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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 September 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
(State or Other Jurisdiction of
Incorporation or Organization)
  27-3008946
(I.R.S. Employer
Identification No)
 
150 Almaden Boulevard, Suite 1250
San Jose, California
(Address of Principal Executive Offices)
  95113
(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 October 31, 2018

 

Common Stock, $0.001 par value per share

   

7,178,770

   


TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION

       

2

   

Item 1.

 

Financial Statements

   

2

   
    Consolidated Statements of Assets and Liabilities as of September 30, 2018 (Unaudited) and
December 31, 2017
   

3

   
    Consolidated Statements of Operations (Unaudited) for the Three Months Ended September 30, 2018,
and September 30, 2017, and for the Nine Months Ended September 30, 2018, and
September 30, 2017
   

4

   
    Consolidated Statements of Cash Flows (Unaudited) for the Three Months Ended September 30, 2018,
the Three Months Ended September 30, 2017, the Nine Months Ended September 30, 2018,
and the Nine Months Ended September 30, 2017
   

6

   
    Consolidated Statements of Changes in Net Assets (Unaudited) for the Three Months Ended
September 30, 2018, and September 30, 2017, and for the Nine Months Ended September 30, 2018,
and September 30, 2017
   

7

   
    Selected Per Share Data and Ratios for the Nine Months Ended September 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
   

8

   
    Consolidated Schedule of Investments as of September 30, 2018 (Unaudited) and for the Year Ended
December 31, 2017
   

10

   
   

Consolidated Notes To Financial Statements (Unaudited)

   

21

   

Item 2.

 

Management's Discussion and Analysis of Financial Condition and Results of Operations

   

42

   

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

   

50

   

Item 4.

 

Controls and Procedures

   

51

   

PART II. OTHER INFORMATION

       

52

   

Item 1.

 

Legal Proceedings

   

53

   

Item 1A.

 

Risk Factors

   

53

   

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

   

53

   

Item 3.

 

Defaults Upon Senior Securities

   

53

   

Item 4.

 

Mine Safety Disclosures

   

53

   

Item 5.

 

Other Information

   

53

   

Item 6.

 

Exhibits

   

53

   

SIGNATURES

       

54

   


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
SEPTEMBER 30, 2018
(UNAUDITED)
  AS OF
DECEMBER 31, 2017
 

ASSETS

 

Investment securities:

 

Unaffiliated investments at acquisition cost

 

$

5,970,448

   

$

33,014,039

   

Affiliated investments at acquisition cost

   

30,902,277

     

24,035,159

   

Controlled investments at acquisition cost

   

123,316,667

     

117,890,661

   

Total acquisition cost

 

$

160,189,392

   

$

174,939,859

   

Unaffiliated investments at market value

 

$

23,115,200

   

$

40,191,055

   

Affiliated investments at market value

   

25,187,934

     

24,656,252

   

Controlled investments at market value

   

194,741,059

     

109,992,218

   

Total market value * (Note 6)

   

243,044,193

     

174,839,525

   

Cash

   

19,726

     

110,077

   

Receivable for securities sold

   

211,168

     

   

Receivable from dividends and interest

   

3,626,549

     

1,794,003

   

Other assets

   

12,864

     

27,985

   

Total Assets

   

246,914,500

     

176,771,590

   

LIABILITIES

 

Incentive fees payable (Note 4)

   

16,499,806

     

1,691,040

   

Payable to affiliates (Note 4)

   

1,152,048

     

879,085

   

Payable for capital shares redeemed

   

132,128

     

   

Deferred tax liability

   

16,648,916

     

   

Consulting fee payable

   

20,250

     

21,000

   

Accrued expenses and other payables

   

127,622

     

186,876

   

Total Liabilities

   

34,580,770

     

2,778,001

   

NET ASSETS

 

$

212,333,730

   

$

173,993,589

   

Net Assets consist of:

 

Common Stock, par value $0.001 per share 100,000,000 shares authorized

 

$

7,276

   

$

7,302

   

Paid-in-capital

   

180,352,337

     

180,772,769

   

Accumulated net investment loss

   

(17,553,634

)

   

(1,691,040

)

 

Accumulated net realized losses from security transactions

   

(13,547,952

)

   

(4,995,108

)

 
Net unrealized appreciation (depreciation) on investments, foreign currency
and warrants transactions
   

63,075,703

     

(100,334

)

 

NET ASSETS

 

$

212,333,730

   

$

173,993,589

   

Shares of Common Stock outstanding

   

7,302,146

     

7,302,146

   

Shares of Treasury Stock outstanding

   

(26,110

)

   

   

Total Shares of Common Stock outstanding

   

7,276,036

     

7,302,146

   

Net asset value per share (Note 2)

 

$

29.18

   

$

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 NINE MONTHS ENDED

 
   

SEPTEMBER 30, 2018

 

SEPTEMBER 30, 2017

 

SEPTEMBER 30, 2018

 

SEPTEMBER 30, 2017

 

INVESTMENT INCOME

 

Affiliated/Controlled loan origination income

 

$

   

$

   

$

21,000

   

$

   

Unaffiliated interest

   

793

     

5,820

     

4,901

     

35,085

   

Affiliated/Controlled interest

   

974,557

     

427,547

     

2,328,359

     

1,008,376

   

TOTAL INVESTMENT INCOME

   

975,350

     

433,367

     

2,354,260

     

1,043,461

   

EXPENSES

 

Investment advisory fees (Note 4)

   

1,124,398

     

707,865

     

2,972,059

     

2,175,267

   

Administration fees

   

58,652

     

48,398

     

168,831

     

142,049

   

Custody fees

   

8,171

     

7,587

     

27,482

     

18,209

   

Transfer agent fees

   

7,058

     

9,114

     

23,817

     

23,815

   

Registration and filing fees

   

7,713

     

5,823

     

22,887

     

17,278

   

Professional fees

   

94,916

     

128,954

     

288,557

     

374,257

   

Printing fees

   

16,008

     

38,260

     

46,420

     

68,176

   

Trustees fees

   

50,000

     

25,000

     

150,000

     

75,000

   

Compliance fees

   

30,634

     

27,900

     

88,223

     

80,509

   

Settlement fees

   

     

50,000

     

     

50,000

   

Miscellaneous fees

   

22,653

     

28,021

     

68,020

     

75,257

   

TOTAL GROSS EXPENSES

   

1,420,203

     

1,076,922

     

3,856,296

     

3,099,817

   

Incentive fee adjustments (Note 4)

   

9,633,974

     

     

14,808,766

     

   

TOTAL NET EXPENSES

   

11,054,177

     

1,076,922

     

18,665,062

     

3,099,817

   

NET INVESTMENT LOSS, BEFORE TAXES

   

(10,078,827

)

   

(643,555

)

   

(16,310,802

)

   

(2,056,356

)

 

Deferred tax benefit/(expense)

   

(1,411,413

)

   

     

448,208

     

   

Net investment loss, net of deferred taxes

   

(11,490,240

)

   

(643,555

)

   

(15,862,594

)

   

(2,056,356

)

 

See accompanying notes to financial statements
4



Firsthand Technology Value Fund, Inc.

Consolidated Statements of Operations (Unaudited) - continued

   

FOR THE THREE MONTHS ENDED

 

FOR THE NINE MONTHS ENDED

 
   

SEPTEMBER 30, 2018

 

SEPTEMBER 30, 2017

 

SEPTEMBER 30, 2018

 

SEPTEMBER 30, 2017

 
Net Realized and Unrealized Gain (Loss) on
Investments:
 
Net realized gains (losses) from security
transactions on:
 

Affiliated/Controlled

 

$

(11,335,187

)

 

$

   

$

(11,373,458

)

 

$

   

Non-affiliated/controlled and other assets

   

(772,541

)

   

207,196

     

138,640

     

767,988

   

Deferred tax benefit

   

2,942,451

     

     

2,681,974

     

   

Net realized gains, net of deferred taxes

   

(9,165,277

)

   

207,196

     

(8,552,844

)

   

767,988

   
Net change in unrealized appreciation
(depreciation) on:
 

Non-affiliated investments

   

9,064,505

     

2,897,235

     

9,967,736

     

5,128,989

   
Affiliated/controlled investments and
foreign currency
   

44,955,098

     

(5,844,537

)

   

70,897,750

     

(17,191,561

)

 

Affiliated/controlled warrants investments (1)

   

6,439,956

     

2,923,747

     

2,089,649

     

3,723,736

   

Deferred tax expense

   

(13,096,357

)

   

     

(19,779,098

)

   

   
Net change in unrealized appreciation
(depreciation), net of deferred taxes
   

47,363,202

     

(23,555

)

   

63,176,037

     

(8,338,836

)

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

38,197,925

     

183,641

     

54,623,193

     

(7,570,848

)

 
Net Increase (Decrease) In Net Assets Resulting
From Operations, Net of Deferred Taxes
 

$

26,707,685

   

$

(459,914

)

 

$

38,760,599

   

$

(9,627,204

)

 
Net Increase/(Decrease) In Net Assets Per Share
Resulting From Operations (2)
 

$

3.67

   

$

(0.07

)

 

$

5.32

   

$

(1.30

)

 

(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
5



Firsthand Technology Value Fund, Inc.

Consolidated Statements of Cash Flows (Unaudited)

    FOR THE
THREE MONTHS ENDED
SEPTEMBER 30, 2018
  FOR THE
THREE MONTHS ENDED
SEPTEMBER 30, 2017
  FOR THE
NINE MONTHS ENDED
SEPTEMBER 30, 2018
  FOR THE
NINE MONTHS ENDED
SEPTEMBER 30, 2017
 

CASH FLOWS FROM OPERATING ACTIVITIES

 
Net increase (decrease) in Net Assets
resulting from operations
 

$

26,707,685

   

$

(459,914

)

 

$

38,760,599

   

$

(9,627,204

)

 
Adjustments to reconcile net increase
(decrease) in Net Assets derived from
operations to net cash provided by
(used in) operating activities
 

Purchases of investments

   

(19,231,350

)

   

(7,569,639

)

   

(48,038,121

)

   

(16,078,804

)

 

Proceeds from disposition of investments

   

24,584,064

     

736,376

     

66,288,520

     

19,655,068

   
Net purchases/sales from short-term
investments
   

(4,310,960

)

   

1,000,834

     

(14,734,750

)

   

(2,344,891

)

 
(Increase) decrease in dividends, interest,
and reclaims receivable
   

(832,454

)

   

(290,646

)

   

(1,832,546

)

   

(639,414

)

 
(Increase) decrease in receivable in
investment sold
   

391,165

     

     

(211,168

)

   

   
Increase (decrease) in payable for
investment purchased
   

     

(90,066

)

   

     

(395,532

)

 

Increase (decrease) in payable to affiliates

   

140,940

     

9,517

     

272,963

     

(37,428

)

 

Increase (decrease) in incentive fees payable

   

9,633,974

     

     

14,808,766

     

   

(Increase) decrease in other assets

   

15,408

     

13,695

     

15,121

     

17,539

   
(Decrease) increase in accrued expenses
and other payables
   

(23,624

)

   

12,039

     

(60,004

)

   

(54,429

)

 

Increase (decrease) in deferred tax expense

   

11,565,319

     

     

16,648,916

     

   

Net realized (gain) loss from investments

   

12,107,728

     

(207,196

)

   

11,234,818

     

(767,988

)

 
Net unrealized appreciation (depreciation)
from investments, other assets, and
warrants transactions
   

(60,459,559

)

   

23,555

     

(82,955,135

)

   

8,338,836

   

Net cash (used in) operating activities

   

288,336

     

(6,821,445

)

   

197,979

     

(1,934,247

)

 

CASH FLOWS FROM FINANCING ACTIVITIES

 

Cost of shares repurchased

   

(288,330

)

   

     

(288,330

)

   

   

Net cash (used in) financing activities

   

(288,330

)

   

     

(288,330

)

   

   

Net increase (decrease) in cash

   

6

     

(6,821,445

)

   

(90,351

)

   

(1,934,247

)

 

Cash – beginning of period

   

19,720

     

6,821,445

     

110,077

     

1,934,247

   

Cash – end of period

 

$

19,726

   

$

   

$

19,726

   

$

   

See accompanying notes to financial statements
6



Firsthand Technology Value Fund, Inc.

Consolidated Statements of Changes in Net Assets (Unaudited)

    FOR THE
THREE MONTHS ENDED
SEPTEMBER 30, 2018
  FOR THE
THREE MONTHS ENDED
SEPTEMBER 30, 2017
  FOR THE
NINE MONTHS ENDED
SEPTEMBER 30, 2018
  FOR THE
NINE MONTHS ENDED
SEPTEMBER 30, 2017
 

FROM OPERATIONS:

 
Net investment loss, net of deferred
taxes
 

$

(11,490,240

)

 

$

(643,555

)

 

$

(15,862,594

)

 

$

(2,056,356

)

 
Net realized gain (loss) from security
transactions and warrants
transactions, net of deferred taxes
   

(9,165,277

)

   

207,196

     

(8,552,844

)

   

767,988

   
Net change in unrealized appreciation
(depreciation) on investments and
warrants transactions, net of
deferred taxes
   

47,363,202

     

(23,555

)

   

63,176,037

     

(8,338,836

)

 
Net increase (decrease) in net assets
from operations
   

26,707,685

     

(459,914

)

   

38,760,599

     

(9,627,204

)

 

FROM CAPITAL SHARE TRANSACTIONS:

 

Value for shares repurchased

   

(420,458

)

   

     

(420,458

)

   

   
Net decrease in net assets from capital
share transactions
   

(420,458

)

   

     

(420,458

)

   

   

TOTAL INCREASE/(DECREASE) IN NET ASSETS

   

26,287,227

     

(459,914

)

   

38,340,141

     

(9,627,204

)

 

NET ASSETS:

 

Beginning of period

   

186,046,503

     

139,745,101

     

173,993,589

     

148,912,391

   

End of period

 

$

212,333,730

   

$

139,285,187

   

$

212,333,730

   

$

139,285,187

   

Accumulated Net Investment Loss

 

$

(17,553,634

)

 

$

(2,056,356

)

 

$

(17,553,634

)

 

$

(2,056,356

)

 

COMMON STOCK ACTIVITY:

 

Shares repurchased

   

(26,110

)

   

     

(26,110

)

   

   

Net decrease in shares outstanding

   

(26,110

)

   

     

(26,110

)

   

   
Shares outstanding, beginning of
period
   

7,302,146

     

7,430,697

     

7,302,146

     

7,430,697

   

Shares outstanding, end of period

   

7,276,036

     

7,430,697

     

7,276,036

     

7,430,697

   

See accompanying notes to financial statements
7



Firsthand Technology Value Fund, Inc.

