In this quarterly report on Form 10­Q, except where the context suggests
otherwise, the terms "we," "us," "our" and "Horizon Technology Finance" refer to
Horizon Technology Finance Corporation and its consolidated subsidiaries. The
information contained in this section should be read in conjunction with our
consolidated financial statements and related notes thereto appearing elsewhere
in this quarterly report on Form 10­Q.



Forward-looking statements




This quarterly report on Form 10­Q, including the Management's Discussion and
Analysis of Financial Condition and Results of Operations, contains statements
that constitute forward-looking statements, which relate to future events or our
future performance or financial condition. These forward-looking statements are
not historical facts, but rather are based on current expectations, estimates
and projections about our industry, our beliefs and our assumptions. The
forward-looking statements contained in this quarterly report on Form 10­Q
involve risks and uncertainties, including statements as to:



? our future operating results, including the performance of our existing debt

    investments, warrants and other investments;



? the introduction, withdrawal, success and timing of business initiatives and

    strategies;



? general economic and political trends and other external factors, including

    continuing supply chain disruptions, increased inflation and a general
    slowdown in economic activity;




  ? the relative and absolute investment performance and operations of our
    Advisor;




  ? the impact of increased competition;




  ? the impact of investments we intend to make and future acquisitions and
    divestitures;




  ? the unfavorable resolution of legal proceedings;



? our business prospects and the prospects of our portfolio companies, including

our and their ability to achieve our respective objectives as a result of the

    COVID-19 pandemic;



? turmoil in Ukraine and Russia and the potential for volatility in energy

    prices and its impact on the industries in which we invest;



? the impact, extent and timing of technological changes and the adequacy of

    intellectual property protection;




  ? our regulatory structure and tax status;




  ? changes in the general interest rate environment;



? our ability to qualify and maintain qualification as a RIC and as a BDC;




  ? the adequacy of our cash resources and working capital;




  ? any losses or operations disruptions caused by us, our Advisor or our

portfolio companies holding cash balances at financial institutions that

exceed federally insured limits or by disruptions in the financial services

    industry;




  ? the timing of cash flows, if any, from the operations of our portfolio
    companies;



? the impact of interest rate volatility on our results, particularly if we use

    leverage as part of our investment strategy;




                                       44

——————————————————————————–

  Table of Contents



  ? the ability of our portfolio companies to achieve their objective;



? the impact of legislative and regulatory actions and reforms and regulatory

supervisory or enforcement actions of government agencies relating to us or

    our Advisor;




  ? our contractual arrangements and relationships with third parties;




  ? our ability to access capital and any future financings by us;




  ? our use of financial leverage;




  ? the ability of our Advisor to attract and retain highly talented
    professionals;



? the impact of changes to tax legislation and, generally, our tax position; and




  ? our ability to fund unfunded commitments.




We use words such as "anticipates," "believes," "expects," "intends," "seeks"
and similar expressions to identify forward-looking statements. Undue influence
should not be placed on the forward looking statements as our actual results
could differ materially from those projected in the forward-looking statements
for any reason, including the factors in "Risk Factors" and elsewhere in our
annual report on Form 10­K for the year ended December 31, 2022, and elsewhere
in this quarterly report on Form 10­Q.



We have based the forward-looking statements included in this quarterly report
on Form 10-Q on information available to us on the date of this quarterly report
on Form 10-Q, and we assume no obligation to update any such forward-looking
statements. Although we undertake no obligation to revise or update any
forward-looking statements in this quarterly report on Form 10­Q, whether as a
result of new information, future events or otherwise, you are advised to
consult any additional disclosures that we may make directly to you or through
reports that we in the future may file with the U.S. Securities and Exchange
Commission, or the SEC, including periodic reports on Form 10­Q and Form 10­K
and current reports on Form 8­K.



Overview



We are a specialty finance company that lends to and invests in
development-stage companies in the technology, life science, healthcare
information and services and sustainability industries, which we refer to as our
"Target Industries." Our investment objective is to maximize our investment
portfolio's total return by generating current income from the debt investments
we make and capital appreciation from the warrants we receive when making such
debt investments. We are focused on making secured debt investments, which we
refer to collectively as "Venture Loans," to venture capital and private equity
backed companies and publicly traded companies in our Target Industries, which
we refer to as "Venture Lending." Our debt investments are typically secured by
first liens or first liens behind a secured revolving line of credit, or
collectively "Senior Term Loans." Some of our debt investments may also be
subordinated to term debt provided by third parties. As of March 31, 2023,
86.7%, or $593.6 million, of our debt investment portfolio at fair value
consisted of Senior Term Loans. Venture Lending is typically characterized by
(1) the making of a secured debt investment after a venture capital or equity
investment in the portfolio company has been made, which investment provides a
source of cash to fund the portfolio company's debt service obligations under
the Venture Loan, (2) the senior priority of the Venture Loan which requires
repayment of the Venture Loan prior to the equity investors realizing a return
on their capital, (3) the amortization of the Venture Loan and (4) the lender's
receipt of warrants or other success fees with the making of the Venture Loan.



We are an externally managed, closed-end, non-diversified management investment
company that has elected to be regulated as a BDC under the Investment Company
Act of 1940, as amended, or the 1940 Act. In addition, for U.S. federal income
tax purposes, we have elected to be treated as a RIC under Subchapter M of the
Code. As a BDC, we are required to comply with regulatory requirements,
including limitations on our use of debt. We are permitted to, and expect to,
finance our investments through borrowings subject to a 150% asset coverage
test. As defined in the 1940 Act, asset coverage of 150% means that for every
$100 of net assets a BDC holds, it may raise up to $200 from borrowing and
issuing senior securities. The amount of leverage that we may employ will depend
on our assessment of market conditions and other factors at the time of any
proposed borrowing. As a RIC, we generally are not subject to corporate-level
income taxes on our investment company taxable income, determined without regard
to any deductions for dividends paid, and our net capital gain that we
distribute as dividends for U.S. federal income tax purposes to our stockholders
as long as we meet certain source-of-income, distribution, asset diversification
and other requirements.



                                       45

——————————————————————————–

Table of Contents

We were formed in March 2010 and completed an initial public offering.




