Firsthand Technology Value Fund, Inc 10-Q for FY2022 Q3
Firsthand Technology Value Fund, Inc. (SVVC)
About this 10-Q
Firsthand Technology Value Fund, Inc filed this 10-Q on November 15, 2022, covering the quarter ended September 30, 2022 (FY2022 Q3).
Headline figures
Quarter ended September 30, 2022, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Net loss
- $11.36M
- compared with a net loss of $8.57M a year earlier
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period of
or
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TRANSITION QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission File Number
(Exact Name of Registrant as Specified in Charter)
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Registrant’s Telephone Number, Including Area Code:
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☑
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
☐ Large Accelerated Filer
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☐ Accelerated Filer
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
☐Yes ☑
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
Class |
Outstanding at September 30, 2022 |
Common Stock, $0.001 par value per share |
1
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
See accompanying notes to financial statements
2
Firsthand Technology Value Fund, Inc.
Consolidated Statements of Assets and Liabilities
AS OF |
AS OF |
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ASSETS |
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Investment securities: |
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Unaffiliated investments at acquisition cost |
$ | * | $ | * | ||||
Affiliated investments at acquisition cost |
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Controlled investments at acquisition cost |
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Total acquisition cost |
$ | $ | ||||||
Unaffiliated investments at market value |
$ | * | $ | * | ||||
Affiliated investments at market value |
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Controlled investments at market value |
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Total Market value** (Note 6) |
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Foreign currency at value (cost $ |
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Receivable from dividends and interest |
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Other assets |
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Total Assets |
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LIABILITIES |
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Due to Custodian |
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Payable for securities purchased |
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Payable to affiliates (Note 4) |
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Trustees’ fees payable |
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Consulting fee payable |
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Accrued expenses and other payables |
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Total Liabilities |
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NET ASSETS |
$ | $ | ||||||
Net Assets consist of: |
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Common Stock, par value $ per share shares authorized |
$ | $ | ||||||
Paid-in-capital |
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Total distributable earnings (loss) |
( |
) | ( |
) | ||||
NET ASSETS |
$ | $ | ||||||
Shares of Common Stock outstanding |
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Shares of Treasury Stock outstanding |
( |
) | ( |
) | ||||
Total Shares of Common Stock outstanding |
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Net asset value per share (Note 2) |
$ | $ | ||||||
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* |
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** |
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See accompanying notes to financial statements
3
Firsthand Technology Value Fund, Inc.
Consolidated Statements of Operations (Unaudited)
FOR THE THREE MONTHS ENDED |
FOR THE NINE MONTHS ENDED |
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SEPTEMBER 30, |
SEPTEMBER 30, |
SEPTEMBER 30, |
SEPTEMBER 30, |
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INVESTMENT INCOME |
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Unaffiliated interest |
$ | $ | $ | ( |
) | $ | ||||||||||
Affiliated/controlled interest |
( |
) | ( |
) | ||||||||||||
TOTAL INVESTMENT INCOME |
( |
) | ( |
) | ||||||||||||
Investment advisory fees (Note 4) |
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Administration fees |
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Custody fees |
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Transfer agent fees |
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Registration and filing fees |
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Professional fees |
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Printing fees |
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Trustees fees |
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Compliance fees |
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Miscellaneous fees |
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TOTAL GROSS EXPENSES |
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NET INVESTMENT INCOME |
( |
) | ( |
) | ||||||||||||
Net Realized and Unrealized Gain (Loss) on Investments: |
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Net realized gains (losses) from security transactions on: |
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Affiliated/Controlled |
( |
) | ||||||||||||||
Foreign currency |
( |
) | ||||||||||||||
Net realized gains (Losses) |
( |
) | ||||||||||||||
Net change in unrealized appreciation (depreciation) on: |
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Non-affiliated investments |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||
Affiliated/controlled investments and foreign currency |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||
Affiliated/controlled warrants investments (1) |
( |
) | ||||||||||||||
Net change in unrealized appreciation (depreciation) |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||
Net Realized and Unrealized Gains (Losses) on Investments |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||
Net Increase (Decrease) In Net Assets Resulting From Operations |
$ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | ||||
Net Increase (Decrease) In Net Assets Per Share Resulting From Operations (2) |
$ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | ||||
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(1) |
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(2) |
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See accompanying notes to financial statements
4
Firsthand Technology Value Fund, Inc.
Consolidated Statements of Cash Flows (Unaudited)
FOR THE THREE |
FOR THE THREE |
FOR THE NINE |
FOR THE NINE |
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CASH FLOWS FROM OPERATING ACTIVITIES |
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Net increase (decrease) in Net Assets resulting from operations |
$ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | ||||
Adjustments to reconcile net increase (decrease) in Net Assets derived from operations to net cash provided by (used in) operating activities |
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Purchases of investments |
( |
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Proceeds from disposition of investments |
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Net purchases/sales from short-term investments |
( |
) | ( |
) | ( |
) | ( |
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Increase (decrease) in dividends, interest, and reclaims receivable |
( |
) | ( |
) | ||||||||||||
Increase (decrease) in due to Custodian |
( |
) | ||||||||||||||
Increase (decrease) in payable for investment purchased |
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Increase (decrease) in payable to affiliates |
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Increase (decrease) in other assets |
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Increase (decrease) in accrued expenses and other payables |
( |
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Net realized gain (loss) from investments |
( |
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) | ||||||||||||
Net unrealized appreciation (depreciation) from investments, other assets, and warrants transactions |
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Net cash provided by (used in) operating activities |
( |
) | ||||||||||||||
CASH FLOWS FROM FINANCING ACTIVITIES |
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Net cash provided by financing activities |
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Net increase (decrease) in cash |
( |
) | ||||||||||||||
Cash and foreign currency - beginning of period |
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Cash and foreign currency - end of period |
$ | $ | $ | $ | ||||||||||||
See accompanying notes to financial statements
5
Firsthand Technology Value Fund, Inc.
Consolidated Statements of Changes in Net Assets (Unaudited)
FOR THE THREE |
FOR THE THREE |
FOR THE NINE |
FOR THE NINE |
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FROM OPERATIONS: |
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Net investment income (loss) |
$ | ( |
) | ( |
) | |||||||||||
Net realized gain (loss) from security transactions, foreign currency and warrants transactions |
( |
) | ||||||||||||||
Net change in unrealized (depreciation) on investments, other assets, and warrants transactions |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||
Net decrease in net assets from operations |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||
TOTAL DECREASE IN NET ASSETS |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||
NET ASSETS: |
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Beginning of period |
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End of period |
$ | $ | $ | $ | ||||||||||||
COMMON STOCK ACTIVITY: |
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Shares outstanding, beginning of period |
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Shares outstanding, end of period |
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See accompanying notes to financial statements
6
Firsthand Technology Value Fund, Inc.
Consolidated Financial Highlights
Selected per share data and ratios for a share outstanding throughout each period
FOR THE NINE |
FOR THE |
FOR THE |
FOR THE |
FOR THE |
FOR THE |
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Net asset value at beginning of period |
$ | $ | $ | $ | $ | $ | ||||||||||||||||||
Income from investment operations: |
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Net investment income (loss), before deferred taxes |
( |
) | (1) | (1) | (1) | ( |
)(1) | ( |
) | |||||||||||||||
Deferred tax benefit |
( |
) | ||||||||||||||||||||||
Net investment gain (losses) |
( |
) | ( |
) | ( |
) | ||||||||||||||||||
Net realized and unrealized gains (losses) on investments, before deferred taxes |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||||||||||
Deferred tax expense |
( |
) | ( |
) | ||||||||||||||||||||
Net realized and unrealized gains (losses) on investments, after deferred taxes |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||||||||||
Total from investment operations |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||||||||||
Distributions from: |
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Realized capital gains |
( |
) | ||||||||||||||||||||||
Anti-dilutive effect from capital share transactions |
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Net asset value at end of period |
$ | $ | $ | $ | $ | $ | ||||||||||||||||||
Market value at end of period |
$ | $ | $ | $ | $ | $ | ||||||||||||||||||
Total Return |
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Based on Net Asset Value |
( |
)%(A) | ( |
)% | ( |
)% | ( |
)% | % | % | ||||||||||||||
Based on Market Value |
( |
)%(A) | ( |
)% | ( |
)% | ( |
)% | % | % | ||||||||||||||
Net assets at end of period (millions) |
$ | $ | $ | $ | $ | $ | ||||||||||||||||||
See accompanying notes to financial statements
7
Firsthand Technology Value Fund, Inc.
Consolidated Financial Highlights - continued
Selected per share data and ratios for a share outstanding throughout each period
FOR THE NINE |
FOR THE |
FOR THE |
FOR THE |
FOR THE |
FOR THE |
|||||||||||||||||||
Ratio of total expenses to average net assets: |
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Before tax (benefit)/expense |
%(B) | % | % | ( |
)%(2) | %(2) | %(2) | |||||||||||||||||
Deferred tax (benefit)/expense(3)(4) |
%(5) | ( |
)% | % | ||||||||||||||||||||
Total expenses |
%(B) | % | % | ( |
)%(2) | %(2) | % | |||||||||||||||||
Total expenses, excluding incentive fees and deferred tax expense |
%(B) | % | % | % | % | % | ||||||||||||||||||
Ratio of net investment income (loss) to average net assets: |
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Before tax benefit |
( |
)%(B) | % | % | %(2) | ( |
)%(2) | ( |
)% | |||||||||||||||
Deferred tax benefit (4)(6) |
( |
)% | % | |||||||||||||||||||||
Net investment income (loss) |
( |
)%(B) | % | % | % | ( |
)% | ( |
)% | |||||||||||||||
Portfolio turnover rate |
%(A) | % | % | % | % | % | ||||||||||||||||||
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(1) |
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(2) |
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(3) |
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(4) |
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(5) |
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(6) |
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(A) |
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(B) |
|
See accompanying notes to financial statements
8
Firsthand Technology Value Fund, Inc.
Consolidated Schedule of Investments
SEPTEMBER 30, 2022 (UNAUDITED)
PORTFOLIO |
TYPE OF INVESTMENT |
ACQUISITION DATE |
SHARES/PAR |
COST BASIS |
VALUE |
||||||||||||
EQX CAPITAL, INC. |
$ | $ | |||||||||||||||
(3.1%) |
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| Equipment Leasing | |||||||||||||||||
HERA SYSTEMS, INC. (19.0%) |
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| Aerospace | |||||||||||||||||
See accompanying notes to financial statements
9
Firsthand Technology Value Fund, Inc.
Consolidated Schedule of Investments - continued
SEPTEMBER 30, 2022 (UNAUDITED)
PORTFOLIO |
TYPE OF INVESTMENT |
ACQUISITION DATE |
SHARES/PAR |
COST BASIS |
VALUE |
||||||||||||
HERA SYSTEMS, INC. (continued) |
$ | $ | |||||||||||||||
See accompanying notes to financial statements
10
Firsthand Technology Value Fund, Inc.
Consolidated Schedule of Investments - continued
SEPTEMBER 30, 2022 (UNAUDITED)
PORTFOLIO |
TYPE OF INVESTMENT |
ACQUISITION DATE |
SHARES/PAR |
COST BASIS |
VALUE |
||||||||||||
HERA SYSTEMS, INC. (continued) |
$ | $ | |||||||||||||||
See accompanying notes to financial statements
11
Firsthand Technology Value Fund, Inc.
Consolidated Schedule of Investments - continued
SEPTEMBER 30, 2022 (UNAUDITED)
PORTFOLIO |
TYPE OF INVESTMENT |
ACQUISITION DATE |
SHARES/PAR |
COST BASIS |
VALUE |
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HERA SYSTEMS, INC. (continued) |
$ | $ | |||||||||||||||
INTRAOP MEDICAL CORP. (54.0%) |
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| Medical Devices | |||||||||||||||||
See accompanying notes to financial statements
12
Firsthand Technology Value Fund, Inc.
Consolidated Schedule of Investments - continued
SEPTEMBER 30, 2022 (UNAUDITED)
PORTFOLIO |
TYPE OF INVESTMENT |
ACQUISITION DATE |
SHARES/PAR |
COST BASIS |
VALUE |
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INTRAOP MEDICAL CORP. (continued) |
$ | $ | |||||||||||||||
See accompanying notes to financial statements
13
Firsthand Technology Value Fund, Inc.
