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EX-32 - Firsthand Technology Value Fund, Inc.fp0035065_ex32.htm
EX-31.2 - Firsthand Technology Value Fund, Inc.fp0035065_ex312.htm
EX-31.1 - Firsthand Technology Value Fund, Inc.fp0035065_ex311.htm

 

  

U.S. SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

  [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period of June 30, 2018 or

 

  [   ] TRANSITION QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

Commission File Number 333-168195

 

FIRSTHAND TECHNOLOGY VALUE FUND, INC.

(Exact Name of Registrant as Specified in Charter)

 

MARYLAND 27-3008946
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No)
   
150 Almaden Boulevard, Suite 1250  
San Jose, California 95113
(Address of Principal Executive Offices) (Zip Code)

 

Registrant’s Telephone Number, Including Area Code: (408) 886-7096

 

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. [X]  Yes [  ] No

 

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 [X]   Accelerated Filer
[  ]  Non-accelerated Filer [  ]    Smaller Reporting Company (Do not check if smaller reporting company)

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). [  ] Yes [X]  No

 

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 July 31, 2018  
Common Stock, $0.001 par value per share   7,302,146  

 

 

 

 

 TABLE OF CONTENTS

 

PART I.  FINANCIAL INFORMATION 2
     
Item 1. Financial Statements 2
  Consolidated Statements of Assets and Liabilities as of June 30, 2018 (Unaudited) and December 31, 2017 3
  Consolidated Statements of Operations (Unaudited) for the Three Months Ended June 30, 2018, and June 30, 2017, and for the Six Months
   Ended June 30, 2018, and June 30, 2017
4
  Consolidated Statements of Cash Flows (Unaudited) for the Three Months Ended June 30, 2018, and June 30, 2017, and for the Six Months
   Ended June 30, 2018, and June 30, 2017
5
  Consolidated Statements of Changes in Net Assets (Unaudited) for the Three Months Ended June 30, 2018, and June 30, 2017, and for the
   Six Months Ended June 30, 2018, and June 30, 2017
6
  Selected Per Share Data and Ratios for the Six Months Ended June 30, 2018 (Unaudited) (Consolidated), for the Year Ended December 31,
   2017 (Consolidated), for the Year Ended December 31, 2016 (Consolidated), for the Year Ended December 31, 2015 (Consolidated), for
   the Year Ended December 31, 2014, and for the Year Ended December 31, 2013
7
  Consolidated Schedule of Investments as of June 30, 2018 (Unaudited) and for the Year Ended December 31, 2017 8
  Consolidated Notes To Financial Statements (Unaudited) 19
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 37
Item 3. Quantitative and Qualitative Disclosures About Market Risk 46
Item 4. Controls and Procedures 47
     
PART II.  OTHER INFORMATION 48
     
Item 1. Legal Proceedings 49
Item 1A. Risk Factors 49
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 49
Item 3. Defaults Upon Senior Securities 49
Item 4. Mine Safety Disclosures 49
Item 5. Other Information 49
Item 6. Exhibits 49
     
SIGNATURES 50

 

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

JUNE 30, 2018

(UNAUDITED)

  

AS OF

DECEMBER 31, 2017

 
ASSETS        
Investment securities:        
Unaffiliated investments at acquisition cost  $19,185,832   $33,014,039 
Affiliated investments at acquisition cost   32,792,693    24,035,159 
Controlled investments at acquisition cost   121,360,349    117,890,661 
Total acquisition cost  $173,338,874   $174,939,859 
Unaffiliated investments at market value  $27,266,079   $40,191,055 
Affiliated investments at market value   23,287,015    24,656,252 
Controlled investments at market value   145,181,022    109,992,218 
Total market value * (Note 6)   195,734,116    174,839,525 
Cash   19,720    110,077 
Receivable for securities sold   602,333     
Receivable from dividends and interest   2,794,095    1,794,003 
Other assets   28,272    27,985 
Total Assets   199,178,536    176,771,590 
LIABILITIES          
Incentive fees payable (Note 4)   6,865,832    1,691,040 
Payable to affiliates (Note 4)   1,011,108    879,085 
Deferred tax liability   5,083,597     
Consulting fee payable   40,500    21,000 
Accrued expenses and other payables   130,996    186,876 
Total Liabilities   13,132,033    2,778,001 
NET ASSETS  $186,046,503   $173,993,589 
Net Assets consist of:          
Common Stock, par value $0.001 per share 100,000,000 shares authorized  $7,302   $7,302 
Paid-in-capital   180,772,769    180,772,769 
Accumulated net investment loss   (6,063,394)   (1,691,040)
Accumulated net realized loss from security transactions   (4,382,675)   (4,995,108)
Net unrealized appreciation (depreciation) on investments and warrants transactions   15,712,501    (100,334)
NET ASSETS  $186,046,503   $173,993,589 
Shares of Common Stock outstanding   7,302,146    7,302,146 
Net asset value per share (Note 2)  $25.48   $23.83 

 

*

Includes warrants whose primary exposure is equity risk.

 

See accompanying notes to financial statements

 

3 

 

Firsthand Technology Value Fund, Inc.

Consolidated Statements of Operations (Unaudited)

 

   FOR THE THREE MONTHS ENDED   FOR THE SIX MONTHS ENDED 
   JUNE 30, 2018   JUNE 30, 2017   JUNE 30, 2018   JUNE 30, 2017 
INVESTMENT INCOME                
Unaffiliated interest  $6,124   $22,557   $4,108   $29,265 
Affiliated/controlled interest   754,271    326,739    1,353,802    580,829 
Affiliated/controlled loan origination income   21,000        21,000     
TOTAL INVESTMENT INCOME   781,395    349,296    1,378,910    610,094 
EXPENSES                    
Investment advisory fees (Note 4)   956,712    726,250    1,847,661    1,467,402 
Administration fees   55,883    47,484    110,179    93,651 
Custody fees   14,920    7,848    19,311    10,622 
Transfer agent fees   8,436    7,506    16,759    14,701 
Registration and filing fees   7,629    5,759    15,174    11,455 
Professional fees   105,173    129,162    193,641    245,303 
Printing fees   15,290    15,780    30,412    29,916 
Trustees fees   50,000    25,000    100,000    50,000 
Compliance fees   29,741    26,225    57,589    52,609 
Miscellaneous fees   22,491    23,693    45,367    47,236 
TOTAL GROSS EXPENSES   1,266,275    1,014,707    2,436,093    2,022,895 
Incentive fee adjustments (Note 4)   3,000,192        5,174,792     
TOTAL NET EXPENSES   4,266,467    1,014,707    7,610,885    2,022,895 
NET INVESTMENT LOSS, BEFORE TAXES   (3,485,072)   (665,411)   (6,231,975)   (1,412,801)
Deferred tax benefit   1,859,621        1,859,621     
Net investment loss, net of deferred taxes   (1,625,451)   (665,411)   (4,372,354)   (1,412,801)

Net Realized and Unrealized Gains (Losses) on

   Investments:

                    
Net realized gains (losses) from security transactions on:                    
Affiliated/controlled   491,004        (908,492)    
Non-affiliated/controlled and other assets   5,163,141    1,633,244    1,781,402    560,792 
Deferred tax expense   (260,477)       (260,477)    
Net realized gains, net of deferred taxes   5,393,668    1,633,244    612,433    560,792 
Net change in unrealized appreciation (depreciation) on:                    
Non-affiliated investments   (1,116,171)   1,669,254    903,231    2,231,752 
Affiliated/controlled investments   19,290,801    (12,128,244)   25,957,652    (11,347,022)
Affiliated/controlled warrants investments (1)   (8,776,609)   419,326    (4,365,307)   799,989 
Deferred tax expense   (6,682,741)       (6,682,741)    
Net change in unrealized appreciation (depreciation),
  net of deferred taxes
   2,715,280    (10,039,664)   15,812,835    (8,315,281)
                     

Net Realized and Unrealized Gains (Losses) on
   Investments, Net of Deferred Taxes

   8,108,948    (8,406,420)   16,425,268    (7,754,489)

Net Increase (Decrease) In Net Assets Resulting From

   Operations, Net of Deferred Taxes

  $6,483,497   $(9,071,831)  $12,052,914   $(9,167,290)
Net Increase /(Decrease) In Net Assets Per Share
   Resulting From Operations (2)
  $0.89   $(1.22)  $1.65   $(1.23)

 

(1)Primary exposure is equity risk.
(2)Per share results are calculated based on weighted average shares outstanding for each period.

 

See accompanying notes to financial statements  

 

4 

 

Firsthand Technology Value Fund, Inc.