Our investment activities, and our day-to-day operations, are managed by our
Advisor and supervised by our Board, of which a majority of the members are
independent of us. Under the Investment Management Agreement, we have agreed to
pay our Advisor a base management fee and an incentive fee for its advisory
services to us. We have also entered into the Administration Agreement with our
Advisor under which we have agreed to reimburse our Advisor for our allocable
portion of overhead and other expenses incurred by our Advisor in performing its
obligations under the Administration Agreement.



Portfolio composition and investment activity




The following table shows our portfolio by type of investment as of March 31,
2023 and December 31, 2022:



                                         March 31, 2023                                   December 31, 2022
                                                         Percentage of                                     Percentage of
                           Number of        Fair             Total           Number of        Fair             Total
                          Investments       Value          Portfolio        Investments       Value          Portfolio
                                                              (Dollars in thousands)
Debt investments              57          $ 684,554                95.7 %       60          $ 686,458                95.3 %
Warrants                      88             25,658                 3.6         90             29,712                 4.1
Other investments              2              1,300                 0.2          2              1,300                 0.2
Equity                        11              3,800                 0.5          8              2,556                 0.4
Total                                     $ 715,312               100.0 %                   $ 720,026               100.0 %



The following table shows total portfolio investment activity as of and for the
three months ended March 31, 2023 and 2022:



                                               For the three months ended
                                                        March 31,
                                                  2023               2022

Beginning portfolio                          $      720,026       $  458,075
New debt investments                                 47,008           94,485
Principal payments received on investments           (6,815 )         (2,095 )
Payment-in-kind interest on investments               1,204                -
Early pay-offs and principal paydowns               (32,941 )        (12,050 )
Accretion of debt investment fees                     1,448            

1,006

New debt investment fees                               (300 )           (925 )
Proceeds from sale of investments                    (6,520 )        (21,280 )
Net (loss) gain on investments                         (168 )             

30

Net unrealized depreciation on investments           (7,537 )         (2,237 )
Other                                                   (93 )              -
Ending portfolio                             $      715,312       $  515,009




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



                                       46

——————————————————————————–

Table of Contents

The following table shows our debt investments by industry sector as of March
31, 2023
and December 31, 2022:



                                                      March 31, 2023                         December 31, 2022
                                                 Debt            Percentage of            Debt            Percentage of
                                            Investments at           Total           Investments at           Total
                                              Fair Value           Portfolio           Fair Value           Portfolio
                                                                      (Dollars in thousands)
Life Science
Biotechnology                              $        183,625                26.8 %   $        189,729                27.6 %
Medical Device                                      124,124                18.1              127,839                18.6
Technology
Communications                                       22,377                 3.3               22,671                 3.3
Consumer-Related                                     93,607                13.7              108,226                15.8
Networking                                            9,747                 1.4               11,467                 1.7
Software                                            141,942                20.7              117,002                17.0
Sustainability
Other Sustainability                                 82,995                12.1               83,705                12.2
Healthcare Information and Services
Diagnostics                                           9,815                 1.4                9,804                 1.4
Other Healthcare                                         51                 0.1                2,500                 0.4
Software                                             16,271                 2.4               13,515                 2.0
Total                                      $        684,554               100.0 %   $        686,458               100.0 %




The largest debt investments in our portfolio may vary from period to period as
new debt investments are originated and existing debt investments are repaid.
Our five largest debt investments at cost and fair value represented 23% of
total debt investments outstanding as of March 31, 2023 and December 31, 2022.
No single debt investment at cost or fair value represented more than 10% of our
total debt investments as of March 31, 2023 and December 31, 2022.



Debt investment asset quality



We use an internal credit rating system which rates each debt investment on a
scale of 4 to 1, with 4 being the highest credit quality rating and 3 being the
rating for a standard level of risk. A rating of 2 represents an increased level
of risk and, while no loss is currently anticipated for a 2­rated debt
investment, there is potential for future loss of principal. A rating of 1
represents a deteriorating credit quality and a high degree of risk of loss of
principal. Our internal credit rating system is not a national credit rating
system. As of March 31, 2023 and December 31, 2022, our debt investments had a
weighted average credit rating of 3.0 and 3.1, respectively. The following table
shows the classification of our debt investment portfolio by credit rating as of
March 31, 2023 and December 31, 2022:



                                             March 31, 2023                                         December 31, 2022
                                                   Debt            Percentage                              Debt            Percentage
                             Number of        Investments at        of Debt          Number of        Investments at        of Debt
                            Investments         Fair Value       
Investments       Investments         Fair Value        Investments
                                                                     (Dollars in thousands)
Credit Rating
4                                      9     $        108,482             15.8 %               8     $         93,832             13.7 %
3                                     38              483,615             70.6                47              557,554             81.2
2                                      7               87,206             12.7                 2               26,822              3.9
1                                      3                5,251              0.9                 3                8,250              1.2
Total                                 57     $        684,554            100.0 %              60     $        686,458            100.0 %




As of March 31, 2023, there were three debt investments with an internal credit
rating of 1, with an aggregate cost of $20.3 million and an aggregate fair value
of $5.3 million. As of December 31, 2022, there were three debt investments with
an internal credit rating of 1, with an aggregate cost of $20.9 million and an
aggregate fair value of $8.3 million.



                                       47

——————————————————————————–

Table of Contents

Consolidated results of operations




As a BDC and a RIC, we are subject to certain constraints on our operations,
including limitations imposed by the 1940 Act and the Code. The consolidated
results of operations described below may not be indicative of the results we
report in future periods.


Comparison of the three months ended March 31, 2023 and 2022

The following table shows consolidated results of operations for the three
months ended March 31, 2023 and 2022:



                                                              For the three months ended
                                                                       March 31,
                                                                2023                2022
                                                                    (In thousands)
Total investment income                                    $       28,037       $     14,204
Total expenses                                                     14,842              8,375
Net investment income before excise tax                            13,195              5,829
Provision for excise tax                                              184                100
Net investment income                                              13,011              5,729
Net realized (loss) gain                                             (168 )               30
Net unrealized depreciation on investments                         (7,537 )           (2,237 )
Net increase in net assets resulting from operations       $        5,306       $      3,522
Average debt investments, at fair value                    $      687,602       $    459,386
Average gross assets less cash                             $      737,826       $    498,363
Average borrowings outstanding                             $      440,695       $    267,376




Net increase in net assets resulting from operations can vary substantially from
period to period for various reasons, including, without limitation, the
recognition of realized gains and losses and unrealized appreciation and
depreciation on investments. As a result, quarterly comparisons of net increase
in net assets resulting from operations may not be meaningful.



