10-Q 1 fp0042063_10q.htm fp0040816

 

 

 

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 March 31, 2019 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

 

[  ] Non-accelerated Filer
(Do not check if smaller reporting company)

[X] Accelerated Filer

 

[  ] 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 April 30, 2019

Common Stock, $0.001 par value per share

7,276,036

 

 

 

 

 

TABLE OF CONTENTS

 

PART I. FINANCIAL INFORMATION

2

     

Item 1.

Financial Statements

2

 

Consolidated Statements of Assets and Liabilities as of March 31, 2019 (Unaudited) and December 31, 2018

3

 

Consolidated Statements of Operations (Unaudited) for the Three Months Ended March 31, 2019 and March 31, 2018

4

 

Consolidated Statements of Cash Flows (Unaudited) for the Three Months Ended March 31, 2019 and the Three Months Ended March 31, 2018

5

 

Consolidated Statements of Changes in Net Assets (Unaudited) for the Three Months Ended March 31, 2019 and the Three Months Ended March 31, 2018

6

 

Selected Per Share Data and Ratios for the Three Months Ended March 31, 2019
(Unaudited) (Consolidated), for the Year Ended December 31, 2018 (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), and for the Year Ended December 31, 2014

7

 

Consolidated Schedule of Investments as of March 31, 2019 (Unaudited) and for the Year Ended December 31, 2018

9

 

Consolidated Notes To Financial Statements (Unaudited)

22

Item 2.

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

42

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

49

Item 4.

Controls and Procedures

50

     

PART II. OTHER INFORMATION

51

     

Item 1.

Legal Proceedings

52

Item 1A.

Risk Factors

52

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

52

Item 3.

Defaults Upon Senior Securities

52

Item 4.

Mine Safety Disclosures

52

Item 5.

Other Information

52

Item 6.

Exhibits

52

     

SIGNATURES

53

 

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
MARCH 31, 2019
(UNAUDITED)

   

AS OF
DECEMBER 31, 2018

 

ASSETS

               

Investment securities:

               

Unaffiliated investments at acquisition cost

  $ 3,434,935  *   $ 3,961,467  *

Affiliated investments at acquisition cost

    32,652,275       31,002,275  

Controlled investments at acquisition cost

    132,275,952       132,313,596  

Total acquisition cost

  $ 168,363,162     $ 167,277,338  

Unaffiliated investments at market value

  $ 3,966,679  *   $ 5,696,042  *

Affiliated investments at market value

    35,261,910       34,045,111  

Controlled investments at market value

    162,297,885       170,112,417  

Total market value ** (Note 6)

    201,526,474       209,853,570  

Cash

    20,382        

Receivable for securities sold

    2,974,185       1,005  

Receivable from dividends and interest

    3,035,392       2,308,366  

Other assets

    36,809       18,713  

Total Assets

    207,593,242       212,181,654  

LIABILITIES

               

Payable for securities purchased

    365,783       365,783  

Incentive fees payable (Note 4)

    8,185,187       9,261,847  

Payable to affiliates (Note 4)

    3,397,272       2,334,727  

Deferred tax benefit

    6,592,606       8,432,559  

Consulting fee payable

    39,000       19,500  

Accrued expenses and other payables

    232,536       149,279  

Total Liabilities

    18,812,384       20,563,695  

NET ASSETS

  $ 188,780,858     $ 191,617,959  
                 

Net Assets consist of:

               

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

  $ 7,179     $ 7,179  

Paid-in-capital

    178,770,434       178,770,434  

Total distributable earnings (loss)

    10,003,245       12,840,346  

NET ASSETS

  $ 188,780,858     $ 191,617,959  
                 

Shares of Common Stock outstanding

    7,302,146       7,302,146  

Shares of Treasury Stock outstanding

    (123,376 )     (123,376 )

Total Shares of Common Stock outstanding

    7,178,770       7,178,770  

Net asset value per share (Note 2)

  $ 26.30     $ 26.69  

 

*

Includes Fidelity Investment Money Market Treasury Portfolio - Class I, which invests primarily in U.S. Treasury securities. The yields as of 03/31/19 and 12/31/18 were 2.32% and 2.24%, respectively. Please see https://fundresearch.fidelity.com/ mutual-funds/summary/316175504 for additional information.

 

**

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

 
   

MARCH 31, 2019

   

MARCH 31, 2018

 

INVESTMENT INCOME

               

Unaffiliated interest

  $ 4,571     $ 28,711  

Affiliated/controlled interest

    810,321       568,804  

TOTAL INVESTMENT INCOME

    814,892       597,515  

EXPENSES

               

Investment advisory fees (Note 4)

    1,033,258       890,949  

Administration fees

    35,125       54,296  

Custody fees

    3,879       4,391  

Transfer agent fees

    8,565       8,323  

Registration and filing fees

    7,570       7,545  

Professional fees

    82,820       88,468  

Printing fees

    17,095       15,122  

Trustees fees

    50,000       50,000  

Compliance fees

    29,288       27,848  

Miscellaneous fees

    19,408       22,876  

TOTAL GROSS EXPENSES

    1,287,008       1,169,818  

Incentive fee adjustments (Note 4)

    (1,076,660 )     2,174,600  

TOTAL NET EXPENSES

    210,348       3,344,418  

NET INVESTMENT GAIN/(LOSS), BEFORE TAXES

    604,544       (2,746,903 )

Deferred tax benefit

    98,506        

Net investment gain (loss), net of deferred taxes

    703,050       (2,746,903 )

Net Realized and Unrealized Gain (Loss) on Investments:

               

Net realized gains/(losses) from security transactions on:

               

Affiliated/Controlled

    390,537       (1,399,496 )

Non-affiliated/controlled and other assets

    3,740,785       (3,381,739 )

Deferred tax expense

    (999,076 )      

Net realized gains (losses), net of deferred taxes

    3,132,246       (4,781,235 )

Net change in unrealized appreciation (depreciation) on:

               

Non-affiliated investments

    (1,202,831 )     2,019,406  

Affiliated/controlled investments and foreign currency

    (10,854,614 )     6,666,847  

Affiliated/controlled warrants investments (1)

    2,644,525       4,411,302  

Deferred tax benefit

    2,740,523        

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

    (6,672,397 )     13,097,555  

Net Realized and Unrealized Gain (Loss) on Investments, Net of Deferred Taxes

    (3,540,151 )     8,316,320  

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

  $ (2,837,101 )   $ 5,569,417  

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

  $ (0.40 )   $ 0.76  

 

(1)

Primary exposure is equity risk.

 

(2)

Per share results are calculated based on weighted average shares outstanding for each period.

 

See accompanying notes to financial statements

4

 

 

Firsthand Technology Value Fund, Inc.

 

Consolidated Statements of Cash Flows (Unaudited)

 

   

FOR THE
THREE MONTHS ENDED
MARCH 31, 2019

   

FOR THE
THREE MONTHS ENDED
MARCH 31, 2018

 

CASH FLOWS FROM OPERATING ACTIVITIES

               

Net increase (decrease) in Net Assets resulting from operations

  $ (2,837,101 )   $ 5,569,417  

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

               

Purchases of investments

    (1,600,000 )     (23,486,160 )

Proceeds from disposition of investments

    8,051,115       31,038,824  

Net purchases / sales from short-term investments

    (3,405,617 )     (6,675,435 )

Increase in dividends, interest, and reclaims receivable

    (727,026 )     (421,072 )

Increase in receivable in investment sold

    (2,973,180 )      

Increase (decrease) in payable for investment purchased

           

Increase in payable to affiliates

    1,062,545       36,519  

Increase (decrease) in incentive fees payable

    (1,076,660 )     2,174,600  

Increase (decrease) in other assets

    (18,096 )     (15,527 )

Increase (decrease) in accrued expenses and other payables

    102,757       5,454  

Increase (decrease) in deferred tax benefit

    (1,839,953 )      

Net realized gain (loss) from investments

    (4,131,322 )     4,781,235  

Net realized gain from written options

           

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

    9,412,920       (13,097,555 )

Net cash (used in) operating activities

    20,382       (89,700 )
                 

CASH FLOWS FROM FINANCING ACTIVITIES

               

Cost of shares repurchased

           

Distributions paid from net realized gains

           

Net cash (used in) financing activities

           
                 

Net increase (decrease) in cash

    20,382       (89,700 )

Cash - beginning of period

          110,077  

Cash - end of period

  $ 20,382     $ 20,377  

 

 

See accompanying notes to financial statements

5

 

 

Firsthand Technology Value Fund, Inc.

 

Consolidated Statements of Changes in Net Assets (Unaudited)

 

   

FOR THE
THREE MONTHS ENDED
MARCH 31, 2019

   

FOR THE
THREE MONTHS ENDED
MARCH 31, 2018

 

FROM OPERATIONS:

               

Net investment gain (loss), net of deferred taxes

  $ 703,050     $ (2,746,903 )

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

    3,132,246       (4,781,235 )

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

    (6,672,397 )     13,097,555  

Net increase (decrease) in net assets from operations

    (2,837,101 )     5,569,417  
                 

DISTRIBUTIONS TO SHAREHOLDERS:

           
                 

TOTAL INCREASE/(DECREASE) IN NET ASSETS

    (2,837,101 )     5,569,417  
                 

NET ASSETS:

               

Beginning of period

    191,617,959       173,993,589  

End of period

  $ 188,780,858     $ 179,563,006  
                 

COMMON STOCK ACTIVITY:

               

Shares repurchased

           

Net decrease in shares outstanding

           

Shares outstanding, beginning of period

    7,178,770       7,302,146  

Shares outstanding, end of period

    7,178,770       7,302,146  

 

See accompanying notes to financial statements

6

 

 

Firsthand Technology Value Fund, Inc.

 

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

 

   

FOR THE
THREE MONTHS
ENDED
MARCH 31,
2019*
(UNAUDITED)

   

FOR THE
YEAR ENDED
DECEMBER 31,
2018*

   

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

 

Net asset value at beginning of period

  $ 26.69     $ 23.83     $ 20.04     $ 22.79     $ 24.49     $ 28.32  

Income from investment operations:

                                               

Net investment income (loss), before deferred taxes

    0.08  (1)     (1.29 )(1)     (0.62 )     (0.52 )     (0.06 )(1)     (1.26 )

Deferred tax benefit

    0.02       0.07                          

Net investment income (loss)

    0.10       (1.22 )     (0.62 )     (0.52 )     (0.06 )     (1.26 )

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

    (0.73 )     5.13       4.21       (2.76 )     (1.78 )     3.04  

Deferred tax expense

    0.24       (1.23 )                        

Net realized and unrealized gains (losses) on investments

    (0.49 )     3.90       4.21       (2.76 )     (1.78 )     3.04  

Total from investment operations

    (0.39 )     2.68       3.59       (3.28 )     (1.84 )     1.78  
                                                 

Distributions from:

                                               

Realized capital gains

          (0.03 )                       (5.86 )

Anti-dilutive effect from capital share transactions

          0.21       0.20       0.53       0.14       0.25  

Net asset value at end of period

  $ 26.30     $ 26.69     $ 23.83     $ 20.04     $ 22.79     $ 24.49  
                                                 

Market value at end of period

  $ 13.27     $ 11.20     $ 8.96     $ 7.67     $ 8.17     $ 18.65  
                                                 

Total return

                                               

Based on Net Asset Value

    (2.32 )%(A)     12.39 %     18.91 %     (12.07 )%     (6.94 )%     12.54 %

Based on Market Value

    18.48 %(A)     25.43 %     16.82 %     (6.12 )%     (56.19 )%     4.76 %

Net assets at end of period (millions)

  $ 188.8     $ 191.6     $ 174.0     $ 148.9     $ 175.6     $ 209.7  

 

See accompanying notes to financial statements

7

 

 

Firsthand Technology Value Fund, Inc.

