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SVVC > SEC Filings for SVVC > Form 10-Q/A on 21-Nov-2012All Recent SEC Filings

Show all filings for FIRSTHAND TECHNOLOGY VALUE FUND, INC.

Form 10-Q/A for FIRSTHAND TECHNOLOGY VALUE FUND, INC.


21-Nov-2012

Quarterly Report


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 Firsthand Technology Value Fund, Inc., that are 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, 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 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 report.

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 business development company 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 intend to elect to be treated as a RIC under Subchapter M of the Code and to qualify annually thereafter.

Our investment objective is to seek long-term growth of capital. There can be no assurance that we will achieve our investment objective. Under normal circumstances, we will invest at least 80% of our total 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 and in the "cleantech" sector. Information technology companies include, but are not limited to, those focused on computer hardware, software, social networking, 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 public companies with market capitalizations less than $250 million. We anticipate that our portfolio will be primarily composed of equity and equity derivative securities of technology and cleantech companies (as defined above). We expect that these investments will range between $1 million and $10 million each, although this investment size will vary proportionately with the size of our capital base.

While our primary focus is to invest in illiquid private technology and cleantech companies, we may also invest in micro-cap publicly traded companies. In addition, we may invest up to 30% of the portfolio in opportunistic investments that do not constitute the private companies and small public companies described above. These other investments may include investments in securities of public companies that are actively traded. 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.


RESULTS OF OPERATIONS
The following information is a comparison for the three-month period ended September 30, 2012, and September 30, 2011.

INVESTMENT INCOME
Interest income totaled $178,290 for the quarter ended September 30, 2012. The interest income is primarily attributable to interest accrued on a convertible note investments with Silicon Genesis Corporation.

Interest income totaled $76,633 for the three-month period ended September 30, 2011. The interest income is primarily attributable to interest accrued on a convertible note investment with Silicon Genesis Corporation.

OPERATING EXPENSES
Operating expenses totaled approximately $1,251,886 during the quarter ended September 30, 2012.

Significant components of operating expenses for the quarter ended September 30, 2012 were management fee expense of $1,007,524 and professional fees (audit, legal, accounting, and consulting) of $141,925.

Operating expenses totaled approximately $628,332 during the period ended September 30, 2011.

Significant components of operating expenses for the quarter ended September 30, 2011 were management fee expense of $469,069 and professional fees (audit, legal, accounting, and consulting) of $106,542.

NET INVESTMENT INCOME BEFORE INVESTMENT GAINS AND LOSSES
The net investment loss was $1,073,596 for the quarter ended September 30, 2012.

The net investment loss was $551,699 for the quarter ended September 30, 2011.

NET INVESTMENT REALIZED GAINS AND LOSSES AND UNREALIZED APPRECIATION AND DEPRECIATION
Realized gains or losses are measured 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, and includes investments charged off during the period, net of recoveries. Net change in unrealized appreciation or depreciation primarily reflects the change in portfolio investment values during the reporting period, including the reversal of previously recorded unrealized appreciation or depreciation when gains or losses are realized.

During the quarter ended September 30, 2012, we recognized net realized gains of approximately $103,162 from the sale of securities.

During the quarter ended September 30, 2012, net unrealized depreciation on total investments and other assets increased by $5,433,467. 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 depreciation was primarily comprised of a decrease in the fair value of our portfolio companies, notably Facebook.

During the quarter ended September 30, 2011, we recognized net realized gains of approximately $106,793 from the sale of publicly-traded securities.


During the quarter ended September 30, 2011, net unrealized depreciation on total investments increased by $5,534,203. 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 depreciation was primarily comprised of decreases in the fair value of our portfolio companies due to company performance and market conditions of approximately $5.3 million.

A summary of the net realized and unrealized loss on investments for the three-month period ended September 30, 2012, and September 30, 2011, is shown below.

                                                       THREE MONTHS ENDED SEPTEMBER 30, 2012
Realized gains                                                          $          103,162
Net change in unrealized depreciation on investments                            (5,433,467 )
Net realized and unrealized loss on investments                                 (5,330,305 )

The following table itemizes the net unrealized depreciation of investments as of September 30, 2012.

AS OF SEPTEMBER 30, 2012

Gross unrealized appreciation on portfolio investments                  $          645,328
Gross unrealized depreciation on portfolio investments                         (21,530,842 )
Net unrealized depreciation on portfolio investments                           (20,885,514 )

                                                        THREE MONTHS ENDED SEPTEMBER 30,2011
Realized gains                                                          $          106,793
Net change in unrealized depreciation on investments                            (5,534,203 )
Net realized and unrealized loss on investments                                 (5,427,410 )

The following table itemizes the net unrealized depreciation of investments as of September 30, 2011.

AS OF SEPTEMBER 30,2011

Gross unrealized appreciation on portfolio investments                  $          129,659
Gross unrealized depreciation on portfolio investments                          (7,241,384 )
Net increase in unrealized depreciation on portfolio investments                (7,111,725 )

INCOME AND EXCISE TAXES
As we intend to qualify as a regulated investment company ("RIC") under Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code"), the Company does not provide for income taxes. The Company recognizes interest and penalties in income tax expense.

NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS AND CHANGE IN NET ASSETS PER SHARE
For the quarter ended September 30, 2012, the net decrease in net assets resulting from operations totaled $(6,403,901). Basic and fully-diluted net change in net assets per share for the quarter ended September 30, 2012, was $(0.75).


For the quarter ended September 30, 2011, the net decrease in net assets resulting from operations totaled $5,979,109. Basic and fully-diluted net change in net assets per share for the quarter ended September 30, 2011 was $(1.71).