Investment income



Total investment income increased by $13.8 million, or 97.4%, to $28.0 million
for the three months ended March 31, 2023 as compared to the three months ended
March 31, 2022. For the three months ended March 31, 2023, total investment
income consisted primarily of $27.4 million in interest income from investments,
which included $4.3 million in income from the accretion of origination fees and
end of term payments, or ETPs, and $0.6 million in fee income. Interest income
on debt investments increased by $13.5 million, or 97.8%, to $27.4 million, for
the three months ended March 31, 2023 compared to the three months ended March
31, 2022. Interest income on debt investments for the three months ended March
31, 2023 as compared to the three months ended March 31, 2022 increased
primarily due to an increase of $228.2 million, or 49.7%, in the average size of
our debt investment portfolio and an increase in the prime rate which is the
base rate for most of our variable rate debt investments. Fee income, which
includes success fee, other fee and prepayment fee income on debt investments,
increased by $0.3 million, or 81.8%, to $0.6 million for the three months ended
March 31, 2023 compared to the three months ended March 31, 2022 primarily due
to a higher aggregate amount of principal prepayments for the three months ended
March 31, 2023.


The following table shows our dollar-weighted annualized yield for the three
months ended March 31, 2023 and 2022:



                          For the three months ended
                                   March 31,
Investment type:          2023                  2022
Debt investments(1)            16.3 %                12.4 %
All investments(1)             15.5 %                11.8 %

——————————————————————————–

(1) We calculate the dollar-weighted annualized yield on average investment type

for any period as (1) total related investment income during the period

divided by (2) the average of the fair value of the investment type

outstanding on (a) the last day of the calendar month immediately preceding

the first day of the period and (b) the last day of each calendar month

during the period. The dollar-weighted annualized yield on average investment

type is higher than what investors will realize because it does not reflect

    our expenses or any sales load paid by investors.




Investment income, consisting of interest income and fees on debt investments,
can fluctuate significantly upon repayment of large debt investments. Interest
income from the five largest debt investments at cost and fair value in the
aggregate accounted for 22% and 26% of investment income for the three months
ended March 31, 2023 and 2022, respectively.



                                       48

——————————————————————————–

  Table of Contents



Expenses



Total expenses increased by $6.5 million, or 77.2%, to $14.8 million for the
three months ended March 31, 2023 as compared to the three months ended March
31, 2022. Total expenses for each period consisted of interest expense, base
management fee, incentive and administrative fees, professional fees and general
and administrative expenses.



Interest expense increased by $3.7 million, or 107.9%, to $7.1 million for the
three months ended March 31, 2023 as compared to the three months ended March
31, 2022. Interest expense, which includes the amortization of debt issuance
costs, increased primarily due to an increase in average borrowings of
$173.3 million, or 64.8%, for the three months ended March 31, 2023 as compared
to the three months ended March 31, 2022 and an increase in our effective cost
of debt for the three months ended March 31, 2023 as compared to the three
months ended March 31, 2022.



Base management fee expense increased by $1.0 million, or 42.6%, to $3.2 million
for the three months ended March 31, 2023 as compared to the three months ended
March 31, 2022. Base management fee increased primarily due to an increase of
$228.2 million, or 49.7%, in average debt investments for the three months ended
March 31, 2023 as compared to the three months ended March 31, 2022.



Performance based incentive fee expense increased by $1.6 million, or 109.1%, to
$3.0 million for the three months ended March 31, 2023 as compared to the three
months ended March 31, 2022. This increase was due to an increase of
$8.8 million, or 123.5%, in Pre-Incentive Fee Net Investment Income for the
three months ended March 31, 2023 compared to the three months ended March 31,
2022 offset by an Incentive Fee Cap calculated based on the Incentive Fee Cap
and Deferral Mechanism in our Investment Management Agreement of
$0.2 million for the three months ended March 31, 2023 compared to the three
months ended March 31, 2022. The Incentive Fee Cap and Deferral Mechanism
resulted in $0.2 million of reduced incentive fee expense and increased net
investment income for the three months ended March 31, 2023. The incentive fee
on Pre-Incentive Fee Net Investment Income was subject to the Incentive Fee Cap
for the three months ended March 31, 2023 due to the cumulative incentive fees
paid exceeding 20% of cumulative pre-incentive fee net return during the
applicable quarter and the 11 preceding full calendar quarters.



Administrative fee expense, professional fees and general and administrative
expenses were $1.5 million and $1.3 million for the three months ended March 31,
2023 and 2022, respectively.



Net realized gains and losses and net unrealized appreciation and depreciation




Realized gains or losses on investments are measured by the difference between
the net proceeds from the repayment or sale and the cost basis of our
investments without regard to unrealized appreciation or depreciation previously
recognized. Realized gains or losses on investments include investments charged
off during the period, net of recoveries. The net change in unrealized
appreciation or depreciation on investments primarily reflects the change in
portfolio investment fair values during the reporting period, including the
reversal of previously recorded unrealized appreciation or depreciation when
gains or losses are realized.



During the three months ended March 31, 2023, we realized net losses on
investments totaling $0.2 million primarily due to the write off of warrants in
three portfolio companies. During the three months ended March 31, 2022, we
realized net gains on investments totaling $0.03 million primarily due to the
realized gain from the consideration we received from the exercise and sale of
two of our warrant investments.



During the three months ended March 31, 2023, net unrealized depreciation on
investments totaled $7.5 million which was primarily due to the unrealized
depreciation on five of our debt investments and the unrealized depreciation on
our warrant investments. During the three months ended March 31, 2022, net
unrealized depreciation on investments totaled $2.2 million which was primarily
due to the unrealized depreciation on three of our debt investments partially
offset by the unrealized appreciation on our warrant investments.