 

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

 

   

FOR THE
THREE MONTHS
ENDED
MARCH 31,
2019*
(UNAUDITED)

   

FOR THE
YEAR ENDED
DECEMBER 31,
2018*

   

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

 

Ratio of total expenses to average net assets:

                                               

Before tax benefit

    0.45 %(B)(2)     6.75 %(2)     4.13 %(2)     2.90 %     1.36 %(2)     5.29 %(2)

Deferred tax expense (3)(4)

    3.95 %(B)     4.43 %                        

Total expenses

    4.40 %(B)(2)     11.18 %(2)     4.13 %     2.90 %     1.36 %     5.29 %

Total expenses, excluding incentive fees and deferred tax expense

    2.76 %(B)     2.77 %     2.98 %     2.90 %     2.68 %     3.12 %

Ratio of net investment income (loss) to average net assets:

                                               

Before tax benefit

    1.30 %(B)(2)     (4.93 )%(2)     (3.07 )%     (2.36 )%     (0.24 )%     (4.31 )%

Deferred tax benefit (4)(5)

    0.21 %(B)     0.28 %                        

Net investment income (loss)

    1.51 %(B)     (4.65 )%     (3.07 )%     (2.36 )%     (0.24 )%     (4.31 )%

Portfolio turnover rate

    1 %(A)     44 %     22 %     49 %     22 %     95 %

 

*

Consolidated.

 

(1)

Calculated using average shares outstanding.

 

(2)

Amount includes the incentive fee. For the period ended March 31, 2019, the year ended December 31, 2018, December 31, 2017, December 31, 2016, December 31, 2015, and December 31, 2014, the ratio of the incentive fee to average net assets was (2.31)%, 3.98%, 1.15%, (1.32)%, 2.17% and 3.85%, respectively.

 

(3)

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

 

(4)

The deferred tax epxense and tax benefit are allocated based on average net assets.

 

(5)

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

 

(A)

Not Annualized.

 

(B)

Annualized.

 

See accompanying notes to financial statements

8

 

 

Firsthand Technology Value Fund, Inc.

 

Consolidated Schedule of Investments

 

MARCH 31, 2019 (UNAUDITED)

 

PORTFOLIO
COMPANY
(% OF NET
ASSETS)
AND INDUSTRY

TYPE OF INVESTMENT

 

ACQUISITION DATE

   

SHARES/PAR
VALUE ($)

   

COST BASIS

   

VALUE

 

EQX CAPITAL, INC.

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

    6/10/2016       100,000     $ 20,000     $ 39,620  

(2.0%)
Equipment Leasing

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

    6/10/2016       4,000,000       4,000,000       3,688,400  
                                3,728,020  
                                   

HERA SYSTEMS, INC.
(4.3%)
Aerospace

Convertible Note Matures January 2020 Interest Rate 10% (1)(2)(4)

    5/31/2018       500,000       500,000       500,000  
 

Convertible Note Matures January 2020 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       217,447  
 

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

    8/07/17 - 2/1/19       7,039,203       6,587,102       1,564,815  
 

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)

    2/1/2019       5,250,000       0       1,166,550  
 

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

    7/9/18 - 9/4/18       12,250,000       0       2,721,950  
                                8,207,258  

INTRAOP MEDICAL CORP. (14.2%)
Medical Devices

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

    12/31/2018       10,961,129       10,961,129       10,961,129  
 

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

    7/12/2013       26,856,187       26,299,938       10,791,890  
 

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

    2/10/2017       2,000,000       2,000,000       2,000,000  
 

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

    2/28/2014       3,000,000       3,000,000       3,000,000  
                                26,753,019  

 

See accompanying notes to financial statements

9

 

 

Firsthand Technology Value Fund, Inc.

 

Consolidated Schedule of Investments - continued

 

MARCH 31, 2019 (UNAUDITED)

 

PORTFOLIO
COMPANY
(% OF NET
ASSETS)
AND INDUSTRY

TYPE OF INVESTMENT

 

ACQUISITION DATE

   

SHARES/PAR
VALUE ($)

   

COST BASIS

   

VALUE

 

KYMA, INC.
(0.1%)
Advanced Materials

Convertible Note
Matures March 2020 Interest Rate 10% (1)(4)

    3/11/2019       100,000     $ 100,000     $ 100,000  
                                   

LYNCEAN TECHNOLOGIES, INC. (0.5%)
Semiconductor Equipment

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

    7/3/2018       869,792       1,000,000       1,000,000  
                                   

PHUNWARE, INC. (10.1%)
Mobile Computing

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

    3/14/2014       1,495,113       9,999,997       18,984,945  
                                   

PIVOTAL SYSTEMS CORP.
(25.4%)
Semiconductor Equipment

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

    11/28/12 - 9/2/16       50,758,441       16,863,553       47,895,718  
                                   

QMAT, INC.
(7.5%)

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

    12/14/12 - 04/28/16       16,000,240       9,680,305       4,467,267  

Advanced Materials

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

    09/28/16 - 11/07/16       2,000,000       2,000,000       1,602,200  
 

Convertible Note
Matures December 2019 Interest Rate 8% (1)(2)(4)

    12/14/18 - 02/28/19       7,502,600       7,502,600       7,502,600  
 

Convertible Note
Matures December 2019 Interest Rate 8% (1)(2)(4)

    3/13/2019       100,000       100,000       100,000  
 

Convertible Note
Matures December 2019 Interest Rate 8% (1)(2)(4)

    3/28/2019       400,000       400,000       400,000  
 

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

    12/14/2018       4,932,208       0       74,476  
 

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

    12/14/2012       2,000,000       0       104,800  
                                14,251,343  
                                   

QUICKLOGIC CORP. (0.2%)
Semiconductors

Common Stock *

    12/27/16 - 11/09/17       700,000       1,005,875       427,419  

 

See accompanying notes to financial statements

10

 

 

Firsthand Technology Value Fund, Inc.

 

Consolidated Schedule of Investments - continued

 

MARCH 31, 2019 (UNAUDITED)

 

PORTFOLIO
COMPANY
(% OF NET
ASSETS)
AND INDUSTRY

TYPE OF INVESTMENT

 

ACQUISITION DATE

   

SHARES/PAR
VALUE ($)

   

COST BASIS

   

VALUE

 

REVASUM, INC.
(29.9%)
Semiconductor Equipment

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

    11/14/16 - 11/30/18       53,834,340     $ 18,537,905     $ 56,459,614  
                                   

ROKU, INC. (0.7%) Consumer Electronics

Common Stock *

    05/26/15 - 08/06/15       20,000       180,000       1,290,200  
                                   

SILICON GENESIS CORP.
(2.0%)

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

    4/18/2011       5,704,480       2,372,403       1,427,831  

Intellectual Property

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

    4/18/2011       82,914       109,518       34,318  
 

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

    4/18/2011       850,830       431,901       93,166  
 

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

    4/18/2011       921,892       169,045       6,269  
 

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

    4/18/2011       37,982       6,678       118  
 

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

    4/18/2011       912,453       456,389       312,880  
 

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

    10/13/2011       5,000,000       0       3,000  
 

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

    2/6/2012       3,000,000       0       1,800  
 

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

    3/10/2016       48,370,793       3,880,592       1,736,995  
 

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

    3/10/2016       837,942       936,895       159,293  
                                3,775,670  
                                   

SVXR, INC.
(2.6%)
Semiconductor Equipment

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

    1/11/17-8/29/18       8,219,454       4,082,192       4,913,014  
                                   

TELEPATHY INVESTORS, INC.
(0.6%)

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

    6/21/2016       150,000       150,000       12,052  

Consumer Electronics

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

    9/7/2018       200,000       200,000       16,070  

 

See accompanying notes to financial statements

11

 

 

Firsthand Technology Value Fund, Inc.

 

Consolidated Schedule of Investments - continued

 

MARCH 31, 2019 (UNAUDITED)

 

PORTFOLIO
COMPANY
(% OF NET
ASSETS)
AND INDUSTRY

TYPE OF INVESTMENT

 

ACQUISITION DATE

   

SHARES/PAR
VALUE ($)

   

COST BASIS

   

VALUE

 

TELEPATHY INVESTORS, INC.
(continued)

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

    4/20/2016       500,000     $ 500,000     $ 40,175  
 

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

    6/23/2015       2,000,000       2,000,000       160,700  
 

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

    5/3/2017       300,000       300,000       24,105  
 

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

    7/29/2014       15,238,000       3,999,999       909,861  
 

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

    1/29/2016       300,000       300,000       24,105  
 

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

    12/13/2016       500,000       500,000       40,175  
                                1,227,243  
                                   

UCT COATINGS, INC.
(0.5%)
Advanced Materials

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

    4/18/2011       1,500,000       662,235       850,650  
                                   

VUFINE, INC.
(0.0%)
Consumer Electronics

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

    1/22/2019       45,000       45,000       0  
 

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

    10/31/2018       200,000       200,000       0  
 

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

    7/10/2017       1,500,000       1,500,000       0  
 

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

    9/13/2018       100,000       100,000       0  
 

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

    10/16/2017       250,000       250,000       0  

 

See accompanying notes to financial statements

12

 

 

Firsthand Technology Value Fund, Inc.

 

Consolidated Schedule of Investments - continued

 

MARCH 31, 2019 (UNAUDITED)

 

PORTFOLIO
COMPANY
(% OF NET
ASSETS)
AND INDUSTRY

TYPE OF INVESTMENT

 

ACQUISITION DATE

   

SHARES/PAR
VALUE ($)

   

COST BASIS

   

VALUE

 

VUFINE, INC.
(continued)

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

    1/31/2018       350,000     $ 350,000     $ 0  
 

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

    6/19/2018       300,000       300,000       0  
 

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  
                                0  

WRIGHTSPEED, INC. (5.6%)
Automotive

Convertible Note
Matures December 2019 Interest Rate 12% (1)(3)(4)

    3/20/2019       100,000       100,000       139  
 

Convertible Note
Matures December 2019 Interest Rate 12% (1)(3)(4)

    3/4/2019       300,000       300,000       416  
 

Convertible Note
Matures December 2019 Interest Rate 12% (1)(3)(4)

    1/11/2019       250,000       250,000       347  
 

Convertible Note
Matures December 2019 Interest Rate 12% (1)(3)(4)

    12/31/2018       100,000       100,000       139  
 

Convertible Note
Matures December 2019 Interest Rate 12% (1)(3)(4)

    5/1/2018       3,700,000       3,700,000       5,132  
 

Convertible Note
Matures December 2019 Interest Rate 12% (1)(3)(4)

    6/21/2018       2,000,000       2,000,000       2,774  
 

Convertible Note
Matures December 2019 Interest Rate 12% (1)(3)(4)

    8/10/2018       3,000,000       3,000,000       4,161  
 

Convertible Note
Matures December 2019 Interest Rate 12% (1)(3)(4)

    2/20/2019       500,000       500,000       693  
 

Convertible Note
Matures December 2019 Interest Rate 12% (1)(3)(4)

    2/14/2019       500,000       500,000       693  

 

See accompanying notes to financial statements

13

 

 

Firsthand Technology Value Fund, Inc.

