UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
(Mark One)
[X]
|
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended December 31, 2021
or
[ ]
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from ______ to ______
Commission file number: 814-00830
Firsthand Technology Value Fund, Inc.
(Exact name of registrant as specified in its charter)
Maryland |
27-3008946 |
150 Almaden Boulevard, Suite 1250
San Jose, California 95113
(Address and zip code of principal executive offices)
(408) 886-7096
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
Name of each exchange on which registered |
Common Stock, $0.001 par value |
The NASDAQ Global Market |
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. [ ]Yes [X]No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. [ ]Yes [X]No
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 issuer has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). [X]Yes [ ]No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in the definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ]
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 [ ] | Accelerated filer [ ] | Non-accelerated filer [X] (Do not check if a smaller reporting company) |
Smaller reporting company [ ] |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). [ ]Yes [X]No
The aggregate market value of the Common Stock held by non-affiliates of the registrant as of December 31, 2021 was approximately $66 million (computed using the closing price of $8.96 per share of Common Stock on December 31, 2021, as reported by the NASDAQ Global Market).
As of March 1, 2022, Firsthand Technology Value Fund had 7,302,146 shares of common stock, par value $0.001 per share, outstanding. of the registrant’s definitive proxy statement prepared in connection with the Annual Meeting of Stockholders to be held in 2022 are incorporated by reference in Part III of this Form 10-K.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant’s definitive proxy statement prepared in connection with the Annual Meeting of Stockholders to be held in 2022 are incorporated by reference in Part III of this Form 10-K.
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FORWARD LOOKING STATEMENTS
This report, and other statements that we may make, may contain forward-looking statements, which relate to future events or our future performance or financial condition. We use words such as “anticipates,” “believes,” “expects,” “plans,” “will,” “may,” “continues,” “seeks,” “likely,” “intends,” and similar expressions to identify forward-looking statements. The forward-looking statements contained in this Annual Report on Form 10-K involve risks and uncertainties, including forward-looking statements as to:
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our future operating results, |
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our business prospects and the prospects of our prospective portfolio companies, |
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the impact of investments that we expect to make, |
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our contractual arrangements and relationships with third parties, |
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the dependence of our future success on the general economy and its impact on the industries in which we invest, |
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the ability of our prospective portfolio companies to achieve their objectives, |
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our expected financings and investments, |
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the adequacy of our cash resources and working capital, and |
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the timing of cash flows, if any, from the operations of our prospective portfolio companies. |
Our actual results could differ materially from those projected in the forward-looking statements for any reason, including the factors set forth in “Risk Factors” and elsewhere in this Annual Report on Form 10-K. In addition, several factors that could materially affect our actual results are the ability of the portfolio companies in which we invest to achieve their objectives; our ability to source favorable private investments; changes in the securities markets, especially the markets for technology companies including those that may be early stage or micro-cap companies; the dependence of our future success of the general economy and its impact on the industries in which we invest and other factors discussed in our periodic filings with the Securities and Exchange Commission (the “SEC”).
Unpredictable or unknown factors could also have material adverse effects on us. Since our actual results, performance or achievements could differ materially from those expressed in, or implied by, these forward-looking statements, we cannot give any assurance that any of the events anticipated by the forward-looking statements will occur, or, if any of them do, what impact they will have on our results of operations and financial condition. All forward-looking statements included in this Annual Report on Form 10-K are expressly qualified in their entirety by the foregoing cautionary statements. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. We do not undertake any obligation to update, amend or clarify these forward-looking statements or the risk factors contained in this Annual Report on Form 10-K, whether as a result of new information, future events or otherwise, except as may be required under the federal securities laws. Although we undertake no obligation to revise or update any forward-looking statements, whether as a result of new information, future events or otherwise, you are advised to consult any additional disclosures that we may make directly to you or through reports that we in the future may file with the SEC.
GENERAL
Firsthand Technology Value Fund, Inc. (“we,” “us,” “our,” the “Company”, the “Fund,” or “SVVC”) is 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 (“BDC”) under the Investment Company Act of 1940, as amended (the “1940 Act”). As such, we are required to comply with certain regulatory requirements. For instance, we generally have to invest at least 70 percent 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
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that mature in one year or less. In addition, for tax purposes since the inception of the Fund, we have elected to be treated as a regulated investment company, or RIC, under Subchapter M of the Internal Revenue Code of 1986, as amended, which we refer to as the “Code.” Starting in 2018, however, we are no longer a RIC and will be taxed as a C corporation for tax purposes. Firsthand Capital Management, Inc. (the “Investment Adviser”, the “Adviser”, or “FCM”) serves as our investment adviser and manages the investment process on a daily basis.
We were incorporated under the Maryland General Corporation Law in April 2010 and acquired our initial portfolio of securities through the reorganization (the “Reorganization”) into us of Firsthand Technology Value Fund (“TVF”), an open-end mutual fund and a series of Firsthand Funds, which is a Delaware statutory trust. The reorganization was completed on April 15, 2011 and we commenced operations on April 18, 2011.
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 percent of our total assets for investment purposes in technology companies. We consider technology companies to be those companies that derive at least 50 percent 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, 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 percent of our assets in privately held companies and 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 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 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 micro-cap 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. Our investment activities are managed by FCM.
Neither our investments nor an investment in us are intended to constitute a balanced investment program. We expect to be risk-seeking rather than risk-averse in our investment approach. There is no assurance that our investment objective will be achieved.
We invest a substantial portion of our assets in securities that we consider to be private venture capital equity investments. These private venture capital equity investments usually do not pay interest or dividends and usually are subject to legal or contractual restrictions on resale that may adversely affect the liquidity and marketability of such securities. We expect to make speculative venture capital investments with limited marketability and a greater risk of investment loss than less-speculative investments. We are not limited by the diversification requirements applicable to a regulated investment company (“RIC”), which means that we may commit all of our assets to only a few investments.
Subject to continuing to meet the compliance tests applicable to BDCs, there are no limitations on the types of securities or other assets in which we may invest. Investments may include the following:
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Venture capital investments, whether in corporate, partnership, or other form, including development-stage or start-up entities; |
● |
Equity, equity-related securities (including options and warrants), and debt with equity features from either private or public issuers; |
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Debt obligations of all types having varying terms with respect to security or credit support, subordination, purchase price, interest payments, and maturity; |
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Foreign securities; |
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Intellectual property or patents or research and development in technology or product development that may lead to patents or other marketable technology; and |
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Miscellaneous investments. |
The table below provides a summary of our investments as of December 31, 2021.
INVESTMENT |
BUSINESS DESCRIPTION |
FAIR VALUE1 |
|||
EQX Capital, Inc. |
Equipment Leasing |
$ | 1,929,910 | ||
Fidelity Investments Money Market Treasury Portfolio - Class I 2 |
Investment Company |
629,653 | |||
Hera Systems, Inc. |
Aerospace |
5,498,952 | |||
IntraOp Medical Corp. |
Medical Devices |
27,081,191 | |||
Kyma, Inc. |
Advanced Materials |
100,000 | |||
Lyncean Technologies, Inc. |
Semiconductor Equipment |
280,160 | |||
Pivotal Systems Corp. 2 |
Semiconductor Equipment |
9,287,771 | |||
Revasum, Inc. 2 |
Semiconductor Equipment |
21,466,824 | |||
Silicon Genesis Corp. |
Intellectual Property |
1,050,722 | |||
SVXR, Inc. |
Semiconductor Equipment |
0 | |||
UCT Coatings, Inc. |
Advanced Materials |
613,650 | |||
Wrightspeed, Inc. |
Automotive |
23,189,709 |
1 |
Fair value for our private company holdings was determined in good faith by our Board of Directors (the “Board” or “Board of Directors”) on December 31, 2021. For public companies, the figure represents the market value of our securities on December 31, 2021, less any discount due to resale restriction on the security. |
2 |
Public company. |
INVESTMENTS AND STRATEGIES
The following is a summary description of the types of assets in which we may invest, the investment strategies we may use, and the attendant risks associated with our investments and strategies.
VENTURE CAPITAL INVESTMENTS
We define venture capital as the money and resources made available to privately held start-up firms and privately held and publicly traded small businesses with exceptional growth potential. These businesses can range in stage from pre-revenue to generating positive cash flow. Most of our long-term venture capital investments are in thinly capitalized, unproven, small companies focused on commercializing risky technologies. These businesses also tend to lack management depth, have limited or no history of operations, and have not attained profitability. Because of the speculative nature of these investments, these securities have a significantly greater risk of loss than traditional investment securities. Some of our venture capital investments will never realize their potential, and some will be unprofitable or result in the complete loss of our investment.
We acquire our investments through direct investments in private companies, negotiations with selling shareholders, and in organized secondary marketplaces for private securities. Our current focus is on investing in late-stage private companies, particularly those with potential for near-term realizations by way of initial public offering (“IPO”) or acquisition.
In connection with our venture capital investments, we may participate in providing a variety of services to our portfolio companies, including the following:
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Recruiting management, |
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Formulating operating strategies, |
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Formulating intellectual property strategies, |
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Assisting in financial planning, |
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Providing management in the initial start-up stages, and |
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Establishing corporate goals. |
We may assist in raising additional capital for these companies from other potential investors and may subordinate our own investment to that of other investors. We typically find it necessary or appropriate to provide additional capital of our own. We may introduce these companies to potential joint venture partners, suppliers, and customers. In addition, we may assist in establishing relationships with investment bankers and other professionals. We may also assist with mergers and acquisitions (“M&As”). We do not currently derive income from these companies for the performance of any of the above services.
We may control, be represented on, or have observer rights on the board of directors of a portfolio company through one or more of our officers or directors, who may also serve as officers of the portfolio company. We indemnify our officers and directors for serving on the board of directors or as officers of portfolio companies, which exposes us to additional risks. Particularly during the early stages of an investment, we may, in rare instances, in effect be conducting the operations of the portfolio company. Our goal is to assist each company in establishing its own independent capitalization, management, and board of directors. As a venture capital-backed company emerges from the developmental stage with greater management depth and experience, we expect that our role in the portfolio company’s operations will diminish.
EQUITY, EQUITY-RELATED SECURITIES AND DEBT WITH EQUITY FEATURES
We may invest in equity, equity-related securities, and debt with equity features. These securities include common stock, preferred stock, debt instruments convertible into common or preferred stock, limited partnership interests, other beneficial ownership interests and warrants, options, or other rights to acquire any of the foregoing.
We may make investments in companies with operating histories that are unprofitable or marginally profitable, that have negative net worth, or that are involved in bankruptcy or reorganization proceedings. These investments would involve businesses that management believes have potential through the infusion of additional capital and management assistance. In addition, we may make investments in connection with the acquisition or divestiture of companies or divisions of companies. There is a significantly greater risk of loss with these types of securities than is the case with traditional investment securities.
Warrants, options, and convertible or exchangeable securities generally give the investor the right to acquire specified equity securities of an issuer at a specified price during a specified period or on a specified date. Warrants and options fluctuate in value in relation to the value of the underlying security and the remaining life of the warrant or option, while convertible or exchangeable securities fluctuate in value both in relation to the intrinsic value of the security without the conversion or exchange feature and in relation to the value of the conversion or exchange feature, which is like a warrant or an option. When we invest in these securities, we incur the risk that the option feature will expire worthless, thereby either eliminating or diminishing the value of our investment.
Most of our current portfolio company investments are in the equity securities of private companies. Investments in equity securities of private companies often involve securities that are restricted as to sale and cannot be sold in the open market without registration under the Securities Act of 1933, as amended or pursuant to a specific exemption from these registrations. Opportunities for sale are more limited than in the case of marketable securities, although these investments may be purchased at more advantageous prices and may offer attractive investment opportunities. Even if one of our portfolio companies completes an IPO, we are typically subject to a lock-up agreement for 180 days, and the stock price may decline substantially before we are free to sell.
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We may also invest in publicly traded securities of whatever nature, including relatively small, emerging growth companies that management believes have long-term growth potential. These investments may be through open-market transactions or through private investments in public equity (“PIPE transactions”). Securities purchased in PIPE transactions are typically subject to a lock-up agreement for 180 days, or are issued as unregistered securities that are not freely available for six months.
Even if we have registration rights to make our investments in privately held and publicly traded companies more marketable, a considerable amount of time may elapse between a decision to sell or register the securities for sale and the time when we are able to sell the securities. The prices obtainable upon sale may be adversely affected by market conditions or negative conditions affecting the issuer during the intervening time. We may elect to hold formerly restricted securities after they have become freely marketable, either because they remain relatively illiquid or because we believe that they may appreciate in value, during which holding period they may decline in value and be especially volatile as unseasoned securities. If we need funds for investment or working capital purposes, we might need to sell marketable securities at disadvantageous times or prices.
DEBT OBLIGATIONS
We may hold debt securities, including in privately held and thinly traded public companies, for income and as a reserve pending more speculative investments. Debt obligations may include U.S. government and agency securities, commercial paper, bankers’ acceptances, receivables or other asset-based financing, notes, bonds, debentures, or other debt obligations of any nature and repurchase agreements related to these securities. These obligations may have varying terms with respect to security or credit support; subordination; purchase price; interest payments; and maturity from private, public, or governmental issuers of any type located anywhere in the world. We may invest in debt obligations of companies with operating histories that are unprofitable or marginally profitable, that have negative net worth or are involved in bankruptcy or reorganization proceedings, or that are start-up or development-stage entities. In addition, we may participate in the acquisition or divestiture of companies or divisions of companies through issuance or receipt of debt obligations. As of December 31, 2021, the debt obligations held in our portfolio consisted of convertible bridge notes and term notes. The convertible bridge notes generally do not generate cash payments to us, nor are they held for that purpose. Our convertible bridge notes and the interest accrued thereon are held for the purpose of potential conversion into equity at a future date. The term notes we hold are income generating.
Our investments in debt obligations may be of varying quality, including non-rated, unsecured, highly speculative debt investments with limited marketability. Investments in lower-rated and non-rated securities, commonly referred to as “junk bonds,” including our venture debt investments, are subject to special risks, including a greater risk of loss of principal and non-payment of interest. Generally, lower-rated securities offer a higher return potential than higher-rated securities, but involve greater volatility of price and greater risk of loss of income and principal, including the possibility of default or bankruptcy of the issuers of these securities. Lower-rated securities and comparable non-rated securities will likely have large uncertainties or major risk exposure to adverse conditions and are predominantly speculative with respect to the issuer’s capacity to pay interest and repay principal in accordance with the terms of the obligation. The occurrence of adverse conditions and uncertainties to issuers of lower-rated securities would likely reduce the value of lower-rated securities held by us, with a commensurate effect on the value of our shares.
The markets in which lower-rated securities or comparable non-rated securities are traded generally are more limited than those in which higher-rated securities are traded. The existence of limited markets for these securities may restrict our ability to obtain accurate market quotations for the purposes of valuing lower-rated or non-rated securities and calculating net asset value or to sell securities at their fair value. Any economic downturn could adversely affect the ability of issuers’ lower-rated securities to repay principal and pay interest thereon. The market values of lower-rated and non-rated securities also tend to be more sensitive to individual corporate developments and changes in economic conditions than higher-rated securities. In addition, lower-rated securities and comparable non- rated securities generally present a higher degree of credit risk. Issuers of lower-rated securities and comparable non-rated securities are often highly leveraged and may not have more traditional methods of financing available to them, so that their ability to service their debt obligations during an economic downturn or during sustained periods of rising interest rates may be impaired. The risk of loss owing to default by these issuers is significantly greater because lower-rated securities and comparable non-rated
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securities generally are unsecured and frequently are subordinated to the prior payment of senior indebtedness. We may incur additional expenses to the extent that we are required to seek recovery upon a default in the payment of principal or interest on our portfolio holdings.
The market value of investments in debt securities that carry no equity participation usually reflects yields generally available on securities of similar quality and type at the time purchased. When interest rates decline, the market value of a debt portfolio already invested at higher yields can be expected to rise if the securities are protected against early call. Similarly, when interest rates increase, the market value of a debt portfolio already invested at lower yields can be expected to decline. Deterioration in credit quality also generally causes a decline in market value of the security, while an improvement in credit quality generally leads to increased value.
FOREIGN SECURITIES
We may make investments in securities of issuers whose principal operations are conducted outside the United States, and whose earnings and securities are stated in foreign currency. In order to maintain our status as a BDC, our investments in non-qualifying assets, including the securities of companies organized outside the U.S., would be limited to 30 percent of our assets.
Compared to otherwise comparable investments in securities of U.S. issuers, currency exchange risk of securities of foreign issuers is a significant variable. The value of these investments to us will vary with the relation of the currency in which they are denominated to the U.S. dollar, as well as with intrinsic elements of value such as credit risk, interest rates, and performance of the issuer. Investments in foreign securities also involve risks relating to economic and political developments, including nationalization, expropriation of assets, currency exchange freezes, and local recession. Securities of many foreign issuers are less liquid and more volatile than those of comparable U.S. issuers. Interest and dividend income and capital gains on our foreign securities may be subject to withholding and other taxes that may not be recoverable by us. We may seek to hedge all or part of the currency risk of our investments in foreign securities through the use of futures, options, and forward currency purchases or sales.
INTELLECTUAL PROPERTY
We believe there is a role for organizations that can assist in technology transfer. Scientists and institutions that develop and patent intellectual property perceive the need for and rewards of entrepreneurial commercialization of their inventions. Our form of investment may be:
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Funding research and development in the development of a technology, |
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Obtaining licensing rights to intellectual property or patents, |
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Acquiring intellectual property or patents, or |
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Forming and funding companies or joint ventures to commercialize further intellectual property. |
Income from our investments in intellectual property or its development may take the form of participation in licensing or royalty income, fee income, or some other form of remuneration. Investment in developmental intellectual property rights involves a high degree of risk that can result in the loss of our entire investment as well as additional risks, including uncertainties as to the valuation of an investment and potential difficulty in liquidating an investment. Further, investments in intellectual property generally require investor patience, as investment return may be realized only after or over a long period. At some point during the commercialization of a technology, our investment may be transformed into ownership of securities of a development-stage or start-up company, as discussed under “Venture Capital Investments” above.
REPURCHASE OF SHARES
Our shareholders do not have the right to compel us to redeem our shares. We may, however, purchase outstanding shares of our common stock from time to time, subject to approval of our Board of Directors and in compliance with applicable corporate and securities laws. The Board of Directors may authorize public open-market purchases or privately negotiated
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transactions from time to time when deemed to be in the best interest of our shareholders. Public purchases would be conducted only after notification to shareholders through a press release or other means. The Board of Directors may or may not decide to undertake any purchases of our common stock.
Our repurchases of our common shares would decrease our total assets and would therefore likely have the effect of increasing our expense ratio. Subject to our investment restrictions, we may borrow money to finance the repurchase of our common stock in the open market pursuant to any tender offer. Interest on any borrowings to finance share repurchase transactions would reduce our net assets. If, because of market fluctuations or other reasons, the value of our assets falls below the required 1940 Act coverage requirements, we may have to reduce our borrowed debt to the extent necessary to comply with the requirement. To achieve a reduction, it is possible that we may be required to sell portfolio securities at inopportune times when it may be disadvantageous to do so.
PORTFOLIO COMPANY TURNOVER
Changes with respect to portfolio companies will be made as our management considers necessary in seeking to achieve our investment objective. The rate of portfolio turnover will not be treated as a limiting or relevant factor when circumstances exist that are considered by management to make portfolio changes advisable.
Although we expect that many of our investments will be relatively long term in nature, we may make changes in particular portfolio holdings whenever it is considered that an investment no longer has substantial growth potential or has reached its anticipated level of performance, or (especially when cash is not otherwise available) that another investment appears to have a relatively greater opportunity for capital appreciation. We may also make general portfolio changes to increase our cash to position us in a defensive posture. We may make portfolio changes without regard to the length of time we have held an investment, or whether a sale results in profit or loss, or whether a purchase results in the reacquisition of an investment that we may have only recently sold. Our investments in privately held companies are illiquid, which limits portfolio turnover. The portfolio turnover rate may vary greatly during a year as well as from year to year and may also be affected by cash requirements.
COMPETITION
We compete for investments with a number of BDCs and other investment funds (including private equity funds and venture capital funds), reverse merger and special purpose acquisition company (“SPACs”) sponsors, investment bankers that underwrite initial public offerings, hedge funds that invest in PIPEs, traditional financial services companies such as commercial banks, and other sources of financing. Many of these entities have greater financial and managerial resources than we do. Furthermore, many of our competitors are not subject to the regulatory restrictions that the 1940 Act will impose on us as a BDC. We believe we compete with these entities primarily on the basis of our willingness to make smaller, non-controlling investments, the experience and contacts of our investment professionals within our targeted industries, our responsive and efficient investment analysis and decision-making processes, and the investment terms that we offer. We do not seek to compete primarily on the deal terms we offer to potential portfolio companies. We use the industry information available to FCM to assess investment risks and determine appropriate pricing for our investments in portfolio companies. In addition, we believe that the relationships of Kevin Landis (FCM’s President and Chief Investment Officer), and the other senior investment professionals FCM retains, enable us to learn about, and compete effectively for, financing opportunities with attractive companies in the industries in which we seek to invest. For additional information concerning the competitive risks we face, see “Risk Factors—Risks relating to our business and structure—We operate in a highly competitive market for investment opportunities.”
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REGULATION
The Small Business Investment Incentive Act of 1980 added the provisions of the 1940 Act applicable only to BDCs. BDCs are a special type of investment company. After a company files its election to be treated as a BDC, it may not withdraw its election without first obtaining the approval of holders of a majority of its outstanding voting securities. The following is a brief description of the 1940 Act provisions applicable to BDCs, qualified in its entirety by reference to the full text of the 1940 Act and the rules issued thereunder by the Securities and Exchange Commission (“SEC”).
Generally, to be eligible to elect BDC status, a company must primarily engage in the business of furnishing capital and making significant managerial assistance available to companies that do not have ready access to capital through conventional financial channels. Such companies that satisfy certain additional criteria described below are termed “eligible portfolio companies.” In general, in order to qualify as a BDC, a company must: (i) be a domestic company; (ii) have registered a class of its securities pursuant to Section 12 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”); (iii) operate for the purpose of investing in the securities of certain types of portfolio companies, including early-stage or emerging companies and businesses suffering or just recovering from financial distress (see following paragraph); (iv) make available significant managerial assistance to such portfolio companies; and (v) file a proper notice of election with the SEC.
An eligible portfolio company generally is a domestic company that is not an investment company or a company excluded from investment company status pursuant to exclusions for certain types of financial companies (such as brokerage firms, banks, insurance companies, and investment banking firms) and that: (i) has a fully diluted market capitalization of less than $250 million and has a class of equity securities listed on a national securities exchange, (ii) does not have a class of securities listed on a national securities exchange, or (iii) is controlled by the BDC by itself or together with others (control under the 1940 Act is presumed to exist where a person owns at least 25 percent of the outstanding voting securities of the portfolio company) and the BDC has a representative on the Board of Directors of such company.
We may be examined periodically by the SEC for compliance with the 1940 Act.
As with other companies regulated by the 1940 Act, a BDC must adhere to certain substantive regulatory requirements. A majority of our directors must be persons who are not “interested persons”, as that term is defined in the 1940 Act. Additionally, we are required to provide and maintain a bond issued by a reputable fidelity insurance company to protect the BDC. Furthermore, as a BDC, we are prohibited from protecting any director or officer against any liability to us or our shareholders arising from willful malfeasance, bad faith, gross negligence, or reckless disregard of the duties involved in the conduct of such person’s office.
The 1940 Act provides that we may not make an investment in non-qualifying assets unless at the time at least 70 percent of the value of our total assets (measured as of the date of our most recently filed financial statements) consists of qualifying assets. Qualifying assets include: (i) securities of eligible portfolio companies; (ii) securities of certain companies that were eligible portfolio companies at the time we initially acquired their securities and in which we retain a substantial interest; (iii) securities of certain controlled companies; (iv) securities of certain bankrupt, insolvent, or distressed companies; (v) securities received in exchange for or distributed in or with respect to any of the foregoing; and (vi) cash items, U.S. government securities, and high quality short-term debt. The SEC has adopted a rule permitting a BDC to invest its cash in certain money market funds. The 1940 Act also places restrictions on the nature of the transactions in which, and the persons from whom, securities can be purchased in some instances in order for the securities to be considered qualifying assets.
We are permitted by the 1940 Act, under specified conditions, to issue multiple classes of debt and a single class of preferred stock if our asset coverage, as defined in the 1940 Act, is at least 200 percent after the issuance of the debt or the preferred stock (i.e., such senior securities may not be in excess of our net assets). Under specific conditions, we are also permitted by the 1940 Act to issue warrants.
Except under certain conditions, we may sell our securities at a price that is below the prevailing net asset value per share only during the 12-month period after (i) a majority of our directors and our disinterested directors have determined that such sale would be in the best interest of us and our stockholders, and (ii) the holders of a majority of our outstanding
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voting securities and the holders of a majority of our voting securities held by persons who are not affiliated persons of ours approve our ability to make such issuances. A majority of the disinterested directors must determine in good faith that the price of the securities being sold is not less than a price that closely approximates the market value of the securities, less any distribution discount or commission.
Certain transactions involving certain closely related persons of the Company, including its directors, officers, and employees, may require the prior approval of the SEC. However, the 1940 Act ordinarily does not restrict transactions between us and our portfolio companies.
TAX STATUS
We are subject to corporate income tax under state and federal law, including under Subchapter C of the Code. This is the same tax status as applies to ordinary operating corporations with publicly traded stock.
INVESTMENT OPPORTUNITY
SVVC invests primarily in equity securities of private technology companies in the United States. We believe that the growth potential exhibited by private technology companies, including cleantech companies, creates an attractive investment environment for SVVC.
The last 20 years has been marked by dramatic changes in the initial public offering (“IPO”) market. Since the dot-com bubble burst in 2000, emerging technology companies have often chosen to stay private longer. The combination of volatile equity markets, increased regulatory requirements (such as the Sarbanes-Oxley Act of 2002), and a lack of investment research coverage has made it less attractive for companies to access the public markets through an IPO. We believe the result is an environment with more opportunities to invest in relatively mature private companies, either directly via primary investments or by purchasing shares in the growing secondary market.
At the same time we believe there are a number of powerful trends creating opportunities for innovative companies and investors alike. The dramatic growth of social networking, cloud computing, and powerful, connected mobile computing devices has enabled new ways of communicating, doing business, and accessing information anytime, anywhere. The Company was established to benefit from convergence of exciting technologies and the growth of private investment opportunities.
COMPETITIVE ADVANTAGES
We believe that we have the following competitive advantages over other capital providers in technology and cleantech companies:
MANAGEMENT EXPERTISE
Kevin Landis, our Chief Executive Officer and Chief Financial Officer, has principal management responsibility for Firsthand Capital Management, Inc. as its owner, President and Chief Investment Officer. Mr. Landis has more than 25 years of experience in technology sector investing, and he intends to dedicate a substantial portion of his time to managing the Company. Mr. Landis controls FCM and is a trustee of Firsthand Funds and a director of the Company.
DISCIPLINED INVESTMENT APPROACH
The Investment Adviser employs a disciplined approach in selecting investments. The Investment Adviser’s investment philosophy focuses on ensuring that our investments have an appropriate return profile relative to risk. When market conditions make it difficult for us to invest according to our criteria, the Investment Adviser intends to be highly selective in deploying our capital. We believe this approach enables us to build an attractive investment portfolio that meets our return and value criteria over the long term.
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We believe it is critical to conduct extensive due diligence on investment targets. In evaluating new investments we, through the Investment Adviser, conduct a rigorous due diligence process that draws from the Investment Adviser’s investment experience, industry expertise, and network of contacts.
FOCUSING ON INVESTMENTS THAT CAN GENERATE POSITIVE RISK-ADJUSTED RETURNS
The Investment Adviser seeks to maximize the potential for capital appreciation. In making investment decisions the Investment Adviser seeks to pursue and invest in companies that meet several of the following criteria:
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outstanding technology, |
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barriers to entry (i.e., patents and other intellectual property rights), |
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experienced management team, |
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established financial sponsors that have a history of creating value with portfolio companies, |
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strong and competitive industry position, and |
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viable exit strategy. |
Assuming a potential investment meets most or all of our investment criteria, the Investment Adviser intends to be flexible in adopting transaction structures that address the needs of prospective portfolio companies and their owners. Our investment philosophy is focused on internal rates of return over the life of an investment. Given our investment criteria and due diligence process, we structure our investments so they correlate closely with the success of our portfolio companies.
