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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

FORM 10-K

Commission File Number: 000-50049

               Registrant’s telephone number, including area code (703) 519-4900

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

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

Common Stock, par value $.01 per share

     Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X]

     Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes [  ] No [X]

     There were 5,200,000 shares of the Registrant’s common stock outstanding as of February 20, 2004.The aggregate market value of common stock held by non-affiliates of the Registrant as of February 20, 2004 was approximately $31,031,600. There is no established public trading market for the shares of the Company’s stock and the price is estimated based upon private sale prices. For purposes of this computation, shares held by certain stockholders and by directors and executive officers of the Registrant have been excluded. Such exclusion of shares held by such persons is not intended, nor shall it be deemed, to be an admission that such persons are affiliates of the Registrant.

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Documents Incorporated by Reference

     Portions of the Registrant’s definitive Proxy Statement relating to the 2004 Annual Meeting of Stockholders, expected to be filed with the Securities and Exchange Commission, are incorporated by reference in Part III of this Annual Report on Form 10-K as indicated herein. If the Registrant does not file a Proxy Statement relating to the 2004 Annual Meeting of Stockholders, it will amend this Annual Report on Form 10-K to include the required information.

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OXFORD FINANCE CORPORATION

2003 FORM 10-K ANNUAL REPORT

TABLE OF CONTENTS

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PART I

     In this Annual Report, the “Company”, “Oxford”, “we”, “us” and “our” refer to Oxford Finance Corporation unless the context otherwise requires.

Item 1. Business

EXECUTIVE SUMMARY

Our Company

     We are a financial services company that provides senior secured equipment financing primarily to emerging-growth life science companies. Such financings are generally in the form of loans with equity features, typically warrants. Our investment objective is to achieve a high level of current income from interest payments and transaction fees from the loans we make to portfolio companies and to achieve capital gains through an increase in the value of the warrants we expect to receive from our portfolio companies in connection with these loans.

     The Company was incorporated under the General Corporation Laws of the State of Maryland on October 23, 2001. On December 31, 2002, the Company elected to be regulated as a business development company, or BDC, under the Investment Company Act of 1940. In addition, when the Company files its 2003 tax returns it intends to elect to be regulated for tax purposes as a Regulated Investment Company, or RIC, under Subchapter M of the Internal Revenue Code of 1986, as amended (the “Code”) for the calendar year 2003.

     To qualify as a RIC for federal income tax purposes, the Company was required to distribute any “earnings and profits” (as determined for federal income tax purposes) from operations prior to the election to be taxed as a RIC. To meet this requirement, the Company paid dividends during 2002 and 2003 of substantially all of the earning and profits for the years ended December 31, 2002 and 2003, respectively.

     As a RIC, the Company must pay out as a dividend 90% of its ordinary income and short-term capital gains for each taxable year in order to maintain its status as a RIC under Subtitle A, Chapter 1 of Subchapter M of the Code. The Company has and intends to pay out as a dividend substantially all those amounts. The amount to be paid out as a dividend is determined by the Board of Directors each quarter and is based on the annual earnings estimated by the management of the Company. The Company has a policy of retaining long-term capital gains and not paying them out as dividends.

     The Company’s investment objective is to achieve a high level of current income from interest payments from the loans made to portfolio companies and to achieve capital gains through an increase in the value of the warrants received from portfolio companies in connection with these loans. The Company provides loans primarily to emerging-growth life sciences companies. The Company generally secures loans with equipment and other assets.

     As of December 31, 2003, we had outstanding investments in loans of $61.3 million, an increase of $22.3 million, or 57.2%, from $39.0 million at December 31, 2002 and equity investments of $1.7 million at December 31, 2003 compared to $1.0 million at December 31, 2002, an increase of $0.7 million, or 70%. We acquire our equity investments primarily in connection with our loans. For the year ended December 31, 2003, we originated approximately $47.0 million of loans, an increase of $0.4 million, or 1%, from $46.6 million for the year ended December 31, 2002.

     Our principal executive offices are located at 133 N. Fairfax Street, Alexandria, Virginia 22314. Our telephone number is (703) 519-4900. The Company’s website address is www.oxfordfinance.com.

Recent Developments

     On January 28, 2004, the Company entered into a definitive Asset Purchase Agreement (the “Agreement”) with Oxford Finance Acquisition Corp, a Delaware corporation (“Purchaser”) and a wholly-owned subsidiary of Sumitomo Corporation of America, a New York corporation and integrated global trading firm with diversified investments in businesses producing both capital and consumer products (“Sumitomo”). Under the Agreement, Purchaser will acquire all of the assets and assume certain liabilities related to the Company’s business of providing senior secured equipment financing primarily to emerging-growth life science companies (the “Business”), including, without limitation, all of the Company’s financing contracts, leases, securities or warrants issued in connection with any financing contract and all intangible assets, such as the rights to use the name “Oxford Finance Corporation”.

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     During the second half of 2003, the Company engaged a financial advisor (i) to investigate various strategic alternatives that the Company may wish to pursue, including a possible sale of the Company; and (ii) to assist management and the board of directors with analyzing these alternatives. After reviewing the various alternatives and analyzing comparative transactions, the Company entered into purchase price, transaction and related negotiations with Sumitomo. The parties determined that the purchase price for the assets would consist of an initial payment at the closing of $49 million in cash and an additional contingent payment of up to $2 million, which shall be paid within 90 days of the closing and is subject to certain post-closing adjustments fully described in the Agreement. In addition, Purchaser will pay to the Company at the closing an amount not to exceed $36.0 million to pay off amounts owed by the Company under its bank credit agreements, Assuming the closing occurs at the end of March or early April, 2004, the Company estimates that Purchaser will pay off approximately $24.0 million in debt under the Company’s bank credit agreements.

     The Agreement contains representations, warranties, covenants, indemnifications and provisions that are customary for a transaction of this type. The closing of the transaction will be contingent upon approval of any final agreement by the shareholders of Oxford as well as certain regulatory approvals. This description of the transaction, including the Agreement, is qualified in its entirety by reference to the full text of the Agreement included with the Company’s current report on Form 8-K as filed with the U.S. Securities and Exchange Commission (the “Commission”) on February 6, 2004. The transaction is expected to close at the end of the first quarter or during the second quarter of fiscal 2004. We cannot assure you that the transactions contemplated by the Agreement will occur.

     In connection with the Agreement, the stockholders will also be asked to approve a Plan of Liquidation and Dissolution, under which the Company will take the necessary steps following consummation of the asset sale and distribution of the related proceeds to dissolve its status as a corporation under Maryland law, and withdraw its election to be a business development company under the Investment Company Act of 1940, as amended.

Our Industry

     We believe that significant opportunities exist to provide our lending products to emerging-growth life science companies. New life science enterprises are emerging at a rapid pace and require significant amounts of capital as they transition from start-up through maturity. While much of this need is met through traditional private equity funds, federal grants and research and development collaborations with large pharmaceutical firms, the cost of these capital vehicles is often very high. Our equipment-based lending solutions allow firms to leverage their equity and lower their overall cost of capital. We believe that the combination of our contacts within the life science industry and our lending products will make us a source of capital to emerging-growth life science companies.