 

Consolidated Schedule of Investments - continued

 

MARCH 31, 2019 (UNAUDITED)

 

PORTFOLIO
COMPANY
(% OF NET
ASSETS)
AND INDUSTRY

TYPE OF INVESTMENT

 

ACQUISITION DATE

   

SHARES/PAR
VALUE ($)

   

COST BASIS

   

VALUE

 

WRIGHTSPEED, INC.
(continued)

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

    4/11/2013       2,267,659     $ 1,922,975     $ 494,123  
 

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

    12/15/2014       1,100,978       3,375,887       310,366  
 

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

    7/10/2015       450,814       1,658,996       136,551  
 

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

    8/31/2017       90,707       499,995       41,290  
 

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

    12/31/2018       200,000       0       90,850  
 

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

    3/4/2019       600,000       0       272,550  
 

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

    2/20/2019       1,000,000       0       454,250  
 

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

    3/20/2019       200,000       0       90,850  
 

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

    1/11/2019       500,000       0       227,125  
 

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

    2/14/2019       1,000,000       0       454,250  
 

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

    12/31/2018       200,000       0       216  
 

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

    3/4/2019       600,000       0       648  
 

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

    2/20/2019       1,000,000       0       1,080  
 

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

    2/14/2019       1,000,000       0       1,080  
 

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

    1/11/2019       500,000       0       540  
 

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

    3/20/2019       200,000       0       216  
 

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

    4/9/2018       13,606       0       22  
 

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

    4/26/2018       6,803       0       11  

 

See accompanying notes to financial statements

14

 

 

Firsthand Technology Value Fund, Inc.

 

Consolidated Schedule of Investments - continued

 

MARCH 31, 2019 (UNAUDITED)

 

PORTFOLIO
COMPANY
(% OF NET
ASSETS)
AND INDUSTRY

TYPE OF INVESTMENT

 

ACQUISITION DATE

   

SHARES/PAR
VALUE ($)

   

COST BASIS

   

VALUE

 

WRIGHTSPEED, INC.
(continued)

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

    5/1/2018       7,400,000     $ 0     $ 3,361,450  
 

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

    6/21/2018       4,000,000       0       1,817,000  
 

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

    5/1/2018       7,400,000       0       7,992  
 

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

    6/21/2018       4,000,000       0       4,320  
 

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

    8/10/2018       6,000,000       0       2,725,500  
 

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

    8/10/2018       6,000,000       0       6,480  
 

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

    8/31/2017       18,141       0       29  
 

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

    2/7/2018       11,338       0       18  
                                10,513,301  
                                   

INVESTMENT COMPANY
(0.6%)

Fidelity Investments Money Market Treasury Portfolio - Class I (5)

    Various       1,149,060       1,149,060       1,149,060  
                                   

TOTAL INVESTMENTS (Cost $168,363,162) — 106.8%

                              201,526,474  
                                   

LIABILITIES IN EXCESS OF OTHER ASSETS — (6.8%)

                              (12,745,616 )
                                   

NET ASSETS — 100.0%

                            $ 188,780,858  

 

*

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 March 31, 2019, we held $198,659,795 (or 105.23% 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, 2018

 

PORTFOLIO
COMPANY
(% OF NET
ASSETS)
AND INDUSTRY

INVESTMENT TYPE

 

ACQUISITION DATE

   

SHARES/PAR
VALUE ($)

   

COST BASIS

   

VALUE

 

EQX CAPITAL, INC (1.8%)

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

    6/10/16       100,000     $ 20,000     $ 36,470  

Equipment Leasing

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

    6/10/16       4,000,000       4,000,000       3,491,600  
                                3,528,070  

HERA SYSTEMS, INC. (3.5%)
Aerospace

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

    5/31/18       500,000       500,000       500,000  
 

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

    1/19/18       500,000       500,000       500,000  
 

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

    9/18/15       3,642,324       2,000,000       207,977  
 

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

    8/07/17 - 9/4/18       5,539,203       5,087,102       1,231,365  
 

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

    8/7/17       6,214,922       0       1,380,956  
 

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

    9/28/17       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  
                                6,697,788  

INTRAOP MEDICAL
CORP.
(15.4%)

Convertible Note
Matures June 2020 Interest Rate 8% (1)(2)(4)

    12/31/18       10,961,129       10,961,129       10,961,129  

Medical Devices

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

    7/12/13       26,856,187       26,299,938       13,565,328  
 

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

    2/10/17       2,000,000       2,000,000       2,000,000  
 

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

    2/28/14       3,000,000       3,000,000       3,000,000  
                                29,526,457  

 

See accompanying notes to financial statements

16

 

 

Firsthand Technology Value Fund, Inc.

 

Consolidated Schedule of Investments - continued

 

DECEMBER 31, 2018

 

PORTFOLIO
COMPANY
(% OF NET
ASSETS)
AND INDUSTRY

INVESTMENT TYPE

 

ACQUISITION DATE

   

SHARES/PAR
VALUE ($)

   

COST BASIS

   

VALUE

 

LYNCEAN TECHNOLOGIES, INC. (0.5%)
Semiconductor Equipment

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

    7/3/18       869,792     $ 1,000,000     $ 1,000,000  
                                   

PHUNWARE, INC. (10.0%)
Mobile Computing

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

    3/14/14       1,495,113       9,999,997       19,121,150  
                                   

PIVOTAL SYSTEMS CORP.
(28.1%) Semiconductor Equipment

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

    11/28/12 - 09/02/16       53,758,441       19,446,197       53,825,978  
                                   

QMAT, INC.
(7.0%)

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

    12/14/12 - 04/28/16       16,000,240       9,680,305       4,612,549  

Advanced Materials

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

    9/28/16 - 11/7/16       2,000,000       2,000,000       1,594,000  
 

Convertible Note
Matures December 2019
Interest Rate 8% (1)(2)(4)

    12/14/18       7,002,600       7,002,600       7,002,600  
 

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

    12/14/18       4,932,208       0       81,381  
 

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

    12/14/12       2,000,000       0       112,000  
                                13,402,530  
                                   

QUICKLOGIC CORP. (0.4%)
Semiconductors

Common Stock *

    12/27/16 - 11/09/17       1,000,000       1,488,025       734,000  
                                   

REVASUM, INC.
(30.6%)
Semiconductor Equipment

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

    11/14/16 - 11/30/18       53,834,340       18,537,905       58,608,601  

 

See accompanying notes to financial statements

17

 

 

Firsthand Technology Value Fund, Inc.

 

Consolidated Schedule of Investments - continued

 

DECEMBER 31, 2018

 

PORTFOLIO
COMPANY
(% OF NET
ASSETS)
AND INDUSTRY

INVESTMENT TYPE

 

ACQUISITION DATE

   

SHARES/PAR
VALUE ($)

   

COST BASIS

   

VALUE

 
                                   

ROKU, INC.
(1.8%)
Consumer Electronics

Common Stock *

    05/26/15 - 08/06/15       115,000     $ 1,035,000     $ 3,523,600  
                                   

SILICON GENESIS CORP.
(1.7%)

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

    4/18/11       5,704,480       2,372,403       1,233,879  

Intellectual Property

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

    4/18/11       82,914       109,518       25,463  
 

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

    4/18/11       850,830       431,901       68,917  
 

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

    4/18/11       921,892       169,045       4,517  
 

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

    4/18/11       37,982       6,678       84  
 

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

    4/18/11       912,453       456,389       270,816  
 

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

    10/13/11       5,000,000       0       2,000  
 

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

    2/6/12       3,000,000       0       1,200  
 

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

    3/10/16       48,370,793       3,880,592       1,443,530  
 

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

    3/10/16       837,942       936,895       137,339  
                                3,187,745  
                                   

SVXR, INC.
(2.6%)
Semiconductor Equipment

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

    1/11/17 - 8/29/18       8,219,454       4,082,192       4,923,206  
                                   

TELEPATHY
INVESTORS, INC.
(0.7%)

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

    6/21/16       150,000       150,000       14,678  

Consumer Electronics

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

    9/7/18       200,000       200,000       19,570  

 

See accompanying notes to financial statements

18

 

 

Firsthand Technology Value Fund, Inc.

 

Consolidated Schedule of Investments - continued

 

DECEMBER 31, 2018

 

PORTFOLIO
COMPANY
(% OF NET
ASSETS)
AND INDUSTRY

INVESTMENT TYPE

 

ACQUISITION DATE

   

SHARES/PAR
VALUE ($)

   

COST BASIS

   

VALUE

 

TELEPATHY
INVESTORS, INC. (continued)

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

    4/20/16       500,000     $ 500,000     $ 48,925  
 

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

    6/23/15       2,000,000       2,000,000       195,700  
 

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

    5/3/17       300,000       300,000       29,355  
 

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

    7/29/14       15,238,000       3,999,999       927,994  
 

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

    1/29/16       300,000       300,000       29,355  
 

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

    12/13/16       500,000       500,000       48,925  
                                1,314,502  
                                   

UCT COATINGS, INC.
(0.4%)
Advanced Materials

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

    4/18/11       1,500,000       662,235       748,950  
                                   

VUFINE, INC.
(0.0%)
Consumer Electronics

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

    10/31/18       200,000       200,000       1,537  
 

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

    7/10/17       1,500,000       1,500,000       11,526  
 

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

    9/13/18       100,000       100,000       768  
 

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

    10/16/17       250,000       250,000       1,921  
 

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

    1/31/18       350,000       350,000       2,689  

 

See accompanying notes to financial statements

19

 

 

Firsthand Technology Value Fund, Inc.

 

Consolidated Schedule of Investments - continued

 

DECEMBER 31, 2018

 

PORTFOLIO
COMPANY
(% OF NET
ASSETS)
AND INDUSTRY

INVESTMENT TYPE

 

ACQUISITION DATE

   

SHARES/PAR
VALUE ($)

   

COST BASIS

   

VALUE

 

VUFINE, INC.
(0.0%)
(continued)

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

    6/19/18       300,000     $ 300,000     $ 2,305  
 

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

    2/26/15       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  
                                20,746  

WRIGHTSPEED, INC.
(4.8%)
Automotive

Convertible Note
Matures December 2019 Interest Rate 12% (1)(3)(4)

    12/31/18       100,000       100,000       2,751  
 

Convertible Note
Matures December 2019 Interest Rate 12% (1)(3)(4)

    5/1/18       3,700,000       3,700,000       101,787  
 

Convertible Note
Matures December 2019 Interest Rate 12% (1)(3)(4)

    6/21/18       2,000,000       2,000,000       55,020  
 

Convertible Note
Matures December 2019 Interest Rate 12% (1)(3)(4)

    8/10/18       3,000,000       3,000,000       82,530  
 

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

    4/11/13       2,267,659       1,922,975       494,803  
 

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

    12/15/14       1,100,978       3,375,887       310,806  
 

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

    7/10/15       450,814       1,658,996       136,732  
 

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

    8/31/17       90,707       499,995       41,344  
 

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

    12/31/18       200,000       0       90,980  
 

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

    12/31/18       200,000       0       224  
 

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

    4/9/18       13,606       0       22  
 

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

    4/26/18       6,803       0       11  
 

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

    8/10/18       6,000,000       0       2,729,400  

 

See accompanying notes to financial statements

20

 

 

Firsthand Technology Value Fund, Inc.