ABILITY TO SOURCE AND EVALUATE TRANSACTIONS THROUGH THE INVESTMENT ADVISER’S RESEARCH CAPABILITY AND ESTABLISHED NETWORK
FCM’s investment management team has overseen investments in dozens of private companies across various industries while employed by FCM and its affiliates since 1994. We believe the expertise of the Investment Adviser’s management team enables FCM to identify, assess, and structure investments successfully across all levels of a company’s capital structure and to manage potential risk and return at all stages of the economic cycle.
We seek to identify potential investments both through active origination and through dialogue with numerous management teams, members of the financial community, and corporate partners with whom Mr. Landis has long-standing relationships. We believe that the team’s broad network of contacts within the investment, commercial banking, private equity and investment management communities in combination with their strong reputation in investment management, enables us to attract well-positioned prospective portfolio companies.
LONGER INVESTMENT HORIZON WITH ATTRACTIVE PUBLICLY TRADED MODEL
Unlike private equity and venture capital funds, we are not subject to standard periodic capital return requirements. Such requirements typically stipulate that funds raised by a private equity or venture capital fund, together with any capital gains on such invested funds, must be returned to investors after a pre-agreed time period. These provisions often force private equity and venture capital funds to seek returns on their investments through mergers, public equity offerings, or other liquidity events more quickly than they otherwise might, potentially resulting in both a lower overall return to investors and an adverse impact on their portfolio companies. While we are required to distribute substantially all realized gains, we believe that with our dividend reinvestment plan and our flexibility to make investments with a long-term view and without the capital return requirements of traditional private investment vehicles provide us with the opportunity to generate returns on invested capital and at the same time enable us to be a better long-term partner for our portfolio companies.
INVESTMENTS
FCM seeks to create a diversified portfolio of equity securities by making initial investments of approximately $1 million to $10 million of capital, on average, in the securities of micro-cap public and private companies.
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Our portfolio consists primarily of equity securities of private companies and cash and we expect that our portfolio will continue to consist primarily of, equity positions in private companies and cash. These investments include holdings in several private technology and cleantech companies. Moreover, we may acquire investments in the secondary market and, in analyzing such investments, we will employ the same analytical process as we use for our primary investments. For description of our current investments, see “Portfolio Investments.”
We generally seek to invest in companies from the broad variety of industries in which the Investment Adviser has expertise. The following is a representative list of the industries in which we may elect to invest.
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Advanced Materials |
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Advertising Technology |
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Automotive |
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Biofuels |
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Cloud Computing |
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Computer Hardware |
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Computer Peripherals |
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Computer Software |
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Electronic Components |
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Energy Efficiency |
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Fuel Cells |
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Medical Devices |
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Mobile Computing |
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Semiconductors |
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Social Networking |
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Solar Photovoltaics |
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Solid-state Lighting |
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Telecommunications |
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Water Purification |
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Wearable Technology |
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Wind-Generated Electricity |
We may invest in other industries if we are presented with attractive opportunities.
We may on a limited basis purchase or sell options on indexes or securities. We may engage in these transactions to manage risks or otherwise protect the value of the portfolio, and to use these strategies to a limited extent on an opportunistic basis.
INVESTMENT SELECTION
The Investment Adviser seeks to maximize the potential for capital appreciation.
PROSPECTIVE PORTFOLIO COMPANY CHARACTERISTICS
We have identified several criteria that we believe are important in identifying and investing in prospective portfolio companies. These criteria provide general guidelines for our investment decisions; however, we caution you that no single portfolio company (or prospective portfolio company) will meet all of these criteria. Generally, we use our experience and access to market information generated to identify investment candidates and to structure investments quickly and effectively.
Outstanding Technology
Our investment philosophy places a premium on identifying companies that have developed disruptive technologies, that is, technologies with the potential to dramatically alter the economics or performance of a particular type of product or service.
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Barriers to Entry
We believe having defensible barriers to entry, in the form of patents or other intellectual property rights, is critically important in technology industries, in which change happens very rapidly. We seek out companies that have secured protection of key technologies through patents, trademarks, or other means.
Experienced management and established financial sponsor relationship
We generally require that our portfolio companies have an experienced management team. We also require the portfolio companies to have in place proper incentives to induce management to succeed and to act in concert with our interests as investors, including having significant equity interests. In addition, we focus our investments in companies backed by strong financial sponsors that have a history of creating value and with whom members of our investment adviser have an established relationship.
Strong and defensible competitive market position in industry
We seek to invest in target companies that have developed leading market positions within their respective markets and are well positioned to capitalize on growth opportunities. We seek companies that demonstrate significant competitive advantages versus their competitors, which should help to protect their market position and profitability.
Viable exit strategy
We seek to invest in companies that we believe will provide a steady stream of cash flow to reinvest in their respective businesses. In addition, we also seek to invest in companies whose business models and expected future cash flows offer attractive exit possibilities. These companies include candidates for strategic acquisition by other industry participants and companies that may repay our investments through an initial public offering of common stock or another capital market transaction. In today’s market environment, we believe that a strategic sale is more likely than an IPO for many of our portfolio companies, although IPOs cannot be ruled out. We believe that an acquisition by a strategic buyer is possible at any time for any of our companies.
DUE DILIGENCE
We believe it is critical to conduct extensive due diligence on investment targets. In evaluating new investments, we, through the Investment Adviser, conduct a rigorous due diligence process that draws from the Investment Adviser’s investment experience, industry expertise, and network of contacts. The Investment Adviser conducts extensive due diligence investigations in their investment activities. In conducting due diligence, the Investment Adviser uses publicly available information as well as information from its relationships with former and current management teams, consultants, competitors, and investment bankers.
Our due diligence typically includes:
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review of historical and prospective financial information; |
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review of technology, product, and business plan; |
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on-site visits; |
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interviews with management, employees, customers, and vendors of the potential portfolio company; |
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background checks; and |
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research relating to the company’s management, industry, markets, products and services, and competitors. |
Upon the completion of due diligence, the Investment Adviser’s investment committee determines whether to pursue the potential investment. Additional due diligence with respect to any investment may be conducted on our behalf by attorneys and accountants prior to the closing of the investment, as well as other outside consultants, experts, and/or advisers, as appropriate. To the extent unaffiliated, third-party consultants, experts, and/or advisers are used, we will be responsible for those expenses.
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INVESTMENT STRUCTURE
Once we have determined that a prospective portfolio company is suitable for investment, we work with the management of that company and its other capital providers to structure an investment. We negotiate among these parties to agree on how our investment is expected to perform relative to the other capital in the portfolio company’s capital structure.
MANAGERIAL ASSISTANCE
As a BDC, we offer, and must provide upon request, managerial assistance to certain of our portfolio companies. This assistance could involve, among other things, monitoring the operations of our portfolio companies, participating in board and management meetings, consulting with and advising officers of portfolio companies, and providing other organizational and financial guidance. We may receive fees for these services. FCM will provide such managerial assistance on our behalf to portfolio companies that request this assistance. For a description of relationships between us and our portfolio companies, please see “Portfolio Companies.”
ONGOING RELATIONSHIPS WITH PORTFOLIO COMPANIES
Monitoring
FCM monitors our portfolio companies on an ongoing basis. Specifically, FCM monitors the financial trends of each portfolio company to determine if they are meeting their respective business plans and to assess the appropriate course of action for each company.
FCM has several methods of evaluating and monitoring the performance and fair value of our investments, which may include the following:
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Assessment of success in adhering to portfolio company’s technology development, business plan and compliance with covenants; |
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Periodic and regular contact with portfolio company management and, if appropriate, the financial or strategic sponsor, to discuss financial position, requirements, and accomplishments; |
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Comparisons to other portfolio companies in the industry, if any; |
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Attendance at and participation in board meetings; and |
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Review of monthly and quarterly financial statements and financial projections for portfolio companies. |
Valuation Process
The following is a description of the steps we take each quarter to determine the value of our portfolio. Investments for which market quotations are readily available are recorded in our financial statements at such market quotations. With respect to investments for which market quotations are not readily available, our Board of Directors undertakes a multi-step valuation process each quarter, as described below under “Determination of Net Asset Value.” Currently, our Board of Directors solicits valuation recommendations from a third-party valuation firm on a quarterly basis.
We expect that all of our portfolio investments will be recorded at fair value as determined under the valuation process discussed above. As a result, there will be uncertainty with respect to the value of our portfolio investments.
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INVESTMENT MANAGEMENT AGREEMENT
MANAGEMENT SERVICES
FCM has entered into an Investment Management Agreement (the “Investment Management Agreement”) with us whereby FCM provides investment management services. Subject to the overall supervision of our Board of Directors, the Investment Adviser manages the day-to-day operations of, provides investment management services to, and serves as portfolio manager for us. Mr. Landis, FCM’s President and Chief Investment Officer, has been primarily responsible for our portfolio management since our inception. Under the terms of the Investment Management Agreement, FCM will:
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determine the composition of our portfolio, the nature and timing of the changes to our portfolio, and the manner of implementing such changes; |
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identify, evaluate and negotiate the structure of the investments we make (including performing due diligence on our prospective portfolio companies); and |
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close and monitor the investments we make. |
FCM’s services under the Investment Management Agreement are not exclusive, and it is free to furnish similar services to other entities so long as its services to us are not impaired. FCM currently serves as investment manager to Firsthand Funds, a family of open-end mutual funds.
INVESTMENT MANAGEMENT FEE
Pursuant to the Investment Management Agreement, we pay FCM a fee for 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 our gross assets at the end of the preceding calendar quarter; and 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), and equals 20% of our 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.
Mathematically, the formula for computing the annual incentive fee can be written as:
For the purposes of calculating realized capital gains, the cost basis of each security acquired in the Reorganization shall be equal to the greater of the original purchase price of that security by Firsthand Funds or the fair market value of the security at the time of the Reorganization.
EXAMPLE INCENTIVE FEE CALCULATION
EXAMPLE: INCENTIVE FEE ON CAPITAL GAINS:
Assumptions
Year 1 = no net realized capital gains or losses
Year 2 = $50,000 realized capital gains and $20,000 realized capital losses and unrealized capital depreciation. Capital gain incentive fee = 20% x (realized capital gains for year computed net of all realized capital losses and unrealized capital depreciation at year end)
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Calculation of Incentive Fee
Year 1 incentive fee |
= 20% x (0) |
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Year 2 incentive fee |
= 20% x ($50,000 - $20,000) - 0 |
AVAILABLE INFORMATION
Additional information about us, including quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act, are available free of charge on our website at www.firsthandtvf.com. Information on our website is not part of this Annual Report on Form 10-K.
EMPLOYEES
We do not currently have any direct employees. Mr. Landis, our Chief Executive Officer, is the majority owner and Chief Investment Officer of the Investment Adviser. The Investment Adviser currently employs a staff of 12, including investment, legal, and administrative professionals.
Investing in the Company involves a number of significant risks relating to our business and investment objective. As a result, there can be no assurance that we will achieve our investment objective.
RISKS RELATING TO OUR BUSINESS AND STRUCTURE
WE ARE DEPENDENT UPON FCM’S KEY PERSONNEL FOR OUR FUTURE SUCCESS.
If the Investment Adviser is unable to hire and retain qualified personnel, or if it loses any key member of its management team, our ability to achieve our investment objective could be significantly impaired.
We depend on the diligence, skill, and access to the network of business contacts of the management of FCM, including Mr. Landis, the owner, President and Chief Executive Officer of FCM. We also depend, to a significant extent, on FCM’s access to the investment information and deal flow generated by Mr. Landis and any other investment professionals of FCM. Mr. Landis and other management personnel of FCM evaluate, negotiate, structure, close, and monitor our investments. Our future success depends on the continued service of Mr. Landis and other management personnel of FCM. The resignation of FCM, or the departure of Mr. Landis or any other key managers hired by FCM could have a material adverse effect on our ability to achieve our investment objective. In addition, we can offer no assurance that FCM will remain the Investment Adviser.
THE INVESTMENT ADVISER AND ITS MANAGEMENT MANAGE OTHER FUNDS.
In addition to managing SVVC, FCM is also the investment adviser to two open-end mutual funds in the Firsthand Funds family: Firsthand Technology Opportunities Fund and Firsthand Alternative Energy Fund. Mr. Landis, who has primary responsibility for SVVC, also serves as portfolio manager of Firsthand Alternative Energy Fund and Firsthand Technology Opportunities Fund. This may reduce the time FCM and its investment management team have to devote to the affairs of SVVC. The other funds managed by FCM have stated investment objectives which differ from our own. Accordingly, there may be times when the interests of FCM’s management team differ from our interests.
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THE INVESTMENT ADVISER MAY NOT BE ABLE TO ACHIEVE THE SAME OR SIMILAR RETURNS TO THOSE ACHIEVED BY ITS INVESTMENT PROFESSIONALS WHILE THEY WERE EMPLOYED AT PRIOR JOBS.
Although Mr. Landis has been a portfolio manager of a number of open-end mutual funds in the Firsthand Funds family, Mr. Landis’s track record and achievements are not necessarily indicative of future results that will be achieved by FCM on our behalf. FCM and its investment professionals’ skills and expertise may not be as well suited to our objectives, strategies and requirements as they are for certain other funds. FCM and many of its investment professionals are relatively inexperienced in managing closed end funds and our investment objectives, policies and regulatory limitations differ substantially from the other funds FCM and its investment professionals have managed. Similarly, while the research and operational professionals that support Mr. Landis in his management of Firsthand Funds are substantially the same individuals that will be supporting us, there is no assurance that they will be able to provide the same level of services to us as they did (or currently do) for Firsthand Funds.
OUR FINANCIAL CONDITION AND RESULTS OF OPERATION WILL DEPEND ON OUR ABILITY TO MANAGE FUTURE GROWTH EFFECTIVELY.
Our ability to achieve our investment objective will depend on our ability to grow, which will depend, in turn, on FCM’s ability to identify, invest in, and monitor companies that meet our investment criteria.
Accomplishing this result on a cost-effective basis will be largely a function of FCM’s structuring of the investment process, its ability to provide competent, attentive, and efficient services to us and our access to financing on acceptable terms. The management team of FCM will have substantial responsibilities under the Investment Management Agreement. In addition, the employees of FCM may also be called upon to provide managerial assistance to our portfolio companies as the principals of our administrator. Such demands on their time may distract them or slow our rate of investment. Any failure to manage our future growth effectively could have a material adverse effect on our business, financial condition, and results of operations.
WE OPERATE IN A HIGHLY COMPETITIVE MARKET FOR INVESTMENT OPPORTUNITIES.
A number of entities will compete with us to make the types of investments that we plan to make. We will compete with other venture capital firms and venture capital funds, various public and private investment funds, including hedge funds, other BDCs, commercial and investment banks, commercial financing companies, and various technology and alternative energy companies’ internal venture capital arms. Many of our potential competitors are substantially larger and have considerably greater financial, technical and marketing resources than we do. For example, some competitors may have a stronger network of contacts and better connections for deal flows or have access to funding sources that are not available to us. In addition, some of our competitors have higher risk tolerances or different risk assessments, which could allow them to consider a wider variety of investments and establish more relationships than us. Furthermore, many of our competitors are not subject to the regulatory restrictions that the 1940 Act will impose on us as a BDC. We cannot assure you that the competitive pressures we face will not have a material adverse effect on our business, financial condition and results of operations. Also, as a result of this competition, we may not be able to take advantage of attractive investment opportunities from time to time, and we can offer no assurance that we will be able to identify and make investments that are consistent with our investment objective.
REGULATIONS GOVERNING OUR OPERATION AS A BUSINESS DEVELOPMENT COMPANY WILL AFFECT OUR ABILITY TO, AND THE WAY IN WHICH WE, RAISE ADDITIONAL CAPITAL.
We are not generally able to issue and sell our common stock at a price below net asset value per share. We may, however, sell our common stock at a price below the current net asset value of the common stock, or sell warrants, options, or rights to acquire such common stock, at a price below the current net asset value of the common stock if our Board of Directors determines that such sale is in the best interests SVVC, and our stockholders approve SVVC’s policy and practice of making such sales. Our stockholders have not approved a policy or practice of selling our common stock below our net asset value per share. However, our Board of Directors may ask our stockholders to vote on such a policy and practice at upcoming stockholders meetings. In any such case, the price at which our securities are to be issued and sold may not be less than a price which, in the determination of our Board of Directors, closely approximates the market value of such securities (less any distributing commission or discount).
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ANY FAILURE ON OUR PART TO MAINTAIN OUR STATUS AS A BUSINESS DEVELOPMENT COMPANY WOULD REDUCE OUR OPERATING FLEXIBILITY.
If we do not remain a BDC, we might be regulated as a closed-end investment company under the 1940 Act, which would subject us to substantially more regulatory restrictions under the 1940 Act and correspondingly decrease our operating flexibility and increase our cost of doing business. Furthermore, any failure to comply with the requirements imposed on BDCs by the 1940 Act could cause the SEC to bring an enforcement action against us or expose us to claims of private litigants.
IF WE DO NOT INVEST A SUFFICIENT PORTION OF OUR ASSETS IN QUALIFYING ASSETS, WE COULD FAIL TO QUALIFY AS A BUSINESS DEVELOPMENT COMPANY OR BE PRECLUDED FROM INVESTING ACCORDING TO OUR CURRENT BUSINESS STRATEGY.
As a BDC, we may not acquire any assets other than “qualifying assets” unless, at the time of and after giving effect to such acquisition, at least 70% of our total assets are qualifying assets. See “Regulation” above.
We may be precluded from investing in what we believe are attractive investments if such investments are not qualifying assets for purposes of the 1940 Act. If we do not invest a sufficient portion of our assets in qualifying assets, we could lose our status as a BDC, which would have a material adverse effect on our business, financial condition, and results of operations. Similarly, these rules could prevent us from making follow-on investments in existing portfolio companies (which could result in the dilution of our position) or could require us to dispose of investments at inappropriate times in order to comply with the 1940 Act. If we need to dispose of such investments quickly, it would be difficult to dispose of such investments on favorable terms. For example, we may have difficulty in finding a buyer and, even if we do find a buyer, we may have to sell the investments at a substantial loss.
WE ARE A NON-DIVERSIFIED INVESTMENT COMPANY WITHIN THE MEANING OF THE 1940 ACT, AND THEREFORE WE ARE NOT LIMITED WITH RESPECT TO THE PROPORTION OF OUR ASSETS THAT MAY BE INVESTED IN SECURITIES OF A SINGLE ISSUER.
We are classified as a non-diversified investment company within the meaning of the 1940 Act, which means that we are not limited by the 1940 Act with respect to the proportion of our assets that we may invest in securities of a single issuer. To the extent that we assume large positions in the securities of a small number of issuers, our net asset value may fluctuate to a greater extent than that of a diversified investment company as a result of changes in the financial condition or the market’s assessment of the issuer. We may also be more susceptible to any single economic or regulatory occurrence than a diversified investment company. Beyond our income tax diversification requirements, we do not have fixed guidelines for diversification, and our investments could be concentrated in relatively few portfolio companies.
WE WILL NEED TO RAISE ADDITIONAL CAPITAL TO GROW.
We will need additional capital to fund growth in our investments once we have fully invested the cash (and other liquid assets, if any) received, we may issue equity securities in order to obtain this additional capital. A reduction in the availability of new capital could limit our ability to grow or pursue business opportunities. During the years that we have elected and maintained our status as a RIC, we will be required to distribute 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, to our stockholders to maintain our RIC status. As a result, if stockholders opt out of reinvesting those distributions back into SVVC, these earnings will not be available to fund new investments. If we fail to obtain additional capital to fund our investments, this could limit our ability to grow, which may have an adverse effect on the value of our securities.
MANY OF OUR PORTFOLIO INVESTMENTS WILL BE RECORDED AT FAIR VALUE AS DETERMINED IN GOOD FAITH BY OUR BOARD OF DIRECTORS. AS A RESULT, THERE WILL BE UNCERTAINTY AS TO THE VALUE OF OUR PORTFOLIO INVESTMENTS.
A large percentage of our portfolio investments will be 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 will value these securities quarterly at fair value according to our written valuation procedures and 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
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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.
THE LACK OF LIQUIDITY IN OUR INVESTMENTS MAY ADVERSELY AFFECT OUR BUSINESS.
We primarily make investments in private companies. Substantially all of these securities will be subject to legal and other restrictions on resale or will otherwise be less liquid than publicly traded securities. The illiquidity of our investments may make it difficult for us to sell such investments if the need arises. In addition, if we are required to liquidate all or a portion of our portfolio quickly, we may realize significantly less than the value at which we have previously recorded our investments. In addition, we may face other restrictions on our ability to liquidate an investment in a portfolio company to the extent that we have material non-public information regarding such portfolio company.
WE MAY EXPERIENCE FLUCTUATIONS IN OUR QUARTERLY RESULTS.
We could experience fluctuations in our quarterly operating results due to a number of factors, including the performance of the portfolio securities we hold; the level of our expenses; variations in, and the timing of the recognition of, realized and unrealized gains or losses; the degree to which we encounter competition in our markets and general economic conditions. As a result of these factors, results for any period should not be relied upon as being indicative of performance in future periods.
THERE ARE SIGNIFICANT POTENTIAL CONFLICTS OF INTEREST THAT COULD IMPACT OUR INVESTMENT RETURNS.
Our executive officers and directors may serve as officers, directors or principals of entities that operate in the same or a related line of business as we do or of investment funds managed by affiliates of FCM that may be formed in the future. Accordingly, if this occurs, they may have obligations to investors in those entities, the fulfillment of which might not be in the best interests of us or our stockholders.
In the course of our investing activities, we will pay investment management and incentive fees to FCM, and will reimburse FCM for certain expenses it incurs. As a result, investors in our common stock will invest on a “gross” basis and receive distributions on a “net” basis after expenses, resulting in a lower rate of return than an investor might achieve through direct investments. Accordingly, there may be times when the management team of FCM has interests that differ from those of our stockholders, giving rise to a conflict.
Several members of our Board of Directors are also trustees of the Board of Trustees of Firsthand Funds. Of the five directors of the Company, Messrs. Landis, Burglin, and Lee all serve as both directors for the Company and trustees for Firsthand Funds. Messrs. Petredis and Yee are the only directors of the Company who are not also trustees of Firsthand Funds. We believe such a commonality of the board brings continuity of oversight and allows our Board to maintain the institutional knowledge and experience of overseeing illiquid securities and their pricing methods.
OUR INCENTIVE FEE MAY INDUCE FCM TO MAKE SPECULATIVE INVESTMENTS AND THESE FEES WILL, IN EFFECT, BE BORNE BY OUR COMMON STOCKHOLDERS.
The incentive fee payable by us to FCM may create an incentive for FCM to make investments on our behalf that are risky or more speculative than would be the case in the absence of such compensation arrangement. The incentive fee payable to the Investment Adviser is calculated based on a percentage of our return on invested capital. This may encourage the Investment Adviser to invest in higher risk investments in the hope of securing higher returns.
We may invest, to the extent permitted by law, in the securities and instruments of other investment companies, including private funds, as well as other special purpose vehicles set up by third parties for investment in a particular private company. To the extent we so invest, we will bear our ratable share of any such investment company’s expenses, including management and incentive fees. We will also remain obligated to pay investment advisory fees, consisting of a
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base management fee and incentive fees, to FCM with respect to the assets invested in the securities and instruments of other investment companies under the Investment Management Agreement. With respect to any such investments, each of our stockholders will bear his or her share of the investment advisory fees of FCM as well as indirectly bearing the investment advisory fees and other expenses of any investment companies in which we invest.
CHANGES IN LAWS OR REGULATIONS GOVERNING OUR OPERATIONS MAY ADVERSELY AFFECT OUR BUSINESS.
We and our portfolio companies will be subject to regulation by laws at the local, state, and federal levels. These laws and regulations, as well as their interpretation, may be changed from time to time. Accordingly, any change in these laws or regulations could materially and adversely affect our business.
PROVISIONS OF THE MARYLAND GENERAL CORPORATION LAW AND OF OUR CHARTER AND BYLAWS COULD DETER TAKEOVER ATTEMPTS AND HAVE AN ADVERSE IMPACT ON THE PRICE OF OUR COMMON STOCK.
The Maryland General Corporation Law, our charter, and our bylaws contain provisions that may discourage, delay or make more difficult a change in control of the Company or the removal of the Company’s directors. We are subject to the Maryland Business Combination Act, the application of which is subject to any requirements of the 1940 Act. Our Board of Directors has adopted a resolution exempting from the Maryland Business Combination Act any business combination between us and any other person, subject to prior approval of such business combination by our Board, including approval by a majority of our disinterested directors. If the resolution exempting business combinations is repealed or our Board does not approve a business combination, the Maryland Business Combination Act may discourage third parties from trying to acquire control of us and increase the difficulty of consummating such an offer. We are also subject to the Maryland Control Share Acquisition Act. With certain exceptions, the Maryland General Corporation Law provides that a holder of “control shares” of a Maryland corporation acquired in a “control share acquisition” has no voting rights with respect to those shares except to the extent approved by a vote of two-thirds of the votes entitled to be cast on the matter, excluding shares owned by the acquiring person or by our officers or by our directors who are our employees. The Maryland Control Share Acquisition Act also may make it more difficult for a third party to obtain control of us and increase the difficulty of consummating such an offer.
We have also adopted other measures that may make it difficult for a third party to obtain control of us, including provisions of our charter classifying our Board of Directors in three classes serving staggered three-year terms and until their successors are duly elected and qualify, and provisions of our charter authorizing our Board of Directors (all without stockholder approval) to classify or reclassify shares of our stock in one or more classes or series, to cause the issuance of additional shares of our stock, and to amend our charter to increase or decrease the number of shares of stock that we have authority to issue. These provisions, as well as other provisions of our charter and bylaws, may delay, defer, or prevent a transaction or a change in control that might otherwise be in the best interests of our stockholders.
OUR BOARD OF DIRECTORS MAY CHANGE OUR INVESTMENT OBJECTIVE, OPERATING POLICIES, AND STRATEGIES WITHOUT PRIOR NOTICE OR STOCKHOLDER APPROVAL.
Our Board of Directors has the authority to modify or waive certain of our operating policies and strategies without prior notice and without stockholder approval (except as required by the 1940 Act). However, absent stockholder approval, we may not change the nature of our business so as to cease to be, or withdraw our election as, a BDC. We cannot predict the effect any changes to our current operating policies and strategies would have on our business, operating results, and value of our stock. Nevertheless, the effects may adversely affect our business and impact our ability to make distributions.
RISKS RELATED TO OUR INVESTMENTS
OUR INVESTMENTS IN PROSPECTIVE PORTFOLIO COMPANIES MAY BE RISKY, AND YOU COULD LOSE ALL OR PART OF YOUR INVESTMENT.
Equity Investments. We make equity investments primarily in equity securities and equity derivatives (such as options, warrants, rights, etc.) of privately placed venture capital stage technology and alternative energy companies as well as publicly traded micro-cap companies (those with market capitalizations of less than $250 million). Our goal is ultimately
20
to dispose of these equity interests and realize gains upon our disposition of such interests. However, the equity interests we receive may not appreciate in value and, in fact, may decline in value or lose all value. Accordingly, we may not be able to realize gains from our equity interests, and any gains that we do realize on the disposition of any equity interests may not be sufficient to offset any other losses we experience.
In addition, investing in privately placed technology and clean tech companies involves a number of significant risks, including that private companies generally have limited operating history and are not as well capitalized as public companies. In addition, private company valuations may fluctuate more dramatically than those of public companies and they frequently have less diverse product lines and smaller market presence than larger competitors. These factors could adversely affect our investment returns as compared to companies investing primarily in the securities of public companies.
WE MAY INVEST IN MICRO-CAP PUBLIC COMPANIES AND COMPANIES WE MAY HOPE WILL HAVE SUCCESSFUL INITIAL PUBLIC OFFERINGS.
Although micro-cap companies may have potential for rapid growth, they are subject to wider price fluctuations due to factors inherent in their size, such as lack of management experience and financial resources and limited trade volume and frequency. To make a large sale of securities of micro-cap companies that trade in limited volumes, SVVC may need to sell portfolio holdings at a discount or make a series of small sales over an extended period of time.
