce the minimum required asset coverage applicable to BDCs under the 1940 Act

from 200% to 150% if certain approval and disclosure requirements are met.

Before such reduced asset coverage requirement can

apply to the Company, such reduced asset coverage requirement must be approved by either (a) a “required

majority”

(as defined in Section 57(o) of the 1940 Act) of the Board, in which case such reduced asset coverage

requirement would take effect on the first anniversary of the date of such Board approval, or (b) a majority of votes cast by

the stockholders of the Company at a special or annual meeting at which a quorum is present, in which case such reduced asset

coverage requirement shall take effect on the day after such approval.

On June 7, 2018, a “required majority”

the Board approved the reduced asset coverage requirements and separately recommended that the Company’s stockholders

approve the reduced asset coverage requirements at a special meeting of the Company’s stockholders.

The Company held a

special meeting on October 30, 2018 during which the reduced asset coverage requirements were approved by stockholders.

reduced asset coverage requirements took effect October 31, 2018.

As of December 31,

2019, with certain limited exceptions, as a BDC, the Company is only allowed to borrow amounts such that the Company’s asset

coverage, as defined in the 1940 Act, is at least 150% after such borrowings.

As of December 31, 2019, the asset coverage for borrowed

amounts was 219%.

The Company entered

into the Key Facility with Key effective November 4, 2013.

On December 28, 2018, the Company amended the Key Facility, increasing

the aggregate commitments under the Key Facility by $25 million to $125 million.

The Key Facility has an accordion feature which

allows for an increase in the total loan commitment to $150 million from the $125 million commitment.

The Key Facility is collateralized

by all debt investments and warrants held by Credit II and permits an advance rate of up to 50% of eligible debt investments held

by Credit II.

The Key Facility contains covenants that, among other things, require the Company to maintain a minimum net worth

and to restrict the debt investments securing the Key Facility to certain criteria for qualified debt investments and includes

portfolio company concentration limits as defined in the related loan agreement.

The Key Facility has a revolving period that extends

to April 6, 2021, followed by a two-year amortization period and is scheduled to mature on April 6, 2023.

The interest rate is

based upon the one-month LIBOR, plus a spread of 3.25%, with a LIBOR floor of 0.75%.

The LIBOR rate was 1.76% and 2.50% on December

31, 2019 and 2018, respectively.

The average interest rate for the years ended December 31, 2019 and 2018 was 5.51% and 5.23%,

respectively.

The Key Facility requires the payment of an unused line fee in an amount up to 0.50% on an annualized basis of any

unborrowed amount available under the facility.

As of December 31, 2019 and 2018, the Company had borrowing capacity under the

Key Facility of $108.0 million and $34.5 million, respectively.

At December 31, 2019 and 2018, $24.2 million and $0.9 million,

respectively, was available, subject to existing terms and advance rates.

On September 29, 2017,

the Company issued and sold an aggregate principal amount of $32.5 million of 6.25% notes due in 2022 and on October 11, 2017,

pursuant to the underwriters’

30 day option to purchase additional notes, the Company sold an additional $4.9 million of

such notes (collectively, the “2022 Notes”).

The 2022 Notes have a stated maturity of September 15, 2022 and may be

redeemed in whole or in part at the Company’s option at any time or from time to time on or after September 15, 2019 at a

redemption price of $25 per security plus accrued and unpaid interest.

The 2022 Notes bear interest at a rate of 6.25% per year,

payable quarterly on March 15, June 15, September 15 and December 15 of each year.

The 2022 Notes are the Company’s direct

unsecured obligations and (i) rank equally in right of payment with the Company’s current and future unsecured indebtedness;

(ii) are senior in right of payment to any of the Company’s future indebtedness that expressly provides it is subordinated

to the 2022 Notes;

(iii) are effectively subordinated to all of the Company’s existing and future secured indebtedness (including

indebtedness that is initially unsecured to which the Company subsequently grants security), to the extent of the value of the

assets securing such indebtedness, and (iv) are structurally subordinated to all existing and future indebtedness and other obligations

of any of the Company’s subsidiaries.

A s of December 31,

2019 , the Company was in material compliance with the terms of the 2022

The 2022 Notes are listed on the New York Stock Exchange under the symbol “HTFA”.