                                       49

——————————————————————————–

Table of Contents

Liquidity and capital resources




As of March 31, 2023 and December 31, 2022, we had cash and investments in money
market funds of $43.5 million and $27.7 million, respectively. Cash and
investments in money market funds are available to fund new investments, reduce
borrowings, pay expenses, repurchase common stock and pay distributions. In
addition, as of March 31, 2023 and December 31, 2022, we had $3.0 million and
$2.8 million, respectively, of restricted investments in money market funds.
Restricted investments in money market funds may be used to make monthly
interest and principal payments on our 2019 Asset-Backed Notes, 2022
Asset-Backed Notes, or our NYL Facility. Our primary sources of capital have
been from our public and private equity offerings, use of our revolving credit
facility (the "Key Facility") with KeyBank National Association ("Key") and the
Note Funding Agreement (the "NYL Facility", together with the Key Facility, the
"Credit Facilities") with several entities owned or affiliated with New York
Life Insurance Company, and issuance of our public debt offerings. In the
current economic environment, such avenues for liquidity may not be available in
the future, or may be available on less attractive terms.



On August 2, 2021, we entered into an At-The-Market ("ATM") sales agreement (the
"2021 Equity Distribution Agreement") with Goldman Sachs & Co. LLC and B. Riley
FBR, Inc., (each a "Sales Agent" and, collectively, the "Sales Agents"). The
2021 Equity Distribution Agreement provides that we may offer and sell our
shares from time to time through the Sales Agents up to $100.0 million worth of
our common stock, in amounts and at times to be determined by us. Sales of our
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 three months ended March 31, 2023, we sold 605,848 shares of common
stock under the 2021 Equity Distribution Agreement. For the same period, we
received total accumulated net proceeds of approximately $7.2 million, including
$0.2 million of offering expenses, from these sales.



During the three months ended March 31, 2022, we sold 250,171 shares of common
stock under the 2021 Equity Distribution Agreement. For the same period, we
received total accumulated net proceeds of approximately $3.9 million, including
$0.1 million of offering expenses, from these sales.





                                       50

——————————————————————————–

Table of Contents




On April 28, 2023, our Board extended a previously authorized stock repurchase
program which allows us to repurchase up to $5.0 million of our common stock at
prices below our net asset value ("NAV") per share as reported in our most
recent consolidated financial statements. Under the repurchase program, we may,
but are not obligated to, repurchase shares of our outstanding common stock in
the open market or in privately negotiated transactions from time to time. Any
repurchases by us will comply with the requirements of Rule 10b­18 under the
Exchange Act and any applicable requirements of the 1940 Act. Unless extended by
our Board, the repurchase program will terminate on the earlier of June 30,
2024 or the repurchase of $5.0 million of our common stock. During the three
months ended March 31, 2023 and 2022, we did not make any repurchases of our
common stock. From the inception of the stock repurchase program through March
31, 2023, we repurchased 167,465 shares of our common stock at an average price
of $11.22 on the open market at a total cost of $1.9 million.



At March 31, 2023 and December 31, 2022, the outstanding principal balance under
our Key Facility was $15.0 million and $5.0 million, respectively. As of March
31, 2023 and December 31, 2022, we had borrowing capacity under the Key Facility
of $110.0 million and $120.0 million, respectively. At March 31, 2023
and December 31, 2022, $47.7 million and $40.2 million, respectively, was
available, subject to existing terms and advance rates.



At March 31, 2023 and December 31, 2022, the outstanding principal balance under
the NYL Facility was $176.8 million. As of March 31, 2023 and December 31, 2022,
we had borrowing capacity under the NYL Facility of $23.2 million. At March 31,
2023 and December 31, 2022, $21.1 million and $23.2 million, respectively, was
available, subject to existing terms and advance rates.



Our operating activities provided cash of $12.7 million for the three months
ended March 31, 2023, and our financing activities provided cash of $3.3 million
for the same period. Our operating activities provided cash from principal
payments received on our debt investments partially offset by cash used to
purchase investments in portfolio companies. Our financing activities provided
cash primarily from advances on our Credit Facilities and the sale of shares
through our ATM for net proceeds of $7.2 million, partially offset by cash used
to repay our 2019 Asset-Backed Notes and to pay distributions to our
stockholders.



Our operating activities used cash of $55.4 million for the three months ended
March 31, 2022, and our financing activities provided cash of $24.1 million for
the same period. Our operating activities used cash to purchase investments in
portfolio companies partially offset by principal payments received on our debt
investments. Our financing activities provided cash primarily from the
completion of a follow-on public offering of 2.5 million shares of common stock
for net proceeds of $34.3 million, after deducting underwriting commission and
discounts and other offering expenses and advances on our Credit Facilities,
partially offset by cash used to repay our Key Facility and pay distributions to
our stockholders.


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




In order to remain subject to taxation as a RIC, we intend to distribute to our
stockholders all or substantially all of our investment company taxable income.
In addition, as a BDC, we are required to maintain asset coverage of at least
150%. This requirement limits the amount that we may borrow.



We believe that our current cash, cash generated from operations, and funds
available from our Credit Facilities will be sufficient to meet our working
capital and capital expenditure commitments for at least the next 12 months.




                                       51

——————————————————————————–

  Table of Contents



Current borrowings



The following table shows our borrowings as of March 31, 2023 and December 31,
2022:



                                                  March 31, 2023                                     December 31, 2022
                                     Total            Balance           Unused           Total            Balance           Unused
                                   Commitment       Outstanding       Commitment       Commitment       Outstanding       Commitment
                                                                            (In thousands)
Key Facility                      $    125,000     $      15,000     $    110,000     $    125,000     $       5,000     $    120,000
NYL Facility                           200,000           176,750           23,250          200,000           176,750           23,250
2019 Asset-Backed Notes                 37,791            37,791                -           42,573            42,573                -
2022 Asset-Backed Notes                100,000           100,000                -          100,000           100,000                -
2027 Notes                              57,500            57,500                -           57,500            57,500                -
2026 Notes                              57,500            57,500                -           57,500            57,500                -
Total before debt issuance
costs                                  577,791           444,541          133,250          582,573           439,323          143,250
Unamortized debt issuance costs
attributable to term borrowings              -            (4,896 )              -                -            (5,245 )              -
Total borrowings outstanding,
net                               $    577,791     $     439,645     $    133,250     $    582,573     $     434,078     $    143,250




Credit Facilities



Key Facility



We entered into the Key Facility effective November 4, 2013. Through June 21,
2021, the interest rate on the Key Facility was based upon the one-month LIBOR
plus a spread of 3.25%, with a LIBOR floor of 1.00%. From and after June 30,
2021, the interest rate on the Key Facility is based on the rate of interest
published in The Wall Street Journal as the prime rate in the United States plus
0.25%, with a prime rate floor of 4.25%. The prime rate was 8.00% and 7.50% as
of March 31, 2023 and December 31, 2022, respectively. The interest rates in
effect were 8.25% and 7.75% as of March 31, 2023 and December 31, 2022,
respectively. The Key Facility requires the payment of an unused line fee in an
amount equal to 0.50% of any unborrowed amount available under the facility
annually.



