FIRSTHAND TECHNOLOGY VALUE FUND, INC. 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
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including securities of private or micro-cap public
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
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
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
The following table summarizes the fair value of our investment portfolio by
industry sector as of
June 30, 2022 December 31, 2021
Medical Devices 32.8% 28.6%
Automotive 30.7% 24.5%
Semiconductor Equipment 18.6% 32.8%
Aerospace 11.1% 5.8%
Equipment Leasing 2.3% 2.0%
Intellectual Property 1.7% 1.1%
Advanced Materials 1.1% 0.7%
Exchange-Traded/Money Market Funds 0.8% 0.7%
Other Assets in Excess of Liabilities 0.9% 3.8%
Net Assets 100.0% 100.0%
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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 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.
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RESULTS OF OPERATIONS
Comparison of the three months ended
INVESTMENT INCOME
For the three months ended
For the three months ended
The lower level of investment income in the three months ended
OPERATING EXPENSES
Net operating expenses totaled approximately
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Significant components of net operating expenses for the three months ended
The lower level of net operating expenses for the three months ended
NET INVESTMENT INCOME/(LOSS)
The net investment income/(loss) before taxes was
The lower net investment income in the three months ended
NET INVESTMENT REALIZED GAINS AND LOSSES AND UNREALIZED APPRECIATION AND DEPRECIATION
A summary of the net realized and unrealized gains and losses on investments for
the three-month periods ended
Three Months Ended
June 30, 2022
Realized losses $ (5,114,349 )
Net change in unrealized depreciation on investments (28,001,081 )
Net realized and unrealized losses on investments
As of
June 30, 2022
Gross unrealized appreciation on portfolio investments
Three Months Ended
June 30, 2021
Realized gains $ 4,548,597
Net change in unrealized depreciation on investments (10,187,066 )
Net realized and unrealized losses on investments $ (5,638,469 )
As of
June 30, 2021
Gross unrealized appreciation on portfolio investments
During the three months ended
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During the three months ended
During the three months ended
During the three months ended
NET INCREASE/(DECREASE) IN ASSETS RESULTING FROM OPERATIONS AND CHANGE IN NET ASSETS PER SHARE
For the three months ended
For the three months ended
The greater decrease in net assets resulting from operations for the three
months ended
The following information is a comparison for the six months ended
INVESTMENT INCOME
For the six months ended
For the six months ended
The lower level of investment income in the six months ended
OPERATING EXPENSES
Net operating expenses totaled approximately
Significant components of net operating expenses for the six months ended
The lower level of net operating expenses for the six months ended
NET INVESTMENT INCOME
The net investment income/(loss) was
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The lower net investment income/(loss) in the six months ended
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 six-month periods ended
Six Months Ended
June 30, 2022
Realized losses $ (4,927,776 )
Net change in unrealized depreciation on investments (36,741,021 )
Net realized and unrealized losses on investments
As of
June 30, 2022
Gross unrealized appreciation on portfolio investments
Six Months Ended
June 30, 2021
Realized gains $ 4,548,624
Net change in unrealized depreciation on investments (409,840 )
Net realized and unrealized gains on investments
As of
June 30, 2021
Gross unrealized appreciation on portfolio investments
During the six months ended
During the six months ended
During the six months ended
During the six months ended
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NET INCREASE/(DECREASE) IN ASSETS RESULTING FROM OPERATIONS AND CHANGE IN NET ASSETS PER SHARE
For the six months ended
For the six months ended
The greater decrease in net assets resulting from operations for the six months
ended
DISTRIBUTION POLICY
During the years that the Company qualifies as a RIC 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 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
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
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The methods for valuing these securities may include: fundamental analysis (sales, income, or earnings multiples, etc.), discounts from market prices of similar securities, purchase price of securities, subsequent private transactions in the security or related securities, or discounts applied to the nature and duration of restrictions on the disposition of the securities, as well as a combination of these and other factors. Because such valuations, and particularly valuations of private securities and private companies, are inherently uncertain, may fluctuate over short periods of time, and may be based on estimates, our determinations of fair value may differ materially from the values that would have been used if a ready market for these securities existed. Our net asset value could be adversely affected if our determinations regarding the fair value of our investments were materially higher than the values that we ultimately realize upon the disposal of such securities.
Revenue Recognition
We record interest or dividend income on an accrual basis to the extent that we expect to collect such amounts. We do not accrue as a receivable interest on loans and debt securities if we have reason to doubt our ability to collect such interest. Loan origination fees, original issue discount, and market discount are capitalized, and we amortize any such amounts as interest income. Upon the prepayment of a loan or debt security, any unamortized loan origination is recorded as interest income. We will record prepayment premiums on loans and debt securities as interest income when we receive such amounts.
Net Realized Gains or Losses and Net Change in Unrealized Appreciation or Depreciation
We measure realized gains or losses by the difference between the net proceeds from the repayment or sale and the cost basis of the investment, without regard to unrealized appreciation or depreciation previously recognized. Net change in unrealized appreciation or depreciation reflects the change in portfolio investment values during the reporting period, including any reversal of previously recorded unrealized appreciation or depreciation, when gains or losses are realized.
Recently Issued Accounting Standards
From time to time, new accounting pronouncements are issued by the FASB or other standards setting bodies that are adopted by us as of the specified effective date. We believe that the impact of recently issued standards that are not yet effective will not have a material impact on our financial statements upon effectiveness.
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
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