On August 13, 2019,

the Company completed a term debt securitization in connection with which an affiliate of the Company made an offering of $100.0

million in aggregate principal amount of fixed rate asset-backed notes (the “Asset-Backed Notes”).

The Asset-Backed

Notes were rated A+(sf) by Morningstar Credit Ratings, LLC.

The Asset-Backed Notes

were issued by the 2019-1 Trust pursuant to a note purchase agreement, dated as of August 13, 2019, by and among the Company and

Keybanc Capital Markets Inc.

as Initial Purchaser, and are backed by a pool of loans made to certain portfolio companies of the

Company and secured by certain assets of those portfolio companies and are to be serviced by the Company.

Interest on the Asset-Backed

Notes will be paid, to the extent of funds available, at a fixed rate of 4.21% per annum.

The Asset-Backed Notes have a two-year

reinvestment period and a stated maturity of September 15, 2027.

As of December 31,

2019, the Asset-Backed Notes had an outstanding principal balance of $100.0 million.

There was no outstanding principal balance

for the Asset-Backed Notes at December 31, 2018.

Horizon Technology Finance Corporation

and Subsidiaries

Notes to Consolidated Financial Statements

Under the terms of

the Asset-Backed Notes, the Company is required to maintain a reserve cash balance, funded through proceeds from the sale of the

Asset-Backed Notes, which may be used to pay monthly interest and principal payments on the Asset-Backed Notes.

The Company has

segregated these funds and classified them as restricted investments in money market funds.

At December 31, 2019, there was approximately

$1.1 million of restricted investments.

There were no funds segregated as restricted investments related to the Asset-Backed Notes

at December 31, 2018.

The following table

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

On March 23, 2018, the Small Business Credit Availability Act was signed into law as part of an omnibus spending bill, which, among other things, amends the 1940 Act to reduce the minimum required asset coverage applicable to BDCs under the 1940 Act from 200% to 150% if certain approval and disclosure requirements are met.

Before such reduced asset coverage requirement can apply to the Company, such reduced asset coverage requirement must be approved by either (a) a “required majority” (as defined in Section 57(o) of the 1940 Act) of the Board, in which case such reduced asset coverage requirement would take effect on the first anniversary of the date of such Board approval, or (b) a majority of votes cast by the stockholders of the Company at a special or annual meeting at which a quorum is present, in which case such reduced asset coverage requirement shall take effect on the day after such approval.

On June 7, 2018, a “required majority” of the Board approved the reduced asset coverage requirements and separately recommended that the Company’s stockholders approve the reduced asset coverage requirements at a special meeting of the Company’s stockholders.

The Company held a special meeting on October 30, 2018 during which the reduced asset coverage requirements were approved by stockholders.

The reduced asset coverage requirements took effect October 31, 2018.

As of December 31, 2020, with certain limited exceptions, as a BDC, the Company is only allowed to borrow amounts such that the Company’s asset coverage, as defined in the 1940 Act, is at least 150% after such borrowings.

As of December 31, 2020, the asset coverage for borrowed amounts was 213%.

The Company entered into the Key Facility with Key effective November 4, 2013.

On June 29, 2020, the Company amended the Key Facility, among other things, to amend the LIBOR floor from 0.75% to 1.00% and to extend the revolving period to September 30, 2021.

The Key Facility has an accordion feature which allows for an increase in the total loan commitment to $150 million from the $125 million commitment.

The Key Facility is collateralized by all debt investments and warrants held by Credit II and permits an advance rate of up to 50% of eligible debt investments held by Credit II.

The Key Facility contains covenants that, among other things, require the Company to maintain a minimum net worth and to restrict the debt investments securing the Key Facility to certain criteria for qualified debt investments and includes portfolio company concentration limits as defined in the related loan agreement.

The Key Facility is scheduled to mature on April 6, 2023.

The interest rate is based upon the one-month LIBOR, plus a spread of 3.25%, with a LIBOR floor of 1.00%.

The LIBOR rate was 0.14% and 1.76% on December 31, 2020 and 2019, respectively.

The average interest rate for the years ended December 31, 2020 and 2019 was 4.38% and 5.51%, respectively.

The Key Facility requires the payment of an unused line fee in an amount up to 0.50% on an annualized basis of any unborrowed amount available under the facility.

As of December 31, 2020 and 2019, the Company had borrowing capacity under the Key Facility of $97.0 million and $108.0 million, respectively.

