The information contained in this section should be read in conjunction with our
2021 Consolidated Financial Statements and notes thereto.
OVERVIEW
We are an externally managed, closed-end, non-diversified management investment
company organized as a Maryland corporation that has elected to be treated as a
BDC under the 1940 Act. As such, we are required to comply with certain
regulatory requirements. For instance, we generally have to invest at least 70%
of our total assets in "qualifying assets," including securities of private or
micro-cap public U.S. companies, cash, cash equivalents, U.S. government
securities and high-quality debt investments that mature in one year or less. In
addition, for tax purposes we have elected to be treated as a RIC under
Subchapter M of the Code. 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.
28
The following table summarizes the fair value of our investment portfolio by
industry sector as of December 31, 2021 and December 31, 2020.
December 31, 2021 December 31, 2020
Semiconductor Equipment 32.8% 40.6%
Medical Devices 28.6% 25.8%
Automotive 24.5% 23.1%
Aerospace 5.8% 3.5%
Equipment Leasing 2.0% 2.2%
Intellectual Property 1.1% 1.3%
Advanced Materials 0.7% 1.1%
Exchange-Traded/Money Market Funds 0.7% 2.3%
(Liabilities)/Other Assets 3.8% 0.1%
Net Assets 100.0% 100.0%
Certain trends in the technology industry may have an impact on the portfolio in
coming quarters. In particular, the semiconductor industry, which has
historically been a highly cyclical industry, has enjoyed a period of strong
growth over the past several years. Given the substantial weighting of
semiconductor investments in the current portfolio, the Fund will be sensitive
to changes in this industry. Fund performance may also be impacted by the speed
of adoption of certain new technologies, including, but not limited to: electric
drivetrains for trucks, electron intra-operative radiation for cancer treatment,
X-ray inspection of electronic components, and small form factor satellites.
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.
29
EARLY STAGE MIDDLE STAGE LATE STAGE
Developing product or Established product, Appreciable revenue; may be
service for market, high customers, business model; break-even or profitable;
level of research and limited revenues. IPO or acquisition
development, little or no
candidate.
revenue.
[[Image Removed]]
RESULTS OF OPERATIONS
The following information is a comparison for the year ended December 31, 2021,
December 31, 2020, and December 31, 2019.
INVESTMENT INCOME
For the year ended December 31, 2021, we had investment income of $6,318,695
primarily attributable to interest accrued on convertible/term note investments
with IntraOp Medical Corp, Hera, and Wrightspeed.
For the year ended December 31, 2020, we had investment income of $3,650,934
primarily attributable to interest accrued on convertible/term note investments
with IntraOp Medical Corp, Hera, and Wrightspeed.
For the year ended December 31, 2019, we had investment income of $1,789,651
primarily attributable to interest accrued on convertible/term note investments
with IntraOp Medical Corp, Wrightspeed and Hera.
The higher level of investment income in the year ended December 31, 2021
compared to the year ended December 31, 2020 was due to increasing principal
amounts on notes issued by IntraOp, Hera and Wrightspeed.
The higher level of investment income in the year ended December 31, 2020
compared to the year ended December 31, 2019 was due to increasing principal
amounts on notes issued by IntraOp, Hera and Wrightspeed.
OPERATING EXPENSES
Operating expenses totaled approximately $3,255,258 during the year ended
December 31, 2021, $3,029,435 during the year ended December 31, 2020, and
$(4,657,825) during the year ended December 31, 2019.
Significant components of operating expenses for the year ended December 31,
2021, were a management fee expense of $2,220,811 and professional fees (audit,
legal, accounting, and consulting) of $367,471. Significant components of
operating expenses for the year ended December 31, 2020, were a management fee
expense of $2,016,981 and professional fees (audit, legal, accounting, and
consulting) of $415,447. Significant components of operating expenses
30
for the year ended December 31, 2019, were a management fee expense of
$3,405,735, professional fees (audit, legal, accounting, and consulting) of
$432,337, and incentive fee adjustments (which were accrued but are not payable
until gains in the portfolio are realized) of $(9,261,847).
The higher level of operating expenses for the year ended December 31, 2021
compared to the year ended December 31, 2020 is primarily attributable to an
increase in our total net assets, on which the investment advisory fees are
based.