 

Consolidated Schedule of Investments - continued

 

DECEMBER 31, 2018

 

PORTFOLIO
COMPANY
(% OF NET
ASSETS)
AND INDUSTRY

INVESTMENT TYPE

 

ACQUISITION DATE

   

SHARES/PAR
VALUE ($)

   

COST BASIS

   

VALUE

 

WRIGHTSPEED, INC.
(continued)

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

    5/1/18       7,400,000     $ 0     $ 3,366,260  
 

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

    6/21/18       4,000,000       0       1,819,600  
 

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

    8/10/18       6,000,000       0       6,720  
 

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

    5/1/18       7,400,000       0       8,288  
 

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

    6/21/18       4,000,000       0       4,480  
 

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

    8/31/17       18,141       0       29  
 

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

    2/7/18       11,338       0       18  
                                9,251,805  
                                   

INVESTMENT COMPANY
(0.2%)

Fidelity Investments
Money Market
Treasury Portfolio - Class I (5)

    Various       438,442       438,442       438,442  
                                   

TOTAL INVESTMENTS (Cost $167,277,338) — 109.5%

                              209,853,570  
                                   

LIABILITIES IN EXCESS OF OTHER ASSETS — (9.5)%

                              (18,235,611 )
                                   

NET ASSETS — 100%

                            $ 191,617,959  

 

*

Non-income producing security.

(1)

Restricted security. Fair Value is determined by or under the direction of the Company's Board of Directors (See note 3). At December 31, 2018, we held $205,157,528 (or 107.07% 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

21

 

 

Firsthand Technology Value Fund, Inc.

 

Notes to Financial Statements

 

MARCH 31, 2019 (UNAUDITED)

 

NOTE 1. THE COMPANY

 

Firsthand Technology Value Fund, Inc. (the "Company," the "Fund," "us," "our," and "we"), is a Maryland corporation and an externally managed, non-diversified, closed-end management investment company that has elected to be treated as a business development company ("BDC") under the Investment Company Act of 1940, as amended (the "1940 Act"). The Company acquired its initial portfolio of securities through the reorganization of Firsthand Technology Value Fund, a series of Firsthand Funds, into the Company. The reorganization was completed on April 15, 2011. The Company commenced operations on April 18th, 2011. Under normal circumstances, the Company will invest at least 80% of its assets for investment purposes in technology companies, which are considered to be those companies that derive at least 50% of their revenues from products and/ or services within the information technology sector or the "cleantech" sector. Information technology companies include, but are not limited to, those focused on computer hardware, software, telecommunications, networking, Internet, and consumer electronics. While there is no standard definition of cleantech, it is generally regarded as including goods and services designed to harness renewable energy and materials, eliminate emissions and waste, and reduce the use of natural resources. In addition, under normal circumstances we will invest at least 70% of our assets in privately held companies and in public companies with market capitalizations less than $250 million. Our portfolio is primarily composed of equity and equity derivative securities of technology and cleantech companies (as defined above). These investments generally range between $1 million and $10 million each, although the investment size will vary proportionately with the size of the Company's capital base. The Company's shares are listed on the NASDAQ Global Market under the symbol "SVVC." Firsthand Capital Management, Inc., which was previously known as SiVest Group, Inc. ("FCM" or the "Advisor"), serves as the investment adviser to the Company.

 

The Company is an investment company and follows accounting and reporting guidance in the Financial Accounting Standards Board ("FASB") Accounting Standards Codification Topic 946.

 

CONSOLIDATION OF SUBSIDIARIES. On May 8, 2015, the Board of Directors of the Company approved the formation of a fully owned and controlled subsidiary (as defined by the 1940 Act) of the Company named Firsthand Venture Investors ("FVI"), a California general partnership formed on March 30, 2015. After the close of business on June 30, 2015, the Company contributed substantially all of its assets to FVI in return for a controlling general partner ownership interest in FVI. The transaction was completed on July 1, 2015. Under this structure, we have all or substantially all of our investment activities conducted through our fully owned subsidiary, FVI.

 

During the fiscal years ended December 31, 2016 and 2017, with the approval of its Board of Directors, the Company organized three separate fully owned and controlled subsidiaries (as defined by the 1940 Act). Each subsidiary was a Cayman Islands corporation and the financial statements of each subsidiary were reported on a consolidated basis with the Company. Each subsidiary was formed for the purpose of holding one or more investments made by the Company, and was treated as a controlled foreign corporation under the Internal Revenue Code not separately subject to U.S. federal income tax. FVI was treated as the sole U.S. shareholder of each subsidiary.

 

The Board of Directors of the Company approved the liquidation of those three Cayman subsidiaries on November 2, 2018. That liquidation was completed on December 27, 2018.

 

22

 

 

Firsthand Technology Value Fund, Inc.

 

Notes to Financial Statements - continued

 

MARCH 31, 2019 (UNAUDITED)

 

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

The following is a summary of significant accounting policies followed in the preparation of the Company's financial statements included in this report:

 

BASIS OF PRESENTATION. The accompanying financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") pursuant to the requirements on Form 10-K. ASC 946, Financial Services—Investment Companies ("ASC 946"), and Articles 6, 10 and 12 of Regulation S-X. In the opinion of management, all adjustments, which are of a normal recurring nature, considered necessary for the fair presentation of the financial statements for the periods presented, have been included.

 

Under the 1940 Act, ASC 946, and the regulations pursuant to Article 6 of Regulation S-X, we are precluded from consolidating any entity other than another investment company or an operating company which provides substantially all of its services to benefit us. Consequentially, as of December 31, 2018, the Company consolidated some special purpose entities. These special purpose entities only hold investments of the Company and have no other significant asset and liabilities. All significant intercompany transactions and balances have been eliminated in consolidation.

 

USE OF ESTIMATES. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the reporting period. Actual results could differ from those estimates.

 

PORTFOLIO INVESTMENT VALUATIONS. Investments are stated at "value" as defined in the 1940 Act and in the applicable regulations of the Securities and Exchange Commission and in accordance with GAAP. Value, as defined in Section 2(a)(41) of the 1940 Act, is (i) the market value of those securities for which a market quotation is readily available and (ii) the fair value as determined in good faith by, or under the direction of, the Board of Directors for all other securities and assets. On March 31, 2019, our financial statements include venture capital investments valued at approximately $73.2 million. 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 March 31, 2019, we held $198,659,795 in restricted securities. At December 31, 2018, we held $205,157,528 in restricted securities.

 

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 debit 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.

 

23

 

 

Firsthand Technology Value Fund, Inc.

 

Notes to Financial Statements - continued

 

MARCH 31, 2019 (UNAUDITED)

 

REALIZED GAIN OR LOSS AND UNREALIZED APPRECIATION OR DEPRECIATION OF PORTFOLIO INVESTMENTS. A realized gain or loss is recognized when an investment is disposed of and is computed as the difference between the Company's cost basis in the investment at the disposition date and the net proceeds received from such disposition. Realized gains and losses are calculated on a specific identification basis. Unrealized appreciation or depreciation is computed as the difference between the fair value of the investment and the cost basis of such investment.

 

INCOME TAXES. The Company provides for state and federal corporate income tax, as appropriate, because it is regarded as a corporation under Subchapter C of the Code. The Company recognizes interest and penalties in income tax expense.

 

FOREIGN CURRENCY TRANSLATION. The accounting records of the Company are maintained in U.S. dollars. All assets and liabilities denominated in foreign currencies are translated into U.S. dollars based on the foreign exchange rate on the date of valuation. The Company does not isolate that portion of the results of operation resulting from changes in foreign exchange rates on investments from the fluctuations arising from changes in market prices of securities held. The Company's investments in foreign securities may involve certain risks, including without limitation: foreign exchange restrictions, expropriation, taxation or other political, social, or economic risks, all of which could affect the market and/or credit risk of the investment. In addition, changes in the relationship of foreign currencies to the U.S. dollar can significantly affect the value of these investments and therefore the earnings of the Company.

 

SECURITIES TRANSACTIONS. Securities transactions are accounted for on the date the transaction for the purchase or sale of the securities is entered into by the Company (i.e., trade date).

 

CONCENTRATION OF CREDIT RISK. The Company places its cash and cash equivalents with financial institutions and, at times, cash held in checking accounts may exceed the Federal Deposit Insurance Corporation insured limit.

 

OPTIONS. The Company is subject to equity price risk in the normal course of pursuing its investment objectives and may enter into options written to hedge against changes in the value of equities. The Company may purchase put and call options to attempt to provide protection against adverse price effects from anticipated changes in prevailing prices of securities or stock indices. The Company may also write put and call options. When the Company writes an option, an amount equal to the premium received by the Company is recorded as a liability and is subsequently adjusted to the current fair value of the option written.

 

Premiums received from writing options that expire unexercised are treated by the Company on the expiration date as realized gains from investments. The difference between the premium and the amount paid on effecting a closing purchase transaction, including brokerage commissions, is also treated as a realized gain, or, if the premium is less than the amount paid for the closing purchase transaction, as a realized loss. If a call option is exercised, the premium is added to the proceeds from the sale of the underlying security or currency in determining whether the Company has realized a gain or loss. The Company as writer of an option bears the market risk of an unfavorable change in the price of the security underlying the written option.

 

The Company had no option transactions for the three months ended March 31, 2019.

 

The average quarterly volume of the Company's derivatives during the three months ended March 31, 2019 is as follows:

 

 

PURCHASED OPTIONS
(CONTRACTS)

WARRANTS
(NOTIONAL VALUE)

WRITTEN OPTIONS
(CONTRACTS)

Firsthand Technology Value Fund, Inc.

13,256,574

 

24

 

 

Firsthand Technology Value Fund, Inc.

 

Notes to Financial Statements - continued

 

MARCH 31, 2019 (UNAUDITED)

 

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.

 

We do not choose investments based on a strategy of diversification. We also do not rebalance the portfolio should one of our portfolio companies increase in value substantially relative to the rest of the portfolio. Therefore, the value of our portfolio may be more vulnerable to events affecting a single sector, industry or portfolio company and, therefore, may be subject to greater volatility than a company that follows a diversification strategy.