We have invested in, and we expect to continue to invest in, companies that we believe are likely to issue securities in initial public offerings (“IPOs”). Although there is a potential the pre-IPO securities that we buy may increase in value if the company does issue securities in an IPO, IPOs are risky and volatile and may cause the value of our securities to fall dramatically. Also, because securities of pre-IPO companies are generally not freely or publicly tradeable, we may not have access to purchase securities in these companies in the amounts or at the prices we desire. Securities issued by these privately-held companies have no trading history, and information about such companies may be available for very limited periods. The companies that we anticipate holding successful IPOs may not ever issues shares in an IPO and a liquid market for their securities may never develop, which may negatively affect the price at which we can sell any such securities and make it more difficult to sell such securities, which could also adversely affect our liquidity.
WE EXPECT TO PURCHASE SECURITIES IN IPOS, WHICH INVOLVE SIGNIFICANT RISKS FOR US, AND WE MAY NOT BE ABLE TO PARTICIPATE IN OFFERINGS TO THE EXTENT DESIRED OR AT ALL.
Securities purchased in IPOs are often subject to the general risk associated with investments in companies with smaller market capitalizations, and typically to a heightened degree. Securities issued in IPOs have no trading history, and information about companies may be available for very limited periods. In addition, under certain market conditions, a relatively small number of companies may issue securities in IPOs. Our investment performance during periods when we are unable to invest significantly or at all in IPOs may be lower than during periods when we are able to do so.
IPO securities may be volatile, and we cannot predict whether investments in IPOs will be successful. If the Company grows in size, the possible positive effects of IPO investments on the Company may decrease.
WE HAVE NOT YET IDENTIFIED ALL OF THE PORTFOLIO COMPANY INVESTMENTS WE INTEND TO ACQUIRE.
The Investment Adviser will select our investments, and our stockholders will have no input with respect to such investment decisions. These factors increase the uncertainty, and thus the risk, of investing in our shares.
ECONOMIC RECESSIONS OR DOWNTURNS COULD IMPAIR OUR PORTFOLIO COMPANIES AND HARM OUR OPERATING RESULTS.
Many of our portfolio companies are susceptible to economic slowdowns or recessions and may fail or require additional capital investments from us during those periods. Therefore, our non-performing assets are likely to increase and the value of our portfolio is likely to decrease during these periods. These events could harm our operating results.
21
OUR FAILURE TO MAKE FOLLOW-ON INVESTMENTS IN OUR PORTFOLIO COMPANIES COULD IMPAIR THE VALUE OF OUR PORTFOLIO.
Following an initial investment in a portfolio company, we may make additional investments in that portfolio company as “follow-on” investments, in order to:
● |
increase or maintain in whole or in part our equity ownership percentage; or |
● |
exercise warrants, options, or convertible securities that were acquired in the original or subsequent financing. |
We have the discretion to make any follow-on investments, subject to the availability of capital resources and the availability of securities in the applicable public company. We may elect not to make follow-on investments in a portfolio company and we may lack sufficient funds to make those investments. The failure to make follow-on investments may, in some circumstances, jeopardize the continued viability of a portfolio company and our initial investment, or may result in a missed opportunity for us to increase our participation in a successful operation. Even if we have sufficient capital to make a desired follow-on investment, we may elect not to make a follow-on investment because we may not want to increase our concentration of risk, because we prefer other opportunities, or because we are inhibited by compliance with BDC requirements or the desire to maintain our tax status.
WE SOMETIMES DO NOT HOLD CONTROLLING EQUITY INTERESTS IN OUR PORTFOLIO COMPANIES AND WE MAY NOT BE IN A POSITION TO EXERCISE CONTROL OVER OUR PORTFOLIO COMPANIES OR TO PREVENT DECISIONS BY MANAGEMENT OF OUR PORTFOLIO COMPANIES THAT COULD DECREASE THE VALUE OF OUR INVESTMENTS.
Although we have held control and will continue to do so for some instruments, we do not anticipate always taking controlling equity positions in our portfolio companies. As a result, we will be subject to the risk that a portfolio company may make business decisions with which we disagree, and the stockholders and management of a portfolio company may take risks or otherwise act in ways that are adverse to our interests. Due to the lack of liquidity for the equity investments that we will typically hold in our portfolio companies, we may not be able to dispose of our investments in the event we disagree with the actions of a portfolio company, and may therefore suffer a decrease in the value of our investments.
AN INVESTMENT STRATEGY FOCUSED PRIMARILY ON PRIVATELY HELD COMPANIES PRESENTS CERTAIN CHALLENGES, INCLUDING THE LACK OF AVAILABLE INFORMATION ABOUT THESE COMPANIES, A DEPENDENCE ON THE TALENTS AND EFFORTS OF ONLY A FEW KEY PORTFOLIO COMPANY PERSONNEL, AND A GREATER VULNERABILITY TO ECONOMIC DOWNTURNS.
We invest primarily in privately held companies. Generally, little public information exists about these companies, and we will be required to rely on the ability of FCM’s investment professionals to obtain adequate information to evaluate the potential returns from investing in these companies. If we are unable to uncover all material information about these companies, we may not make a fully informed investment decision, and we may lose money on our investments. Also, privately held companies frequently have less diverse product lines and a smaller market presence than larger competitors. These factors could adversely affect our investment returns as compared to companies investing primarily in the securities of public companies.
OUR PORTFOLIO COMPANIES MAY ISSUE ADDITIONAL SECURITIES OR INCUR DEBT THAT RANKS EQUAL OR SENIOR TO OUR INVESTMENTS IN SUCH COMPANIES.
We also invest primarily in equity securities issued by our portfolio companies. The portfolio companies may be permitted to issue additional securities or incur other debt that ranks equally with, or senior to, the equity securities in which we invest. By their terms, such other securities (especially if they are debt securities) may provide that the holders are entitled to receive payment of interest or principal before we are entitled to receive any distribution from the portfolio companies. Also, in the event of insolvency, liquidation, dissolution, reorganization, or bankruptcy of a portfolio company, holders of debt instruments ranking senior to our equity investment in that portfolio company would typically be entitled to receive payment in full before equity investors like us may receive any distribution in respect of our investment. After repaying such senior creditors, the portfolio company may not have any remaining assets to distribute to us.
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WE MAY PURCHASE OR SELL OPTIONS ON SECURITIES AND INDEXES, WHICH MAY EXPOSE US, AND YOUR INVESTMENT IN OUR COMMON STOCK, TO CERTAIN RISKS.
We may on a limited basis purchase or sell options on indexes or securities. The use of options has risks and our ability to successfully use these techniques depends on our ability to predict pertinent market movements, which cannot be assured. The use of options may result in losses greater than if they had not been used, may require us to sell or purchase portfolio securities at inopportune times or for prices other than current market values, may limit the amount of appreciation we can realize on an investment or may cause us to hold a security we might otherwise sell.
OUR INVESTMENTS IN FOREIGN SECURITIES MAY INVOLVE SIGNIFICANT RISKS IN ADDITION TO THE RISKS INHERENT IN U.S. INVESTMENTS.
Our investment strategy involves potential investments in equity securities of foreign companies. Investing in foreign companies may expose us to additional risks not typically associated with investing in U.S. companies. These risks include changes in exchange control regulations; political and social instability; expropriation; imposition of foreign taxes; less liquid markets and less available information than is generally the case in the United States; higher transaction costs; less government supervision of exchanges, brokers and issuers; less developed bankruptcy laws; difficulty in enforcing contractual obligations; lack of uniform accounting and auditing standards; and greater price volatility.
Although most of our investments will be U.S. dollar-denominated, any investments denominated in a foreign currency will be subject to the risk that the value of a particular currency will change in relation to one or more other currencies. Among the factors that may affect currency values are trade balances, the level of short-term interest rates, differences in relative values of similar assets in different currencies, long-term opportunities for investment and capital appreciation, and political developments. We may employ hedging techniques to minimize these risks, but we can offer no assurance that we will, in fact, hedge currency risk, or, if we do, that such strategies will be effective.
Item 1B. Unresolved Staff Comments
None.
Under the terms of the Investment Management Agreement, Firsthand Capital Management, Inc. is responsible for providing office space to the Company and for the costs associated with providing such space. Our offices are located at 150 Almaden Blvd., Suite 1250, San Jose, CA 95113.
We are not currently subject to any material pending legal proceedings.
Item 4. Mine Safety Disclosures
Not applicable.
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Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities
MARKET INFORMATION
Our common stock is traded on the Nasdaq Global Market under the symbol “SVVC.” The following table sets forth the range of the high and low closing sales prices of the Company’s shares during each quarter during the last fiscal year, as reported by Nasdaq Global Market. The quarterly stock prices quoted represent interdealer quotations and do not include markups, markdowns, or commissions.
2021 Quarter Ending |
Low |
High |
||||||
March 31 |
$ | 4.32 | $ | 7.25 | ||||
June 30 |
$ | 5.50 | $ | 6.69 | ||||
September 30 |
$ | 4.67 | $ | 5.87 | ||||
December 31 |
$ | 3.96 | $ | 4.85 |
SHAREHOLDERS
As of February 28, 2022, there were approximately 1,200 shareholders of record and approximately 10,500 beneficial owners of the Company’s common stock.
DIVIDENDS
There were no distributions in 2021.
RECENT SALES OF UNREGISTERED SECURITIES
The Company did not issue any unregistered securities during the year ended December 31, 2021.
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PERFORMANCE GRAPH
The graph and table below compares the cumulative total return of holders of our common stock with the cumulative total returns of the S&P 500 Index and the NASDAQ Composite Index. The comparison assumes that the value of the investment in our common stock and in the index (including reinvestment of dividends) was $10,000 on April 18, 2011 (our inception date), and tracks it through December 31, 2021.
We, however, do not believe either the S&P 500 Index or the NASDAQ Composite Index to be appropriate comparable indices of the Company’s benchmark results. The Company is a publicly traded venture capital fund that invests primarily in private and micro cap technology companies. The S&P 500 Index and the NASDAQ Composite Index are both indices of publicly traded large capitalization companies, with performance predominantly driven by the largest companies in the index. Nevertheless, we do not believe there is currently a widely accessible and generally accepted index that tracks publicly traded venture capital funds. When compared to the S&P 500 Index and the NASDAQ Composite Index, we have underperformed those broad market indices because equity securities of the private companies in our portfolio have not appreciated substantially during the recent bull market for publicly traded stocks.
STOCK TRANSFER AGENT
Computershare Investor Services, 462 South 4th Street, Suite 1600 Louisville, KY 40202 (1.800.331.1710) serves as our transfer agent.
Item 6. Selected Financial Data
The information below was derived from the audited Consolidated Financial Statements included in this report. This information should be read in conjunction with those Consolidated Financial Statements and Supplementary Data and the notes thereto. These historical results are not necessarily indicative of the results to be expected in the future.
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Firsthand Technology Value Fund, Inc.
Consolidated Statements of Assets and Liabilities
AS OF |
AS OF |
|||||||
ASSETS |
||||||||
Investment securities: |
||||||||
Unaffiliated investments at acquisition cost |
$ | 1,729,653 | * | $ | 3,468,393 | * | ||
Affiliated investments at acquisition cost |
4,744,427 | 4,744,427 | ||||||
Controlled investments at acquisition cost |
138,754,479 | 125,755,796 | ||||||
Total acquisition cost |
$ | 145,228,559 | $ | 133,968,616 | ||||
Unaffiliated investments at market value |
$ | 1,009,813 | * | $ | 3,299,827 | * | ||
Affiliated investments at market value |
613,650 | 6,451,878 | ||||||
Controlled investments at market value |
89,505,079 | 92,321,114 | ||||||
Total market value ** (Note 6) |
91,128,542 | 102,072,819 | ||||||
Foreign currency at value (cost $0 and $703) |
— | 729 | ||||||
Receivable from dividends and interest |
11,485,642 | 5,728,598 | ||||||
Other assets |
64,066 | 25,715 | ||||||
Total Assets |
102,678,250 | 107,827,861 | ||||||
LIABILITIES |
||||||||
Due to Custodian |
13,589 | — | ||||||
Payable to affiliates (Note 4) |
7,702,914 | 5,450,699 | ||||||
Consulting fee payable |
26,000 | 26,000 | ||||||
Accrued expenses and other payables |
181,123 | 208,794 | ||||||
Total Liabilities |
7,923,626 | 5,685,493 | ||||||
NET ASSETS |
$ | 94,754,624 | $ | 102,142,368 | ||||
Net Assets consist of: |
||||||||
Common Stock, par value $0.001 per share 100,000,000 shares authorized |
$ | 6,893 | $ | 6,893 | ||||
Paid-in-capital |
176,770,722 | 176,770,722 | ||||||
Total distributable earnings (loss) |
(82,022,991 | ) | (74,635,247 | ) | ||||
NET ASSETS |
$ | 94,754,624 | $ | 102,142,368 | ||||
Shares of Common Stock outstanding |
7,016,432 | 7,016,432 | ||||||
Shares of Treasury Stock outstanding |
(123,376 | ) | (123,376 | ) | ||||
Total Shares of Common Stock outstanding |
6,893,056 | 6,893,056 | ||||||
Net asset value per share (Note 2) |
$ | 13.75 | $ | 14.82 |
* |
Includes Fidelity Investment Money Market Treasury Portfolio - Class I, which invests primarily in U.S. Treasury securities. The yields as of 12/31/21 and 12/31/20 were 0.01% and 0.01%, respectively. Please see https://fundresearch.fidelity.com/ mutual-funds/summary/316175504 for additional information. |
** |
Includes warrants whose primary risk exposure is equity contracts. |
See accompanying notes to financial statements
26
Firsthand Technology Value Fund, Inc.
Consolidated Statements of Operations
FOR THE |
FOR THE |
FOR THE |
||||||||||
INVESTMENT INCOME |
||||||||||||
Unaffiliated dividends |
$ | 171,613 | $ | — | $ | — | ||||||
Unaffiliated interest |
30,906 | 15,608 | 72,502 | |||||||||
Affiliated/controlled interest |
6,116,176 | 3,635,326 | 1,717,149 | |||||||||
TOTAL INVESTMENT INCOME |
6,318,695 | 3,650,934 | 1,789,651 | |||||||||
EXPENSES |
||||||||||||
Investment advisory fees (Note 4) |
2,220,811 | 2,016,981 | 3,405,735 | |||||||||
Administration fees |
122,177 | 117,911 | 141,714 | |||||||||
Custody fees |
24,661 | 15,780 | 15,070 | |||||||||
Transfer agent fees |
39,737 | 33,640 | 33,353 | |||||||||
Registration and filing fees |
32,700 | 31,700 | 30,700 | |||||||||
Professional fees |
367,471 | 415,447 | 432,337 | |||||||||
Printing fees |
80,307 | 36,953 | 172,820 | |||||||||
Trustees fees |
200,000 | 200,000 | 200,000 | |||||||||
Compliance fees |
120,487 | 116,947 | 118,780 | |||||||||
Miscellaneous fees |
46,907 | 44,076 | 53,513 | |||||||||
TOTAL GROSS EXPENSES |
3,255,258 | 3,029,435 | 4,604,022 | |||||||||
Incentive fee adjustments (Note 4) |
— | — | (9,261,847 | ) | ||||||||
TOTAL NET EXPENSES |
3,255,258 | 3,029,435 | (4,657,825 | ) | ||||||||
NET INVESTMENT INCOME, BEFORE TAXES |
3,063,437 | 621,499 | 6,447,476 | |||||||||
Deferred tax benefit |
— | — | (538,914 | ) | ||||||||
Net Investment Income/(Loss), Net of Deferred Taxes |
3,063,437 | 621,499 | 5,908,562 | |||||||||
Net Realized and Unrealized Gain (Loss) on Investments: |
||||||||||||
Net realized gains (losses) from security transactions on: |
||||||||||||
Affiliated/Controlled |
11,753,038 | (5,589,234 | ) | (24,091,097 | ) | |||||||
Non-affiliated/controlled and other assets |
— | (1,927,408 | ) | 3,004,025 | ||||||||
Foreign currency |
27 | — | — | |||||||||
Written option (1) |
— | — | 98,590 | |||||||||
Deferred tax benefit |
— | (5,816,066 | ) | 4,623,742 | ||||||||
Net realized gains (losses), net of deferred taxes |
11,753,065 | (13,332,708 | ) | (16,364,740 | ) | |||||||
Net change in unrealized appreciation (depreciation) on: |
||||||||||||
Non-affiliated investments |
(551,274 | ) | 4,189,718 | (6,092,860 | ) | |||||||
Affiliated/controlled investments and foreign currency |
(21,673,270 | ) | (8,242,579 | ) | (52,627,051 | ) | ||||||
Affiliated/controlled warrants investments (1) |
20,298 | (4,156,438 | ) | (7,542,793 | ) | |||||||
Deferred tax benefit/expenses |
— | (2,026,517 | ) | 12,190,314 | ||||||||
Net change in unrealized appreciation (depreciation), net of deferred taxes |
(22,204,246 | ) | (10,235,816 | ) | (54,072,390 | ) | ||||||
Net Realized and Unrealized Gains (Losses) on Investments, Net of Deferred Taxes |
(10,451,181 | ) | (23,568,524 | ) | (70,437,130 | ) | ||||||
Net Increase (Decrease) In Net Assets Resulting From Operations, Net of Deferred Taxes |
$ | (7,387,744 | ) | $ | (22,947,025 | ) | $ | (64,528,568 | ) | |||
Net Increase (Decrease) In Net Assets Per Share Resulting From Operations (2) |
$ | (1.07 | ) | $ | (3.31 | ) | $ | (8.99 | ) |
(1) |
Primary risk exposure is equity contracts. |
(2) |
Per share results are calculated based on weighted average shares outstanding for each period. |
See accompanying notes to financial statements
27
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
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.
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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.
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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. |
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 |
||||
Realized gains |
$ | 11,753,065 | ||
Net change in unrealized depreciation on investments |
$ | (22,204,246 | ) | |
Net realized and unrealized loss on investments |
$ | (10,451,181 | ) |
As of |
||||
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 |
||||
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 | ) |
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As of |
||||
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 |
||||
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 |
||||
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.
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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.
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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
Item 7A. Quantitative And Qualitative Disclosures About Market Risk.
The Fund’s business activities contain elements of risk. We consider the principal types of market risk to be valuation risk and small company investment risk.
VALUATION RISK
Value, as defined in Section 2(a)(41) of the 1940 Act, is (i) the market price for those securities for which market quotations are readily available and (ii) fair value as determined in good faith by, or under the direction of, the Board of Directors for all other assets.
Because there is typically no public market for our interests in the small privately-held companies in which we invest, the valuation of the securities in that portion of our portfolio is determined in good faith by our Board of Directors with the assistance of our Valuation Committee, comprised of the independent members of our Board of Directors, in accordance with our Valuation Procedures. In addition, the Board of Directors may use the services of a nationally recognized independent valuation firm to aid it in determining the fair value of some of these securities. In the absence of a readily ascertainable market value, the determined value of our portfolio of securities may differ significantly from the values that would be placed on the portfolio if a ready market for such securities existed. Determining fair value requires that judgment be applied to the specific facts and circumstances of each portfolio investment, although our valuation policy is intended to provide a consistent basis for determining fair value of the portfolio investments. The methods for valuing these securities may include: fundamental analysis (sales, income, or earnings multiples, etc.), discounts from market prices of similar securities, purchase price of securities, subsequent private transactions in the security or related securities, or discounts applied to the nature and duration of restrictions on the disposition of the securities, as well as a combination of these and other factors. Because such valuations, and particularly valuations of private securities and private companies, are inherently uncertain, may fluctuate over short periods of time, and may be based on estimates, our determinations of fair value may differ materially from the values that would have been used if a ready market for these securities existed.
Furthermore, changes in valuation of any of our investments in privately-held companies from one period to another may be volatile.
Investments in privately held, immature companies are inherently more volatile than investments in more mature businesses. Such immature businesses are inherently fragile and easily affected by both internal and external forces.
Our portfolio companies can lose much or all of their value suddenly in response to an internal or external adverse event. Conversely, these immature businesses can gain suddenly in value in response to an internal or external positive development.
The values assigned to our assets are based on available information and do not necessarily represent amounts that might ultimately be realized, as these amounts depend on future circumstances and cannot be reasonably determined until the individual investments are actually liquidated or become readily marketable. Upon sale of investments, the values that are ultimately realized may be different from what is presently estimated. This difference could be material.
PRIVATELY PLACED SMALL COMPANIES RISK
The Fund invests in small companies, and its investments in these companies are considered speculative in nature. The Fund’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 Fund is subject to risk of loss which may prevent our shareholders from achieving price appreciation, dividend distributions and return of capital.
38
WE MAY HOLD A PORTION OF OUR ASSETS IN CASH
As of December 31, 2021, we do not have a significant portion of the Fund’s assets invested in cash and/or cash equivalents. We may, however, from time to time hold a substantial portion of our assets 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 Fund, the Fund may experience losses. Furthermore, the investment advisory fee payable by us will not be reduced while our assets are invested in cash-equivalent securities.
In some cases, particularly for primary transactions, it is to our advantage to hold sufficient cash reserve so that we can make additional subsequent investments in these companies in order to (a) avoid having our earlier investments become diluted in future dilutive financings, (b) invest additional capital into existing portfolio companies in case additional investments are necessary, and/or (c) exercise warrants, options, or convertible securities that were acquired as part of the earlier transactions. For this reason, in the case of primary transactions (as opposed to secondary transactions where we do not buy the securities from the issuing companies but instead from existing stockholders), we typically reserve cash in an amount at least equal to our initial investment for such follow-on opportunities. Cash reserves held with respect to a particular investment should, therefore, decline as it is held longer, and will typically not be needed once that portfolio company becomes public or we determine it is no longer in our best interest to make investments in such portfolio company.
We may from time to time liquidate various investments. We are required to distribute substantially all of our net realized gains to stockholders on an annual basis and, therefore, will generally hold the proceeds of liquidated investments in cash pending its distribution.
39
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
TO THE BOARD OF DIRECTORS AND SHAREHOLDERS
of Firsthand Technology Value Fund, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated statements of assets and liabilities of Firsthand Technology Value Fund, Inc. (the “Company”), including the consolidated schedules of investments, as of December 31, 2021 and 2020, and the related consolidated statements of operations, changes in net assets, and cash flows for each of the years in the three-year period ended December 31, 2021, and the consolidated financial highlights for each of the years in the five-year period ended December 31, 2021, and the related notes (collectively referred to as the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, the results of its operations, the changes in its net assets, and its cash flows for each of the years in the three-year period ended December 31, 2021, and the financial highlights for each of the years in the five-year period ended December 31, 2021, in conformity with accounting principles generally accepted in the United States of America.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2021, based on the criteria established in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated March 18, 2022 expressed an unqualified opinion.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We have served as the Company’s auditor since 1997.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our procedures included confirmation of securities owned as of December 31, 2021 by correspondence with the custodian and portfolio companies. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgements. The communication of critical audit matters does not alter in any way our opinion on the financial statements taken as a whole, and we are not by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
As discussed in Note 6, level 3 investments were valued at $59,744,294 which represented 63% of the Company’s net assets as of December 31, 2021. As part of the valuation process, the Board of Directors and the Audit Committee of the Board of Directors review the valuation models and assumptions prepared by an independent third-party valuation firm. The Company’s level 3 investments are valued using acceptable industry methods including a market approach, an income approach, a cost approach, or a combination of such approaches. The market approach uses prices and other
40
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
TO THE BOARD OF DIRECTORS AND SHAREHOLDERS
of Firsthand Technology Value Fund, Inc.
Page Two
relevant information generated by market transactions. The income approach uses valuation techniques to convert future amounts (for example, cash flows or earnings) discounted to a single present value amount. The cost approach uses the Company’s cost basis of the investment. In following these approaches, the types of factors that management may take into account in fair value pricing investments include observable market inputs together with significant unobservable inputs, including relevant comparable company multiples, discount rates, volatility and recent transactions.
The principal consideration for our determination that performing procedures relating to the valuation of level 3 investments is a critical audit matter are there was significant judgement by management to determine the fair value of these level 3 investments, which included significant unobservable inputs as described above. This in turn led to a high degree of auditor judgement, subjectivity, and effort in performing audit procedures and evaluating the audit evidence obtained related to the unobservable inputs.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the financial statements. These procedures included testing the effectiveness of controls relating to the valuation of level 3 investments and testing the completeness, accuracy, reliability, and relevance of key data used in the valuation models and testing the computation of these level 3 investments based on the inputs used.
TAIT, WELLER & BAKER LLP
Philadelphia, Pennsylvania
March 18, 2022
41
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
TO THE BOARD OF DIRECTORS AND SHAREHOLDERS
Firsthand Technology Value Fund, Inc.
San Jose, California
Opinion on Internal Control Over Financial Reporting
We have audited Firsthand Technology Value Fund, Inc.’s (the Company’s) internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2021, based on the criteria established in Internal Control—Integrated Framework (2013) issued by COSO.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated statements of assets and liabilities, including the consolidated schedules of investments, as of December 31, 2021 and 2020, and the related consolidated statements of operations, changes in net assets, and cash flows for each of the years in the three-year period ended December 31, 2021, and the consolidated financial highlights for each of the years in the five-year period ended December 31, 2021, and the related notes (collectively referred to as the consolidated financial statements) of the Company, and our report dated March 18, 2022 expressed an unqualified opinion.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
42
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
TO THE BOARD OF DIRECTORS AND SHAREHOLDERS
Firsthand Technology Value Fund, Inc.
Page Two
Because of the inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
TAIT, WELLER & BAKER LLP
Philadelphia, Pennsylvania
March 18, 2022
43
Item 8. Financial Statements and Supplementary Data
Firsthand Technology Value Fund, Inc.
Consolidated Statements of Assets and Liabilities
AS OF |
AS OF |
|||||||
ASSETS |
||||||||
Investment securities: |
||||||||
Unaffiliated investments at acquisition cost |
$ | 1,729,653 | * | $ | 3,468,393 | * | ||
Affiliated investments at acquisition cost |
4,744,427 | 4,744,427 | ||||||
Controlled investments at acquisition cost |
138,754,479 | 125,755,796 | ||||||
Total acquisition cost |
$ | 145,228,559 | $ | 133,968,616 | ||||
Unaffiliated investments at market value |
$ | 1,009,813 | * | $ | 3,299,827 | * | ||
Affiliated investments at market value |
613,650 | 6,451,878 | ||||||
Controlled investments at market value |
89,505,079 | 92,321,114 | ||||||
Total market value ** (Note 6) |
91,128,542 | 102,072,819 | ||||||
Foreign currency at value (cost $0 and $703) |
— | 729 | ||||||
Receivable from dividends and interest |
11,485,642 | 5,728,598 | ||||||
Other assets |
64,066 | 25,715 | ||||||
Total Assets |
102,678,250 | 107,827,861 | ||||||
LIABILITIES |
||||||||
Due to Custodian |
13,589 | — | ||||||
Payable to affiliates (Note 4) |
7,702,914 | 5,450,699 | ||||||
Consulting fee payable |
26,000 | 26,000 | ||||||
Accrued expenses and other payables |
181,123 | 208,794 | ||||||
Total Liabilities |
7,923,626 | 5,685,493 | ||||||
NET ASSETS |
$ | 94,754,624 | $ | 102,142,368 | ||||
Net Assets consist of: |
||||||||
Common Stock, par value $0.001 per share 100,000,000 shares authorized |
$ | 6,893 | $ | 6,893 | ||||
Paid-in-capital |
176,770,722 | 176,770,722 | ||||||
Total distributable earnings (loss) |
(82,022,991 | ) | (74,635,247 | ) | ||||
NET ASSETS |
$ | 94,754,624 | $ | 102,142,368 | ||||
Shares of Common Stock outstanding |
7,016,432 | 7,016,432 | ||||||
Shares of Treasury Stock outstanding |
(123,376 | ) | (123,376 | ) | ||||
Total Shares of Common Stock outstanding |
6,893,056 | 6,893,056 | ||||||
Net asset value per share (Note 2) |
$ | 13.75 | $ | 14.82 |
* |
Includes Fidelity Investment Money Market Treasury Portfolio - Class I, which invests primarily in U.S. Treasury securities. The yields as of 12/31/21 and 12/31/20 were 0.01% and 0.01%, respectively. Please see https://fundresearch.fidelity.com/ mutual-funds/summary/316175504 for additional information. |
** |
Includes warrants whose primary risk exposure is equity contracts. |
See accompanying notes to financial statements
44
Firsthand Technology Value Fund, Inc.