The Key Facility has an accordion feature which allows for an increase in the
total loan commitment to $150 million. On June 22, 2021, we amended the Key
Facility, among other things, to amend the interest rate applied to the
outstanding principal balance and to extend the period during which we may
request advances under the Key Facility (or the "Revolving Period"), to June 22,
2024. The Key Facility is collateralized by debt investments held by Credit II
and permits an advance rate of up to sixty percent (60%) of eligible debt
investments held by Credit II. The Key Facility contains covenants that, among
other things, require us to maintain a minimum net worth, to restrict the debt
investments securing the Key Facility to certain criteria for qualified debt
investments and to comply with portfolio company concentration limits as defined
in the related loan agreement. After the Revolving Period, we may not request
new advances, and we must repay the outstanding advances under the Key Facility
as of such date, at such times and in such amounts as are necessary to maintain
compliance with the terms and conditions of the Key Facility, particularly the
condition that the principal balance of the Key Facility not exceed
sixty percent (60%) of the aggregate principal balance of our eligible debt
investments to our portfolio companies. The maturity date of the Key Facility,
the date on which all outstanding advances under the Key Facility are due and
payable, is June 22, 2026.



NYL Facility



On April 21, 2020, we purchased all of the limited liability company interests
of Arena in HSLFI. HFI is a wholly-owned subsidiary of HSLFI. 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 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.



On February 25, 2022, we amended the NYL Facility, increasing the commitment by
$100 million to enable our wholly-owned subsidiary to issue up to $200 million
of secured notes. The amendment to the NYL Facility extends the investment
period to June 2023 and the maturity date to June 2028. In addition, the
amendment, among other things, reduces the applicable margin used to calculate
the NYL Facility's interest rate on our borrowings above $100 million. Such
borrowings will be priced at the three-year USD mid-market swap rate plus 3.00%.



Under the terms of the NYL Facility, we are required to maintain a reserve cash
balance, which may be used to pay monthly interest and principal payments on the
NYL Facility. We have segregated these funds and classified them as restricted
investments in money market funds. At March 31, 2023, and December 31, 2022,
there were approximately $1.3 million and $1.0 million, respectively, of
restricted investments.



There were $176.8 million in notes issued to the NYL Noteholders as of March 31,
2023 and December 31, 2022 at an interest rate of 5.57%. As of March 31, 2023
and December 31, 2022, we had borrowing capacity under the NYL Facility of
$23.2 million. At March 31, 2023 and December 31, 2022, $21.1 million and $23.2
million, respectively, was available for borrowing, subject to existing terms
and advance rates.



                                       52

——————————————————————————–

  Table of Contents



Securitizations



2019 Asset-Backed Notes



On August 13, 2019, the 2019 Asset-Backed Notes were issued by the 2019­1 Trust
pursuant to a note purchase agreement, dated as of August 13, 2019, by and among
us and Keybanc Capital Markets Inc. as Initial Purchaser, and are backed by a
pool of loans made to certain portfolio companies of ours and secured by certain
assets of those portfolio companies and are to be serviced by us. Interest on
the 2019 Asset-Backed Notes will be paid, to the extent of funds available, at a
fixed rate of 4.21% per annum. The 2019 Asset-Backed Notes had a two-year
reinvestment period and a stated maturity of September 15, 2027. The 2019
Asset-Backed Notes were rated A+(sf) by Morningstar Credit Ratings, LLC on
August 13, 2019. There has been no change in the rating since August 13, 2019.



At March 31, 2023, and December 31, 2022, the 2019 Asset-Backed Notes had an
outstanding principal balance of $37.8 million and $42.6 million, respectively.




Under the terms of the 2019 Asset-Backed Notes, we are required to maintain a
reserve cash balance, funded through proceeds from the sale of the 2019
Asset-Backed Notes, which may be used to pay monthly interest and principal
payments on the 2019 Asset-Backed Notes. We have segregated these funds and
classified them as restricted investments in money market funds. At March 31,
2023, and December 31, 2022, there were approximately $0.5 million and
$0.6 million, respectively, of restricted investments.



2022 Asset-Backed Notes



On November 9, 2022, the 2022 Asset-Backed Notes were issued by the 2022­1 Trust
pursuant to a note purchase agreement, dated as of November 9, 2022, by and
among us and Keybanc Capital Markets Inc. as Initial Purchaser, and are backed
by a pool of loans made to certain portfolio companies of ours and secured by
certain assets of those portfolio companies and are to be serviced by us.
Interest on the 2022 Asset-Backed Notes will be paid, to the extent of funds
available, at a fixed rate of 7.56% per annum. The 2022 Asset-Backed Notes have
a two-year reinvestment period and a stated maturity of November 15, 2030. The
2022 Asset-Backed Notes were rated A by Morningstar Credit Ratings, LLC on
November 9, 2022. There has been no change in the rating since November 9, 2022.



As of March 31, 2023 and December 31, 2022, the 2022 Asset-Backed Notes had an
outstanding principal balance of $100.0 million.




Under the terms of the 2022 Asset-Backed Notes, we are required to maintain a
reserve cash balance, funded through proceeds from the sale of the 2022
Asset-Backed Notes, which may be used to pay monthly interest and principal
payments on the 2022 Asset-Backed Notes. We have segregated these funds and
classified them as restricted investments in money market funds. At March 31,
2023, and December 31, 2022, there were approximately $1.1 million and $1.2
million, respectively, of restricted investments.