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

    FOR THE
NINE MONTHS
ENDED
SEPTEMBER 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
   

(2.23

) (1)

   

(0.62

)

   

(0.52

)

   

(0.06

) (1)

   

(1.26

)

   

(1.42

)

 

Deferred tax benefit

   

0.06

     

     

     

     

     

   

Net investment loss

   

(2.17

)

   

(0.62

)

   

(0.52

)

   

(0.06

)

   

(1.26

)

   

(1.42

)

 
Net realized and unrealized
gains (losses) on investments,
before deferred taxes
   

9.85

     

4.21

     

(2.76

)

   

(1.78

)

   

3.04

     

7.16

   

Deferred tax expense

   

(2.36

)

   

     

     

     

     

   
Net realized and unrealized
gains (losses) on investments
   

7.49

     

4.21

     

(2.76

)

   

(1.78

)

   

3.04

     

7.16

   

Total from investment operations

   

5.32

     

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
   

0.03

     

0.20

     

0.53

     

0.14

     

0.25

     

   

Net asset value at end of period

 

$

29.18

   

$

23.83

   

$

20.04

   

$

22.79

   

$

24.49

   

$

28.32

   

Market value at end of period

 

$

16.94

   

$

8.96

   

$

7.67

   

$

8.17

   

$

18.65

   

$

23.17

   

Total return

 

Based on Net Asset Value

   

22.45

% (A)

   

18.91

%

   

(12.07

)%

   

(6.94

)%

   

12.54

%

   

25.30

%

 

Based on Market Value

   

89.06

% (A)

   

16.82

%

   

(6.12

)%

   

(56.19

)%

   

4.76

%

   

34.61

%

 
Net assets at end of
period (millions)
 

$

212.3

   

$

174.0

   

$

148.9

   

$

175.6

   

$

209.7

   

$

256.9

   

See accompanying notes to financial statements
8



Firsthand Technology Value Fund, Inc.

Financial Highlights: Selected per share data and ratios for a share outstanding throughout each period - continued

    FOR THE
NINE MONTHS
ENDED
SEPTEMBER 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
 
Ratio of total expenses to
average net assets:
 

Before tax benefit

   

13.39

% (B)(3)

   

4.13

% (3)

   

2.90

%

   

1.36

% (3)

   

5.29

% (3)

   

6.52

% (3)

 

Deferred tax expense (4)(5)

   

11.95

% (B)

   

     

     

     

     

   

Total expenses

   

25.34

% (B)(3)

   

4.13

%

   

2.90

%

   

1.36

%

   

5.29

%

   

6.52

%

 
Total expenses, excluding
incentive fees
   

14.71

% (B)

   

2.98

%

   

2.90

%

   

2.68

%

   

3.12

%

   

2.67

%

 
Ratio of net investment loss to
average net assets:
 

Before tax benefit

   

(11.70

)% (B)(3)

   

(3.07

)%

   

(2.36

)%

   

(0.24

)%

   

(4.31

)%

   

(5.96

)%

 

Deferred tax benefit (5)(6)

   

0.32

% (B)

   

     

     

     

     

   

Net investment loss

   

(11.38

)% (B)

   

(3.07

)%

   

(2.36

)%

   

(0.24

)%

   

(4.31

)%

   

(5.96

)%

 

Portfolio turnover rate

   

18

% (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 September 30, 2018, the year ended December 31, 2017, the year ended December 31, 2015, the year ended December 31, 2014 and the year December 31, 2013, the ratio of the incentive fee to average net assets was 10.63%, 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)  The deferred tax expense and tax benefit are allocated based on average net assets.

(6)  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
9



Firsthand Technology Value Fund, Inc.

Consolidated Schedule of Investments

SEPTEMBER 30, 2018 (UNAUDITED)

PORTFOLIO
COMPANY
(% OF NET
ASSETS)
AND INDUSTRY
 

INVESTMENT TYPE

  ACQUISITION
DATE
  SHARES/PAR
VALUE ($)
 

COST BASIS

 

VALUE

 

EQX CAPITAL, INC (1.5%)

 

Common Stock *(1)(2)(4)

 

6/10/2016

   

100,000

   

$

20,000

   

$

24,610

   

Equipment Leasing

 

Preferred Stock - Series A *(1)(2)(4)

 

6/10/2016

   

4,000,000

     

4,000,000

     

3,196,000

   
     

3,220,610

   

HERA SYSTEMS, INC. (3.2%)

 

Convertible Promissory Note

                 

Aerospace

  Matures January 2019
Interest Rate 10% (1)(2)(4)
 

5/31/2018

   

500,000

   

500,000

     

500,000

   
    Convertible Promissory Note
Matures January 2019
Interest Rate 10% (1)(2)(4)
 

1/19/2018

   

500,000

     

500,000

     

500,000

   
   

Preferred Stock - Series A *(1)(2)(4)

 

9/18/2015

   

3,642,324

     

2,000,000

     

213,440

   
   

Preferred Stock - Series B *(1)(2)(4)

 

08/07/17 - 9/4/18

   

5,539,203

     

5,087,102

     

1,231,365

   
    Preferred Stock Warrants -
Series B *(1)(2)(4)
 

8/7/2017

   

6,214,922

     

0

     

1,380,956

   
    Preferred Stock Warrants -
Series B *(1)(2)(4)
 

9/28/2017

   

700,000

     

0

     

155,540

   
    Preferred Stock Warrants -
Series B *(1)(2)(4)
 

7/9/18 - 9/4/18

   

12,250,000

     

0

     

2,721,950

   
     

6,703,251

   

INTRAOP MEDICAL CORP. (14.3%)

 

Convertible Note

                 

Medical Devices

  Matures June 2020
Interest Rate 15% (1)(2)(4)
 

5/31/2017

   

1,000,000

     

1,000,000

     

1,000,000

   
    Convertible Note
Matures June 2020
Interest Rate 15% (1)(2)(4)
 

9/28/2017

   

1,500,000

     

1,500,000

     

1,500,000

   
    Convertible Note
Matures June 2020
Interest Rate 15% (1)(2)(4)
 

7/13/2017

   

1,000,000

     

1,000,000

     

1,000,000

   
    Convertible Note
Matures June 2020
Interest Rate 15% (1)(2)(4)
 

7/8/2014

   

2,000,000

     

2,000,000

     

2,000,000

   
    Convertible Note
Matures June 2020
Interest Rate 15% (1)(2)(4)
 

3/21/2018

   

1,000,000

     

1,000,000

     

1,000,000

   
    Convertible Note
Matures June 2020
Interest Rate 15% (1)(2)(4)
 

9/14/2018

   

1,500,000

     

1,500,000

     

1,500,000

   
   

Preferred Stock - Series C *(1)(2)(4)

 

7/12/2013

   

26,856,187

     

26,299,938

     

17,446,316

   
    Term Note
Matures February 2020
Interest Rate 8% (1)(2)(4)
 

2/10/2017

   

2,000,000

     

2,000,000

     

2,000,000

   

See accompanying notes to financial statements
10



Firsthand Technology Value Fund, Inc.

Consolidated Schedule of Investments - continued

SEPTEMBER 30, 2018 (UNAUDITED)

PORTFOLIO
COMPANY
(% OF NET
ASSETS)
AND INDUSTRY
 

INVESTMENT TYPE

  ACQUISITION
DATE
  SHARES/PAR
VALUE ($)
 

COST BASIS

 

VALUE

 
INTRAOP MEDICAL CORP.
(continued)
  Term Note
Matures February 2020
Interest Rate 8% (1)(2)(4)
 

2/28/2014

   

3,000,000

   

$

3,000,000

   

$

3,000,000

   
     

30,446,316

   

NUTANIX, INC. (1.2%)

 

Common Stock *

 

05/15/15 - 08/23/16

   

60,772

     

736,593

     

2,596,180

   

Networking

 
LYNCEAN TECHNOLOGIES,
INC. (0.5%)
 

Preferred Stock - Series B *(1)(4)

 

7/3/2018

 

869,792

 

1,000,000

 

1,000,000

 
Semiconductor
Equipment
 

PHUNWARE, INC. (5.1%)

 

Preferred Stock - Series E *(1)(3)(7)

 

3/14/2014

   

3,257,328

     

9,999,997

     

10,761,886

   

Mobile Computing

 

PIVOTAL SYSTEMS CORP. (45.8%)

 

Common Stock *(1)(2)(4)

 

11/28/12 - 09/02/16

   

53,758,441

     

19,446,197

     

97,266,662

   
Semiconductor
Equipment
 

QMAT, INC. (7.0%)

 

Preferred Stock - Series A *(1)(2)(4)

 

12/14/12 - 04/28/16

   

16,000,240

     

9,680,305

     

7,102,027

   

Advanced Materials

 

Preferred Stock - Series B *(1)(2)(4)

 

9/28/16 - 11/7/16

   

2,000,000

     

2,000,000

     

1,701,600

   
    Convertible Note
Matures December 2018
Interest Rate 8% (1)(2)(4)
 

2/22/2018

   

3,482,208

     

3,482,208

     

3,482,208

   
    Preferred Stock Warrants -
Series C *(1)(2)(4)
 

2/22/2018

   

3,482,208

     

0

     

149,038

   
    Convertible Note
Matures December 2018
Interest Rate 8% (1)(2)(4)
 

3/13/2018

   

350,000

     

350,000

     

350,000

   
    Preferred Stock Warrants -
Series C *(1)(2)(4)
 

3/13/2018

   

350,000

     

0

     

14,980

   
    Convertible Note
Matures December 2018
Interest Rate 8% (1)(2)(4)
 

7/27/2018

   

100,000

     

100,000

     

100,000

   

  Preferred Stock Warrants -
Series C *(1)(2)(4)
 

7/27/2018

   

100,000

     

0

     

4,280

   
    Convertible Note
Matures December 2018
Interest Rate 8% (1)(2)(4)
 

8/14/2018

   

100,000

     

100,000

     

100,000

   
    Convertible Note
Matures December 2018
Interest Rate 8% (1)(2)(4)
 

8/30/2018

   

200,000

     

200,000

     

200,000

   

See accompanying notes to financial statements
11



Firsthand Technology Value Fund, Inc.

Consolidated Schedule of Investments - continued

SEPTEMBER 30, 2018 (UNAUDITED)

PORTFOLIO
COMPANY
(% OF NET
ASSETS)
AND INDUSTRY
 

INVESTMENT TYPE

  ACQUISITION
DATE
  SHARES/PAR
VALUE ($)
 

COST BASIS

 

VALUE

 
QMAT, INC.
(continued)
  Convertible Note
Matures December 2018
Interest Rate 8% (1)(2)(4)
 

5/11/2018

   

1,000,000

   

$

1,000,000

   

$

1,000,000    
    Preferred Stock Warrants -
Series C *(1)(2)(4)
 

5/11/2018

   

1,000,000

     

0

     

42,800

   
    Preferred Stock Warrants -
Series A *(1)(2)(4)
 

12/14/2012

   

2,000,000

     

0

     

239,600

   
    Convertible Note
Matures December 2018
Interest Rate 8% (1)(2)(4)
 

9/13/2018

   

300,000

     

300,000

     

300,000

   
     

14,786,533

   
QUICKLOGIC CORP.
(0.6%)
 

Common Stock *

 

12/27/16 - 11/09/17

 

1,200,000

 

1,859,835

 

1,200,000

 

Semiconductors

 

REVASUM, INC. (16.7%)

 

Common Stock *(1)(2)(4)

 

11/14/2016

   

10,000

     

1,000

     

83,624

   

Semiconductor

 

Preferred Stock - Series Seed *(1)(2)(4)

 

11/14/2016

   

2,200,000

     

7,275,070

     

22,855,800

   

Equipment

 

Preferred Stock - Series A *(1)(2)(4)

 

3/1/2017

   

441,998

     

1,999,997

     

4,828,563

   
   

Preferred Stock - Series B *(1)(2)(4)

 

10/27/17 - 12/20/17

   

313,719

     

2,550,033

     

3,819,968

   

 

Common Stock Warrants *(1)(2)(4)

 

7/31/2018

   

650,000

     

500,000

     

1,948,375

   
    Convertible Note
Matures July 2019
Interest Rate 5% (1)(2)(4)
 

8/24/2018

   

1,846,397

     

1,846,397

     

1,846,397

   
     

35,382,727

   

ROKU, INC. (8.6%)

 

Common Stock *

 

05/26/15 - 08/06/15

   

250,000

     

2,312,500

     

18,257,500

   

Consumer Electronics

 

SILICON GENESIS CORP. (1.9%)

 

Preferred Stock - Series 1-E *(1)(2)(4)

 

4/18/2011

   

5,704,480

     

2,372,403

     

1,468,333

   
   

Preferred Stock - Series 1-C *(1)(2)(4)

 

4/18/2011

   

82,914

     

109,518

     

37,975

   

Intellectual Property

 

Preferred Stock - Series 1-D *(1)(2)(4)

 

4/18/2011

   

850,830

     

431,901

     

103,631

   
   

Common Stock *(1)(2)(4)

 

4/18/2011

   

921,892

     

169,045

     

7,375

   
   

Common Stock Warrants *(1)(2)(4)

 

4/18/2011

   

37,982

     

6,678

     

144

   
    Preferred Stock -
Series 1-F *(1)(2)(4)
 

4/18/2011

   

912,453

     

456,389

     

321,275

   
   

Common Stock Warrants *(1)(2)(4)

 

10/13/2011

   

5,000,000

     

0

     

4,000

   
   

Common Stock Warrants *(1)(2)(4)

 

2/6/2012

   

3,000,000

     

0

     

2,400

   
   

Preferred Stock - Series 1-G *(1)(2)(4)

 

3/10/2016

   

48,370,793

     

3,880,592

     

1,841,815

   
   

Preferred Stock - Series 1-H *(1)(2)(4)

 

3/10/2016

   

837,942

     

936,895

     

164,069

   
     

3,951,017

   

SVXR, INC. (1.9%)

 

Preferred Stock - Series A *(1)(3)(4)

 

1/11/17 - 8/29/18

   

8,219,454

     

4,082,192

     

4,059,095

   
Semiconductor
Equipment
 

See accompanying notes to financial statements
12



Firsthand Technology Value Fund, Inc.