     We believe the life science industry has growth potential driven by the need for new medical treatments, improved research and development technologies and improved discovery technologies and diagnostic tools. We expect that the future value creation from the inventions in the life science industry will lead to improvements in the span and quality of life and present lending opportunities for us in the future.

     In general, we expect that emerging life science companies will have equipment expenditures totaling approximately 20% of their total expense budgets. Total financing for the biotech industry was $15.1 billion in 2001, and this generated a potential market size for our lending products of approximately $3.0 billion. This figure has grown significantly in recent years as existing venture capitalists are allocating increasing percentages of their funds to life science portfolios and as a number of new funds are emerging focused exclusively on the life science industry. We believe that the equipment financing needs of emerging-growth life science companies are not adequately served at present by traditional sources, presenting us with potential market opportunities.

     Calendar year 2003 represented a strong year for the biotech and life-sciences industries. During the fourth quarter of 2003 the industries experienced more access to the initial public offering market, as seven companies went public raising a total of $453 million during the year. Also at the end of December, 2003, there were 14 additional companies which had filed to complete public offerings of stock. During the third quarter of 2003, the biotech and life-sciences industries had their strongest fund raising quarter since 2001. The most popular fundraising vehicle was convertible debt. In the forth quarter of 2003, the industry raised nearly $1.6 billion in debt and for the full year of 2003 raised a total of almost $7.2 billion compared to a total of $5.3 billion in 2002. There also continued to be mergers and acquisitions as well as partnering activity in the industries during 2003 as companies attempted to broaden product lines and technology capabilities. We believe that based on growth in the life sciences industry, there will be a continuing demand for our products now and in the future. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

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Our Background

     Our management team previously established and operated Oxford Venture Finance, LLC (“Oxford LLC”) that, under their guidance, became a leading provider of equipment financing to emerging-growth life science companies. J. Alden Philbrick, IV, our President and Chief Executive Officer, was the founder and Chief Executive Officer of Oxford LLC. Oxford LLC provided equipment loans and leases to public and private companies located primarily on the East Coast for over a decade, and exclusively to life science companies since 1997. In 1997, Oxford LLC entered into an independent contract to originate life science loans for a company subsequently acquired by a large financial institution. Under these arrangements, all of the transaction duties, including origination, underwriting, due diligence and documentation, excluding billing and collecting, were initially performed by our management team. All of the loans were closed in the name of Oxford LLC and assigned to the large financial institution for funding. At Oxford LLC, our management team originated over $225 million in equipment financing lines of credit to 75 emerging growth life-science companies.

     During 2002, Oxford LLC assigned to us the opportunity (which is neither an obligation nor a right) to fund 29 emerging-growth life science companies under existing lines of credit with Oxford LLC. As of the date of the assignment, unfunded availability under these lines of credit amounts to approximately $65 million in initial funding opportunities for us. Under these loan relationships, referred to herein as lines of credit, we are not obligated to provide funding to the prospective borrowers, and the prospective borrowers are not required to obtain funding from us.

     We are expanding our portfolio by funding additional amounts under the lines of credit assigned to us by Oxford LLC and by funding loans for new portfolio companies originated by our business development officers. We receive additional deal-flow opportunities from our management’s relationships with the life science private equity investors and their network of contacts with senior executives at emerging-growth life science companies. During the years ended December 31, 2002 and 2003 Oxford Finance funded $46,642,000 and $47,010,000 in loans respectively.

Our Products

     We offer prospective portfolio companies fully amortizing senior loans in the form of lines of credit that can be drawn down during a stated term, up to the total approved amount, provided that the portfolio company satisfies our lending criteria at the time of each draw. Our lines of credit to portfolio companies generally range from $300,000 to $8,000,000, but average approximately $3,000,000 in size. These loans are secured by a first priority lien on equipment and other collateral that is essential to the businesses of our portfolio companies. These loans typically have a term of from three to four years and require monthly payments of interest and principal. See “Business.”

     Our lending products are intended to be used by portfolio companies primarily to finance the purchase of laboratory equipment and, to a lesser extent, computers, furniture, manufacturing equipment and software. The Company’s loans are generally collateralized by a first priority security interest in essential-use assets, primarily laboratory equipment, and to a lesser extent, computers, furniture, software and manufacturing equipment that tends to retain secondary market value. The monthly amortization of the loans is intended to keep the loan balances in line with secondary market values based on management’s experience. Generally, the Company does not finance special purpose or customized equipment. The Company’s loans are amortizing term loans that generally mature between 30 and 48 months. Debt instruments are at fixed rates of interest which range from 600 to 1,000 basis points above coterminous Treasury Bills. Due to the fully-amortizing structure of our loans, we expect the principal amount to be fully repaid by the end of the term of the loan. We also expect to receive transaction fees based on our total commitment, as well as equity participation in the form of warrants issued as a percentage of the actual amount funded at an exercise price equal to the price of the underlying stock determined in the most recent round of equity financing.

Conversion to Business Development Company and Regulated Investment Company Status

     On December 31, 2002, the Company elected to be regulated as a BDC under the Investment Company Act of 1940. The results of operations for 2002 reflect the Company’s results prior to operating as a BDC. There was no cumulative effect of accounting change for the conversion to a BDC on December 31, 2002. Accounting principles used in the preparation of the financial statements as a BDC differ primarily related to the carrying value of investments and the accounting for income taxes.

     As a RIC, we began to make quarterly distributions beginning in 2003. RIC’s generally are not subject to federal income tax on the portion of their income that they distribute to their stockholders if they meet certain minimum distribution requirements. We intend to meet these requirements by distributing to our stockholders all of our income, except for certain net capital gains. If this happens, stockholders will be treated for tax purposes as if they received an actual distribution of the capital gains and reinvested the net after-tax proceeds in us. Stockholders also may be eligible to claim a tax credit (or, in certain circumstances, a tax refund) equal to such stockholder’s allocable share of the tax we pay on the capital gains deemed distributed to you.

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          We were taxed as an ordinary corporation through December 31, 2002.

A WARNING ABOUT FORWARD-LOOKING STATEMENTS

          We make forward-looking statements in this registration statement that are subject to risks and uncertainties. These forward-looking statements include information about possible or assumed future results of our business, financial condition, liquidity, results of operations, plans and objectives. They also include statements concerning projections of revenues, income or loss, earnings or loss, capital expenditures, dividends, capital structure or other financial terms. Statements regarding the following subjects are forward-looking by their nature:

	•		our business strategy;
	•		our understanding of our competition;
	•		market trends;
	•		projected capital expenditures; and
	•		the impact of technology on our products, operations and business.

          The forward-looking statements are based on our beliefs, assumptions and expectations of our future performance, taking into account the information currently available to us. These beliefs, assumptions and expectations can change as a result of many possible events or factors, not all of which are known to us. If a change occurs, our business, financial condition, liquidity and results of operations may vary materially from those expressed in our forward-looking statements. The following factors could cause actual results to vary from our forward-looking statements:

	•		The Asset Purchase Agreement executed with Oxford Finance Acquisition Corp. and recent developments related to this proposed asset sale
	•		the factors referenced in this memorandum, including those set forth under the sections captioned “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Business;”
	•		general volatility of the capital markets;
	•		changes in our industry, interest rates or the general economy; and
	•		the degree and nature of our competition.