Unsecured Notes



2026 Notes



On March 30, 2021, we issued and sold an aggregate principal amount of $57.5
million of 4.875% notes due in 2026, or the 2026 Notes. The amount of 2026 Notes
issued and sold included the full exercise by the underwriters of their option
to purchase $7.5 million in aggregate principal of additional notes. The 2026
Notes have a stated maturity of March 30, 2026 and may be redeemed in whole or
in part at our option at any time or from time to time on or after March 30,
2023 at a redemption price of $25 per security plus accrued and unpaid interest.
The 2026 Notes bear interest at a rate of 4.875% per year, payable quarterly on
March 30, June 30, September 30 and December 30 of each year. The 2026 Notes are
our direct unsecured obligations and (i) rank equally in right of payment with
our current and future unsecured indebtedness; (ii) are senior in right of
payment to any of our future indebtedness that expressly provides it is
subordinated to the 2026 Notes; (iii) are effectively subordinated to all of our
existing and future secured indebtedness (including indebtedness that is
initially unsecured to which we subsequently grant security), to the extent of
the value of the assets securing such indebtedness, and (iv) are structurally
subordinated to all existing and future indebtedness and other obligations of
any of our subsidiaries. As of March 31, 2023, we were in material compliance
with the terms of the 2026 Notes. The 2026 Notes are listed on the New York
Stock Exchange under the symbol "HTFB".



2027 Notes



On June 15, 2022, we issued and sold an aggregate principal amount of $50.0
million of 6.25% notes due in 2027 and on July 11, 2022, pursuant to the
underwriters' 30 day option to purchase additional notes, we sold an additional
$7.5 million of such notes, or collectively, the 2027 Notes. The 2027 Notes have
a stated maturity of June 15, 2027 and may be redeemed in whole or in part at
our option at any time or from time to time on or after June 15, 2024 at a
redemption price of $25 per security plus accrued and unpaid interest. The 2027
Notes bear interest at a rate of 6.25% per year, payable quarterly on March 30,
June 30, September 30 and December 30 of each year, commencing on September 30,
2022. The 2027 Notes are our direct unsecured obligations and (i) rank equally
in right of payment with our current and future unsecured indebtedness; (ii) are
senior in right of payment to any of our future indebtedness that expressly
provides it is subordinated to the 2027 Notes; (iii) are effectively
subordinated to all of our existing and future secured indebtedness (including
indebtedness that is initially unsecured to which we subsequently
grant security), to the extent of the value of the assets securing such
indebtedness, and (iv) are structurally subordinated to all existing and future
indebtedness and other obligations of any of our subsidiaries. As of March 31,
2023, we were in material compliance with the terms of the 2027 Notes. The 2027
Notes are listed on the New York Stock Exchange under the symbol "HTFC".



                                       53

——————————————————————————–

  Table of Contents







Other assets



As of March 31, 2023 and December 31, 2022, other assets were $2.6 million and
$2.8 million, respectively, which is primarily comprised of debt issuance costs
and prepaid expenses.


Contractual obligations and off-balance sheet arrangements

The following table shows our significant contractual payment obligations and
off-balance sheet arrangements as of March 31, 2023:



                                               Payments due by period
                                       Less than        1 - 3         3 - 5        After 5
                           Total         1 year         Years         Years         years
                                                   (In thousands)
Borrowings               $ 444,541     $   35,217     $ 284,192     $ 125,132     $       -
Unfunded commitments       166,200        143,700        22,500             -             -
Incentive fee deferral       1,255              -         1,255             -             -
Total                    $ 611,996     $  178,917     $ 307,947     $ 125,132     $       -




In the normal course of business, we are party to financial instruments with
off-balance sheet risk. These consist primarily of unfunded commitments to
extend credit, in the form of loans, to our portfolio companies. Unfunded
commitments to provide funds to portfolio companies are not reflected on our
balance sheet. Our unfunded commitments may be significant from time to time. As
of March 31, 2023, we had unfunded commitments of $166.2 million. This includes
no undrawn revolver commitments. These commitments are subject to the same
underwriting and ongoing portfolio maintenance requirements as are the financial
instruments that we hold on our balance sheet. In addition, these commitments
are often subject to financial or non-financial milestones and other conditions
to borrowing that must be achieved before the commitment can be drawn. Since
these commitments may expire without being drawn upon, the total commitment
amount does not necessarily represent future cash requirements. We regularly
monitor our unfunded commitments and anticipated refinancings, maturities and
capital raising, to ensure that we have sufficient liquidity to fund unfunded
commitments. As of March 31, 2023, we reasonably believed that our assets would
provide adequate financial resources to satisfy all of our unfunded commitments.



In addition to the Credit Facilities, we have certain commitments pursuant to
our Investment Management Agreement entered into with our Advisor. We have
agreed to pay a fee for investment advisory and management services consisting
of two components (1) a base management fee equal to a percentage of the value
of our gross assets less cash or cash equivalents, and (2) a two-part incentive
fee. We have also entered into a contract with our Advisor to serve as our
administrator. Payments under the Administration Agreement are equal to an
amount based upon our allocable portion of our Advisor's overhead in performing
its obligations under the agreement, including rent, fees and other expenses
inclusive of our allocable portion of the compensation of our Chief Financial
Officer and Chief Compliance Officer and their respective staffs. See Note 3 to
our consolidated financial statements for additional information regarding our
Investment Management Agreement and our Administration Agreement.



                                       54

——————————————————————————–

Table of Contents




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 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 the Incentive Fee Cap and Deferral
Mechanism. The Incentive Fee Cap is equal to (a) 20.00% of Cumulative
Pre-Incentive Fee Net Return during the Incentive Fee Look-back Period less
(b) cumulative incentive fees of any kind paid to our Advisor during the
Incentive Fee Look-back Period. To the extent the Incentive Fee Cap is zero or a
negative value in any calendar quarter, we will not pay an incentive fee on
Pre-Incentive Fee Net Investment Income to our 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. During the three months ended March 31, 2023,
the Incentive Fee Cap and Deferral Mechanism resulted in deferral of
$0.2 million of incentive fee which may become subject to payment up to
three years after the date of deferment. As of March 31, 2023, the total amount
subject to recoupment was $1.3 million.