 

Because there is typically no public or readily-ascertainable market for our interests in the small privately-held companies in which we invest, the valuation of those securities is determined in good faith by the Valuation Committee, comprised of all members of the Board who are not "interested persons" of the Company, as such term is defined in Section 2(a)(19) of the 1940 Act, in accordance with our Valuation Procedures and is subject to significant estimates and judgments. The determined value of the securities in our portfolio may differ significantly from the values that would be placed on these securities if a ready market for the securities existed. Any changes in valuation are recorded in our Statement of Operations as "Net increase (decrease) in unrealized appreciation on investments." Changes in valuation of any of our investments in privately-held companies from one period to another may be volatile.

 

The Board has engaged an independent valuation firm to provide it with valuation assistance with respect to certain of our portfolio investments. The Company intends to continue to engage an independent valuation firm to provide us with assistance regarding our determination of the fair value of select portfolio investments each quarter unless directed by the Board to cancel such valuation services. The scope of the services rendered by an independent valuation firm is at the discretion of the Board. The Board is ultimately and solely responsible for determining the fair value of the Company's investments in good faith.

 

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.

 

25

 

 

Firsthand Technology Value Fund, Inc.

 

Notes to Financial Statements - continued

 

MARCH 31, 2019 (UNAUDITED)

 

NOTE 4. INVESTMENT MANAGEMENT FEE

 

The Company has entered into an investment management agreement (the "Investment Management Agreement") with FCM pursuant to which the Company will pay FCM a fee for providing investment management services consisting of two components—a base management fee and an incentive fee.

 

The base management fee will be calculated at an annual rate of 2.00% of our gross assets. For services rendered under the Investment Management Agreement, the base management fee will be payable quarterly in arrears. The base management fee will be calculated based on the average of (1) the value of our gross assets at the end of the current calendar quarter and (2) the value of the Company's gross assets at the end of the preceding calendar quarter; and will be appropriately adjusted for any share issuances or repurchases during the current calendar quarter. Base management fees for any partial month or quarter will be pro-rated.

 

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 March 31, 2019, there was an incentive fee adjustment for ($1,076,660). As of March 31, 2018, there was an incentive fee expense for $2,174,600.

 

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 in accordance with the Valuation Procedures adopted by the Valuation 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.

 

26

 

 

Firsthand Technology Value Fund, Inc.

 

Notes to Financial Statements - continued

 

MARCH 31, 2019 (UNAUDITED)

 

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.

 

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).

 

27

 

 

Firsthand Technology Value Fund, Inc.

 

Notes to Financial Statements - continued

 

MARCH 31, 2019 (UNAUDITED)

 

The guidance establishes three levels of the fair value hierarchy as follows:

 

 

Level 1 -

Unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the date of measurement.

 

 

Level 2 -

Observable inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. These inputs may include quoted prices for the identical instrument in an inactive market, prices for similar instruments in an active or inactive market, interest rates, prepayment speeds, credit risks, yield curves, default rates, and similar data.

 

 

Level 3 -

Unobservable inputs for the asset or liability, to the extent relevant observable inputs are not available, representing the Company's own assumptions about the assumptions a market participant would use in valuing the asset or liability based on the best information available.

 

The availability of observable inputs can vary from security to security and is affected by a wide variety of factors, including, for example, the type of security, whether the security is new and not yet established in the marketplace, the liquidity of markets, and other characteristics particular to the security. To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. Accordingly, the degree of judgment exercised in determining fair value is greatest for instruments categorized in Level 3.

 

The inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, for disclosure purposes, the level in the fair value hierarchy within which the fair value measurement falls in its entirety, is determined based on the lowest level input that is significant to the fair value measurement in its entirety.

 

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 March 31, 2019:

 

ASSETS

 

LEVEL 1
QUOTED PRICES

   

LEVEL 2 OTHER
SIGNIFICANT
OBSERVABLE INPUTS

   

LEVEL 3 SIGNIFICANT
UNOBSERVABLE INPUTS

 

Common Stocks

                       

Advanced Materials

  $     $     $ 850,650  

Consumer Electronics

    1,290,200              

Equipment Leasing

                39,620  

Intellectual Property

                6,269  

Mobile Computing

                18,984,945  

 

28

 

 

Firsthand Technology Value Fund, Inc.

 

Notes to Financial Statements - continued

 

MARCH 31, 2019 (UNAUDITED)

 

ASSETS (continued)

 

LEVEL 1
QUOTED PRICES

   

LEVEL 2 OTHER
SIGNIFICANT
OBSERVABLE INPUTS

   

LEVEL 3 SIGNIFICANT
UNOBSERVABLE INPUTS

 

Semiconductors

  $ 427,419     $     $  

Semiconductors Equipment

                104,355,332  

Total Common Stocks

    1,717,619             124,236,816  

Preferred Stocks

                       

Advanced Materials

                6,069,467  

Aerospace

                1,782,262  

Automotive

                982,330  

Consumer Electronics

                909,861  

Equipment Leasing

                3,688,400  

Intellectual Property

                3,764,483  

Medical Devices

                10,791,890  

Semiconductor Equipment

                5,913,014  

Total Preferred Stocks

                33,901,707  

Asset Derivatives*

                       

Equity Contracts

                15,125,667  

Total Asset Derivatives

                15,125,667  

Convertible Notes

                       

Advanced Materials

                8,102,600  

Aerospace

                1,000,000  

Automotive

                14,494  

Consumer Electronics

                317,382  

Medical Devices

                15,961,129  

Total Convertible Notes

                25,395,605  

Mutual Funds

    1,149,060              

Total

  $ 2,866,679     $     $ 198,659,795  

 

* Asset derivatives include warrants.

 

At the end of each calendar quarter, management evaluates the Level 2 and Level 3 assets and liabilities for changes in liquidity, including but not limited to: whether a broker is willing to execute at the quoted price, the depth and consistency of prices from third party services, and the existence of contemporaneous, observable trades in the market. Additionally, management evaluates the Level 1 and Level 2 assets and liabilities on a quarterly basis for changes in listings or delistings on national exchanges. Transfers in and out of the levels are recognized at the value at the end of the period. There were no transfers between Levels 1 and 2 as of March 31, 2019.

 

29

 

 

Firsthand Technology Value Fund, Inc.

 

Notes to Financial Statements - continued

 

MARCH 31, 2019 (UNAUDITED)

 

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

 

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

 

BALANCE
AS
OF
12/31/18

   

NET
PURCHASES/
CONVERSIONS

   

NET SALES/
CONVERSIONS

   

NET REALIZED
GAINS/
(LOSSES)

   

NET
UNREALIZED
APPRECIATION
(DEPRECIATION)(1)

   

TRANSFERS
IN
(OUT) OF
LEVEL 3

   

BALANCE
AS
OF
3/31/2019

 

Common Stocks

                                                       

Advanced Materials

  $ 748,950     $     $     $     $ 101,700     $     $ 850,650  

Equipment Leasing

    36,470                         3,150             39,620  

Intellectual Property

    4,517                         1,752             6,269  

Mobile Computing

    19,121,150                         (136,205 )           18,984,945  

Semiconductor Equipment

    112,434,579             (2,973,180 )     390,537       (5,496,604 )           104,355,332  

Preferred Stocks

                                                       

Advanced Materials

    6,206,549                         (137,082 )           6,069,467  

Aerospace

    1,439,342       1,500,000                   (1,157,080 )           1,782,262  

Automotive

    983,685                         (1,355 )           982,330  

Consumer Electronics

    927,994                         (18,133 )           909,861  

Equipment Leasing

    3,491,600                         196,800             3,688,400  

Intellectual Property

    3,179,944                         584,539             3,764,483  

Medical Devices

    13,565,328                         (2,773,438 )           10,791,890  

Semiconductor Equipment

    5,923,206                         (10,192 )           5,913,014  

Asset Derivatives

                                                       

Equity Contracts

    12,481,143                         2,644,524             15,125,667  

Convertible Notes

                                                       

Advanced Materials

    7,002,600       1,100,000                               8,102,600  

Aerospace

    1,000,000                                     1,000,000  

Automotive

    242,088       1,650,000                   (1,877,594 )           14,494  

Consumer Electronics

    407,254       45,000                   (134,872 )           317,382  

Medical Devices

    15,961,129                                     15,961,129  

Total

  $ 205,157,528     $ 4,295,000     $ (2,973,180 )   $ 390,537     $ (8,210,090 )   $     $ 198,659,795  

 

(1)

The net change in unrealized appreciation (depreciation) from Level 3 instruments held as of March 31, 2019 was $(8,210,090).

 

30

 

 

Firsthand Technology Value Fund, Inc.

 

Notes to Financial Statements - continued

 

MARCH 31, 2019 (UNAUDITED)

 

The below chart represents quantitative disclosure about significant unobservable inputs for Level 3 fair value measurements at March 31, 2019:

 

 

FAIR VALUE
AT 3/31/19

VALUATION TECHNIQUES

UNOBSERVABLE INPUTS

RANGE
(WEIGHTED AVG.)

Direct venture capital investments: Advanced Materials

$15.2M

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

8.0% - 10.1% (9.1%)

5 years (5 years)

50.0% (50.0%)

2.23% (2.23%)

40% - 100% (43%)

0.0% - 22.7% (1.3%)

Direct venture capital investments: Aerospace

$8.2M

Prior Transaction
Analysis

Option Pricing Model

Years to Maturity

Volatility

Risk-Free Rate

5 years (5 years)

60.0% (60.0%)

2.23% (2.23%)

Direct venture capital investments: Automotive

$10.5M

Prior Transaction
Analysis

Option Pricing Model

Years to Maturity

Volatility

Risk-Free Rate

3 years (3 years)

55.0% (55.0%)

2.21% (2.21%)

Direct venture capital investments: Consumer Electronics

$1.2M

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

1.1x – 1.9x (1.5x)

10% - 30% (30%)

1 year (1 year)

70.0% (70.0%)

2.40% (2.40%)

Direct venture capital investments: Equipment Leasing

$3.7M

Prior Transaction
Analysis

Option Pricing Model

Years to Maturity

Volatility

Risk-Free Rate

5 years (5 years)

50.0% (50.0%)

2.23% (2.23%)

Direct venture capital investments: Intellectual Property

$3.8M

Prior Transaction
Analysis

Discounted
Cash Flow

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%)

2.23% (2.23%)

0.0% - 24.3% (0.1%)

-51.0% (-51.0%)

Direct venture capital investments: Medical Devices

$26.8M

Market Comparable
Companies

Option Pricing Model

Revenue Multiple

Years to Maturity

Volatility

Risk-Free Rate

3.6x – 4.0x (3.8x)

4 years (4 years)

50.0% (50.0%)

2.22% (2.22%)

 

31

 

 

Firsthand Technology Value Fund, Inc.

 

Notes to Financial Statements - continued

 

MARCH 31, 2019 (UNAUDITED)

 

continued

FAIR VALUE
AT 3/31/18

VALUATION TECHNIQUES

UNOBSERVABLE INPUTS

RANGE
(WEIGHTED AVG.)