Consolidated Schedule of Investments - continued

SEPTEMBER 30, 2018 (UNAUDITED)

PORTFOLIO
COMPANY
(% OF NET
ASSETS)
AND INDUSTRY
 

INVESTMENT TYPE

  ACQUISITION
DATE
  SHARES/PAR
VALUE ($)
 

COST BASIS

 

VALUE

 
TELEPATHY INVESTORS,
INC. (1.0%)
Consumer Electronics
  Convertible Note
Matures January 2019
Interest Rate 10% (1)(2)(4)
 

6/21/2016

   

150,000

   

$

150,000

   

$

34,249

   
    Convertible Note
Matures January 2019
Interest Rate 10% (1)(2)(4)
 

9/7/2018

   

200,000

     

200,000

     

45,666

   
    Convertible Note
Matures January 2019
Interest Rate 10% (1)(2)(4)
 

4/20/2016

   

500,000

     

500,000

     

114,165

   
    Convertible Note
Matures January 2019
Interest Rate 10% (1)(2)(4)
 

6/23/2015

   

2,000,000

     

2,000,000

     

456,660

   
    Convertible Note
Matures January 2019
Interest Rate 10% (1)(2)(4)
 

5/3/2017

   

300,000

     

300,000

     

68,499

   
   

Preferred Stock - Series A *(1)(2)(4)

 

7/29/2014

   

15,238,000

     

3,999,999

     

1,283,040

   
    Convertible Note
Matures January 2019
Interest Rate 10% (1)(2)(4)
 

1/29/2016

   

300,000

     

300,000

     

68,499

   
    Convertible Note
Matures January 2019
Interest Rate 10% (1)(2)(4)
 

12/13/2016

   

500,000

     

500,000

     

114,165

   
     

2,184,943

   
UCT COATINGS, INC.
(0.4%)
 

Common Stock *(1)(3)(4)

 

4/18/2011

 

1,500,000

 

662,235

 

961,200

 

Advanced Materials

 
VUFINE, INC. (0.4%)
Consumer Electronics
  Convertible Note
Matures July 2019
Interest Rate 6% (1)(2)(4)
 

7/10/2017

   

1,500,000

     

1,500,000

     

479,400

   
    Convertible Note
Matures July 2019
Interest Rate 12% (1)(2)(4)
 

9/13/2018

   

100,000

     

100,000

     

31,960

   
    Convertible Note
Matures October 2019
Interest Rate 12% (1)(2)(4)
 

10/16/2017

   

250,000

     

250,000

     

79,900

   
    Convertible Note
Matures July 2019
Interest Rate 12% (1)(2)(4)
 

1/31/2018

   

350,000

     

350,000

     

111,860

   

See accompanying notes to financial statements
13



Firsthand Technology Value Fund, Inc.

Consolidated Schedule of Investments - continued

SEPTEMBER 30, 2018 (UNAUDITED)

PORTFOLIO
COMPANY
(% OF NET
ASSETS)
AND INDUSTRY
 

INVESTMENT TYPE

  ACQUISITION
DATE
  SHARES/PAR
VALUE ($)
 

COST BASIS

 

VALUE

 
VUFINE, INC.
(continued)
  Convertible Note
Matures July 2019
Interest Rate 12% (1)(2)(4)
 

6/19/2018

   

300,000

   

$

300,000

   

$

95,880

   
   

Common Stock *(1)(2)(4)

 

2/26/2015

   

750,000

     

15,000

     

0

   
   

Preferred Stock - Series A *(1)(2)(4)

 

03/04/15 - 02/18/16

   

22,500,000

     

2,250,000

     

0

   
     

799,000

   
WRIGHTSPEED, INC.
(4.4%)
Automotive
  Convertible Note
Matures December 2018
Interest Rate 12% (1)(3)(4)
 

5/1/2018

   

3,700,000

     

3,700,000

     

197,765

   
    Convertible Note
Matures December 2018
Interest Rate 12% (1)(3)(4)
 

6/21/2018

   

2,000,000

     

2,000,000

     

106,900

   
    Convertible Note
Matures December 2018
Interest Rate 12% (1)(3)(4)
 

8/10/2018

   

3,000,000

     

3,000,000

     

160,350

   
    Preferred Stock -
Series C *(1)(3)(4)
 

4/11/2013

   

2,267,659

     

1,922,975

     

495,937

   
   

Preferred Stock - Series D *(1)(3)(4)

 

12/15/2014

   

1,100,978

     

3,375,887

     

311,467

   
   

Preferred Stock - Series E *(1)(3)(4)

 

7/10/2015

   

450,814

     

1,658,996

     

137,047

   
   

Preferred Stock - Series F *(1)(3)(4)

 

8/31/2017

   

90,707

     

499,995

     

41,444

   
    Preferred Stock Warrants -
Series F *(1)(3)(4)
 

4/9/2018

   

13,606

     

0

     

23

   
    Preferred Stock Warrants -
Series F *(1)(3)(4)
 

4/26/2018

   

6,803

     

0

     

12

   
    Preferred Stock Warrants -
Series F *(1)(3)(4)
 

8/10/2018

   

6,000,000

     

0

     

2,736,000

   
    Preferred Stock Warrants -
Series F *(1)(3)(4)
 

5/1/2018

   

7,400,000

     

0

     

3,374,400

   
    Preferred Stock Warrants -
Series F *(1)(3)(4)
 

6/21/2018

   

4,000,000

     

0

     

1,824,000

   
    Preferred Stock Warrants -
Series F *(1)(3)(4)
 

8/10/2018

   

6,000,000

     

0

     

7,020

   
    Preferred Stock Warrants -
Series F *(1)(3)(4)
 

5/1/2018

   

7,400,000

     

0

     

8,658

   
    Preferred Stock Warrants -
Series F *(1)(3)(4)
 

6/21/2018

   

4,000,000

     

0

     

4,680

   
    Preferred Stock Warrants -
Series F *(1)(3)(4)
 

8/31/2017

   

18,141

     

0

     

31

   
    Preferred Stock Warrants -
Series F *(1)(3)(4)
 

2/7/2018

   

11,338

     

0

     

19

   
     

9,405,753

   

See accompanying notes to financial statements
14



Firsthand Technology Value Fund, Inc.

Consolidated Schedule of Investments - continued

SEPTEMBER 30, 2018 (UNAUDITED)

PORTFOLIO
COMPANY
(% OF NET
ASSETS)
AND INDUSTRY
 

INVESTMENT TYPE

  ACQUISITION
DATE
  SHARES/PAR
VALUE ($)
 

COST BASIS

 

VALUE

 
INVESTMENT
COMPANY (0.0%)
  Fidelity Investments Money Market
Treasury Portfolio - Class I (5)
 

Various

   

61,520

   

$

61,520

   

$

61,520

   
TOTAL
INVESTMENTS
(Cost
$160,189,392)
— 114.5%
   

243,044,193

   
LIABILITIES IN
EXCESS OF
OTHER ASSETS
(14.5%)
   

(30,710,463

)

 
NET ASSETS —
100%
 

$

212,333,730

   

*  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 September 30, 2018, we held $220,928,993 (or 104.05% of net assets) in restricted securities (see Note 2).

(2)  Controlled Investments.

(3)  Affiliated issuer.

(4)  Fair Value Level 3 Security.

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

See accompanying notes to financial statements
15



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)

 

8/20/2013

   

2,128,005

   

$

10,108,024

   

$

0

   

Consumer Electronics

 

EQX CAPITAL, INC. (2.3%)

 

Common Stock *(1)(2)(7)

 

6/10/2016

   

100,000

     

20,000

     

44,810

   
   

Preferred Stock - Series A *(1)(2)(7)

 

6/10/2016

   

4,000,000

     

4,000,000

     

3,975,200

   

Equipment Leasing

 
     

4,020,010

   

HERA SYSTEMS, INC. (1.2%)

 

Preferred Stock - Series A *(1)(2)(7)

 

9/18/2015

   

3,642,324

     

2,000,000

     

154,799

   
   

Preferred Stock - Series B *(1)(2)(7)

 

08/07/17 - 09/28/17

   

2,039,203

     

1,587,102

     

453,315

   

Aerospace

  Preferred Stock Warrants -
Series B *(1)(2)(7)
 

8/7/2017

   

6,214,922

     

0

     

1,380,956

   
    Preferred Stock Warrants -
Series B *(1)(2)(7)
 

9/28/2017

   

700,000

     

0

     

155,540

   
     

2,144,610

   

HIGHTAIL, INC. (4.9%)

 

Preferred Stock - Series E *(1)(4)(7)

 

3/27/2014

   

2,268,602

     

9,620,188

     

8,561,704

   

Cloud Computing

 
INTRAOP MEDICAL
CORP. (12.1%)
Medical Devices
  Convertible Note (1)(2)(7)
Matures June 2020
Interest Rate 15%
 

5/31/2017

   

1,000,000

     

1,000,000

     

1,000,000

   
    Convertible Note (1)(2)(7)
Matures June 2020
Interest Rate 15%
 

9/28/2017

   

1,500,000

     

1,500,000

     

1,500,000

   
    Convertible Note (1)(2)(7)
Matures June 2020
Interest Rate 15%
 

7/13/2017

   

1,000,000

     

1,000,000

     

1,000,000

   
    Convertible Note (1)(2)(7)
Matures June 2020
Interest Rate 15%
 

7/8/2014

   

1,000,000

     

1,000,000

     

1,000,000

   
   

Preferred Stock - Series C *(1)(2)(7)

 

7/12/2013

   

26,856,187

     

26,299,938

     

11,479,677

   
    Term Note (1)(2)
Matures February 2020
Interest Rate 8%
 

2/10/2017

   

2,000,000

     

2,000,000

     

2,000,000

   
    Term Note (1)(2)(7)
Matures February 2020
Interest Rate 8%
 

2/28/2014

   

3,000,000

     

3,000,000

     

3,000,000

   
     

20,979,677

   

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

 

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)

 

3/14/2014

   

3,257,328

     

9,999,997

     

12,018,563

   

Mobile Computing

 
PIVOTAL SYSTEMS
CORP. (19.9%)
  Common Stock Warrants -
Class B *(1)(2)(7)
 

2/12/2016

   

18,180,475

     

0

     

8,741,172

   
Semiconductor
Equipment
  Preferred Stock Warrants -
Series D *(1)(2)(7)
 

9/2/2016

   

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)

 

4/30/2014

   

13,065,236

     

6,321,482

     

9,270,308

   
   

Preferred Stock - Series C *(1)(2)(7)

 

12/31/2014

   

2,291,260

     

2,657,862

     

2,560,254

   
   

Preferred Stock - Series D *(1)(2)(7)

 

9/2/2016

   

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)
 

12/14/2012

   

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%)
Semiconductor
  Preferred Stock - Series B
(1)(2)(7)(8)
 

10/27/17 - 12/20/17

   

313,719

     

2,550,033

     

2,550,033

   

Equipment

 

Common Stock *(1)(2)(7)

 

11/14/2016

   

10,000

     

1,000

     

29,908

   
   

Preferred Stock - Series A *(1)(2)(7)

 

3/1/2017

   

441,998

     

1,999,997

     

2,256,355

   
    Term Note (1)(2)(7)
Matures February 2020
Interest Rate 5%
 

3/1/2017

   

1,000,000

     

1,000,000

     

1,000,000

   
    Preferred Stock - Series
Seed *(1)(2)(7)
 

11/14/2016

   

2,200,000

     

7,284,145

     

8,966,760

   
     

14,803,056

   

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

 

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%)
Water Purification
 
  Convertible Note (1)(7)
Matures June 2021
Interest Rate 2%
 

10/4/2016

   

50,000

     

50,000

     

0

   

SILICON GENESIS CORP. (3.5%)

 

Common Stock *(1)(2)(7)

 

4/18/2011

   

921,892

     

169,045

     

16,871

   
   

Common Stock Warrants *(1)(2)(7)

 

4/18/2011

   

5,000,000

     

0

     

11,000

   

Intellectual Property

 

Common Stock Warrants *(1)(2)(7)

 

10/13/2011

   

37,982

     

6,678

     

357

   
   