Consolidated Schedule of Investments - continued
SEPTEMBER 30, 2022 (UNAUDITED)
PORTFOLIO |
TYPE OF INVESTMENT |
ACQUISITION DATE |
SHARES/PAR |
COST BASIS |
VALUE |
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INTRAOP MEDICAL CORP. (continued) |
$ | $ | |||||||||||||||
KYMA, INC. (0.2%) |
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LYNCEAN TECHNOLOGIES, INC. (0.0%) |
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Semiconductor Equipment |
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REVASUM, INC. (7.9%) |
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Semiconductor Equipment |
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SILICON GENESIS CORP. (2.0%) |
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Intellectual Property |
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See accompanying notes to financial statements
14
Firsthand Technology Value Fund, Inc.
Consolidated Schedule of Investments - continued
SEPTEMBER 30, 2022 (UNAUDITED)
PORTFOLIO |
TYPE OF INVESTMENT |
ACQUISITION DATE |
SHARES/PAR |
COST BASIS |
VALUE |
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UCT COATINGS, INC. (1.0%) |
$ | $ | |||||||||||||||
Advanced Materials |
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WRIGHTSPEED, INC. (31.1%) |
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Automotive |
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See accompanying notes to financial statements
15
Firsthand Technology Value Fund, Inc.
Consolidated Schedule of Investments - continued
SEPTEMBER 30, 2022 (UNAUDITED)
PORTFOLIO |
TYPE OF INVESTMENT |
ACQUISITION DATE |
SHARES/PAR |
COST BASIS |
VALUE |
||||||||||||
WRIGHTSPEED, INC. |
$ | $ | |||||||||||||||
See accompanying notes to financial statements
16
Firsthand Technology Value Fund, Inc.
Consolidated Schedule of Investments - continued
SEPTEMBER 30, 2022 (UNAUDITED)
PORTFOLIO |
TYPE OF INVESTMENT |
ACQUISITION DATE |
SHARES/PAR |
COST BASIS |
VALUE |
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WRIGHTSPEED, INC. |
$ | $ | |||||||||||||||
INVESTMENT COMPANY (3.0%) |
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TOTAL INVESTMENTS (Cost $141,760,630) — 121.3% |
$ | ||||||||||||||||
LIABILITIES IN EXCESS OF OTHER ASSETS — (21.3)% |
( |
) | |||||||||||||||
NET ASSETS — 100.0% |
$ | ||||||||||||||||
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* |
|
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CDI |
CHESS Depositary Interests |
|
(1) |
|
See accompanying notes to financial statements
17
Firsthand Technology Value Fund, Inc.
Consolidated Schedule of Investments - continued
SEPTEMBER 30, 2022 (UNAUDITED)
|
(2) |
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(3) |
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(4) |
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(5) |
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See accompanying notes to financial statements
18
Firsthand Technology Value Fund, Inc.
Consolidated Schedule of Investments
DECEMBER 31, 2021
PORTFOLIO |
TYPE OF INVESTMENT |
ACQUISITION DATE |
SHARES/PAR |
COST BASIS |
VALUE |
||||||||||||
EQX CAPITAL, INC. |
$ | $ | |||||||||||||||
(2.0%) Equipment Leasing |
|||||||||||||||||
HERA SYSTEMS, INC. (5.8%) Aerospace |
|||||||||||||||||
See accompanying notes to financial statements
19
Firsthand Technology Value Fund, Inc.
Consolidated Schedule of Investments - continued
DECEMBER 31, 2021
PORTFOLIO |
TYPE OF INVESTMENT |
ACQUISITION DATE |
SHARES/PAR |
COST BASIS |
VALUE |
||||||||||||
HERA SYSTEMS, INC. (continued) |
$ | $ | |||||||||||||||
See accompanying notes to financial statements
20
Firsthand Technology Value Fund, Inc.
Consolidated Schedule of Investments - continued
DECEMBER 31, 2021
PORTFOLIO |
TYPE OF INVESTMENT |
ACQUISITION DATE |
SHARES/PAR |
COST BASIS |
VALUE |
||||||||||||
HERA SYSTEMS, INC. (continued) |
$ | $ | |||||||||||||||
INTRAOP MEDICAL CORP. (28.6%) Medical Devices |
|||||||||||||||||
See accompanying notes to financial statements
21
Firsthand Technology Value Fund, Inc.
Consolidated Schedule of Investments - continued
DECEMBER 31, 2021
PORTFOLIO |
TYPE OF INVESTMENT |
ACQUISITION DATE |
SHARES/PAR |
COST BASIS |
VALUE |
||||||||||||
INTRAOP MEDICAL CORP. (continued) |
$ | $ | |||||||||||||||
See accompanying notes to financial statements
22
Firsthand Technology Value Fund, Inc.
Consolidated Schedule of Investments - continued
DECEMBER 31, 2021
PORTFOLIO |
TYPE OF INVESTMENT |
ACQUISITION DATE |
SHARES/PAR |
COST BASIS |
VALUE |
||||||||||||
KYMA, INC. (0.1%) Advanced Materials |
$ | $ | |||||||||||||||
LYNCEAN TECHNOLOGIES, INC. (0.3%) |
|||||||||||||||||
Semiconductor Equipment |
|||||||||||||||||
PIVOTAL SYSTEMS CORP. (9.8%) |
|||||||||||||||||
Semiconductor Equipment |
|||||||||||||||||
REVASUM, INC. (22.7%) |
|||||||||||||||||
Semiconductor Equipment |
|||||||||||||||||
SILICON GENESIS CORP. (1.1%) |
|||||||||||||||||
Intellectual Property |
|||||||||||||||||
See accompanying notes to financial statements
23
Firsthand Technology Value Fund, Inc.
Consolidated Schedule of Investments - continued
DECEMBER 31, 2021
PORTFOLIO |
TYPE OF INVESTMENT |
ACQUISITION DATE |
SHARES/PAR |
COST BASIS |
VALUE |
||||||||||||
SVXR, INC. (0.0%) |
$ | $ | |||||||||||||||
Semiconductor Equipment |
|||||||||||||||||
UCT COATINGS, INC. (0.6%) |
|||||||||||||||||
Advanced Materials |
|||||||||||||||||
WRIGHTSPEED, INC. (24.5%) |
|||||||||||||||||
Automotive |
|||||||||||||||||
See accompanying notes to financial statements
24
Firsthand Technology Value Fund, Inc.
Consolidated Schedule of Investments - continued
DECEMBER 31, 2021
PORTFOLIO |
TYPE OF INVESTMENT |
ACQUISITION DATE |
SHARES/PAR |
COST BASIS |
VALUE |
||||||||||||
WRIGHTSPEED, INC. (continued) |
$ | $ | |||||||||||||||
| 23,189,709 | |||||||||||||||||
See accompanying notes to financial statements
25
Firsthand Technology Value Fund, Inc.
Consolidated Schedule of Investments - continued
DECEMBER 31, 2021
PORTFOLIO |
TYPE OF INVESTMENT |
ACQUISITION DATE |
SHARES/PAR |
COST BASIS |
VALUE |
||||||||||||
INVESTMENT COMPANY (0.7%) |
$ | $ | |||||||||||||||
TOTAL INVESTMENTS (Cost $145,228,559) — 96.2% |
$ | ||||||||||||||||
OTHER ASSETS IN EXCESS OF LIABILITIES — 3.8% |
|||||||||||||||||
NET ASSETS — 100.0% |
$ | ||||||||||||||||
|
* |
|
|
CDI |
CHESS Depositary Interests |
|
(1) |
|
|
(2) |
|
|
(3) |
|
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(4) |
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(5) |
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26
Firsthand Technology Value Fund, Inc.
Notes to Consolidated Financial Statements
SEPTEMBER 30, 2022 (UNAUDITED)
NOTE 1. THE COMPANY
Firsthand Technology Value Fund, Inc. (the “Company,” the “Fund,” “us,” “our,” and “we”), is a Maryland corporation and an externally managed, non-diversified, closed-end management investment company that has elected to be treated as a business development company (“BDC”) under the Investment Company Act of 1940, as amended (the “1940 Act”). The Company acquired its initial portfolio of securities through the reorganization of Firsthand Technology Value Fund, a series of Firsthand Funds, into the Company. The reorganization was completed on April 15, 2011. The Company commenced operations on April 18th, 2011. Under normal circumstances, the Company will invest at least 80% of its assets for investment purposes in technology companies, which are considered to be those companies that derive at least 50% of their revenues from products and/ or services within the information technology sector or the “cleantech” sector. Information technology companies include, but are not limited to, those focused on computer hardware, software, telecommunications, networking, Internet, and consumer electronics. While there is no standard definition of cleantech, it is generally regarded as including goods and services designed to harness renewable energy and materials, eliminate emissions and waste, and reduce the use of natural resources. In addition, under normal circumstances we will invest at least 70% of our assets in privately held companies and in public companies with market capitalizations less than $250 million. Our portfolio is primarily composed of equity and equity derivative securities of technology and cleantech companies (as defined above). These investments generally range between $1 million and $10 million each, although the investment size will vary proportionately with the size of the Company’s capital base. The Company’s shares are listed on the NASDAQ Global Market under the symbol “SVVC.” Firsthand Capital Management, Inc., which was previously known as SiVest Group, Inc. (“FCM” or the “Advisor”), serves as the investment adviser to the Company.
The Company is an investment company and follows accounting and reporting guidance in the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification Topic 946.
CONSOLIDATION OF SUBSIDIARIES. On May 8, 2015, the Board of Directors of the Company approved the formation of a fully owned and controlled subsidiary (as defined by the 1940 Act) of the Company named Firsthand Venture Investors (“FVI”), a California general partnership formed on March 30, 2015. After the close of business on June 30, 2015, the Company contributed substantially all of its assets to FVI in return for a controlling general partner ownership interest in FVI. The transaction was completed on July 1, 2015. Under this structure, we have all or substantially all of our investment activities conducted through our fully owned subsidiary, FVI.
During the fiscal years ended December 31, 2016 and 2017, with the approval of its Board of Directors, the Company organized three separate fully owned and controlled subsidiaries (as defined by the 1940 Act). Each subsidiary was a Cayman Islands corporation and the financial statements of each subsidiary were reported on a consolidated basis with the Company. Each subsidiary was formed for the purpose of holding one or more investments made by the Company, and was treated as a controlled foreign corporation under the Internal Revenue Code not separately subject to U.S. federal income tax. FVI was treated as the sole U.S. shareholder of each subsidiary.
The Board of Directors of the Company approved the liquidation of those three Cayman subsidiaries on November 2, 2018. That liquidation was completed on December 27, 2018.
27
Firsthand Technology Value Fund, Inc.
Notes to Consolidated Financial Statements - continued
SEPTEMBER 30, 2022 (UNAUDITED)
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies followed in the preparation of the Company’s financial statements included in this report:
BASIS OF PRESENTATION. The accompanying financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) pursuant to the requirements on Form 10-K. ASC 946, Financial Services—Investment Companies (“ASC 946”), and Articles 6, 10 and 12 of Regulation S-X. In the opinion of management, all adjustments, which are of a normal recurring nature, considered necessary for the fair presentation of the financial statements for the periods presented, have been included.
Under the 1940 Act, ASC 946, and the regulations pursuant to Article 6 of Regulation S-X, we are precluded from consolidating any entity other than another investment company or an operating company which provides substantially all of its services to benefit us. Consequentially, as of December 31, 2018, the Company consolidated some special purpose entities. These special purpose entities only hold investments of the Company and have no other significant asset and liabilities. All significant intercompany transactions and balances have been eliminated in consolidation.
USE OF ESTIMATES. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the reporting period. Actual results could differ from those estimates.
PORTFOLIO INVESTMENT VALUATIONS. Investments are stated at “value” as defined in the 1940 Act and in the applicable regulations of the Securities and Exchange Commission and in accordance with GAAP. Value, as defined in Section 2(a)(41) of the 1940 Act, is (i) the market value of those securities for which a market quotation is readily available and (ii) the fair value as determined in good faith by the Advisor as the valuation designee appointed by the Board of Directors, and subject to oversight by the Board of Directors. On September 30, 2022, our financial statements include venture capital investments valued at approximately $
CASH AND CASH EQUIVALENTS. The Company considers liquid assets deposited with a bank, investments in money market funds, and certain short-term debt instruments with maturities of three months or less to be cash equivalents. These investments represent amounts held with financial institutions that are readily accessible to pay our expenses or purchase investments. Cash and cash equivalents are valued at cost plus accrued interest, which approximates market value.