          When we use the words “believe,” “expect,” “anticipate,” “estimate,” “intend” or similar expressions, we intend to identify forward-looking statements. You should not place undue reliance on these forward-looking statements.

BUSINESS

General

          Oxford Finance Corporation is a financial services company incorporated in Maryland on October 23, 2001 that provides senior secured equipment financing primarily to emerging-growth life science companies. Such financings are generally in the form of loans with equity features, typically warrants. Our investment objective is to achieve a high level of current income from interest payments and transaction fees from the loans we make to portfolio companies and to achieve capital gains through an increase in the value of the warrants we expect to receive from our portfolio companies in connection with these loans.

          The Company was incorporated under the General Corporation Laws of the State of Maryland on October 23, 2001. On December 31, 2002, the Company elected to be regulated as a business development company, or BDC, under the Investment Company Act of 1940. In addition, when the Company files its 2003 tax return it intends to elect to be regulated for tax purposes as a Regulated Investment Company, or RIC, under Subchapter M of the Internal Revenue Code of 1986, as amended (the “Code”) for the calendar year 2003.

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     To qualify as a RIC for federal income tax purposes, the Company was required to distribute any “earnings and profits” (as determined for federal income tax purposes) from operations prior to the election to be taxed as a RIC. To meet this requirement, the Company paid dividends during 2002 and 2003 of substantially all of the earning and profits for the years ended December 31, 2002 and 2003, respectively.

     As a RIC, the Company must pay out as a dividend 90% of its ordinary income and short-term capital gains for each taxable year in order to maintain its status as a RIC under Subtitle A, Chapter 1 of Subchapter M of the Code. The Company intends to pay out as a dividend substantially all those amounts. The amount to be paid out as a dividend is determined by the Board of Directors each quarter and is based on the annual earnings estimated by the management of the Company. The Company has a policy of retaining long-term capital gains and not paying them out as dividends.

     The Company’s investment objective is to achieve a high level of current income from interest payments from the loans made to portfolio companies and to achieve capital gains through an increase in the value of the warrants received from portfolio companies in connection with these loans. The Company provides loans primarily to emerging-growth life sciences companies. The Company generally secures loans with equipment and other assets.

Background

     Our management team previously established and operated Oxford Venture Finance, LLC (“Oxford LLC”) that, under their guidance, became a leading provider of equipment financing to emerging-growth life science companies. J. Alden Philbrick, IV, our President and Chief Executive Officer, was the founder and Chief Executive Officer of Oxford LLC. Oxford LLC provided equipment loans and leases to public and private companies located primarily on the East Coast for over a decade, and exclusively to life science companies since 1997. In 1997, Oxford LLC entered into an independent contract to originate life science loans for a company subsequently acquired by a large financial institution. Under these arrangements, all of the transaction duties, including origination, underwriting, due diligence and documentation, excluding billing and collecting, were initially performed by our management team.

     At Oxford LLC, our management team originated over $225 million in equipment financing lines of credit to 75 emerging growth life-science companies. Oxford LLC assigned to us the opportunity (which is neither an obligation nor a right) to fund 29 emerging-growth life science companies under existing lines of credit with Oxford LLC. As of the date of the assignment, unfunded availability under these lines of credit amounts to approximately $65 million in initial funding opportunities for us. Under these loan relationships, referred to herein as lines of credit, we are not obligated to provide funding to the prospective borrowers, and the prospective borrowers are not required to obtain funding from us.

     Oxford LLC assigned to us the opportunity (which is neither an obligation nor a right) to fund 29 emerging-growth life science companies under existing lines of credit with Oxford LLC. As of the date of the assignment, unfunded availability under these lines of credit amounted to approximately $65 million in initial funding opportunities for us. Under these loan relationships, referred to herein as lines of credit, we are not obligated to provide funding to the prospective borrowers, and the prospective borrowers are not required to obtain funding from us. In addition to the 29 lines of credit, we also acquired certain assets of Oxford LLC, including its software and databases, computers, furniture, forms and customer lists. In exchange for all of these items, we paid cash to Oxford LLC and assumed liabilities of Oxford LLC totaling $250,000. See Note 3 to the Financial Statements — Summary of Significant Accounting Policies.

     On March 28, 2002 we completed a private offer and sale of 5,000,000 shares of common stock, $.01 par value per share. Proceeds to the Company, net of underwriting costs, were $46,500,000, and were used to fund loans, and for corporate and working capital purposes.

     We are expanding our portfolio by funding additional amounts under the lines of credit assigned to us by Oxford LLC and by fundings for new portfolio companies originated by our business development officers. We receive additional deal-flow opportunities from our management’s relationships with the life science private equity investors and their network of contacts with senior executives at emerging-growth life science companies. During the years ended December 31, 2002 and 2003 we funded $46,642,000 and $47,010,000 in loans, respectively.

     We are an internally managed, non-diversified, closed-end investment company that has elected to be regulated as a business development company under the Investment Company Act of 1940 or the “1940 Act”. As a business development company, we are required to meet regulatory tests, the most significant of which relate to our investments and borrowings. A business development company is required to invest at least 70% of its total assets in private or thinly traded public U.S.-based companies. A business development company also must meet a coverage ratio of total assets to total senior securities, which include all of our borrowings and any preferred stock we may issue in the future, of at least 200%. See “Regulation as a Business Development Company”. In addition, the Company will elect to be treated for federal income tax purposes as a regulated investment company (“RIC”) under the Internal Revenue Code with the filing of our federal corporate income tax return for 2003, which election will be effective as of January 1, 2003. See “Certain U.S. Federal Income Tax Considerations”.

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Business

          We offer our portfolio companies fully amortizing senior loans in the form of lines of credit that can be drawn down during a stated term, up to the total approved amount, provided the portfolio company satisfies our lending criteria at the time of each draw. Our lines of credit to portfolio companies generally range from $300,000 to $8,000,000, but average approximately $3,000,000 in size. Our loans are secured by a first priority lien on equipment and other collateral that is essential to the businesses of our portfolio companies. These loans typically have a term of from three to four years and require monthly payments of interest and principal.

          Our lending products are intended to be used by portfolio companies primarily to finance the purchase of laboratory equipment and, to a lesser extent, computers, furniture, manufacturing equipment and software. We primarily secure our loans with laboratory equipment and other tangible assets that tend to retain their secondary market value over the course of the term of the loan. We obtain senior secured positions on all collateral prior to any financing. Our loans typically bear interest at a fixed rate that generally ranges from 8% to 14% in the current market. Due to the fully-amortizing structure of our loans, we expect the principal amount to be fully repaid by the end of the term of the loan. We also typically receive transaction fees based on our total commitment, as well as equity participation in the form of warrants issued as a percentage of the actual amount funded at an exercise price equal to the price of the underlying stock determined in the most recent round of equity financing.