Consolidated Statements of Cash Flows

 

  

FOR THE THREE MONTHS ENDED

JUNE 30, 2018

(UNAUDITED)

  

FOR THE THREE MONTHS ENDED

JUNE 30, 2017

(UNAUDITED)

  

FOR THE

SIX MONTHS ENDED

JUNE 30, 2018

(UNAUDITED)

  

FOR THE SIX

MONTHS ENDED

JUNE 30, 2017

(UNAUDITED)

 
CASH FLOWS FROM OPERATING ACTIVITIES                
Net increase (decrease) in Net Assets resulting from
   operations
  $6,483,497   $(9,071,831)  $12,052,914   $(9,167,290)
Adjustments to reconcile net increase (decrease) in
   Net Assets derived from operations to net cash
   provided by (used in) operating activities:
                    
Purchases of investments   (5,320,611)   (997,510)   (28,806,771)   (8,509,165)
Proceeds from disposition of investments   10,665,632    13,532,515    41,704,456    18,918,692 
Net purchases/sales from short-term investments   (3,748,355)   (4,046,511)   (10,423,790)   (3,345,725)
Increase (decrease) in dividends, interest, and
  reclaims receivable
   (579,020)   (176,085)   (1,000,092)   (348,768)
Increase (decrease) in receivable in investment sold   (602,333)       (602,333)    
Increase (decrease) in payable for investment purchased       90,066        (305,466)
Increase (decrease) in payable to affiliates   95,504    (814,480)   132,023    (46,945)
Increase (decrease) in incentive fees payable   3,000,192        5,174,792     
Increase (decrease) in other assets   15,240    13,547    (287)   3,844 
Decrease (increase) in accrued expenses and other payables   (41,834)   (135,071)   (36,380)   (66,468)
Increase (decrease) in deferred tax benefit   5,083,597        5,083,597     
Net realized gain (loss) from investments   (5,654,145)   (1,633,244)   (872,910)   (560,792)
Net unrealized appreciation (depreciation) from
   investments, other assets, and warrants transactions
   (9,398,021)   10,039,664    (22,495,576)   8,315,281 
Net cash (used in) operating activities   (657)   6,801,060    (90,357)   4,887,198 
                     
CASH FLOWS FROM FINANCING ACTIVITIES                    
   Cost of shares repurchased                

Net cash (used in) financing activities                
                     
Net increase (decrease) in cash   (657)   6,801,060    (90,357)   4,887,198 
Cash - beginning of period   20,377    20,385    110,077    1,934,247 
Cash - end of period  $19,720   $6,821,445   $19,720   $6,821,445 

 

See accompanying notes to financial statements

 

5 

 

Firsthand Technology Value Fund, Inc.

Consolidated Statements of Changes in Net Assets (Unaudited)

 

  

FOR THE THREE MONTHS ENDED

JUNE 30, 2018

  

FOR THE THREE MONTHS ENDED

JUNE 30, 2017

  

FOR THE

SIX MONTHS

ENDED

JUNE 30, 2018

  

FOR THE

SIX MONTHS

ENDED

JUNE 30, 2017

 
FROM OPERATIONS:                
Net investment loss, net of deferred taxes  $(1,625,451)  $(665,411)  $(4,372,354)  $(1,412,801)
Net realized gains from security transactions and
   warrants transactions, net of deferred taxes
   5,393,668    1,633,244    612,433    560,792 
Net change in unrealized appreciation (depreciation) on
   investments and warrants transactions, net of
   deferred taxes
   2,715,280    (10,039,664)   15,812,835    (8,315,281)
Net increase (decrease) in net assets from operations   6,483,497    (9,071,831)   12,052,914    (9,167,290)
                     
FROM CAPITAL SHARE TRANSACTIONS:                    
Value for shares repurchased                
Net decrease in net assets from capital share transactions                
TOTAL INCREASE/(DECREASE) IN NET ASSETS   6,483,497    (9,071,831)   12,052,914    (9,167,290)
NET ASSETS:                    
Beginning of period   179,563,006    148,816,932    173,993,589    148,912,391 
End of period  $186,046,503   $139,745,101   $186,046,503   $139,745,101 
Accumulated Net Investment Loss  $(1,625,451)  $(665,411)  $(6,063,394)  $(1,412,801)
                     
COMMON STOCK ACTIVITY:                    
Shares repurchased                
Net decrease in shares outstanding                
Shares outstanding, beginning of period   7,302,146    7,430,697    7,302,146    7,430,697 
Shares outstanding, end of period   7,302,146    7,430,697    7,302,146    7,430,697 

 

See accompanying notes to financial statements

 

6 

 

Firsthand Technology Value Fund, Inc.

Financial Highlights

Selected per share data and ratios for a share outstanding throughout each period

 

   FOR THE SIX MONTHS ENDED JUNE 30, 2018* (UNAUDITED)  

FOR THE YEAR ENDED

DECEMBER 31, 2017*

  

FOR THE YEAR ENDED

DECEMBER 31, 2016*

  

FOR THE YEAR ENDED

DECEMBER 31, 2015*

  

FOR THE YEAR ENDED

DECEMBER 31, 2014

  

FOR THE YEAR ENDED

DECEMBER 31, 2013

 
Net asset value at beginning of
   period
  $23.83   $20.04   $22.79   $24.49   $28.32   $22.90 
Income from investment
   operations:
                              
Net investment loss, before
   deferred taxes
   (0.85)   (0.62)   (0.52)   (0.06)(1)   (1.26)   (1.42)
Deferred tax benefit   0.25                     
Net investment loss   (0.60)   (0.62)   (0.52)   (0.06)   (1.26)   (1.42)
Net realized and unrealized
   gains (losses) on investments,
   before deferred taxes
   3.21    4.21    (2.76)   (1.78)   3.04    7.16 
Deferred tax expense   (0.96)                    
Net realized and unrealized
   gains (losses) on investments
   2.25    4.21    (2.76)   (1.78)   3.04    7.16 
Total from investment operations   1.65    3.59    (3.28)   (1.84)   1.78    5.74 
Distributions from:                              
Realized capital gains                   (5.86)   (0.32)
Premiums from shares sold in
   offerings
                       (2)
Anti-dilutive effect from capital
   share transactions
       0.20    0.53    0.14    0.25     
Net asset value at end of period  $25.48   $23.83   $20.04   $22.79   $24.49   $28.32 
                               
Market value at end of period  $14.17   $8.96   $7.67   $8.17   $18.65   $23.17 
                               
Total return                              
Based on Net Asset Value   6.92%(A)   18.91%   (12.07)%   (6.94)%   12.54%   25.30%
Based on Market Value   58.15%(A)   16.82%   (6.12)%   (56.19)%   4.76%   34.61%
                               
Net assets at end of period
   (millions)
  $186.0   $174.0   $148.9   $175.6   $209.7   $256.9 
Ratio of total expenses to average
   net assets:
                              
Before tax expense   8.54%(B)(3)   4.13%(3)   2.90%   1.36%(3)   5.29%(3)   6.52%(3)
Deferred tax expense (4)   5.70%(B)                    
Total expenses   14.24%(B)(3)   4.13%   2.90%   1.36%   5.29%   6.52%
Total expenses, excluding
   incentive fees
   8.44%(B)   2.98%   2.90%   2.68%   3.12%   2.67%
Ratio of net investment loss to
   average net assets:
                              
Before tax benefit   (6.99)%(B)(3)   (3.07)%   (2.36)%   (0.24)%   (4.31)%   (5.96)%
Deferred tax benefit (5)   2.09%(B)                    
Net investment loss   (4.90)%(B)   (3.07)%   (2.36)%   (0.24)%   (4.31)%   (5.96)%
Portfolio turnover rate   17%(A)   22%   49%   22%   95%   17%

 

*

Consolidated.

(1)

Calculated using average shares outstanding.

(2)

Less than $0.005 per share.

(3)

Amount includes the incentive fee. For the period ended June 30, 2018, the year ended December 31, 2017, the year ended December 31, 2015, the year ended December 31, 2014 and the year ended December 31, 2013, the ratio of the incentive fee to average net assets was 5.80%, 1.15%, (1.32)%, 2.17% and 3.85%, respectively.

(4)

Deferred tax expense estimate is derived from net investment income (loss), and realized and unrealized gains (losses).

(5)

Deferred tax benefit estimate for the ratio calculation is derived from net investment income (loss) only.

(A)

Not Annualized.

(B)

Annualized.

 

See accompanying notes to financial statements

 

7 

 

Firsthand Technology Value Fund, Inc.

Consolidated Schedule of Investments

JUNE 30, 2018 (UNAUDITED)

 

PORTFOLIO COMPANY (% OF NET ASSETS) AND INDUSTRY  TYPE OF INVESTMENT  ACQUISITION DATE  SHARES/PAR VALUE ($)  COST BASIS  VALUE 
ALIPHCOM, INC. (0.0%)  Common Stock*(1)(7)  08/20/13  2,128,005  $10,108,024  $0 
Consumer Electronics                  
                   
EQX CAPITAL, INC (2.1%)  Common Stock*(1)(2)(7)  06/10/16  100,000   20,000   43,150 
Equipment Leasing  Preferred Stock - Series A *(1)(2)(7)  06/10/16  4,000,000   4,000,000   3,844,800 
                 3,887,950 
                   
HERA SYSTEMS, INC. (1.7%)  Convertible Promissory Note               
Aerospace  Matures January 2019               
   Interest Rate 10% (1)(2)(7)  05/31/18  500,000   500,000   500,000 
   Convertible Promissory Note               
   Matures January 2019               
   Interest Rate 10% (1)(2)(7)  01/19/18  500,000   500,000   500,000 
   Preferred Stock - Series A*(1)(2)(7)  09/18/15  3,642,324   2,000,000   194,864 
   Preferred Stock - Series B*(1)(2)(7)  08/07/17 - 09/28/17  2,039,203   1,587,102   453,315 
   Preferred Stock Warrants - Series B*(1)(2)(7)  08/07/17  6,214,922   0   1,380,956 
   Preferred Stock Warrants - Series B*(1)(2)(7)  09/28/17  700,000   0   155,540 
                 3,184,675 
INTRAOP MEDICAL CORP. (13.8%)  Convertible Note               
Medical Devices  Matures June 2020               
   Interest Rate 15% (1)(2)(7)  05/31/17  1,000,000   1,000,000   1,000,000 
   Convertible Note               
   Matures June 2020               
   Interest Rate 15% (1)(2)(7)  09/28/17  1,500,000   1,500,000   1,500,000 
   Convertible Note               
   Matures June 2020               
   Interest Rate 15% (1)(2)(7)  07/13/17  1,000,000   1,000,000   1,000,000 
   Convertible Note               
   Matures June 2020               
   Interest Rate 15% (1)(2)(7)  07/08/14  2,000,000   2,000,000   2,000,000 
   Convertible Note               
   Matures June 2020               
   Interest Rate 15% (1)(2)(7)  03/21/18  1,000,000   1,000,000   1,000,000 
   Preferred Stock - Series C *(1)(2)(7)  07/12/13  26,856,187   26,299,938   14,250,967 

 

See accompanying notes to financial statements

 

8 

 

Firsthand Technology Value Fund, Inc.