The higher level of operating expenses for the year ended December 31, 2020
compared to the year ended December 31, 2019 is primarily attributable to the
reversal of the accrual of an incentive fee in 2019, which is accrued but not
payable until gains in the portfolio are realized. The incentive fee payable was
reduced to $0 due to the decrease in the market value of our portfolio in the
year 2019.
NET INVESTMENT GAIN/(LOSS)
The net investment gain/(loss) before taxes was $3,063,437 for the year ended
December 31, 2021, $621,499 for the year ended December 31, 2020, and $6,447,476
for the year ended December 31, 2019.
The greater net investment gain before taxes in the year ended December 31, 2021
compared to the year ended December 31, 2020 is primarily attributable to
increased investments in convertible note with IntraOp Medical, Hera Systems and
Wrightspeed on which we accrue income.
The lesser net investment gain before taxes in the year ended December 31, 2020
compared to the year ended December 31, 2019 is primarily due to the reversal of
the accrual of an incentive fee in 2019 which was accrued but is not payable
until gains in the portfolio are realized. The incentive fee was reduced to $0
due to the decrease in the market value of our portfolio.
NET INVESTMENT REALIZED GAINS AND LOSSES AND UNREALIZED APPRECIATION AND
DEPRECIATION
A summary of the net realized and unrealized gains and losses on investments for
the years ended December 31, 2021, December 31, 2020, and December 31, 2019, is
shown below.
Year Ended
December 31, 2021
Realized gains $ 11,753,065Net change in unrealized depreciation on investments $ (22,204,246 )
Net realized and unrealized loss on investments $ (10,451,181 )
As of
December 31, 2021
Gross unrealized appreciation on portfolio investments $ 18,046,155
Gross unrealized depreciation on portfolio investments $ (72,146,172 )
Net unrealized depreciation on portfolio investments,
warrants, and other assets $ (54,100,017 )
Year Ended
December 31, 2020
Realized losses $ (7,516,642 )
Net change in unrealized depreciation on investments $ (8,209,299 )
Deferred tax benefit
$ (7,842,583 )
Net realized and unrealized loss on investments $ (23,568,524 )
31
As of
December 31, 2020
Gross unrealized appreciation on portfolio investments $ 21,165,955
Gross unrealized depreciation on portfolio investments $ (53,061,752 )
Net unrealized depreciation on portfolio investments,
warrants, and other assets $ (31,895,797 )
Year Ended
December 31, 2019
Realized losses $ (20,988,482 )
Net change in unrealized appreciation on investments $ (66,262,704 )
Deferred tax expense
$ 16,814,056
Net realized and unrealized loss on investments $ (70,437,130 )
As of
December 31, 2019
Gross unrealized appreciation on portfolio investments $ 40,954,730
Gross unrealized depreciation on portfolio investments $ (64,641,202 )
Net unrealized depreciation on portfolio investments,
warrants, and other assets
$ (23,686,472 )
During the year ended December 31, 2021, we recognized net realized gains of
approximately $11,753,065 from the sale of investments. Realized gains were
higher compared to the Fund's realized losses in 2020 due to the sale of
investments, primarily Pivotal in 2021.
During the year ended December 31, 2021, net unrealized depreciation on total
investments increased by $22,204,246. 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. The increase in
unrealized depreciation on total investments during the year is due primarily to
the decrease in value of our investments, most notably, IntraOp Medical,
Wrightspeed and SVXR.
During the year ended December 31, 2020, we recognized net realized losses of
approximately $7,516,642 from the sale/write-off of investments. Realized losses
were lower compared to the Fund's realized losses in 2019 due to the
sale/write-off of our QMAT and Vufine positions in the 2019 year.
During the year ended December 31, 2020, net unrealized depreciation on total
investments increased by $8,209,299. 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. The increase in
unrealized depreciation on total investments during the year is due primarily to
the decrease in value of our investments, most notably, Hera Systems, Pivotal
and Revasum.
During the year ended December 31, 2019, we recognized net realized losses of
approximately $20,988,482 from the sale/write-off of investments. Realized
losses were higher compared to the Fund's realized losses in 2018 due to the
sale/write-off of our QMAT and Vufine positions.
During the year ended December 31, 2019, net unrealized appreciation on total
investments decreased by $66,262,704. 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. The decrease in
unrealized appreciation on total investments during the year is due primarily to
the decrease in value of our investments, most notably, IntraOp Medical,
Phunware, QMAT and Revasum.