          Our investment objective is to achieve a high level of current income from interest payments and transaction fees from the loans we make to portfolio companies and to achieve capital gains through an increase in the value of the warrants we expect to receive from our portfolio companies in connection with our loans. Capital gains, if any, may be realized from the sale of warrants (or the stock underlying such warrants) in our portfolio companies when and if a portfolio company has an initial public offering or is acquired by another company. We believe that the following factors enable us to make life science loans that meet our investment objective:

	•		we obtain senior (first priority) secured positions on all collateral that we finance;
	•		we seek to collateralize our loans with equipment that is considered essential to our portfolio companies and their business plans and that retains substantial secondary market value over the term of the loan;
	•		our fully-amortizing structures require repayment of principal and interest from the first month, thus allowing repayment of an appreciable amount of principal within the first two to three years of the loan;
	•		we make loans to companies with cash reserves — a portfolio company’s strong cash position can substantially mitigate the principal risk of our amortizing loans;
	•		unlike information technology and telecommunications, commercialization of life science technologies, particularly drug discovery and development, is a process that investors expect to last from 6 to 10 years, and sometimes more, and we seek to make loans to portfolio companies that have patient investors that signal a willingness to support the company over the long-term; and
	•		our strict underwriting procedures allow us to structure loans in a way that is designed to consistently generate returns at a low default rate.

          Pending these loan fundings, cash will be invested primarily in certain temporary investments. See “Business — Temporary Investments.”

Life Science Industry

          During the past five years, life science has emerged as a key industry with complex and well-developed sectors and prospects for high growth. Key sectors include human therapeutics, human diagnostics, medical devices, agriculture biotechnology and numerous technologies and tools that streamline drug discovery and development. Human therapeutics comprises a large sector of the life science industry that is focused on developing treatments for various human diseases, and a relatively smaller human diagnostics sector that is focused on developing technologies that allow medical practitioners to recognize and evaluate various disease conditions more effectively. Medical devices include any instrument, machine, implant or other such non-chemical article that is used in the diagnosis, treatment or prevention of disease. Agriculture biotechnology typically refers to a broad industry sector focused on developing genetic technologies that improve crop production and extend and expand the industrial uses of various crops.

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“Life Science” Companies

     We consider a “life science” company to be a company that is engaged in the following:

	•		the design, manufacture or sale of products or services used for or in connection with medicine or medical treatments;
	•		research and development of pharmaceutical products, gene mapping or analysis, protein mapping or analysis or medical services;
	•		research, development or manufacturing of products and services relating to human health care, pharmaceuticals, agricultural, medical device, chemical or industrial products; or
	•		research and development of cells and biological molecules for applications used to detect a wide variety of diseases and genetic conditions.

     We consider a company to be engaged in one of the above activities if the plurality of its resources are committed to such activity, or if a plurality of its revenues or profits are derived from such activity during the most recent fiscal year.

Life Science Lending Strategy

          We believe that existing market demands and dynamics, recent technological and scientific developments and the current economic environment have created an opportunity to lend to life science companies. Our target life science sectors will include but not be limited to the following:

	•		biopharmaceuticals;
	•		drug delivery and specialty pharmaceuticals;
	•		genomics;
	•		proteomics;
	•		biotechnology and enabling technologies;
	•		medical devices;
	•		diagnostics; and
	•		agricultural biotechnology.

          We believe that these sectors offer growth potential and that the financial characteristics and prospects of the life science industry create lending opportunities that we believe will continue to meet our investment objective.

          We believe there are important advantages to the long-term business models of most of these companies as compared to the business models of other types of technology companies. While the development risks are high and attainment of FDA market approvals can be challenging, patent positions are generally more enforceable and product life cycles, especially in human therapeutic products, are generally longer than in other technology sectors, such as information technology. Market demand for approved products that improve critical areas of human health is usually responsive soon after introduction.

          We expect that the future value creation from inventions and developments in the life science industry will lead to improvements in the span and quality of life, and present lending opportunities in the future. We believe the life science industry has growth potential driven by the need for new medical treatments, improved research and development technologies and improved discovery technologies and diagnostic tools. Attractive characteristics of the life science industry include the following:

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Marketplace Demands

     We have identified several factors that impact the life science marketplace:

	•		existing therapies do not adequately treat many serious diseases such as cancer, cardiovascular diseases, metabolic diseases, neurodegenerative diseases, infectious diseases and genetic diseases;
	•		demand for new drug products from large pharmaceutical companies’ product pipelines are expected to require additional products to meet earnings expectations;
	•		the large and growing elderly population in the United States and other major countries will increase the demand for innovative therapeutics and for healthcare products and services overall; and
	•		opportunities exist for new technology to improve quality and reduce total cost of healthcare.

Technological Developments

          The rapid pace of innovations and maturing of existing technology creates investment opportunities with attractive risk-reward profiles. These include:

	•		the relative maturity of certain technologies such as genetic research, antibody therapy, gene therapy, drug delivery, robotics and miniaturization;
	•		the recent technological advances in genomics, proteomics and bioinformatics, creating new tools to treat and diagnose serious medical conditions; and
	•		the approval of over 130 biotech medicines and vaccines have been in the United States (70 percent of those in the past 6 years), and more than 350 biotech medicines in late stage development for more than 200 diseases.

Economic Environment

          The economic environment in which we invest and in which our portfolio companies compete is characterized by:

	•		high barriers to entry, including significant intellectual property protection and substantial capital requirements for research and development projects;
	•		attractive business models based on highly differentiated and innovative products and services, multi-faceted product pipelines and numerous financing sources;
	•		large market for life science products and services with established channels of distribution;
	•		a demand for life science products and services that historically has been less affected by changes in general economic conditions; and
	•		the fact that most drugs cost several hundred million dollars to develop and commercialize and can require 10 to 15 years to move from discovery to market.

          Our target portfolio company is an emerging-growth drug development company with a deep research pipeline, a platform technology with multiple applications and long term, experienced equity investors with cash reserved for future financings. These companies are attractive because their multifaceted product approach mitigates research risk, balances private equity infusions over a period of several years and increases the likelihood of cash-bearing collaborative arrangements with other biotechnology and large pharmaceutical companies. We expect that most of our portfolio companies will be engaged, partially if not principally, in the research and development of human therapeutics and diagnostics. While we intend to invest principally within these parameters, we also expect to make loans on an opportunistic basis to companies outside of the human therapeutics and diagnostics sectors, for example to agricultural biotechnology, medical device and enabling technology companies. A breakout of our investments by industry sub sectors is presented in the under Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” under Portfolio Composition and Asset Quality.

          A number of life science companies are focused on developing technologies that improve the process of drug discovery and development. Genomics and proteomics, the study of genes and proteins, respectively, and their functions, have generated significant advances in the industry’s ability to determine the causes of disease and to develop medicines, vaccines and other diagnostic tests to cure and perhaps to prevent disease. Prior to the emergence of genomic technologies, researchers required five to ten years to discover a gene and then purify and clone its protein. Today, these activities require days and sometimes only hours. By lowering costs, improving discovery speed and accuracy, and generating other efficiencies, we believe new technologies are changing the overall economics of developing and selling drugs.