Consolidated Schedule of Investments
DECEMBER 31, 2021
PORTFOLIO |
TYPE OF INVESTMENT |
ACQUISITION DATE |
SHARES/PAR |
COST BASIS |
VALUE |
||||||||||||
EQX CAPITAL, INC. |
Common Stock *(1)(2)(4) |
6/10/2016 | 100,000 | $ | 20,000 | $ | 31,490 | ||||||||||
(2.0%) Equipment Leasing |
Preferred Stock - Series A *(1)(2)(4) |
6/10/16 - 11/7/16 | 2,300,000 | 2,300,000 | 1,898,420 | ||||||||||||
1,929,910 | |||||||||||||||||
HERA SYSTEMS, INC. (5.8%) Aerospace |
Convertible Promissory Note Matures December 2022 Interest Rate 10% (1)(2)(4) |
5/31/2018 | 500,000 | 500,000 | 500,000 | ||||||||||||
Convertible Promissory Note Matures December 2022 Interest Rate 10% (1)(2)(4) |
1/19/2018 | 500,000 | 500,000 | 500,000 | |||||||||||||
Convertible Promissory Note Matures December 2022 Interest Rate 10% (1)(2)(4) |
3/23/2020 | 250,000 | 250,000 | 250,000 | |||||||||||||
Convertible Promissory Note Matures December 2022 Interest Rate 10% (1)(2)(4) |
6/26/2020 | 200,000 | 200,000 | 200,000 | |||||||||||||
Convertible Promissory Note Matures December 2022 Interest Rate 10% (1)(2)(4) |
4/29/2020 | 40,000 | 40,000 | 40,000 | |||||||||||||
Convertible Promissory Note Matures December 2022 Interest Rate 10% (1)(2)(4) |
5/29/2020 | 20,000 | 20,000 | 20,000 | |||||||||||||
Convertible Promissory Note Matures December 2022 Interest Rate 10% (1)(2)(4) |
8/6/2020 | 220,000 | 220,000 | 220,000 | |||||||||||||
Convertible Promissory Note Matures December 2022 Interest Rate 10% (1)(2)(4) |
9/10/2020 | 150,000 | 150,000 | 150,000 | |||||||||||||
Convertible Promissory Note Matures December 2022 Interest Rate 10% (1)(2)(4) |
10/8/2020 | 250,000 | 250,000 | 250,000 | |||||||||||||
Convertible Promissory Note Matures December 2022 Interest Rate 10% (1)(2)(4) |
11/17/2020 | 250,000 | 250,000 | 250,000 | |||||||||||||
Convertible Promissory Note Matures December 2022 Interest Rate 10% (1)(2)(4) |
12/21/2020 | 250,000 | 250,000 | 250,000 |
See accompanying notes to financial statements
45
Firsthand Technology Value Fund, Inc.
Consolidated Schedule of Investments - continued
DECEMBER 31, 2021
PORTFOLIO |
TYPE OF INVESTMENT |
ACQUISITION DATE |
SHARES/PAR |
COST BASIS |
VALUE |
||||||||||||
HERA SYSTEMS, INC. (continued) |
Convertible Promissory Note Matures December 2022 Interest Rate 10% (1)(2)(4) |
1/26/2021 | 50,000 | $ | 50,000 | $ | 50,000 | ||||||||||
Convertible Promissory Note Matures December 2022 Interest Rate 10% (1)(2)(4) |
2/16/2021 | 150,000 | 150,000 | 150,000 | |||||||||||||
Convertible Promissory Note Matures December 2022 Interest Rate 10% (1)(2)(4) |
3/25/2021 | 150,000 | 150,000 | 150,000 | |||||||||||||
Convertible Promissory Note Matures December 2022 Interest Rate 10% (1)(2)(4) |
4/27/2021 | 150,000 | 150,000 | 150,000 | |||||||||||||
Convertible Promissory Note Matures December 2022 Interest Rate 10% (1)(2)(4) |
5/24/2021 | 150,000 | 150,000 | 150,000 | |||||||||||||
Convertible Promissory Note Matures December 2022 Interest Rate 10% (1)(2)(4) |
6/29/2021 | 200,000 | 200,000 | 200,000 | |||||||||||||
Convertible Promissory Note Matures December 2022 Interest Rate 10% (1)(2)(4) |
7/26/2021 | 150,000 | 150,000 | 150,000 | |||||||||||||
Convertible Promissory Note Matures December 2022 Interest Rate 10% (1)(2)(4) |
8/26/2021 | 150,000 | 150,000 | 150,000 | |||||||||||||
Convertible Promissory Note Matures December 2022 Interest Rate 10% (1)(2)(4) |
10/5/2021 | 150,000 | 150,000 | 150,000 | |||||||||||||
Convertible Promissory Note Matures December 2022 Interest Rate 10% (1)(2)(4) |
10/22/2021 | 150,000 | 150,000 | 150,000 | |||||||||||||
Convertible Promissory Note Matures December 2022 Interest Rate 10% (1)(2)(4) |
11/29/2021 | 150,000 | 150,000 | 150,000 | |||||||||||||
Convertible Promissory Note Matures December 2022 Interest Rate 10% (1)(2)(4) |
12/28/2021 | 150,000 | 150,000 | 150,000 | |||||||||||||
Preferred Stock - Series A *(1)(2)(4) |
9/18/2015 | 3,642,324 | 2,000,000 | 8,377 |
See accompanying notes to financial statements
46
Firsthand Technology Value Fund, Inc.
Consolidated Schedule of Investments - continued
DECEMBER 31, 2021
PORTFOLIO |
TYPE OF INVESTMENT |
ACQUISITION DATE |
SHARES/PAR |
COST BASIS |
VALUE |
||||||||||||
HERA SYSTEMS, INC. (continued) |
Preferred Stock - Series B *(1)(2)(4) |
8/7/17 - 2/1/19 | 7,039,203 | $ | 6,587,102 | $ | 229,478 | ||||||||||
Preferred Stock - Series C *(1)(2)(4) |
8/7/19-2/12/20 | 2,650,000 | 2,650,000 | 86,390 | |||||||||||||
Preferred Stock Warrants - Series B *(1)(2)(4) |
7/9/18 - 9/4/18 | 12,250,000 | 0 | 398,738 | |||||||||||||
Preferred Stock Warrants - Series B *(1)(2)(4) |
2/1/2019 | 5,250,000 | 0 | 170,888 | |||||||||||||
Preferred Stock Warrants - Series B *(1)(2)(4) |
8/7/2017 | 6,214,922 | 0 | 202,296 | |||||||||||||
Preferred Stock Warrants - Series B *(1)(2)(4) |
9/28/2017 | 700,000 | 0 | 22,785 | |||||||||||||
5,498,952 | |||||||||||||||||
INTRAOP MEDICAL CORP. (28.6%) Medical Devices |
Convertible Note Matures December 2022 Interest Rate 15% (1)(2)(4) |
12/31/2018 | 10,961,129 | 10,961,129 | 10,961,129 | ||||||||||||
Convertible Note Matures December 2022 Interest Rate 15% (1)(2)(4) |
7/12/2019 | 1,300,000 | 1,300,000 | 1,300,000 | |||||||||||||
Convertible Note Matures December 2022 Interest Rate 15% (1)(2)(4) |
10/11/2019 | 500,000 | 500,000 | 500,000 | |||||||||||||
Convertible Note Matures December 2022 Interest Rate 15% (1)(2)(4) |
10/29/2019 | 500,000 | 500,000 | 500,000 | |||||||||||||
Convertible Note Matures December 2022 Interest Rate 15% (1)(2)(4) |
2/27/2020 | 1,000,000 | 1,000,000 | 1,000,000 | |||||||||||||
Convertible Note Matures December 2022 Interest Rate 15% (1)(2)(4) |
3/25/2020 | 500,000 | 500,000 | 500,000 | |||||||||||||
Convertible Note Matures December 2022 Interest Rate 15% (1)(2)(4) |
5/8/2020 | 400,000 | 400,000 | 400,000 | |||||||||||||
Convertible Note Matures December 2022 Interest Rate 15% (1)(2)(4) |
7/31/2020 | 500,000 | 500,000 | 500,000 |
See accompanying notes to financial statements
47
Firsthand Technology Value Fund, Inc.
Consolidated Schedule of Investments - continued
DECEMBER 31, 2021
PORTFOLIO |
TYPE OF INVESTMENT |
ACQUISITION DATE |
SHARES/PAR |
COST BASIS |
VALUE |
||||||||||||
INTRAOP MEDICAL CORP. (continued) |
Convertible Note Matures December 2022 Interest Rate 15% (1)(2)(4) |
8/28/2020 | 750,000 | $ | 750,000 | $ | 750,000 | ||||||||||
Convertible Note Matures December 2022 Interest Rate 15% (1)(2)(4) |
4/20/2021 | 1,000,000 | 1,000,000 | 1,000,000 | |||||||||||||
Convertible Note Matures December 2022 Interest Rate 15% (1)(2)(4) |
6/10/2021 | 500,000 | 500,000 | 500,000 | |||||||||||||
Convertible Note Matures December 2022 Interest Rate 15% (1)(2)(4) |
7/16/2021 | 500,000 | 500,000 | 500,000 | |||||||||||||
Convertible Note Matures December 2022 Interest Rate 15% (1)(2)(4) |
9/22/2021 | 500,000 | 500,000 | 500,000 | |||||||||||||
Convertible Note Matures December 2022 Interest Rate 15% (1)(2)(4) |
10/6/2021 | 500,000 | 500,000 | 500,000 | |||||||||||||
Convertible Note Matures December 2022 Interest Rate 15% (1)(2)(4) |
10/22/2021 | 1,000,000 | 1,000,000 | 1,000,000 | |||||||||||||
Convertible Note Matures December 2022 Interest Rate 15% (1)(2)(4) |
11/12/2021 | 500,000 | 500,000 | 500,000 | |||||||||||||
Convertible Note Matures December 2022 Interest Rate 15% (1)(2)(4) |
11/29/2021 | 500,000 | 500,000 | 500,000 | |||||||||||||
Preferred Stock - Series C *(1)(2)(4) |
7/12/2013 | 26,856,187 | 26,299,938 | 670,062 | |||||||||||||
Term Note Matures December 2021 Interest Rate 8% (1)(2)(4) |
2/28/2014 | 3,000,000 | 3,000,000 | 3,000,000 | |||||||||||||
Term Note Matures December 2021 Interest Rate 8% (1)(2)(4) |
2/10/2017 | 2,000,000 | 2,000,000 | 2,000,000 | |||||||||||||
27,081,191 |
See accompanying notes to financial statements
48
Firsthand Technology Value Fund, Inc.
Consolidated Schedule of Investments - continued
DECEMBER 31, 2021
PORTFOLIO |
TYPE OF INVESTMENT |
ACQUISITION DATE |
SHARES/PAR |
COST BASIS |
VALUE |
||||||||||||
KYMA, INC. (0.1%) Advanced Materials |
Convertible Note Matures March 2022 Interest Rate 10% (1)(4) |
3/11/2019 | 100,000 | $ | 100,000 | $ | 100,000 | ||||||||||
LYNCEAN TECHNOLOGIES, INC. (0.3%) |
Preferred Stock - Series B *(1)(4) |
7/3/2018 | 869,792 | 1,000,000 | 280,160 | ||||||||||||
Semiconductor Equipment |
|||||||||||||||||
PIVOTAL SYSTEMS CORP. (9.8%) |
CDIs *(2) |
11/28/12 - 9/2/16 | 14,589,506 | 9,873 | 9,287,771 | ||||||||||||
Semiconductor Equipment |
|||||||||||||||||
REVASUM, INC. (22.7%) |
CDIs *(2) |
11/14/16 - 11/30/18 | 46,834,340 | 13,512,263 | 21,466,824 | ||||||||||||
Semiconductor Equipment |
|||||||||||||||||
SILICON GENESIS CORP. (1.1%) |
Preferred Stock - Series 1-E *(1)(2)(4) |
4/18/2011 | 5,704,480 | 2,372,403 | 453,506 | ||||||||||||
Intellectual Property |
Preferred Stock - Series 1-C *(1)(2)(4) |
4/18/2011 | 82,914 | 109,518 | 1,990 | ||||||||||||
Preferred Stock - Series 1-D *(1)(2)(4) |
4/18/2011 | 850,830 | 431,901 | 5,275 | |||||||||||||
Common Stock *(1)(2)(4) |
4/18/11 - 6/12/12 | 921,892 | 169,045 | 277 | |||||||||||||
Common Stock Warrants *(1)(2)(4) |
4/18/2011 | 37,982 | 6,678 | 3 | |||||||||||||
Preferred Stock - Series 1-F *(1)(2)(4) |
4/18/2011 | 912,453 | 456,389 | 100,187 | |||||||||||||
Preferred Stock - Series 1-G *(1)(2)(4) |
3/10/2016 | 48,370,793 | 3,880,592 | 439,207 | |||||||||||||
Preferred Stock - Series 1-H *(1)(2)(4) |
3/10/2016 | 837,942 | 936,895 | 50,277 | |||||||||||||
1,050,722 |
See accompanying notes to financial statements
49
Firsthand Technology Value Fund, Inc.
Consolidated Schedule of Investments - continued
DECEMBER 31, 2021
PORTFOLIO |
TYPE OF INVESTMENT |
ACQUISITION DATE |
SHARES/PAR |
COST BASIS |
VALUE |
||||||||||||
SVXR, INC. (0.0%) |
Preferred Stock - Series A *(1)(3)(4) |
1/11/17 - 8/29/18 | 8,219,454 | $ | 4,082,192 | $ | 0 | ||||||||||
Semiconductor Equipment |
|||||||||||||||||
UCT COATINGS, INC. (0.6%) |
Common Stock *(1)(3)(4) |
4/18/2011 | 1,500,000 | 662,235 | 613,650 | ||||||||||||
Advanced Materials |
|||||||||||||||||
WRIGHTSPEED, INC. (24.5%) |
Common Stock *(1)(2)(4) |
4/11/13 - 5/6/19 | 69,102 | 7,460,851 | 1,126 | ||||||||||||
Automotive |
Convertible Note Matures December 2022 Interest Rate 12% (1)(2)(4) |
6/7/2019 | 4,929,015 | 4,929,015 | 4,929,015 | ||||||||||||
Convertible Note Matures December 2022 Interest Rate 12% (1)(2)(4) |
8/12/2020 | 750,000 | 750,000 | 750,000 | |||||||||||||
Convertible Note Matures December 2022 Interest Rate 12% (1)(2)(4) |
9/10/2020 | 900,000 | 900,000 | 900,000 | |||||||||||||
Convertible Note Matures December 2022 Interest Rate 12% (1)(2)(4) |
10/13/2020 | 1,050,000 | 1,050,000 | 1,050,000 | |||||||||||||
Convertible Note Matures December 2022 Interest Rate 12% (1)(2)(4) |
11/11/2020 | 400,000 | 400,000 | 400,000 | |||||||||||||
Convertible Note Matures December 2022 Interest Rate 12% (1)(2)(4) |
11/24/2020 | 375,000 | 375,000 | 375,000 | |||||||||||||
Convertible Note Matures December 2022 Interest Rate 12% (1)(2)(4) |
12/11/2020 | 400,000 | 400,000 | 400,000 | |||||||||||||
Convertible Note Matures December 2022 Interest Rate 12% (1)(2)(4) |
12/23/2020 | 2,000,000 | 2,000,000 | 2,000,000 | |||||||||||||
Convertible Note Matures December 2022 Interest Rate 12% (1)(2)(4) |
2/23/2021 | 1,400,000 | 1,400,000 | 1,400,000 |
See accompanying notes to financial statements
50
Firsthand Technology Value Fund, Inc.
Consolidated Schedule of Investments - continued
DECEMBER 31, 2021
PORTFOLIO |
TYPE OF INVESTMENT |
ACQUISITION DATE |
SHARES/PAR |
COST BASIS |
VALUE |
||||||||||||
WRIGHTSPEED, INC. (continued) |
Convertible Note Matures December 2022 Interest Rate 12% (1)(2)(4) |
4/12/2021 | 1,200,000 | $ | 1,200,000 | $ | 1,200,000 | ||||||||||
Convertible Note Matures December 2022 Interest Rate 12% (1)(2)(4) |
5/18/2021 | 1,000,000 | 1,000,000 | 1,000,000 | |||||||||||||
Convertible Note Matures December 2022 Interest Rate 12% (1)(2)(4) |
6/22/2021 | 1,000,000 | 1,000,000 | 1,000,000 | |||||||||||||
Convertible Note Matures December 2022 Interest Rate 12% (1)(2)(4) |
7/26/2021 | 1,000,000 | 1,000,000 | 1,000,000 | |||||||||||||
Convertible Note Matures December 2022 Interest Rate 12% (1)(2)(4) |
8/19/2021 | 1,000,000 | 1,000,000 | 1,000,000 | |||||||||||||
Convertible Note Matures December 2022 Interest Rate 12% (1)(2)(4) |
9/22/2021 | 300,000 | 300,000 | 300,000 | |||||||||||||
Convertible Note Matures December 2022 Interest Rate 12% (1)(2)(4) |
10/5/2021 | 700,000 | 700,000 | 700,000 | |||||||||||||
Convertible Note Matures December 2022 Interest Rate 12% (1)(2)(4) |
10/20/2021 | 1,000,000 | 1,000,000 | 1,000,000 | |||||||||||||
Convertible Note Matures December 2022 Interest Rate 12% (1)(2)(4) |
11/23/2021 | 1,000,000 | 1,000,000 | 1,000,000 | |||||||||||||
Convertible Note Matures December 2022 Interest Rate 12% (1)(2)(4) |
12/28/2021 | 1,000,000 | 1,000,000 | 1,000,000 | |||||||||||||
Preferred Stock - Series AA *(1)(2)(4) |
6/7/2019 - 7/20/2020 | 60,733,693 | 17,355,887 | 1,777,068 | |||||||||||||
Preferred Stock Warrants - Series AA *(1)(2)(4) |
6/7/2019 | 609,756 | 0 | 7,500 | |||||||||||||
23,189,709 |
See accompanying notes to financial statements
51
Firsthand Technology Value Fund, Inc.
Consolidated Schedule of Investments - continued
DECEMBER 31, 2021
* |
Non-income producing security. |
CDI |
CHESS Depositary Interests |
(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, 2021, we held $59,744,294 (or 63.1% 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
52
Firsthand Technology Value Fund, Inc.
Consolidated Schedule of Investments
DECEMBER 31, 2020
PORTFOLIO |
TYPE OF INVESTMENT |
ACQUISITION DATE |
SHARES/PAR |
COST BASIS |
VALUE |
||||||||||||
EQX CAPITAL, INC. |
Common Stock *(1)(2)(4) |
6/10/2016 | 100,000 | $ | 20,000 | $ | 27,440 | ||||||||||
(2.2%) Equipment Leasing |
Preferred Stock - Series A *(1)(2)(4) |
6/10/2016 | 2,800,000 | 2,800,000 | 2,177,560 | ||||||||||||
2,205,000 | |||||||||||||||||
HERA SYSTEMS, INC. (3.5%) Aerospace |
Convertible Promissory Note Matures December 2021 Interest Rate 10% (1)(2)(4) |
5/31/2018 | 500,000 | 500,000 | 500,000 | ||||||||||||
Convertible Promissory Note Matures December 2021 Interest Rate 10% (1)(2)(4) |
1/19/2018 | 500,000 | 500,000 | 500,000 | |||||||||||||
Convertible Promissory Note Matures December 2021 Interest Rate 10% (1)(2)(4) |
3/23/2020 | 250,000 | 250,000 | 250,000 | |||||||||||||
Convertible Promissory Note Matures December 2021 Interest Rate 10% (1)(2)(4) |
6/26/2020 | 200,000 | 200,000 | 200,000 | |||||||||||||
Convertible Promissory Note Matures December 2021 Interest Rate 10% (1)(2)(4) |
4/29/2020 | 40,000 | 40,000 | 40,000 | |||||||||||||
Convertible Promissory Note Matures December 2021 Interest Rate 10% (1)(2)(4) |
5/29/2020 | 20,000 | 20,000 | 20,000 | |||||||||||||
Convertible Promissory Note Matures December 2021 Interest Rate 10% (1)(2)(4) |
8/6/2020 | 220,000 | 220,000 | 220,000 | |||||||||||||
Convertible Promissory Note Matures December 2021 Interest Rate 10% (1)(2)(4) |
9/10/2020 | 150,000 | 150,000 | 150,000 | |||||||||||||
Convertible Promissory Note Matures December 2021 Interest Rate 10% (1)(2)(4) |
10/8/2020 | 250,000 | 250,000 | 250,000 | |||||||||||||
Convertible Promissory Note Matures December 2021 Interest Rate 10% (1)(2)(4) |
11/17/2020 | 250,000 | 250,000 | 250,000 | |||||||||||||
Convertible Promissory Note Matures December 2021 Interest Rate 10% (1)(2)(4) |
12/21/2020 | 250,000 | 250,000 | 250,000 |
See accompanying notes to financial statements
53
Firsthand Technology Value Fund, Inc.
Consolidated Schedule of Investments - continued
DECEMBER 31, 2020
PORTFOLIO |
TYPE OF INVESTMENT |
ACQUISITION DATE |
SHARES/PAR |
COST BASIS |
VALUE |
||||||||||||
HERA SYSTEMS, INC. (continued) |
Preferred Stock - Series A *(1)(2)(4) |
9/18/2015 | 3,642,324 | $ | 2,000,000 | $ | 11,291 | ||||||||||
Preferred Stock - Series B *(1)(2)(4) |
8/07/17 - 2/1/19 | 7,039,203 | 6,587,102 | 199,913 | |||||||||||||
Preferred Stock - Series C *(1)(2)(4) |
8/7/2019-2/12/20 | 2,650,000 | 2,650,000 | 75,260 | |||||||||||||
Preferred Stock Warrants - Series B *(1)(2)(4) |
7/9/18 - 9/4/18 | 12,250,000 | 0 | 346,307 | |||||||||||||
Preferred Stock Warrants - Series B *(1)(2)(4) |
2/1/2019 | 5,250,000 | 0 | 148,418 | |||||||||||||
Preferred Stock Warrants - Series B *(1)(2)(4) |
8/7/2017 | 6,214,922 | 0 | 175,696 | |||||||||||||
Preferred Stock Warrants - Series B *(1)(2)(4) |
9/28/2017 | 700,000 | 0 | 19,789 | |||||||||||||
3,606,674 | |||||||||||||||||
INTRAOP MEDICAL CORP. (25.8%) Medical Devices |
Convertible Note Matures December 2021 Interest Rate 15% (1)(2)(4) |
12/31/2018 | 10,961,129 | 10,961,129 | 10,961,129 | ||||||||||||
Convertible Note Matures December 2021 Interest Rate 15% (1)(2)(4) |
7/12/2019 | 1,300,000 | 1,300,000 | 1,300,000 | |||||||||||||
Convertible Note Matures December 2021 Interest Rate 15% (1)(2)(4) |
10/11/2019 | 500,000 | 500,000 | 500,000 | |||||||||||||
Convertible Note Matures December 2021 Interest Rate 15% (1)(2)(4) |
10/29/2019 | 500,000 | 500,000 | 500,000 | |||||||||||||
Convertible Note Matures December 2021 Interest Rate 15% (1)(2)(4) |
2/27/2020 | 1,000,000 | 1,000,000 | 1,000,000 | |||||||||||||
Convertible Note Matures December 2021 Interest Rate 15% (1)(2)(4) |
3/25/2020 | 500,000 | 500,000 | 500,000 | |||||||||||||
Convertible Note Matures December 2021 Interest Rate 15% (1)(2)(4) |
5/8/2020 | 400,000 | 400,000 | 400,000 |
See accompanying notes to financial statements
54
Firsthand Technology Value Fund, Inc.
Consolidated Schedule of Investments - continued
DECEMBER 31, 2020
PORTFOLIO |
TYPE OF INVESTMENT |
ACQUISITION DATE |
SHARES/PAR |
COST BASIS |
VALUE |
||||||||||||
INTRAOP MEDICAL CORP. (continued) |
Convertible Note Matures December 2021 Interest Rate 15% (1)(2)(4) |
7/31/2020 | 500,000 | $ | 500,000 | $ | 500,000 | ||||||||||
Convertible Note Matures December 2021 Interest Rate 15% (1)(2)(4) |
8/28/2020 | 750,000 | 750,000 | 750,000 | |||||||||||||
Preferred Stock - Series C *(1)(2)(4) |
7/12/2013 | 26,856,187 | 26,299,938 | 4,976,452 | |||||||||||||
Term Note Matures December 2021 Interest Rate 8% (1)(2)(4) |
2/28/2014 | 3,000,000 | 3,000,000 | 3,000,000 | |||||||||||||
Term Note Matures December 2021 Interest Rate 8% (1)(2)(4) |
2/10/2017 | 2,000,000 | 2,000,000 | 2,000,000 | |||||||||||||
26,387,581 | |||||||||||||||||
KYMA, INC. (0.1%) Advanced Materials |
Convertible Note Matures March 2021 Interest Rate 10% (1)(4) |
3/11/2019 | 100,000 | 100,000 | 100,000 | ||||||||||||
LYNCEAN TECHNOLOGIES, INC. (0.8%) |
Preferred Stock - Series B *(1)(4) |
7/3/2018 | 869,792 | 1,000,000 | 831,434 | ||||||||||||
Semiconductor Equipment |
|||||||||||||||||
PIVOTAL SYSTEMS CORP. (22.1%) |
CDIs *(2) |
11/28/12 - 9/2/16 | 31,089,506 | 3,861,189 | 22,530,347 | ||||||||||||
Semiconductor Equipment |
|||||||||||||||||
REVASUM, INC. (12.4%) |
CDIs *(2) |
11/14/16 - 11/30/18 | 46,834,340 | 13,512,264 | 12,637,451 | ||||||||||||
Semiconductor Equipment |
See accompanying notes to financial statements
55
Firsthand Technology Value Fund, Inc.
Consolidated Schedule of Investments - continued
DECEMBER 31, 2020
PORTFOLIO |
TYPE OF INVESTMENT |
ACQUISITION DATE |
SHARES/PAR |
COST BASIS |
VALUE |
||||||||||||
SILICON GENESIS CORP. (1.3%) |
Preferred Stock - Series 1-E *(1)(2)(4) |
4/18/2011 | 5,704,480 | $ | 2,372,403 | $ | 567,596 | ||||||||||
Intellectual Property |
Preferred Stock - Series 1-C *(1)(2)(4) |
4/18/2011 | 82,914 | 109,518 | 3,325 | ||||||||||||
Preferred Stock - Series 1-D *(1)(2)(4) |
4/18/2011 | 850,830 | 431,901 | 8,763 | |||||||||||||
Common Stock *(1)(2)(4) |
4/18/2011 | 921,892 | 169,045 | 369 | |||||||||||||
Common Stock Warrants *(1)(2)(4) |
4/18/2011 | 37,982 | 6,678 | 6 | |||||||||||||
Preferred Stock - Series 1-F *(1)(2)(4) |
4/18/2011 | 912,453 | 456,389 | 125,462 | |||||||||||||
Common Stock Warrants *(1)(2)(4) |
10/13/2011 | 5,000,000 | 0 | 100 | |||||||||||||
Common Stock Warrants *(1)(2)(4) |
2/6/2012 | 3,000,000 | 0 | 60 | |||||||||||||
Preferred Stock - Series 1-G *(1)(2)(4) |
3/10/2016 | 48,370,793 | 3,880,592 | 562,359 | |||||||||||||
Preferred Stock - Series 1-H *(1)(2)(4) |
3/10/2016 | 837,942 | 936,895 | 62,762 | |||||||||||||
1,330,802 | |||||||||||||||||
SVXR, INC. (5.3%) |
Preferred Stock - Series A *(1)(3)(4) |
1/11/17 - 8/29/18 | 8,219,454 | 4,082,192 | 5,377,578 | ||||||||||||
Semiconductor Equipment |
|||||||||||||||||
UCT COATINGS, INC. (1.0%) |
Common Stock *(1)(3)(4) |
4/18/2011 | 1,500,000 | 662,235 | 1,074,300 | ||||||||||||
Advanced Materials |
|||||||||||||||||
WRIGHTSPEED, INC. (23.1%) |
Common Stock *(1)(2)(4) |
6/7/2019 | 69,102 | 7,460,851 | 7,643 | ||||||||||||
Automotive |
Common Stock Warrants *(1)(2)(4) |
6/7/2019 | 181 | 0 | 12 | ||||||||||||
Convertible Note Matures December 2021 Interest Rate 12% (1)(2)(4) |
6/7/2019 | 4,929,015 | 4,929,015 | 4,929,015 |
See accompanying notes to financial statements
56
Firsthand Technology Value Fund, Inc.