Consolidated Schedule of Investments - continued

JUNE 30, 2018 (UNAUDITED)

 

PORTFOLIO COMPANY (% OF NET ASSETS) AND INDUSTRY  TYPE OF INVESTMENT  ACQUISITION DATE  SHARES/PAR VALUE ($)  COST BASIS  VALUE 
INTRAOP MEDICAL CORP. (continued)  Term Note               
   Matures February 2020               
   Interest Rate 8% (1)(2)(7)  02/10/17  2,000,000  $2,000,000  $2,000,000 
   Term Note               
   Matures February 2020               
   Interest Rate 8% (1)(2)(7)  02/28/14  3,000,000   3,000,000   3,000,000 
                 25,750,967 
                   
NUTANIX, INC. (7.9%)  Common Stock*  05/15/15 - 08/23/16  283,772   4,258,512   14,634,122 
Networking                  
                   
PHUNWARE, INC. (6.4%)  Preferred Stock - Series E*(1)(3)(7)  03/14/14  3,257,328   9,999,997   11,835,827 
Mobile Computing                  
                   
PIVOTAL SYSTEMS CORP. (34.3%)  Common Stock*(1)(2)(7)  11/28/12 - 09/02/16  53,758,441   19,446,197   63,751,705 
Semiconductor Equipment                  
                   
                   
QMAT, INC. (9.0%)   Preferred Stock - Series A*(1)(2)(5)(7)(8)  12/14/12 - 04/28/16  16,000,240   14,609,819   9,680,305 
Advanced Materials  Preferred Stock - Series B*(1)(2)(7)  09/28/16 - 11/07/16  2,000,000   2,000,000   1,436,200 
   Preferred Stock Warrants - Series A*(1)(2)(7)  12/14/12  2,000,000   0   417,200 
   Preferred Stock Warrants - Series C *(1)(2)(7)  02/22/18  3,482,208   0   344,739 
   Preferred Stock Warrants - Series C *(1)(2)(7)  03/13/18  350,000   0   34,650 
   Preferred Stock Warrants - Series C *(1)(2)(7)  05/11/18  1,000,000   0   99,000 
   Convertible Note               
   Matures July 2018               
   Interest Rate 8% (1)(2)(7  05/11/18  1,000,000   1,000,000   1,000,000 
   Convertible Note               
   Matures July 2018               
   Interest Rate 8% (1)(2)(7)  02/22/18  3,482,209   3,482,209   3,482,209 
   Convertible Note               
   Matures July 2018               
   Interest Rate 8% (1)(2)(7)  03/13/18  350,000   350,000   350,000 
                 16,844,303 

 

See accompanying notes to financial statements

 

9 

 

Firsthand Technology Value Fund, Inc.

Consolidated Schedule of Investments - continued

JUNE 30, 2018 (UNAUDITED)

 

PORTFOLIO COMPANY (% OF NET ASSETS) AND INDUSTRY  TYPE OF INVESTMENT  ACQUISITION DATE  SHARES/PAR VALUE ($)  COST BASIS  VALUE 
QUICKLOGIC CORP. (0.7%)  Common Stock *  12/27/16 - 11/09/17  1,200,000  $1,859,835  $1,380,000 
Semiconductors                  
REVASUM, INC. (12.3%)  Preferred Stock - Series B*(1)(2)(7)  10/27/17 - 12/20/17  313,719   2,550,033   3,259,729 
Semiconductor Equipment  Common Stock*(1)(2)(7)  11/14/16  10,000   1,000   50,997 
   Preferred Stock - Series A*(1)(2)(7)  03/01/17  441,998   1,999,997   3,500,889 
   Term Note               
   Matures February 2020               
   Interest Rate 5% (1)(2)(7)  03/01/17  840,186   840,186   840,186 
   Preferred Stock - Series               
   Seed*(1)(2)(7)  11/14/16  2,200,000   7,275,070   15,211,680 
                 22,863,481 
                   
ROKU, INC. (5.7%)  Common Stock*  05/26/15 - 08/06/15  250,000   2,312,500   10,655,000 
Consumer Electronics                  
                   
RORUS, INC. (0.0%)  Convertible Note               
Water Purification  Matures June 2021               
   Interest Rate 2% (1)(7)  10/04/16  50,000   50,000   0 
                   
SILICON GENESIS CORP. (2.6%)  Common Stock*(1)(2)(7)  04/18/11  921,892   169,045   10,786 
Intellectual Property  Common Stock Warrants*(1)(2)(7)  04/18/11  37,982   6,678   220 
   Common Stock Warrants*(1)(2)(7)  10/13/11  5,000,000   0   6,500 
   Common Stock Warrants*(1)(2)(7)  02/06/12  3,000,000   0   3,900 
   Preferred Stock - Series 1-C*(1)(2)(7)  04/18/11  82,914   109,518   52,037 
   Preferred Stock - Series 1-D*(1)(2)(7)  04/18/11  850,830   431,901   142,939 
   Preferred Stock - Series 1-E*(1)(2)(7)  04/18/11  5,704,480   2,372,403   1,718,189 
   Preferred Stock - Series 1-F*(1)(2)(7)  04/18/11  912,453   456,389   374,836 
   Preferred Stock - Series               
   1-G*(1)(2)(5)(7)  03/10/16  48,370,793   4,500,969   2,291,808 
   Preferred Stock - Series 1-H*(1)(2)(7)  03/10/16  837,942   936,895   192,643 
                4,793,858 
                   
SVXR, INC. (2.2%)  Preferred Stock - Series A*(1)(3)(7)  01/11/17 - 06/20/18  6,156,316   3,057,534   3,057,534 
Semiconductor Equipment  Convertible Note               
   Matures December 2018               
   Interest Rate 10% (1)(3)(7)  05/30/18  1,000,000   1,000,000   1,000,000 
                 4,057,534 

 

See accompanying notes to financial statements

 

10 

 

Firsthand Technology Value Fund, Inc.

Consolidated Schedule of Investments - continued

JUNE 30, 2018 (UNAUDITED)

 

PORTFOLIO COMPANY (% OF NET ASSETS) AND INDUSTRY  TYPE OF INVESTMENT  ACQUISITION DATE  SHARES/PAR
VALUE ($)
   COST BASIS   VALUE 
TELEPATHY INVESTORS, INC. (1.7%)  Convertible Note
                  
Consumer Electronics  Matures January 2019                  
   Interest Rate 10% (1)(2)(7)  01/29/16   300,000   $300,000   $112,290 
   Convertible Note                  
   Matures January 2019                  
   Interest Rate 10% (1)(2)(7)  04/20/16   500,000    500,000    187,150 
   Convertible Note                  
   Matures January 2019                  
   Interest Rate 10% (1)(2)(7)  06/21/16   150,000    150,000    56,145 
   Convertible Note                  
   Matures January 2019                  
   Interest Rate 10% (1)(2)(7)  12/13/16   500,000    500,000    187,150 
   Convertible Note                  
   Matures January 2019                  
   Interest Rate 10% (1)(2)(7)  06/23/15   2,000,000    2,000,000    748,600 
   Convertible Note                  
   Matures July 2018                  
   Interest Rate 10% (1)(2)(7)  05/03/17   300,000    300,000    112,290 
   Preferred Stock - Series A*(1)(2)(7)  07/29/14   15,238,000    3,999,999    1,675,418 
                    3,079,043 
                      
UCT COATINGS, INC. (0.4%) 

Common Stock*(1)(3)(7) 

  04/18/11   1,500,000    662,235    779,250 
Advanced Materials  Common Stock Warrants*(1)(3)(7)  04/18/11   2,283    67    57 
                    779,307 
                      
VUFINE, INC. (0.5%)  Common Stock*(1)(2)(7)  02/26/15   750,000    15,000    0 
Consumer Electronics  Convertible Note                  
   Matures July 2019                  
   Interest Rate 6% (1)(2)(7)  07/10/17   1,500,000    1,500,000    640,650 
   Convertible Note                  
   Matures October 2019                  
   Interest Rate 12% (1)(2)(7)  10/16/17   250,000    250,000    106,775 
   Convertible Note                  
   Matures July 2019                  
   Interest Rate 12% (1)(2)(7)  01/31/18   350,000    350,000    149,485 
   Convertible Note                  
   Matures July 2019                  
   Interest Rate 12% (1)(2)(7)  06/19/18   300,000    300,000    128,130 
   Preferred Stock - Series A*(1)(2)(7)  03/04/15 - 02/18/16   22,500,000    2,250,000    0 
                    1,025,040 

 

See accompanying notes to financial statements

 

11 

 

Firsthand Technology Value Fund, Inc. 