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     2003 represented a strong year for the biotech and life-sciences industries. During the fourth quarter of 2003 the industries experienced more access to the initial public offering market, as seven companies went public raising a total of $453 million during the year. Also at the end of December, 2003, there were 14 additional companies which had filed to complete public offerings of stock. During the third quarter of 2003, the biotech and life-sciences industries had their strongest fund raising quarter since 2001. The most popular fundraising vehicle was convertible debt. In the forth quarter of 2003, the industry raised nearly $1.6 billion in debt and for the full year of 2003 raised a total of almost $7.2 billion compared to a total of $5.3 billion in 2002. There also continued to be mergers and acquisitions as well as partnering activity in the industries during 2003 as companies attempted to broaden product lines and technology capabilities. We believe that based on growth in the life sciences industry, there will be a continuing demand for our products now and in the future. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

Life Science Equipment Finance Sector

     Life science research and development is costly and equipment-intensive. Emerging-growth life science companies are motivated to finance their equipment needs to conserve their equity capital and reduce dilution. In general, private equity financings, collaborative research payments, government research grants and public equity markets create a market for our loans by generating the means for payment of our loans. New drugs and technologies remain very costly to research, develop and market, and life science companies must leverage their equity capital to finance long-term growth. To this end, equipment financing has emerged as a very effective means for firms to limit equity dilution while continuing to develop their products.

     We believe potential lenders and debt financiers who use traditional approaches to credit underwriting are not well equipped to serve this market. These early and expansion stage companies have a very different set of finance components that are tied more to the strength of their balance sheets and equity investors than to cash flow statements and revenues. We aim to reduce the risks associated with lending to these emerging-growth companies through the disciplined application of our underwriting approach, by obtaining senior secured positions on all collateral and by adopting a short-term amortizing structure for our loans. Moreover, because most of our portfolio companies often own protected intellectual property, the sale of the company or its intellectual property may be a potential downside exit strategy.

     There is a lengthy development cycle for our portfolio companies’ products. For this reason, we work primarily with private equity investors experienced in life science investing that have indicated a willingness and ability to make future investments in our portfolio companies. As a result, the performance of our portfolio does not depend directly upon the cycles of the overall private equity markets.

Underwriting Discipline

     We undertake a review process to select those portfolio companies we believe to have a strong credit profile and provide opportunities for growth. We review carefully the capital needs of our portfolio companies and allocate funding to the companies that continue to meet our lending criteria. Our senior secured loans are intended to provide predictable returns with a reduced risk of loss of principal and the potential for additional appreciation from the exercise of warrants to purchase stock in our portfolio companies and the sale of stock received upon exercise of the warrants.

     We routinely monitor the status of many life science companies in a variety of sectors through review of journals, attendance at conferences and through primary research on areas of specific interest. In addition, our senior management has developed relationships with consultants, advisors, entrepreneurs, bankers and venture capitalists that may serve as a useful context for our lending considerations. For companies presenting lending opportunities that meet our general lending criteria, we perform additional due diligence, including company and technology assessments, market analysis, competitive analysis, evaluation of management, risk analysis, and transaction size, pricing and structure analysis.

     Over the course of the lending relationship, we monitor our portfolio companies closely in order to determine whether or not they continue to meet our lending criteria. We may decline additional loans to portfolio companies that do not continue to meet our lending criteria. However, we expect to pursue additional funding of those portfolio companies we believe will perform well in the future in an effort to achieve greater positive yields overall.

     We believe that risk management is essential to achieving our investment objective, and we seek to manage our risk through portfolio diversification within the life science industry, in terms of both development stage and industry sector. Diversification is intended to decrease our risk exposure within any one sector of the life science industry and to offset the impact of loans to companies that default. We will also consider lending to a limited number of companies engaged in the

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development of technologies outside of life science. (A breakout of our investments by industry sub sectors is presented in the under Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” under Portfolio Composition and Asset Quality). While no more than 25% of our capital will be lent to any one company, we do not anticipate imposing formal limits on the amount of our capital that may be lent to an individual portfolio company in order to ensure that our management has freedom to select optimal lending opportunities other than those required to maintain our BDC status. We focus on loans that both provide yields and give the highest probability of full repayment.

Underwriting Process

Approval Process

          In selecting portfolio companies for financing, we conduct a preliminary evaluation by reviewing certain criteria that we deem important to the execution of loan transactions with emerging-growth life science companies. The criteria delineated below provide general parameters for lending considerations and decisions, although not all of such criteria may be followed in each instance.

          A preliminary evaluation involves a review of a prospective portfolio company’s business plan, business model, business sector, cash position, management histories, financial results and projections and private equity investment history and projections. Additionally, value of the assets collateralizing our loans is an important factor in each investment decision. We use the liquidation value of the collateral in connection with this analysis. We place emphasis primarily upon tangible essential-use assets and, foremost, upon laboratory and other equipment. Upon successful completion of this preliminary evaluation, we make a determination as to whether to deliver a non-binding loan proposal.

          Upon the execution of a transaction proposal, we begin our in-depth due diligence process, which includes but is not limited to the following:

Management Team and Financial Sponsor

          We believe that due to the potentially lengthy time horizon for development of products, the existence of a strong management team and backing by an equity investor is extremely important. We expect to conduct, among other things:

	•		interviews with management and private equity investors;
	•		reviews of equity financing history (including prices per round and investors capital participation per round);
	•		reviews of management’s track record of decision making with respect to product development and marketing, mergers and acquisitions, alliances, collaborations, R&D outsourcing and other strategic activities;
	•		reviews of the board of director’s ownership and level of participation;
	•		assessments of competition; and
	•		reviews of exit strategies.

Financial Condition

          We also consider and review the prospective portfolio company’s financial condition. In our underwriting process, we emphasize, among other things:

	•		evaluation of future financing needs and plans;
	•		detailed analysis of financial performance;
	•		cash-on-hand levels, actual and projected cash burn levels; and
	•		review of assets and liabilities.

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Technology Assessment

          We believe that it is important to conduct a review of a potential portfolio company’s technology and long-term market strategy. We believe that the developed technologies and the existence of patents often creates value for the companies we finance. For these reasons, we emphasize:

	•		evaluation of intellectual property position;
	•		analysis of core science under development;
	•		research and development (R&D) milestones;
	•		assessment of collaborations and other scientific technology validations;
	•		revenue and profitability projections;
	•		clinical results; and
	•		assessment of market and growth potential.

Collateral

          Because we are a lender, we seek to secure our loans with equipment that is considered essential to our portfolio companies and their business plan; and that retains substantial secondary market value.

          Upon completion of these analyses, we conduct an on-site visit with a facility tour led by a member of the portfolio company’s senior management team, usually its chief executive officer.

Documentation Process

          Each new portfolio company executes documentation establishing the general terms and conditions of any loan or lease financing draws to be executed. Fundings on the open lines of credit are performed using loans evidencing an independent loan or lease with a fixed interest rate and amortization period subject to the terms and conditions of the applicable loan agreement. Our average equipment loan totals approximately $575,000 and consists of a variety of equipment used principally in the laboratory. Prior to funding a loan, all components of the documentation are reviewed for compliance with the original transaction terms and the documents that are already in place. We complete credit and financial reviews for each portfolio company and must approve the result of those reviews prior to any loan funding. All loan draws are subject to acceptable review of collateral compliance and review of the portfolio company against our lending criteria.