At December 31, 2020 and 2019, $24.8 million and $24.2 million, respectively, was available for borrowing, subject to existing terms and advance rates.

On September 29, 2017, the Company issued and sold an aggregate principal amount of $32.5 million of 6.25% notes due in 2022 and on October 11, 2017, pursuant to the underwriters’ 30 day option to purchase additional notes, the Company sold an additional $4.9 million of such notes (collectively, the “2022 Notes”).

The 2022 Notes have a stated maturity of September 15, 2022 and may be redeemed in whole or in part at the Company’s option at any time or from time to time on or after September 15, 2019 at a redemption price of $25 per security plus accrued and unpaid interest.

The 2022 Notes bear interest at a rate of 6.25% per year, payable quarterly on March 15, June 15, September 15 and December 15 of each year.

The 2022 Notes are the Company’s direct unsecured obligations and (i) rank equally in right of payment with the Company’s current and future unsecured indebtedness;

(ii) are senior in right of payment to any of the Company’s future indebtedness that expressly provides it is subordinated to the 2022 Notes;

(iii) are effectively subordinated to all of the Company’s existing and future secured indebtedness (including indebtedness that is initially unsecured to which the Company subsequently grants security), to the extent of the value of the assets securing such indebtedness, and (iv) are structurally subordinated to all existing and future indebtedness and other obligations of any of the Company’s subsidiaries.

As of December 31, 2020, the Company was in material compliance with the terms of the 2022 Notes.

The 2022 Notes are listed on the New York Stock Exchange under the symbol “HTFA”.

On August 13, 2019, the Company completed a term debt securitization in connection with which an affiliate of the Company made an offering of the Asset-Backed Notes.

The Asset-Backed Notes were rated A+(sf) by Morningstar Credit Ratings, LLC.

There has been no change in the rating since August 13, 2019.

The Asset-Backed Notes were issued by the 2019-1 Trust pursuant to a note purchase agreement, dated as of August 13, 2019, by and among the Company and Keybanc Capital Markets Inc.

as Initial Purchaser, and are backed by a pool of loans made to certain portfolio companies of the Company and secured by certain assets of those portfolio companies and are to be serviced by the Company.

Interest on the Asset-Backed Notes will be paid, to the extent of funds available, at a fixed rate of 4.21% per annum.

The reinvestment period of the Asset-Backed Notes ends July 15, 2021 and the maturity is September 15, 2027.

As of December 31, 2020 and 2019, the Asset-Backed Notes had an outstanding principal balance of $100.0 million.

Under the terms of the Asset-Backed Notes, the Company is required to maintain a reserve cash balance, funded through proceeds from the sale of the Asset-Backed Notes, which may be used to pay monthly interest and principal payments on the Asset-Backed Notes.

The Company has segregated these funds and classified them as restricted investments in money market funds.

At December 31, 2020 and 2019, there was approximately $1.0 million and $1.1 million of restricted investments, respectively.

On April 21, 2020, the Company purchased all of the limited liability company interests of Arena in HSLFI, which is a party to the NYL Facility.

On June 1, 2018, HSLFI sold or contributed to HFI certain secured loans made to certain portfolio companies pursuant to the Sale and Servicing Agreement.

Any notes issued by HFI are collateralized by all

investments held by HFI and permit an advance rate of up to 67% of the aggregate principal amount of eligible debt investments.

The notes were issued pursuant to the Indenture.

On June 5, 2020, the Company amended the NYL Facility to extend the investment period to June 5, 2022.

The investment period will be followed by a five year amortization period.

The stated final payment date was extended to June 15, 2027, subject to any extension of the investment period.

The interest rate on the notes issued under the NYL Facility is based on the three year USD mid-market swap rate plus a margin of between 3.55% and 5.15% with an interest rate floor, depending on the rating of such notes at the time of issuance.

Any obligation to make additional advances was conditioned on the occurrence of certain conditions, which were satisfied June 26, 2020.

There were $22.3 million in advances made by the NYL Noteholders as of December 31, 2020 at an interest rate of 4.60%.

As of December 31, 2020, the Company had borrowing capacity under the NYL Facility of $77.7 million.

At December 31, 2020, $0.9 million was available for borrowing, subject to existing terms and advance rates.