Consolidated Schedule of Investments - continued
DECEMBER 31, 2020
PORTFOLIO |
TYPE OF INVESTMENT |
ACQUISITION DATE |
SHARES/PAR |
COST BASIS |
VALUE |
||||||||||||
WRIGHTSPEED, INC. (continued) |
Convertible Note Matures December 2021 Interest Rate 12% (1)(2)(4) |
8/12/2020 | 750,000 | $ | 750,000 | $ | 750,000 | ||||||||||
Convertible Note Matures December 2021 Interest Rate 12% (1)(2)(4) |
9/10/2020 | 900,000 | 900,000 | 900,000 | |||||||||||||
Convertible Note Matures December 2021 Interest Rate 12% (1)(2)(4) |
10/13/2020 | 1,050,000 | 1,050,000 | 1,050,000 | |||||||||||||
Convertible Note Matures December 2021 Interest Rate 12% (1)(2)(4) |
11/11/2020 | 400,000 | 400,000 | 400,000 | |||||||||||||
Convertible Note Matures December 2021 Interest Rate 12% (1)(2)(4) |
11/24/2020 | 375,000 | 375,000 | 375,000 | |||||||||||||
Convertible Note Matures December 2021 Interest Rate 12% (1)(2)(4) |
12/11/2020 | 400,000 | 400,000 | 400,000 | |||||||||||||
Convertible Note Matures December 2021 Interest Rate 12% (1)(2)(4) |
12/23/2020 | 2,000,000 | 2,000,000 | 2,000,000 | |||||||||||||
Preferred Stock - Series AA *(1)(2)(4) |
6/7/2019 - 7/20/2020 | 60,733,693 | 17,355,887 | 12,720,065 | |||||||||||||
Preferred Stock Warrants - Series AA *(1)(2)(4) |
6/7/2019 | 609,756 | 0 | 91,524 | |||||||||||||
23,623,259 |
See accompanying notes to financial statements
57
Firsthand Technology Value Fund, Inc.
Consolidated Schedule of Investments - continued
DECEMBER 31, 2020
* |
Non-income producing security. |
CDI |
CHESS Depositary Interests |
(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, 2020, we held $64,536,628 (or 63.2% 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
58
Firsthand Technology Value Fund, Inc.
Consolidated Statements of Operations
FOR THE |
FOR THE |
FOR THE |
||||||||||
INVESTMENT INCOME |
||||||||||||
Unaffiliated dividends |
$ | 171,613 | $ | — | $ | — | ||||||
Unaffiliated interest |
30,906 | 15,608 | 72,502 | |||||||||
Affiliated/controlled interest |
6,116,176 | 3,635,326 | 1,717,149 | |||||||||
TOTAL INVESTMENT INCOME |
6,318,695 | 3,650,934 | 1,789,651 | |||||||||
EXPENSES |
||||||||||||
Investment advisory fees (Note 4) |
2,220,811 | 2,016,981 | 3,405,735 | |||||||||
Administration fees |
122,177 | 117,911 | 141,714 | |||||||||
Custody fees |
24,661 | 15,780 | 15,070 | |||||||||
Transfer agent fees |
39,737 | 33,640 | 33,353 | |||||||||
Registration and filing fees |
32,700 | 31,700 | 30,700 | |||||||||
Professional fees |
367,471 | 415,447 | 432,337 | |||||||||
Printing fees |
80,307 | 36,953 | 172,820 | |||||||||
Trustees fees |
200,000 | 200,000 | 200,000 | |||||||||
Compliance fees |
120,487 | 116,947 | 118,780 | |||||||||
Miscellaneous fees |
46,907 | 44,076 | 53,513 | |||||||||
TOTAL GROSS EXPENSES |
3,255,258 | 3,029,435 | 4,604,022 | |||||||||
Incentive fee adjustments (Note 4) |
— | — | (9,261,847 | ) | ||||||||
TOTAL NET EXPENSES |
3,255,258 | 3,029,435 | (4,657,825 | ) | ||||||||
NET INVESTMENT INCOME, BEFORE TAXES |
3,063,437 | 621,499 | 6,447,476 | |||||||||
Deferred tax benefit |
— | — | (538,914 | ) | ||||||||
Net Investment Income/(Loss), Net of Deferred Taxes |
3,063,437 | 621,499 | 5,908,562 | |||||||||
Net Realized and Unrealized Gain (Loss) on Investments: |
||||||||||||
Net realized gains (losses) from security transactions on: |
||||||||||||
Affiliated/Controlled |
11,753,038 | (5,589,234 | ) | (24,091,097 | ) | |||||||
Non-affiliated/controlled and other assets |
— | (1,927,408 | ) | 3,004,025 | ||||||||
Foreign currency |
27 | — | — | |||||||||
Written option (1) |
— | — | 98,590 | |||||||||
Deferred tax benefit |
— | (5,816,066 | ) | 4,623,742 | ||||||||
Net realized gains (losses), net of deferred taxes |
11,753,065 | (13,332,708 | ) | (16,364,740 | ) | |||||||
Net change in unrealized appreciation (depreciation) on: |
||||||||||||
Non-affiliated investments |
(551,274 | ) | 4,189,718 | (6,092,860 | ) | |||||||
Affiliated/controlled investments and foreign currency |
(21,673,270 | ) | (8,242,579 | ) | (52,627,051 | ) | ||||||
Affiliated/controlled warrants investments (1) |
20,298 | (4,156,438 | ) | (7,542,793 | ) | |||||||
Deferred tax benefit/expenses |
— | (2,026,517 | ) | 12,190,314 | ||||||||
Net change in unrealized appreciation (depreciation), net of deferred taxes |
(22,204,246 | ) | (10,235,816 | ) | (54,072,390 | ) | ||||||
Net Realized and Unrealized Gains (Losses) on Investments, Net of Deferred Taxes |
(10,451,181 | ) | (23,568,524 | ) | (70,437,130 | ) | ||||||
Net Increase (Decrease) In Net Assets Resulting From Operations, Net of Deferred Taxes |
$ | (7,387,744 | ) | $ | (22,947,025 | ) | $ | (64,528,568 | ) | |||
Net Increase (Decrease) In Net Assets Per Share Resulting From Operations (2) |
$ | (1.07 | ) | $ | (3.31 | ) | $ | (8.99 | ) |
(1) |
Primary risk exposure is equity contracts. |
(2) |
Per share results are calculated based on weighted average shares outstanding for each period. |
See accompanying notes to financial statements
59
Firsthand Technology Value Fund, Inc.
Consolidated Statements of Cash Flows
FOR THE |
FOR THE |
FOR THE |
||||||||||
CASH FLOWS FROM OPERATING ACTIVITIES |
||||||||||||
Net increase (decrease) in Net Assets resulting from operations |
$ | (7,387,744 | ) | $ | (22,947,025 | ) | $ | (64,528,568 | ) | |||
Adjustments to reconcile net increase (decrease) in Net Assets derived from operations to net cash provided by (used in) operating activities |
||||||||||||
Purchases of investments |
(17,350,000 | ) | (24,273,531 | ) | (29,888,755 | ) | ||||||
Proceeds from disposition of investments |
16,104,357 | 24,190,631 | 41,756,374 | |||||||||
Net purchases / sales from short-term investments |
1,738,739 | 2,838,727 | (9,819,822 | ) | ||||||||
(Increase) decrease in dividends, interest, and reclaims receivable |
(5,757,044 | ) | (3,220,884 | ) | (199,349 | ) | ||||||
Increase (decrease) in due to custodian |
13,589 | — | — | |||||||||
(Increase) decrease in receivable in investment sold |
— | — | 1,005 | |||||||||
Increase (decrease) in payable for investment purchased |
— | — | (365,783 | ) | ||||||||
Increase (decrease) in payable to affiliates |
2,252,215 | 1,988,877 | 1,127,095 | |||||||||
Increase (decrease) in incentive fees payable |
— | — | (9,261,847 | ) | ||||||||
(Increase) decrease in other assets |
(38,351 | ) | (3,915 | ) | (3,087 | ) | ||||||
Increase (decrease) in accrued expenses and other payables |
(27,671 | ) | (140,677 | ) | 206,693 | |||||||
(Increase) decrease in deferred tax benefit |
— | 7,842,583 | (16,275,142 | ) | ||||||||
Net realized (gain) loss from investments |
(11,753,065 | ) | 7,516,642 | 21,087,072 | ||||||||
Net realized gain from written options |
— | — | (98,590 | ) | ||||||||
Net unrealized (appreciation) depreciation from investments, other assets, and warrants transactions |
22,204,246 | 8,209,299 | 66,262,704 | |||||||||
Net cash provided by (used in) operating activities |
(729 | ) | 2,000,727 | — | ||||||||
CASH FLOWS FROM FINANCING ACTIVITIES |
||||||||||||
Cost of shares repurchased |
— | (1,999,998 | ) | — | ||||||||
Net cash provided by (used in) financing activities |
— | (1,999,998 | ) | — | ||||||||
Net increase (decrease) in cash |
(729 | ) | 729 | — | ||||||||
Cash - beginning of year |
729 | — | — | |||||||||
Cash - end of year |
$ | — | $ | 729 | $ | — |
See accompanying notes to financial statements
60
Firsthand Technology Value Fund, Inc.
Consolidated Statements of Changes in Net Assets
FOR THE |
FOR THE |
FOR THE |
||||||||||
FROM OPERATIONS: |
||||||||||||
Net investment income (loss), net of deferred taxes |
$ | 3,063,437 | $ | 621,499 | $ | 5,908,562 | ||||||
Net realized gain (loss) from security transactions, written options and warrants transactions, net of deferred taxes |
11,753,065 | (13,332,708 | ) | (16,364,740 | ) | |||||||
Net change in unrealized appreciation (depreciation) on investments and warrants transactions, net of deferred taxes |
(22,204,246 | ) | (10,235,816 | ) | (54,072,390 | ) | ||||||
Net increase (decrease) in net assets from operations |
(7,387,744 | ) | (22,947,025 | ) | (64,528,568 | ) | ||||||
FROM CAPITAL SHARE TRANSACTIONS: |
||||||||||||
Value for shares repurchased |
— | (1,999,998 | ) | — | ||||||||
TOTAL DECREASE IN NET ASSETS |
(7,387,744 | ) | (24,947,023 | ) | (64,528,568 | ) | ||||||
NET ASSETS: |
||||||||||||
Beginning of year |
102,142,368 | 127,089,391 | 191,617,959 | |||||||||
End of year |
$ | 94,754,624 | $ | 102,142,368 | $ | 127,089,391 | ||||||
COMMON STOCK ACTIVITY: |
||||||||||||
Shares redeemed |
— | (285,714 | ) | — | ||||||||
Net increase (decrease) in shares outstanding |
— | (285,714 | ) | — | ||||||||
Shares outstanding, beginning of year |
6,893,056 | 7,178,770 | 7,178,770 | |||||||||
Shares outstanding, end of year |
6,893,056 | 6,893,056 | 7,178,770 |
See accompanying notes to financial statements
61
Firsthand Technology Value Fund, Inc.
Consolidated Financial Highlights
Selected per share data and ratios for a share outstanding throughout each year
FOR THE |
FOR THE |
FOR THE |
FOR THE |
FOR THE |
||||||||||||||||
Net asset value at beginning of year |
$ | 14.82 | $ | 17.70 | $ | 26.69 | $ | 23.83 | $ | 20.04 | ||||||||||
Income from investment operations: |
||||||||||||||||||||
Net investment income (loss), before deferred taxes |
0.44 | (1) | 0.09 | (1) | 0.90 | (1) | (1.29 | )(1) | (0.62 | ) | ||||||||||
Deferred tax benefit |
— | — | (0.08 | ) | 0.07 | — | ||||||||||||||
Net investment gain (losses) |
0.44 | 0.09 | 0.82 | (1.22 | ) | (0.62 | ) | |||||||||||||
Net realized and unrealized gains (losses) on investments, before deferred taxes |
(1.51 | ) | (2.30 | ) | (12.15 | ) | 5.13 | 4.21 | ||||||||||||
Deferred tax expense |
— | (1.13 | ) | 2.34 | (1.23 | ) | — | |||||||||||||
Net realized and unrealized gains (losses) on investments, after deferred taxes |
(1.51 | ) | (3.43 | ) | (9.81 | ) | 3.90 | 4.21 | ||||||||||||
Total from investment operations |
(1.07 | ) | (3.34 | ) | (8.99 | ) | 2.68 | 3.59 | ||||||||||||
Distributions from: |
||||||||||||||||||||
Realized capital gains |
— | — | — | (0.03 | ) | — | ||||||||||||||
Anti-dilutive effect from capital share transactions |
— | 0.46 | — | 0.21 | 0.20 | |||||||||||||||
Net asset value at end of year |
$ | 13.75 | $ | 14.82 | $ | 17.70 | $ | 26.69 | $ | 23.83 | ||||||||||
Market value at end of year |
$ | 4.01 | $ | 4.47 | $ | 6.43 | $ | 11.20 | $ | 8.96 | ||||||||||
Total return |
||||||||||||||||||||
Based on Net Asset Value |
(7.22 | )% | (16.27 | )% | (33.68 | )% | 12.39 | % | 18.91 | % | ||||||||||
Based on Market Value |
(10.29 | )% | (30.48 | )% | (42.59 | )% | 25.43 | % | 16.82 | % | ||||||||||
See accompanying notes to financial statements
62
Firsthand Technology Value Fund, Inc.
Consolidated Financial Highlights - continued
Selected per share data and ratios for a share outstanding throughout each year
FOR THE |
FOR THE |
FOR THE |
FOR THE |
FOR THE |
||||||||||||||||
Net assets at end of year (millions) |
$ | 94.8 | $ | 102.1 | $ | 127.1 | $ | 191.6 | $ | 174.0 | ||||||||||
Ratio of total expenses to average net assets: |
||||||||||||||||||||
Before tax (benefit)/expense |
3.12 | % | 3.10 | % | (2.84 | )%(2) | 6.75 | %(2) | 4.13 | %(2) | ||||||||||
Deferred tax (benefit)/expense (3)(4) |
— | 8.02 | %(6) | (9.91 | )% | 4.43 | % | — | ||||||||||||
Total expenses |
3.12 | % | 11.12 | % | (12.75 | )%(2) | 11.18 | %(2) | 4.13 | % | ||||||||||
Total expenses, excluding incentive fees and deferred tax expense |
3.12 | % | 3.10 | % | 2.80 | % | 2.77 | % | 2.98 | % | ||||||||||
Ratio of net investment income (loss) to average net assets: |
||||||||||||||||||||
Before tax benefit |
2.94 | % | 0.64 | % | 3.93 | %(2) | (4.93 | )%(2) | (3.07 | )% | ||||||||||
Deferred tax benefit (4)(5) |
— | — | (0.33 | )% | 0.28 | % | — | |||||||||||||
Net investment income (loss) |
2.94 | % | 0.64 | % | 3.60 | % | (4.65 | )% | (3.07 | )% | ||||||||||
Portfolio turnover rate |
16 | % | 13 | % | 18 | % | 44 | % | 22 | % |
(1) |
Calculated using average shares outstanding. |
(2) |
Amount includes the incentive fee. For the years ended December 31, 2019, December 31, 2018 and December 31, 2017 the ratio of the incentive fee to average net assets was (5.64)%, 3.98% and 1.15%, respectively. |
(3) |
Deferred tax expense estimate is derived from net investment income (loss), and realized and unrealized gains (losses). |
(4) |
The deferred tax expense 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. |
(6) |
As restated to reflect the removal of parenthetical notation to appropriately present ratio as deferred tax expense. |
See accompanying notes to financial statements
63
Firsthand Technology Value Fund, Inc.
Notes to Consolidated Financial Statements
DECEMBER 31, 2021
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.
64
Firsthand Technology Value Fund, Inc.
Notes to Consolidated Financial Statements - continued
DECEMBER 31, 2021
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 December 31, 2021, our financial statements include venture capital investments valued at approximately $59.7 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 December 31, 2021, we held $59,744,294 in restricted securities. At December 31, 2020, we held $64,536,628 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.
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Notes to Consolidated Financial Statements - continued
DECEMBER 31, 2021
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 average quarterly volume of the Company’s derivatives during the year ended December 31, 2021 is as follows:
PURCHASED OPTIONS |
WARRANTS |
WRITTEN OPTIONS |
|
Firsthand Technology Value Fund, Inc. |
— |
985,486 |
— |
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Notes to Consolidated Financial Statements - continued
DECEMBER 31, 2021
The average quarterly volume of the Company’s derivatives during the year ended December 31, 2020 is as follows:
PURCHASED OPTIONS |
WARRANTS |
WRITTEN OPTIONS |
|
Firsthand Technology Value Fund, Inc. |
— |
2,631,459 |
— |
NOTE 3. BUSINESS RISKS AND UNCERTAINTIES
We 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. We may also be subject to contractual restrictions or securities law limits on our ability to sell portfolio holdings because of, for example, our affiliation with a portfolio company or the relative size of our holding in a company. 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; |
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Notes to Consolidated Financial Statements - continued
DECEMBER 31, 2021
(2) |
the Valuation Committee of the Board on a quarterly basis reviews the preliminary valuation of the Adviser Valuation Committee and that of the independent valuation firms and makes the fair value determination, in good faith, based on the valuation recommendations of the Adviser Valuation Committee and the independent valuation firms; and |
(3) |
at each quarterly Board meeting, the Board considers the valuations recommended by the Adviser Valuation Committee and the independent valuation firms that were previously submitted to the Valuation Committee of the Board and ratifies the fair value determinations made by the Valuation Committee of the Board. |
NOTE 4. INVESTMENT MANAGEMENT FEE
The Company has entered into an investment management agreement (the “Investment Management Agreement”) with 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, 2021, 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. For the year ended December 31, 2021, there were no incentive fee adjustments. For the year ended December 31, 2020, there were no incentive fee adjustments. For the year ended December 31, 2019, there was an incentive fee reversal of ($9,261,847).
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.
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Notes to Consolidated Financial Statements - continued
DECEMBER 31, 2021
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.
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. |
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Firsthand Technology Value Fund, Inc.
Notes to Consolidated Financial Statements - continued
DECEMBER 31, 2021
FAIR VALUE MEASUREMENT. In accordance with the guidance from the Financial Accounting Standards Board on fair value measurements and disclosures under GAAP, the Company discloses the fair value of its investments in a hierarchy that prioritizes the inputs to valuation techniques used to measure the fair value. The hierarchy gives the highest priority to valuations based upon unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurement) and the lowest priority to valuations based upon unobservable inputs that are significant to the valuation (Level 3 measurements).
The guidance establishes three levels of the fair value hierarchy as follows:
Level 1 - |
Unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the date of measurement. |
Level 2 - |
Observable inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. These inputs may include quoted prices for the identical instrument in an inactive market, prices for similar instruments in an active or inactive market, interest rates, prepayment speeds, credit risks, yield curves, default rates, and similar data. |
Level 3 - |
Unobservable inputs for the asset or liability, to the extent relevant observable inputs are not available, representing the Company’s own assumptions about the assumptions a market participant would use in valuing the asset or liability based on the best information available. |
The availability of observable inputs can vary from security to security and is affected by a wide variety of factors, including, for example, the type of security, whether the security is new and not yet established in the marketplace, the liquidity of markets, 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 December 31, 2021:
ASSETS |
LEVEL 1 |
LEVEL 2 OTHER |
LEVEL 3 SIGNIFICANT |
|||||||||
Common Stocks |
||||||||||||
Advanced Materials |
$ | — | $ | — | $ | 613,650 | ||||||
Automotive |
— | — | 1,126 | |||||||||
Equipment Leasing |
— | — | 31,490 | |||||||||
Intellectual Property |
— | — | 277 | |||||||||
Semiconductor Equipment |
30,754,595 | — | — | |||||||||
Total Common Stocks |
30,754,595 | — | 646,543 |
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Notes to Consolidated Financial Statements - continued
DECEMBER 31, 2021
ASSETS (continued) |
LEVEL 1 |
LEVEL 2 OTHER |
LEVEL 3 SIGNIFICANT |
|||||||||
Preferred Stocks |
||||||||||||
Aerospace |
$ | — | $ | — | $ | 324,245 | ||||||
Automotive |
— | — | 1,777,068 | |||||||||
Equipment Leasing |
— | — | 1,898,420 | |||||||||
Intellectual Property |
— | — | 1,050,442 | |||||||||
Medical Devices |
— | — | 670,062 | |||||||||
Semiconductor Equipment |
— | — | 280,160 | |||||||||
Total Preferred Stocks |
— | — | 6,000,397 | |||||||||
Asset Derivatives * |
||||||||||||
Equity Contracts |
— | — | 802,210 | |||||||||
Total Asset Derivatives |
— | — | 802,210 | |||||||||
Convertible Notes |
||||||||||||
Advanced Materials |
— | — | 100,000 | |||||||||
Aerospace |
— | — | 4,380,000 | |||||||||
Automotive |
— | — | 21,404,015 | |||||||||
Medical Devices |
— | — | 26,411,129 | |||||||||
Total Convertible Notes |
— | — | 52,295,144 | |||||||||
Mutual Funds |
629,653 | — | — | |||||||||
Total |
$ | 31,384,248 | $ | — | $ | 59,744,294 |
* |
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.
The following is a summary of the inputs used to value the Company’s net assets as of December 31, 2020.
ASSETS |
LEVEL 1 |
LEVEL 2 OTHER |
LEVEL 3 SIGNIFICANT |
|||||||||
Common Stocks |
||||||||||||
Advanced Materials |
$ | — | $ | — | $ | 1,074,300 | ||||||
Automotive |
— | — | 7,643 | |||||||||
Equipment Leasing |
— | — | 27,440 | |||||||||
Intellectual Property |
— | — | 369 | |||||||||
Semiconductor Equipment |
35,167,798 | — | — | |||||||||
Total Common Stocks |
35,167,798 | — | 1,109,752 |
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Notes to Consolidated Financial Statements - continued
DECEMBER 31, 2021
ASSETS (continued) |
LEVEL 1 |
LEVEL 2 OTHER |
LEVEL 3 SIGNIFICANT |
|||||||||
Preferred Stocks |
||||||||||||
Aerospace |
$ | — | $ | — | $ | 286,464 | ||||||
Automotive |
— | — | 12,720,065 | |||||||||
Equipment Leasing |
— | — | 2,177,560 | |||||||||
Intellectual Property |
— | — | 1,330,267 | |||||||||
Medical Devices |
— | — | 4,976,452 | |||||||||
Semiconductor Equipment |
— | — | 6,209,012 | |||||||||
Total Preferred Stocks |
— | — | 27,699,820 | |||||||||
Asset Derivatives * |
||||||||||||
Equity Contracts |
— | — | 781,912 | |||||||||
Total Asset Derivatives |
— | — | 781,912 | |||||||||
Convertible Notes |
||||||||||||
Advanced Materials |
— | — | 100,000 | |||||||||
Aerospace |
— | — | 2,630,000 | |||||||||
Automotive |
— | — | 10,804,015 | |||||||||
Medical Devices |
— | — | 21,411,129 | |||||||||
Total Convertible Notes |
— | — | 34,945,144 | |||||||||
Mutual Funds |
2,368,393 | — | — | |||||||||
Total |
$ | 37,536,191 | $ | — | $ | 64,536,628 |
* |
Asset derivatives include warrants. |
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 |
BALANCE |
NET |
NET SALES/ |
NET |
NET |
TRANSFERS |
BALANCE |
|||||||||||||||||||||
Common Stocks |
||||||||||||||||||||||||||||
Advanced Materials |
$ | 1,074,300 | $ | — | $ | — | $ | — | $ | (460,650 | ) | $ | — | $ | 613,650 | |||||||||||||
Automotive |
7,643 | — | — | — | (6,517 | ) | — | 1,126 | ||||||||||||||||||||
Equipment Leasing |
27,440 | — | — | — | 4,050 | — | 31,490 | |||||||||||||||||||||
Intellectual Property |
369 | — | — | — | (92 | ) | — | 277 | ||||||||||||||||||||
Total Common Stocks |
1,109,752 | — | — | — | (463,209 | ) | — | 646,543 | ||||||||||||||||||||
Preferred Stocks |
||||||||||||||||||||||||||||
Aerospace |
286,464 | — | — | — | 37,781 | — | 324,245 | |||||||||||||||||||||
Automotive |
12,720,065 | — | — | — | (10,942,997 | ) | — | 1,777,068 | ||||||||||||||||||||
Equipment Leasing |
2,177,560 | — | (500,000 | ) | — | 220,860 | — | 1,898,420 | ||||||||||||||||||||
Intellectual Property |
1,330,267 | — | — | — | (279,825 | ) | — | 1,050,442 |
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Firsthand Technology Value Fund, Inc.
Notes to Consolidated Financial Statements - continued
DECEMBER 31, 2021
INVESTMENTS AT FAIR |
BALANCE |
NET |
NET SALES/ |
NET |
NET |
TRANSFERS |
BALANCE |
|||||||||||||||||||||
Medical Devices |
$ | 4,976,452 | $ | — | $ | — | $ | — | $ | (4,306,390 | ) | $ | — | $ | 670,062 | |||||||||||||
Semiconductor Equipment |
6,209,012 | — | — | — | (5,928,852 | ) | — | 280,160 | ||||||||||||||||||||
Total Preferred Stocks |
27,699,820 | — | (500,000 | ) | — | (21,199,423 | ) | — | 6,000,397 | |||||||||||||||||||
Asset Derivatives |
||||||||||||||||||||||||||||
Equity Contracts |
781,912 | — | — | — | 20,298 | — | 802,210 | |||||||||||||||||||||
Total Asset Derivatives |
781,912 | — | — | — | 20,298 | — | 802,210 | |||||||||||||||||||||
Convertible Notes |
||||||||||||||||||||||||||||
Advanced Materials |
100,000 | — | — | — | — | — | 100,000 | |||||||||||||||||||||
Aerospace |
2,630,000 | 1,750,000 | — | — | — | — | 4,380,000 | |||||||||||||||||||||
Automotive |
10,804,015 | 10,600,000 | — | — | — | — | 21,404,015 | |||||||||||||||||||||
Medical Devices |
21,411,129 | 5,000,000 | — | — | — | — | 26,411,129 | |||||||||||||||||||||
Total Convertible Notes |
34,945,144 | 17,350,000 | — | — | — | — | 52,295,144 | |||||||||||||||||||||
Total |
$ | 64,536,628 | $ | 17,350,000 | $ | (500,000 | ) | $ | — | $ | (21,642,334 | ) | $ | — | $ | 59,744,294 |
(1) |
The net change in unrealized appreciation (depreciation) from Level 3 instruments held as of December 31, 2021 was $(21,642,162). |
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 |
BALANCE |
NET |
NET SALES/ |
NET |
NET |
TRANSFERS |
BALANCE |
|||||||||||||||||||||
Common Stocks |
||||||||||||||||||||||||||||
Advanced Materials |
$ | 834,150 | $ | — | $ | — | $ | — | $ | 240,150 | $ | — | $ | 1,074,300 | ||||||||||||||
Automotive |
3,980 | — | — | — | 3,663 | — | 7,643 | |||||||||||||||||||||
Equipment Leasing |
28,990 | — | — | — | (1,550 | ) | — | 27,440 | ||||||||||||||||||||
Intellectual Property |
645 | — | — | — | (276 | ) | — | 369 | ||||||||||||||||||||
Semiconductor Equipment |
60,843,376 | — | (10,684,136 | ) | 2,250,768 | (17,242,210 | ) | (35,167,798 | ) | — | ||||||||||||||||||
Total Common Stocks |
61,711,141 | — | (10,684,136 | ) | 2,250,768 | (17,000,223 | ) | (35,167,798 | ) | 1,109,752 |
73
Firsthand Technology Value Fund, Inc.