Consolidated Schedule of Investments - continued

JUNE 30, 2018 (UNAUDITED)

 

PORTFOLIO COMPANY (% OF NET ASSETS) AND INDUSTRY  TYPE OF INVESTMENT  ACQUISITION DATE  SHARES/PAR VALUE ($)   COST BASIS   VALUE 
WRIGHTSPEED, INC. (3.6%)  Preferred Stock -                
Automotive  Series C*(1)(3)(4)(5)(7)  04/11/13   2,267,659   $6,837,983   $496,844 
   Preferred Stock - Series D *(1)(3)(7)  12/15/14   1,100,978    3,375,887    312,017 
   Preferred Stock - Series E *(1)(3)(7)  07/10/15   450,814    1,658,996    137,273 
   Preferred Stock - Series F *(1)(3)(7)  08/31/17   90,707    499,995    41,517 
   Preferred Stock Warrants - Series F *(1)(3)(7)  04/09/18   13,606    0    15 
   Preferred Stock Warrants - Series F *(1)(3)(7)  04/26/18   6,803    0    8 
   Preferred Stock Warrants - Series F*(1)(3)(7)  06/21/18   4,000,000    0    1,827,200 
   Preferred Stock Warrants - Series F*(1)(3)(7)  05/01/18   7,400,000    0    3,380,320 
   Preferred Stock Warrants - Series F*(1)(3)(7)  06/21/18   4,000,000    0    4,800 
   Preferred Stock Warrants - Series F*(1)(3)(7)  05/01/18   7,400,000    0    8,880 
   Preferred Stock Warrants - Series F*(1)(3)(7)  02/07/18   11,338    0    12 
   Preferred Stock Warrants - Series F*(1)(3)(7)  08/31/17   18,141    0    20 
   Convertible Note                  
   Matures December 2018                 
   Interest Rate 12% (1)(3)(7)  05/01/18   3,700,000    3,700,000    263,181 
   Convertible Note                  
   Matures December 2018                 
   Interest Rate 12% (1)(3)(7)  06/21/18   2,000,000    2,000,000    142,260 
                   6,614,347 
                      
INVESTMENT COMPANY (0.3%)  Fidelity Investments Money Market                  
   Treasury Portfolio - Class I (6)  Various   596,957    596,957    596,957 

 

See accompanying notes to financial statements

 

12 

 

Firsthand Technology Value Fund, Inc.  

Consolidated Schedule of Investments - continued

JUNE 30, 2018 (UNAUDITED)

 

PORTFOLIO COMPANY (% OF NET ASSETS) AND INDUSTRY  TYPE OF INVESTMENT   ACQUISITION DATE   SHARES/PAR VALUE ($)   COST BASIS   VALUE 
TOTAL INVESTMENTS (Cost $173,338,874) — 105.2%                   $195,734,116 
LIABILITIES IN EXCESS OF OTHER ASSETS — (5.2)%                (9,687,613)
NET ASSETS — 100.0%                      $186,046,503 

 

*Non-income producing security.

(1)Restricted security. Fair Value is determined by or under the direction of the Company’s Board of Directors (See Note 3). At June 30, 2018, we held $168,468,037 (or 90.6% of net assets) in restricted securities (see Note 2).

(2)Controlled investments.

(3)Affiliated issuer.

(4)A portion represents position held in Firsthand Holdings, Ltd. (See Note 1).

(5)A portion represents position held in Firsthand Development, Ltd. (See Note 1).

(6)The Fidelity Investments Money Market Portfolio invests primarily in U.S. Treasury securities.

(7)Fair Value Level 3 Security.

(8)A portion represents position held in Firsthand Investments, Ltd. (See Note 1).

 

See accompanying notes to financial statements

 

13 

 

Firsthand Technology Value Fund, Inc.

Consolidated Schedule of Investments

DECEMBER 31, 2017

 

PORTFOLIO COMPANY (% OF NET ASSETS) AND INDUSTRY  TYPE OF INVESTMENT  ACQUISITION DATE  SHARES/PAR VALUE ($)   COST BASIS   VALUE 
ALIPHCOM, INC. (0.0%)  Common Stock*(1)(7)  08/20/13   2,128,005   $10,108,024   $0 
Consumer Electronics                     
EQX CAPITAL, INC. (2.3%)  Common Stock*(1)(2)(7)  06/10/16   100,000    20,000    44,810 
Equipment Leasing  Preferred Stock - Series A *(1)(2)(7)  06/10/16   4,000,000    4,000,000    3,975,200 
                    4,020,010 
                      
HERA SYSTEMS, INC. (1.2%)  Preferred Stock - Series A*(1)(2)(7)  09/18/15   3,642,324    2,000,000    154,799 
Aerospace  Preferred Stock - Series B*(1)(2)(7)  08/07/17 - 09/28/17   2,039,203    1,587,102    453,315 
   Preferred Stock Warrants - Series B*(1)(2)(7)  08/07/17   6,214,922    0    1,380,956 
   Preferred Stock Warrants - Series B*(1)(2)(7)  09/28/17   700,000    0    155,540 
                    2,144,610 
                      
HIGHTAIL, INC. (4.9%)  Preferred Stock - Series E *(1)(4)(7)  03/27/14   2,268,602    9,620,188    8,561,704 
Cloud Computing                     
INTRAOP MEDICAL CORP. (12.1%)  Convertible Note (1)(2)(7)                  
Medical Devices  Matures June 2020                  
   Interest Rate 15%  05/31/17   1,000,000    1,000,000    1,000,000 
   Convertible Note (1)(2)(7)                  
   Matures June 2020                  
   Interest Rate 15%  09/28/17   1,500,000    1,500,000    1,500,000 
   Convertible Note (1)(2)(7)                  
   Matures June 2020                  
   Interest Rate 15%  07/13/17   1,000,000    1,000,000    1,000,000 
   Convertible Note (1)(2)(7)                  
   Matures June 2020                  
   Interest Rate 15%  07/08/14   1,000,000    1,000,000    1,000,000 
   Preferred Stock - Series C *(1)(2)(7)  07/12/13   26,856,187    26,299,938    11,479,677 
   Term Note (1)(2)                  
   Matures February 2020                  
   Interest Rate 8%  02/10/17   2,000,000    2,000,000    2,000,000 
   Term Note (1)(2)(7)                  
   Matures February 2020                  
   Interest Rate 8%  02/28/14   3,000,000    3,000,000    3,000,000 
                    20,979,677 

 

See accompanying notes to financial statements

 

14 

 

Firsthand Technology Value Fund, Inc.

Consolidated Schedule of Investments - continued

DECEMBER 31, 2017

 

PORTFOLIO COMPANY (% OF NET ASSETS) AND INDUSTRY  TYPE OF INVESTMENT  ACQUISITION DATE  SHARES/PAR VALUE ($)   COST BASIS   VALUE 
NUTANIX, INC. (9.3%)  Common Stock*  05/15/15 - 08/23/16   458,772   $7,358,112   $16,185,476 
Networking                     
                      
PHUNWARE, INC. (6.9%)  Preferred Stock - Series E*(1)(3)(7)  03/14/14   3,257,328    9,999,997    12,018,563 
Mobile Computing                     
                      
PIVOTAL SYSTEMS CORP. (19.9%)  Common Stock Warrants - Class B*(1)(2)(7)  02/12/16   18,180,475    0    8,741,172 
Semiconductor Equipment  Preferred Stock Warrants - Series D*(1)(2)(7)  09/02/16   4,158,654    0    618,392 
   Preferred Stock - Series A*(1)(2)(7)  11/28/12 - 04/30/14   11,914,217    6,000,048    8,453,614 
   Preferred Stock - Series B*(1)(2)(7)  04/30/14   13,065,236    6,321,482    9,270,308 
   Preferred Stock - Series C*(1)(2)(7)  12/31/14   2,291,260    2,657,862    2,560,254 
   Preferred Stock - Series D*(1)(2)(7)  09/02/16   6,237,978    3,975,801    5,009,720 
                    34,653,460 
                      
QMAT, INC. (13.4%)  Preferred Stock - Series A*(1)(2)(7)  12/14/12 - 04/28/16   16,000,240    16,000,240    17,394,341 
Advanced Materials  Preferred Stock - Series B*(1)(2) (7)  09/28/16 - 11/07/16   2,000,000    2,000,000    2,132,600 
   Preferred Stock Warrants - Series A*(1)(2)  12/14/12   2,000,000    0    1,086,600 
   Convertible Note                  
   Matures March 2019                  
   Interest Rate 8% (1)(2)(7)  12/29/17   2,745,485    2,745,485    2,745,485 
                    23,359,026 
                      
QUICKLOGIC CORP. (1.2%)  Common Stock *  12/27/16 - 11/09/17   1,200,000    1,859,835    2,088,000 
Semiconductors                     
                      
REVASUM, INC. (8.5%)  Preferred Stock - Series B (1)(2)(7)(8)  10/27/17 - 12/20/17   313,719    2,550,033    2,550,033 
Semiconductor Equipment  Common Stock*(1)(2)(7)  11/14/16   10,000    1,000    29,908 
   Preferred Stock - Series A*(1)(2)(7)  03/01/17   441,998    1,999,997    2,256,355 
   Term Note (1)(2)(7)                  
   Matures February 2020                  
   Interest Rate 5%  03/01/17   1,000,000    1,000,000    1,000,000 
   Preferred Stock - Series                  
   Seed* (1)(2)(7)  11/14/16   2,200,000    7,284,145    8,966,760 
                    14,803,056 

 

See accompanying notes to financial statements

 

15 

 

Firsthand Technology Value Fund, Inc.