32
INCOME AND EXCISE TAXES
Beginning on June 30, 2018, we were no longer able to qualify as a regulated
investment company ("RIC") under Subchapter M of the Internal Revenue Code of
1986, as amended (the "Code"). This change in tax status resulted from the
increase in the value of a single holding, Pivotal Systems Corp., which meant
that we were no longer able to satisfy the diversification requirements for
qualification as a RIC. As a result of this change, we will be taxed as a
corporation for our fiscal year ended December 31, 2018, and will continue to be
taxed in that manner for future fiscal years, paying federal and applicable
state corporate taxes on our taxable income, unless and until we are able to
once again qualify as a RIC, based on changes in the composition of our
portfolio. Consequently, at the close of each fiscal quarter beginning with the
quarter ended June 30, 2018, we will record a deferred tax liability for any net
realized gains and net ordinary income for the year-to-date period plus net
unrealized gains as of the end of the quarter.
NET INCREASE/(DECREASE) IN ASSETS RESULTING FROM OPERATIONS AND CHANGE IN NET
ASSETS PER SHARE
For the year ended December 31, 2021, the net decrease in net assets resulting
from operations (net of deferred taxes) totaled $7,387,744 and the basic and
fully diluted net change in net assets per share for the year ended December 31,
2021 was $(1.07).
For the year ended December 31, 2020, the net decrease in net assets resulting
from operations (net of deferred taxes) totaled $22,947,025 and the basic and
fully diluted net change in net assets per share for the year ended December 31,
2020 was $(3.33).
For the year ended December 31, 2019, the net decrease in net assets resulting
from operations (net of deferred taxes) totaled $64,528,568 and the basic and
fully diluted net change in net assets per share for the year ended December 31,
2019 was $(8.99).
The lesser decrease in net assets resulting from operations (net of deferred
taxes) for the year ended December 31, 2021 as compared to the year ended
December 31, 2020, is due primarily to a greater increase in realized gains from
investments, most notably Pivotal Systems.
The lesser decrease in net assets resulting from operations (net of deferred
taxes) for the year ended December 31, 2020 as compared to the year ended
December 31, 2019, is due primarily to a lesser decrease in the asset valuations
of our holdings, which are determined in good faith by our Board of Directors.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
Our liquidity and capital resources are generated primarily from sales or
liquidation proceeds of our investments. In management's view, we have
sufficient liquidity and capital resources to pay our operating expenses and
conduct investment activities over the next twelve months.
Our primary uses of cash are to make investments, pay our operating expenses,
and make distributions to our stockholders. For the years ended December 31,
2021, 2020, and 2019, our operating expenses were $3,255,258, $3,029,435, and
$4,604,022, respectively.
For the year ended December 31, 2021, our total cash reserves and liquid
securities decreased approximately 74%, primarily due to the purchase of
portfolio securities. We believe that our current liquid assets are sufficient
to meet the Company's short-term financing needs.
During the year ended December 31, 2021, cash and cash equivalents decreased to
$616,064 at the end of the year, from $2,368,393 at the beginning of the year.
The decrease in cash and cash equivalents primarily resulted from the purchase
of portfolio investments in 2021.
33
At December 31, 2021, we had investments in public and private securities
totaling approximately $91.1 million. Also, at December 31, 2021, we had
approximately $0.0 million in cash. We primarily invest cash on hand in money
market treasury portfolios. We expect the portion of our portfolio consisting of
cash and cash equivalents to decrease as we become fully invested.
As of December 31, 2021, net assets totaled approximately $94.8 million, with an
NAV per share of $13.75. Our primary use of funds will be investments in
portfolio companies and payments of fees and other operating expenses we incur.
Additionally, we expect to raise additional capital to support our future growth
through future equity offerings. To the extent we determine to raise additional
equity through an offering of our common stock at a price below NAV, existing
investors will experience dilution.
PORTFOLIO INVESTMENTS
PRIVATE INVESTMENTS
We make investments in securities of both public and private companies. December
31, 2021, we had investments in the following private companies:
EQX Capital, Inc.
EQX Capital, Inc. ("EQX"), San Francisco, California, is an equipment leasing
company.