Notes to Consolidated Financial Statements - continued
DECEMBER 31, 2021
INVESTMENTS AT FAIR |
BALANCE |
NET |
NET SALES/ |
NET |
NET |
TRANSFERS |
BALANCE |
|||||||||||||||||||||
Preferred Stocks |
||||||||||||||||||||||||||||
Aerospace |
$ | 2,120,996 | $ | 250,000 | $ | — | $ | — | $ | (2,084,532 | ) | $ | — | $ | 286,464 | |||||||||||||
Automotive |
10,625,710 | 3,859,999 | — | — | (1,765,644 | ) | — | 12,720,065 | ||||||||||||||||||||
Consumer Electronics |
— | — | (109,993 | ) | (3,890,007 | ) | 4,000,000 | — | — | |||||||||||||||||||
Equipment Leasing |
2,490,880 | — | (400,000 | ) | — | 86,680 | — | 2,177,560 | ||||||||||||||||||||
Intellectual Property |
1,529,234 | — | — | — | (198,967 | ) | — | 1,330,267 | ||||||||||||||||||||
Medical Devices |
702,826 | — | — | — | 4,273,626 | — | 4,976,452 | |||||||||||||||||||||
Semiconductor Equipment |
5,873,643 | — | — | — | 335,369 | — | 6,209,012 | |||||||||||||||||||||
Total Preferred Stocks |
23,343,289 | 4,109,999 | (509,993 | ) | (3,890,007 | ) | 4,646,532 | — | 27,699,820 | |||||||||||||||||||
Asset Derivatives |
||||||||||||||||||||||||||||
Equity Contracts |
4,938,350 | — | — | — | (4,156,438 | ) | — | 781,912 | ||||||||||||||||||||
Total Asset Derivatives |
4,938,350 | — | — | — | (4,156,438 | ) | — | 781,912 | ||||||||||||||||||||
Convertible Notes |
||||||||||||||||||||||||||||
Advanced Materials |
100,000 | — | — | — | — | — | 100,000 | |||||||||||||||||||||
Aerospace |
1,000,000 | 1,630,000 | — | — | — | — | 2,630,000 | |||||||||||||||||||||
Automotive |
4,929,015 | 5,875,000 | — | — | — | — | 10,804,015 | |||||||||||||||||||||
Consumer Electronics |
— | — | (7 | ) | (3,949,993 | ) | 3,950,000 | — | — | |||||||||||||||||||
Medical Devices |
18,261,129 | 3,150,000 | — | — | — | — | 21,411,129 | |||||||||||||||||||||
Total Convertible Notes |
24,290,144 | 10,655,000 | (7 | ) | (3,949,993 | ) | 3,950,000 | — | 34,945,144 | |||||||||||||||||||
Total |
$ | 114,282,924 | $ | 14,764,999 | $ | (11,194,136 | ) | $ | (5,589,232 | ) | $ | (12,560,129 | ) | $ | (35,167,798 | ) | $ | 64,536,628 |
(1) |
The net change in unrealized appreciation (depreciation) from Level 3 instruments held as of December 31, 2020 was $(3,267,919). |
74
Firsthand Technology Value Fund, Inc.
Notes to Consolidated Financial Statements - continued
DECEMBER 31, 2021
The table below represents quantitative disclosure about significant unobservable inputs for Level 3 fair value measurements at December 31, 2021:
75
Firsthand Technology Value Fund, Inc.
Notes to Consolidated Financial Statements - continued
DECEMBER 31, 2021
continued |
FAIR |
VALUATION TECHNIQUES(1) |
UNOBSERVABLE INPUTS |
RANGE |
Direct venture capital investments: Semiconductor Equipment |
$0.3M |
Market Comparable Companies Option Pricing Model |
Revenue Multiple Years to Maturity Volatility Risk-Free Rate |
2.2x – 2.6x (2.4x) 5 years (5 years) 50.0% (50.0%) 1.26% (1.26%) |
(1) |
As of December 31, 2020, the Fund used Discounted Cash Flow approaches to value certain investments. As of December 31, 2021, the Fund discontinued use of these approaches in certain cases in which more reliable indications of value were developed. |
(2) |
Weighted average is calculated by weighing the significant unobservable input by the relative fair value of each investment in the category. |
Changes in any of our unobservable inputs, individually, may change the fair value of certain of the Company’s investments.
Due to the inherent uncertainty of determining the fair value of investments that do not have a readily available market value, the fair value of the Company’s investments may fluctuate from period to period. Additionally, the fair value of the Company’s investments may differ significantly from the values that would have been used had a ready market existed for such investments and may differ materially from the values that the Company may ultimately realize. Further, such investments are generally subject to legal and other restrictions on resale or otherwise are less liquid than publicly traded securities. If the Company was required to liquidate a portfolio investment in a forced or liquidation sale, it could realize significantly less than the value at which the Company has recorded it.
In addition, changes in the market environment and other events that may occur over the life of the investments may cause the gains or losses ultimately realized on these investments to be different than the unrealized gains or losses reflected in the valuations currently assigned. The below chart represents quantitative disclosure about significant unobservable inputs for Level 3 fair value measurements at December 31, 2020:
76
Firsthand Technology Value Fund, Inc.
Notes to Consolidated Financial Statements - continued
DECEMBER 31, 2021
continued |
FAIR |
VALUATION TECHNIQUES(1) |
UNOBSERVABLE INPUTS |
RANGE |
Direct venture capital investments: Automotive |
$23.6M |
Prior Transaction Analysis Probability-Weighted Expected Return Option Pricing Model |
Years to Maturity Volatility Risk-Free Rate Discount for Lack of Marketability Going Concern Probability Adjustment for Market Movement |
5 years (5 years) 50.0% (50.0%) 0.36% (0.36%) 22.7% (22.7%) 70% (70%) 4.4% (4.4%) |
Direct venture capital investments: Equipment Leasing |
$2.2M |
Market Comparable Companies Discounted Cash Flow Option Pricing Model |
EBITDA Multiple Weighted Average Cost of Capital Years to Maturity Volatility Risk-Free Rate |
4.9x - 8.5x (6.6x) 20.0% (20.0%) 5 years (5 years) 50.0% (50.0%) 0.36% (0.36%) |
Direct venture capital investments: Intellectual Property |
$1.3M |
Discounted Cash Flow Option Pricing Model |
Weighted Average Cost of Capital Years to Maturity Volatility Risk-Free Rate Discount for Lack of Marketability |
10.0% (10.0%) 5 years (5 years) 55.0% (55.0%) 0.36% (0.36%) 0.0% - 24.3% (0.0%) |
Direct venture capital investments: Medical Devices |
$26.4M |
Market Comparable Companies Option Pricing Model |
Revenue Multiple Years to Maturity Volatility Risk-Free Rate |
3.0x – 3.5x (3.3x) 4 years (4 years) 55.0% (55.0%) 0.27% (0.27%) |
Direct venture capital investments: Semiconductor Equipment |
$6.2M |
Prior Transaction Analysis Market Comparable Companies Option Pricing Model |
Revenue Multiple Years to Maturity Volatility Risk-Free Rate |
2.6x – 3.0x (2.7x) 5 years (5 years) 40.0% -50.0% (41.3%) 0.36% (0.36%) |
(1) |
As of December 31, 2019, the Fund used Probability-Weighted Expected Return, Market Comparable Companies, and Prior Transaction approaches to value certain common stock and preferred stock investments. As of December 31, 2020, the Fund discontinued use of these approaches in certain cases in which the portfolio companies failed or realized a particular outcome. |
(2) |
Weighted average is calculated by weighing the significant unobservable input by the relative fair value of each investment in the category. |
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
77
Firsthand Technology Value Fund, Inc.
Notes to Consolidated Financial Statements - continued
DECEMBER 31, 2021
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 December 31, 2021.
FEDERAL INCOME |
||||
Gross unrealized appreciation |
$ | 18,046,155 | ||
Gross unrealized depreciation |
(72,146,172 | ) | ||
Net unrealized (depreciation) |
$ | (54,100,017 | ) | |
Federal income tax cost, Investments |
$ | 145,228,559 |
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 has a full valuation allowance based on management’s estimate of future realization of such assets. The Company is currently using an estimated tax rate of 21% for Federal and 6.98% for state taxes.
The Company’s income tax provision consists of the following as of December 31:
2021 |
2020 |
|||||||
Deferred tax (expense)/benefit |
||||||||
Federal |
$ | — | $ | (5,777,983 | ) | |||
State |
— | (2,064,600 | ) | |||||
Total deferred tax (expense)/benefit |
$ | — | $ | (7,842,583 | ) |
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.
78
Firsthand Technology Value Fund, Inc.
Notes to Consolidated Financial Statements - continued
DECEMBER 31, 2021
Components of the Company’s deferred tax assets and liabilities as of December 31:
2021 |
2020 |
|||||||
Deferred tax assets: |
||||||||
Net operating loss carryforward |
$ | 261,739 | $ | 1,118,888 | ||||
Capital loss carryforward |
6,084,731 | 9,373,239 | ||||||
Net unrealized losses (gains) on investment securities |
15,137,185 | 8,924,444 | ||||||
Total deferred tax assets, net |
21,483,655 | 19,416,571 | ||||||
Valuation allowance |
(21,483,655 | ) | (19,416,571 | ) | ||||
Net |
$ | — | $ | — |
For the year ended December 31, 2021, the Company had an effective tax rate of 0% and a statutory tax rate of 21% with the difference primarily being attributable to changes to the total gross deferred tax asset valuation account.
For the year ended December 31, 2020, the Company had an effective tax rate of (51.92%) and a statutory tax rate of 21% with the difference primarily being attributable to changes in the deferred tax asset valuation account.
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 not generate the necessary appropriate character of income within the carryforward periods to realize its deferred tax assets, and as such, has placed a full allowance on the deferred tax assets.
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, 2020, the Company did not have any interest or penalties associated with the underpayment of any income taxes.
79
Firsthand Technology Value Fund, Inc.
Notes to Consolidated Financial Statements - continued
DECEMBER 31, 2021
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, 2021, the Company had net operating loss carryforwards for federal and state of income tax purposes of $935,449, which may be carried forward indefinitely.
As of December 31, 2021, 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 |
|||
12/31/24 |
$ | 14,230,073 | ||
12/31/25 |
7,516,642 | |||
Total |
$ | 21,746,715 |
NOTE 8. INVESTMENT TRANSACTIONS
Investment transactions (excluding short-term investments) were as follows for the year ended December 31, 2021.
PURCHASES AND SALES |
||||
Purchases of investment securities |
$ | 17,350,000 | ||
Proceeds from sales and maturities of investment securities |
$ | 16,104,357 |
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 “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.
80
Firsthand Technology Value Fund, Inc.
Notes to Consolidated Financial Statements - continued
DECEMBER 31, 2021
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 OFFERS. 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.
On December 16, 2019, the Fund announced the commencement of a “modified Dutch auction” tender offer to purchase up to $2 million of its common stock at a price per share not less than $6.00 and not greater than $8.00, in $0.10 increments. The tender offer expired on February 14, 2020, and resulted in the purchase by the Fund of 285,714 shares of common stock at a price of $7.00 per share. As of March 31, 2020, the Fund had 6,893,056 shares outstanding.
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, 2020, through December 31, 2021, is noted below:
AFFILIATE/CONTROLLED |
VALUE AT |
PURCHASES/ |
INTEREST |
SALES/ |
REALIZED |
CHANGE IN |
VALUE |
SHARES |
||||||||||||||||||||||||
EQX Capital, Inc. Common Stock* |
$ | 27,440 | $ | — | $ | — | $ | — | $ | — | $ | 4,050 | $ | 31,490 | 100,000 | |||||||||||||||||
EQX, Inc. Preferred Stock - Series A* |
2,177,560 | — | — | (500,000 | ) | — | 220,860 | 1,898,420 | 2,300,000 | |||||||||||||||||||||||
Hera Systems, Inc. Series C Preferred* |
75,260 | — | — | — | — | 11,130 | 86,390 | 2,650,000 | ||||||||||||||||||||||||
Hera Systems, Inc. Series A Preferred* |
11,291 | — | — | — | — | (2,914 | ) | 8,377 | 3,642,324 | |||||||||||||||||||||||
Hera Systems, Inc. Convertible Note* |
500,000 | — | 82,877 | — | — | — | 500,000 | 500,000 | ||||||||||||||||||||||||
Hera Systems, Inc. Convertible Note* |
500,000 | — | 76,710 | — | — | — | 500,000 | 500,000 | ||||||||||||||||||||||||
Hera Systems, Inc. Convertible Note* |
250,000 | — | 27,347 | — | — | — | 250,000 | 250,000 | ||||||||||||||||||||||||
Hera Systems, Inc. Convertible Note* |
40,000 | — | 4,334 | — | — | — | 40,000 | 40,000 |
81
Firsthand Technology Value Fund, Inc.
Notes to Consolidated Financial Statements - continued
DECEMBER 31, 2021
AFFILIATE/CONTROLLED |
VALUE AT |
PURCHASES/ |
INTEREST |
SALES/ |
REALIZED |
CHANGE IN |
VALUE |
SHARES |
||||||||||||||||||||||||
Hera Systems, Inc. Convertible Note* |
$ | 20,000 | $ | — | $ | 2,150 | $ | — | $ | — | $ | — | $ | 20,000 | 20,000 | |||||||||||||||||
Hera Systems, Inc. Convertible Note* |
200,000 | — | 21,342 | — | — | — | 200,000 | 200,000 | ||||||||||||||||||||||||
Hera Systems, Inc. Convertible Note* |
220,000 | — | 23,223 | — | — | — | 220,000 | 220,000 | ||||||||||||||||||||||||
Hera Systems, Inc. Convertible Note* |
150,000 | — | 15,686 | — | — | — | 150,000 | 150,000 | ||||||||||||||||||||||||
Hera Systems, Inc. Convertible Note* |
250,000 | — | 25,946 | — | — | — | 250,000 | 250,000 | ||||||||||||||||||||||||
Hera Systems, Inc. Convertible Note* |
250,000 | — | 25,664 | — | — | — | 250,000 | 250,000 | ||||||||||||||||||||||||
Hera Systems, Inc. Convertible Note* |
250,000 | — | 25,425 | — | — | — | 250,000 | 250,000 | ||||||||||||||||||||||||
Hera Systems, Inc. Convertible Note* |
— | 50,000 | 4,722 | — | — | — | 50,000 | 50,000 | ||||||||||||||||||||||||
Hera Systems, Inc. Convertible Note* |
— | 150,000 | 13,292 | — | — | — | 150,000 | 150,000 | ||||||||||||||||||||||||
Hera Systems, Inc. Convertible Note* |
— | 150,000 | 11,750 | — | — | — | 150,000 | 150,000 | ||||||||||||||||||||||||
Hera Systems, Inc. Convertible Note* |
— | 150,000 | 10,375 | — | — | — | 150,000 | 150,000 | ||||||||||||||||||||||||
Hera Systems, Inc. Convertible Note* |
— | 150,000 | 9,250 | — | — | — | 150,000 | 150,000 | ||||||||||||||||||||||||
Hera Systems, Inc. Convertible Note* |
— | 200,000 | 10,333 | — | — | — | 200,000 | 200,000 | ||||||||||||||||||||||||
Hera Systems, Inc. Convertible Note* |
— | 150,000 | 6,625 | — | — | — | 150,000 | 150,000 | ||||||||||||||||||||||||
Hera Systems, Inc. Convertible Note* |
— | 150,000 | 5,333 | — | — | — | 150,000 | 150,000 | ||||||||||||||||||||||||
Hera Systems, Inc. Convertible Note* |
— | 150,000 | 3,667 | — | — | — | 150,000 | 150,000 | ||||||||||||||||||||||||
Hera Systems, Inc. Convertible Note* |
— | 150,000 | 2,958 | — | — | — | 150,000 | 150,000 | ||||||||||||||||||||||||
Hera Systems, Inc. Convertible Note* |
— | 150,000 | 1,375 | — | — | — | 150,000 | 150,000 | ||||||||||||||||||||||||
Hera Systems, Inc. Convertible Note* |
— | 150,000 | 167 | — | — | — | 150,000 | 150,000 | ||||||||||||||||||||||||
Hera Systems, Inc. Series B Preferred* |
199,913 | — | — | — | — | 29,566 | 229,479 | 7,039,203 | ||||||||||||||||||||||||
Hera Systems, Inc. Series B Warrants* |
19,789 | — | — | — | — | 2,996 | 22,785 | 700,000 |
82
Firsthand Technology Value Fund, Inc.
Notes to Consolidated Financial Statements - continued
DECEMBER 31, 2021
AFFILIATE/CONTROLLED |
VALUE AT |
PURCHASES/ |
INTEREST |
SALES/ |
REALIZED |
CHANGE IN |
VALUE |
SHARES |
||||||||||||||||||||||||
Hera Systems, Inc. Series B Warrants* |
$ | 175,696 | $ | — | $ | — | $ | — | $ | — | $ | 26,600 | $ | 202,296 | 6,214,922 | |||||||||||||||||
Hera Systems, Inc. Series B Warrants* |
346,307 | — | — | — | — | 52,431 | 398,738 | 12,250,000 | ||||||||||||||||||||||||
Hera Systems, Inc. Series B Warrants* |
148,418 | — | — | — | — | 22,470 | 170,888 | 5,250,000 | ||||||||||||||||||||||||
IntraOp Medical Corp. Series C Preferred* |
4,976,452 | — | — | — | — | (4,306,390 | ) | 670,062 | 26,856,187 | |||||||||||||||||||||||
IntraOp Medical Corp. Convertible Note* |
1,300,000 | — | 240,279 | — | — | — | 1,300,000 | 1,300,000 | ||||||||||||||||||||||||
IntraOp Medical Corp. Convertible Note* |
500,000 | — | 88,550 | — | — | — | 500,000 | 500,000 | ||||||||||||||||||||||||
IntraOp Medical Corp. Convertible Note* |
500,000 | — | 89,188 | — | — | — | 500,000 | 500,000 | ||||||||||||||||||||||||
IntraOp Medical Corp. Convertible Note* |
1,000,000 | — | 168,986 | — | — | — | 1,000,000 | 1,000,000 | ||||||||||||||||||||||||
IntraOp Medical Corp. Convertible Note* |
500,000 | — | 83,661 | — | — | — | 500,000 | 500,000 | ||||||||||||||||||||||||
IntraOp Medical Corp. Convertible Note* |
400,000 | — | 65,844 | — | — | — | 400,000 | 400,000 | ||||||||||||||||||||||||
IntraOp Medical Corp. Convertible Note* |
500,000 | — | 79,747 | — | — | — | 500,000 | 500,000 | ||||||||||||||||||||||||
IntraOp Medical Corp. Convertible Note* |
750,000 | — | 118,279 | — | — | — | 750,000 | 750,000 | ||||||||||||||||||||||||
IntraOp Medical Corp. Convertible Note* |
— | 1,000,000 | 105,249 | — | — | — | 1,000,000 | 1,000,000 | ||||||||||||||||||||||||
IntraOp Medical Corp. Convertible Note* |
— | 500,000 | 421 | — | — | — | 500,000 | 500,000 | ||||||||||||||||||||||||
IntraOp Medical Corp. Convertible Note* |
— | 500,000 | 34,726 | — | — | — | 500,000 | 500,000 |
83
Firsthand Technology Value Fund, Inc.
Notes to Consolidated Financial Statements - continued
DECEMBER 31, 2021
AFFILIATE/CONTROLLED |
VALUE AT |
PURCHASES/ |
INTEREST |
SALES/ |
REALIZED |
CHANGE IN |
VALUE |
SHARES |
||||||||||||||||||||||||
IntraOp Medical Corp. Convertible Note* |
$ | — | $ | 500,000 | $ | 20,753 | $ | — | $ | — | $ | — | $ | 500,000 | 500,000 | |||||||||||||||||
IntraOp Medical Corp. Convertible Note* |
— | 500,000 | 17,877 | — | — | — | 500,000 | 500,000 | ||||||||||||||||||||||||
IntraOp Medical Corp. Convertible Note* |
— | 1,000,000 | 29,178 | — | — | — | 1,000,000 | 1,000,000 | ||||||||||||||||||||||||
IntraOp Medical Corp. Convertible Note* |
— | 500,000 | 10,274 | — | — | — | 500,000 | 500,000 | ||||||||||||||||||||||||
IntraOp Medical Corp. Convertible Note* |
— | 500,000 | 6,781 | — | — | — | 500,000 | 500,000 | ||||||||||||||||||||||||
IntraOp Medical Corp. Term Note* |
3,000,000 | — | 240,003 | — | — | — | 3,000,000 | 3,000,000 | ||||||||||||||||||||||||
IntraOp Medical Corp. Term Note* |
2,000,000 | — | 160,000 | — | — | — | 2,000,000 | 2,000,000 | ||||||||||||||||||||||||
IntraOp Medical Corp. Convertible Note* |
10,961,129 | — | 2,175,191 | — | — | — | 10,961,129 | 10,961,129 | ||||||||||||||||||||||||
Pivotal Systems CDI (1)* |
22,530,347 | — | — | (15,604,355 | ) | 11,753,038 | (9,391,259 | ) | 9,287,771 | 14,589,506 | ||||||||||||||||||||||
Revasum, Inc. CDI (1)* |
12,637,451 | 13,512,264 | — | — | — | 8,829,373 | 21,466,824 | 46,834,340 | ||||||||||||||||||||||||
Silicon Genesis Corp., Common Stock * |
369 | — | — | — | — | (92 | ) | 277 | 921,892 | |||||||||||||||||||||||
Silicon Genesis Corp., Common Warrants* |
6 | — | — | — | — | (3 | ) | 3 | 37,982 | |||||||||||||||||||||||
Silicon Genesis Corp., Common Warrants* |
100 | — | — | — | — | (100 | ) | — | — | |||||||||||||||||||||||
Silicon Genesis Corp., Common Warrants* |
60 | — | — | — | — | (60 | ) | — | — | |||||||||||||||||||||||
Silicon Genesis Corp., Series 1-C Preferred* |
3,325 | — | — | — | — | (1,335 | ) | 1,990 | 82,914 |
84
Firsthand Technology Value Fund, Inc.
Notes to Consolidated Financial Statements - continued
DECEMBER 31, 2021
AFFILIATE/CONTROLLED |
VALUE AT |
PURCHASES/ |
INTEREST |
SALES/ |
REALIZED |
CHANGE IN |
VALUE |
SHARES |
||||||||||||||||||||||||
Silicon Genesis Corp., Series 1-D Preferred* |
$ | 8,763 | $ | — | $ | — | $ | — | $ | — | $ | (3,488 | ) | $ | 5,275 | 850,830 | ||||||||||||||||
Silicon Genesis Corp., Series 1-E Preferred* |
567,596 | — | — | — | — | (114,090 | ) | 453,506 | 5,704,480 | |||||||||||||||||||||||
Silicon Genesis Corp., Series 1-F Preferred* |
125,462 | — | — | — | — | (25,275 | ) | 100,187 | 912,453 | |||||||||||||||||||||||
Silicon Genesis Corp., Series 1-G Preferred* |
562,359 | — | — | — | — | (123,153 | ) | 439,206 | 48,370,793 | |||||||||||||||||||||||
Silicon Genesis Corp., Series 1-H Preferred* |
62,762 | — | — | — | — | (12,485 | ) | 50,277 | 837,942 | |||||||||||||||||||||||
SVXR, Inc., Preferred Stock Series A |
5,377,578 | — | — | — | — | (5,377,578 | ) | — | 8,219,454 | |||||||||||||||||||||||
UCT Coatings, Inc.Common Stock |
1,074,300 | — | — | — | — | (460,650 | ) | 613,650 | 1,500,000 | |||||||||||||||||||||||
Wrightspeed, Inc., Common Stock* |
7,643 | — | — | — | — | (6,517 | ) | 1,126 | 69,102 | |||||||||||||||||||||||
Wrightspeed, Inc., Common Stock Warrants* |
12 | — | — | — | — | (12 | ) | — | — | |||||||||||||||||||||||
Wrightspeed, Inc., Convertible Note* |
4,929,015 | — | 682,682 | — | — | — | 4,929,015 | 4,929,015 | ||||||||||||||||||||||||
Wrightspeed, Inc., Convertible Note* |
750,000 | — | 95,569 | — | — | — | 750,000 | 750,000 | ||||||||||||||||||||||||
Wrightspeed, Inc., Convertible Note* |
900,000 | — | 113,625 | — | — | — | 900,000 | 900,000 | ||||||||||||||||||||||||
Wrightspeed, Inc., Convertible Note* |
1,050,000 | — | 131,157 | — | — | — | 1,050,000 | 1,050,000 | ||||||||||||||||||||||||
Wrightspeed, Inc., Convertible Note* |
400,000 | — | 49,494 | — | — | — | 400,000 | 400,000 | ||||||||||||||||||||||||
Wrightspeed, Inc., Convertible Note* |
375,000 | — | 46,187 | — | — | — | 375,000 | 375,000 | ||||||||||||||||||||||||
Wrightspeed, Inc., Convertible Note* |
400,000 | — | 49,007 | — | — | — | 400,000 | 400,000 | ||||||||||||||||||||||||
Wrightspeed, Inc., Convertible Note* |
2,000,000 | — | 244,063 | — | — | — | 2,000,000 | 2,000,000 | ||||||||||||||||||||||||
Wrightspeed, Inc., Convertible Note* |
— | 1,400,000 | 145,600 | — | — | — | 1,400,000 | 1,400,000 |
85
Firsthand Technology Value Fund, Inc.
Notes to Consolidated Financial Statements - continued
DECEMBER 31, 2021
AFFILIATE/CONTROLLED |
VALUE AT |
PURCHASES/ |
INTEREST |
SALES/ |
REALIZED |
CHANGE IN |
VALUE |
SHARES |
||||||||||||||||||||||||
Wrightspeed, Inc., Convertible Note* |
$ | — | $ | 1,200,000 | $ | 105,600 | $ | — | $ | — | $ | — | $ | 1,200,000 | 1,200,000 | |||||||||||||||||
Wrightspeed, Inc., Convertible Note* |
— | 1,000,000 | 76,000 | — | — | — | 1,000,000 | 1,000,000 | ||||||||||||||||||||||||
Wrightspeed, Inc., Convertible Note* |
— | 1,000,000 | 64,355 | — | — | — | 1,000,000 | 1,000,000 | ||||||||||||||||||||||||
Wrightspeed, Inc., Convertible Note* |
— | 1,000,000 | 53,000 | — | — | — | 1,000,000 | 1,000,000 | ||||||||||||||||||||||||
Wrightspeed, Inc., Convertible Note* |
— | 1,000,000 | 45,000 | — | — | — | 1,000,000 | 1,000,000 | ||||||||||||||||||||||||
Wrightspeed, Inc., Convertible Note* |
— | 300,000 | 10,100 | — | — | — | 300,000 | 300,000 | ||||||||||||||||||||||||
Wrightspeed, Inc., Convertible Note* |
— | 700,000 | 20,533 | — | — | — | 700,000 | 700,000 | ||||||||||||||||||||||||
Wrightspeed, Inc., Convertible Note* |
— | 1,000,000 | 24,333 | — | — | — | 1,000,000 | 1,000,000 | ||||||||||||||||||||||||
Wrightspeed, Inc., Convertible Note* |
— | 1,000,000 | 13,000 | — | — | — | 1,000,000 | 1,000,000 | ||||||||||||||||||||||||
Wrightspeed, Inc., Convertible Note* |
— | 1,000,000 | 1,333 | — | — | — | 1,000,000 | 1,000,000 | ||||||||||||||||||||||||
Wrightspeed, Inc., Preferred Stock- Series AA* |
12,720,065 | — | — | — | — | (10,942,997 | ) | 1,777,068 | 60,733,693 | |||||||||||||||||||||||
Wrightspeed, Inc., Preferred Stock Warrants- Series AA* |
91,524 | — | — | — | — | (84,024 | ) | 7,500 | 609,756 | |||||||||||||||||||||||
Total Affiliates and Controlled Investments |
$ | 98,772,992 | $ | 6,116,176 | $ | 11,753,038 | $ | (21,652,946 | ) | $ | 90,118,729 | |||||||||||||||||||||
Total Affiliates |
6,451,878 | — | — | (5,838,228 | ) | 613,650 | ||||||||||||||||||||||||||
Total Controlled Investments |
$ | 92,321,114 | $ | 6,116,176 | $ | 11,753,038 | $ | (15,814,718 | ) | $ | 89,505,079 |
* |
Controlled investments. |
(1) |
CDI CHESS Depositary Interests |
As of December 31, 2021, Kevin Landis represented the Company and sat on the board of directors of Hera Systems, Inc.; IntraOp Medical, Inc.; Pivotal Systems, Inc.; Revasum, Inc.; Silicon Genesis Corp.; 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.