Direct venture capital investments: Mobile Computing

$19.0M

Prior Transaction
Analysis

Years to Maturity

Volatility

Discount for Lack of Marketability

0.2 years (0.2 years)

65.0% (65.0%)

7.2% (7.2%)

Direct venture capital investments: Semiconductor Equipment

$110.3M

Prior Transaction
Analysis

Option Pricing Model

Years to Maturity

Volatility

Risk-Free Rate

Discount for Lack of Marketability

0 years – 5 years (1.2 years)

40.0% -50.0% (47.3%) 2.23% (2.23%)

0.0% - 14.3% (11.2%)

 

NOTE 7. FEDERAL INCOME TAXES

 

Beginning in 2018, we were no longer able to qualify as a RIC under Subchapter M of the Code. The increase in value that resulted from the initial public offerings (IPOs) of Pivotal Systems and Revasum meant that we were no longer able to satisfy the diversification requirements for qualification as a RIC. As a result of this change, we were taxed as a corporation for our fiscal year ended December 31, 2018, and will continue to be taxed in that manner for future fiscal years, paying federal and applicable state corporate taxes on our taxable income, unless and until we are able to once again qualify as a RIC, based on changes in the composition of our portfolio. Consequently, at the close of each fiscal quarter beginning with the quarter ended June 30, 2018, we will record a deferred tax liability for any net realized gains and net ordinary income for the year-to-date period plus net unrealized gains as of the end of the quarter.

 

The reorganization described in Note 1 (the formation of FVI as a fully owned subsidiary for investment activities) was structured to avoid any adverse tax consequences for the Company and its shareholders. For the fiscal years which the Company operates as a RIC, we believe Company's engaging in investment activities through FVI did not, in our view, jeopardize the Company's ability to continue to qualify as a RIC under the Code at that time when the Company was eligible to be treated as a RIC.

 

The following information is based upon the U.S. federal income tax cost of portfolio investments as of March 31, 2019.

 

   

FEDERAL INCOME
TAX COST:

 

Gross unrealized appreciation

  $ 95,213,429  

Gross unrealized depreciation

    (62,050,117 )

Net unrealized appreciation

  $ 33,163,312  

Federal income tax cost, Investments

  $ 168,363,162  

 

The Company did not qualify as a regulated investment company pursuant to Subchapter M of the Internal Revenue Code, therefore it is taxed as a corporation. As a corporation, the Company is obligated to pay federal and state income tax on taxable income. The Company's net deferred tax asset balance was reduced, and continued to be completely offset, by the deferred tax liability. The Company is currently using an estimated tax rate of 21% for Federal and 6.98% for state taxes.

 

32

 

 

Firsthand Technology Value Fund, Inc.

 

Notes to Financial Statements - continued

 

MARCH 31, 2019 (UNAUDITED)

 

The Company's income tax provision consists of the following as of December 31, 2018

 

Deferred tax expense (benefit)

       

Federal

  $ 5,922,998  

State

    1,969,708  

Total deferred tax expense

  $ 7,892,706  

 

The reconciliation between the federal statutory income tax rate of 21% and the effective tax rate on net investment income (loss) and realized and unrealized gain (loss) follows:

 

   

AMOUNT

   

RATE

 

Application of statutory income tax rate

  $ 5,922,998       21.00 %

State income taxes net of federal benefit

    1,969,708       6.98 %

Total income tax expense

  $ 7,892,706       27.98 %

 

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Such temporary differences are principally: (i) taxes on unrealized gains/(losses), which are attributable to the temporary difference between fair market value and tax basis, (ii) the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting and income tax purposes, and (iii) the net tax benefit of accumulated net operating losses and capital loss carryforwards. Deferred tax assets and liabilities are measured using effective tax rates expected to apply to taxable income in the years such temporary differences are realized or otherwise settled.

 

Components of the Company's deferred tax assets and liabilities as of December 31, 2018 are as follows:

 

   

AMOUNT

 

Deferred tax assets:

       

Net operating loss carryforward (tax basis)

  $ 505,388  

Capital loss carryforward (tax basis)

    1,397,685  

Incentive fee adjustment (tax basis)

    2,118,584  

Total deferred tax assets

    4,021,657  
         

Deferred tax liabilities

       

Net unrealized gains on investment securities (tax basis)

    (11,914,362 )

Total net deferred tax liability

  $ (7,892,705 )

 

To the extent the Company has a deferred tax asset or if a portion of the deferred tax liability is offset by a tax asset resulting from net operating losses, consideration is given to whether or not a valuation allowance is required against the deferred tax asset amount. A valuation allowance is required if, based on the evaluation criterion provided by Accounting Standard Codification ("ASC") 740, Income Taxes (ASC 740), it is more-likely-than-not that some portion or all of the deferred tax asset will not be realized. Among the factors considered in assessing the Company's valuation allowance are: the nature, frequency and severity of current and cumulative losses, forecasts of future profitability, the duration of the statutory carryforward periods, and the associated risks that operating and capital loss carryforwards may expire unused. Based on the Company's assessment, it has determined that in the future it is more likely than not that the Company will generate the necessary appropriate character of income within the carryforward periods to realize its deferred tax assets.

 

33

 

 

Firsthand Technology Value Fund, Inc.

 

Notes to Financial Statements - continued

 

MARCH 31, 2019 (UNAUDITED)

 

From time to time, and as new information becomes available, the Company will modify its forecasts, estimates or assumptions regarding its deferred tax liability or asset.

 

Modifications of the Company's estimates or assumptions regarding its deferred tax liability and/or asset balances and any applicable valuation allowance, changes in generally accepted accounting principles or related guidance or interpretations thereof, limitations imposed on net operating losses (if any), and changes in applicable tax law could result in increases or decreases in the Company's NAV, which could be material. Such changes could have a material impact on the Company's NAV and results of operations with respect to the Company's shareholders in the period it is recorded, even though the shareholders at such time might not have held shares in the Company at the time the deferred tax asset or liability had been established.

 

The Company's policy is to classify interest and penalties associated with underpayment of federal and state income taxes, if any, as income tax expense on its Statement of Operations. As of December 31, 2018, the Company did not have any interest or penalties associated with the underpayment of any income taxes.

 

The Company files income tax returns in the U.S. federal jurisdiction and California. The Company has reviewed all major jurisdictions and concluded that there is no significant impact on the Company's net assets and no tax liability resulting from unrecognized tax benefits relating to uncertain tax positions expected to be taken on its tax returns. Furthermore, management of the Company is not aware of any tax positions for which it is reasonably possible that the total amounts of unrecognized tax benefits will significantly change in the next 12 months.

 

As of December 31, 2018, the Company had net operating loss carryforwards for federal and state of income tax purposes of $1,806,014, which may be carried forward indefinitely:

 

As of December 31, 2018, the Company had net capital loss carryforwards for federal and state income tax purposes, which may be carried forward for 5 years, as follows:

 

EXPIRATION DATE

 

AMOUNT

 

12/31/23

  $ 4,994,658  

Total

  $ 4,994,658  

 

NOTE 8. INVESTMENT TRANSACTIONS

 

Investment transactions (excluding short-term investments) were as follows for the quarter ended March 31, 2019.

 

PURCHASES AND SALES

       

Purchases of investment securities

  $ 1,600,000  

Proceeds from sales and maturities of investment securities

  $ 8,051,115  

 

NOTE 9. SHARE BUYBACKS

 

SHARE BUYBACKS. On April 26, 2016, the Board of Directors of the Fund approved a discretionary share repurchase plan (the "Plan"). Pursuant to the Plan, the Fund was authorized to purchase in the open market up to $2 million worth of its common stock. The Plan allowed the Fund to acquire its own shares at certain thresholds below its NAV per share, in accordance with the guidelines specified in Rule 10b-18 of the Securities Exchange Act of 1934, as amended (the

 

34

 

 

Firsthand Technology Value Fund, Inc.

 

Notes to Financial Statements - continued

 

MARCH 31, 2019 (UNAUDITED)

 

"Exchange Act"). The intent of the Plan was to increase NAV per share and thereby enhance shareholder value. The Fund completed the repurchase plan in September 2016, having repurchased and retired a total of 272,008 shares of stock, at a total cost of approximately $2 million.

 

On November 10, 2017, the Board of Directors of the Fund approved a discretionary share purchase plan (the "Plan"). Pursuant to the Plan, the Fund was authorized to purchase in the open market up to $2 million worth of its common stock. The Plan allowed the Fund to acquire its own shares in accordance with the guidelines specified in Rule 10b-18 of the Exchange Act. The intent of the Plan was to increase NAV per share and thereby enhance shareholder value. As of December 31, 2017, the Fund had repurchased and retired 128,551 shares of stock at a total cost of approximately $1.1 million. The Fund had 7,302,146 shares outstanding as of December 31, 2017.

 

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. The Fund completed this open market repurchase plan on October 24, 2018. 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 December 31, 2018, the Fund had 7,178,770 shares outstanding.

 

TENDER OFFER. On December 22, 2014, pursuant to our agreement with a shareholder, the Fund commenced a tender offer to purchase up to $20 million of its issued and outstanding common shares for cash at a price per share equal to 95% of the Company's NAV per share determined as of the close of ordinary trading on the NASDAQ Global Market 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 Fund 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 Fund 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, 2018, through March 31, 2019, is noted below:

 

AFFILIATE/
CONTROLLED
INVESTMENTS*

 

VALUE AT
12/31/18

   

PURCHASES/
MERGER

   

INTEREST

   

SALES/
MATURITY/
EXPIRATION

   

REALIZED
GAIN (LOSS)

   

CHANGE IN
APPRECIATION/
DEPRECIATION

   

VALUE
3/31/19

   

SHARES
HELD AT
3/31/2019

 

EQX Capital, Inc. Common Stock*

  $ 36,470     $     $     $     $     $ 3,150     $ 39,620       100,000  

EQX, Inc. Preferred Stock - Series A*

    3,491,600                               196,800       3,688,400       4,000,000  

Hera Systems, Inc. Series A Preferred*

    207,977                               9,470       217,447       3,642,324  

Hera Systems, Inc. Convertible Note*

    500,000             12,500                         500,000       500,000  

Hera Systems, Inc. Convertible Note*

    500,000             12,500                         500,000       500,000  

 

35

 

 

Firsthand Technology Value Fund, Inc.