RESTRICTED SECURITIES. At September 30, 2022, we held $
INCOME RECOGNITION. Dividend income is recorded on the ex-dividend date. Interest income is accrued as earned. Discounts and premiums on securities purchased are amortized over the lives of the respective securities. Other non-cash dividends are recognized as investment income at the fair value of the property received. When debt securities are determined to be non-income producing, the Company ceases accruing interest and writes off any previously accrued interest. These write-offs are recorded as an adjustment to interest income. The Company applied an interest adjustment of approximately $(
28
Firsthand Technology Value Fund, Inc.
Notes to Consolidated Financial Statements - continued
SEPTEMBER 30, 2022 (UNAUDITED)
REALIZED GAIN OR LOSS AND UNREALIZED APPRECIATION OR DEPRECIATION OF PORTFOLIO INVESTMENTS. A realized gain or loss is recognized when an investment is disposed of and is computed as the difference between the Company’s cost basis in the investment at the disposition date and the net proceeds received from such disposition. Realized gains and losses are calculated on a specific identification basis. Unrealized appreciation or depreciation is computed as the difference between the fair value of the investment and the cost basis of such investment.
INCOME TAXES. The Company provides for state and federal corporate income tax, as appropriate, because it is regarded as a corporation under Subchapter C of the Code. The Company recognizes interest and penalties in income tax expense.
FOREIGN CURRENCY TRANSLATION. The accounting records of the Company are maintained in U.S. dollars. All assets and liabilities denominated in foreign currencies are translated into U.S. dollars based on the foreign exchange rate on the date of valuation. The Company does not isolate that portion of the results of operation resulting from changes in foreign exchange rates on investments from the fluctuations arising from changes in market prices of securities held. The Company’s investments in foreign securities may involve certain risks, including without limitation: foreign exchange restrictions, expropriation, taxation or other political, social, or economic risks, all of which could affect the market and/or credit risk of the investment. In addition, changes in the relationship of foreign currencies to the U.S. dollar can significantly affect the value of these investments and therefore the earnings of the Company.
SECURITIES TRANSACTIONS. Securities transactions are accounted for on the date the transaction for the purchase or sale of the securities is entered into by the Company (i.e., trade date).
CONCENTRATION OF CREDIT RISK. The Company places its cash and cash equivalents with financial institutions and, at times, cash held in checking accounts may exceed the Federal Deposit Insurance Corporation insured limit.
OPTIONS. The Company is subject to equity price risk in the normal course of pursuing its investment objectives and may enter into options written to hedge against changes in the value of equities. The Company may purchase put and call options to attempt to provide protection against adverse price effects from anticipated changes in prevailing prices of securities or stock indices. The Company may also write put and call options. When the Company writes an option, an amount equal to the premium received by the Company is recorded as a liability and is subsequently adjusted to the current fair value of the option written.
Premiums received from writing options that expire unexercised are treated by the Company on the expiration date as realized gains from investments. The difference between the premium and the amount paid on effecting a closing purchase transaction, including brokerage commissions, is also treated as a realized gain, or, if the premium is less than the amount paid for the closing purchase transaction, as a realized loss. If a call option is exercised, the premium is added to the proceeds from the sale of the underlying security or currency in determining whether the Company has realized a gain or loss. The Company as writer of an option bears the market risk of an unfavorable change in the price of the security underlying the written option.
29
Firsthand Technology Value Fund, Inc.
Notes to Consolidated Financial Statements - continued
SEPTEMBER 30, 2022 (UNAUDITED)
The average quarterly volume of the Company’s derivatives during the nine months ended September 30, 2022 is as follows:
| Schedule of derivatives | |||
PURCHASED OPTIONS |
WARRANTS |
WRITTEN OPTIONS |
|
Firsthand Technology Value Fund, Inc. |
NOTE 3. BUSINESS RISKS AND UNCERTAINTIES
We invest a substantial portion of our assets in privately-held companies, the securities of which are inherently illiquid. We also seek to invest in small publicly-traded companies that we believe have exceptional growth potential and to make opportunistic investments in publicly-traded companies, both large and small. In the case of investments in small publicly-traded companies, although these companies are publicly traded, their stock may not trade at high volumes, and prices can be volatile, which may restrict our ability to sell our positions. We may also be subject to contractual restrictions or securities law limits on our ability to sell portfolio holdings because of, for example, our affiliation with a portfolio company or the relative size of our holding in a company. These privately held and publicly traded businesses tend to lack management depth, have limited or no history of operations and typically have not attained profitability. Because of the speculative nature of our investments and the lack of public markets for privately held investments, there is greater risk of loss than is the case with traditional investment securities.
We do not choose investments based on a strategy of diversification. We also do not rebalance the portfolio should one of our portfolio companies increase in value substantially relative to the rest of the portfolio. Therefore, the value of our portfolio may be more vulnerable to events affecting a single sector, industry or portfolio company and, therefore, may be subject to greater volatility than a company that follows a diversification strategy.
Because there is typically no public or readily-ascertainable market for our interests in the small privately-held companies in which we invest, the valuation of those securities is determined in good faith by the Valuation Committee, comprised of all members of the Board who are not “interested persons” of the Company, as such term is defined in Section 2(a)(19) of the 1940 Act, in accordance with our Valuation Procedures and is subject to significant estimates and judgments. The determined value of the securities in our portfolio may differ significantly from the values that would be placed on these securities if a ready market for the securities existed. Any changes in valuation are recorded in our Statement of Operations as “Net increase (decrease) in unrealized appreciation on investments.” Changes in valuation of any of our investments in privately-held companies from one period to another may be volatile.
The Board has engaged an independent valuation firm to provide it with valuation assistance with respect to certain of our portfolio investments. The Company intends to continue to engage an independent valuation firm to provide us with assistance regarding our determination of the fair value of select portfolio investments each quarter unless directed by the Board to cancel such valuation services. The scope of the services rendered by an independent valuation firm is at the discretion of the Board. The Board is ultimately and solely responsible for determining the fair value of the Company’s investments in good faith.
30
Firsthand Technology Value Fund, Inc.
Notes to Consolidated Financial Statements - continued
SEPTEMBER 30, 2022 (UNAUDITED)
With respect to investments for which market quotations are not readily available or when such market quotations are deemed not to represent fair value, the Board has approved a multi-step valuation process to be followed each quarter, as described below:
|
(1) |
each quarter the valuation process begins with each portfolio company or investment being initially valued by the Advisor’s Valuation Committee or the independent valuation firm; |
|
(2) |
the Valuation Committee of the Board on a quarterly basis reviews the preliminary valuation of the Advisor’s Valuation Committee and that of the independent valuation firms and makes the fair value determination, in good faith, based on the valuation recommendations of the Advisor’s Valuation Committee and the independent valuation firms; and |
|
(3) |
at each quarterly Board meeting, the Board considers the valuations recommended by the Advisor’s Valuation Committee and the independent valuation firms that were previously submitted to the Valuation Committee of the Board and ratifies the fair value determinations made by the Valuation Committee of the Board. |
NOTE 4. INVESTMENT MANAGEMENT FEE
The Company has entered into an investment management agreement (the “Investment Management Agreement”) with FCM pursuant to which the Company will pay FCM a fee for providing investment management services consisting of two components—a base management fee and an incentive fee.
The base management fee will be calculated at an annual rate of
The incentive fee is determined and payable in arrears as of the end of each calendar year (or upon termination of the Investment Management Agreement, as of the termination date), commencing on April 15, 2011, and equals 20% of the Company’s realized capital gains, if any, on a cumulative basis from inception through the end of each calendar year, computed net of all realized capital losses and unrealized capital depreciation on a cumulative basis, less the aggregate amount of any previously paid incentive fees, provided that the incentive fee determined as of December 31, 2021, will be calculated for a period of shorter than twelve calendar months to take into account any realized gains computed net of all realized capital losses and unrealized capital depreciation from inception. For the three months ended September 30, 2022, there were no incentive fee adjustments. For the three months ended September 30, 2021, there were no incentive fee adjustments.
NOTE 5. DEBT
The Company currently has no plan to use leverage and does not have any significant outstanding debt obligations (other than normal operating expense accruals).
31
Firsthand Technology Value Fund, Inc.
Notes to Consolidated Financial Statements - continued
SEPTEMBER 30, 2022 (UNAUDITED)
NOTE 6. FAIR VALUE
Securities traded on stock exchanges, or quoted by NASDAQ, are valued according to the NASDAQ Stock Market, Inc. (“NASDAQ”) official closing price, if applicable, or at their last reported sale price as of the close of trading on the New York Stock Exchange (“NYSE”) (normally 4:00 P.M. Eastern Time). If a security is not traded that day, the security will be valued at its most recent bid price.
Securities traded in the over-the-counter market, but not quoted by NASDAQ, are valued at the last sale price (or, if the last sale price is not readily available, at the most recent closing bid price as quoted by brokers that make markets in the securities) at the close of trading on the NYSE.
Securities traded both in the over-the-counter market and on a stock exchange are valued according to the broadest and most representative market.
Securities and other assets that do not have market quotations readily available are valued at their fair value as determined by FCM, as the Board’s valuation designee under SEC rule 2a-5. Those valuations are determined in accordance with the Valuation Procedures used by FCM, subject to oversight by the Board.
In pricing illiquid, privately placed securities, FCM, as the valuation designee, is responsible for (1) determining overall valuation guidelines and (2) ensuring that the investments of the Company are valued within the prescribed guidelines.
FCM and the Board receive information and recommendations from an independent valuation firm.
The values assigned to these investments are based on available information and do not necessarily represent amounts that might ultimately be realized when that investment is sold, as such amounts depend on future circumstances and cannot reasonably be determined until the individual investments are actually liquidated or become readily marketable.
APPROACHES TO DETERMINING FAIR VALUE. GAAP defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). In effect, GAAP applies fair value terminology to all valuations whereas the 1940 Act applies market value terminology to readily marketable assets and fair value terminology to other assets.
The main approaches to measuring fair value utilized are the market approach, the income approach, and the asset-based approach. The choice of which approach to use in a particular situation depends on the specific facts and circumstances associated with the company, as well as the purpose for which the valuation analysis is being conducted. Firsthand and the independent valuation firm rely primarily on the market approach. We also considered the income and asset-based approaches in our analysis because certain of the portfolio companies do not have substantial operating earnings relative to the value of their underlying assets.
|
- |
Market Approach (M): The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities. For example, the market approach often uses market multiples derived from a set of comparables. Multiples might lie in ranges with a different multiple for each comparable. The selection of where within the range each appropriate multiple falls requires the use of judgment in considering factors specific to the measurement (qualitative and quantitative). |
32
Firsthand Technology Value Fund, Inc.
Notes to Consolidated Financial Statements - continued
SEPTEMBER 30, 2022 (UNAUDITED)
|
- |
Income Approach (I): The income approach uses valuation techniques to convert future amounts (for example, cash flows or earnings) to a single present value amount (discounted). The measurement is based on the value indicated by current market expectations about those future amounts. Those valuation techniques include present value techniques; option-pricing models, such as the Black-Scholes-Merton formula (a closed-form model) and a binomial model (a lattice model), which incorporate present value techniques; and the multi-period excess earnings method, which is used to measure the fair value of certain assets. |
|
- |
Asset-Based Approach (A): The asset-based approach examines the value of a company’s assets net of its liabilities to derive a value for the equity holders. |
FAIR VALUE MEASUREMENT. In accordance with the guidance from the Financial Accounting Standards Board on fair value measurements and disclosures under GAAP, the Company discloses the fair value of its investments in a hierarchy that prioritizes the inputs to valuation techniques used to measure the fair value. The hierarchy gives the highest priority to valuations based upon unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurement) and the lowest priority to valuations based upon unobservable inputs that are significant to the valuation (Level 3 measurements).