Portfolio Monitoring and Risk Management

          We have several methods of evaluating and monitoring the performance and fair value of our loans and equity positions, including but not limited to the following:

	•		the amortized value of the loans;
	•		assessment of business development success, including product development, financings, net income and overall adherence to its business plan;
	•		periodic and regular contact with management to discuss financial position, requirements and accomplishments;
	•		periodic and regular formal update interviews with management and, if desired, lead equity investors; and
	•		reviews of monthly and quarterly financial statements and financial projections for private and public portfolio companies

          In addition to the aforementioned activities, we seek to maintain updated information on our portfolio companies to the extent available. We evaluate the financial statements of our private portfolio companies on a monthly basis and evaluate the financial statements of our public portfolio companies on a quarterly basis. We assess audited statements on an annual basis and capitalization tables and financial projections on an as-available basis for our portfolio companies.

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Investment Rating System

          In addition to various risk management and monitoring tools, we also use an investment rating system to characterize and monitor our expected level of returns on each investment in our portfolio. We use the following 1 to 5 investment rating scale. Below is a description of the conditions associated with each investment rating.

     The management team monitors and, when appropriate, changes the investment ratings. The investment ratings are reviewed at least quarterly.

     The following table shows the distribution of our investments on the 1 to 5 investment rating scale at fair value as of December 31, 2003 and 2002:

Loan Servicing Procedures

     We currently use software to monitor the progress of a transaction through the documentation process and to provide servicing information, invoicing, collection and aging status. We receive updated financial information regarding our portfolio companies and intend to review that information on at least a quarterly basis. Emerging-growth businesses may have limited financial resources and may be unable to repay our loans to them. A portfolio company’s ability to repay its loan may be adversely affected by numerous factors, including the failure to meet its business plan, a downturn in its industry or negative economic conditions. We generally provide provisions in our loan documentation that contain covenants that protect us in the case of default by a borrower. These protections generally do not include positive or negative financial covenants.

     Loans that are 60 days or more overdue will be classified as delinquent accounts. We will generally attempt to work with the portfolio company’s management and its investors to rehabilitate, rather than liquidate delinquent accounts, provided that such actions are consistent with preserving the value of our collateral to minimize losses on the loan obligations. If we ultimately repossess our loan collateral, we intend to work with the portfolio company, its equity investors and third parties to sell the collateral to other companies having similar equipment needs with an intention of maximizing the resale value of the collateral.

     While we seek to reduce our secondary equipment market risks by structuring our loans as fully amortizing senior loans and do not rely on the residual value of equipment for transaction yield purposes, defaults may occur. All loans in which payments are more than 90 days overdue will be classified as in default. During 2002, one investment defaulted while there were no defaults during 2003.

Competition

     We face competition from banks and other financial services companies with, in many instances, greater financial resources than us. Leading competitors include GATX Ventures, General Electric Capital Corporation, Transamerica Technology Finance, Silicon Valley Bank and Comerica Bank. We believe that we have a competitive lending product due to our equipment-secured fully-amortizing loans, flexibility, responsiveness and customer service. Moreover, we believe that our network of relationships with executives in the life science industry and with private equity investors significantly reduces traditional barriers to entry for us and is a substantial source of new business growth for us. In addition to these factors, we believe that our emphasis in the life science market makes us one of the only equipment lenders that specializes in meeting the equipment finance needs of private, emerging-growth life science companies.

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Employees

     At December 31, 2003 we had 13 employees, 4 of whom are responsible for identifying and originating our transactions. We believe that our relations with our employees are excellent.

Temporary Investments

     We invest, either directly or indirectly, otherwise uninvested cash primarily in cash, cash items, government securities or high quality debt securities maturing in one year or less from the time of investment, which we refer to collectively as temporary investments, so that 70% of our assets are be qualifying assets. See “Regulation as a Business Development Company.” Typically, we will invest in U.S. Treasury bills or in repurchase obligations of a “primary dealer” in government securities, as designated by the Federal Reserve Bank of New York, or of any other dealer whose credit has been established to the satisfaction of the board of directors. A repurchase agreement involves the purchase by an investor, such as us, of a specified security and the simultaneous agreement by the seller to repurchase it at an agreed upon future date and at a price that is greater than the purchase price by an amount that reflects an agreed-upon interest rate. If the seller were to default on its repurchase obligation, we might suffer a loss to the extent that the proceeds from the sale of the underlying security were less than the repurchase price. Also, a seller’s bankruptcy could delay or prevent a sale of the underlying securities.

Potential Hedging Activities

     A portion of our income depends upon the difference between the rate at which we borrow funds and the rate at which we loan these funds. We use a combination of equity and borrowings to finance our lending activities. Currently, all of the loans in our portfolio are at fixed rates. We may seek to hedge against the risk of adverse movement in interest rates on our borrowings relative to our portfolio of assets to the extent permitted by the 1940 Act. We would expect to hedge against interest rate fluctuations by using standard hedging instruments such as futures, options and forward contracts. At December 31, 2003, the Company had not entered into any hedging activities.

CONVERSION TO BUSINESS DEVELOPMENT COMPANY AND REGULATED INVESTMENT COMPANY STATUS

     Through December 31, 2002, we were subject to tax as an ordinary corporation under Subchapter C of the Internal Revenue Code. We will elect to be treated as a “regulated investment company” or “RIC” under Subchapter M of the Internal Revenue Code with the filing of our federal corporate income tax return for 2003, which election will be effective as of January 1, 2003. As a RIC, we generally will not have to pay corporate taxes on any income we distribute to our stockholders as dividends, which will allow us to reduce or eliminate our corporate-level tax liability. The results of operations for 2002 reflect the Company’s results prior to operating as a BDC and the cumulative effect of accounting change for the conversion to a BDC on December 31, 2002. Accounting principles used in the preparation of the financial statements as a BDC differ primarily related to the carrying value of investments and the accounting for income taxes.

     As a RIC, we began to make quarterly distributions beginning in 2003. RIC’s generally are not subject to federal income tax on the portion of their income that they distribute to their stockholders if they meet certain minimum distribution requirements. We intend to meet these requirements by distributing to our stockholders all of our income, except for certain net capital gains. If this happens, stockholders will be treated for tax purposes as if they received an actual distribution of the capital gains and reinvested the net after-tax proceeds in us. Stockholders also may be eligible to claim a tax credit (or, in certain circumstances, a tax refund) equal to such stockholder’s allocable share of the tax we pay on the capital gains deemed distributed to such stockholder.

     If we qualify as a RIC, and distribute each year to stockholders at least 90% of our “investment company taxable income” (which is defined in the Internal Revenue Code generally as ordinary income plus net short-term capital gains over net long-term capital losses), and 90% of any ordinary pre-RIC built in gains we recognize between January 1, 2003 and December 31, 2012, less our taxes due on those gains (collectively, the “90% distribution requirement”) we will be entitled to deduct, and therefore will not be subject to U.S. federal income tax on, the portion of our income we distribute to stockholders other than any built-in gain recognized between January 1, 2003 and December 31, 2012.