Common Stock Warrants *(1)(2)(7)

 

2/6/2012

   

3,000,000

     

0

     

6,600

   
   

Preferred Stock - Series 1-C *(1)(2)(7)

 

4/18/2011

   

82,914

     

109,518

     

74,258

   
   

Preferred Stock - Series 1-D *(1)(2)(7)

 

4/18/2011

   

850,830

     

431,901

     

205,646

   
   

Preferred Stock - Series 1-E *(1)(2)(7)

 

4/18/2011

   

5,704,480

     

2,459,808

     

2,063,310

   
   

Preferred Stock - Series 1-F *(1)(2)(7)

 

4/18/2011

   

912,453

     

475,674

     

456,318

   
    Preferred Stock -
Series 1-G *(1)(2)(5)(7)
 

3/10/2016

   

48,370,793

     

4,583,405

     

3,023,658

   
   

Preferred Stock - Series 1-H *(1)(2)(7)

 

3/10/2016

   

837,942

     

946,502

     

236,551

   
     

6,094,569

   

SVXR, INC. (1.2%)

 

Preferred Stock - Series A *(1)(3)(7)

 

01/11/2017

   

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)
 

12/21/2017

   

1,000,000

     

1,000,000

     

1,000,000

   
     

2,000,000

   

See accompanying notes to financial statements
18



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%)
Consumer Electronics
  Convertible Note (1)(2)(7)
Matures January 2018
Interest Rate 10%
 

1/29/2016

   

300,000

   

$

300,000

   

$

45,321

   
    Convertible Note (1)(2)(7)
Matures January 2018
Interest Rate 10%
 

4/20/2016

   

500,000

     

500,000

     

75,535

   
    Convertible Note (1)(2)(7)
Matures January 2018
Interest Rate 10%
 

6/21/2016

   

150,000

     

150,000

     

22,661

   
    Convertible Note (1)(2)(7)
Matures January 2018
Interest Rate 10%
 

12/13/2016

   

500,000

     

500,000

     

75,535

   
    Convertible Note (1)(2)(7)
Matures January 2018
Interest Rate 10%
 

6/23/2015

   

2,000,000

     

2,000,000

     

302,140

   
    Convertible Note (1)(2)(7)
Matures January 2018
Interest Rate 10%
 

5/3/2017

   

300,000

     

300,000

     

45,321

   
   

Preferred Stock - Series A *(1)(2)(7)

 

7/29/2014

   

15,238,000

     

3,999,999

     

937,137

   
     

1,503,650

   

UCT COATINGS, INC. (0.5%)

 

Common Stock *(1)(3)(7)

 

4/18/2011

   

1,500,000

     

662,235

     

922,050

   
   

Common Stock Warrants *(1)(3)(7)

 

4/18/2011

   

2,283

     

67

     

4

   

Advanced Materials

                   

922,054

   

VUFINE, INC. (0.8%)

 

Common Stock *(1)(2)(7)

 

2/26/2015

   

750,000

     

15,000

     

0

   

Consumer Electronics

  Convertible Note (1)(2)(7)
Matures July 2019
Interest Rate 6%
 

7/10/2017

   

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%
 

10/16/2017

   

250,000

     

250,000

     

204,880

   
     

1,434,160

   

WRIGHTSPEED, INC. (6.2%)

 

Preferred Stock - Series C *(1)(3)(4)(7)

 

4/11/2013

   

2,267,659

     

6,837,983

     

5,704,296

   
   

Preferred Stock - Series D *(1)(3)(7)

 

12/15/2014

   

1,100,978

     

3,375,887

     

3,161,018

   

Automotive

 

Preferred Stock - Series E *(1)(3)(7)

 

7/10/2015

   

450,814

     

1,658,996

     

1,350,323

   
   

Preferred Stock - Series F *(1)(3)(7)

 

8/31/2017

   

90,707

     

499,995

     

471,295

   
    Preferred Stock Warrants -
Series F *(1)(3)(7)
 

8/31/2017

   

18,141

     

0

     

28,703

   
     

10,715,635

   

See accompanying notes to financial statements
19



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

   
OTHER ASSETS IN
EXCESS OF
LIABILITIES
— 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).

(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.

See accompanying notes to financial statements
20



Firsthand Technology Value Fund, Inc.

Consolidated Notes to Financial Statements

SEPTEMBER 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 September 30, 2018, were $0 or 0.0% 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 September 30, 2018, were $0 or 0.0% 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 September 30, 2018, were $0 or 0.0% 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.


21



Firsthand Technology Value Fund, Inc.

Consolidated Notes to Financial Statements - continued

SEPTEMBER 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 September 30, 2018, our financial statements include venture capital investments valued at approximately $123,662,331. 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 September 30, 2018, and December 31, 2017, we held $220,928,993 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


22



Firsthand Technology Value Fund, Inc.

Consolidated Notes to Financial Statements - continued

SEPTEMBER 30, 2018 (UNAUDITED)

state corporate taxes on our taxable income, unless and until we are able to once again qualify as a RIC, based on changes in the composition of our portfolio.

 

Consequently, at the close of each fiscal quarter beginning with the quarter ended June 30, 2018, we will record a deferred tax liability for any net realized gains and net ordinary income for the year-to-date period plus net unrealized gains as of the end of the quarter.

 

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 nine months ended September 30, 2018.

 

The average volume of the Company's derivatives during the nine months ended September 30, 2018, is as follows:

    Purchased Options
(Contracts)
  Warrants
(Notional Value)
  Written Options
(Contracts)
 

Firsthand Technology Value Fund, Inc.

 

$

   

$

9,674,124

   

$

   

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.


23



Firsthand Technology Value Fund, Inc.

Consolidated Notes to Financial Statements - continued

SEPTEMBER 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


24



Firsthand Technology Value Fund, Inc.

Consolidated Notes to Financial Statements - continued

SEPTEMBER 30, 2018 (UNAUDITED)

share issuances or repurchases during the current calendar quarter. Base management fees for any partial month or quarter will be pro-rated.

 

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, 2018, 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 September 30, 2018, there was an incentive fee payable for $16,499,806. 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.


25



Firsthand Technology Value Fund, Inc.

Consolidated Notes to Financial Statements - continued

SEPTEMBER 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.

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,


26



Firsthand Technology Value Fund, Inc.

Consolidated Notes to Financial Statements - continued

SEPTEMBER 30, 2018 (UNAUDITED)

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 September 30, 2018:

 

   

LEVEL 1 QUOTED PRICES

  LEVEL 2 OTHER SIGNIFICANT
OBSERVABLE INPUTS
  LEVEL 3 SIGNIFICANT
UNOBSERVABLE INPUTS
 

Assets

 

Common Stocks

 

Advanced Materials

 

$

   

$

   

$

961,200

   

Consumer Electronics

   

18,257,500

     

     

   

Equipment Leasing

   

     

     

24,610

   

Intellectual Property

   

     

     

7,375

   

Networking

   

2,596,180

     

     

   

Semiconductors

   

1,200,000

     

     

   

Semiconductor Equipment

   

     

     

97,350,286

   

Total Common Stocks

   

22,053,680

     

     

98,343,471

   

Preferred Stocks

 

Advanced Materials

   

     

     

8,803,627

   

Aerospace

   

     

     

1,444,805

   

Automotive

   

     

     

985,895

   

Consumer Electronics

   

     

     

1,283,040

   

Equipment Leasing

   

     

     

3,196,000

   

Intellectual Property

   

     

     

3,937,098

   

Medical Devices

   

     

     

17,446,316

   

Mobile Computing

   

     

     

10,761,886

   

Semiconductor Equipment

   

     

     

36,563,426

   

Total Preferred Stocks

   

     

     

84,422,093

   

Asset Derivatives *

 

Equity Contracts

   

     

     

14,618,906

   

Total Asset Derivatives

   

     

     

14,618,906

   

Convertible Notes

 

Advanced Materials

   

     

     

5,532,208

   

Aerospace

   

     

     

1,000,000

   

Automotive

   

     

     

465,015

   

Consumer Electronics

   

     

     

1,700,903

   

Medical Devices

   

     

     

13,000,000

   

Semiconductor Equipment

   

     

     

1,846,397

   

Total Convertible Notes

   

     

     

23,544,523

   

Mutual Funds

   

61,520

     

     

   

Total

 

$

22,115,200

   

$

   

$

220,928,993

   

*  Asset derivatives include warrants.


27



Firsthand Technology Value Fund, Inc.

Consolidated Notes to Financial Statements - continued

SEPTEMBER 30, 2018 (UNAUDITED)

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 September 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/
CONVERSIONS
  NET
SALES/
CONVERSIONS
  NET
REALIZED
GAINS/
(LOSSES)
  NET UNREALIZED
APPRECIATION
(DEPRECIATION) (1)
  TRANSFERS IN
(OUT) OF
LEVEL 3
  BALANCE
AS OF 9/30/18
 

Common Stocks

 

Advanced Materials

 

$

922,050

   

$

   

$

   

$

   

$

39,150

   

$

   

$

961,200

   
Consumer
Electronics
   

11,650,500

     

     

     

(10,108,024

)

   

(1,542,476

)

   

     

   

Equipment Leasing

   

44,810

     

     

     

     

(20,200

)

   

     

24,610

   

Intellectual Property

   

16,871

     

     

     

     

(9,496

)

   

     

7,375

   
Semiconductor
Equipment
   

29,908

     

     

(2,914,684

)

   

491,004

     

99,744,058

     

     

97,350,286

   

Preferred Stocks

 

Advanced Materials

   

19,526,941

     

24,290,124

     

(24,290,124

)

   

(6,319,935

)

   

(4,403,379

)

   

     

8,803,627

   

Aerospace

   

608,114

     

3,500,000

     

     

     

(2,663,309

)

   

     

1,444,805

   

Automotive

   

10,686,932

     

368,088

     

(368,088

)

   

(4,915,008

)

   

(4,786,029

)

   

     

985,895

   

Cloud Computing

   

8,561,704

     

     

(5,462,741

)

   

(4,157,447

)

   

1,058,484

     

     

   
Consumer
Electronics
   

937,137

     

     

     

     

345,903

     

     

1,283,040

   

Equipment Leasing

   

3,975,200

     

     

     

     

(779,200

)

   

     

3,196,000

   

Intellectual Property

   

6,059,741

     

1,658,300

     

(1,857,030

)

   

(620,377

)

   

(1,303,536

)

   

     

3,937,098

   

Medical Devices

   

11,479,677

     

     

     

     

5,966,639

     

     

17,446,316

   

Mobile Computing

   

12,018,563

     

     

     

     

(1,256,677

)

   

     

10,761,886

   
Semiconductor
Equipment
   

40,067,044

     

10,807,261

     

(6,725,070

)

   

(9,075

)

   

(7,576,734

)

   

     

36,563,426

   

Asset Derivatives

 

Equity Contracts

   

12,029,324

     

500,001

     

     

(67

)

   

2,089,648

     

     

14,618,906

   


28



Firsthand Technology Value Fund, Inc.

Consolidated Notes to Financial Statements - continued

SEPTEMBER 30, 2018 (UNAUDITED)

INVESTMENTS AT FAIR
VALUE USING SIGNIFICANT
UNOBSERVABLE INPUTS
(LEVEL 3) (continued)
  BALANCE AS OF
12/31/17
  NET
PURCHASES/
CONVERSIONS
  NET
SALES/
CONVERSIONS
  NET
REALIZED
GAINS/
(LOSSES)
  NET UNREALIZED
APPRECIATION
(DEPRECIATION) (1)
  TRANSFERS IN
(OUT) OF
LEVEL 3
  BALANCE
AS OF 9/30/18
 

Convertible Notes

 

Advanced Materials

 

$

2,745,485

   

$

5,532,208

   

$

(2,745,485

)

 

$

   

$

   

$

   

$

5,532,208

   

Aerospace

   

     

1,000,000

     

     

     

     

     

1,000,000

   

Automotive

   

     

8,950,000

     

(250,000

)

   

     

(8,234,985

)

   

     

465,015

   

Consumer Electronics

   

2,000,673

     

950,000

     

     

     

(1,249,770

)

   

     

1,700,903

   

Medical Devices

   

9,500,000

     

3,500,000

     

     

     

     

     

13,000,000

   
Semiconductor
Equipment
   

2,000,000

     

3,846,397

     

(4,000,000

)

   

     

     

     

1,846,397

   

Water Purification

   

     

     

     

(50,000

)

   

50,000

     

     

   

Total

 

$

154,860,674

   

$

64,902,379

   

$

(48,613,222

)

 

$

(25,688,929

)

 

$

75,468,091

   

$

   

$

220,928,993

   

(1)  The net change in unrealized depreciation from Level 3 instruments held as of September 30, 2018, was $110,555,479. 

 

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

 

    FAIR VALUE
AT 9/30/18
 

VALUATION TECHNIQUES

 

UNOBSERVABLE INPUTS

  RANGE
(WEIGHTED AVG.)
 

Direct venture capital investments: Advanced Materials

 

$

15.7

M

  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
  9.9% - 10.7% (10.3%)
5 years (5 years)
50.0% (50.0%)
2.91%
53%
0.0% - 22.7% (1.4%)
 

Direct venture capital investments: Aerospace

 

$

6.7

M

  Prior Transaction Analysis
Option Pricing Model
  Years to Maturity
Volatility
Risk-Free Rate
  5 years (5 years)
60.0% (60.0%)
2.94% (2.94%)
 

Direct venture capital investments: Automotive

 

$

9.4

M

  Prior Transaction Analysis
Option Pricing Model
  Years to Maturity
Volatility
Risk-Free Rate
  3 years (3 years)
55.0% (55.0%)
2.88% (2.88%)
 

Direct venture capital investments: Consumer Electronics

 

$

3.0

M

  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
  1.3x - 2.4x (1.9x)
40% - 50% (43%)
1 year (1 year)
70.0% (70.0%)
2.59% (2.59%)
 


29



Firsthand Technology Value Fund, Inc.