The guidance establishes three levels of the fair value hierarchy as follows:
|
Level 1 - |
Unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the date of measurement. |
|
Level 2 - |
Observable inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. These inputs may include quoted prices for the identical instrument in an inactive market, prices for similar instruments in an active or inactive market, interest rates, prepayment speeds, credit risks, yield curves, default rates, and similar data. |
|
Level 3 - |
Unobservable inputs for the asset or liability, to the extent relevant observable inputs are not available, representing the Company’s own assumptions about the assumptions a market participant would use in valuing the asset or liability based on the best information available. |
The availability of observable inputs can vary from security to security and is affected by a wide variety of factors, including, for example, the type of security, whether the security is new and not yet established in the marketplace, the liquidity of markets, and other characteristics particular to the security. To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. Accordingly, the degree of judgment exercised in determining fair value is greatest for instruments categorized in Level 3.
The inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, for disclosure purposes, the level in the fair value hierarchy within which the fair value measurement falls in its entirety, is determined based on the lowest level input that is significant to the fair value measurement in its entirety.
33
Firsthand Technology Value Fund, Inc.
Notes to Consolidated Financial Statements - continued
SEPTEMBER 30, 2022 (UNAUDITED)
The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities. The following is a summary of the inputs used to value the Company’s net assets as of September 30, 2022:
| Schedule of fair value of net asset | ||||||||||||
ASSETS |
LEVEL 1 |
LEVEL 2 OTHER |
LEVEL 3 SIGNIFICANT |
|||||||||
Common Stocks |
||||||||||||
Advanced Materials |
$ | $ | $ | |||||||||
Automotive |
||||||||||||
Equipment Leasing |
||||||||||||
Intellectual Property |
||||||||||||
Semiconductor Equipment |
||||||||||||
Total Common Stocks |
||||||||||||
Preferred Stocks |
||||||||||||
Aerospace |
||||||||||||
Automotive |
||||||||||||
Equipment Leasing |
||||||||||||
Intellectual Property |
||||||||||||
Total Preferred Stocks |
||||||||||||
Asset Derivatives * |
||||||||||||
Equity Contracts |
||||||||||||
Total Asset Derivatives |
||||||||||||
Convertible Notes |
||||||||||||
Advanced Materials |
||||||||||||
Aerospace |
||||||||||||
Automotive |
||||||||||||
Medical Devices |
||||||||||||
Total Convertible Notes |
||||||||||||
Mutual Funds |
||||||||||||
Total |
$ | $ | $ | |||||||||
|
* |
|
At the end of each calendar quarter, management evaluates the Level 2 and Level 3 assets and liabilities for changes in liquidity, including but not limited to: whether a broker is willing to execute at the quoted price, the depth and consistency of prices from third party services, and the existence of contemporaneous, observable trades in the market. Additionally, management evaluates the Level 1 and Level 2 assets and liabilities on a quarterly basis for changes in listings or delistings on national exchanges.
34
Firsthand Technology Value Fund, Inc.
Notes to Consolidated Financial Statements - continued
SEPTEMBER 30, 2022 (UNAUDITED)
Following is a reconciliation of Level 3 assets (at either the beginning or the ending of the period) for which significant unobservable inputs were used to determine fair value.
| Schedule of unobservable inputs of fair value | ||||||||||||||||||||||||||||
INVESTMENTS AT FAIR |
BALANCE |
NET |
NET SALES/ |
NET REALIZED |
NET UNREALIZED |
TRANSFERS |
BALANCE |
|||||||||||||||||||||
Common Stocks |
||||||||||||||||||||||||||||
Advanced Materials |
$ | $ | $ | $ | $ | ( |
) | $ | $ | |||||||||||||||||||
Automotive |
( |
) | ||||||||||||||||||||||||||
Equipment Leasing |
( |
) | ||||||||||||||||||||||||||
Intellectual Property |
( |
) | ||||||||||||||||||||||||||
Total Common Stocks |
( |
) | ||||||||||||||||||||||||||
Preferred Stocks |
||||||||||||||||||||||||||||
Aerospace |
||||||||||||||||||||||||||||
Automotive |
( |
) | ||||||||||||||||||||||||||
Equipment Leasing |
( |
) | ( |
) | ||||||||||||||||||||||||
Intellectual Property |
( |
) | ||||||||||||||||||||||||||
Medical Devices |
( |
) | ||||||||||||||||||||||||||
Semiconductor Equipment |
( |
) | ||||||||||||||||||||||||||
Total Preferred Stocks |
( |
) | ( |
) | ||||||||||||||||||||||||
Asset Derivatives |
||||||||||||||||||||||||||||
Equity Contracts |
||||||||||||||||||||||||||||
Total Asset Derivatives |
||||||||||||||||||||||||||||
Convertible Notes |
||||||||||||||||||||||||||||
Advanced Materials |
||||||||||||||||||||||||||||
Aerospace |
||||||||||||||||||||||||||||
Automotive |
( |
) | ||||||||||||||||||||||||||
Medical Devices |
( |
) | ||||||||||||||||||||||||||
Total Convertible Notes |
( |
) | ||||||||||||||||||||||||||
Total |
$ | $ | $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | $ | |||||||||||||||
|
(1) |
The net change in unrealized appreciation (depreciation) from Level 3 instruments held as of September 30, 2022 was $(21,691,268). |
35
Firsthand Technology Value Fund, Inc.
Notes to Consolidated Financial Statements - continued
SEPTEMBER 30, 2022 (UNAUDITED)
The table below represents quantitative disclosure about significant unobservable inputs for Level 3 fair value measurements at September 30, 2022:
| Schedule of unobservable inputs fair value measurements | ||||
|
FAIR |
VALUATION TECHNIQUES |
UNOBSERVABLE INPUTS |
RANGE |
Direct venture capital investments: Advanced Materials |
$ |
Market Comparable Companies Option Pricing Model |
EBITDA Multiple Revenue Multiple Years to Maturity Volatility Risk-Free Rate Discount for Lack of Marketability |
4.9x - 6.4x (5.7x) 0.6x – 0.6x (0.6x) 5 years (5 years) 50.0% (50.0%) 4.06% (4.06%) 22.7% (22.7%) |
Direct venture capital investments: Aerospace |
$ |
Market Comparable Companies Option Pricing Model |
EBITDA Multiple Years to Maturity Volatility Risk-Free Rate |
7.0x – 10.2x (7.9x) 5 years (5 years) 60.0% (60.0%) 4.06% (4.06%) |
Direct venture capital investments: Automotive |
$ |
Prior Transaction Analysis Option Pricing Model Probability-Weighted Expected Return Method |
Years to Maturity Volatility Risk-Free Rate Discount for Lack of Marketability Going Concern Probability |
5 years (5 years) 50.0% (50.0%) 4.06% (4.06%) 0.0% - 22.7% (0.0%) 10% (10%) |
Direct venture capital investments: Equipment Leasing |
$ |
Discounted Cash Flow Option Pricing Model |
Weighted Average Cost of Capital Years to Maturity Volatility Risk-Free Rate |
20.0% (20.0%) 5 years (5 years) 50.0% (50.0%) 4.06% (4.06%) |
Direct venture capital investments: Intellectual Property |
$ |
Discounted Cash Flow Option Pricing Model |
Weighted Average Cost of Capital Years to Maturity Volatility Risk-Free Rate Discount for Lack of Marketability |
12.5% (12.5%) 5 years (5 years) 55.0% (55.0%) 4.06% (4.06%) 0.0% - 24.3% (0.0%) |
Direct venture capital investments: Medical Devices |
$ |
Market Comparable Companies |
Revenue Multiple |
1.9x – 2.2x (2.1x) |
36
Firsthand Technology Value Fund, Inc.
Notes to Consolidated Financial Statements - continued
SEPTEMBER 30, 2022 (UNAUDITED)
NOTE 7. FEDERAL INCOME TAXES
Beginning in 2018, we were no longer able to qualify as a RIC under Subchapter M of the Code. The increase in value that resulted from the initial public offerings (IPOs) of Pivotal Systems and Revasum meant that we were no longer able to satisfy the diversification requirements for qualification as a RIC. As a result of this change, we were taxed as a corporation for our fiscal year ended December 31, 2018, and will continue to be taxed in that manner for future fiscal years, paying federal and applicable state corporate taxes on our taxable income, unless and until we are able to once again qualify as a RIC, based on changes in the composition of our portfolio. Consequently, at the close of each fiscal quarter beginning with the quarter ended June 30, 2018, we will record a deferred tax liability for any net realized gains and net ordinary income for the year-to-date period plus net unrealized gains as of the end of the quarter.
The reorganization described in Note 1 (the formation of FVI as a fully owned subsidiary for investment activities) was structured to avoid any adverse tax consequences for the Company and its shareholders. For the fiscal years which the Company operates as a RIC, we believe Company’s engaging in investment activities through FVI did not, in our view, jeopardize the Company’s ability to continue to qualify as a RIC under the Code at that time when the Company was eligible to be treated as a RIC.
The following information is based upon the U.S. federal income tax cost of portfolio investments as of September 30, 2022.
| Schedule of federal income tax cost of portfolio investments | ||||
FEDERAL INCOME |
||||
Gross unrealized appreciation |
$ | |||
Gross unrealized depreciation |
( |
) | ||
Net unrealized (depreciation) |
$ | ( |
) | |
Federal income tax cost, Investments |
$ | |||
The Company did not qualify as a regulated investment company pursuant to Subchapter M of the Internal Revenue Code, therefore it is taxed as a corporation. As a corporation, the Company is obligated to pay federal and state income tax on taxable income. The Company’s net deferred tax asset balance has a full valuation allowance based on management’s estimate of future realization of such assets. The Company is currently using an estimated tax rate of
The Company’s income tax provision consists of the following as of December 31, 2021
| Schedule of income tax provision | ||||
Deferred tax (expense)/benefit |
||||
Federal |
$ | |||
State |
||||
Total deferred tax (expense)/benefit |
$ |
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Such temporary differences are principally: (i) taxes on unrealized gains/(losses), which are attributable to the temporary difference between fair market value and tax basis, (ii) the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting and income tax purposes, and (iii) the net tax benefit of accumulated net operating losses and capital loss carryforwards. Deferred tax assets and liabilities are measured using effective tax rates expected to apply to taxable income in the years such temporary differences are realized or otherwise settled.
37
Firsthand Technology Value Fund, Inc.
Notes to Consolidated Financial Statements - continued
SEPTEMBER 30, 2022 (UNAUDITED)
Components of the Company’s deferred tax assets and liabilities as of December 31, 2021 are as follows:
| Schedule of deferred tax assets and liabilities | ||||
AMOUNT |
||||
Deferred tax assets: |
||||
Net operating loss carryforward |
$ | |||
Capital loss carryforward |
||||
Net unrealized losses (gains) on investment securities |
||||
Total deferred tax assets |
||||
Valuation allowance |
( |
) | ||
Net |
$ | |||
For the year ended December 31, 2021, the Company had an effective tax rate of
The effective tax rate and statutory federal income tax rate for the three- and nine-month periods ended September 30, 2022 and 2021 were as follows:
| Schedule of effective tax rate and statutory federal income tax rate | ||||
THREE MONTHS ENDED |
THREE MONTHS ENDED |
NINE MONTHS ENDED |
NINE MONTHS ENDED |
|
Effective tax rate |
||||
Statutory federal income tax rate |
The variance in the effective tax rate and statutory federal income tax rate for the three- and nine-month periods ending September 30, 2022, is the result of changes to the deferred tax assets and related valuation allowance account. At September 30, 2022 the Company has established a full valuation allowance on its net deferred tax assets.
To the extent the Company has a deferred tax asset or if a portion of the deferred tax liability is offset by a tax asset resulting from net operating losses, consideration is given to whether or not a valuation allowance is required against the deferred tax asset amount. A valuation allowance is required if, based on the evaluation criterion provided by Accounting Standard Codification (“ASC”) 740, Income Taxes (ASC 740), it is more-likely-than-not that some portion or all of the deferred tax asset will not be realized. Among the factors considered in assessing the Company’s valuation allowance are: the nature, frequency and severity of current and cumulative losses, forecasts of future profitability, the duration of the statutory carryforward periods, and the associated risks that operating and capital loss carryforwards may expire unused. Based on the Company’s assessment, it has determined that in the future it is more likely than not that the Company will not generate the necessary appropriate character of income within the carryforward periods to realize its deferred tax assets, and as such, has placed a full allowance on the deferred tax assets.
From time to time, and as new information becomes available, the Company will modify its forecasts, estimates or assumptions regarding its deferred tax liability or asset.