At December 31, 2021, our investment in EQX consisted of 2,300,000 shares of
Series A preferred stock and 100,000 shares of common stock with an aggregate
fair value of approximately $1.9 million.
Hera Systems, Inc.
Hera Systems, Inc. ("Hera"), San Jose, CA, is currently developing a
constellation of micro satellites to launch into low Earth orbit with imaging
and communications capabilities.
At December 31, 2021, our investment in Hera consisted of 3,642,324 shares of
Series A preferred stock, 7,039,203 shares of Series B preferred stock,
2,650,000 shares of Series C preferred stock, $500,000 par value convertible
note, $500,000 par value convertible note, $250,000 par value convertible note,
$250,000 par value convertible note, $250,000 par value convertible note,
$250,000 par value convertible note, $40,000 par value convertible note, $20,000
par value convertible note, $200,000 par value convertible note, $220,000 par
value convertible note, $150,000 par value convertible note, $50,000 par value
convertible note, $200,000 par value convertible note, $150,000 par value
convertible note, $150,000 par value convertible note, $150,000 par value
convertible note, $150,000 par value convertible note, $150,000 par value
convertible note, $150,000 par value convertible note, $150,000 par value
convertible note, $150,000 par value convertible note, $150,000 par value
convertible note, $150,000 par value convertible note, and 24,414,922 shares of
Series B warrants with an aggregate fair value of approximately $5.5 million.
IntraOp Medical Corp.
IntraOp Medical Corporation ("IntraOp"), Sunnyvale, California, manufactures and
markets the Mobetron, a medical device for delivering Intra Operative Electron
Radiation Therapy to cancer patients.
At December 31, 2021, our investment in IntraOp consisted of 26,856,187 shares
of Series C preferred stock, $3,000,000 par value term note, $2,000,000 par
value term note, $1,300,000 par value convertible note, $500,000 par value
convertible note, $500,000 par value convertible note, $500,000 par value
convertible note, $500,000 par value convertible note, $1,000,000 par value
convertible note, $400,000 par value convertible note, $750,000 par value
convertible note, $1,000,000 par value convertible note, $1,000,000 par value
convertible note, $500,000 par value convertible note, $500,000 par value
convertible note, $500,000 par value convertible note, $500,000 par value
convertible note, $500,000 par value convertible note, $500,000 par value
convertible note, and a $10,961,129 par value convertible note with a combined
aggregate fair value of approximately $27.1 million.
34
Kyma, Inc.
Kyma, Inc. ("Kyma"), Raleigh, NC, is a supplier of high-quality gallium
nitride-based wafers to semiconductor device manufacturers in the electronics
and optical markets.
At December 31, 2021, our investment in Kyma consisted of a $100,000 par value
convertible note with a combined fair value of approximately $100 thousand.
Lyncean Technologies, Inc.
Lyncean Technologies, Inc. ("Lyncean"), Fremont, CA, is a developer X-ray and
extreme ultraviolet (EUV) light sources for laboratory and commercial use.
At December 31, 2021, our investment in Lyncean consisted of 869,792 shares of
Series B preferred stock with a combined fair value of approximately $280
thousand.
Silicon Genesis Corp.
Silicon Genesis Corporation ("SiGen"), San Jose, CA, provides engineered
substrate process technology for the semiconductor, display, optoelectronics,
and solar markets.
At December 31, 2021, our investments in SiGen consisted of 82,914 shares of
Series 1-C preferred stock, 850,830 shares of Series 1-D preferred stock,
5,704,480 shares of Series 1-E preferred stock, 912,453 shares of Series 1-F
preferred stock, 48,370,793 shares of Series 1-G preferred stock, 837,942 shares
of Series 1-H preferred stock, 921,892 shares of common stock, and warrants for
37,982 shares of common stock with a combined fair value of approximately $1.1
million.
SVXR, Inc.
SVXR, Inc. ("SVXR"), San Jose, California, is an X-ray inspection tool
manufacturer whose products are used for inline product monitoring, defect
detection, and metrology.
At December 31, 2021, our investment in SVXR consisted of 8,219,454 shares of
Series A preferred stock with a combined fair value of approximately $0.
UCT Coatings, Inc.
UCT Coatings, Inc. ("UCT"), Stuart, Florida, is a leader in the development of
metal coatings that reduce friction and improve efficiency in mechanical
systems.