Consolidated Notes to Financial Statements - continued

SEPTEMBER 30, 2018 (UNAUDITED)

    FAIR VALUE
AT 9/30/18
 

VALUATION TECHNIQUES

 

UNOBSERVABLE INPUTS

  RANGE
(WEIGHTED AVG.)
 

Direct venture capital investments: Equipment Leasing

 

$

3.2

M

  Prior Transaction Analysis
Option Pricing Model
  Years to Maturity
Volatility
Risk-Free Rate
  5 years (5 years)
50.0% (50.0%)
2.94% (2.94%)
 

Direct venture capital investments: Intellectual Property

 

$

4.0

M

  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%)
2.94% (2.94%)
0.0% - 24.3% (0.1%)
-48.3% (-48.3%)
 

Direct venture capital investments: Medical Devices

 

$

30.4

M

  Market Comparable Companies
Option Pricing Model
  Revenue Multiple
Years to Maturity
Volatility
Risk-Free Rate
  3.1x - 3.4x (3.3x)
4 years (4 years)
50.0% (50.0%)
2.91% (2.91%)
 

Direct venture capital investments: Mobile Computing

 

$

10.8

M

  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%)
2.81% (2.81%)
40.0% (40.0%)
 
Direct venture capital investments:
Semiconductor Equipment
 

$

137.7

M

  Market Comparable Companies
Prior Transaction Analysis
Option Pricing Model
  Revenue Multiple
Years to Maturity
Volatility
Risk-Free Rate
Discount for Lack of Marketability
  1.3x - 1.6x (1.5x)
5 years (5 years)
40.0% - 60.0% (48.7%)
2.94% (2.94%)
0.0% - 19.4% (8.7%)
 

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 the quarter ended June 30, 2018, we will record a deferred tax liability for any net realized gains and net ordinary income for the year-to-date period plus net unrealized gains as of the end of the quarter.

 

The reorganization described in Note 1 (the formation of FVI as a fully owned subsidiary for investment activities) was structured to avoid any adverse tax consequences for the Company and its shareholders. 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.


30



Firsthand Technology Value Fund, Inc.

Consolidated Notes to Financial Statements - continued

SEPTEMBER 30, 2018 (UNAUDITED)

The following information is based upon the federal income tax cost of portfolio investments as of September 30, 2018.

Gross unrealized appreciation

 

$

130,571,132

   

Gross unrealized depreciation

   

(47,716,331

)

 

Net unrealized appreciation

 

$

82,854,801

   

Federal income tax cost, Investments

 

$

160,189,392

   

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 nine months ended September 30, 2018.

 

PURCHASES AND SALES

 

Purchases of investment securities

 

$

48,038,120

   

Proceeds from sales and maturities of investment securities

 

$

66,288,520

   

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.

 

On August 31, 2018, the Fund announced a plan to repurchase up to $2 million worth of SVVC stock in the open market by March 31, 2019. Through the end of September, we had repurchased and retired 26,110 shares of stock at a total cost of approximately $420,000. As of September 30, 2018, the Fund had 7,276,036 shares outstanding.

 

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


31



Firsthand Technology Value Fund, Inc.

Consolidated Notes to Financial Statements - continued

SEPTEMBER 30, 2018 (UNAUDITED)

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 September 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
9/30/18
  SHARES/
PAR VALUE
HELD AT
9/30/18
 
EQX
Capital, Inc.
Common
Stock
 

$

44,810

   

$

   

$

   

$

   

$

   

$

(20,200

)

 

$

24,610

     

100,000

   
EQX, Inc.
Preferred
Stock -
Series A*
   

3,975,200

     

     

     

     

     

(779,200

)

   

3,196,000

     

4,000,000

   
Hera Systems,
Inc. Series A
Preferred*
   

154,799

     

     

     

     

     

58,641

     

213,440

     

3,642,324

   
Hera Systems
Convertible
Note
   

     

500,000

     

35,417

     

     

     

     

500,000

     

500,000

   
Hera Systems
Convertible
Note
   

     

500,000

     

17,083

     

     

     

     

500,000

     

500,000

   
Hera Systems,
Inc. Series B
Preferred*
   

453,315

     

3,500,000

     

     

     

     

(2,721,950

)

   

1,231,365

     

5,539,203

   
Hera Systems,
Inc. Series B
Warrants*
   

155,540

     

     

     

     

     

     

155,540

     

700,000

   
Hera Systems,
Inc. Series B
Warrants*
   

1,380,956

     

     

     

     

     

     

1,380,956

     

6,214,922

   
Hera Systems,
Inc. Series B
Warrants*
   

     

     

     

     

     

2,721,950

     

2,721,950

     

12,250,000

   


32



Firsthand Technology Value Fund, Inc.

Consolidated Notes to Financial Statements - continued

SEPTEMBER 30, 2018 (UNAUDITED)


AFFILIATE/
CONTROLLED
INVESTMENTS*
  VALUE
AT 12/31/17
  PURCHASES/
MERGER
 

INTEREST

  SALES/
MATURITY/
EXPIRATION
  REALIZED
GAIN
(LOSS)
  CHANGE IN
APPRECIATION/
DEPRECIATION
  VALUE
9/30/18
  SHARES/
PAR VALUE
HELD AT
9/30/18
 
IntraOp
Medical
Corp.
Series C
Preferred*
 

$

11,479,677

   

$

   

$

   

$

   

$

   

$

5,966,639

   

$

17,446,316

     

26,856,187

   
IntraOp
Medical
Corp.
Convertible
Note*
   

1,000,000

     

     

178,662

     

     

     

     

1,000,000

     

1,000,000

   
IntraOp
Medical
Corp.
Convertible
Note*
   

1,000,000

     

     

112,192

     

     

     

     

1,000,000

     

1,000,000

   
IntraOp
Medical
Corp.
Convertible
Note*
   

1,500,000

     

     

174,124

     

     

     

     

1,500,000

     

1,500,000

   
IntraOp
Medical
Corp.
Convertible
Note*
   

1,000,000

     

     

117,123

     

     

     

     

1,000,000

     

1,000,000

   
IntraOp
Medical
Corp.
Convertible
Note*
   

     

2,000,000

     

159,452

     

     

     

     

2,000,000

     

2,000,000

   
IntraOp
Medical
Corp.
Convertible
Note*
   

     

1,500,000

     

10,479

     

     

     

     

1,500,000

     

1,500,000

   
IntraOp
Medical
Corp. Term
Note*
   

3,000,000

     

     

179,507

     

     

     

     

3,000,000

     

3,000,000

   
IntraOp
Medical
Corp. Term
Note*
   

2,000,000

     

     

119,671

     

     

     

     

2,000,000

     

2,000,000

   


33



Firsthand Technology Value Fund, Inc.

Consolidated Notes to Financial Statements - continued

SEPTEMBER 30, 2018 (UNAUDITED)


AFFILIATE/
CONTROLLED
INVESTMENTS*
  VALUE
AT 12/31/17
  PURCHASES/
MERGER
 

INTEREST

  SALES/
MATURITY/
EXPIRATION
  REALIZED
GAIN
(LOSS)
  CHANGE IN
APPRECIATION/
DEPRECIATION
  VALUE
9/30/18
  SHARES/
PAR VALUE
HELD AT
9/30/18
 
Phunware, Inc.
Preferred
Stock -
Series E
 

$

12,018,563

   

$

   

$

   

$

   

$

   

$

(1,256,677

)

 

$

10,761,886

     

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

)

   

     

   
Pivotal
Systems,
Series D
Warrants*
   

618,392

     

     

     

     

     

(618,392

)

   

     

   
Pivotal
Systems,
Common
Stocks
Warrants -
Class B*
   

8,741,172

     

     

     

     

     

(8,741,172

)

   

     

   
Pivotal
Systems,
Common
Stock*
   

     

21,869,876

     

     

(2,914,684

)

   

491,004

     

77,820,466

     

97,266,662

     

53,758,441

   
QMAT,
Preferred
Stock
Series A*
   

17,394,341

     

24,290,124

     

     

(24,290,124

)

   

(6,319,935

)

   

(3,972,379

)

   

7,102,027

     

16,000,240

   
QMAT,
Preferred
Stock
Series B*
   

2,132,600

     

     

     

     

     

(431,000

)

   

1,701,600

     

2,000,000

   
QMAT,
Series A
Warrant*
   

1,086,600

     

     

     

     

     

(847,000

)

   

239,600

     

2,000,000

   


34



Firsthand Technology Value Fund, Inc.

Consolidated Notes to Financial Statements - continued

SEPTEMBER 30, 2018 (UNAUDITED)


AFFILIATE/
CONTROLLED
INVESTMENTS*
  VALUE
AT 12/31/17
  PURCHASES/
MERGER
 

INTEREST

  SALES/
MATURITY/
EXPIRATION
  REALIZED
GAIN
(LOSS)
  CHANGE IN
APPRECIATION/
DEPRECIATION
  VALUE
9/30/18
  SHARES/
PAR VALUE
HELD AT
9/30/18
 
QMAT,
Preferred
Stock
Warrants -
Series C*
 

$

   

$

   

$

   

$

   

$

   

$

149,038

   

$

149,038

     

3,482,208

   
QMAT,
Preferred
Stock
Warrant -
Series C*
   

     

     

     

     

     

4,280

     

4,280

     

100,000

   
QMAT,
Preferred
Stock
Warrants -
Series C*
   

     

     

     

     

     

14,980

     

14,980

     

350,000

   
QMAT,
Preferred
Stock
Warrants -
Series C*
   

     

     

     

     

     

42,800

     

42,800

     

1,000,000

   
QMAT,
Convertible
Note*
   

     

350,000

     

3,375

     

(350,000

)

   

     

     

     

   
QMAT,
Convertible
Note*
   

     

100,000

     

153

     

(100,000

)

   

     

     

     

   
QMAT
Convertible
Note*
   

     

3,482,208

     

168,771

     

     

     

     

3,482,208

     

3,482,208

   
QMAT,
Convertible
Note*
   

2,745,485

     

     

31,291

     

(2,745,485

)

   

     

     

     

   
QMAT
Convertible
Note*
   

     

350,000

     

15,443

     

     

     

     

350,000

     

350,000

   
QMAT
Convertible
Note*
   

     

1,000,000

     

31,342

     

     

     

     

1,000,000

     

1,000,000

   
QMAT
Convertible
Note*
   

     

100,000

     

1,447

     

     

     

     

100,000

     

100,000

   
QMAT
Convertible
Note*
   

     

100,000

     

1,052

     

     

     

     

100,000

     

100,000

   
QMAT
Convertible
Note*
   

     

200,000

     

1,403

     

     

     

     

200,000

     

200,000

   


35



Firsthand Technology Value Fund, Inc.

Consolidated Notes to Financial Statements - continued

SEPTEMBER 30, 2018 (UNAUDITED)


AFFILIATE/
CONTROLLED
INVESTMENTS*
  VALUE
AT 12/31/17
  PURCHASES/
MERGER
 

INTEREST

  SALES/
MATURITY/
EXPIRATION
  REALIZED
GAIN
(LOSS)
  CHANGE IN
APPRECIATION/
DEPRECIATION
  VALUE
9/30/18
  SHARES/
PAR VALUE
HELD AT
9/30/18
 
QMAT
Convertible
Note*
 

$

   

$

300,000

   

$

1,184

   

$

   

$

   

$

   

$

300,000

     

300,000

   
Revasum,
Preferred
Stock,
Series B*
   

2,550,033

     

     

     

     

     

1,269,935

     

3,819,968

     

313,719

   
Revasum,
Term Note*
   

1,000,000

     

     

30,383

     

(1,000,000

)

   

     

     

     

   
Revasum,
Common
Stock*
   

29,908

     

     

     

     

     

53,716

     

83,624

     

10,000

   
Revasum,
Common
Stock
Warrants*
   

     

500,000

     

     

     

     

1,448,375

     

1,948,375

     

650,000

   
Revasum,
Convertible
Note*
   

     

1,846,397

     

9,611

     

     

     

     

1,846,397

     

1,846,397

   
Revasum,
Preferred
Stock -
Series Seed
   

8,966,760

     

6,725,070

     

     

(6,725,070

)

   

(9,075

)

   

13,898,115

     

22,855,800

     

2,200,000

   
Revasum,
Preferred
Stock
Series A*
   

2,256,355

     

     

     

     

     

2,572,208

     

4,828,563

     

441,998

   
Silicon
Genesis
Corp.,
Common
Stock*
   

16,871

     

     

     

     

     

(9,496

)

   

7,375

     

921,892

   
Silicon
Genesis
Corp.,
Common
Warrants*
   

357

     

     

     

     

     

(213

)

   

144

     

37,982

   
Silicon
Genesis
Corp.,
Common
Warrants*
   

11,000

     

     

     

     

     

(7,000

)

   

4,000

     

5,000,000

   
Silicon
Genesis
Corp.,
Common
Warrants*
   

6,600

     

     

     

     

     

(4,200

)

   

2,400

     

3,000,000

   


36



Firsthand Technology Value Fund, Inc.