FINANCIAL CONDITION, LIQUIDITY, AND CAPITAL RESOURCES

At September 30, 2012, we had investments in public and private securities totaling approximately $29.4 million. Also, at September 30, 2012, we had approximately $167.0 million in cash and cash equivalents. We primarily invest cash on hand in a money market treasury portfolio. We expect the portion of our portfolio consisting of cash and cash equivalents to decrease as we become fully invested.

As of September 30, 2012, net assets totaled approximately $196.0 million, with a net asset value per share of $22.91. 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 net asset value, existing investors will experience dilution.

PORTFOLIO INVESTMENTS

PRIVATE INVESTMENTS
We make investments in securities of both public and private companies. During the quarter ended September 30, 2012, we had investments in the following private companies:

Gilt Groupe Holdings, Inc.
Gilt Groupe Holdings, Inc. ("Gilt Groupe"), New York, NY, is a leader in online "flash sales" of designer merchandise at discount prices.

At September 30, 2012, our investment in Gilt Groupe consisted of 88,841 shares of common stock with an aggregate market value of approximately $1.6 million.

INNOViON Corporation
INNOViON Corporation ("Innovion"), San Jose, California, provides foundry ion implant services to the microelectronics industry.

At September 30, 2012, our investments in INNOViON consisted of 324,948 shares of Series A-1 preferred stock, 168,804 shares of Series A-2 preferred stock, and one share of common stock, with a combined fair value of $153,526.

Movius Corporation
Movius Corporation ("Movius"), Atlanta , Georgia, provides unified communications solutions for telecommunications carriers worldwide. Its applications include converged messaging, unified conferencing, and virtual telephony.


At September 30, 2012, our investment in Movius consisted of multiple investments in IP Unity, Inc., a predecessor entity. At September 30, 2012, our investments in IP Unity consisted of 1,932,222 shares of Series C preferred stock, and 193,042 shares of Series E preferred stock, with a combined fair value of $298.

Silicon Genesis Corporation
Silicon Genesis Corporation ("SiGen"), San Jose, CA, provides engineered substrate process technology for the semiconductor, display, optoelectronics, and solar markets.

At September 30, 2012, 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, 911,892 shares of common stock, warrants for 1,352,198 shares of Series 1-E preferred stock, warrants for 8,037,982 shares of common stock, a $1.25 million par value convertible note, a $500,000 par value convertible note, and a $1.0 million par value note. The notes each bear annual interest at a rate of 20% and mature on December 31, 2012. At September 30, 2012 the combined fair value of our SiGen securities was approximately $2.1 million.

Skyline Solar, Inc.
Skyline Solar, Inc. ("Skyline Solar"), Mountain View, CA, is a supplier of concentrated solar photovoltaic systems for utility-scale solar electricity generation projects.

At September 30, 2012, our investment in Skyline Solar consisted of 793,651 shares of Series C preferred stock, with a fair value of $249,365.

SolarCity Corp.
SolarCity Corp. ("SolarCity"), San Mateo, CA, is a leading installer of commercial and residential solar photovoltaic systems.

At September 30, 2012, our investment in SolarCity consisted of 426,300 shares of common stock, with a fair value of approximately $7.3 million.

SoloPower, Inc.
SoloPower, Inc. ("SoloPower"), San Jose, CA, produces low-cost, high-power, flexible thin-film photovoltaic modules that offer a viable alternative to the electricity produced using traditional fossil fuels.

At September 30, 2012, our investments in SoloPower consisted of 400,000 shares of Series A preferred stock, 100,205 shares of Series B preferred stock, 100,000 shares of Series D preferred stock, 190,476 shares of Series E-1 preferred stock, and warrants to purchase 400,000 shares of common stock, with a combined fair value of approximately $922,280.

Twitter, Inc.
Twitter, Inc. ("Twitter"), San Francisco, CA, is an online social networking service that lets users send and receive 140-character messages ("tweets"). The service has more than 140 million active users and more than 340 million daily tweets.

At September 30, 2012, our investment in Twitter consisted of 108,400 shares of common stock, with a fair value of approximately $2.0 million.


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 September 30, 2012, our investments in UCT consisted of 1,500,000 shares of common stock and warrants to purchase 172,270 shares of common stock, with a combined fair value of $0.

PUBLIC INVESTMENTS
On September 30, 2012, we had investments in the following public securities:

Facebook
Facebook, Inc. ("Facebook"), Menlo Park, CA, is an online social networking service with approximately 900 million active users worldwide. Facebook also develops technologies to facilitate information sharing and the digital mapping of social connections.

At September 30, 2012, our investment in Facebook consisted of 600,000 shares of common stock with a fair value of $11,696,400. Because our holdings in Facebook were purchased while it was a private company, we are subject to a 180-day "lock-up" period during which we are not allowed to dispose of the security. Due to this resale restriction, our valuation of our Facebook holdings reflects a discount to Facebook's closing price on September 30, 2012.

Intevac, Inc.
Intevac, Inc. ("Intevac"), Santa Clara, CA, is a leading provider of cost-effective, advanced equipment and products to the hard disk drive, solar, semiconductor, and photonics industries. At September 30, 2012, our investment in Intevac consisted of 545,156 shares of common stock with an aggregate market value of approximately $3.3 million.

SUBSEQUENT EVENTS
Subsequent to the close of the fiscal quarter on September 30, 2012, 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.

On October 5, 2012, SolarCity filed a registration statement with the SEC in connection with its proposed initial public offering.

We closed on investments of $1,400,000 and $800,000 in Gilt Groupe on October 4, 2012 and October 11, 2012, respectively.

We closed on investments of $750,000, $3,118,500, $1,872,000, and $3,300,000 in Twitter on October 12, 2012, October 19, 2012, October 25, 2012, and October 31, 2012, respectively.

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