86
Firsthand Technology Value Fund, Inc.
Notes to Consolidated Financial Statements - continued
DECEMBER 31, 2021
Unconsolidated Significant Subsidiaries
Our investments are generally in small companies in a variety of industries. In accordance with Rules 3-09 and 4-08(g) of Regulation S-X (“Rule 3-09” and “Rule 4-08(g),” respectively), we must determine which of our unconsolidated controlled portfolio companies are considered “significant subsidiaries,” if any. In evaluating these investments, there are three tests utilized to determine if any of our controlled investments are considered significant subsidiaries: the investment test, the asset test, and the income test. Rule 3-09 requires separate audited financial statements of an unconsolidated majority-owned subsidiary in an annual report if any of the three tests exceeds 20%. Rule 4-08(g) requires summarized financial information in an annual report if any of the three tests exceeds 10% and summarized financial information in a quarterly report if any of the three tests exceeds 20%.
As of December 31, 2021, our investments in Revasum, Inc. (“Revasum”), IntraOp Medical Corp. (“IntraOp”) and Wrightspeed, Inc. exceeded the 20% threshold in at least one of the tests under Rule 3-09. Accordingly, we are attaching the audited financial statements of Revasum, IntraOp and Wrightspeed to Form 10-K.
As of December 31, 2021, none of our investments exceeded the 10% threshold in at least one of the three tests under Rule 4-08(g). Accordingly, no summarized financial information is presented below.
AFFILIATE/CONTROLLED |
VALUE AT |
PURCHASES/ |
INTEREST |
SALES/ |
REALIZED |
CHANGE IN |
VALUE |
SHARES |
||||||||||||||||||||||||
EQX Capital, Inc. Common Stock* |
$ | 28,990 | $ | — | $ | — | $ | — | $ | — | $ | (1,550 | ) | $ | 27,440 | 100,000 | ||||||||||||||||
EQX, Inc. Preferred Stock - Series A* |
2,490,880 | — | — | (400,000 | ) | — | 86,680 | 2,177,560 | 2,800,000 | |||||||||||||||||||||||
Hera Systems, Inc. Series C Preferred* |
476,400 | 250,000 | — | — | — | (651,140 | ) | 75,260 | 2,650,000 | |||||||||||||||||||||||
Hera Systems, Inc. Series A Preferred* |
247,314 | — | — | — | — | (236,023 | ) | 11,291 | 3,642,324 | |||||||||||||||||||||||
Hera Systems, Inc. Convertible Note* |
500,000 | — | 50,833 | — | — | — | 500,000 | 500,000 | ||||||||||||||||||||||||
Hera Systems, Inc. Convertible Note* |
500,000 | — | 50,833 | — | — | — | 500,000 | 500,000 | ||||||||||||||||||||||||
Hera Systems, Inc. Convertible Note* |
— | 250,000 | 19,722 | — | — | — | 250,000 | 250,000 | ||||||||||||||||||||||||
Hera Systems, Inc. Convertible Note* |
— | 40,000 | 2,744 | — | — | — | 40,000 | 40,000 | ||||||||||||||||||||||||
Hera Systems, Inc. Convertible Note* |
— | 20,000 | 1,206 | — | — | — | 20,000 | 20,000 | ||||||||||||||||||||||||
Hera Systems, Inc. Convertible Note* |
— | 200,000 | 10,500 | — | — | — | 200,000 | 200,000 | ||||||||||||||||||||||||
Hera Systems, Inc. Convertible Note* |
— | 220,000 | 9,044 | — | — | — | 220,000 | 220,000 | ||||||||||||||||||||||||
Hera Systems, Inc. Convertible Note* |
— | 150,000 | 4,708 | — | — | — | 150,000 | 150,000 | ||||||||||||||||||||||||
Hera Systems, Inc. Convertible Note* |
— | 250,000 | 5,903 | — | — | — | 250,000 | 250,000 |
87
Firsthand Technology Value Fund, Inc.
Notes to Consolidated Financial Statements - continued
DECEMBER 31, 2021
AFFILIATE/CONTROLLED |
VALUE AT |
PURCHASES/ |
INTEREST |
SALES/ |
REALIZED |
CHANGE IN |
VALUE |
SHARES |
||||||||||||||||||||||||
Hera Systems, Inc. Convertible Note* |
$ | — | $ | 250,000 | $ | 3,125 | $ | — | $ | — | $ | — | $ | 250,000 | 250,000 | |||||||||||||||||
Hera Systems, Inc. Convertible Note* |
— | 250,000 | 764 | — | — | — | 250,000 | 250,000 | ||||||||||||||||||||||||
Hera Systems, Inc. Series B Preferred* |
1,397,282 | — | — | — | — | (1,197,369 | ) | 199,913 | 7,039,203 | |||||||||||||||||||||||
Hera Systems, Inc. Series B Warrants* |
138,908 | — | — | — | — | (119,119 | ) | 19,789 | 700,000 | |||||||||||||||||||||||
Hera Systems, Inc. Series B Warrants* |
1,233,289 | — | — | — | — | (1,057,593 | ) | 175,696 | 6,214,922 | |||||||||||||||||||||||
Hera Systems, Inc. Series B Warrants* |
2,430,890 | — | — | — | — | (2,084,583 | ) | 346,307 | 12,250,000 | |||||||||||||||||||||||
Hera Systems, Inc. Series B Warrants* |
1,041,810 | — | — | — | — | (893,392 | ) | 148,418 | 5,250,000 | |||||||||||||||||||||||
IntraOp Medical Corp. Series C Preferred* |
702,826 | — | — | — | — | 4,273,626 | 4,976,452 | 26,856,187 | ||||||||||||||||||||||||
IntraOp Medical Corp. Convertible Note* |
1,300,000 | — | 209,436 | — | — | — | 1,300,000 | 1,300,000 | ||||||||||||||||||||||||
IntraOp Medical Corp. Convertible Note* |
500,000 | — | 77,184 | — | — | — | 500,000 | 500,000 | ||||||||||||||||||||||||
IntraOp Medical Corp. Convertible Note* |
500,000 | — | 77,740 | — | — | — | 500,000 | 500,000 | ||||||||||||||||||||||||
IntraOp Medical Corp. Convertible Note* |
— | 1,000,000 | 127,038 | — | — | — | 1,000,000 | 1,000,000 | ||||||||||||||||||||||||
IntraOp Medical Corp. Convertible Note* |
— | 500,000 | 57,969 | — | — | — | 500,000 | 500,000 | ||||||||||||||||||||||||
IntraOp Medical Corp. Convertible Note* |
— | 400,000 | 39,139 | — | — | — | 400,000 | 400,000 | ||||||||||||||||||||||||
IntraOp Medical Corp. Convertible Note* |
— | 500,000 | 31,644 | — | — | — | 500,000 | 500,000 | ||||||||||||||||||||||||
IntraOp Medical Corp. Convertible Note* |
— | 750,000 | 38,852 | — | — | — | 750,000 | 750,000 |
88
Firsthand Technology Value Fund, Inc.
Notes to Consolidated Financial Statements - continued
DECEMBER 31, 2021
AFFILIATE/CONTROLLED |
VALUE AT |
PURCHASES/ |
INTEREST |
SALES/ |
REALIZED |
CHANGE IN |
VALUE |
SHARES |
||||||||||||||||||||||||
IntraOp Medical Corp. Term Note* |
$ | 3,000,000 | $ | — | $ | 240,660 | $ | — | $ | — | $ | — | $ | 3,000,000 | 3,000,000 | |||||||||||||||||
IntraOp Medical Corp. Term Note* |
2,000,000 | — | 160,438 | — | — | — | 2,000,000 | 2,000,000 | ||||||||||||||||||||||||
IntraOp Medical Corp. Convertible Note* |
10,961,129 | — | 1,896,754 | — | — | — | 10,961,129 | 10,961,129 | ||||||||||||||||||||||||
Pivotal Systems CDI *(1) |
41,670,037 | 9,508,558 | — | (20,192,692 | ) | 2,250,766 | (10,706,322 | ) | 22,530,347 | 31,089,506 | ||||||||||||||||||||||
Revasum, Common Stock* |
19,173,339 | — | — | — | — | (6,535,888 | ) | 12,637,451 | 46,834,340 | |||||||||||||||||||||||
Silicon Genesis Corp., Common Stock * |
645 | — | — | — | — | (276 | ) | 369 | 921,892 | |||||||||||||||||||||||
Silicon Genesis Corp., Common Warrants* |
11 | — | — | — | — | (5 | ) | 6 | 37,982 | |||||||||||||||||||||||
Silicon Genesis Corp., Common Warrants* |
2,000 | — | — | — | — | (1,900 | ) | 100 | 5,000,000 | |||||||||||||||||||||||
Silicon Genesis Corp., Common Warrants* |
1,200 | — | — | — | — | (1,140 | ) | 60 | 3,000,000 | |||||||||||||||||||||||
Silicon Genesis Corp., Series 1-C Preferred* |
5,157 | — | — | — | — | (1,832 | ) | 3,325 | 82,914 | |||||||||||||||||||||||
Silicon Genesis Corp., Series 1-D Preferred* |
13,699 | — | — | — | — | (4,936 | ) | 8,763 | 850,830 | |||||||||||||||||||||||
Silicon Genesis Corp., Series 1-E Preferred* |
645,177 | — | — | — | — | (77,581 | ) | 567,596 | 5,704,480 | |||||||||||||||||||||||
Silicon Genesis Corp., Series 1-F Preferred* |
142,434 | — | — | — | — | (16,972 | ) | 125,462 | 912,453 | |||||||||||||||||||||||
Silicon Genesis Corp., Series 1-G Preferred* |
651,458 | — | — | — | — | (89,099 | ) | 562,359 | 48,370,793 | |||||||||||||||||||||||
Silicon Genesis Corp., Series 1-H Preferred* |
71,309 | — | — | — | — | (8,547 | ) | 62,762 | 837,942 | |||||||||||||||||||||||
SVXR, Inc., Preferred Stock Series A |
4,881,123 | — | — | — | — | 496,455 | 5,377,578 | 8,219,454 |
89
Firsthand Technology Value Fund, Inc.
Notes to Consolidated Financial Statements - continued
DECEMBER 31, 2021
AFFILIATE/CONTROLLED |
VALUE AT |
PURCHASES/ |
INTEREST |
SALES/ |
REALIZED |
CHANGE IN |
VALUE |
SHARES |
||||||||||||||||||||||||
Telepathy Investors, Inc. Convertible Note* |
$ | — | $ | — | $ | (101,203 | ) | $ | (1 | ) | $ | (1,999,999 | ) | $ | 2,000,000 | $ | — | — | ||||||||||||||
Telepathy Investors, Inc. Convertible Note* |
— | — | (15,180 | ) | (1 | ) | (299,999 | ) | 300,000 | — | — | |||||||||||||||||||||
Telepathy Investors, Inc. Convertible Note* |
— | — | (7,590 | ) | (1 | ) | (149,999 | ) | 150,000 | — | — | |||||||||||||||||||||
Telepathy Investors, Inc. Convertible Note* |
— | — | (25,301 | ) | (1 | ) | (499,999 | ) | 500,000 | — | — | |||||||||||||||||||||
Telepathy Investors, Inc. Convertible Note* |
— | — | (15,180 | ) | (1 | ) | (299,999 | ) | 300,000 | — | — | |||||||||||||||||||||
Telepathy Investors, Inc. Convertible Note* |
— | — | (25,301 | ) | (1 | ) | (499,999 | ) | 500,000 | — | — | |||||||||||||||||||||
Telepathy Investors, Inc. Convertible Note* |
— | — | (10,120 | ) | (1 | ) | (199,999 | ) | 200,000 | — | — | |||||||||||||||||||||
Telepathy Inc. Preferred Stock Series A* |
— | — | — | (109,993 | ) | (3,890,007 | ) | 4,000,000 | — | — | ||||||||||||||||||||||
UCT Coatings, Inc.Common Stock |
834,150 | — | — | — | — | 240,150 | 1,074,300 | 1,500,000 | ||||||||||||||||||||||||
Wrightspeed, Inc., Common Stock* |
3,980 | — | — | — | — | 3,663 | 7,643 | 69,102 | ||||||||||||||||||||||||
Wrightspeed, Inc., Common Stock Warrants* |
— | — | — | — | — | 12 | 12 | 181 | ||||||||||||||||||||||||
Wrightspeed, Inc., Convertible Note* |
4,929,015 | — | 601,340 | — | — | — | 4,929,015 | 4,929,015 | ||||||||||||||||||||||||
Wrightspeed, Inc., Convertible Note* |
— | 750,000 | 35,500 | — | — | — | 750,000 | 750,000 | ||||||||||||||||||||||||
Wrightspeed, Inc., Convertible Note* |
— | 900,000 | 33,900 | — | — | — | 900,000 | 900,000 | ||||||||||||||||||||||||
Wrightspeed, Inc., Convertible Note* |
— | 1,050,000 | 28,000 | — | — | — | 1,050,000 | 1,050,000 | ||||||||||||||||||||||||
Wrightspeed, Inc., Convertible Note* |
— | 400,000 | 6,800 | — | — | — | 400,000 | 400,000 | ||||||||||||||||||||||||
Wrightspeed, Inc., Convertible Note* |
— | 375,000 | 4,625 | — | — | — | 375,000 | 375,000 |
90
Firsthand Technology Value Fund, Inc.
Notes to Consolidated Financial Statements - continued
DECEMBER 31, 2021
AFFILIATE/CONTROLLED |
VALUE AT |
PURCHASES/ |
INTEREST |
SALES/ |
REALIZED |
CHANGE IN |
VALUE |
SHARES |
||||||||||||||||||||||||
Wrightspeed, Inc., Convertible Note* |
$ | — | $ | 400,000 | $ | 2,800 | $ | — | $ | — | $ | — | $ | 400,000 | 400,000 | |||||||||||||||||
Wrightspeed, Inc., Convertible Note* |
— | 2,000,000 | 6,000 | — | — | — | 2,000,000 | 2,000,000 | ||||||||||||||||||||||||
Wrightspeed, Inc., Preferred Stock- Series AA* |
10,625,710 | 3,859,999 | — | — | — | (1,765,644 | ) | 12,720,065 | 60,733,693 | |||||||||||||||||||||||
Wrightspeed, Inc., Preferred Stock Warrants- Series AA* |
90,242 | — | — | — | — | 1,282 | 91,524 | 609,756 | ||||||||||||||||||||||||
Total Affiliates and Controlled Investments |
$ | 113,190,404 | $ | 3,635,326 | $ | (5,589,234 | ) | $ | (12,399,043 | ) | $ | 98,772,992 | ||||||||||||||||||||
Total Affiliates |
5,715,273 | — | — | 736,605 | 6,451,878 | |||||||||||||||||||||||||||
Total Controlled Investments |
$ | 107,475,131 | $ | 3,635,326 | $ | (5,589,234 | ) | $ | (13,135,648 | ) | $ | 92,321,114 |
* |
Controlled Investments. |
(1) |
CDI CHESS Depositary Interests |
NOTE 11. COVID-19 RISKS
In early 2020, an outbreak of a novel strain of coronavirus (COVID-19) emerged globally. This coronavirus has resulted in closing international borders, enhanced health screenings, healthcare service preparation and delivery, quarantines, cancellations, disruptions to supply chains and customer activity, as well as general public concern and uncertainty. The impact of this outbreak has negatively affected the worldwide economy, as well as the economies of individual countries, the financial health of individual companies and the market in general in significant and unforeseen ways. The future impact of COVID-19 is currently unknown, and it may exacerbate other risks that apply to the Company, including political, social and economic risks. Any such impact could adversely affect the Company’s performance, the performance of the securities in which the Company invests and may lead to losses on your investment in the Company. The ultimate impact of COVID-19 on the financial performance of the Company’s investments is not reasonably estimable at this time.
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.
91
Item 9. Changes In And Disagreements With Accountants On Accounting And Financial Disclosure
None
Item 9A. Controls and Procedures
DISCLOSURE CONTROLS AND PROCEDURES
Our Chief Executive Officer and Chief Financial Officer performed an evaluation of the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) as of December 31, 2021, and, based on that evaluation, have concluded that the disclosure controls and procedures are effective.
REPORT OF MANAGEMENT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act). Internal control over financial reporting is a process designed by, or under the supervision of, our principal executive and financial officer, or persons performing similar functions, and effected by our Board of Directors, management, and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that (i) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets; (ii) provide reasonable assurance that the transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of our management and our directors; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the consolidated financial statements.
Our management evaluated as of December 31, 2021, the effectiveness of our internal control over financial reporting using the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control—Integrated Framework. Based on this evaluation, our management concluded that our internal control over financial reporting was effective as of December 31, 2021. Our independent registered public accounting firm, Tait, Weller & Baker LLP, issued a report on the effectiveness of our internal control over financial reporting as of December 31, 2021, which appears on page 40 herein.
INHERENT LIMITATIONS OF EFFECTIVENESS OF CONTROLS
Our management, including our Chief Executive Officer and Chief Financial Officer, do not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple errors or mistakes. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people or by management override of the control. The design of any system of controls is also based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Projections of any evaluation of controls effectiveness to future periods are subject to risks. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures.
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CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING
There have been no changes in our internal control over financial reporting that occurred during our fourth quarter ended December 31, 2021, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
None
Item 10. Directors, Executives Officers And Corporate Governance
Information required by this item will be contained in the Company’s proxy statement to be filed with the SEC, in connection with the Company’s annual meeting of shareholders to be held in 2021 (the “2021 Proxy Statement”), which information is incorporated herein by reference.
The Company has adopted a code of ethics that applies to the Company’s chief executive officer, a copy of which is posted on our website http://www.firsthandtvf.com.
Our CEO certifies the accuracy of the financial statements contained in our periodic reports, and so certified in this Form 10-K through the filing of Section 302 certifications as exhibits to this Form 10-K.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 requires the Company’s officers and directors, and persons who own more than ten percent of a registered class of the Company’s equity securities, to file with the Securities and Exchange Commission and the Nasdaq Stock Market reports of ownership of the Company’s securities and changes in reported ownership. Officers, directors and greater than ten percent shareholders are required by SEC rules to furnish the Company with copies of all Section 16(a) reports they file.
Based solely on a review of the reports furnished to the Company, or written representations from reporting persons that all reportable transaction were reported, the Company believes that during the fiscal year ended December 31, 2021, the Company’s officers, directors and greater than ten percent owners timely filed all reports they were required to file under Section 16(a).
Item 11. Executive Compensation
Information required by this item will be contained in the 2022 Proxy Statement, which information is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Information required by this item will be contained in the 2022 Proxy Statement, which information is incorporated herein by reference.
93
Item 13. Certain Relationships and Related Transactions, and Director Independence
Information required by this item will be contained in the 2022 Proxy Statement, which information is incorporated herein by reference.
Item 14. Principal Accountant Fees and Services
Information required by this item will be contained in the 2022 Proxy Statement, which information is incorporated herein by reference.
Item 15. Exhibits, Financial Statements Schedules
1. Financial Statements
The following financial statements of the Company are filed as part of this report:
94
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
FIRSTHAND TECHNOLOGY VALUE FUND, INC. |
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Date: March 24, 2022 |
By: |
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Kevin Landis President |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Company and in the capacities and on the dates indicated.
Signatures |
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Title |
Date |
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/s/ Kevin Landis |
Chairman of the Board, Chief Executive Officer, and Chief Financial Officer |
March 24, 2022 |
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Kevin Landis |
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* |
Director |
March 24, 2022 |
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Greg Burglin |
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|
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* |
Director |
March 24, 2022 |
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Kimun Lee |
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* |
Director |
March 24, 2022 |
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Nicholas Petredis |
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* |
Director |
March 24, 2022 |
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Rodney Yee |
* Signed by Kevin Landis pursuant to powers of attorney.
95
EXHIBIT INDEX
96
Privacy Notice
FIRSTHAND TECHNOLOGY VALUE FUND, INC.
Reasons we can share your personal information |
Does Firsthand Technology Value Fund, Inc. share? |
Can you limit this sharing? |
For our everyday business purposes—such as to process your transactions, maintain your account(s), respond to court orders and legal investigations |
Yes |
No |
For our marketing purposes—to offer our products and services to you |
No |
N/A |
For joint marketing with other financial companies |
No |
N/A |
For our affiliates’ everyday business purposes—information about your transactions and experiences |
No |
N/A |
For our affiliates’ everyday business purposes—information about your creditworthiness |
No |
N/A |
For our affiliates to market to you |
No |
N/A |
For nonaffiliates to market to you |
No |
N/A |
Who we are |
|
Who is providing this notice? |
Firsthand Technology Value Fund, Inc. is a publicly traded venture capital fund, listed on NASDAQ, that is a business development company under the Investment Company Act of 1940 |
What we do | |||
How does Firsthand Technology Value Fund, Inc. protect my personal information? | To protect your personal information from unauthorized access and use, we use security measures that comply with federal law. These measures include computer safeguards and secured files and buildings. | ||
How does Firsthand Technology Value Fund, Inc. collect my personal information? | We collect your personal information, for example, when you | ||
► | open an account or deposit money | ||
Why can’t I limit all sharing? | Federal law gives you the right to limit only | ||
► | sharing for affiliates’ everyday business purposes—information about your creditworthiness | ||
► | affiliates from using your information to market to you | ||
► | sharing for nonaffiliates to market to you | ||
State laws and individual companies may give you additional rights to limit sharing. |
Definitions | |||
Affiliates | Companies related by common ownership or control. They can be financial and nonfinancial companies. | ||
► | Firsthand Capital Management, Inc. and Firsthand Funds | ||
Nonaffiliates | Companies not related by common ownership or control. They can be financial and nonfinancial companies. | ||
► | BNY Mellon Investment Servicing (U.S.) Inc. (Transfer Agent for Firsthand Technology Value Fund, Inc. and Firsthand Funds) | ||
Joint marketing | A formal agreement between nonaffiliated financial companies that together market financial products or services to you. |
Other important information |
This notice applies to individual consumers who are customers or former customers. This notice replaces all previous notices of our consumer privacy policy, and may be amended at any time. We will keep you informed of changes or amendments as required by law. |
Additional Information for California Residents |
This section supplements the information contained in the other sections of this Privacy Notice and applies solely to clients, visitors, users, and others who reside in the state of California (“consumers” or “you”) and for whom we have data that is subject to the California Consumer Privacy Act of 2018 as may be amended or supplemented from time to time (“CCPA”). This Privacy Notice, including this additional information, is provided to comply with the CCPA and other California privacy laws. Any terms defined in the CCPA have the same meaning when used in this section.
Depending upon how you interact with us, you may have various rights in connection with our processing of your personal information, each of which is explained below.
● Access. You may have the right to confirm with us whether your personal information is processed, and if it is, to request access to that personal information including the categories of personal information processed, the purpose of the processing and the recipients or categories of recipients. We do have to consider the interests of others though, so this is not an absolute right and there are additional exceptions under the CCPA. Also, we are not obligated to respond to more than two access requests for the same individual’s personal information within a 12-month period. ● Deletion. You may have the right to ask us to erase personal information concerning you, except we are not obligated to do so if we need to retain such data in order to comply with a legal obligation or to establish, exercise, or defend legal claims or under other exceptions under the CCPA.
You have a right to receive non-discriminatory treatment for the exercise of the privacy rights conferred by the CCPA.
To exercise one or more of these rights, please contact us as explained below. Please note that we may need to verify your identity before we can fulfill your request.
● You can submit your request by calling us at (800) 331-1710.
When we tell you that we need additional information to verify your identity, you must get us the information within ten (10) calendar days or we may deny your request. We will endeavor to respond to a verified request within 45 days, unless there are grounds for extending our response timeframe by up to an additional 45 days. In the event of an extension, we will explain to you why the extension is necessary. In some cases, your ability to access or delete your personal information will be limited, as required or permitted by applicable law, even when the CCPA applies to the personal information we have for you. |
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FIRSTHAND TECHNOLOGY VALUE FUND, INC.
AMENDED AND RESTATED BYLAWS
ARTICLE I
OFFICES
Section 1. PRINCIPAL OFFICE. The principal office of the Corporation in the State of Maryland shall be located at such place as the Board of Directors may designate.
Section 2. ADDITIONAL OFFICES. The Corporation may have additional offices, including a principal executive office, at such places as the Board of Directors may from time to time determine or the business of the Corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
Section 1. PLACE. All meetings of stockholders shall be held at the principal executive office of the Corporation or at such other place as shall be set in accordance with these Bylaws and stated in the notice of the meeting.
Section 2. ANNUAL MEETING. An annual meeting of stockholders for the election of directors and the transaction of any business within the powers of the Corporation shall be held on the date and at the time and place set by the Board of Directors.
Section 3. SPECIAL MEETINGS.
(a) General. The chairman of the Board, the president or the Board of Directors may call a special meeting of the stockholders. Subject to subsection (b) of this Section 3, a special meeting of stockholders shall also be called by the secretary of the Corporation to act on any matter that may properly be considered at a meeting of stockholders upon the written request of stockholders entitled to cast not less than a majority of all the votes entitled to be cast on such matter at such meeting. Subject to subsection (b) of this Article II, Section 3, any special meeting shall be held at such place, date and time as may be designated by the chairman of the Board, the president or the Board of Directors, whoever shall have called the meeting. In fixing a date for any special meeting, the chairman of the Board, the president or the Board of Directors may consider such factors as he, she or it deems relevant, including, without limitation, the nature of the matters to be considered, the facts and circumstances surrounding any request for the meeting and any plan of the Board of Directors to call an annual meeting or a special meeting.
(b) Stockholder Requested Special Meetings. (1) Any stockholder of record seeking to have stockholders request a special meeting shall, by sending written notice to the secretary (the “Record Date Request Notice”) by registered mail, return receipt requested, request the Board of Directors to fix a record date to determine the stockholders entitled to request a special meeting (the “Request Record Date”). The Record Date Request Notice shall set forth the purpose of the meeting and the matters proposed to be acted on at it, shall be signed by one or more stockholders of record as of the date of signature (or their agents duly authorized in a writing accompanying the Record Date Request Notice), shall bear the date of signature of each such stockholder (or such agent) and shall set forth all information relating to each such stockholder and each matter proposed to be acted on at the meeting that would be required to be disclosed in connection with the solicitation of proxies for the election of directors in an election contest (even if an election contest is not involved), or would otherwise be required in connection with such a solicitation, in each case pursuant to Regulation 14A (or any successor provision) under the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder (the “Exchange Act”). Upon receiving the Record Date Request Notice, the Board of Directors may fix a Request Record Date. The Request Record Date shall not precede and shall not be more than ten days after the close of business on the date on which the resolution fixing the Request Record Date is adopted by the Board of Directors. If the Board of Directors, within ten days after the date on which a valid Record Date Request Notice is received, fails to adopt a resolution fixing the Request Record Date, the Request Record Date shall be the close of business on the tenth day after the first date on which a Record Date Request Notice is received by the secretary.
(2) In order for any stockholder to request a special meeting to act on any matter that may properly be considered at a meeting of stockholders, one or more written requests for a special meeting (collectively, the “Special Meeting Request”) signed by stockholders of record (or their agents duly authorized in a writing accompanying the request) as of the Request Record Date entitled to cast not less than a majority of all of the votes entitled to be cast on such matter at such meeting (the “Special Meeting Percentage”) shall be delivered to the secretary. In addition, the Special Meeting Request shall (a) set forth the purpose of the meeting and the matters proposed to be acted on at it (which shall be limited to those lawful matters set forth in the Record Date Request Notice received by the secretary), (b) bear the date of signature of each such stockholder (or such agent) signing the Special Meeting Request, (c) set forth (i) the name and address, as they appear in the Corporation’s books, of each stockholder signing such request (or on whose behalf the Special Meeting Request is signed), (ii) the class, series and number of all shares of stock of the Corporation which are owned (beneficially or of record) by each such stockholder and (iii) the nominee holder for, and number of, shares of stock of the Corporation owned beneficially but not of record by such stockholder, (d) be sent to the secretary by registered mail, return receipt requested, and (e) be received by the secretary within 60 days after the Request Record Date. Any requesting stockholder (or agent duly authorized in a writing accompanying the revocation of the Special Meeting Request) may revoke his, her or its request for a special meeting at any time by written revocation delivered to the secretary.