Consolidated Notes to Financial Statements - continued

SEPTEMBER 30, 2018 (UNAUDITED)


AFFILIATE/
CONTROLLED
INVESTMENTS*
  VALUE
AT 12/31/17
  PURCHASES/
MERGER
 

INTEREST

  SALES/
MATURITY/
EXPIRATION
  REALIZED
GAIN
(LOSS)
  CHANGE IN
APPRECIATION/
DEPRECIATION
  VALUE
9/30/18
  SHARES/
PAR VALUE
HELD AT
9/30/18
 
Silicon
Genesis
Corp.,
Series 1-C
Preferred*
 

$

74,258

   

$

   

$

   

$

   

$

   

$

(36,283

)

 

$

37,975

     

82,914

   
Silicon
Genesis
Corp.,
Series 1-D
Preferred*
   

205,646

     

     

     

     

     

(102,015

)

   

103,631

     

850,830

   
Silicon
Genesis
Corp.,
Series 1-E
Preferred*
   

2,063,310

     

     

     

(87,402

)

   

     

(507,575

)

   

1,468,333

     

5,704,480

   
Silicon
Genesis
Corp.,
Series 1-F
Preferred*
   

456,318

     

     

     

(19,285

)

   

     

(115,758

)

   

321,275

     

912,453

   
Silicon
Genesis
Corp.,
Series 1-G
Preferred*
   

3,023,658

     

1,658,300

     

     

(1,740,736

)

   

(620,377

)

   

(479,030

)

   

1,841,815

     

48,370,793

   
Silicon
Genesis
Corp.,
Series 1-H
Preferred*
   

236,551

     

     

     

(9,606

)

   

     

(62,876

)

   

164,069

     

837,942

   
SVXR, Inc.,
Convertible
Note
   

1,000,000

     

1,000,000

     

54,521

     

(2,000,000

)

   

     

     

     

   
SVXR, Inc.
Preferred
Stock
Series A
   

1,000,000

     

3,082,192

     

     

     

     

(23,097

)

   

4,059,095

     

8,219,454

   
SVXR, Inc.
Convertible
Note
   

     

1,000,000

     

24,658

     

(1,000,000

)

   

     

     

     

   
Telepathy
Investors,
Inc.
Convertible
Note*
   

302,140

     

     

187,680

     

     

     

154,520

     

456,660

     

2,000,000

   


37



Firsthand Technology Value Fund, Inc.

Consolidated Notes to Financial Statements - continued

SEPTEMBER 30, 2018 (UNAUDITED)


AFFILIATE/
CONTROLLED
INVESTMENTS*
  VALUE
AT 12/31/17
  PURCHASES/
MERGER
 

INTEREST

  SALES/
MATURITY/
EXPIRATION
  REALIZED
GAIN
(LOSS)
  CHANGE IN
APPRECIATION/
DEPRECIATION
  VALUE
9/30/18
  SHARES/
PAR VALUE
HELD AT
9/30/18
 
Telepathy
Investors,
Inc.
Convertible
Note*
 

$

45,321

   

$

   

$

22,750

   

$

   

$

   

$

23,178

   

$

68,499

     

300,000

   
Telepathy
Investors,
Inc.
Convertible
Note*
   

22,661

     

     

12,802

     

     

     

11,588

     

34,249

     

150,000

   
Telepathy
Investors,
Inc.
Convertible
Note*
   

75,535

     

     

41,137

     

     

     

38,630

     

114,165

     

500,000

   
Telepathy
Investors,
Inc.
Convertible
Note*
   

45,321

     

     

26,904

     

     

     

23,178

     

68,499

     

300,000

   
Telepathy
Investors,
Inc.
Convertible
Note*
   

75,535

     

     

43,608

     

     

     

38,630

     

114,165

     

500,000

   
Telepathy
Investors,
Inc.,
Convertible
Note
   

     

200,000

     

1,315

     

     

     

(154,334

)

   

45,666

     

200,000

   
Telepathy
Investors,
Inc.
Series A
Preferred*
   

937,137

     

     

     

     

     

345,903

     

1,283,040

     

15,238,000

   
UCT
Coatings,
Inc.
Common
Stock
   

922,050

     

     

     

     

     

39,150

     

961,200

     

1,500,000

   
UCT
Coatings,
Inc.
Common
Stock
Warrants
   

4

     

     

     

     

(67

)

   

63

     

     

   


38



Firsthand Technology Value Fund, Inc.

Consolidated Notes to Financial Statements - continued

SEPTEMBER 30, 2018 (UNAUDITED)


AFFILIATE/
CONTROLLED
INVESTMENTS*
  VALUE
AT 12/31/17
  PURCHASES/
MERGER
 

INTEREST

  SALES/
MATURITY/
EXPIRATION
  REALIZED
GAIN
(LOSS)
  CHANGE IN
APPRECIATION/
DEPRECIATION
  VALUE
9/30/18
  SHARES/
PAR VALUE
HELD AT
9/30/18
 
Vufine, Inc.,
Convertible
Note*
 

$

1,229,280

   

$

   

$

134,630

   

$

   

$

   

$

(749,880

)

 

$

479,400

     

1,500,000

   
Vufine, Inc.,
Convertible
Note*
   

204,880

     

     

22,438

     

     

     

(124,980

)

   

79,900

     

250,000

   
Vufine, Inc.,
Convertible
Note*
   

     

350,000

     

27,962

     

     

     

(238,140

)

   

111,860

     

350,000

   
Vufine, Inc.
Common
Stock*
   

     

     

     

     

     

     

     

750,000

   
Vufine, Inc.
Convertible
Note*
   

     

300,000

     

10,258

     

     

     

(204,120

)

   

95,880

     

300,000

   
Vufine, Inc.
Convertible
Note*
   

     

100,000

     

592

     

     

     

(68,040

)

   

31,960

     

100,000

   
Vufine, Inc.
Series A
Preferred
Stock*
   

     

     

     

     

     

     

     

22,500,000

   
Wrightspeed,
Inc., Series C
Preferred
Stock
   

5,704,296

     

368,088

     

     

(368,088

)

   

(4,915,008

)

   

(293,351

)

   

495,937

     

2,267,659

   
Wrightspeed,
Inc., Series D
Preferred
Stock
   

3,161,018

     

     

     

     

     

(2,849,551

)

   

311,467

     

1,100,978

   
Wrightspeed,
Inc., Series E
Preferred
Stock
   

1,350,323

     

     

     

     

     

(1,213,276

)

   

137,047

     

450,814

   
Wrightspeed,
Inc., Series F
Preferred
Stock
   

471,295

     

     

     

     

     

(429,851

)

   

41,444

     

90,707

   
Wrightspeed,
Inc.
Convertible
Note
   

28,703

     

     

     

     

     

(28,672

)

   

31

     

18,141

   


39



Firsthand Technology Value Fund, Inc.

Consolidated Notes to Financial Statements - continued

SEPTEMBER 30, 2018 (UNAUDITED)


AFFILIATE/
CONTROLLED
INVESTMENTS*
  VALUE
AT 12/31/17
  PURCHASES/
MERGER
 

INTEREST

  SALES/
MATURITY/
EXPIRATION
  REALIZED
GAIN
(LOSS)
  CHANGE IN
APPRECIATION/
DEPRECIATION
  VALUE
9/30/18
  SHARES/
PAR VALUE
HELD AT
9/30/18
 
Wrightspeed,
Inc.
Convertible
Note
 

$

   

$

3,700,000

   

$

188,700

   

$

   

$

   

$

(3,502,235

)

 

$

197,765

     

3,700,000

   
Wrightspeed,
Inc.
Convertible
Note
   

     

2,000,000

     

68,000

     

     

     

(1,893,100

)

   

106,900

     

2,000,000

   
Wrightspeed,
Inc.
Convertible
Note
   

     

3,000,000

     

52,000

     

     

     

(2,839,650

)

   

160,350

     

3,000,000

   
Wrightspeed,
Inc. Series F
Warrants
   

     

     

     

     

     

23

     

23

     

13,606

   
Wrightspeed,
Inc. Series F
Warrants
   

     

     

     

     

     

12

     

12

     

6,803

   
Wrightspeed,
Inc. Series F
Warrants
   

     

     

     

     

     

3,374,400

     

3,374,400

     

7,400,000

   
Wrightspeed,
Inc. Series F
Warrants
   

     

     

     

     

     

1,824,000

     

1,824,000

     

4,000,000

   
Wrightspeed,
Inc. Series F
Warrants
   

     

     

     

     

     

2,736,000

     

2,736,000

     

6,000,000

   
Wrightspeed,
Inc. Series F
Warrants
   

     

     

     

     

     

8,658

     

8,658

     

7,400,000

   
Wrightspeed,
Inc. Series F
Warrants
   

     

     

     

     

     

4,680

     

4,680

     

4,000,000

   
Wrightspeed,
Inc. Series F
Warrants
   

     

     

     

     

     

7,020

     

7,020

     

6,000,000

   
Wrightspeed,
Inc. Series F
Warrants
   

     

     

     

     

     

19

     

19

     

11,338

   


40



Firsthand Technology Value Fund, Inc.

Consolidated Notes to Financial Statements - continued

SEPTEMBER 30, 2018 (UNAUDITED)


AFFILIATE/
CONTROLLED
INVESTMENTS*
  VALUE
AT 12/31/17
  PURCHASES/
MERGER
 

INTEREST

  SALES/
MATURITY/
EXPIRATION
  REALIZED
GAIN
(LOSS)
  CHANGE IN
APPRECIATION/
DEPRECIATION
  VALUE
9/30/18
  SHARES/
PAR VALUE
HELD AT
9/30/18
 
Wrightspeed
Convertible
Note
 

$

   

$

300,000

   

$

2,170

   

$

(300,000

)

 

$

   

$

   

$

     

   
Wrightspeed
Convertible
Note
   

     

150,000

     

247

     

(150,000

)

   

     

     

     

   
Wrightspeed
Promissory
Note
   

     

250,000

     

6,822

     

(250,000

)

   

     

     

     

   
Total
Affiliates and
Controlled
Investments
 

$

134,648,470

           

$

2,328,359

           

$

(11,373,458

)

 

$

72,987,399

   

$

219,928,993

           

Total Affiliates

 

$

24,656,252

           

$

397,118

           

$

(4,915,075

)

 

$

(6,335,435

)

 

$

25,187,934

           
Total
Controlled
Investments
 

$

109,992,218

           

$

1,931,241

           

$

(6,458,383

)

 

$

79,322,834

   

$

194,741,059

           

*  Controlled Investments. 

 

As of September 30, 2018, Kevin Landis represents the Company and sits on the board of directors of Hera Systems, Inc.; IntraOp Medical, Inc.; Pivotal Systems, Inc.; QMAT, Inc.; Revasum, Inc.; Silicon Genesis Corp.; Telepathy Investors, Inc.; Vufine, Inc.; and Wrightspeed, Inc. Serving on boards of directors of portfolio companies may cause conflicts of interest. The Adviser has adopted various procedures to ensure that the Company will not be unfavorably affected by these potential conflicts.

 

NOTE 11. SUBSEQUENT EVENTS

 

Management has evaluated the impact of all subsequent events on the Company through the date that financial statements were issued and has determined that there were no subsequent events requiring recognition or disclosure in the financial statements.

 

On October 24, 2018, the Fund completed the open market share repurchase plan described above in Note 9. Through that date the Fund repurchased 123,376 shares at an average price of $16.21 per share, for total consideration of $2.0 million. As of October 24, 2018, the Fund had 7,178,770 shares outstanding.


41



ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.

 

FORWARD-LOOKING STATEMENTS

 

The matters discussed in this report, as well as in future oral and written statements by management of the Company, include forward-looking statements based on current management expectations that involve substantial risks and uncertainties which could cause actual results to differ materially from the results expressed in, or implied by, these forward-looking statements. Forward-looking statements related to future events or our future financial performance. We generally identify forward-looking statements by terminology such as "may," "will," "should," "expects," "plans," "anticipates," "could," "intends," "target," "projects," "contemplates," "believes," "estimates," "predicts," "potential," or "continue" or the negative of these terms or other similar words. Important assumptions include our ability to originate new investments and to achieve certain margins and levels of profitability and the availability of additional capital. In light of these and other uncertainties, the inclusion of a projection or forward-looking statement in this report should not be regarded as a representation by us that our plans or objectives will be achieved. The forward-looking statements contained in this report include, without limitations, statements as to:

 

•  our future operating results;

•  our business prospects and the prospects of our prospective portfolio companies;

•  the impact of investments that we expect to make;

•  the impact of a protracted decline in the liquidity of the credit markets on our business;

•  our informal relationships with third parties;

•  the expected market for venture capital investments and our addressable market;

•  the dependence of our future success on the general economy and its impact on the industries in which we invest;

•  our ability to access the equity market;

•  the ability of our portfolio companies to achieve their objectives;

•  our expected financings and investments;

•  our regulatory structure and tax status;

•  our ability to operate as a business development company and a regulated investment company;

•  the adequacy of our cash resources and working capital;

•  the timing of cash flows, if any, from the operation of our portfolio companies;

•  the timing, form, and amount of any dividend distributions;

•  impact of fluctuation of interest rates on our business;

•  valuation of any investments in portfolio companies particularly those having no liquid trading market; and

•  our ability to recover unrealized losses.

You should not place undue reliance on these forward-looking statements. The forward-looking statements made in this report relate only to events as of the date on which the statements are made. We undertake no obligation to update any forward-looking statement to reflect events or circumstances occurring after the date of this report.

 

The following discussion should be read in conjunction with our consolidated financial statements and related notes and other financial information appearing elsewhere in this prospectus. In addition to historical information, the following discussion and other parts of this prospectus contain forward-looking information that involves risks and uncertainties. Our actual results could differ materially from those anticipated by such forward-looking information due to the factors discussed under "Risk Factors" and "Forward-Looking Statements" appearing elsewhere herein.