The following table shows information about our senior securities as of December 31, 2020, 2019, 2018, 2017 and 2016:

Class and Year

Securities (1)

Asset Coverage

(In thousands, except unit data)

1 unchanged sentence

2019-1 Securitization

2013-1 Securitization

Total senior securities

(1) Total amount of senior securities outstanding at the end of the period presented.

Asset coverage per unit is the ratio of the original cost less accumulated depreciation, amortization or impairment of the Company’s total consolidated assets, less all liabilities and indebtedness not represented by senior securities, to the aggregate amount of senior securities representing indebtedness.

(2) Asset coverage per unit is the ratio of the original cost less accumulated depreciation, amortization or impairment of the Company’s total consolidated assets, less all liabilities and indebtedness not represented by senior securities, to the aggregate amount of senior securities representing indebtedness.

Asset coverage per unit is expressed in terms of dollar amounts per $1,000 of indebtedness.

(3) The amount which the holder of such class of senior security would be entitled upon the voluntary liquidation of the applicable issuer in preference to any security junior to it.

in this column indicates that the SEC expressly does not require this information to be disclosed for certain types of securities.

Not applicable to the Company’s credit facilities, 2019-1 Securitization and 2013-1 Securitization because such securities are not registered for public trading.

Horizon Technology Finance Corporation

and Subsidiaries

Notes to Consolidated Financial Statements

The “ — ” in this column indicates that the SEC expressly does not require this information to be disclosed for certain types of securities.

(4) Not applicable to the Company’s credit facilities and 2019-1 Securitization because such securities are not registered for public trading.

Federal income tax

The Company has elected

to be treated as a RIC under Subchapter M of the Code and to distribute substantially all of its taxable income.

Accordingly, no

provision for federal, state or local income tax has been recorded in the financial statements.

Taxable income differs from net

increase in net assets resulting from operations primarily due to unrealized appreciation on investments as investment gains and

losses are not included in taxable income until they are realized.

The following table

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

The Company has elected to be treated as a RIC under Subchapter M of the Code and to distribute substantially all of its taxable income.

Accordingly, no provision for federal, state or local income tax has been recorded in the financial statements.

Taxable income differs from net increase in net assets resulting from operations primarily due to unrealized appreciation on investments as investment gains and losses are not included in taxable income until they are realized.

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

Years Ended December 31,

5 unchanged sentences

Taxable income before deductions for distributions

The tax characters

of distributions paid are as follows:

The tax characters of distributions paid are as follows:

Years Ended December 31,

1 unchanged sentence

Ordinary income

The components of

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

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

As of December 31,

5 unchanged sentences

Other temporary differences

Depending on the level

of taxable income earned in a tax year, the Company may choose to carry forward taxable income in excess of current year distributions

into the next tax year and incur a 4% excise tax on such income, as required.

For the years ended December 31, 2019 and 2018, the

Company elected to carry forward taxable income in excess of current year distributions of $6.5 million and $1.3 million, respectively.

At December 31, 2019 and 2018, a provision for excise tax of $0.2 million and $0.03 million, respectively was recorded.

Capital losses in

excess of capital gains earned in a tax year may generally be carried forward, without expiration, and used to offset capital gains,

subject to certain limitations.

During the year ended December 31, 2019, the Company did not use any of its capital loss carry

forward to offset capital gains.

During the year ended December 31, 2018, the Company used $0.6 million of its capital loss carry

forward to offset capital gains.

During the year ended December 31, 2017, the Company did not use any of its capital loss carry

forward to offset capital gains.

income tax purposes, the tax cost of investments at December 31, 2019 and 2018 was $318.8 million and $250.9 million,

respectively.

The gross unrealized appreciation on investments at December 31, 2019 and 2018 was $8.4 million and $5.2

million, respectively.

The gross unrealized depreciation on investments at December 31, 2019 and 2018 was $7.6 million and

$7.7 million, respectively.

Horizon Technology Finance Corporation

and Subsidiaries

Notes to Consolidated Financial Statements

For the years ended December 31, 2020 and 2019, the Company elected to carry forward taxable income in excess of current year distributions of $6.2 million and $6.5 million, respectively.

At December 31, 2020 and 2019, a provision for excise tax of $0.2 million was recorded.

Capital losses in excess of capital gains earned in a tax year may generally be carried forward, without expiration, and used to offset capital gains, subject to certain limitations.

During the years ended December 31, 2020, 2019 and 2018, the Company did not use any of its capital loss carry forward to offset capital gains.