Modifications of the Company’s estimates or assumptions regarding its deferred tax liability and/or asset balances and any applicable valuation allowance, changes in generally accepted accounting principles or related guidance or interpretations thereof, limitations imposed on net operating losses (if any), and changes in applicable tax law could result in increases or decreases in the Company’s NAV, which could be material. Such changes could have a material impact on the Company’s
38
Firsthand Technology Value Fund, Inc.
Notes to Consolidated Financial Statements - continued
SEPTEMBER 30, 2022 (UNAUDITED)
NAV and results of operations with respect to the Company’s shareholders in the period it is recorded, even though the shareholders at such time might not have held shares in the Company at the time the deferred tax asset or liability had been established.
The Company’s policy is to classify interest and penalties associated with underpayment of federal and state income taxes, if any, as income tax expense on its Statement of Operations. As of December 31, 2021, the Company did not have any interest or penalties associated with the underpayment of any income taxes.
The Company files income tax returns in the U.S. federal jurisdiction and California. The Company has reviewed all major jurisdictions and concluded that there is no significant impact on the Company’s net assets and no tax liability resulting from unrecognized tax benefits relating to uncertain tax positions expected to be taken on its tax returns. Furthermore, management of the Company is not aware of any tax positions for which it is reasonably possible that the total amounts of unrecognized tax benefits will significantly change in the next 12 months.
As of December 31, 2021, the Company had net operating loss carryforwards for federal and state of income tax purposes of $
As of December 31, 2021, the Company had net capital loss carryforwards for federal and state income tax purposes, which may be carried forward for
| Schedule of net capital loss carryforwards | ||||
EXPIRATION DATE |
AMOUNT |
|||
| $ | ||||
Total |
$ | |||
NOTE 8. INVESTMENT TRANSACTIONS
Investment transactions (excluding short-term investments) were as follows for the quarter ended September 30, 2022.
| Schedule of investment transactions | ||||
PURCHASES AND SALES |
||||
Purchases of investment securities |
$ | |||
Proceeds from sales and maturities of investment securities |
$ |
NOTE 9. SHARE BUYBACKS
SHARE BUYBACKS. On April 26, 2016, the Board of Directors of the Fund approved a discretionary share repurchase plan (the “Plan”). Pursuant to the Plan, the Fund was authorized to purchase in the open market up to $2 million worth of its common stock. The Plan allowed the Fund to acquire its own shares at certain thresholds below its NAV per share, in accordance with the guidelines specified in Rule 10b-18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). The intent of the Plan was to increase NAV per share and thereby enhance shareholder value. The Fund completed the repurchase plan in September 2016, having repurchased and retired a total of shares of stock, at a total cost of approximately $
On November 10, 2017, the Board of Directors of the Fund approved a discretionary share purchase plan (the “Plan”). Pursuant to the Plan, the Fund was authorized to purchase in the open market up to $
39
Firsthand Technology Value Fund, Inc.
Notes to Consolidated Financial Statements - continued
SEPTEMBER 30, 2022 (UNAUDITED)
of the Exchange Act. The intent of the Plan was to increase NAV per share and thereby enhance shareholder value. As of December 31, 2017, the Fund had repurchased and retired shares of stock at a total cost of approximately $
On August 31, 2018, the Fund announced a plan to repurchase up to $
TENDER OFFERS. On December 22, 2014, pursuant to our agreement with a shareholder, the Fund commenced a tender offer to purchase up to $
On December 16, 2019, the Fund announced the commencement of a “modified Dutch auction” tender offer to purchase up to $
NOTE 10. INVESTMENTS IN AFFILIATES AND CONTROLLED INVESTMENTS
Under the 1940 Act, the Company is required to identify investments where it owns greater than 5% (but less than 25%) of the portfolio company’s outstanding voting shares as an affiliate of the Company. Also, under the 1940 Act, the Company is required to identify investments where it owns greater than 25% of the portfolio company’s outstanding voting shares as a controlled investment of the Company. A summary of the Company’s investments in affiliates and controlled investments for the period from December 31, 2021, through September 30, 2022, is noted below:
| Schedule of investments in affiliates and controlled investments | ||||||||||||||||||||||||||||||||
AFFILIATE/ |
VALUE AT |
PURCHASE/ |
INTEREST |
SALES/ |
REALIZED |
CHANGE IN |
VALUE |
SHARES HELD |
||||||||||||||||||||||||
EQX Capital, Inc. Common Stock* |
$ | $ | $ | $ | $ | $ | ( |
) | $ | |
||||||||||||||||||||||
EQX Capital, Inc. Series A Preferred Stock* |
( |
) | ( |
) | |
|||||||||||||||||||||||||||
Hera Systems, Inc. Convertible Note* |
|
|||||||||||||||||||||||||||||||
Hera Systems, Inc. Convertible Note* |
|
|||||||||||||||||||||||||||||||
Hera Systems, Inc. Convertible Note* |
|
|||||||||||||||||||||||||||||||
Hera Systems, Inc. Convertible Note* |
|
|||||||||||||||||||||||||||||||
40
Firsthand Technology Value Fund, Inc.
Notes to Consolidated Financial Statements - continued
SEPTEMBER 30, 2022 (UNAUDITED)
AFFILIATE/ |
VALUE AT |
PURCHASE/ |
INTEREST |
SALES/ |
REALIZED |
CHANGE IN |
VALUE |
SHARES HELD |
||||||||||||||||||||||||
Hera Systems, Inc. Convertible Note* |
$ | $ | $ | $ | $ | $ | $ | |
||||||||||||||||||||||||
Hera Systems, Inc. Convertible Note* |
|
|||||||||||||||||||||||||||||||
Hera Systems, Inc. Convertible Note* |
|
|||||||||||||||||||||||||||||||
Hera Systems, Inc. Convertible Note* |
( |
) | |
|||||||||||||||||||||||||||||
Hera Systems, Inc. Convertible Note* |
|
|||||||||||||||||||||||||||||||
Hera Systems, Inc. Convertible Note* |
|
|||||||||||||||||||||||||||||||
Hera Systems, Inc. Convertible Note* |
|
|||||||||||||||||||||||||||||||
Hera Systems, Inc. Convertible Note* |
|
|||||||||||||||||||||||||||||||
Hera Systems, Inc. Convertible Note* |
|
|||||||||||||||||||||||||||||||
Hera Systems, Inc. Convertible Note* |
|
|||||||||||||||||||||||||||||||
Hera Systems, Inc. Convertible Note* |
|
|||||||||||||||||||||||||||||||
Hera Systems, Inc. Convertible Note* |
|
|||||||||||||||||||||||||||||||
Hera Systems, Inc. Convertible Note* |
|
|||||||||||||||||||||||||||||||
Hera Systems, Inc. Convertible Note* |
|
|||||||||||||||||||||||||||||||
Hera Systems, Inc. Convertible Note* |
|
|||||||||||||||||||||||||||||||
Hera Systems, Inc. Convertible Note* |
|
|||||||||||||||||||||||||||||||
Hera Systems, Inc. Convertible Note* |
|
|||||||||||||||||||||||||||||||
Hera Systems, Inc. Convertible Note* |
|
|||||||||||||||||||||||||||||||
Hera Systems, Inc. Convertible Note* |
|
|||||||||||||||||||||||||||||||
Hera Systems, Inc. Convertible Note* |
|
|||||||||||||||||||||||||||||||
Hera Systems, Inc. Convertible Note* |
|
|||||||||||||||||||||||||||||||
Hera Systems, Inc. Convertible Note* |
|
|||||||||||||||||||||||||||||||
41
Firsthand Technology Value Fund, Inc.
Notes to Consolidated Financial Statements - continued
SEPTEMBER 30, 2022 (UNAUDITED)
AFFILIATE/ |
VALUE AT |
PURCHASE/ |
INTEREST |
SALES/ |
REALIZED |
CHANGE IN |
VALUE |
SHARES HELD |
||||||||||||||||||||||||
Hera Systems, Inc. Convertible Note* |
$ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||
Hera Systems, Inc. Convertible Note* |
||||||||||||||||||||||||||||||||
Hera Systems, Inc. Convertible Note* |
||||||||||||||||||||||||||||||||
Hera Systems, Inc. Convertible Note* |
||||||||||||||||||||||||||||||||
Hera Systems, Inc. Convertible Note* |
||||||||||||||||||||||||||||||||
Hera Systems, Inc. Convertible Note* |
||||||||||||||||||||||||||||||||
Hera Systems, Inc. Convertible Note* |
||||||||||||||||||||||||||||||||
Hera Systems, Inc. Convertible Note* |
||||||||||||||||||||||||||||||||
Hera Systems, Inc. Series C Preferred* |
||||||||||||||||||||||||||||||||
Hera Systems, Inc. Series A Preferred* |
||||||||||||||||||||||||||||||||
Hera Systems, Inc. Series B Preferred* |
||||||||||||||||||||||||||||||||
Hera Systems, Inc. Series B Warrants* |
|
|
|
|
|
|
|
|
||||||||||||||||||||||||
Hera Systems, Inc. Series B Warrants* |
|
|
|
|
|
|
|
|
||||||||||||||||||||||||
Hera Systems, Inc. Series B Warrants* |
|
|
|
|
|
|
|
|
||||||||||||||||||||||||
Hera Systems, Inc. Series B Warrants* |
|
|
|
|
|
|
|
|
||||||||||||||||||||||||
IntraOp Medical Corp. Convertible Note* |
|
|
( |
) | |
|
( |
) | |
|
||||||||||||||||||||||
IntraOp Medical Corp. Convertible Note* |
|
|
( |
) | |
|
( |
) | |
|
||||||||||||||||||||||
IntraOp Medical Corp. Convertible Note* |
|
|
( |
) | |
|
( |
) | |
|
||||||||||||||||||||||
IntraOp Medical Corp. Convertible Note* |
|
|
( |
) | |
|
( |
) | |
|
||||||||||||||||||||||
42
Firsthand Technology Value Fund, Inc.
Notes to Consolidated Financial Statements - continued
SEPTEMBER 30, 2022 (UNAUDITED)
AFFILIATE/ |
VALUE AT |
PURCHASE/ |
INTEREST |
SALES/ |
REALIZED |
CHANGE IN |
VALUE |
SHARES HELD |
||||||||||||||||||||||||
IntraOp Medical Corp. Convertible Note* |
$ | $ | $ | ( |
) | $ | $ | $ | ( |
) | $ | |||||||||||||||||||||
IntraOp Medical Corp. Convertible Note* |
( |
) | ||||||||||||||||||||||||||||||
IntraOp Medical Corp. Convertible Note* |
|
|
( |
) | |
|
( |
) | |
|
||||||||||||||||||||||
IntraOp Medical Corp. Convertible Note* |
|
|
( |
) | |
|
( |
) | |
|
||||||||||||||||||||||
IntraOp Medical Corp. Convertible Note* |
|
|
( |
) | |
|
( |
) | |
|
||||||||||||||||||||||
IntraOp Medical Corp. Convertible Note* |
|
|
( |
) | |
|
( |
) | |
|
||||||||||||||||||||||
IntraOp Medical Corp. Convertible Note* |
|
|
( |
) | |
|
( |
) | |
|
||||||||||||||||||||||
IntraOp Medical Corp. Convertible Note* |
|
|
( |
) | |
|
( |
) | |
|
||||||||||||||||||||||
IntraOp Medical Corp. Convertible Note* |
|
|
|
|
|
( |
) | |
|
|||||||||||||||||||||||
IntraOp Medical Corp. Convertible Note* |
|
|
|
|
|
( |
) | |
|
|||||||||||||||||||||||
IntraOp Medical Corp. Convertible Note* |
|
|
( |
) | |
|
( |
) | |
|
||||||||||||||||||||||
IntraOp Medical Corp. Convertible Note* |
|
|
( |
) | |
|
( |
) | |
|
||||||||||||||||||||||
IntraOp Medical Corp. Convertible Note* |
|
|
|
|
|
( |
) | |
|
|||||||||||||||||||||||
IntraOp Medical Corp. Convertible Note* |
|
|
( |
) | |
|
( |
) | |
|
||||||||||||||||||||||
IntraOp Medical Corp. Convertible Note* |
|
|
|
|
|
( |
) | |
|
|||||||||||||||||||||||
43
Firsthand Technology Value Fund, Inc.