At December 31, 2021, our investments in UCT consisted of 1,500,000 shares of
common stock with a combined fair value of approximately $614 thousand.
Wrightspeed, Inc.
Wrightspeed, Inc. ("Wrightspeed"), San Jose, California, is a supplier of
electric drivetrains for heavy-duty commercial vehicles.
At December 31, 2021, our investments in Wrightspeed consisted of 69,102 shares
of common stock, 60,733,693 shares of Series AA preferred stock, warrants to
purchase 609,756 shares of Series AA preferred stock, $750,000 par value
convertible note, $400,000 par value convertible note, $900,000 par value
convertible note, $1,050,000 par value convertible note, $400,000 par value
convertible note, $375,000 par value convertible note, $2,000,000 par value
convertible note, $1,400,000 par value convertible note, $1,200,000 par value
convertible note, $700,000 par value convertible note, $300,000 par value
convertible note, $1,000,000 par value convertible note, $1,000,000 par value
convertible note, $1,000,000 par value convertible note, $1,000,000 par value
convertible note, $1,000,000 par value convertible note, $1,000,000 par value
convertible note, $1,000,000 par value convertible note, and a $4,929,015 par
value convertible note with a combined fair value of approximately $23.2
million.
35
PUBLIC INVESTMENTS
At December 31, 2021, we had investments in the following public securities:
Pivotal Systems Corp.
Pivotal Systems, Corporation ("Pivotal Systems"), Fremont, California, provides
monitoring and process control technologies for the semiconductor manufacturing
industry.
At December 31, 2021, our investment in Pivotal Systems consisted of 14,589,506
shares of CDIs with a combined fair value of approximately $9.3 million.
Revasum, Inc.
Revasum, ("Revasum"), San Luis Obispo, California, designs CMP and grinding
technology for the semiconductor equipment industry.
At December 31, 2021, our investment in Revasum consisted of 46,834,340 shares
of CDIs with an aggregate fair value of approximately $21.5 million
Fidelity Investments Money Market Treasury Portfolio - Class I
Fidelity Investments Money Market Treasury Portfolio - Class I ("Money Market")
is a money market portfolio that invests primarily in U.S. treasury securities.
At December 31, 2021, our investment in Money Market consisted of 629,653 shares
of the money market fund with a market value of approximately $630 thousand.
DISTRIBUTION POLICY
Our board of directors will determine the timing and amount, if any, of our
distributions. For each year in which the Fund has qualified as a RIC, 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 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")
36
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 income on an accrual basis and dividend income on the
ex-dividend date to the extent that we expect to collect such amounts. We do not
accrue as a receivable interest on loans and debt securities if we have reason
to doubt our ability to collect such interest. Loan origination fees, original
issue discount, and market discount are capitalized, and we amortize any such
amounts as interest income. Upon the prepayment of a loan or debt security, any
unamortized loan origination is recorded as interest income. We will record
prepayment premiums on loans and debt securities as interest income when we
receive such amounts.
Net Realized Gains or Losses and Net Change in Unrealized Appreciation or
Depreciation
We measure realized gains or losses by the difference between the net proceeds
from the repayment or sale and the cost basis of the investment, without regard
to unrealized appreciation or depreciation previously recognized. Net change in
unrealized appreciation or depreciation reflects the change in portfolio
investment values during the reporting period, including any reversal of
previously recorded unrealized appreciation or depreciation, when gains or
losses are realized.
Recently Issued Accounting Standards
From time to time, new accounting pronouncements are issued by the FASB or other
standards setting bodies that are adopted by us as of the specified effective
date. We believe that the impact of recently issued standards that are not yet
effective will not have a material impact on our financial statements upon
effectiveness.
Inflation
Inflation has not had a significant effect on our results of operations in any
of the reporting periods presented herein. However, our portfolio companies have
experienced, and may in the future experience, the impacts of inflation on their
operating results.
SUBSEQUENT EVENTS
Subsequent to the close of the year on December 31, 2021, 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 purchased and sold securities. Since that date, we have purchased
private securities with an aggregate cost of approximately $150 thousand and
sold public securities with an approximate aggregate value of 138 thousand.
37
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FIRSTHAND TECHNOLOGY VALUE FUND, INC. 