 

Notes to Financial Statements - continued

 

MARCH 31, 2019 (UNAUDITED)

 

AFFILIATE/
CONTROLLED
INVESTMENTS*

 

VALUE AT
12/31/18

   

PURCHASES/
MERGER

   

INTEREST

   

SALES/
MATURITY/
EXPIRATION

   

REALIZED
GAIN (LOSS)

   

CHANGE IN
APPRECIATION/
DEPRECIATION

   

VALUE
3/31/19

   

SHARES
HELD AT
3/31/2019

 

Hera Systems, Inc. Series B Preferred*

  $ 1,231,365     $ 1,500,000     $     $     $     $ (1,166,550 )   $ 1,564,815       7,039,203  

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  

Hera Systems, Inc. Series B Warrants*

                                  1,166,550       1,166,550       5,250,000  

IntraOp Medical Corp. Series C Preferred*

    13,565,328                               (2,773,438 )     10,791,890       26,856,187  

IntraOp Medical Corp. Term Note*

    3,000,000             59,178                         3,000,000       3,000,000  

IntraOp Medical Corp. Term Note*

    2,000,000             39,452                         2,000,000       2,000,000  

IntraOp Medical Corp. Convertible Note*

    10,961,129             405,412                         10,961,129       10,961,129  

Phunware, Inc. Common Stock

    19,121,150                               (136,205 )     18,984,945       1,495,113  

Pivotal Systems Common Stock*

    53,825,978                   (2,973,181 )     390,537       (3,347,616 )     47,895,718       50,758,441  

QMAT, Preferred Stock Series A*

    4,612,549                               (145,282 )     4,467,267       16,000,240  

QMAT, Preferred Stock Series B*

    1,594,000                               8,200       1,602,200       2,000,000  

QMAT, Series Preferred Stock Warrants - Series A

    112,000                               (7,200 )     104,800       2,000,000  

QMAT, Preferred Stock Warrants - Series C*

    81,381                               (6,905 )     74,476       4,932,208  

QMAT, Convertible Note*

    7,002,600       500,000       143,547                         7,502,600       7,502,600  

QMAT, Convertible Note

          100,000       416                         100,000       100,000  

QMAT, Convertible Note

          400,000       351                         400,000       400,000  

Revasum, Common Stock*

    58,608,601                               (2,148,987 )     56,459,614       53,834,340  

Silicon Genesis Corp., Common Stock *

    4,517                               1,752       6,269       921,892  

 

36

 

 

Firsthand Technology Value Fund, Inc.

 

Notes to Financial Statements - continued

 

MARCH 31, 2019 (UNAUDITED)

 

AFFILIATE/
CONTROLLED
INVESTMENTS*

 

VALUE AT
12/31/18

   

PURCHASES/
MERGER

   

INTEREST

   

SALES/
MATURITY/
EXPIRATION

   

REALIZED
GAIN (LOSS)

   

CHANGE IN
APPRECIATION/
DEPRECIATION

   

VALUE
3/31/19

   

SHARES
HELD AT
3/31/2019

 

Silicon Genesis Corp., Common Warrants*

  $ 84     $     $     $     $     $ 34     $ 118       37,982  

Silicon Genesis Corp., Common Warrants*

    2,000                               1,000       3,000       5,000,000  

Silicon Genesis Corp., Common Warrants*

    1,200                               600       1,800       3,000,000  

Silicon Genesis Corp., Series 1-C Preferred*

    25,463                               8,855       34,318       82,914  

Silicon Genesis Corp., Series 1-D Preferred*

    68,918                               24,248       93,166       850,830  

Silicon Genesis Corp., Series 1-E Preferred*

    1,233,878                               193,953       1,427,831       5,704,480  

Silicon Genesis Corp., Series 1-F Preferred*

    270,816                               42,064       312,880       912,453  

Silicon Genesis Corp., Series 1-G Preferred*

    1,443,530                               293,465       1,736,995       48,370,793  

Silicon Genesis Corp., Series 1-H Preferred*

    137,339                               21,954       159,293       837,942  

SVXR, Inc., Preferred Stock Series A

    4,923,206                               (10,192 )     4,913,014       8,219,454  

Telepathy Investors, Inc. Convertible Note*

    195,700             65,655                   (35,000 )     160,700       2,000,000  

Telepathy Investors, Inc. Convertible Note*

    29,355             7,500                   (5,250 )     24,105       300,000  

Telepathy Investors, Inc. Convertible Note*

    14,678             4,475                   (2,626 )     12,052       150,000  

Telepathy Investors, Inc. Convertible Note*

    48,925             14,918                   (8,750 )     40,175       500,000  

 

37

 

 

Firsthand Technology Value Fund, Inc.

 

Notes to Financial Statements - continued

 

MARCH 31, 2019 (UNAUDITED)

 

AFFILIATE/
CONTROLLED
INVESTMENTS*

 

VALUE AT
12/31/18

   

PURCHASES/
MERGER

   

INTEREST

   

SALES/
MATURITY/
EXPIRATION

   

REALIZED
GAIN (LOSS)

   

CHANGE IN
APPRECIATION/
DEPRECIATION

   

VALUE
3/31/19

   

SHARES
HELD AT
3/31/2019

 

Telepathy Investors, Inc. Convertible Note*

  $ 29,355     $     $ 9,570     $     $     $ (5,250 )   $ 24,105       300,000  

Telepathy Investors, Inc. Convertible Note*

    48,925             14,918                   (8,750 )     40,175       500,000  

Telepathy Investors, Inc. Convertible Note*

    19,570             4,931                   (3,500 )     16,070       200,000  

Telepathy Investors, Inc. Series A Preferred*

    927,994                               (18,133 )     909,861       15,238,000  

UCT Coatings, Inc.Common Stock

    748,950                               101,700       850,650       1,500,000  

Vufine, Inc., Convertible Note*

    11,526             (200,582 )                 (11,526 )           1,500,000  

Vufine, Inc., Convertible Note*

    1,921             (27,080 )                 (1,921 )           250,000  

Vufine, Inc. Convertible Note*

    2,305             (13,365 )                 (2,305 )           300,000  

Vufine, Inc. Convertible Note*

    768             (2,226 )                 (768 )           100,000  

Vufine, Inc. Convertible Note*

    1,537             (1,963 )                 (1,537 )           200,000  

Vufine, Inc., Convertible Note*

    2,689             (28,203 )                 (2,689 )           350,000  

Vufine, Inc., Convertible Note

          45,000       216                   (45,000 )           45,000  

Vufine, Inc., Common Stock*

                                              750,000  

Vufine, Inc., Series A, Preferred Stock*

                                              22,500,000  

Wrightspeed, Inc., Series C Preferred Stock

    494,803                               (680 )     494,123       2,267,659  

Wrightspeed, Inc., Series D Preferred Stock

    310,806                               (440 )     310,366       1,100,978  

Wrightspeed, Inc., Series E Preferred Stock

    136,732                               (181 )     136,551       450,814  

Wrightspeed, Inc., Series F Preferred Stock

    41,344                               (54 )     41,290       90,707  

 

38

 

 

Firsthand Technology Value Fund, Inc.

 

Notes to Financial Statements - continued

 

MARCH 31, 2019 (UNAUDITED)

 

AFFILIATE/
CONTROLLED
INVESTMENTS*

 

VALUE AT
12/31/18

   

PURCHASES/
MERGER

   

INTEREST

   

SALES/
MATURITY/
EXPIRATION

   

REALIZED
GAIN (LOSS)

   

CHANGE IN
APPRECIATION/
DEPRECIATION

   

VALUE
3/31/19

   

SHARES
HELD AT
3/31/2019

 

Wrightspeed, Inc. Preferred Stock Warrants - Series F

  $ 29     $     $     $     $     $     $ 29       18,141  

Wrightspeed, Inc. Convertible Note

    101,787             111,000                   (96,655 )     5,132       3,700,000  

Wrightspeed, Inc. Convertible Note

    55,020             60,000                   (52,246 )     2,774       2,000,000  

Wrightspeed, Inc. Convertible Note

    82,530             90,000                   (78,369 )     4,161       3,000,000  

Wrightspeed, Inc. Convertible Note

    2,751             3,000                   (2,612 )     139       100,000  

Wrightspeed, Inc. Convertible Note

          250,000       6,667                   (249,653 )     347       250,000  

Wrightspeed, Inc. Convertible Note

          500,000       7,667                   (499,307 )     693       500,000  

Wrightspeed, Inc. Convertible Note

          500,000       6,667                   (499,307 )     693       500,000  

Wrightspeed, Inc. Convertible Note

          300,000       2,800                   (299,584 )     416       300,000  

Wrightspeed, Inc. Convertible Note

          100,000       400                   (99,861 )     139       100,000  

Wrightspeed, Inc. Preferred Stock Warrants - Series F

    90,980                               (130 )     90,850       200,000  

Wrightspeed, Inc. Preferred Stock Warrants - Series F

                                  227,125       227,125       500,000  

Wrightspeed, Inc. Preferred Stock Warrants - Series F

                                  454,250       454,250       1,000,000  

Wrightspeed, Inc. Preferred Stock Warrants - Series F

                                  454,250       454,250       1,000,000  

Wrightspeed, Inc. Preferred Stock Warrants - Series F

                                  272,550       272,550       600,000  

Wrightspeed, Inc. Preferred Stock Warrants - Series F

                                  90,850       90,850       200,000  

Wrightspeed, Inc. Preferred Stock Warrants - Series F

                                  540       540       500,000  

Wrightspeed, Inc. Preferred Stock Warrants - Series F

                                  1,080       1,080       1,000,000  

 

39

 

 

Firsthand Technology Value Fund, Inc.

 

Notes to Financial Statements - continued

 

MARCH 31, 2019 (UNAUDITED)

 

AFFILIATE/
CONTROLLED
INVESTMENTS*

 

VALUE AT
12/31/18

   

PURCHASES/
MERGER

   

INTEREST

   

SALES/
MATURITY/
EXPIRATION

   

REALIZED
GAIN (LOSS)

   

CHANGE IN
APPRECIATION/
DEPRECIATION

   

VALUE
3/31/19

   

SHARES
HELD AT
3/31/2019

 

Wrightspeed, Inc. Preferred Stock Warrants - Series F

  $     $     $     $     $     $ 1,080     $ 1,080       1,000,000  

Wrightspeed, Inc. Preferred Stock Warrants - Series F

                                  648       648       600,000  

Wrightspeed, Inc. Preferred Stock Warrants - Series F

                                  216       216       200,000  

Wrightspeed, Inc. Preferred Stock Warrants - Series F

    224                               (8 )     216       200,000  

Wrightspeed, Inc. Preferred Stock Warrants - Series F

    22                                     22       13,606  

Wrightspeed, Inc. Preferred Stock Warrants - Series F

    11                                     11       6,803  

Wrightspeed, Inc. Preferred Stock Warrants - Series F

    3,366,260                               (4,810 )     3,361,450       7,400,000  

Wrightspeed, Inc. Preferred Stock Warrants - Series F

    1,819,600                               (2,600 )     1,817,000       4,000,000  

Wrightspeed, Inc. Preferred Stock Warrants - Series F

    2,729,400                               (3,900 )     2,725,500       6,000,000  

Wrightspeed, Inc. Preferred Stock Warrants - Series F

    8,288                               (296 )     7,992       7,400,000  

Wrightspeed, Inc. Preferred Stock Warrants - Series F

    4,480                               (160 )     4,320       4,000,000  

Wrightspeed, Inc. Preferred Stock Warrants - Series F

    6,720                               (240 )     6,480       6,000,000  

Wrightspeed, Inc. Preferred Stock Warrants - Series F

    18                                     18       11,338  

Total Affiliates and Controlled Investments

  $ 204,157,528             $ 810,321             $ 390,537     $ (8,210,089 )   $ 197,559,795          

Total Affiliates

    34,045,111               288,201               390,537       (433,201 )     35,261,910          

Total Controlled Investments

  $ 170,112,417             $ 522,120             $     $ (7,776,888 )   $ 162,297,885          

 

*

Controlled Investments.

 

40

 

 

Firsthand Technology Value Fund, Inc.