Distributions



In order to qualify and be subject to tax as a RIC, we must meet certain
source-of-income, asset diversification and annual distribution requirements.
Generally, in order to qualify as a RIC, we must derive at least 90% of our
gross income for each tax year from dividends, interest, payments with respect
to certain securities, loans, gains from the sale or other disposition of stock,
securities or foreign currencies, income derived from certain publicly traded
partnerships, or other income derived with respect to our business of investing
in stock or other securities. We must also meet certain asset diversification
requirements at the end of each quarter of each tax year. Failure to meet these
diversification requirements on the last day of a quarter may result in us
having to dispose of certain investments quickly in order to prevent the loss of
RIC status. Any such dispositions could be made at disadvantageous prices or
times, and may cause us to incur substantial losses.



In addition, in order to be subject to tax as a RIC and to avoid the imposition
of corporate-level tax on the income and gains we distribute to our stockholders
in respect of any tax year, we are required under the Code to distribute as
dividends to our stockholders out of assets legally available for distribution
each tax year an amount generally at least equal to 90% of the sum of our net
ordinary income and net short-term capital gains in excess of net long-term
capital losses, if any. Additionally, in order to avoid the imposition of a U.S.
federal excise tax, we are required to distribute, in respect of each
calendar year, dividends to our stockholders of an amount at least equal to the
sum of 98% of our calendar year net ordinary income (taking into account certain
deferrals and elections); 98.2% of our capital gain net income (adjusted for
certain ordinary losses) for the one year period ending on October 31 of such
calendar year; and any net ordinary income and capital gain net income for
preceding calendar years that were not distributed during such calendar years
and on which we previously did not incur any U.S. federal income tax. If we fail
to qualify as a RIC for any reason and become subject to corporate tax, the
resulting corporate taxes could substantially reduce our net assets, the amount
of income available for distribution and the amount of our distributions. Such a
failure would have a material adverse effect on us and our stockholders. In
addition, we could be required to recognize unrealized gains, incur substantial
taxes and interest and make substantial distributions in order to re-qualify as
a RIC. We cannot assure stockholders that they will receive any distributions.



To the extent our taxable earnings in a tax year fall below the total amount of
our distributions made to stockholders in respect of such tax year, a portion of
those distributions may be deemed a return of capital to our stockholders for
U.S. federal income tax purposes. Thus, the source of a distribution to our
stockholders may be the original capital invested by the stockholder rather than
our income or gains. Stockholders should review any written disclosure
accompanying a distribution payment carefully and should not assume that the
source of any distribution is our ordinary income or gains.



We have adopted an "opt out" dividend reinvestment plan, or DRIP, for our common
stockholders. As a result, if we declare a distribution, then stockholders' cash
distributions will be automatically reinvested in additional shares of our
common stock unless a stockholder specifically "opts out" of our DRIP. If a
stockholder opts out, that stockholder will receive cash distributions. Although
distributions paid in the form of additional shares of our common stock will
generally be subject to U.S. federal, state and local taxes, stockholders
participating in our DRIP will not receive any corresponding cash distributions
with which to pay any such applicable taxes. If our common stock is trading
above NAV, a stockholder receiving distributions in the form of additional
shares of our common stock will be treated as receiving a distribution of an
amount equal to the fair market value of such shares of our common stock. We may
use newly issued shares to implement the DRIP, or we may purchase shares in the
open market in connection with our obligations under the DRIP.



Related party transactions



We have entered into the Investment Management Agreement with our Advisor. Our
Advisor is registered as an investment adviser under the Investment Advisers Act
of 1940, as amended. Our investment activities are managed by our Advisor and
supervised by our Board, the majority of whom are independent directors. Under
the Investment Management Agreement, we have agreed to pay our Advisor a base
management fee as well as an incentive fee. During the three months ended March
31, 2023 and 2022, our Advisor earned $6.2 million and $3.7 million,
respectively, pursuant to the Investment Management Agreement.



                                       55

——————————————————————————–

Table of Contents




Horizon Technology Finance Principals LLC f/k/a Horizon Technology Finance, LLC
("HTF Principals"), owns more than seventy percent (70%) of our Advisor. Our
Chief Executive Officer, Robert D. Pomeroy Jr. and our President, Gerald A.
Michaud own one hundred percent (100%) of HTF Principals. By virtue of their
ownership interest in HTF Principals, Mr. Pomeroy and Mr. Michaud control our
Advisor.



On February 22, 2023, our Advisor, HTF Principals and Horizon Technology Finance
Employees LLC ("HTF Employees") entered into a Membership Interest Purchase
Agreement (the "Purchase Agreement")  with MCH Holdco LLC ("MCH Holdco"), an
affiliate of Monroe Capital LLC ("Monroe Capital"), and Monroe Capital
Investment Holdings, L.P., an affiliate of Monroe Capital and the sole
stockholder of MCH Holdco, pursuant to which HTF Principals and HTF Employees
will sell all of their membership interests in our Advisor (which constitute one
hundred percent (100%) of the membership interests of our Advisor) to MCH Holdco
and our Advisor will become a direct wholly owned subsidiary of MCH Holdco and
an affiliate of Monroe Capital (the "Transaction").  Subject to customary
closing conditions, the Transaction is expected to close around the end of May
2023. A significant portion of the consideration payable by Monroe Capital to
HTF Principals and HTF Employees pursuant to the Purchase Agreement is in the
form of earnout payments contingent upon our performance in 2023, 2024, and
2025, aligning the incentives of our Advisor's current officers with our
stockholders.



We have also entered into the Administration Agreement with our Advisor. Under
the Administration Agreement, we have agreed to reimburse our Advisor for our
allocable portion of overhead and other expenses incurred by our Advisor in
performing its obligations under the Administration Agreement, including rent
and our allocable portion of the costs of compensation and related expenses of
our Chief Financial Officer and Chief Compliance Officer and their respective
staffs. In addition, pursuant to the terms of the Administration Agreement
our Advisor provides us with the office facilities and administrative services
necessary to conduct our day-to-day operations. During the three months ended
March 31, 2023 and 2022, our Advisor earned $0.4 million pursuant to the
Administration Agreement.



HTF Principals has granted us a non-exclusive, royalty-free license to use the
name “Horizon Technology Finance.”




We believe that we derive substantial benefits from our relationship with our
Advisor. Our Advisor may manage other investment vehicles, or Advisor Funds,
with the same investment strategy as us. Our Advisor may provide us an
opportunity to co-invest with the Advisor Funds. Under the 1940 Act, absent
receipt of exemptive relief from the SEC, we and our affiliates are precluded
from co-investing in negotiated investments. On November 27, 2017, we were
granted exemptive relief from the SEC which permits us to co-invest with the
Advisor Funds, subject to certain conditions.