     In general, distributions of our investment company taxable income will be taxable to stockholders as ordinary income. Typically, dividends from RIC’s are not eligible as qualifying dividends subject to reduced income tax rates under the new tax law. Distributions of capital gain (including deemed distributions) generally will be taxable to stockholders as capital gain. We will be subject to U.S. federal income tax at the regular corporate rate on any income not distributed (or deemed distributed).

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     We will be subject to a 4% nondeductible U.S. federal excise tax to the extent we do not distribute (actually or on a deemed basis) 98% of our income (both ordinary income and net capital gains). The excise tax will apply to the excess of 98% of our income over the amount of income actually (or deemed) distributed to our stockholders. We generally will endeavor in each taxable year to avoid any U.S. federal excise taxes on our earnings.

     In order to qualify as a RIC for federal income tax purposes, we must, among other things:

	•		continue to qualify as a business development company under the 1940 Act;
	•		derive in each taxable year at least 90% of our gross income from dividends, interest, payments with respect to debt securities, gains from the sale of stock or other securities, or other income derived with respect to our business of investing in such stock or securities (known as the “90% Income Test”); and
	•		diversify our holdings so that at the end of each quarter of the taxable year:

	o		at least 50% of the value of our assets consists of cash, cash items, U.S. government securities, securities of other RICs, and other securities if such other securities of any one issuer do not represent more than 5% of the value of our assets or more than 10% of the outstanding voting securities of the issuer, and
	o		no more than 25% of the value of our assets is invested in the securities, other than U.S. government securities or securities of other RICs, of one issuer or of two or more issuers that are controlled, as determined under applicable Internal Revenue Code rules, by us and are engaged in the same or similar or related trades or businesses (known as the “Diversification Tests”).

     We may be required to recognize taxable income in circumstances in which we do not receive cash. For example, if we hold debt obligations that are treated under applicable tax rules as having original issue discount, we must include in income each year a portion of the original issue discount that accrues over the life of the obligation, regardless of whether cash representing such income is received by us in the same taxable year. We also may have to include in income other amounts that we have not yet received in cash, such as those paid as non-cash compensation such as warrants to purchase stock. Because any original issue discount or other amounts accrued will be included in our investment company taxable income for the year of accrual, we may be required to make a distribution to our stockholders in the amount of that non-cash income in order to satisfy the 90% Distribution Requirement, even though we will not have received any cash representing such income.

     If we fail to satisfy the 90% Distribution Requirement or otherwise fail to qualify as a RIC in any taxable year, we will be subject to tax in that year on all of our taxable income, regardless of whether we make any distributions to our stockholders. In that case, all of our income will be subject to corporate-level tax, reducing the amount available to be distributed to our stockholders, and all of our distributions to our stockholders will be characterized as ordinary income (to the extent of our current and accumulated earnings and profits).

     A business development company is regulated by the 1940 Act. A business development company must be organized in the United States for the purpose of investing in or lending to primarily private companies and making managerial assistance available to them. A business development company may use capital provided by public shareholders and from other sources to invest in long-term, private investments in businesses. A business development company provides shareholders the ability to retain the liquidity of a publicly traded stock, while sharing in the possible benefits, if any, of investing in primarily privately owned companies.

     As a business development company, we may not acquire any asset other than “qualifying assets” unless, at the time we make the acquisition, the value of our qualifying assets represent at least 70% of the value of our total assets. The principal categories of qualifying assets relevant to our business are:

•    Securities of an eligible portfolio company that are purchased in transactions not involving any public offering. An eligible portfolio company is defined under the 1940 Act to include any issuer that:

			•    is organized and has its principal place of business in the U.S.,
			•    is not an investment company or a company operating pursuant to certain exemptions under the 1940 Act, other than a small business investment company wholly owned by a business development company; and
			•    does not have any class of publicly traded securities with respect to which a broker may extend margin credit;

•    Securities received in exchange for or distributed with respect to securities described in the bullet above or pursuant to the exercise of options, warrants, or rights relating to those securities; and

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•    Cash, cash items, government securities, or high quality debt securities (as defined in the 1940 Act), maturing in one year or less from the time of investment.

     To include certain securities described above as qualifying assets for the purpose of the 70% test, a business development company must offer to make available to the issuer of those securities significant managerial assistance such as providing guidance and counsel concerning the management, operations, or business objectives and policies of a portfolio company. We offer to provide managerial assistance to each portfolio company.

     As a business development company, we are required to meet a coverage ratio of the value of total assets to total senior securities, which include all of our borrowings and any preferred stock we may issue in the future, of at least 200%. We may also be prohibited under the 1940 Act from knowingly participating in certain transactions with our affiliates without the prior approval of our directors who are not interested persons and, in some cases, prior approval by the Securities and Exchange Commission.

     We will be periodically examined by the SEC for compliance with the 1940 Act.

     As with other companies regulated by the 1940 Act, a business development company must adhere to certain substantive regulatory requirements. A majority of our directors must be persons who are not interested persons, as that term is defined in the 1940 Act. Additionally, we are required to provide and maintain a bond issued by a reputable fidelity insurance company to protect the business development company. Furthermore, as a business development company, we are prohibited from protecting any director or officer against any liability to the company or our shareholders arising from willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of such person’s office.

     As a business development company under the 1940 Act, we are entitled to provide loans to our employees in connection with the purchase of shares of our common stock. However, as a result of certain provisions of the Sarbanes-Oxley Act of 2002, we are prohibited from making new loans to our executive officers for that purpose.

     As required by the 1940 Act, we maintain a code of ethics that establishes procedures for personal investments and restricts certain transactions by our personnel. Our code of ethics generally does not permit investments by our employees in securities that may be purchased or held by us.

     You may read and copy the code of ethics at the Securities and Exchange Commission’s Public Reference Room in Washington, D.C. You may obtain information on the operation of the Public Reference Room by calling the Securities and Exchange Commission at 1-202-942-8090. In addition, the code of ethics is available on the EDGAR Database on the Securities and Exchange Commission’s Internet site at http://www.sec.gov. You may obtain copies of the code of ethics, after paying a duplicating fee, by electronic request at the following Email address: publicinfo@sec.gov, or by writing the Securities and Exchange Commission’s Public Reference Section, Washington, D.C. 20549.

     We may not change the nature of our business so as to cease to be, or withdraw our election as, a business development company unless authorized by vote of a majority of the outstanding voting securities, as required by the 1940 Act. A majority of the outstanding voting securities of a company is defined under the 1940 Act as the lesser of: (i) 67% or more of such company’s shares present at a meeting if more than 50% of the outstanding shares of such company are present or represented by proxy, or (ii) more than 50% of the outstanding shares of such company.

DETERMINATION OF NET ASSET VALUE

     As a BDC, the net asset value per share of our outstanding shares is determined quarterly, as soon as practicable after and as of the end of each calendar quarter, by dividing the value of total assets minus liabilities by the total number of shares outstanding at the date as of which the determination is made.