Consolidated Schedule of Investments - continued

DECEMBER 31, 2017

 

PORTFOLIO COMPANY (% OF NET ASSETS) AND INDUSTRY  TYPE OF INVESTMENT  ACQUISITION DATE  SHARES/PAR VALUE ($)   COST BASIS   VALUE 
ROKU, INC. (6.7%)  Common Stock*(1)(7)  05/26/15 - 08/06/15   250,000   $2,312,500   $11,650,500 
Consumer Electronics                     
                      
RORUS, INC. (0.0%)  Convertible Note (1)(7)                  
Water Purification  Matures June 2021                  
   Interest Rate 2%  10/04/16   50,000    50,000    0 
                      
SILICON GENESIS CORP. (3.5%)  Common Stock*(1)(2)(7)  04/18/11   921,892    169,045    16,871 
Intellectual Property  Common Stock Warrants*(1)(2)(7)  04/18/11   5,000,000    0    11,000 
   Common Stock Warrants*(1)(2)(7)  10/13/11   37,982    6,678    357 
   Common Stock Warrants*(1)(2)(7)  02/06/12   3,000,000    0    6,600 
   Preferred Stock - Series 1-C*(1)(2)(7)  04/18/11   82,914    109,518    74,258 
   Preferred Stock - Series 1-D*(1)(2)(7)  04/18/11   850,830    431,901    205,646 
   Preferred Stock - Series 1-E*(1)(2)(7)  04/18/11   5,704,480    2,459,808    2,063,310 
   Preferred Stock - Series 1-F*(1)(2)(7)  04/18/11   912,453    475,674    456,318 
   Preferred Stock - Series                  
   1-G*(1)(2)(5)(7)  03/10/16   48,370,793    4,583,405    3,023,658 
   Preferred Stock - Series 1-H*(1)(2)(7)  03/10/16   837,942    946,502    236,551 
                    6,094,569 
                      
SVXR, INC. (1.2%)  Preferred Stock - Series A*(1)(3)(7)  01/11/17   2,013,491    1,000,000    1,000,000 
Semiconductor Equipment  Convertible Note (1)(2)(7)                  
   Matures December 2018                  
   Interest Rate 10% (1)(2)(7)  12/21/17   1,000,000    1,000,000    1,000,000 
                    2,000,000 

 

See accompanying notes to financial statements

 

16 

 

Firsthand Technology Value Fund, Inc.

Consolidated Schedule of Investments - continued

DECEMBER 31, 2017

 

PORTFOLIO COMPANY (% OF NET ASSETS) AND INDUSTRY  TYPE OF INVESTMENT  ACQUISITION DATE  SHARES/PAR VALUE ($)   COST BASIS   VALUE 
TELEPATHY INVESTORS, INC. (0.9%)  Convertible Note (1)(2)(7)                  
Consumer Electronics  Matures January 2018                  
   Interest Rate 10%  01/29/16   300,000   $300,000   $45,321 
   Convertible Note (1)(2)(7)                  
   Matures January 2018                  
   Interest Rate 10%  04/20/16   500,000    500,000    75,535 
   Convertible Note (1)(2)(7)                  
   Matures January 2018                  
   Interest Rate 10%  06/21/16   150,000    150,000    22,661 
   Convertible Note (1)(2)(7)                  
   Matures January 2018                  
   Interest Rate 10%  12/13/16   500,000    500,000    75,535 
   Convertible Note (1)(2)(7)                  
   Matures January 2018                  
   Interest Rate 10%  06/23/15   2,000,000    2,000,000    302,140 
   Convertible Note (1)(2)(7)                  
   Matures January 2018                  
   Interest Rate 10%  05/03/17   300,000    300,000    45,321 
   Preferred Stock - Series A*(1)(2)(7)  07/29/14   15,238,000    3,999,999    937,137 
                    1,503,650 
                      
UCT COATINGS, INC.(0.5%)  Common Stock*(1)(3)(7)  04/18/11   1,500,000    662,235    922,050 
Advanced Materials  Common Stock Warrants*(1)(3)(7)  04/18/11   2,283    67    4 
                    922,054 
                      
VUFINE, INC. (0.8%)  Common Stock*(1)(2)(7)  02/26/15   750,000    15,000    0 
Consumer Electronics  Convertible Note (1)(2)(7)                  
   Matures July 2019                  
   Interest Rate 6%  07/10/17   1,500,000    1,500,000    1,229,280 
   Preferred Stock - Series A*(1)(2)(7)  03/04/15 - 02/18/16   22,500,000    2,250,000    0 
   Convertible Note (1)(2)(7)                  
   Matures October 2019                  
   Interest Rate 12%  10/16/17   250,000    250,000    204,880 
                    1,434,160 
                      
WRIGHTSPEED, INC. (6.2%)  Preferred Stock - Series C*(1)(3)(4)(7)  04/11/13   2,267,659    6,837,983    5,704,296 
Automotive  Preferred Stock - Series D *(1)(3)(7)  12/15/14   1,100,978    3,375,887    3,161,018 
   Preferred Stock - Series E *(1)(3)(7)  07/10/15   450,814    1,658,996    1,350,323 
   Preferred Stock - Series F *(1)(3)(7)  08/31/17   90,707    499,995    471,295 
   Preferred Stock Warrants - Series F*(1)(3)(7)  08/31/17   18,141    0    28,703 
                    10,715,635 

 

See accompanying notes to financial statements

 

17 

 

Firsthand Technology Value Fund, Inc.

Consolidated Schedule of Investments - continued

DECEMBER 31, 2017

 

PORTFOLIO COMPANY (% OF NET ASSETS) AND INDUSTRY  TYPE OF INVESTMENT  ACQUISITION DATE  SHARES/
PAR
VALUE ($)
   COST BASIS   VALUE 
INVESTMENT COMPANY (1.0%)  Fidelity Investments Money Market Treasury Portfolio - Class I (6)  Various   1,705,375   $1,705,375   $1,705,375 
                      
TOTAL INVESTMENTS (Cost $174,939,859) — 100.5%                   174,839,525 
                      
LIABILITIES IN EXCESS OF OTHER ASSETS — (0.5)%                   (845,936)
                      
NET ASSETS — 100.0%                  $173,993,589 

 

*Non-income producing security.
(1)Restricted security. Fair Value is determined by or under the direction of the Company’s Board of Directors (see Note 3). At December 31, 2017, we held $154,860,674 (or 89.0% of net assets) in restricted securities (see Note 2).
(2)Controlled Investments.
(3)Affiliated issuer.
(4)A portion represents position held in Firsthand Holdings, Ltd. (see Note 1).
(5)A portion represents position held in Firsthand Development, Ltd. (see Note 1).
(6)The Fidelity Investments Money Market Portfolio invests primarily in U.S. Treasury securities.
(7)Fair Value Level 3 Security.
(8)A portion represents position held in Firsthand Investments, Ltd. (see Note 1).

 

See accompanying notes to financial statements

 

18 

 

Firsthand Technology Value Fund, Inc.

Consolidated Notes to Financial Statements

june 30, 2018 (unaudited)

 

NOTE 1. THE COMPANY

 

Firsthand Technology Value Fund, Inc. (the “Company,” “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 18, 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.”

 

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 closing 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 July 1, 2015. Under this new structure, we will have all or substantially all of our investment activities conducted through our fully owned subsidiary, FVI.

 

On June 10, 2016, the Board of Directors of the Company approved the formation of a fully owned and controlled subsidiary (as defined by the 1940 Act) of FVI named Firsthand Holdings, Ltd. (“FHL”), a Cayman Islands corporation formed on May 4, 2016. Under this structure, we may from time to time transfer investments in the Company held in the Company or FVI to FHL in return for ownership interests in FHL. The net assets of FHL at June 30, 2018, were $324,268 or 0.2% of the Company’s consolidated net assets. On September 27, 2016, the Board of Directors of the Company approved the formation of a fully owned and controlled subsidiary (as defined by the 1940 Act) of FVI named Firsthand Development, Ltd (“FDL”), a Cayman Islands corporation formed on September 22, 2016. Under this structure, we may from time to time transfer investments in the Company held in the Company or FVI to FDL in return for ownership interests in FDL. The net assets of FDL at June 30, 2018, were $5,634,830 or 3.0% of the Company’s consolidated net assets. On November 10, 2017, the Board of Directors of the Company approved the formation of a fully owned and controlled subsidary (as defined by the 1940 Act) of FVI named Firsthand Investments, Ltd. (“FIL”), a Cayman Islands corporation formed on November 15, 2017. The net assets of FIL at June 30, 2018, were $5,747,595 or 3.1% of the Company’s consolidated net assets. The financial statements of the Company, FVI, FHL, FDL, and FIL are presented in the report on a consolidated basis.

 

FHL, FDL, and FIL are all treated as controlled foreign corporations under the Internal Revenue Code and are not expected to be subject to U.S. federal income tax. FVI is treated as a U.S. shareholder of each of FHL, FDL, and FIL. As a result, FVI is required to include in gross income for U.S. federal tax purposes all of FHL, FDL, and FIL’s income, whether or not such income is distributed by FHL, FDL, or FIL. If a net loss is realized by FHL, FDL, or FIL, such loss is not generally available to offset the income earned by FVI.

 

19 

 

Firsthand Technology Value Fund, Inc.

Consolidated Notes to Financial Statements - continued

june 30, 2018 (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:

 

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, or under the direction of, the board of directors for all other securities and assets. On June 30, 2018, our financial statements include venture capital investments valued at approximately $104,716,332. The fair values of our venture capital investments were determined in good faith by, or under the direction of, the Board. Upon sale of these investments, the values that are ultimately realized may be different from what is presently estimated. The difference could be material. Also see note 6 regarding the fair value of the company’s investments.

 

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 June 30, 2018, and December 31, 2017, we held $168,468,037 and $154,860,674, in restricted securities, respectively.

 

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 a reduction to interest income.

 

SHARE VALUATION. The net asset value (“NAV”) per share of the Fund is calculated by dividing the sum of the value of the securities held by the Fund, plus cash or other assets, minus all liabilities (including estimated accrued expenses) by the total number of shares outstanding of the Fund, rounded to the nearest cent.