 

Consolidated Notes to Financial Statements - continued

 

MARCH 31, 2019 (UNAUDITED)

 

As of March 31, 2019, Kevin Landis represented the Company and sat 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. RECENT ACCOUNTING PRONOUNCEMENTS

 

New Rule Issuances—In August 2018, the Securities and Exchange Commission issued Final Rule Release No. 33 10532, Disclosure Update and Simplification, which in part amends certain financial statement disclosure requirements of Regulation S-X that have become redundant, duplicative, overlapping, outdated, or superseded, in light of other Commission disclosure requirements, GAAP, or changes in the information environment. The amendments are intended to facilitate the disclosure of information to investors and simplify compliance without significantly altering the total mix of information provided to investors. The amendments to Rule 6-04.17 of Regulation S-X (balance sheet) were amended to require presentation of the total, rather than the components of net assets, of distributable earnings on the balance sheet. Consistent with GAAP, funds will be required to disclose to distributable earnings. The amendments to Rule 6-09 of Regulation S-X (statement of changes in net assets) omit the requirement to separately state the sources of distributions paid as well as omit the requirement to parenthetically state the book basis amount of undistributed net investment income. Instead, consistent with GAAP, funds will be required to disclose the total amount of distributions paid, except that any tax return of capital must be separately disclosed. The requirements of the Final Rule Release are effective November 5, 2018 and the Fund's statement of Assets and Liabilities and the Statement of Changes in Net Assets for the current and prior reporting period have been modified accordingly.

 

New Accounting Pronouncements—In August 2018, the FASB issued Accounting Standards Update No. 2018-13 "Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement" ("ASU 2018-13"). ASU 2018-13 eliminates the requirement to disclose the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, the timing of transfers between levels of the fair value hierarchy, and the valuation process for Level 3 fair value measurements. ASU 2018-13 does not eliminate the requirement to disclose the range and weighted average used to develop significant unobservable inputs for Level 3 fair value measurements, and the changes in unrealized gains and losses for recurring Level 3 fair value measurements. ASU 2018-13 requires that information is provided about the measurement uncertainty of Level 3 fair value measurements as of the reporting date. The guidance is effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. Management has evaluated the impact of this change in guidance, and due to the permissibility of early adoption, modified the Funds' fair value disclosures for the current reporting period

 

NOTE 12. SUBSEQUENT EVENTS

 

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

 

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,"

 

42

 

 

including securities of private or micro-cap public U.S. companies, cash, cash equivalents, U.S. government securities and high-quality debt investments that mature in one year or less. In addition, for tax purposes we are treated as a corporation and are subject to federal and state taxes on our income. FCM serves as our investment adviser and manages the investment process on a daily basis.

 

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

 

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

 

PORTFOLIO COMPOSITION

 

We make investments in securities of both public and private companies. Our portfolio investments consist principally of equity and equity-like securities, including common and preferred stock, warrants for the purchase of common and preferred stock, and convertible and term notes. The fair value of our investment portfolio was approximately $201.5 million as of March 31, 2019, as compared to approximately $209.9 million as of December 31, 2018.

 

The following table summarizes the fair value of our investment portfolio by industry sector as of March 31, 2019, and December 31, 2018.

 

 

March 31, 2019

December 31, 2018

Semiconductor Equipment

58.4%

61.8%

Medical Devices

14.2%

15.4%

Mobile Computing

10.1%

10.0%

Advanced Materials

8.1%

7.4%

Automotive

5.6%

4.8%

Aerospace

4.3%

3.5%

Equipment Leasing

2.0%

1.8%

Intellectual Property

2.0%

1.7%

Consumer Electronics

1.3%

2.5%

Semiconductor

0.2%

0.4%

Exchange-Traded/Money Market Funds

0.6%

0.2%

(Liabilities)/Other Assets

(6.8%)

(9.5%)

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

MIDDLE STAGE

LATE STAGE

Developing product or service for market, high level of research and development, little or no revenue.

Established product, customers, business model; limited revenues.

Appreciable revenue; may be break-even or profitable; IPO or acquisition candidate.

 

 

44

 

 

RESULTS OF OPERATIONS

 

The following information is a comparison for the three months ended March 31, 2019 and March 31, 2018

 

INVESTMENT INCOME

 

For the three months ended March 31, 2019, we had investment income of $814,892 primarily attributable to interest accrued on convertible/term note investments with QMAT, Wrightspeed, Vufine, Telepathy Investors and IntraOp Medical Corp.

 

For the three months ended March 31, 2018, we had investment income of $597,515 primarily attributable to interest accrued on convertible/term note investments with QMAT, Revasum, Vufine, Telepathy Investors and IntraOp Medical Corp.

 

The higher level of investment income in the three months ended March 31, 2019, compared to the three months ended March 31, 2018 was due to the increased investments in convertible/term notes.

 

OPERATING EXPENSES

 

Operating expenses totaled approximately $210,348 during the three months ended March 31, 2019 and $3,344,418 during the three months ended March 31, 2018.

 

Significant components of gross operating expenses for the three months ended March 31, 2019, were management fee expense of $1,033,258, professional fees (audit, legal, and consulting) of $82,820, and incentive fees (which was accrued but is not payable until gains in the portfolio are realized) of ($1,076,660). Significant components of gross operating expenses for the three months ended March 31, 2018, were management fee expense of $890,949, professional fees (audit, legal, and consulting) of $88,468, and incentive fees (which was accrued but is not payable until gains in the portfolio are realized) of $2,174,600.

 

The lower level of operating expenses for the three months ended March 31, 2019, compared to the three months ended March 31, 2018 is primarily attributable to the reduction in incentive fee accrual in the three months ended March 31, 2019, which is a quarterly accrual based on what the incentive fee would be if the entire portfolio were liquidated at fair market value.

 

NET INVESTMENT GAIN/(LOSS)

 

The net investment gain/(loss) before taxes was $604,544 for the three months ended March 31, 2019 and $(2,746,903) for the three months ended March 31, 2018.

 

The greater net investment gain in the three months ended March 31, 2019, compared to the three months ended March 31, 2018 is primarily due to the reduction in accrual of the incentive fee in the first quarter of 2019 which was accrued but is not payable until gains in the portfolio are realized.

 

NET INVESTMENT REALIZED GAINS AND LOSSES AND UNREALIZED APPRECIATION AND DEPRECIATION

 

A summary of the net realized and unrealized gains and loss on investments for the three month periods ended March 31, 2019, March 31, 2018, and March 31, 2017, is shown below.

 

   

Three Months Ended
March 31, 2019

 

Realized gains

  $ 4,131,322  

Net change in unrealized appreciation on investments

    (9,412,920 )

Deferred tax benefit

    1,741,447  

Net realized and unrealized gains/(losses) on investments

  $ (3,540,151 )

 

45

 

 

   

As of
March 31, 2019

 

Gross unrealized appreciation on portfolio investments

  $ 95,213,429  

Gross unrealized depreciation on portfolio investments

    (62,050,117 )

Net unrealized appreciation on portfolio investments

  $ 33,163,312  

 

   

Three Months Ended
March 31, 2018

 

Realized losses

  $ (4,781,235 )

Net change in unrealized appreciation on investments

    13,097,555  

Net realized and unrealized gains/(losses) on investments

  $ 8,316,320  

 

   

As of
March 31, 2018

 

Gross unrealized appreciation on portfolio investments

  $ 57,583,932  

Gross unrealized depreciation on portfolio investments

    (44,586,711 )

Net unrealized depreciation on portfolio investments

  $ 12,997,221  

 

During the three months ended March 31, 2019, we recognized net realized gains of approximately $4,131,322 from the sale of investments, primarily Roku. Realized gains were higher than those in the year-ago period due to the sale of Roku.

 

During the three months ended March 31, 2019, net unrealized appreciation on total investments decreased by $9,412,920. 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 composed of a decrease in the fair value of our portfolio companies, notably Pivotal and Revasum.

 

During the three months ended March 31, 2018, we recognized net realized losses of approximately $4,781,235 from the sale/acquisition of investments, primarily Hightail. Realized losses were higher than those in the year-ago period due to the sale/acquisition of Hightail.

 

During the three months ended March 31, 2018, net unrealized appreciation on total investments increased by $13,097,555. 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. This change in net unrealized appreciation was primarily composed of an increase in the fair value of our portfolio companies, notably Pivotal.

 

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

 

For the three months ended March 31, 2019, the net decrease in net assets resulting from operations totaled ($2,837,101) and basic and fully diluted net change in net assets per share for the three months ended March 31, 2019, was ($0.40).

 

For the three months ended March 31, 2018, the net increase in net assets resulting from operations totaled $5,569,417 and basic and fully diluted net change in net assets per share for the three months ended March 31, 2018, was $0.76.

 

The greater decrease in net assets resulting from operations for the three months ended March 31, 2019, as compared to the three months ended March 31, 2018, is due primarily to an increase in unrealized depreciation from investments, most notably Pivotal and Revasum.

 

DISTRIBUTION POLICY

 

Our board of directors will determine the timing and amount, if any, of our distributions. We intend to pay distributions on an annual basis out of assets legally available therefore. In order to qualify as a RIC and to avoid corporate-level tax on our income, we must distribute to our stockholders at least 90% of our ordinary income and realized net short-term

 

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capital gains in excess of realized net long-term capital losses, if any, on an annual basis. In addition, we also intend to distribute any realized net capital gains (i.e., realized net long-term capital gains in excess of realized net short-term capital losses) at least annually.

 

CONTRACTUAL OBLIGATIONS

 

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

 

OFF-BALANCE SHEET ARRANGEMENTS

 

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

 

CRITICAL ACCOUNTING POLICIES

 

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

 

Valuation of Portfolio Investments

 

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

 

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

 

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amounts as interest income. Upon the prepayment of a loan or debt security, any unamortized loan origination is recorded as interest income. We will record prepayment premiums on loans and debt securities as interest income when we receive such amounts.

 

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

 

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

 

Recently Issued Accounting Standards

 

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

 

Inflation

 

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

 

SUBSEQUENT EVENTS

 

Subsequent to the close of the fiscal quarter on March 31, 2019, and through the date of the issuance of the financial statements included herein, a number of material events related to our portfolio of investments occurred, consisting primarily of the purchase of private securities. Since that date, we have purchased private securities with an aggregate cost of approximately $1.2 million.

 

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

 

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private companies, are inherently uncertain, may fluctuate over short periods of time, and may be based on estimates, our determinations of fair value may differ materially from the values that would have been used if a ready market for these securities existed.

 

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

 

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

 

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

 

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

 

PRIVATELY PLACED SMALL COMPANIES RISK

 

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

 

WE CURRENTLY HOLD A PORTION OF OUR ASSETS IN CASH

 

As of March 31, 2019, 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.

 

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

 

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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 March 31, 2019, that have materially affected, or are

 

 

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PART II. OTHER INFORMATION

 

 

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ITEM 1. LEGAL PROCEEDINGS.

 

 

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

 

ITEM 1A. RISK FACTORS.

 

 

There have been no material changes from risk factors as previously disclosed in our Form 10-K for the period ended December 31, 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

 

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SIGNATURES

 

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

 

   

FIRSTHAND TECHNOLOGY VALUE FUND, INC.

(Registrant)

Dated: May 10, 2019

 

   

Kevin Landis

Chief Executive Officer and 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

 

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