 

OVERVIEW

 

We are an externally managed, closed-end, non-diversified management investment company organized as a Maryland corporation that has elected to be treated as a BDC under the 1940 Act. As such, we are required to comply with certain regulatory requirements. For instance, we generally have to invest at least 70% of our total assets in "qualifying assets," including securities of private or micro-cap public U.S. companies, cash, cash equivalents, U.S. government securities and high-quality debt investments that mature in one year or less. In addition, for tax purposes we are treated as a corporation and are subject to federal and state taxes on our income. FCM serves as our investment adviser and manages the investment process on a daily basis.


42



Our investment objective is to seek long-term growth of capital, principally by seeking capital gains on our equity and equity-related investments. There can be no assurance that we will achieve our investment objective. Under normal circumstances, we invest at least 80% of our net assets for investment purposes in technology companies. We consider technology companies to be those companies that derive at least 50% of their revenues from products and/or services within the information technology sector or in the "cleantech" sector. Information technology companies include, but are not limited to, those focused on computer hardware, software, telecommunications, networking, Internet, and consumer electronics. While there is no standard definition of cleantech, it is generally regarded as including goods and services designed to harness renewable energy and materials, eliminate emissions and waste, and reduce the use of natural resources. In addition, under normal circumstances we invest at least 70% of our total assets in privately held companies and public companies with market capitalizations of less than $250 million. Our portfolio is primarily composed of equity and equity derivative securities of technology and cleantech companies (as defined above). These investments generally range between $1 million and $10 million each, although the investment size will vary proportionately with the size of our capital base. We acquire our investments through direct investments in private companies, negotiations with selling shareholders, and in organized secondary marketplaces for private securities.

 

While our primary focus is to invest in illiquid private technology and cleantech companies, we also may invest in micro-cap publicly traded companies. In addition, we may invest up to 30 percent of the portfolio in opportunistic investments that do not constitute the private companies and micro-cap public companies described above. These other investments may include investments in securities of public companies that are actively traded or in actively traded derivative securities such as options on securities or security indices. These other investments may also include investments in high-yield bonds, distressed debt, or securities of public companies that are actively traded and securities of companies located outside of the United States. Our investment activities are managed by FCM.

 

PORTFOLIO COMPOSITION

 

We make investments in securities of both public and private companies. Our portfolio investments consist principally of equity and equity-like securities, including common and preferred stock, warrants for the purchase of common and preferred stock, and convertible and term notes. The fair value of our investment portfolio was approximately $243.0 million as of September 30, 2018, as compared to approximately $174.8 million as of December 31, 2017.

 

The following table summarizes the fair value of our investment portfolio by industry sector as of September 30, 2018, and December 31, 2017.

 

   

September 30, 2018

 

December 31, 2017

 

Semiconductor Equipment

   

64.9

%

   

29.6

%

 

Medical Devices

   

14.3

%

   

12.1

%

 

Advanced Materials

   

7.4

%

   

13.9

%

 

Networking

   

1.2

%

   

9.3

%

 

Consumer Electronics

   

10.0

%

   

8.4

%

 

Mobile Computing

   

5.1

%

   

6.9

%

 

Automotive

   

4.4

%

   

6.2

%

 

Intellectual Property

   

1.9

%

   

3.5

%

 

Equipment Leasing

   

1.5

%

   

2.3

%

 

Aerospace

   

3.2

%

   

1.2

%

 

Semiconductor

   

0.6

%

   

1.2

%

 

Cloud Computing

   

0.0

%

   

4.9

%

 

Water Purification

   

0.0

%

   

0.0

%

 

Exchange-Traded/Money Market Funds

   

0.0

%

   

1.0

%

 

(Liabilities)/Other Assets

   

(14.5

%)

   

(0.5

%)

 

Net Assets

   

100.0

%

   

100.0

%

 


43



MATURITY OF PRIVATE COMPANIES IN THE CURRENT PORTFOLIO

 

The Fund invests in private companies at various stages of maturity. As our portfolio companies mature, they move from the "early (development) stage" to the "middle (revenue) stage" and then to the "late stage." We expect that this continuous progression may create a pipeline of potential exit opportunities through initial public offerings (IPOs) or acquisitions. Of course, some companies do not progress.

 

The illustration below describes typical characteristics of companies at each stage of maturity and where we believe our current portfolio companies fit within these categories. We expect some of our portfolio companies to transition between stages of maturity over time. The transition may be forward if the company is maturing and is successfully executing its business plan or may be backward if the company is not successfully executing its business plan or decides to change its business plan substantially from its original plan.

 

EARLY STAGE
Developing product or service for market, high level of research and development, little or no revenue.
  MIDDLE STAGE
Established product, customers, business model; limited revenues.
  LATE STAGE
Appreciable revenue; may be break-even or profitable; IPO or acquisition candidate.
 

 

 

 

 

 

 

 

 

 
 

         

 

                 

 

                 

 

                 

 

                 
                 


44



RESULTS OF OPERATIONS

 

Comparison of the three months ended September 30, 2018 to the three months ended September 30, 2017.

 

INVESTMENT INCOME

 

For the three months ended September 30, 2018, we had investment income of $975,350 primarily attributable to interest accrued on convertible/term note investments with Telepathy Investors, IntraOp Medical, Revasum, Hera, Vufine, Wrightspeed and QMAT.

 

For the three months ended September 30, 2017, we had investment income of $433,367 primarily attributable to interest accrued on convertible/term note investments with Telepathy Investors, IntraOp Medical, Revasum and QMAT.

 

The higher level of interest income in the three months ended September 30, 2018 compared to the three months ended September 30, 2017 was due to increased investments in convertible notes, particularly IntraOp, QMAT, Wrightspeed, Hera, Vufine and Revasum.

 

OPERATING EXPENSES

 

Net operating expenses totaled approximately $11,054,177 during the three months ended September 30, 2018 and $1,076,922 during the three months ended September 30, 2017.

Significant components of net operating expenses for the three months ended September 30, 2018, were management fee expense of $1,124,398, incentive fees (which were accrued but are not payable until gains in the portfolio are realized) of $9,633,974 and professional fees (audit, legal, accounting, and consulting) of $94,916. Significant components of net operating expenses for the three months ended September 30, 2017, were management fee expense of $707,865 and professional fees (audit, legal, accounting, and consulting) of $128,954.

 

The higher level of net operating expenses for the three months ended September 30, 2018, compared to the three months ended September 30, 2017, is primarily attributable to two factors: (1) the incentive fee accrual in the three months ended September 30, 2018, which is a quarterly accrual based on what the incentive fee would be if the entire portfolio were liquidated at fair market value, and (2) an increase in our total net assets, on which the investment advisory fees are based.

 

NET INVESTMENT LOSS

 

Net investment loss before taxes was $10,078,827 for the three months ended September 30, 2018 versus a net investment loss of $643,555 for the three months ended September 30, 2017.

 

The greater net investment loss before taxes in the three months ended September 30, 2018, compared to the three months ended September 30, 2017, is primarily attributable to two factors: (1) the incentive fee accrual in the three months ended September 30, 2018, which is a quarterly accrual based on what the incentive fee would be if the entire portfolio were liquidated at fair market value, and (2) an increase in our total net assets, on which the investment advisory fees are based.

 

NET INVESTMENT REALIZED GAINS AND LOSSES AND UNREALIZED APPRECIATION AND DEPRECIATION

 

A summary of the net realized and unrealized gains and losses on investments for the three-month period ended September 30, 2018, and September 30, 2017, is shown below.

 

    Three Months Ended
September 30, 2018
 

Realized losses

 

$

(12,107,728

)

 

Net change in unrealized appreciation on investments

   

60,459,559

   

Deferred tax

   

(10,153,906

)

 

Net realized and unrealized losses on investments, net of deferred taxes

 

$

38,197,925

   
   

As of September 30, 2018

 

Gross unrealized appreciation on portfolio investments

 

$

130,571,132

   

Gross unrealized depreciation on portfolio investments

   

(47,716,331

)

 

Net unrealized depreciation on portfolio investments

 

$

82,854,801

   


45



    Three Months Ended
September 30, 2017
 

Realized gains

 

$

207,196

   

Net change in unrealized depreciation on investments

   

(23,555

)

 

Net realized and unrealized gains on investments

 

$

183,641

   
   

As of September 30, 2017

 

Gross unrealized appreciation on portfolio investments

 

$

23,926,315

   

Gross unrealized depreciation on portfolio investments

   

(59,521,451

)

 

Net unrealized depreciation on portfolio investments

 

$

(35,595,136

)

 

During the three months ended September 30, 2018, we recognized net realized losses of approximately $12,107,728. Realized losses were higher than those in the year-ago period primarily due to the write-off of our investment in Aliphcom and the transfer of securities from our controlled foreign corporations (CFCs) to the Fund. 

 

During the three months ended September 30, 2018, net unrealized appreciation on total investments increased by $60,459,559. The change in net unrealized appreciation and depreciation of our private investments is based on portfolio asset valuations determined in good faith by our Board of Directors. This change in net unrealized appreciation was primarily caused by an increase in the valuations of our Pivotal Systems and Revasum investments.

 

During the three months ended September 30, 2017, we recognized net realized gains of approximately $207,196 with the release of escrowed proceeds from the previous sale of our Turn investment.

 

During the three months ended September 30, 2017, net unrealized depreciation on total investments increased by $23,555. The change in net unrealized appreciation and depreciation of our private investments is based on portfolio asset valuations determined in good faith by our Board of Directors.

 

INCOME AND EXCISE 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 the quarter ended June 30, 2018, we will record a deferred tax liability for any net realized gains and net ordinary income for the year-to-date period plus net unrealized gains as of the end of the quarter. For the three months ending September 30, 2018, we have booked a deferred tax expense of $11,565,319. For the three months ended September 30, 2017, we qualified as a RIC and, therefore, made no provision for income taxes.

 

NET INCREASE/(DECREASE) IN ASSETS RESULTING FROM OPERATIONS AND CHANGE IN NET ASSETS PER SHARE

 

For the three months ended September 30, 2018, the net increase in net assets resulting from operations (net of deferred taxes) totaled $26,707,685 and the basic and fully diluted net change in net assets per share for the three months ended September 30, 2018 was $3.68.

 

For the three months ended September 30, 2017, the net decrease in net assets resulting from operations totaled $459,914 and the basic and fully diluted net change in net assets per share for the three months ended September 30, 2017 was ($0.07).

 

The greater increase in net assets resulting from operations for the three months ended September 30, 2018, as compared to the three months ended September 30, 2017, is due primarily to an increase in the valuation of certain of our investments, particularly Pivotal Systems and Revasum.


46



Comparison of the nine months ended September 30, 2018 to the nine months ended September 30, 2017.

 

INVESTMENT INCOME

 

For the nine months ended September 30, 2018, we had investment income of $2,354,260 primarily attributable to interest accrued on convertible/term note investments with Telepathy Investors, IntraOp Medical, Revasum, Hera, Vufine, Wrightspeed and QMAT.

 

For the nine months ended September 30, 2017, we had investment income of $1,043,461 primarily attributable to interest accrued on convertible/term note investments with Telepathy Investors, IntraOp Medical, Revasum and QMAT.

 

The higher level of interest income in the nine months ended September 30, 2018 compared to the nine months ended September 30, 2017 was due to increased investments in convertible notes, particularly with IntraOp, QMAT, Wrightspeed, Hera, Vufine and Revasum.

 

OPERATING EXPENSES

 

Net operating expenses totaled approximately $18,665,062 during the nine months ended September 30, 2018 and $3,099,817 during the nine months ended September 30, 2017.

 

Significant components of net operating expenses for the nine months ended September 30, 2018, were management fee expense of $2,972,059, incentive fees (which were accrued but are not payable until gains in the portfolio are realized) of $14,808,766 and professional fees (audit, legal, accounting, and consulting) of $288,557. Significant components of net operating expenses for the nine months ended September 30, 2017, were management fee expense of $2,175,267, and professional fees (audit, legal, accounting, and consulting) of $374,257.

 

The higher level of net operating expenses for the nine months ended September 30, 2018, compared to the nine months ended September 30, 2017, is primarily attributable to two factors: (1) the incentive fee accrual in the nine months ended September 30, 2018, which is a quarterly accrual based on what the incentive fee would be if the entire portfolio were liquidated at fair market value, and (2) an increase in our total net assets, on which the investment advisory fees are based.

 

NET INVESTMENT LOSS

 

Net investment loss before taxes was $16,310,802 for the nine months ended September 30, 2018 and $2,056,356 for the nine months ended September 30, 2017.

 

The greater net investment loss in the nine months ended September 30, 2018, compared to the nine months ended September 30, 2017, is primarily attributable to two factors: (1) the incentive fee accrual in the nine months ended September 30, 2018, which is a quarterly accrual based on what the incentive fee would be if the entire portfolio were liquidated at fair market value, and (2) an increase in our total net assets, on which the investment advisory fees are based.

 

NET INVESTMENT REALIZED GAINS AND LOSSES AND UNREALIZED APPRECIATION AND DEPRECIATION

 

A summary of the gross and net realized and unrealized gains and losses on investments for the nine-month periods ended September 30, 2018, and September 30, 2017, is shown below.