 

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. Beginning on June 30, 2018, we were no longer able to qualify as a regulated investment company (“RIC”) under Subchapter M of the Internal Revenue Code of 1986, as amended (the “Code”). This change in tax status resulted from the increase in the value of a single holding, Pivotal Systems Corp., which meant that we were no longer able to satisfy the diversification requirements for qualification as a RIC. As a result of this change, we will be 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 this 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.

 

20 

 

Firsthand Technology Value Fund, Inc.

Consolidated Notes to Financial Statements - continued

june 30, 2018 (unaudited)

 

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 rate of exchange of such currencies against U.S. dollars on the date of valuation.

 

SECURITIES TRANSACTIONS. Securities transactions are accounted for on the date of the transaction for the purchase or sale of the securities 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.

 

The Company had no option transactions for the six months ended June 30, 2018.

 

The average volume of the Company’s derivatives during the six months ended June 30, 2018, is as follows:

 

 

PURCHASED

OPTIONS

(CONTRACTS)

WARRANTS

(SHARES)

WRITTEN OPTIONS

(CONTRACTS)

Firsthand Technology Value Fund, Inc.

41,289,509

 

NOTE 3. BUSINESS RISKS AND UNCERTAINTIES

 

We plan to 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. 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.

 

21 

 

Firsthand Technology Value Fund, Inc.

Consolidated Notes to Financial Statements - continued

june 30, 2018 (unaudited)

 

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 may, from time to time, engage 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.

 

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 Adviser Valuation Committee or the independent valuation firm;

 

 

(2)

the Valuation Committee of the Board on a quarterly basis reviews the preliminary valuation of the Adviser 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 Adviser Valuation Committee and the independent valuation firms; and

 

 

(3)

at each quarterly Board meeting, the Board considers the valuations recommended by the Adviser 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 Firsthand Capital Management, Inc., which was previously known as SiVest Group, Inc. (“FCM” or the “Adviser”), 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 2.00% of our gross assets. For services rendered under the Investment Management Agreement, the base management fee will be payable quarterly in arrears. The base management fee will be calculated based on the average of (1) the value of our gross assets at the end of the current calendar quarter and (2) the value of the Company’s gross assets at the end of the preceding calendar quarter; and will be appropriately adjusted for any share issuances or repurchases during the current calendar quarter. Base management fees for any partial month or quarter will be pro-rated.

 

22 

 

Firsthand Technology Value Fund, Inc.

Consolidated Notes to Financial Statements - continued

june 30, 2018 (unaudited)

 

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, 2017, 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. As of June 30, 2018, there was an incentive fee payable for $6,865,832. As of December 31, 2017, there was an incentive fee payable for $1,691,040.

 

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).

 

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 in good faith by the Board of Directors of the Company (the “Board”) in accordance with the Valuation Procedures adopted by the Valuation Committee, a committee of the Board.

 

In pricing illiquid, privately placed securities, the Board of Directors is responsible for (1) determining overall valuation guidelines and (2) ensuring that the investments of the Company are valued within the prescribed guidelines.

 

The Valuation Committee, comprised of all of the independent Board members, is responsible for determining the valuation of the Company’s assets within the guidelines established by the Board of Directors. The Valuation Committee receives information and recommendations from the Adviser and 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.

 

23 

 

Firsthand Technology Value Fund, Inc.

Consolidated Notes to Financial Statements - continued

june 30, 2018 (unaudited)

 

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).

 

 

-

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.

 

24 

 

Firsthand Technology Value Fund, Inc.

Consolidated Notes to Financial Statements - continued

june 30, 2018 (unaudited)

 

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.

 

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 June 30, 2018:

    

ASSETS  LEVEL 1 QUOTED PRICES  

LEVEL 2 OTHER SIGNIFICANT

OBSERVABLE INPUTS

  

LEVEL 3 SIGNIFICANT

UNOBSERVABLE INPUTS

 
Common Stocks            
Advanced Materials  $   $   $779,250 
Consumer Electronics   10,655,000         
Equipment Leasing           43,150 
Intellectual Property           10,786 
Networking   14,634,122         
Semiconductors           63,802,702 
Semiconductor Equipment   1,380,000         
Total Common Stocks   26,669,122        64,635,888 
Preferred Stocks               
Advanced Materials           11,116,505 
Aerospace           648,179 
Automotive           987,651 
Consumer Electronics           1,675,418 
Equipment Leasing           3,844,800 
Intellectual Property           4,772,452 
Medical Devices           14,250,967 
Mobile Computing           11,835,827 
Semiconductor Equipment           25,029,832 
Total Preferred Stocks           74,161,631 
Asset Derivatives *               
Equity Contracts           7,664,017 
Total Asset Derivatives           7,664,017 

 

25 

 

Firsthand Technology Value Fund, Inc.

Consolidated Notes to Financial Statements - continued

JUNE 30, 2018 (UNAUDITED)

 

ASSETS (continued)  LEVEL 1 QUOTED PRICES  

LEVEL 2 OTHER SIGNIFICANT

OBSERVABLE INPUTS

  

LEVEL 3 SIGNIFICANT

UNOBSERVABLE INPUTS

 
Convertible Notes            
Advanced Materials  $   $   $4,832,209 
Aerospace           1,000,000 
Automotive           405,441 
Consumer Electronics           2,428,665 
Medical Devices           11,500,000 
Semiconductor Equipment           1,840,186 
Total Convertible Notes           22,006,501 
Mutual Funds   596,957         
Total  $27,266,079   $   $168,468,037 

 

*

Asset derivatives include warrants.

 

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. Transfers in and out of the levels are recognized at the value at the end of the period. There were no transfers between Levels 1 and 2 as of June 30, 2018.

 

Following is a reconciliation of Level 3 assets (at either the beginning or the ending of the quarter) for which significant unobservable inputs were used to determine fair value.

 

INVESTMENTS AT FAIR VALUE USING SIGNIFICANT UNOBSERVABLE INPUTS (LEVEL 3) 

BALANCE

AS OF 12/31/17

  

NET

PURCHASES/
CONVERSION

  

NET

SALES/

CONVERSION

  

NET

REALIZED GAINS /(LOSSES)

  

NET UNREALIZED APPRECIATION

(DEPRECIATION) (1)

  

TRANSFERS

IN (OUT)
OF LEVEL 3

  

BALANCE

AS OF 6/30/18

 
Common Stocks                                   
Advanced
  Materials
  $922,050   $   $   $   $(142,800)  $   $779,250 
Consumer
  Electronics
   11,650,500        (2,312,500)       (9,338,000)        
Equipment
  Leasing
   44,810                (1,660)       43,150 
Intellectual
  Property
   16,871                (6,085)       10,786 
Semiconductor
  Equipment
   29,908    21,869,876    (2,914,684)   491,004    44,326,598        63,802,702 
Preferred Stocks                                   
Advanced
  Materials
   19,526,941    14,609,819    (14,609,819)   (1,390,421)   (7,020,015)       11,116,505 
Aerospace   608,114                40,065        648,179 
Automotive   10,686,932                (9,699,281)       987,651 
Cloud Computing   8,561,704        (5,462,741)   (4,157,447)   1,058,484         
Consumer
  Electronics
   937,137                738,281        1,675,418 

 

26 

 

Firsthand Technology Value Fund, Inc.

Consolidated Notes to Financial Statements - continued

JUNE 30, 2018 (UNAUDITED)

 

INVESTMENTS AT FAIR VALUE USING SIGNIFICANT UNOBSERVABLE INPUTS (LEVEL 3) (continued) 

BALANCE

AS OF 12/31/17

  

NET

PURCHASES/
CONVERSION

  

NET

SALES/

CONVERSION

  

NET

REALIZED GAINS /(LOSSES)

  

NET UNREALIZED APPRECIATION

(DEPRECIATION) (1)

   TRANSFERS IN (OUT) OF LEVEL 3  

BALANCE

AS OF 6/31/18

 
Equipment
  Leasing
  $3,975,200   $   $   $   $(130,400)  $   $3,844,800 
Intellectual
  Property
   6,059,741        (198,730)       (1,088,559)       4,772,452 
Medical Devices   11,479,677                2,771,290        14,250,967 
Mobile
  Computing
   12,018,563                (182,736)       11,835,827 
Semiconductor
  Equipment
   40,067,044    8,782,604    (25,680,263)   (9,075)   1,869,522        25,029,832 
Asset Derivatives                                   
Equity Contracts   12,029,324                (4,365,307)       7,664,017 
Convertible Notes                                   
Advanced
  Materials
   2,745,485    4,832,209    (2,745,485)               4,832,209 
Aerospace       1,000,000                    1,000,000 
Automotive       5,950,000    (250,000)       (5,294,559)       405,441 
Consumer
  Electronics
   2,000,673    650,000            (222,008)       2,428,665 
Medical Devices   9,500,000    2,000,000                    11,500,000 
Semiconductor
  Equipment
   2,000,000    2,000,000    (2,159,814)               1,840,186 
Water
  Purification
                            
Total  $154,860,674   $61,694,508   $(56,334,036)  $(5,065,939)  $13,312,830   $   $168,468,037 

 

(1)

The net change in unrealized depreciation from Level 3 instruments held as of June 30, 2018, was $46,595,021.

 

The below chart represents quantitative disclosure about significant unobservable inputs for Level 3 fair value measurements at June 30, 2018.

 

 

FAIR VALUE AT 6/30/18

 

VALUATION TECHNIQUES

UNOBSERVABLE INPUTS

RANGE

(WEIGHTED AVG.)