Notes to Consolidated Financial Statements - continued
SEPTEMBER 30, 2022 (UNAUDITED)
AFFILIATE/ |
VALUE AT |
PURCHASE/ |
INTEREST |
SALES/ |
REALIZED |
CHANGE IN |
VALUE |
SHARES HELD |
||||||||||||||||||||||||
IntraOp Medical Corp. Convertible Note* |
$ | $ | $ | ( |
) | $ | $ | $ | ( |
) | $ | |||||||||||||||||||||
IntraOp Medical Corp. Convertible Note* |
( |
) | ( |
) | ||||||||||||||||||||||||||||
IntraOp Medical Corp. Convertible Note* |
( |
) | ( |
) | ||||||||||||||||||||||||||||
IntraOp Medical Corp. Series C Preferred* |
( |
) | ||||||||||||||||||||||||||||||
IntraOp Medical Corp. Term Note* |
( |
) | ||||||||||||||||||||||||||||||
Pivotal Systems Corp. CDI*(1) |
( |
) | ( |
) | ||||||||||||||||||||||||||||
Revasum, Inc. CDI*(1) |
( |
) | ( |
) | ( |
) | ||||||||||||||||||||||||||
Silicon Genesis Corp. Common Stock* |
( |
) | ||||||||||||||||||||||||||||||
Silicon Genesis Corp. Common Warrants* |
( |
) | ||||||||||||||||||||||||||||||
Silicon Genesis Corp. Series 1-D Preferred* |
( |
) | ||||||||||||||||||||||||||||||
Silicon Genesis Corp. Series 1-F Preferred* |
( |
) | ||||||||||||||||||||||||||||||
Silicon Genesis Corp. Series 1-G Preferred* |
( |
) | ||||||||||||||||||||||||||||||
Silicon Genesis Corp. Series 1-H Preferred* |
( |
) | ||||||||||||||||||||||||||||||
Silicon Genesis Corp. Series 1-E Preferred* |
( |
) | ||||||||||||||||||||||||||||||
Silicon Genesis Corp. Series 1-C Preferred Stock* |
( |
) | ||||||||||||||||||||||||||||||
SVXR, Inc. Series A Preferred Stock |
( |
) | ||||||||||||||||||||||||||||||
44
Firsthand Technology Value Fund, Inc.
Notes to Consolidated Financial Statements - continued
SEPTEMBER 30, 2022 (UNAUDITED)
AFFILIATE/ |
VALUE AT |
PURCHASE/ |
INTEREST |
SALES/ |
REALIZED |
CHANGE IN |
VALUE |
SHARES HELD |
||||||||||||||||||||||||
UCT Coatings, Inc. Common Stock |
$ | $ | $ | $ | $ | $ | ( |
) | $ | |||||||||||||||||||||||
Wrightspeed, Inc. Common Stock* |
( |
) | ||||||||||||||||||||||||||||||
Wrightspeed, Inc. Convertible Note* |
( |
) | ( |
) | ||||||||||||||||||||||||||||
Wrightspeed, Inc. Convertible Note* |
( |
) | ( |
) | ||||||||||||||||||||||||||||
Wrightspeed, Inc. Convertible Note* |
( |
) | ( |
) | ||||||||||||||||||||||||||||
Wrightspeed, Inc. Convertible Note* |
( |
) | ( |
) | ||||||||||||||||||||||||||||
Wrightspeed, Inc. Convertible Note* |
( |
) | ( |
) | ||||||||||||||||||||||||||||
Wrightspeed, Inc. Convertible Note* |
( |
) | ( |
) | ||||||||||||||||||||||||||||
Wrightspeed, Inc. Convertible Note* |
( |
) | ||||||||||||||||||||||||||||||
Wrightspeed, Inc. Convertible Note* |
( |
) | ||||||||||||||||||||||||||||||
Wrightspeed, Inc. Convertible Note* |
( |
) | ( |
) | ||||||||||||||||||||||||||||
Wrightspeed, Inc. Convertible Note* |
( |
) | ( |
) | ||||||||||||||||||||||||||||
Wrightspeed, Inc. Convertible Note* |
( |
) | ( |
) | ||||||||||||||||||||||||||||
Wrightspeed, Inc. Convertible Note* |
( |
) | ( |
) | ||||||||||||||||||||||||||||
Wrightspeed, Inc. Convertible Note* |
( |
) | ( |
) | ||||||||||||||||||||||||||||
Wrightspeed, Inc. Convertible Note* |
( |
) | ( |
) | ||||||||||||||||||||||||||||
Wrightspeed, Inc. Convertible Note* |
( |
) | ( |
) | ||||||||||||||||||||||||||||
Wrightspeed, Inc. Convertible Note* |
( |
) | ( |
) | ||||||||||||||||||||||||||||
Wrightspeed, Inc. Convertible Note* |
|
|
( |
) | |
|
( |
) | |
|
||||||||||||||||||||||
Wrightspeed, Inc. Convertible Note* |
|
|
( |
) | |
|
( |
) | |
|
||||||||||||||||||||||
Wrightspeed, Inc. Convertible Note* |
|
|
( |
) | |
|
( |
) | |
|
||||||||||||||||||||||
Wrightspeed, Inc. Convertible Note* |
|
|
|
|
|
( |
) | |
|
|||||||||||||||||||||||
45
Firsthand Technology Value Fund, Inc.
Notes to Consolidated Financial Statements - continued
SEPTEMBER 30, 2022 (UNAUDITED)
AFFILIATE/ |
VALUE AT |
PURCHASE/ |
INTEREST |
SALES/ |
REALIZED |
CHANGE IN |
VALUE |
SHARES HELD |
||||||||||||||||||||||||
Wrightspeed, Inc. Convertible Note* |
$ | $ | $ | $ | $ | $ | ( |
) | $ | |||||||||||||||||||||||
Wrightspeed, Inc. Convertible Note* |
( |
) | ||||||||||||||||||||||||||||||
Wrightspeed, Inc. Convertible Note* |
( |
) | ||||||||||||||||||||||||||||||
Wrightspeed, Inc. Convertible Note* |
( |
) | ||||||||||||||||||||||||||||||
Wrightspeed, Inc. Convertible Note* |
( |
) | ||||||||||||||||||||||||||||||
Wrightspeed, Inc. Convertible Note* |
( |
) | ||||||||||||||||||||||||||||||
Wrightspeed, Inc. Convertible Note* |
( |
) | ||||||||||||||||||||||||||||||
Wrightspeed, Inc. Convertible Note* |
( |
) | ( |
) | ||||||||||||||||||||||||||||
Wrightspeed, Inc. Convertible Note* |
( |
) | ( |
) | ||||||||||||||||||||||||||||
Wrightspeed, Inc. Series AA Preferred* |
( |
) | ||||||||||||||||||||||||||||||
Wrightspeed, Inc. Series AA Warrants* |
( |
) | ||||||||||||||||||||||||||||||
Total Affiliates and Controlled Investments |
$ | $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | |||||||||||||||||||||
Total Affiliates |
( |
) | ||||||||||||||||||||||||||||||
Total Controlled Investments |
$ | $ | ( |
) | $ | $ | ( |
) | $ | |||||||||||||||||||||||
|
* |
|
|
(1) |
CDI CHESS Depositary Interests |
As of September 30, 2022, Kevin Landis, the Company’s Chairman, President and Chief Executive Officer, represented the Company and sat on the boards of directors of Hera Systems, Inc.; IntraOp Medical Corp.; Revasum, Inc.; Silicon Genesis Corp.; and Wrightspeed, Inc. Serving on boards of directors of portfolio companies may cause conflicts of interest. The Advisor has adopted various procedures to ensure that the Company will not be unfavorably affected by these potential conflicts.
46
Firsthand Technology Value Fund, Inc.
Notes to Consolidated Financial Statements - continued
SEPTEMBER 30, 2022 (UNAUDITED)
NOTE 11. MARKET DISRUPTION AND GEOPOLITICAL RISKS
Certain local, regional or global events such as war, acts of terrorism, the spread of infectious illness or other public health issues, or other events could have a significant impact on a security or instrument. Since 2020, the novel strain of coronavirus (COVID-19) has negatively affected the worldwide economy, as well as the economies of individual countries, the financial health of individual companies and the market in general in significant and unforeseen ways. Following Russia’s large-scale invasion of Ukraine, the President of the United States signed an Executive Order in February 2022 prohibiting U.S. persons from entering transactions with the Central Bank of Russia and Executive Orders in March 2022 prohibiting U.S. persons from importing oil and gas from Russia as well as other popular Russian exports, such as diamonds, seafood and vodka. The duration of the coronavirus outbreak and the Russian-Ukraine conflict could adversely affect the Company’s performance. The ultimate impact of COVID-19 and Russia invasion on the financial performance of the Company’s investments is not reasonably estimable at this time.
NOTE 12. SUBSEQUENT EVENTS
Management has evaluated the impact of all subsequent events on the Company through the date the financial statements were issued, and has determined that there were no subsequent events requiring recognition or disclosure in the financial statements.
47
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
FORWARD-LOOKING STATEMENTS
The matters discussed in this report, as well as in future oral and written statements by management of the Company, include forward-looking statements based on current management expectations that involve substantial risks and uncertainties which could cause actual results to differ materially from the results expressed in, or implied by, these forward-looking statements. Forward-looking statements related to future events or our future financial performance. We generally identify forward-looking statements by terminology such as “may,” “will,” “should,” “expects,” “plans,” “anticipates,” “could,” “intends,” “target,” “projects,” “contemplates,” “believes,” “estimates,” “predicts,” “potential,” or “continue” or the negative of these terms or other similar words. Important assumptions include our ability to originate new investments and to achieve certain margins and levels of profitability and the availability of additional capital. In light of these and other uncertainties, the inclusion of a projection or forward-looking statement in this report should not be regarded as a representation by us that our plans or objectives will be achieved. The forward-looking statements contained in this report include, without limitations, statements as to:
|
● |
our future operating results; |
|
● |
our business prospects and the prospects of our prospective portfolio companies; |
|
● |
the impact of investments that we expect to make; |
|
● |
the impact of a protracted decline in the liquidity of the credit markets on our business; |
|
● |
our informal relationships with third parties; |
|
● |
the expected market for venture capital investments and our addressable market; |
|
● |
the dependence of our future success on the general economy and its impact on the industries in which we invest; |
|
● |
our ability to access the equity market; |
|
● |
the ability of our portfolio companies to achieve their objectives; |
|
● |
our expected financings and investments; |
|
● |
our regulatory structure and tax status; |
|
● |
our ability to operate as a business development company and a regulated investment company; |
|
● |
the adequacy of our cash resources and working capital; |
|
● |
the timing of cash flows, if any, from the operation of our portfolio companies; |
|
● |
the timing, form, and amount of any dividend distributions; |
|
● |
impact of fluctuation of interest rates on our business; |
|
● |
valuation of any investments in portfolio companies particularly those having no liquid trading market; and |
|
● |
our ability to recover unrealized losses. |
You should not place undue reliance on these forward-looking statements. The forward-looking statements made in this report relate only to events as of the date on which the statements are made. We undertake no obligation to update any forward-looking statement to reflect events or circumstances occurring after the date of this report.
The following discussion should be read in conjunction with our consolidated financial statements and related notes and other financial information appearing elsewhere in this prospectus. In addition to historical information, the following discussion and other parts of this prospectus contain forward-looking information that involves risks and uncertainties. Our actual results could differ materially from those anticipated by such forward-looking information due to the factors discussed under “Risk Factors” and “Forward-Looking Statements” appearing elsewhere herein.
OVERVIEW
We are an externally managed, closed-end, non-diversified management investment company organized as a Maryland corporation that has elected to be treated as a BDC under the 1940 Act. As such, we are required to comply with certain regulatory requirements. For instance, we generally have to invest at least 70% of our total assets in “qualifying assets,”
48
including securities of private or micro-cap public U.S. companies, cash, cash equivalents, U.S. government securities and high-quality debt investments that mature in one year or less. In addition, for tax purposes we are treated as a corporation and are subject to federal and state taxes on our income. FCM serves as our investment adviser and manages the investment process on a daily basis.