For federal income tax purposes, the tax cost of investments at December 31, 2020 and 2019 was $351.5 million and $318.8 million, respectively.

The gross unrealized appreciation on investments at December 31, 2020 and 2019 was $9.6 million and $8.4 million, respectively.

The gross unrealized depreciation on investments at December 31, 2020 and 2019 was $8.5 million and $7.6 million, respectively.

Financial instruments with off-balance-sheet risk

In the normal course

of business, the Company is party to financial instruments with off-balance-sheet risk to meet the financing needs of its borrowers.

These financial instruments include commitments to extend credit and involve, to varying degrees, elements of credit risk in excess

of the amount recognized in the consolidated statement of assets and liabilities.

The Company attempts to limit its credit risk

by conducting extensive due diligence and obtaining collateral where appropriate.

The balance of unfunded

commitments to extend credit was $49.5 million and $27.5 million as of December 31, 2019 and 2018, respectively.

Commitments to

extend credit consist principally of the unused portions of commitments that obligate the Company to extend credit, such as revolving

credit arrangements or similar transactions.

These commitments are often subject to financial or non-financial milestones and other

conditions to borrow that must be achieved before the commitment can be drawn.

In addition, the commitments generally have fixed

expiration dates or other termination clauses.

Since commitments may expire without being drawn upon, the total commitment amounts

do not necessarily represent future cash requirements.

In the normal course of business, the Company is party to financial instruments with off-balance-sheet risk to meet the financing needs of its borrowers.

These financial instruments include commitments to extend credit and involve, to varying degrees, elements of credit risk in excess of the amount recognized in the consolidated statement of assets and liabilities.

The Company attempts to limit its credit risk by conducting extensive due diligence and obtaining collateral where appropriate.

The balance of unfunded commitments to extend credit was $91.5 million and $49.5 million as of December 31, 2020 and 2019, respectively.

Commitments to extend credit consist principally of the unused portions of commitments that obligate the Company to extend credit, such as revolving credit arrangements or similar transactions.

These commitments are often subject to financial or non-financial milestones and other conditions to borrow that must be achieved before the commitment can be drawn.

In addition, the commitments generally have fixed expiration dates or other termination clauses.

Since commitments may expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements.

This includes the undrawn revolver commitments discussed in Note 4.

The following table

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

The following table provides the Company’s unfunded commitments by portfolio company as of December 31, 2020:

December 31, 2020

1 unchanged sentence

(In thousands)

Betabrand Corporation.

CSA Medical, Inc.

Espero Biopharma, Inc.

Kate Farms, Inc.

Kinestral Technologies, Inc.

LogicBio Therapeutics, Inc.

Maculogix, Inc.

Mustang Bio, Inc.

Alula Holdings Inc.

Canary Medical Inc.

Castle Creek Biosciences, Inc.

Ceribell, Inc.

Emalex Biosciences, Inc.

Getaround, Inc.

IDbyDNA, Inc.

Keypath Education Holdings, LLC

LogicBio, Inc.

Provivi, Inc.

Revinate, Inc.

Skillshare, Inc.

The table above also

provides the fair value of the Company’s unfunded commitment liability as of December 31, 2019 which totaled $0.9 million.

The fair value at inception of the delay draw credit agreements is equal to the fees and/or warrants received to enter into these

agreements, taking into account the remaining terms of the agreements and the counterparties’

credit profile.

commitment liability reflects the fair value of these future funding commitments and is included in the Company’s consolidated

statement of assets and liabilities.

Sonex Health, Inc.

Topia Mobility Inc.

The table above also provides the fair value of the Company’s unfunded commitment liability as of December 31, 2020 which totaled $1.1 million.

The fair value at inception of the delay draw credit agreements is equal to the fees and/or warrants received to enter into these agreements, taking into account the remaining terms of the agreements and the counterparties’ credit profile.

The unfunded commitment liability reflects the fair value of these future funding commitments and is included in the Company’s consolidated statement of assets and liabilities.

Concentrations of credit risk

Company’s debt investments consist primarily of loans to development-stage companies at various stages of development

in the technology, life science, healthcare information and services and sustainability industries.

Many of these companies

may have relatively limited operating histories and also may experience variation in operating results.

Many of these

companies conduct business in regulated industries and could be affected by changes in government regulations.