     In calculating the value of our total assets, securities that are traded in the over-the-counter market or on a stock exchange are valued at the prevailing market price on the valuation date, unless the securities are subject to a restriction that requires a discount from such price, which is determined in good faith by our board of directors. All other securities are valued at fair value as determined in good faith by the board of directors. In making such determination, the board of directors values loans and non-convertible debt securities for which there exists no public trading market at cost plus amortized original issue discount, if any, unless adverse factors lead to a determination of a lesser value. In valuing convertible debt securities, equity or other types of securities for which there exists no public trading market, the board of directors will determine fair value on the basis of collateral, the portfolio company’s ability to make payments, its earnings and other pertinent factors.

     A significant portion of our assets will consist of securities carried at fair values determined by our board of directors. Determination of fair values involves subjective judgment not susceptible to substantiation by auditing procedures. Accordingly, under current auditing standards, the notes to our financial statements will refer to the uncertainty with respect to the possible effect of such valuations on our financial statements.

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PORTFOLIO COMPANIES

     As of December 31, 2003, we have funded loans to 53 portfolio companies. Under the terms of our arrangements with the portfolio companies set forth below, we generally have the right, through our assignees, to invest in these companies; however, we have not exercised such right in any of our portfolio companies. See “Regulation as a Business Development Company.” The warrants we hold represent, in each instance, less than 1% of the company issuing the warrants. The following table sets forth information about our portfolio companies.

Oxford Finance Corporation
Schedule of Investments
December 31, 2003

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(1)		Stressgen Biotechnologies, Inc. is a publicly traded company.
(2)		The warrants we hold represent, in each instance, less than 1% of the company issuing the warrants and are not currently income producing.

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CERTAIN U.S. FEDERAL INCOME TAX CONSIDERATIONS

          The following discussion is a general summary of the material U.S. federal income tax considerations applicable to us and to an investment in our shares. This summary does not purport to be a complete description of the income tax considerations applicable to such an investment. For example, we have not described tax consequences that we assume to be generally known by investors or certain considerations that may be relevant to certain types of holders subject to special treatment under U.S. federal income tax laws, including a stockholder who received our common stock through the grant of restricted stock or otherwise as compensation, tax-exempt organizations, insurance companies, dealers in securities, pension plans and trusts and financial institutions. This summary assumes that investors hold our common stock as capital assets. The discussion is based upon the Internal Revenue Code, treasury regulations, and administrative and judicial interpretations, each as of the date of this registration statement and all of which are subject to change, possibly retroactively, which could affect the continuing validity of this discussion. We have not and will not seek any ruling from the Internal Revenue Service. This summary does not discuss any aspects of U.S. estate or gift tax or foreign, state or local tax. It does not discuss the special treatment under U.S. federal income tax laws that could result if we invested in tax-exempt securities or certain other investment assets and does not discuss any tax effect that may arise as a result of the Asset Purchase Agreement executed on January 28, 2004 with Oxford Finance Acquisition Corp. See “Recent Developments.”

     A “U.S. stockholder” generally is a beneficial owner of common stock who is any one of the following:

	•		a citizen or resident of the United States;
	•		a corporation, partnership or other entity created in or organized under the laws of the United States or any political subdivision thereof;
	•		an estate, the income of which is subject to U.S. federal income taxation regardless of its source; or
	•		a trust subject to the supervision of a court within the United States and the control of a United States person.

          A “Non-U.S. stockholder” is a beneficial owner of common stock that is not a U.S. stockholder for U.S. federal income tax purposes. An individual may be treated as a resident of the United States in any calendar year for U.S. federal income tax purposes, instead of as a nonresident, by, among other ways, being present in the United States on at least 31 days in that calendar year and for an aggregate of at least 183 days during a three-year period ending in the current calendar year. For purposes of this calculation, a stockholder would count all of the days present in the current year, one-third of the days present in the immediately preceding year and one-sixth of the days present in the second preceding year. U.S. residents are taxed for U.S. federal income purposes as if they were U.S. citizens.

          Tax matters are very complicated and the tax consequences to an investor of an investment in us will depend on the facts of his, her or its particular situation. We encourage investors to consult their own tax advisors regarding the specific consequences of such an investment, including tax reporting requirements, the applicability of federal, state, local and foreign tax laws, eligibility for the benefits of any applicable tax treaty and the effect of any possible changes in the tax laws.

Item 2. Properties

          We do not own any real estate or other physical properties materially important to our operation. Currently, we lease 5,350 square feet of office space in Alexandria, Virginia for our corporate headquarters located at 133 N. Fairfax Street, Alexandria, Virginia 22314. Our telephone number is (703) 519-4900.

Item 3. Legal Proceedings

          We are not currently party to any legal proceeding that would be expected to have a material adverse effect on our business, results of operations or financial condition.

Item 4. Submission of Matters to a Vote of Security Holders

          Not Applicable.

PART III

Item 5. Market for the Registrant’s Common Equity and Related Stockholder Matters

          There is no established public trading market for the shares of the Company’s stock. The Company has approximately 54 stockholders of record as of February 20, 2004.

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          Dividend Policy

          We are required to distribute at least 90% of our investment company taxable income to avoid corporate level taxes on the amount distributed and at least 98% of our investment company taxable income to avoid an excise tax. We have made and intend to continue to make distributions on a quarterly basis to our stockholders of all of our income, except for certain net capital gains and adjustments for long-term incentive compensation expense.

          We may not be able to achieve operating results that will allow us to make distributions at a specific level or to increase the amount of these distributions from time to time. In addition, we may be limited in our ability to make distributions due to the asset coverage test for borrowings applicable to us as a BDC and due to provisions in our credit facilities. If we do not distribute a certain percentage of our income annually, we will suffer adverse tax consequences, including possible loss of our status as a regulated investment company. We cannot assure shareholders that they will receive any distributions or distributions at a particular level.

          The following table summarizes our dividends declared to date:

          The dividend declared on February 28, 2003 was based on our projected earnings of the Company for the first quarter of 2003. The Company subsequently received a fee from the prepayment in full of an investment in a portfolio company with a balance of $5,948,421 in 2003. This portfolio company was acquired during the first quarter of 2003, and the new parent company elected to repay the loan as well as a prepayment fee of $551,759, which is included in interest and fee income in the statement of operations during the first quarter of 2003. The dividend declared on May 30, 2003 was based on our projected earnings of the Company for the second quarter of 2003 as well as the one time distribution of the income from the prepayment fee.

          All dividends paid during 2002 and 2003 were characterized as ordinary income with no return of capital or capital gain components.

          The information with respect to compensation of executives and directors is expected to be contained in our definitive Proxy Statement for the 2004 Annual Meeting of Stockholders to be filed with the Securities and Exchange Commission pursuant to Regulation 14A under the Securities Exchange Act and is incorporated in this Form 10-K by reference in response to this item.

Item 6. Selected Financial Data

     The selected financial data should be read with the financial statements and notes thereto in this Report of Form 10-K. We commenced operations on March 20, 2002, and we made our first loans in portfolio companies at the end of the first quarter of 2002. These results are not indicative of future results.

BALANCE SHEET