Our investment objective is to seek long-term growth of capital, principally by seeking capital gains on our equity and equity-related investments. There can be no assurance that we will achieve our investment objective. Under normal circumstances, we invest at least 80% of our net assets for investment purposes in technology companies. We consider technology companies to be those companies that derive at least 50% of their revenues from products and/or services within the information technology sector or in the “cleantech” sector. Information technology companies include, but are not limited to, those focused on computer hardware, software, telecommunications, networking, Internet, and consumer electronics. While there is no standard definition of cleantech, it is generally regarded as including goods and services designed to harness renewable energy and materials, eliminate emissions and waste, and reduce the use of natural resources. In addition, under normal circumstances we invest at least 70% of our total assets in privately held companies and public companies with market capitalizations of less than $250 million. Our portfolio is primarily composed of equity and equity derivative securities of technology and cleantech companies (as defined above). These investments generally range between $1 million and $10 million each, although the investment size will vary proportionately with the size of our capital base. We acquire our investments through direct investments in private companies, negotiations with selling shareholders, and in organized secondary marketplaces for private securities.
While our primary focus is to invest in illiquid private technology and cleantech companies, we also may invest in micro-cap publicly traded companies. In addition, we may invest up to 30 percent of the portfolio in opportunistic investments that do not constitute the private companies and micro-cap public companies described above. These other investments may include investments in securities of public companies that are actively traded or in actively traded derivative securities such as options on securities or security indices. These other investments may also include investments in high-yield bonds, distressed debt, or securities of public companies that are actively traded and securities of companies located outside of the United States. Our investment activities are managed by FCM.
PORTFOLIO COMPOSITION
We make investments in securities of both public and private companies. Our portfolio investments consist principally of equity and equity-like securities, including common and preferred stock, warrants for the purchase of common and preferred stock, and convertible and term notes. The fair value of our investment portfolio was approximately $46.6 million as of September 30, 2022, as compared to approximately $91.1 million as of December 31, 2021.
The following table summarizes the fair value of our investment portfolio by industry sector as of September 30, 2022, and December 31, 2021.
|
September 30, 2022 |
December 31, 2021 |
Medical Devices |
54.0% |
28.6% |
Automotive |
31.1% |
24.5% |
Aerospace |
19.0% |
5.8% |
Semiconductor Equipment |
7.9% |
32.8% |
Equipment Leasing |
3.1% |
2.0% |
Intellectual Property |
2.0% |
1.1% |
Advanced Materials |
1.2% |
0.7% |
Exchange-Traded/Money Market Funds |
3.0% |
0.7% |
Other Assets/(Liabilities) |
(21.3)% |
3.8% |
Net Assets |
100.0% |
100.0% |
49
MATURITY OF PRIVATE COMPANIES IN THE CURRENT PORTFOLIO
The Fund invests in private companies at various stages of maturity. As our portfolio companies mature, they move from the “early (development) stage” to the “middle (revenue) stage” and then to the “late stage.” We expect that this continuous progression may create a pipeline of potential exit opportunities through initial public offerings (IPOs) or acquisitions. Of course, some companies do not progress. The illustration below describes typical characteristics of companies at each stage of maturity and where we believe our current portfolio companies fit within these categories. We expect some of our portfolio companies to transition between stages of maturity over time. The transition may be forward if the company is maturing and is successfully executing its business plan or may be backward if the company is not successfully executing its business plan or decides to change its business plan substantially from its original plan.
EARLY STAGE |
MIDDLE STAGE |
LATE STAGE |
Developing product or service for market, high level of research and development, little or no revenue. |
Established product, customers, |
Appreciable revenue; may be break-even or profitable; IPO or acquisition candidate. |
RESULTS OF OPERATIONS
Comparison of the three months ended September 30, 2022 to the three months ended September 30, 2021.
INVESTMENT INCOME
For the three months ended September 30, 2022, we had investment income of $(8,300,245) primarily attributable to adjustments to interest accrued on convertible note investments with IntraOp Medical and Wrightspeed.
For the three months ended September 30, 2021, we had investment income of $1,548,910 primarily attributable to interest accrued on convertible/term note investments with IntraOp Medical, Hera Systems and Wrightspeed.
The lower level of interest income in the three months ended September 30, 2022 compared to the three months ended September 30, 2021 was due to interest adjustments on convertible notes with IntraOp Medical and Wrightspeed.
OPERATING EXPENSES
Net operating expenses totaled approximately $543,724 during the three months ended September 30, 2022 and $830,323 during the three months ended September 30, 2021.
Significant components of net operating expenses for the three months ended September 30, 2022, were management fee expense of $268,873 and professional fees (audit, legal, accounting, and consulting) of $94,567. Significant components of net operating expenses for the three months ended September 30, 2021, were management fee expense of $555,311 and professional fees (audit, legal, accounting, and consulting) of $101,564.
50
The lower level of net operating expenses for the three months ended September 30, 2022, compared to the three months ended September 30, 2021, is primarily attributable to a decrease in our total assets, on which the investment advisory fees are based.
NET INVESTMENT INCOME/(LOSS)
Net investment income/(loss) was $(8,843,969) for the three months ended September 30, 2022 versus a net investment income of $718,587 for the three months ended September 30, 2021.
The lower net investment income in the three months ended September 30, 2022, compared to the three months ended September 30, 2021, is primarily attributable to a decrease in interest income due to an adjustment for the three months ended September 30, 2022.
NET INVESTMENT REALIZED GAINS AND LOSSES AND UNREALIZED APPRECIATION AND DEPRECIATION
A summary of the net realized and unrealized gains and losses on investments for the three-month period ended September 30, 2022, and September 30, 2021, is shown below.
Three Months Ended |
||||
Realized gains |
$ | 1,798,092 | ||
Net change in unrealized depreciation on investments |
(4,315,693 | ) | ||
Net realized and unrealized losses on investments |
$ | (2,517,601 | ) | |
As of |
||||
Gross unrealized appreciation on portfolio investments |
$ | 1,471,727 | ||
Gross unrealized depreciation on portfolio investments |
(96,628,458 | ) | ||
Net unrealized depreciation on portfolio investments |
$ | (95,156,731 | ) | |
Three Months Ended |
||||
Realized gains |
$ | 0 | ||
Net change in unrealized depreciation on investments |
(9,293,150 | ) | ||
Net realized and unrealized losses on investments |
$ | (9,293,150 | ) | |
As of |
||||
Gross unrealized appreciation on portfolio investments |
$ | 21,752,888 | ||
Gross unrealized depreciation on portfolio investments |
(63,351,649 | ) | ||
Net unrealized depreciation on portfolio investments |
$ | (41,598,761 | ) | |
During the three months ended September 30, 2022, we recognized net realized gains of $1,798,092.
During the three months ended September 30, 2022, net unrealized depreciation on total investments increased by $4,315,693. The change in net unrealized appreciation and depreciation of our private investments is based on portfolio asset valuations determined in good faith by our Board of Directors. This change in net unrealized depreciation was primarily caused by a decrease in the valuations of our investments, primarily our Wrightspeed and Revasum holdings.
During the three months ended September 30, 2021, we did not recognize any net realized gains.
51
During the three months ended September 30, 2021, net unrealized depreciation on total investments increased by $9,293,150. The change in net unrealized appreciation and depreciation of our private investments is based on portfolio asset valuations determined in good faith by our Board of Directors. This change in net unrealized depreciation was primarily caused by a decrease in the valuations of our investments, primarily our IntraOp Medical, Wrightspeed and Pivotal holdings.
NET INCREASE/(DECREASE) IN ASSETS RESULTING FROM OPERATIONS AND CHANGE IN NET ASSETS PER SHARE
For the three months ended September 30, 2022, the net decrease in net assets resulting from operations totaled $(11,361,570) and the basic and fully diluted net change in net assets per share for the three months ended September 30, 2022 was $(1.65).
For the three months ended September 30, 2021, the net decrease in net assets resulting from operations (net of deferred taxes) totaled $(8,574,563) and the basic and fully diluted net change in net assets per share for the three months ended September 30, 2021 was $(1.24).
The greater decrease in net assets resulting from operations for the three months ended September 30, 2022, as compared to the three months ended September 30, 2021, is due primarily to an adjustment to interest accrued for the three months ended September 30, 2022.
Comparison of the nine months ended September 30, 2022 to the nine months ended September 30, 2021.
INVESTMENT INCOME
For the nine months ended September 30, 2022, we had investment income/(loss) of $(10,176,866) primarily attributable to adjustments to accrued interest on convertible/term note investments with IntraOp Medical and Wrightspeed.
For the nine months ended September 30, 2021, we had investment income of $4,241,642 primarily attributable to interest accrued on convertible/term note investments with IntraOp Medical, Hera Systems and Wrightspeed.
The lower level of interest income/(loss) in the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021 was due to an interest adjustment on convertible notes with IntraOp Medical and Wrightspeed.
OPERATING EXPENSES
Net operating expenses totaled approximately $1,956,735 during the nine months ended September 30, 2022 and $2,461,312 during the nine months ended September 30, 2021.
Significant components of net operating expenses for the nine months ended September 30, 2022, were management fee expense of $1,144,669 and professional fees (audit, legal, accounting, and consulting) of $280,272. Significant components of net operating expenses for the nine months ended September 30, 2021, were management fee expense of $1,694,468 and professional fees (audit, legal, accounting, and consulting) of $271,083.
The lower level of net operating expenses for the nine months ended September 30, 2022, compared to the nine months ended September 30, 2021, is primarily attributable to a decrease in our total net assets, on which the investment advisory fees are based.
NET INVESTMENT INCOME/(LOSS)
Net investment income/(loss) was $(12,133,601) for the nine months ended September 30, 2022 and $1,780,330 for the nine months ended September 30, 2021.
The lower net investment income/(loss) in the nine months ended September 30, 2022, compared to the nine months ended September 30, 2021, is primarily attributable to an interest adjustment on convertible notes with IntraOp Medical and Wrightspeed on which investment income is accrued.
52
NET INVESTMENT REALIZED GAINS AND LOSSES AND UNREALIZED APPRECIATION AND DEPRECIATION
A summary of the gross and net realized and unrealized gains and losses on investments for the nine-month periods ended September 30, 2022, and September 30, 2021, is shown below.
Nine Months Ended |
||||
Realized losses |
$ | (3,129,684 | ) | |
Net change in unrealized depreciation on investments |
(41,056,714 | ) | ||
Net realized and unrealized losses on investments |
$ | (44,186,398 | ) | |
As of |
||||
Gross unrealized appreciation on portfolio investments |
$ | 1,471,727 | ||
Gross unrealized depreciation on portfolio investments |
(96,628,458 | ) | ||
Net unrealized depreciation on portfolio investments |
$ | (95,156,731 | ) | |
Nine Months Ended |
||||
Realized gains |
$ | 4,548,624 | ||
Net change in unrealized depreciation on investments |
(9,702,990 | ) | ||
Net realized and unrealized losses on investments |
$ | (5,154,366 | ) | |
As of |
||||
Gross unrealized appreciation on portfolio investments |
$ | 21,752,888 | ||
Gross unrealized depreciation on portfolio investments |
(63,351,649 | ) | ||
Net unrealized depreciation on portfolio investments |
$ | (41,598,761 | ) | |
During the nine months ended September 30, 2022, we recognized net realized losses of approximately $(3,129,684) from the sale of investments.
During the nine months ended September 30, 2022, net unrealized depreciation on total investments increased by $41,056,714. The change in net unrealized appreciation and depreciation of our private investments is based on portfolio asset valuations determined in good faith by our Board of Directors. This increase in net unrealized depreciation was primarily caused by a decrease in the valuations of our Wrightspeed, Hera Systems, Pivotal Systems, IntraOp Medical and Revasum holdings.
During the nine months ended September 30, 2021, we recognized net realized gains of approximately $4,548,624 from the sale of securities.
During the nine months ended September 30, 2021, net unrealized depreciation on total investments increased by $9,702,990. The change in net unrealized appreciation and depreciation of our private investments is based on portfolio asset valuations determined in good faith by our Board of Directors. This increase in net unrealized depreciation was primarily caused by a decrease in the valuations of our Wrightspeed and SVXR investments.