Company’s borrowers will need additional capital to satisfy their continuing working capital needs and other

requirements, and in many instances, to service the interest and principal payments on the loans.

Horizon Technology Finance Corporation

and Subsidiaries

Notes to Consolidated Financial Statements

The Company’s

largest debt investments may vary from year to year as new debt investments are recorded and existing debt investments are repaid.

The Company’s five largest debt investments, at cost, represented 28% and 32% of total debt investments outstanding as of

December 31, 2019 and 2018, respectively.

No single debt investment represented more than 10% of the total debt investments as

of December 31, 2019 or 2018.

Investment income, consisting of interest and fees, can fluctuate significantly upon repayment of

large debt investments.

Interest income from the five largest debt investments accounted for 17%, 25% and 14% of total interest

and fee income on investments for the years ended December 31, 2019, 2018 and 2017, respectively.

The Company’s debt investments consist primarily of loans to development-stage companies at various stages of development in the technology, life science, healthcare information and services and sustainability industries.

Many of these companies may have relatively limited operating histories and also may experience variation in operating results.

Many of these companies conduct business in regulated industries and could be affected by changes in government regulations.

Most of the Company’s borrowers will need additional capital to satisfy their continuing working capital needs and other requirements, and in many instances, to service the interest and principal payments on the loans.

The Company’s largest debt investments may vary from year to year as new debt investments are recorded and existing debt investments are repaid.

The Company’s five largest debt investments, at cost, represented 28% of total debt investments outstanding as of December 31, 2020 and 2019.

No single debt investment represented more than 10% of the total debt investments as of December 31, 2020 or 2019.

Investment income, consisting of interest and fees, can fluctuate significantly upon repayment of large debt investments.

Interest income from the five largest debt investments accounted for 23%, 17% and 25% of total interest and fee income on investments for the years ended December 31, 2020, 2019 and 2018, respectively.

Distributions

The Company’s

distributions are recorded on the declaration date.

The following table summarizes the Company’s distribution activity for

the years ended December 31, 2019 and 2018:

The Company’s distributions are recorded on the declaration date.

The following table summarizes the Company’s distribution activity for the years ended December 31, 2020 and 2019:

(In thousands, except share and per share data)

1 unchanged sentence

Year Ended December 31, 2019

Horizon Technology Finance Corporation

and Subsidiaries

Notes to Consolidated Financial Statements

On February 28, 2020, the Board

declared monthly distributions per share and a special distribution for April of $0.05 per share, payable as set forth in the

following table:

Monthly distributions

On February 26, 2021, the Board declared monthly distributions per share, payable as set forth in the following table:

Ex-Dividend Date

6 unchanged sentences

June 15, 2021

Special distribution

Ex-Dividend Date

Distributions Declared

March 17, 2020

March 18, 2020

April, 15, 2020

After paying distributions

of $1.10 per share deemed paid for tax purposes in 2019, declaring on October 25, 2019 a distribution of $0.10 per share payable

January 15, 2020, and taxable earnings of $1.59 per share in 2019, the Company’s undistributed spillover income as of December

31, 2019 was $0.42 per share.

Spillover income includes any ordinary income and net capital gains from the preceding tax years

that were not distributed during such tax years.

After paying distributions of $1.25 per share deemed paid for tax purposes in 2020, declaring on October 26, 2020 a distribution of $0.10 per share payable January 15, 2021, and taxable earnings of $1.23 per share in 2020, the Company’s undistributed spillover income as of December 31, 2020 was $0.32 per share.

Spillover income includes any ordinary income and net capital gains from the preceding tax years that were not distributed during such tax years.

Subsequent events

Subsequent to December

31, 2019, and as of March 3, 2020, the Company sold approximately 1,198,552 shares of common stock for total accumulated net proceeds

of approximately $15.1 million, net of offering expenses, under the Equity Distribution Agreement.

As of March 3, 2020, shares

representing approximately $10.0 million of its common stock remain available for issuance and sale under the Equity Distribution

On January 29, 2020,

the Company received proceeds of $2.3 million in connection with the termination of its warrants in Sys-Tech Solutions, Inc.

(“Sys-Tech”)

upon Sys-Tech’s sale to Dover Fluids, Inc.

On February 12, 2020,

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

On February 21,

2020, Bridge2 Solutions, LLC (“Bridge2”) prepaid its outstanding principal balance of $14.5 million on its

venture loan, plus interest and end-of-term payment.