Direct venture capital investments: Advanced Materials

$17.6M

 

Market Comparable

  Companies

Prior Transaction

  Analysis

Probability-Weighted

  Expected Return

Option Pricing Model

EBITDA Multiple

Years to Maturity

Volatility

Risk-Free Rate

Going Concern Probability

Discount for Lack of Marketability

9.2x - 11.3x (10.3x)

5 years (5 years)

50.0% (50.0%)

2.73% (2.73%)

70% - 100% (71.0%)

0.0% - 22.7% (1.0%)

 

27 

 

Firsthand Technology Value Fund, Inc.

Consolidated Notes to Financial Statements - continued

june 30, 2018 (unaudited)  

 

(continued)  FAIR VALUE AT 6/30/18   VALUATION TECHNIQUES

UNOBSERVABLE INPUTS

RANGE
(WEIGHTED AVG.)

Direct venture capital investments: Aerospace

$3.2M

 

Prior Transaction

  Analysis

Option Pricing Model

Years to Maturity

Volatility

Risk-Free Rate

5 years (5 years)

60.0% (60.0%)

2.73% (2.73%)

Direct venture capital investments: Automotive

$6.6M

 

Prior Transaction

  Analysis

Option Pricing Model

Years to Maturity

Volatility

Risk-Free Rate

3 years (3 years)

55.0% (55.0%)

2.63% (2.63%)

Direct venture capital investments: Consumer Electronics

$4.1M

 

Market Comparable

  Companies

Probability-Weighted

  Expected Return

Invested Capital (Cost)

Option Pricing Model

Revenue Multiple

Going Concern Probability

Years to Maturity

Volatility

Risk-Free Rate

1.8x - 2.1x (1.0x)

50% - 60% (52%)

1 year - 5 years (2.0 years)

60.0% - 70.0% (67.5%)

2.33% (2.33%)

Direct venture capital investments: Equipment Leasing

$3.9M

 

Prior Transaction

  Analysis

Option Pricing Model

Years to Maturity

Volatility

Risk-Free Rate

5 years (5 years)

50.0% (50.0%)

2.73% (2.73%)

Direct venture capital investments: Intellectual Property

$4.8M

 

Prior Transaction

  Analysis

Option Pricing Model

Years to Maturity

Volatility

Risk-Free Rate

Discount for Lack of Marketability

Adjustment for Market Movement

5 years (5 years)

55.0% (55.0%)

2.73% (2.73%)

0.0% - 24.3% (0.1%)

-43.8% (-43.8%)

Direct venture capital investments: Medical Devices

$25.8M

 

Market Comparable

  Companies

Option Pricing Model

Revenue Multiple

Years to Maturity

Volatility

Risk-Free Rate

3.0x - 3.2x (3.1x)

4 years (4 years)

50.0% (50.0%)

2.68% (2.68%)

Direct venture capital investments: Mobile Computing

$11.8M

 

Prior Transaction

  Analysis

Probability-Weighted

  Expected Return

Option Pricing Model

Years to Maturity

Volatility

Risk-Free Rate

Transaction Completion Probability

2 years (2 years)

60.0% (60.0%)

2.52% (2.52%)

50.0% (50.0%)

Direct venture capital investments:

Semiconductor

Equipment

$90.7M

 

Market Comparable

  Companies

Prior Transaction

  Analysis

Option Pricing Model

Revenue Multiple

Years to Maturity

Volatility

Risk-Free Rate

Discount for Lack of Marketability

1.1x - 1.6x (1.4x)

5 years (5 years)

40.0% - 60.0% (48.6%)

2.73% (2.73%)

0.0% - 25.8% (9.3%)

 

NOTE 7. FEDERAL INCOME TAXES

 

Beginning on June 30, 2018, we were no longer able to qualify as a regulated investment company (“RIC”) under Subchapter M of the Internal Revenue Code of 1986, as amended (the “Code”). This change in tax status resulted from the increase in the value of a single holding, Pivotal Systems Corp., which meant that we were no longer able to satisfy the diversification requirements for qualification as a RIC. As a result of this change, we will be 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 this 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.

 

28 

 

Firsthand Technology Value Fund, Inc.

Consolidated Notes to Financial Statements - continued

JUNE 30, 2018 (UNAUDITED)

 

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. The 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 federal income tax cost of portfolio investments as of June 30, 2018.

 

Gross unrealized appreciation  $82,860,547 
Gross unrealized depreciation   (60,465,305)
Net unrealized appreciation  $22,395,242 
Federal income tax cost  $173,338,874 

 

The Company is subject to tax provisions that establish a minimum threshold for recognizing, and a system for measuring, the benefits of a tax position taken or expected to be taken in a tax return. Taxable years ending 2014, 2015, 2016, and 2017 remain open to federal and state audit. As of December 31, 2017, management has evaluated the application of these provisions to the Company and has determined that no provision for income tax is required in the Company’s financial statements for uncertain tax provisions.

 

NOTE 8. INVESTMENT TRANSACTIONS

 

Investment transactions (excluding short-term investments) were as follows for the six months ended June 30, 2018.

 

PURCHASES AND SALES    
Purchases of investment securities $28,806,770 
Proceeds from sales and maturities of investment securities $41,704,457 

 

NOTE 9. SHARE BUYBACK/TENDER OFFER

 

SHARE BUYBACKS. On April 26, 2016, the Board of Directors of the Company approved a discretionary share repurchase plan (the “Plan”). Pursuant to the Plan, the Company was authorized to purchase in the open market up to $2 million worth of its common stock. The Plan allowed the Company to acquire its own shares at certain thresholds below its net asset value (NAV) per share, in accordance with the guidelines specified in Rule 10b-18 of the Securities Act of 1934, as amended. The intent of the Plan was to increase NAV per share and thereby enhance shareholder value. The Company completed the repurchase plan in September 2016, having repurchased and retired a total of 272,008 shares of stock, at a total cost of approximately $2 million.

 

On November 10, 2017, the Board of Directors of the Company approved a discretionary share purchase plan (the “Plan”). Pursuant to the Plan, the Company was authorized to purchase in the open market up to $2 million worth of its common stock. The Plan allowed the Company to acquire its own shares in accordance with the guidelines specified in Rule 10b-18 of the Securities Act of 1934, as amended. The intent of the Plan was to increase NAV per share and thereby enhance shareholder value. Through the closing of the Plan at the end of March, we had repurchased and retired 128,551 shares of stock at a total cost of approximately $1.1 million. Purchases under the Plan were restricted during certain months in order to comply with SEC rules regarding material nonpublic information. As of June 30, 2018, the Company had 7,302,146 shares outstanding.

 

29 

 

Firsthand Technology Value Fund, Inc.

Consolidated Notes to Financial Statements - continued

JUNE 30, 2018 (UNAUDITED)

 

TENDER OFFER. In connection with our agreement with a shareholder, we agreed to commence an issuer tender offer for up to $20 million of our shares of common stock at a purchase price per share equal to 95% of the Company’s net asset value per share (“NAV”) as of the close of ordinary trading on the NASDAQ Global Market on December 31, 2014 (the “Offer”). On December 22, 2014, the Company commenced a tender offer to purchase up to $20 million of its issued and outstanding common shares for cash at a price per share equal to 95% of the NAV determined on December 31, 2014 ($23.2702 per share). The tender offer, which expired on January 22, 2015 at 12:00 midnight, New York City time, was oversubscribed. Because the number of shares tendered exceeded the maximum amount of its offer, the Company purchased shares from tendering shareholders on a pro-rata basis based on the number of shares properly tendered. Of the 5,044,728 shares properly tendered, the Company purchased 859,468 shares of common stock pursuant to the tender offer.

 

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, 2017, through June 30, 2018, is noted below:

 

AFFILIATE/

CONTROLLED

INVESTMENTS*

 

VALUE AT

12/31/17

   PURCHASES/
MERGER
   INTEREST  

SALES/

MATURITY/

EXPIRATION

  

REALIZED

GAIN (LOSS)

   CHANGE IN APPRECIATION/
DEPRECIATION
  

VALUE AT

6/30/18

  

SHARES HELD/PAR VALUE AT

6/30/18

 
EQX Capital, Inc.
  Common Stock
  $44,810   $   $   $   $   $(1,660)  $43,150    100,000 
EQX, Inc.
  Preferred Stock -
  Series A*
   3,975,200                    (130,400)   3,844,800    4,000,000 
Hera Systems, Inc.
  Series A
  Preferred*
   154,799                    40,065    194,864    3,642,324 
Hera Systems
  Convertible Note
       500,000    22,639                500,000    500,000 
Hera Systems
  Convertible Note
       500,000    4,306                500,000    500,000 
Hera Systems, Inc.
  Series B
  Preferred*
   453,315                        453,315    2,039,203 
Hera Systems, Inc.
  Series B
  Warrants*
   155,540                        155,540    700,000 

 

30 

 

Firsthand Technology Value Fund, Inc.