Critical accounting policies



The discussion of our financial condition and results of operation is based upon
our financial statements, which have been prepared in accordance with U.S.
generally accepted accounting principles, or GAAP. The preparation of these
consolidated financial statements requires management to make estimates and
assumptions that affect the reported amounts of assets, liabilities, revenues
and expenses. Changes in the economic environment, financial markets and any
other parameters used in determining such estimates could cause actual results
to differ. In addition to the discussion below, we describe our significant
accounting policies in the notes to our consolidated financial statements.



We have identified the following items as critical accounting policies.



Valuation of investments



Investments are recorded at fair value. Prior to July 30, 2022, our Board
determined the fair value of our investments. Pursuant to the amended SEC Rule
2a-5 of the 1940 Act, on July 29, 2022, our Board designated our Advisor as our
"valuation designee." Our Board is responsible for oversight of the valuation
designee. The valuation designee has established a Valuation Committee to
determine in good faith the fair value of our investments, based on input of our
Advisor's management and personnel and independent valuation firms which are
engaged at the direction of the Valuation Committee to assist in the valuation
of certain portfolio investments lacking a readily available market quotation at
least once during a trailing twelve-month period. The Valuation Committee
determines fair values pursuant to a valuation policy approved by our Board and
pursuant to 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 our valuation of portfolio companies lacking readily available market
quotations subject to review by an independent valuation firm. We apply fair
value to substantially all of our investments in accordance with Topic 820, Fair
Value Measurement, of the Financial Accounting Standards Board's, or FASB's,
Accounting Standards Codification as amended, or ASC, which establishes a
framework used to measure fair value and requires disclosures for fair value
measurements. We have categorized our investments carried at fair value, based
on the priority of the valuation technique, into a three-level fair value
hierarchy. Fair value is a market-based measure considered from the perspective
of the market participant who holds the financial instrument rather than an
entity specific measure. Therefore, when market assumptions are not readily
available, our own assumptions are set to reflect those that we believe market
participants would use in pricing the financial instrument at the measurement
date.



                                       56

——————————————————————————–

Table of Contents




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


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



  Level 2 Observable inputs other than Level 1 prices such as quoted prices for
          similar assets or liabilities in active markets, quoted prices in
          markets that are not active and model-based valuation techniques for

which all significant inputs are observable or can be corroborated by

observable market data for substantially the full term of the assets or

liabilities.

Level 3 Unobservable inputs that are supported by little or no market activity

and that are significant to the fair value of the assets or liabilities.

Level 3 assets and liabilities include financial instruments whose value

is determined using pricing models, discounted cash flow methodologies

or similar techniques, as well as instruments for which the

determination of fair value requires significant management judgment or

          estimation.




Income recognition



Interest on debt investments is accrued and included in income based on
contractual rates applied to principal amounts outstanding. Interest income is
determined using a method that results in a level rate of return on principal
amounts outstanding. Generally, when a debt investment becomes 90 days or more
past due, or if we otherwise do not expect to receive interest and principal
repayments, the debt investment is placed on non-accrual status and the
recognition of interest income may be discontinued. Interest payments received
on non-accrual debt investments may be recognized as income, on a cash basis, or
applied to principal depending upon management's judgment at the time the debt
investment is placed on non-accrual status. For the three months ended March 31,
2023 and 2022, we did not recognize any interest income from debt investments on
non-accrual status.



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



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



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



                                       57

——————————————————————————–

Table of Contents




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



Income taxes



We have elected to be treated as a RIC under Subchapter M of the Code and
operate in a manner so as to qualify for the tax treatment applicable to RICs.
In order to qualify as a RIC and to avoid the imposition of corporate-level U.S.
federal income tax on the amounts we distribute to our stockholders, among other
things, we are required to meet certain source of income and asset
diversification requirements, and we must timely distribute dividends to our
stockholders out of assets legally available for distribution each tax year of
an amount generally equal to at least 90% of our investment company taxable
income, as defined by the Code and determined without regard to any deduction
for dividends paid. We, among other things, have made and intend to continue to
make the requisite distributions to our stockholders, which will generally
relieve us from incurring any material liability for U.S. federal income taxes.



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



We evaluate tax positions taken in the course of preparing our tax returns to
determine whether the tax positions are "more-likely-than-not" to be sustained
by the applicable tax authority in accordance with ASC Topic 740, Income Taxes,
as modified by ASC Topic 946, Financial Services - Investment Companies. Tax
benefits of positions not deemed to meet the more-likely-than-not threshold, or
uncertain tax positions, are recorded as a tax expense in the current year. It
is our policy to recognize accrued interest and penalties related to uncertain
tax benefits in income tax expense. We had no material uncertain tax positions
at March 31, 2023 and December 31, 2022.



Recent developments


In April 2023, we sold 272,303 shares of common stock under the 2021 Equity
Distribution Agreement. For the same period, we received total accumulated net
proceeds of approximately $3.1 million, including $0.1 million of offering
expenses, from these sales.




IMV Inc. ("IMV") (NASDAQ: IMV; TSX: IMV), announced on May 1, 2023 that the Nova
Scotia Supreme Court has issued an initial order (the "Initial Order") granting
IMV and its subsidiaries protection under the Companies' Creditors Arrangement
Act (R.S.C., 1985, c. C-36) and IMV will seek the recognition of the Initial
Order in the United States by filing a petition commencing proceedings under the
Chapter 15 of the United States Bankruptcy Code.



                                       58

——————————————————————————–

Table of Contents

Recently issued accounting pronouncement




In June 2022, the FASB issued Accounting Standards Update No. 2022-03, Fair
Value Measurement of Equity Securities Subject to Contractual Sale Restrictions,
or ASU 2022-03. ASU 2022-03 clarifies the guidance when measuring the fair value
of an equity security subject to contractual restrictions that prohibit the sale
of the security. The amendments in ASU 2022-03 are effective for public
companies for fiscal years beginning after December 15, 2023, and interim
periods within those fiscal years. We are currently assessing the impact of ASU
2022-03 on our consolidated financial statements.

© Edgar Online, source Glimpses