On February 26, 2020, the Company received proceeds

of $2.9 million in connection with the termination of its warrants in Bridge2 upon Bridge2’s sale to Intercontinental

Exchange, Inc.

On February 26, 2020,

the Company funded a $20.0 million loan to a new portfolio company, Castle Creek Biosciences, Inc., a clinical stage biopharmaceutical

company developing therapies for patients with rare and debilitating dermatological conditions.

On February 28, 2020,

the Company funded a $4.0 million loan to an existing portfolio company, CSA Medical, Inc., a developer of novel, patent-protected

cryotherapy medical devices.

On February 28, 2020, the Company funded

a $1.1 million loan to an existing portfolio company, Betabrand Corporation, a crowdfunded online clothing community that designs,

manufactures, and consistently releases new products.

Horizon Technology Finance Corporation

and Subsidiaries

Notes to Consolidated Financial Statements

Subsequent to December 31, 2020 pursuant to private foreclosure sales, the Company has received net proceeds of approximately $1.7 million from the sale of substantially all of the assets of The NanoSteel Company, Inc.

(“NanoSteel”), which assets collateralized the Company’s debt investment in NanoSteel.

The Company does not expect to receive any additional material proceeds from the sale of additional assets of NanoSteel.

On January 14, 2021, the Company funded a $5.0 million debt investment to a new portfolio company, Clara Foods Co.

On January 15, 2021, the Company funded a $7.0 million debt investment to a new portfolio company, Supply Network Visibility Holdings LLC.

On February 23, 2021, the Company funded a $7.0 million debt investment to an existing portfolio company, Getaround, Inc.

On February 25, 2021, the Company funded a $6.0 million debt investment to a new portfolio company, Primary Kids, Inc.

Financial highlights

The following table

shows financial highlights for the Company:

Years Ended December 31,

The following table shows financial highlights for the Company:

Year ended December 31,

(In thousands, except share and per share data)

5 unchanged sentences

Net increase (decrease) in net assets resulting from operations

Net dilution from issuance of common stock

Distributions declared (1)

26 unchanged sentences

(4) During the years ended December 31, 2019, 2018 and 2017, the Advisor waived $1.8 million, $1.2 million and $0.1 million, respectively, of incentive fee.

During the year ended December 31, 2015, the Advisor waived $0.3 million of base management fee.

Horizon Technology Finance Corporation

and Subsidiaries

Notes to Consolidated Financial Statements

(5) Calculated by dividing the lesser of purchases or the sum of (1) principal prepayments and (2) maturities by the monthly average debt investment balance

(6) Calculated by dividing net debt investment purchases by the monthly average debt investment balance.

Summarized financial information for HSLFI

2 unchanged sentences

(Dollars in thousands)

Investments at fair value (cost of $34,895 and $24,771, respectively)

Investments at fair value (cost of $34,895)

Investments in money market funds

5 unchanged sentences

Commitments and contingencies

Members’

Total members’

Total liabilities and members’

Horizon Technology

Finance Corporation and Subsidiaries

Notes to Consolidated Financial Statements

Members’ Capital

Members’ capital

Total members’ capital

Total liabilities and members’ capital

Horizon Secured Loan Fund I

1 unchanged sentence

(Dollars in thousands)

For the year ended

For the period June 1, 2018 through December 31

For the period

January 1, 2020

Investment income

6 unchanged sentences

Net investment income

Net unrealized depreciation on investments

Net realized and unrealized loss on investments

Net realized gain on investments

Net unrealized depreciation on investments

Net increase in net assets resulting from operations

Net realized and unrealized loss on investments

Net (decrease) increase in net assets resulting from operations

Selected quarterly financial data (unaudited)

3 unchanged sentences

Net investment income

Net realized and unrealized gain (loss)

Net increase in net asset resulting from operations

Net realized and unrealized (loss) gain

Net increase (decrease) in net asset resulting from operations

Net investment income per share (1)

Net increase in net assets per share (1)

Net increase (decrease) in net assets per share (1)

Net asset value per share at period end (2)

3 unchanged sentences

Net investment income

Net realized and unrealized (loss) gain

Net realized and unrealized gain (loss)

Net increase in net asset resulting from operations

6 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7A. Quantitative and Qualitative Disclosures About Market Risk