Consolidated Notes to Financial Statements - continued

JUNE 30, 2018 (UNAUDITED)

 

AFFILIATE/

CONTROLLED

INVESTMENTS*

(continued)

 

VALUE AT

12/31/17

   PURCHASES/
MERGER
   INTEREST  

SALES/

MATURITY/

EXPIRATION

  

REALIZED

GAIN (LOSS)

   CHANGE IN APPRECIATION/
DEPRECIATION
  

VALUE AT

6/30/18

  

SHARES HELD/PAR VALUE AT

6/30/18

 
Hera Systems, Inc.
  Series B
  Warrants*
  $1,380,956   $   $   $   $   $   $1,380,956    6,214,922 
IntraOp Medical
  Corp. Series C
  Preferred*
   11,479,677                    2,771,290    14,250,967    26,856,187 
IntraOp Medical
  Corp. Convertible
  Note*
   1,000,000        113,168                1,000,000    1,000,000 
IntraOp Medical
  Corp. Convertible
  Note*
   1,000,000        74,384                1,000,000    1,000,000 
IntraOp Medical
  Corp. Convertible
  Note*
   1,500,000        111,575                1,500,000    1,500,000 
IntraOp Medical
  Corp. Convertible
  Note*
   1,000,000        74,384                1,000,000    1,000,000 
IntraOp Medical
  Corp. Convertible
  Note*
       2,000,000    83,836                2,000,000    2,000,000 
IntraOp Medical
  Corp. Term Note*
   3,000,000        119,014                3,000,000    3,000,000 
IntraOp Medical
  Corp. Term Note*
   2,000,000        79,342                2,000,000    2,000,000 
Phunware,
  Inc.Preferred
  Stock - Series E
   12,018,563                    (182,736)   11,835,827    3,257,328 
Pivotal Systems,
  Series A
  Preferred*
   8,453,614            (6,000,047)       (2,453,567)        
Pivotal Systems,
  Series B
  Preferred*
   9,270,308            (6,321,483)       (2,948,825)        
Pivotal Systems,
  Series C
  Preferred*
   2,560,254            (2,657,862)       97,608         
Pivotal Systems,
  Series D
  Preferred*
   5,009,720            (3,975,801)       (1,033,919)        

 

31 

 

Firsthand Technology Value Fund, Inc.

Consolidated Notes to Financial Statements - continued

JUNE 30, 2018 (UNAUDITED)

 

AFFILIATE/

CONTROLLED

INVESTMENTS*

(continued)

 

VALUE AT

12/31/17

   PURCHASES/
MERGER
   INTEREST  

SALES/

MATURITY/

EXPIRATION

  

REALIZED

GAIN (LOSS)

   CHANGE IN APPRECIATION/
DEPRECIATION
  

VALUE AT

6/30/18

  

SHARES HELD/PAR VALUE AT

6/30/18

 
Pivotal Systems,
  Series D
  Warrants*
  $618,392   $   $   $   $   $(618,392)  $     
Pivotal Systems,
  Common Stocks
  Warrants -
  Class B*
   8,741,172                    (8,741,172)        
Pivotal Systems
  Corp., Common
  Stock*
       21,869,876        (2,914,684)   491,004    44,305,509    63,751,705    53,758,441 
QMAT, Preferred
  Stock Series A*
   17,394,341    14,609,819        (14,609,819)   (1,390,421)   (6,323,615)   9,680,305    16,000,240 
QMAT, Preferred
  Stock Series B*
   2,132,600                    (696,400)   1,436,200    2,000,000 
QMAT, Series A
  Warrant*
   1,086,600                    (669,400)   417,200    2,000,000 
QMAT, Preferred
  Stock Warrants -
  Series B*
                       344,739    344,739    3,482,208 
QMAT, Preferred
  Stock Warrants -
  Series C*
                       34,650    34,650    350,000 
QMAT, Preferred
  Stock Warrants -
  Series C*
                       99,000    99,000    1,000,000 
QMAT, Convertible
  Note*
       3,482,209    98,456                3,482,209    3,482,209 
QMAT, Convertible
  Note*
       1,000,000    11,178                1,000,000    1,000,000 
QMAT, Convertible
  Note*
   2,745,485        31,291    (2,745,485)                
QMAT, Convertible
  Note*
       350,000    8,433                350,000    350,000 
Revasum,
  Preferred Stock
  Series B*
   2,550,033                    709,696    3,259,729    313,719 

 

32 

 

Firsthand Technology Value Fund, Inc.

Consolidated Notes to Financial Statements - continued

JUNE 30, 2018 (UNAUDITED)

 

AFFILIATE/

CONTROLLED

INVESTMENTS*

(continued)

 

VALUE AT

12/31/17

   PURCHASES/
MERGER
   INTEREST  

SALES/

MATURITY/

EXPIRATION

  

REALIZED

GAIN (LOSS)

   CHANGE IN APPRECIATION/
DEPRECIATION
  

VALUE AT

6/30/18

  

SHARES HELD/PAR VALUE AT

6/30/18

 
Revasum, Term
  Note*
  $1,000,000   $   $24,005   $(159,814)  $   $   $840,186    840,186 
Revasum, Common
  Stock*
   29,908                    21,089    50,997    10,000 
Revasum,
  Preferred Stock -
  Series Seed
   8,966,760    6,725,070        (6,725,070)   (9,075)   6,253,995    15,211,680    2,200,000 
Revasum,
  Preferred Stock
  Series A*
   2,256,355                    1,244,534    3,500,889    441,998 
Silicon Genesis
  Corp., Common *
   16,871                    (6,085)   10,786    921,892 
Silicon Genesis
  Corp., Common
  Warrants*
   357                    (137)   220    37,982 
Silicon Genesis
  Corp., Common
  Warrants*
   11,000                    (4,500)   6,500    5,000,000 
Silicon Genesis
  Corp., Common
  Warrants*
   6,600                    (2,700)   3,900    3,000,000 
Silicon Genesis
  Corp., Series 1-C
  Preferred*
   74,258                    (22,221)   52,037    82,914 
Silicon Genesis
  Corp., Series 1-D
  Preferred*
   205,646                    (62,707)   142,939    850,830 
Silicon Genesis
  Corp., Series 1-E
  Preferred*
   2,063,310            (87,402)       (257,719)   1,718,189    5,704,480 
Silicon Genesis
  Corp., Series 1-F
  Preferred*
   456,318            (19,285)       (62,197)   374,836    912,453 
Silicon Genesis
  Corp., Series 1-G
  Preferred*
   3,023,658            (82,436)       (649,414)   2,291,808    48,370,793 
Silicon Genesis
  Corp., Series 1-H
  Preferred*
   236,551            (9,606)       (34,302)   192,643    837,942 
SVXR, Inc.,
  Preferred Stock
  Series A
   1,000,000    2,057,534                    3,057,534    6,156,316 

 

33 

 

Firsthand Technology Value Fund, Inc.

Consolidated Notes to Financial Statements - continued

JUNE 30, 2018 (UNAUDITED)

 

AFFILIATE/ CONTROLLED INVESTMENTS* (continued)  VALUE
AT 12/31/17
   PURCHASES/
MERGER
   INTEREST   SALES/ MATURITY/ EXPIRATION   REALIZED GAIN (LOSS)   CHANGE IN APPRECIATION/
DEPRECIATION
   VALUE AT 6/30/18   SHARES HELD/PAR VALUE AT 6/30/18 
SVXR, Inc.
  Convertible Note
  $   $1,000,000   $8,493   $   $   $   $1,000,000    1,000,000 
SVXR, Inc.
  Convertible Note
   1,000,000    1,000,000    57,534    (2,000,000)                
Telepathy
  Investors, Inc.
  Convertible
  Note*
   302,140        120,566            446,460    748,600    2,000,000 
Telepathy
  Investors, Inc.
  Convertible
  Note*
   45,321        15,083            66,969    112,290    300,000 
Telepathy
  Investors, Inc.
  Convertible
  Note*
   22,661        8,227            33,484    56,145    150,000 
Telepathy
  Investors, Inc.
  Convertible
  Note*
   75,535        27,274            111,615    187,150    500,000 
Telepathy
  Investors, Inc.
  Convertible
  Note*
   45,321        17,752            66,969    112,290    300,000 
Telepathy
  Investors, Inc.
  Convertible
  Note*
   75,535        28,359            111,615    187,150    500,000 
Telepathy
  Investors, Inc.
  Series A
  Preferred*
   937,137                    738,281    1,675,418    15,238,000 
UCT Coatings,
  Inc.Common
  Stock
   922,050                    (142,800)   779,250    1,500,000 
UCT Coatings,
  Inc.Common
  Stock Warrants
   4                    53    57    2,283 
Vufine, Inc.,
  Common Stock*
                               750,000 
Vufine, Inc.,
  Convertible
  Note*
   1,229,280        89,260            (588,630)   640,650    1,500,000 
Vufine, Inc.,
  Convertible
  Note*
   204,880        14,877            (98,105)   106,775    250,000 
Vufine, Inc.,
  Convertible
  Note*
       350,000    17,375            (200,515)   149,485    350,000 

 

34 

 

Firsthand Technology Value Fund, Inc.

Consolidated Notes to Financial Statements - continued

JUNE 30, 2018 (UNAUDITED)

 

AFFILIATE/ CONTROLLED INVESTMENTS* (continued)  VALUE AT 12/31/17   PURCHASES/
MERGER
   INTEREST   SALES/ MATURITY/ EXPIRATION   REALIZED GAIN (LOSS)   CHANGE IN APPRECIATION/
DEPRECIATION
   VALUE AT 6/30/18   SHARES HELD/PAR VALUE AT 6/30/18 
Vufine, Inc.,
  Convertible
  Note*
  $   $300,000   $1,184   $   $   $(171,870)  $128,130    300,000 
Vufine, Inc.,
  Preferred Stock
  Series A
                               22,500,000 
Wrightspeed, Inc.,
  Series C
  Preferred Stock
   5,704,296                    (5,207,452)   496,844    2,267,659 
Wrightspeed, Inc.,
  Series D
  Preferred Stock
   3,161,018                    (2,849,001)   312,017    1,100,978 
Wrightspeed, Inc.,
  Series E
  Preferred Stock
   1,350,323                    (1,213,050)   137,273    450,814 
Wrightspeed, Inc.,
  Series F
  Preferred Stock
   471,295                    (429,778)   41,517    90,707 
Wrightspeed, Inc.,
  Series F
  Preferred Stock
  Warrants
                       15    15    13,606 
Wrightspeed, Inc.,
  Series F
  Preferred Stock
  Warrants
                       8    8    6,803 
Wrightspeed, Inc.
  Series F
  Warrants