NET INCREASE/(DECREASE) IN ASSETS RESULTING FROM OPERATIONS AND CHANGE IN NET ASSETS PER SHARE
For the nine months ended September 30, 2022, the net decrease in net assets resulting from operations totaled $56,319,999 and for the nine months ended September 30, 2021, the net decrease in net assets resulting from operations totaled $3,374,036. The basic and fully diluted net change in net assets per share for the nine months ended September 30, 2022 was $(8.17) and the basic and fully diluted net change in net assets per share for the nine months ended
53
September 30, 2021 was $(0.49). The greater decrease in net assets resulting from operations for the nine months ended September 30, 2022, as compared to the nine months ended September 30, 2021, is due primarily to a greater decline in the valuation in the nine months ended September 30, 2022 of certain of our investments.
DISTRIBUTION POLICY
Our board of directors will determine the timing and amount, if any, of our distributions. We are not required to pay any minimum level of distributions of our income or capital gains.
CONTRACTUAL OBLIGATIONS
The Fund does not have any Contractual Obligations that meet the requirements for disclosure under Item 303 of Regulation S-K.
OFF-BALANCE SHEET ARRANGEMENTS
The Fund does not have any Off-Balance Sheet Arrangements.
CRITICAL ACCOUNTING POLICIES
This discussion of our financial condition and results of operations is based upon our financial statements, which are prepared in accordance with accounting principles generally accepted in the United States of America, or GAAP. The preparation of these financial statements will require 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 will describe our critical accounting policies in the notes to our future financial statements.
Valuation of Portfolio Investments
As a business development company, we generally invest in illiquid equity and equity derivatives of securities of venture capital stage technology companies. Under written procedures established by our board of directors, securities traded on stock exchanges, or quoted by NASDAQ, are valued according to the NASDAQ Stock Market, Inc. (“NASDAQ”) official closing price, if applicable, or at their last reported sale price as of the close of trading on the New York Stock Exchange (“NYSE”) (normally 4:00 P.M. Eastern Time). If a security is not traded that day, the security will be valued at its most recent bid price. Securities traded in the over-the-counter market, but not quoted by NASDAQ, are valued at the last sale price (or, if the last sale price is not readily available, at the most recent closing bid price as quoted by brokers that make markets in the securities) at the close of trading on the NYSE. Securities traded both in the over-the-counter market and on a stock exchange are valued according to the broadest and most representative market. We obtain these market values from an independent pricing service or at the mean between the bid and ask prices obtained from at least two brokers or dealers (if available, otherwise by a principal market maker or a primary market dealer). In addition, a large percentage of our portfolio investments are in the form of securities that are not publicly traded. The fair value of securities and other investments that are not publicly traded may not be readily determinable. We value these securities quarterly at fair value as determined in good faith by our board of directors. Our board of directors may use the services of a nationally recognized independent valuation firm to aid it in determining the fair value of these securities. The methods for valuing these securities may include: fundamental analysis (sales, income, or earnings multiples, etc.), discounts from market prices of similar securities, purchase price of securities, subsequent private transactions in the security or related securities, or discounts applied to the nature and duration of restrictions on the disposition of the securities, as well as a combination of these and other factors. Because such valuations, and particularly valuations of private securities and private companies, are inherently uncertain, may fluctuate over short periods of time, and may be based on estimates, our determinations of fair value may differ materially from the values that would have been used if a ready market for these securities existed. Our net asset value could be adversely affected if our determinations regarding the fair value of our investments were materially higher than the values that we ultimately realize upon the disposal of such securities.
54
Revenue Recognition
We record interest or dividend income on an accrual basis to the extent that we expect to collect such amounts. We do not accrue as a receivable interest on loans and debt securities if we have reason to doubt our ability to collect such interest. Loan origination fees, original issue discount, and market discount are capitalized, and we amortize any such amounts as interest income. Upon the prepayment of a loan or debt security, any unamortized loan origination is recorded as interest income. We will record prepayment premiums on loans and debt securities as interest income when we receive such amounts.
Net Realized Gains or Losses and Net Change in Unrealized Appreciation or Depreciation
We measure realized gains or losses by the difference between the net proceeds from the repayment or sale and the cost basis of the investment, without regard to unrealized appreciation or depreciation previously recognized. Net change in unrealized appreciation or depreciation reflects the change in portfolio investment values during the reporting period, including any reversal of previously recorded unrealized appreciation or depreciation, when gains or losses are realized.
Recently Issued Accounting Standards
From time to time, new accounting pronouncements are issued by the FASB or other standards setting bodies that are adopted by us as of the specified effective date. We believe that the impact of recently issued standards that are not yet effective will not have a material impact on our financial statements upon effectiveness.
Inflation
Inflation has not had a significant effect on our results of operations in any of the reporting periods presented herein. However, our portfolio companies have experienced, and may in the future experience, the impacts of inflation on their operating results.
SUBSEQUENT EVENTS
Subsequent to the close of the fiscal quarter on September 30, 2022, and through the date of the issuance of the financial statements included herein, a number of events related to our portfolio of investments occurred, consisting primarily of purchases and sales of securities. Since that date, we have purchased private securities with an aggregate cost of approximately $135 thousand.
55
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
The Company’s business activities contain elements of risk. We consider the principal types of market risk to be valuation risk and small company investment risk.
VALUATION RISK
Value, as defined in Section 2(a)(41) of the 1940 Act, is (i) the market price for those securities for which market quotations are readily available and (ii) fair value as determined in good faith by, or under the direction of, the Board of Directors for all other assets.
Because there is typically no public market for our interests in the small privately-held companies in which we invest, the valuation of the securities in that portion of our portfolio is determined in good faith by our Board of Directors with the assistance of our Valuation Committee, comprised of the independent members of our Board of Directors, in accordance with our Valuation Procedures. In addition, the Board of Directors may use the services of a nationally recognized independent valuation firm to aid it in determining the fair value of some of these securities. In the absence of a readily ascertainable market value, the determined value of our portfolio of securities may differ significantly from the values that would be placed on the portfolio if a ready market for such securities existed. Determining fair value requires that judgment be applied to the specific facts and circumstances of each portfolio investment, although our valuation policy is intended to provide a consistent basis for determining fair value of the portfolio investments. The methods for valuing these securities may include: fundamental analysis (sales, income, or earnings multiples, etc.), discounts from market prices of similar securities, purchase price of securities, subsequent private transactions in the security or related securities, or discounts applied to the nature and duration of restrictions on the disposition of the securities, as well as a combination of these and other factors. Because such valuations, and particularly valuations of private securities and private companies, are inherently uncertain, may fluctuate over short periods of time, and may be based on estimates, our determinations of fair value may differ materially from the values that would have been used if a ready market for these securities existed.
Furthermore, changes in valuation of any of our investments in privately-held companies from one period to another may be volatile.
Investments in privately held, immature companies are inherently more volatile than investments in more mature businesses. Such immature businesses are inherently fragile and easily affected by both internal and external forces.
Our portfolio companies can lose much or all of their value suddenly in response to an internal or external adverse event. Conversely, these immature businesses can gain suddenly in value in response to an internal or external positive development.
The values assigned to our assets are based on available information and do not necessarily represent amounts that might ultimately be realized, as these amounts depend on future circumstances and cannot be reasonably determined until the individual investments are actually liquidated or become readily marketable. Upon sale of investments, the values that are ultimately realized may be different from what is presently estimated. This difference could be material.
PRIVATELY PLACED SMALL COMPANIES RISK
The Company invests in small companies, and its investments in these companies are considered speculative in nature. The Company’s investments often include securities that are subject to legal or contractual restrictions on resale that adversely affect the liquidity and marketability of such securities. As a result, the Company is subject to risk of loss which may prevent our shareholders from achieving price appreciation, dividend distributions and return of capital.
56
WE CURRENTLY HOLD A PORTION OF OUR ASSETS IN CASH
As of September 30, 2022, a portion of the Company’s assets was invested in cash and/or cash equivalents, which are expected to earn low yields. Given the current low interest rate environment, to the extent the management fee and other operating expenses exceed interest income on the cash holdings of the Company, the Company may experience losses. Furthermore, the investment advisory fee payable by us will not be reduced while our assets are invested in cash-equivalent securities.
In some cases, particularly for primary transactions, it is to our advantage to hold sufficient cash reserve so that we can make additional subsequent investments in these companies in order to (a) avoid having our earlier investments become diluted in future dilutive financings, (b) invest additional capital into existing portfolio companies in case additional investments are necessary, and/or (c) exercise warrants, options, or convertible securities that were acquired as part of the earlier transactions. For this reason, in the case of primary transactions (as opposed to secondary transactions where we do not buy the securities from the issuing companies but instead from existing stockholders), we typically reserve cash in an amount at least equal to our initial investment for such follow-on opportunities. Cash reserves held with respect to a particular investment should, therefore, decline as it is held longer, and will typically not be needed once that portfolio company becomes public or we determine it is no longer in our best interest to make investments in such portfolio company.
We may from time to time liquidate various investments. We are required to distribute substantially all of our net realized gains to stockholders on an annual basis and, therefore, will generally hold the proceeds of liquidated investments in cash pending its distribution.
57
Item 4. Controls and Procedures.
|
(a) Evaluation of Disclosure Controls and Procedures |
As of the end of the period covered by this Quarterly Report on Form 10-Q, our management, with the participation of our Chief Executive Officer and Chief Financial Officer, conducted an evaluation of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)). Based upon this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective and provided reasonable assurance that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure. |
|
(b) Changes in Internal Control Over Financial Reporting |
There have been no changes in our internal control over financial reporting, as defined in Rule 13a-15(f) under the Exchange Act, that occurred during the fiscal quarter ended September 30, 2022, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. |
58
PART II. OTHER INFORMATION
59
Item 1. Legal Proceedings.
We are not a party to any material pending legal proceeding, and no such proceedings are known to be contemplated.
Item 1A. Risk Factors.
There have been no material changes from risk factors as previously disclosed in our Form 10-K for the period ended December 31, 2021, in response to Item 1A of Part 1 of Form 10-K.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
None.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Mine Safety Disclosures.
None.
Item 5. Other Information.
None.
Item 6. Exhibits.
EXHIBIT NUMBER |
DESCRIPTION |
SIGNATURES
Pursuant to the requirements of the Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
FIRSTHAND TECHNOLOGY VALUE FUND, INC. (Registrant) |
||
Dated: November 15, 2022 |
|
|
Kevin Landis Chief Executive Officer and Chief Financial Officer |
EXHIBIT INDEX
EXHIBIT NUMBER |
Description |
Certification of Chief Executive Officer
Pursuant to Exchange Act Rule 13a-14(a) or 15d-14(a)
I, Kevin Landis, certify that:
|
1. |
I have reviewed the Quarterly Report on Form 10-Q of Firsthand Technology Value Fund, Inc.; |
|
2. |
Based on my knowledge, this report does not contain any untrue statement or a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
|
3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
|
4. |
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
|
(a) |
Designed such disclosure controls and procedures, or caused such disclosure control and procedures to be designed under our supervision, to ensure material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
|
(b) |
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
|
(c) |
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
|
(d) |
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting. |
|
5. |
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
|
(a) |
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
|
(b) |
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
|
|
Name: Kevin Landis Title: Chief Executive Officer Dated: November 15, 2022 |
Certification of Chief Financial Officer
Pursuant to Exchange Act Rule 13a-14(a) or 15d-14(a)
I, Omar Billawala, certify that:
|
1. |
I have reviewed the Quarterly Report on Form 10-Q of Firsthand Technology Value Fund, Inc.; |
|
2. |
Based on my knowledge, this report does not contain any untrue statement or a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
|
3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
|
4. |
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
|
(a) |
Designed such disclosure controls and procedures, or caused such disclosure control and procedures to be designed under our supervision, to ensure material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
|
(b) |
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
|
(c) |
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
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(d) |
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting. |
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5. |
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
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(a) |
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
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(b) |
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
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Name: Omar Billawala Title: Chief Financial Officer Dated: November 15, 2022 |
Certification of CEO and CFO Pursuant to
18 U.S.C. Section 1350,
As Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
In connection with the Quarterly Report on Form 10-Q of Firsthand Technology Value Fund, Inc. (the “Company”) for the quarter ended September 30, 2022, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), Kevin Landis and Omar Billawala, as Chief Executive Officer and Chief Financial Officer of the Company, hereby certifies, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that, to the best of his knowledge:
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(1) |
The report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 134; and |
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(2) |
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
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Name: Kevin Landis Title: Chief Executive Officer Dated: November 15, 2022 |
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Name: Omar Billawala Title: Chief Financial Officer Dated: November 15, 2022 |