 

    Nine Months Ended
September 30, 2018
 

Realized losses

 

$

(11,234,818

)

 

Net change in unrealized appreciation on investments

   

82,955,135

   

Deferred tax expense

   

(17,097,124

)

 

Net realized and unrealized gains on investments

 

$

54,623,193

   
   

As of September 30, 2018

 

Gross unrealized appreciation on portfolio investments

 

$

130,571,132

   

Gross unrealized depreciation on portfolio investments

   

(47,716,331

)

 

Net unrealized appreciation on portfolio investments

 

$

82,854,801

   


47



    Nine Months Ended
September 30, 2017
 

Realized gains

 

$

767,988

   

Net change in unrealized depreciation on investments

   

(8,338,836

)

 

Net realized and unrealized losses on investments

 

$

(7,570,848

)

 
   

As of September 30, 2017

 

Gross unrealized appreciation on portfolio investments

 

$

23,926,315

   

Gross unrealized depreciation on portfolio investments

   

(59,521,451

)

 

Net unrealized depreciation on portfolio investments

 

$

(35,595,136

)

 

During the nine months ended September 30, 2018, we recognized net realized losses of approximately $11,234,818 from the sale/transfer of securities. During the nine months ended September 30, 2017, we recognized net realized gains of approximately $767,988 from the sale/transfer of securities. Realized losses were more than those during the nine months ended September 30, 2017 due to the losses realized on the write-off of our investment in Aliphcom and the transfer of securities from our controlled foreign corporations (CFCs) to the Fund. 

 

During the nine months ended September 30, 2018, net unrealized appreciation on total investments increased by $82,955,135 compared to an increase of $8,338,836 in unrealized depreciation on the total investments during the nine months ended September 30, 2017. The change in net unrealized appreciation and depreciation of our private investments is based on portfolio asset valuations determined in good faith by our Board of Directors. This change in net unrealized appreciation was primarily caused by an increase in the valuations of our Pivotal Systems and Revasum investments.

 

INCOME AND EXCISE 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 the quarter ended June 30, 2018, we will record a deferred tax liability for any net realized gains and net ordinary income for the year-to-date period plus net unrealized gains as of the end of the quarter. For the nine months ending September 30, 2018, we have booked a deferred tax liability of $16,648,916. For the nine months ended September 30, 2017, we qualified as a RIC and, therefore, made no provision for income taxes.

 

NET INCREASE/(DECREASE) IN ASSETS RESULTING FROM OPERATIONS AND CHANGE IN NET ASSETS PER SHARE

 

For the nine months ended September 30, 2018, the net increase in net assets resulting from operations (net of deferred taxes) totaled $38,760,599 and for the nine months ended September 30, 2017, the net decrease in net assets resulting from operations totaled $9,627,204. The basic and fully diluted net change in net assets per share for the nine months ended September 30, 2018 was $5.33 and the basic and fully diluted net change in net assets per share for the nine months ended September 30, 2017 was ($1.30). The greater increase in net assets resulting from operations for the nine months ended September 30, 2018, as compared to the nine months ended September 30, 2017, is due primarily to an increase in the valuation of certain of our investments, primarily Pivotal Systems and Revasum.

 

DISTRIBUTION POLICY

 

Our board of directors will determine the timing and amount, if any, of our distributions. We are not required to pay any minimum level of distributions of our income or capital gains.

 

CONTRACTUAL OBLIGATIONS

 

The Fund does not have any Contractual Obligations that meet the requirements for disclosure under Item 303 of Regulation S-K.


48



OFF-BALANCE SHEET ARRANGEMENTS

 

The Fund does not have any Off-Balance Sheet Arrangements.

 

CRITICAL ACCOUNTING POLICIES

 

This discussion of our financial condition and results of operations is based upon our financial statements, which are prepared in accordance with accounting principles generally accepted in the United States of America, or GAAP. The preparation of these financial statements will require management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, and expenses. Changes in the economic environment, financial markets, and any other parameters used in determining such estimates could cause actual results to differ. In addition to the discussion below, we will describe our critical accounting policies in the notes to our future financial statements.

 

Valuation of Portfolio Investments

 

As a business development company, we generally invest in illiquid equity and equity derivatives of securities of venture capital stage technology companies. Under written procedures established by our board of directors, securities traded on stock exchanges, or quoted by NASDAQ, are valued according to the NASDAQ Stock Market, Inc. ("NASDAQ") official closing price, if applicable, or at their last reported sale price as of the close of trading on the New York Stock Exchange ("NYSE") (normally 4:00 P.M. Eastern Time). If a security is not traded that day, the security will be valued at its most recent bid price. Securities traded in the over-the-counter market, but not quoted by NASDAQ, are valued at the last sale price (or, if the last sale price is not readily available, at the most recent closing bid price as quoted by brokers that make markets in the securities) at the close of trading on the NYSE. Securities traded both in the over-the-counter market and on a stock exchange are valued according to the broadest and most representative market. We obtain these market values from an independent pricing service or at the mean between the bid and ask prices obtained from at least two brokers or dealers (if available, otherwise by a principal market maker or a primary market dealer). In addition, a large percentage of our portfolio investments are in the form of securities that are not publicly traded. The fair value of securities and other investments that are not publicly traded may not be readily determinable. We value these securities quarterly at fair value as determined in good faith by our board of directors. Our board of directors may use the services of a nationally recognized independent valuation firm to aid it in determining the fair value of these securities. The methods for valuing these securities may include: fundamental analysis (sales, income, or earnings multiples, etc.), discounts from market prices of similar securities, purchase price of securities, subsequent private transactions in the security or related securities, or discounts applied to the nature and duration of restrictions on the disposition of the securities, as well as a combination of these and other factors. Because such valuations, and particularly valuations of private securities and private companies, are inherently uncertain, may fluctuate over short periods of time, and may be based on estimates, our determinations of fair value may differ materially from the values that would have been used if a ready market for these securities existed. Our net asset value could be adversely affected if our determinations regarding the fair value of our investments were materially higher than the values that we ultimately realize upon the disposal of such securities.

 

Revenue Recognition

 

We record interest or dividend income on an accrual basis to the extent that we expect to collect such amounts. We do not accrue as a receivable interest on loans and debt securities if we have reason to doubt our ability to collect such interest. Loan origination fees, original issue discount, and market discount are capitalized, and we amortize any such amounts as interest income. Upon the prepayment of a loan or debt security, any unamortized loan origination is recorded as interest income. We will record prepayment premiums on loans and debt securities as interest income when we receive such amounts.

 

Net Realized Gains or Losses and Net Change in Unrealized Appreciation or Depreciation

 

We measure realized gains or losses by the difference between the net proceeds from the repayment or sale and the cost basis of the investment, without regard to unrealized appreciation or depreciation previously recognized. Net change in unrealized appreciation or depreciation reflects the change in portfolio investment values during the reporting period, including any reversal of previously recorded unrealized appreciation or depreciation, when gains or losses are realized.

Recently Issued Accounting Standards

 

From time to time, new accounting pronouncements are issued by the FASB or other standards setting bodies that are adopted by us as of the specified effective date. We believe that the impact of recently issued standards that are not yet effective will not have a material impact on our financial statements upon effectiveness.


49



Inflation

 

Inflation has not had a significant effect on our results of operations in any of the reporting periods presented herein. However, our portfolio companies have experienced, and may in the future experience, the impacts of inflation on their operating results.

 

SUBSEQUENT EVENTS

 

Subsequent to the close of the fiscal quarter on September 30, 2018, and through the date of the issuance of the financial statements included herein, a number of events related to our portfolio of investments occurred, consisting primarily of purchases and sales of securities. Since that date, we have purchased private securities with an aggregate cost of approximately $950 thousand. We have also sold public securities with an aggregate value of approximately $2.5 million.

 

On October 24, 2018, the Fund completed the open market share repurchase plan described above in Note 9 of the Consolidated Notes to Financial Statements. Through that date the Fund repurchased 123,376 shares at an average price of $16.21 per share, for total consideration of $2.0 million. As of October 24, 2018, the Fund had 7,178,770 shares outstanding.

 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

 

The Company's business activities contain elements of risk. We consider the principal types of market risk to be valuation risk and small company investment risk.

 

VALUATION RISK

 

Value, as defined in Section 2(a)(41) of the 1940 Act, is (i) the market price for those securities for which market quotations are readily available and (ii) fair value as determined in good faith by, or under the direction of, the Board of Directors for all other assets.

 

Because there is typically no public market for our interests in the small privately-held companies in which we invest, the valuation of the securities in that portion of our portfolio is determined in good faith by our Board of Directors with the assistance of our Valuation Committee, comprised of the independent members of our Board of Directors, in accordance with our Valuation Procedures. In addition, the Board of Directors may use the services of a nationally recognized independent valuation firm to aid it in determining the fair value of some of these securities. In the absence of a readily ascertainable market value, the determined value of our portfolio of securities may differ significantly from the values that would be placed on the portfolio if a ready market for such securities existed. Determining fair value requires that judgment be applied to the specific facts and circumstances of each portfolio investment, although our valuation policy is intended to provide a consistent basis for determining fair value of the portfolio investments. The methods for valuing these securities may include: fundamental analysis (sales, income, or earnings multiples, etc.), discounts from market prices of similar securities, purchase price of securities, subsequent private transactions in the security or related securities, or discounts applied to the nature and duration of restrictions on the disposition of the securities, as well as a combination of these and other factors. Because such valuations, and particularly valuations of private securities and private companies, are inherently uncertain, may fluctuate over short periods of time, and may be based on estimates, our determinations of fair value may differ materially from the values that would have been used if a ready market for these securities existed.

 

Furthermore, changes in valuation of any of our investments in privately-held companies from one period to another may be volatile.

 

Investments in privately held, immature companies are inherently more volatile than investments in more mature businesses. Such immature businesses are inherently fragile and easily affected by both internal and external forces.

 

Our portfolio companies can lose much or all of their value suddenly in response to an internal or external adverse event. Conversely, these immature businesses can gain suddenly in value in response to an internal or external positive development.

 

The values assigned to our assets are based on available information and do not necessarily represent amounts that might ultimately be realized, as these amounts depend on future circumstances and cannot be reasonably determined until the individual investments are actually liquidated or become readily marketable. Upon sale of investments, the values that are ultimately realized may be different from what is presently estimated. This difference could be material.


50



PRIVATELY PLACED SMALL COMPANIES RISK

 

The Company invests in small companies, and its investments in these companies are considered speculative in nature. The Company's investments often include securities that are subject to legal or contractual restrictions on resale that adversely affect the liquidity and marketability of such securities. As a result, the Company is subject to risk of loss which may prevent our shareholders from achieving price appreciation, dividend distributions and return of capital.

 

WE CURRENTLY HOLD A PORTION OF OUR ASSETS IN CASH

 

As of September 30, 2018, a portion of the Company's assets was invested in cash and/or cash equivalents, which are expected to earn low yields. Given the current low interest rate environment, to the extent the management fee and other operating expenses exceed interest income on the cash holdings of the Company, the Company may experience losses. Furthermore, the investment advisory fee payable by us will not be reduced while our assets are invested in cash-equivalent securities.

 

In some cases, particularly for primary transactions, it is to our advantage to hold sufficient cash reserve so that we can make additional subsequent investments in these companies in order to (a) avoid having our earlier investments become diluted in future dilutive financings, (b) invest additional capital into existing portfolio companies in case additional investments are necessary, and/or (c) exercise warrants, options, or convertible securities that were acquired as part of the earlier transactions. For this reason, in the case of primary transactions (as opposed to secondary transactions where we do not buy the securities from the issuing companies but instead from existing stockholders), we typically reserve cash in an amount at least equal to our initial investment for such follow-on opportunities. Cash reserves held with respect to a particular investment should, therefore, decline as it is held longer, and will typically not be needed once that portfolio company becomes public or we determine it is no longer in our best interest to make investments in such portfolio company.

 

We may from time to time liquidate various investments. We are required to distribute substantially all of our net realized gains to stockholders on an annual basis and, therefore, will generally hold the proceeds of liquidated investments in cash pending its distribution.

 

ITEM 4. CONTROLS AND PROCEDURES.

(a) Evaluation of Disclosure Controls and Procedures

 

As of the end of the period covered by this Quarterly Report on Form 10-Q, our management, with the participation of our Chief Executive Officer and Chief Financial Officer, conducted an evaluation of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (the "Exchange Act")). Based upon this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective and provided reasonable assurance that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the Securities and Exchange Commission's rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.

 

(b) Changes in Internal Control Over Financial Reporting

 

There have been no changes in our internal control over financial reporting, as defined in Rule 13a-15(f) under the Exchange Act, that occurred during the fiscal quarter ended September 30, 2018, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 


51



PART II. OTHER INFORMATION


52



ITEM 1. LEGAL PROCEEDINGS.

We are not a party to any material pending legal proceeding, and no such proceedings are known to be contemplated.

ITEM 1A. RISK FACTORS.

There have been no material changes from risk factors as previously disclosed in our Form 10-K for the period ended September 30, 2018, in response to Item 1A of Part 1 of Form 10-K.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

None.

ITEM 4. MINE SAFETY DISCLOSURES.

None.

ITEM 5. OTHER INFORMATION.

None.

ITEM 6. EXHIBITS.

EXHIBIT NUMBER

 

DESCRIPTION

 

31.1

 

Chief Executive Officer Certification Pursuant to Rule 13a-14 of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

 

31.2

 

Chief Financial Officer Certification Pursuant to Rule 13a-14 of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

 

32.

 

Chief Executive Officer and Chief Financial Officer Certification Pursuant to Section 1350, Chapter 63 of Title 18, United States Code, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

 


53



SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

FIRSTHAND TECHNOLOGY VALUE FUND, INC.

Date: November 9, 2018

By:

Kevin Landis
Chief Executive Officer

 

Date: November 9, 2018

By:

Omar Billawala
Chief Financial Officer

EXHIBIT INDEX

EXHIBIT NUMBER

 

DESCRIPTION

 

31.1

 

Chief Executive Officer Certification Pursuant to Rule 13a-14 of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

 

31.2

 

Chief Financial Officer Certification Pursuant to Rule 13a-14 of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

 

32.

 

Chief Executive Officer and Chief Financial Officer Certification Pursuant to Section 1350, Chapter 63 of Title 18, United States Code, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

 


54