(3) The secretary shall inform the requesting stockholders of the reasonably estimated cost of preparing and mailing or delivering the notice of the meeting (including the Corporation’s proxy materials). The secretary shall not be required to call a special meeting upon stockholder request and such meeting shall not be held unless, in addition to the documents required by paragraph (2) of this Section 3(b), the secretary receives payment of such reasonably estimated cost prior to the preparation and mailing or delivery of such notice of the meeting.
(4) In the case of any special meeting called by the secretary upon the request of stockholders (a “Stockholder-Requested Meeting”), such meeting shall be held at such place, date and time as may be designated by the Board of Directors; provided, however, that the date of any Stockholder-Requested Meeting shall be not more than 90 days after the record date for such meeting (the “Meeting Record Date”); and provided further that if the Board of Directors fails to designate, within ten days after the date that a valid Special Meeting Request is actually received by the secretary (the “Delivery Date”), a date and time for a Stockholder-Requested Meeting, then such meeting shall be held at 2:00 p.m. local time on the 90th day after the Meeting Record Date or, if such 90th day is not a Business Day (as defined below), on the first preceding Business Day; and provided further that in the event that the Board of Directors fails to designate a place for a Stockholder-Requested Meeting within ten days after the Delivery Date, then such meeting shall be held at the principal executive office of the Corporation. In the case of any Stockholder-Requested Meeting, if the Board of Directors fails to fix a Meeting Record Date that is a date within 30 days after the Delivery Date, then the close of business on the 30th day after the Delivery Date shall be the Meeting Record Date. The Board of Directors may revoke the notice for any Stockholder-Requested Meeting in the event that the requesting stockholders fail to comply with the provisions of paragraph (3) of this Section 3(b).
(5) If written revocations of the Special Meeting Request have been delivered to the secretary and the result is that stockholders of record (or their agents duly authorized in writing), as of the Request Record Date, entitled to cast less than the Special Meeting Percentage have delivered, and not revoked, requests for a special meeting to the secretary: (i) if the notice of meeting has not already been delivered, the secretary shall refrain from delivering the notice of the meeting and send to all requesting stockholders who have not revoked such requests written notice of any revocation of a request for a special meeting on the matter, or (ii) if the notice of meeting has been delivered and if the secretary first sends to all requesting stockholders who have not revoked requests for a special meeting on the matter written notice of any revocation of a request for the special meeting and written notice of the Corporation’s intention to revoke the notice of the meeting or for the chairman of the meeting to adjourn the meeting without action on the matter, (A) the secretary may revoke the notice of the meeting at any time before ten days before the commencement of the meeting or (B) the chairman of the meeting may call the meeting to order and adjourn the meeting without acting on the matter. Any request for a special meeting received after a revocation by the secretary of a notice of a meeting shall be considered a request for a new special meeting.
(6) The Board of Directors, the chairman of the Board or the president may appoint regionally or nationally recognized independent inspectors of elections to act as the agent of the Corporation for the purpose of promptly performing a ministerial review of the validity of any purported Special Meeting Request received by the secretary. For the purpose of permitting the inspectors to perform such review, no such purported Special Meeting Request shall be deemed to have been received by the secretary until the earlier of (i) five Business Days after actual receipt by the secretary of such purported request and (ii) such date as the independent inspectors certify to the Corporation that the valid requests received by the secretary represent, as of the Request Record Date, stockholders of record entitled to cast not less than the Special Meeting Percentage. Nothing contained in this paragraph (6) shall in any way be construed to suggest or imply that the Corporation or any stockholder shall not be entitled to contest the validity of any request, whether during or after such five Business Day period, or to take any other action (including, without limitation, the commencement, prosecution or defense of any litigation with respect thereto, and the seeking of injunctive relief in such litigation).
(7) For purposes of these Bylaws, “Business Day” shall mean any day other than a Saturday, a Sunday or a day on which banking institutions in the State of California are authorized or obligated by law or executive order to close.
Section 4. NOTICE OF MEETINGS. Not less than ten nor more than 90 days before each meeting of stockholders, the secretary shall give to each stockholder entitled to vote at such meeting and to each stockholder not entitled to vote who is entitled to notice of the meeting notice in writing or by electronic transmission stating the time and place of the meeting and, in the case of a special meeting or as otherwise may be required by any statute, the purpose for which the meeting is called, by mail, by presenting it to such stockholder personally, by leaving it at the stockholder’s residence or usual place of business, by electronic transmission or by any other means permitted by Maryland law. If mailed, such notice shall be deemed to be given when deposited in the United States mail addressed to the stockholder at the stockholder’s address as it appears on the records of the Corporation, with postage thereon prepaid. If transmitted electronically, such notice shall be deemed to be given when transmitted to the stockholder by an electronic transmission to any address or number of the stockholder at which the stockholder receives electronic transmissions. The Corporation may give a single notice to all stockholders who share an address, which single notice shall be effective as to any stockholder at such address, unless a stockholder sharing such an address objects to receiving such single notice or revokes a prior consent to receiving such single notice. Failure to give notice of any meeting to one or more stockholders, or any irregularity in such notice, shall not affect the validity of any meeting fixed in accordance with this Article II or the validity of any proceedings at any such meeting.
Subject to Section 11(a) of this Article II, any business of the Corporation may be transacted at an annual meeting of stockholders without being specifically designated in the notice, except such business as is required by any statute to be stated in such notice. No business shall be transacted at a special meeting of stockholders except as specifically designated in the notice. The Corporation may postpone or cancel a meeting of stockholders by making a public announcement (as defined in Section 11(c)(3) of this Article II) of such postponement or cancellation prior to the meeting. Notice of the date, time and place to which the meeting is postponed shall be given not less than ten days prior to such date and otherwise in the manner set forth in this section.
Section 5. ORGANIZATION AND CONDUCT. Every meeting of stockholders shall be conducted by an individual appointed by the Board of Directors to be chairman of the meeting or, in the absence of such appointment or appointed individual, by the chairman of the Board, if any, or, in the case of a vacancy in the office or absence of the chairman of the Board, by one of the following officers present at the meeting in the following order: the vice chairman of the Board, if any, the chief executive officer, the president, the vice presidents in their order of rank and, within each rank, in their order of seniority, the secretary, the treasurer or, in the absence of such officers, a chairman chosen by the stockholders by the vote of a majority of the votes cast by stockholders present in person or by proxy. The secretary, or, in the case of a vacancy in the office or absence of the secretary, an assistant secretary, or, in the case of a vacancy in the office of assistant secretary or the absence of both the secretary and all assistant secretaries, an individual appointed by the Board of Directors or, in the absence of such appointment, an individual appointed by the chairman of the meeting shall act as secretary. In the event that the secretary presides at a meeting of stockholders, an assistant secretary, or, in the absence of all assistant secretaries, an individual appointed by the Board of Directors or the chairman of the meeting, shall record the minutes of the meeting. Even if present at the meeting, the person holding the office named herein may delegate to another person the power to act as chairman or secretary of the meeting. The order of business and all other matters of procedure at any meeting of stockholders shall be determined by the chairman of the meeting. The chairman of the meeting may prescribe such rules, regulations and procedures and take such action as, in the discretion of the chairman and without any action by the stockholders, are appropriate for the proper conduct of the meeting, including, without limitation, (a) restricting admission to the time set for the commencement of the meeting; (b) limiting attendance or participation at the meeting to stockholders of record of the Corporation, their duly authorized proxies and such other individuals as the chairman of the meeting may determine; (c) limiting the time allotted to questions or comments; (d) determining when and for how long the polls should be opened and when the polls should be closed and when announcement of the results should be made; (e) maintaining order and security at the meeting; (f) removing any stockholder or any other individual who refuses to comply with meeting procedures, rules or guidelines as set forth by the chairman of the meeting; (g) concluding a meeting or recessing or adjourning the meeting, whether or not a quorum is present, to a later date and time and at a place announced at the meeting; and (h) complying with any state and local laws and regulations concerning safety and security. Unless otherwise determined by the chairman of the meeting, meetings of stockholders shall not be required to be held in accordance with any rules of parliamentary procedure.
Section 6. QUORUM. At any meeting of stockholders, the presence in person or by proxy of the holders of shares of stock of the Corporation entitled to cast a majority of the votes entitled to be cast (without regard to class) shall constitute a quorum at any meeting of the stockholders, except with respect to any such matter that, under applicable statutes or regulatory requirements, requires approval by a separate vote of one or more classes of stock, in which case the presence in person or by proxy of the holders of shares entitled to cast a majority of the votes entitled to be cast by each such class on such a matter shall constitute a quorum. This section shall not affect any requirement under any statute or the charter of the Corporation (the “Charter”) for the vote necessary for the adoption of any measure.
If, however, such quorum shall not be present at any meeting of the stockholders, the chairman of the meeting may adjourn the meeting sine die or from time to time to a date not more than 120 days after the original record date without notice other than announcement at the meeting. At such adjourned meeting at which a quorum shall be present, any business may be transacted which might have been transacted at the meeting as originally notified.
The stockholders present either in person or by proxy, at a meeting which has been duly called and at which a quorum has been established, may continue to transact business until adjournment, notwithstanding the withdrawal from the meeting of enough stockholders to leave fewer than required to establish a quorum.
Section 7. VOTING. A plurality of all the votes cast at a meeting of stockholders duly called and at which a quorum is present shall be sufficient to elect a director. However, directors shall be elected by a majority of all the votes entitled to be cast at a meeting of stockholders duly called and at which a quorum is present for which (i) the secretary of the Corporation receives notice that a stockholder has nominated an individual for election as a director in compliance with the requirements of advance notice of stockholder nominees for director set forth in Article II, Section 11 of these Bylaws, and (ii) such nomination has not been withdrawn by such stockholder on or before the close of business on the tenth day before the date of filing of the definitive proxy statement of the Corporation with the Securities and Exchange Commission, and, as a result of which, the number of nominees is greater than the number of directors to be elected at the meeting. Each share may be voted for as many individuals as there are directors to be elected and for whose election the holder is entitled to vote. A majority of the votes cast at a meeting of stockholders duly called and at which a quorum is present shall be sufficient to approve any other matter which may properly come before the meeting, unless a different vote is required by statute, by the Charter or by these Bylaws. Unless otherwise provided by statute or in the Charter, each outstanding share, regardless of class, entitles the holder thereof to cast one vote on each matter submitted to a vote at a meeting of stockholders.
Section 8. PROXIES. A holder of record of shares of stock of the Corporation may cast votes in person or by proxy executed by the stockholder or by the stockholder’s duly authorized agent in any manner permitted by applicable law. Such proxy or evidence of authorization of such proxy shall be filed with the secretary of the Corporation before or at the meeting. No proxy shall be valid more than eleven months after its date unless otherwise provided in the proxy.
Section 9. VOTING OF STOCK BY CERTAIN HOLDERS. Stock of the Corporation registered in the name of a corporation, partnership, trust or other entity, if entitled to be voted, may be voted by the president or a vice president, a general partner, trustee or managing member thereof, as the case may be, or a proxy appointed by any of the foregoing individuals, unless some other person who has been appointed to vote such stock pursuant to a bylaw or a resolution of the governing body of such corporation or other entity or agreement of the partners of a partnership presents a certified copy of such bylaw, resolution or agreement, in which case such person may vote such stock. Any director or fiduciary may vote stock registered in the name of such person in the capacity as such director or fiduciary, either in person or by proxy.
Shares of stock of the Corporation directly or indirectly owned by it shall not be voted at any meeting and shall not be counted in determining the total number of outstanding shares entitled to be voted at any given time, unless they are held by it in a fiduciary capacity, in which case they may be voted and shall be counted in determining the total number of outstanding shares at any given time.
The Board of Directors may adopt by resolution a procedure by which a stockholder may certify in writing to the Corporation that any shares of stock registered in the name of the stockholder are held for the account of a specified person other than the stockholder. The resolution shall set forth the class of stockholders who may make the certification, the purpose for which the certification may be made, the form of certification and the information to be contained in it; if the certification is with respect to a record date, the time after the record date within which the certification must be received by the Corporation; and any other provisions with respect to the procedure which the Board of Directors considers necessary or desirable. On receipt by the secretary of the Corporation of such certification, the person specified in the certification shall be regarded as, for the purposes set forth in the certification, the holder of record of the specified stock in place of the stockholder who makes the certification.
Section 10. INSPECTORS. The Board of Directors, in advance of any meeting, may, but need not, appoint one or more individual inspectors or one or more entities that designate individuals as inspectors to act at the meeting or any postponement or adjournment thereof. If an inspector or inspectors are not appointed, the person presiding at the meeting may, but need not, appoint one or more inspectors. In case any person who may be appointed as an inspector fails to appear or act, the vacancy may be filled by appointment made by the Board of Directors in advance of the meeting or at the meeting by the chairman of the meeting. Except as otherwise provided by the chairman of the meeting, the inspectors, if any, shall (i) determine the number of shares of stock represented at the meeting, in person or by proxy, and the validity and effect of proxies, (ii) receive and tabulate all votes, ballots or consents, (iii) report such tabulation to the chairman of the meeting, (iv) hear and determine all challenges and questions arising in connection with the right to vote, and (v) do such acts as are proper to fairly conduct the election or vote. Each such report shall be in writing and signed by the inspector or by a majority of them if there is more than one inspector acting at such meeting. If there is more than one inspector, the report of a majority shall be the report of the inspectors. The report of the inspector or inspectors on the number of shares represented at the meeting and the results of the voting shall be prima facie evidence thereof.
Section 11. ADVANCE NOTICE OF STOCKHOLDER NOMINEES FOR DIRECTOR AND OTHER STOCKHOLDER PROPOSALS.
(a) Annual Meetings of Stockholders. (1) Nominations of individuals for election to the Board of Directors and the proposal of other business to be considered by the stockholders may be made at an annual meeting of stockholders (i) pursuant to the Corporation’s notice of meeting, (ii) by or at the direction of the Board of Directors or (iii) by any stockholder of the Corporation who was a stockholder of record at the record date set by the Board of Directors for the purpose of determining stockholders entitled to vote at the annual meeting, at the time of giving of notice by the stockholder as provided for in this Section 11(a) and at the time of the annual meeting (and any postponement or adjournment thereof), who is entitled to vote at the meeting in the election of each individual so nominated or on any such other business and who has complied with this Section 11(a).
(2) For any nomination or other business to be properly brought before an annual meeting by a stockholder pursuant to clause (iii) of paragraph (a)(1) of this Section 11, the stockholder must have given timely notice thereof in writing to the secretary of the Corporation and, in the case of any such other business, such other business must otherwise be a proper matter for action by the stockholders. To be timely, a stockholder’s notice shall set forth all information required under this Section 11 and shall be delivered to the secretary at the principal executive office of the Corporation not earlier than the 150th day nor later than 5:00 p.m., Pacific Time, on the 120th day prior to the first anniversary of the date of the proxy statement (as defined in Section 11(c)(3) of this Article II) for the preceding year’s annual meeting; provided, however, that in connection with the Corporation’s first annual meeting or in the event that the date of the annual meeting is advanced or delayed by more than 30 days from the first anniversary of the date of the preceding year’s annual meeting, in order for notice by the stockholder to be timely, such notice must be so delivered not earlier than the 150th day prior to the date of such annual meeting and not later than 5:00 p.m., Pacific Time, on the later of the 120th day prior to the date of such annual meeting, as originally convened, or the tenth day following the day on which public announcement of the date of such meeting is first made. The public announcement of a postponement or adjournment of an annual meeting shall not commence a new time period for the giving of a stockholder’s notice as described above.
(3) Such stockholder’s notice shall set forth:
(i) as to each individual whom the stockholder proposes to nominate for election or reelection as a director (each, a “Proposed Nominee”),
(A) all information relating to the Proposed Nominee that would be required to be disclosed in connection with the solicitation of proxies for the election of the Proposed Nominee as a director in an election contest (even if an election contest is not involved), or would otherwise be required in connection with such solicitation, in each case pursuant to Regulation 14A (or any successor provision) under the Exchange Act; and
(B) whether such stockholder believes any such Proposed Nominee is, or is not, an “interested person” of the Corporation, as defined in the Investment Company Act of 1940, as amended, and the rules promulgated thereunder (the “Investment Company Act”) and information regarding such individual that is sufficient, in the discretion of the Board of Directors or any authorized officer of the Corporation, to make such determination;
(ii) as to any other business that the stockholder proposes to bring before the meeting, a description of such business, the stockholder’s reasons for proposing such business at the meeting and any material interest in such business of such stockholder or any Stockholder Associated Person (as defined below), individually or in the aggregate, including any anticipated benefit to the stockholder or the Stockholder Associated Person therefrom;
(iii) as to the stockholder giving the notice, any Proposed Nominee and any Stockholder Associated Person,
(A) the class, series and number of all shares of stock or other securities of the Corporation or affiliate thereof (collectively, the “Company Securities”), if any, which are owned (beneficially or of record) by such stockholder, Proposed Nominee or Stockholder Associated Person, the date on which each such Company Security was acquired and the investment intent of such acquisition, and any short interest (including any opportunity to profit or share in any benefit from any decrease in the price of such stock or other security) in any Company Securities of any such person;
(B) the nominee holder for, and number of, any Company Securities owned beneficially but not of record by such stockholder, Proposed Nominee or Stockholder Associated Person;
(C) whether and the extent to which such stockholder, Proposed Nominee or Stockholder Associated Person, directly or indirectly (through brokers, nominees or otherwise), is subject to or during the last six months has engaged in any hedging, derivative or other transaction or series of transactions or entered into any other agreement, arrangement or understanding (including any short interest, any borrowing or lending of securities or any proxy or voting agreement), the effect or intent of which is to (I) manage risk or benefit of changes in the price of (x) Company Securities or (y) any security of any other closed-end investment company (a “Peer Group Company”) for such stockholder, Proposed Nominee or Stockholder Associated Person or (II) increase or decrease the voting power of such stockholder, Proposed Nominee or Stockholder Associated Person in the Corporation or any affiliate thereof (or, as applicable, in any Peer Group Company) disproportionately to such person’s economic interest in the Company Securities (or, as applicable, in any Peer Group Company); and
(D) any substantial interest, direct or indirect (including, without limitation, any existing or prospective commercial, business or contractual relationship with the Corporation), by security holdings or otherwise, of such stockholder, Proposed Nominee or Stockholder Associated Person, in the Corporation or any affiliate thereof, other than an interest arising from the ownership of Company Securities where such stockholder, Proposed Nominee or Stockholder Associated Person receives no extra or special benefit not shared on a pro rata basis by all other holders of the same class or series;
(iv) as to the stockholder giving the notice, any Stockholder Associated Person with an interest or ownership referred to in clauses (ii) or (iii) of this paragraph (3) of this Section 11(a) and any Proposed Nominee,
(A) the name and address of such stockholder, as they appear on the Corporation’s stock ledger, and the current name and business address, if different, of each such Stockholder Associated Person and any Proposed Nominee and
(B) the investment strategy or objective, if any, of such stockholder and each such Stockholder Associated Person who is not an individual and a copy of the prospectus, offering memorandum or similar document, if any, provided to investors or potential investors in such stockholder and each such Stockholder Associated Person;
(v) the name and address of any person who contacted or was contacted by the stockholder giving the notice or any Stockholder Associated Person about the Proposed Nominee or other business proposal; and
(vi) to the extent known by the stockholder giving the notice, the name and address of any other stockholder supporting the nominee for election or reelection as a director or the proposal of other business on the date of such stockholder’s notice.
(4) Such stockholder’s notice shall, with respect to any Proposed Nominee, be accompanied by a written undertaking executed by the Proposed Nominee (i) certifying that such Proposed Nominee (a) is not, and will not become a party to, any agreement, arrangement or understanding with any person or entity other than the Corporation in connection with service or action as a director that has not been disclosed to the Corporation and (b) will serve as a director of the Corporation if elected; and (ii) attaching a completed Proposed Nominee questionnaire (which questionnaire shall be provided by the Corporation, upon request, to the stockholder providing the notice and shall include all information relating to the Proposed Nominee that would be required to be disclosed in connection with the solicitation of proxies for the election of the Proposed Nominee as a director in an election contest (even if an election contest is not involved), or would otherwise be required in connection with such solicitation, in each case pursuant to Regulation 14A (or any successor provision) under the Exchange Act, or would be required pursuant to the rules of any national securities exchange on which any securities of the Corporation are listed or over-the-counter market on which any securities of the Corporation are traded).
(5) Notwithstanding anything in this subsection (a) of this Section 11 to the contrary, in the event that the number of directors to be elected to the Board of Directors is increased, and there is no public announcement of such action at least 130 days prior to the first anniversary of the date of the proxy statement (as defined in Section 11(c)(3) of this Article II) for the preceding year’s annual meeting, a stockholder’s notice required by this Section 11(a) shall also be considered timely, but only with respect to nominees for any new positions created by such increase, if it shall be delivered to the secretary at the principal executive office of the Corporation not later than 5:00 p.m., Pacific Time, on the tenth day following the day on which such public announcement is first made by the Corporation.
(6) For purposes of this Section 11, “Stockholder Associated Person” of any stockholder means (i) any person acting in concert with such stockholder, (ii) any beneficial owner of shares of stock of the Corporation owned of record or beneficially by such stockholder (other than a stockholder that is a depositary) and (iii) any person that directly, or indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with, such stockholder or such Stockholder Associated Person.
(b) Special Meetings of Stockholders. Only such business shall be conducted at a special meeting of stockholders as shall have been brought before the meeting pursuant to the Corporation’s notice of meeting. Nominations of individuals for election to the Board of Directors may be made at a special meeting of stockholders at which directors are to be elected only (i) by or at the direction of the Board of Directors or (ii) provided that the special meeting has been called in accordance with Section 3 of this Article II for the purpose of electing directors, by any stockholder of the Corporation who is a stockholder of record at the record date set by the Board of Directors for the purpose of determining stockholders entitled to vote at the special meeting, at the time of giving of notice provided for in this Section 11 and at the time of the special meeting (and any postponement or adjournment thereof), who is entitled to vote at the meeting in the election of each individual so nominated and who has complied with the notice procedures set forth in this Section 11. In the event the Corporation calls a special meeting of stockholders for the purpose of electing one or more individuals to the Board of Directors, any stockholder may nominate an individual or individuals (as the case may be) for election as a director as specified in the Corporation’s notice of meeting, if the stockholder’s notice, containing the information required by paragraphs (a)(3) and (4) of this Section 11, is delivered to the secretary at the principal executive office of the Corporation not earlier than the 120th day prior to such special meeting and not later than 5:00 p.m., Pacific Time, on the later of the 90th day prior to such special meeting or the tenth day following the day on which public announcement is first made of the date of the special meeting and of the nominees proposed by the Board of Directors to be elected at such meeting. The public announcement of a postponement or adjournment of a special meeting shall not commence a new time period for the giving of a stockholder’s notice as described above.
(c) General. (1) If information submitted pursuant to this Section 11 by any stockholder proposing a nominee for election as a director or any proposal for other business at a meeting of stockholders shall be inaccurate in any material respect, such information may be deemed not to have been provided in accordance with this Section 11. Any such stockholder shall notify the Corporation of any inaccuracy or change (within two Business Days of becoming aware of such inaccuracy or change) in any such information. Upon written request by the secretary of the Corporation or the Board of Directors, any such stockholder shall provide, within five Business Days of delivery of such request (or such other period as may be specified in such request), (A) written verification, satisfactory, in the discretion of the Board of Directors or any authorized officer of the Corporation, to demonstrate the accuracy of any information submitted by the stockholder pursuant to this Section 11, and (B) a written update of any information (including, if requested by the Corporation, written confirmation by such stockholder that it continues to intend to bring such nomination or other business proposal before the meeting) submitted by the stockholder pursuant to this Section 11 as of an earlier date. If a stockholder fails to provide such written verification or written update within such period, the information as to which written verification or a written update was requested may be deemed not to have been provided in accordance with this Section 11.
(2) Only such individuals who are nominated in accordance with this Section 11 shall be eligible for election by stockholders as directors, and only such business shall be conducted at a meeting of stockholders as shall have been brought before the meeting in accordance with this Section 11. The chairman of the meeting shall have the power to determine whether a nomination or any other business proposed to be brought before the meeting was made or proposed, as the case may be, in accordance with this Section 11.
(3) For purposes of this Section 11, “the date of the proxy statement” shall have the same meaning as “the date of the company’s proxy statement released to shareholders” as used in Rule 14a-8(e) promulgated under the Exchange Act, as interpreted by the Securities and Exchange Commission from time to time. “Public announcement” shall mean disclosure (i) in a press release reported by the Dow Jones News Service, Associated Press, Business Wire, PR Newswire or other widely circulated news or wire service or (ii) in a document publicly filed by the Corporation with the Securities and Exchange Commission pursuant to the Exchange Act or the Investment Company Act.
(4) Notwithstanding the foregoing provisions of this Section 11, a stockholder shall also comply with all applicable requirements of state law and of the Exchange Act with respect to the matters set forth in this Section 11. Nothing in this Section 11 shall be deemed to affect any right of a stockholder to request inclusion of a proposal in, or the right of the Corporation to omit a proposal from, any proxy statement filed by the Corporation with the Securities and Exchange Commission pursuant to Rule 14a-8 (or any successor provision) under the Exchange Act. Nothing in this Section 11 shall require disclosure of revocable proxies received by the stockholder or Stockholder Associated Person pursuant to a solicitation of proxies after the filing of an effective Schedule 14A by such stockholder or Stockholder Associated Person under Section 14(a) of the Exchange Act.
(5) Notwithstanding anything in these Bylaws to the contrary, except as otherwise determined by the chairman of the meeting, if the stockholder giving notice as provided for in this Section 11 does not appear in person or by proxy at such annual or special meeting to present each nominee for election as a director or the proposed business, as applicable, such matter shall not be considered at the meeting.
Section 12. VOTING BY BALLOT. Voting on any question or in any election may be viva voce unless the presiding officer shall order or any stockholder shall demand that voting be by ballot.
Section 13. CONTROL SHARE ACQUISITION ACT. Title 3, Subtitle 7 (the “Maryland Control Share Acquisition Act”) of the Maryland General Corporation Law, or any successor statute (the “MGCL”), shall apply to any acquisition or proposed acquisition of shares of stock of the Corporation to the extent provided in the Maryland Control Share Acquisition Act. Notwithstanding the foregoing, the Maryland Control Share Acquisition Act shall not apply to any acquisition by Kevin Landis, or any associates thereof, of shares of stock of the Corporation.
Section 14. STOCKHOLDERS’ CONSENT IN LIEU OF MEETING. Any action required or permitted to be taken at any meeting of stockholders may be taken without a meeting if a unanimous consent setting forth the action is given in writing or by electronic transmission by each stockholder entitled to vote on the matter and filed with the minutes of proceedings of the stockholders.
ARTICLE III
DIRECTORS
Section 1. GENERAL POWERS. The business and affairs of the Corporation shall be managed under the direction of its Board of Directors.
Section 2. NUMBER, TENURE AND QUALIFICATIONS. A majority of the entire Board of Directors may establish, increase or decrease the number of directors, provided that the number thereof shall never be less than the minimum number required by the MGCL nor more than 15, and further provided that the tenure of office of a director shall not be affected by any decrease in the number of directors. Any director of the Corporation may resign at any time by delivering his or her resignation to the Board of Directors, the chairman of the Board or the secretary. Any resignation shall take effect immediately upon its receipt or at such later time specified in the resignation. The acceptance of a resignation shall not be necessary to make it effective unless otherwise stated in the resignation.
Section 3. ANNUAL AND REGULAR MEETINGS. An annual meeting of the Board of Directors shall be held immediately after and at the same place as the annual meeting of stockholders, no notice other than this Bylaw being necessary. In the event such meeting is not so held, the meeting may be held at such time and place as shall be specified in a notice given as hereinafter provided for special meetings of the Board of Directors. Regular meetings of the Board of Directors shall be held from time to time at such places and times as provided by the Board of Directors by resolution, without notice other than such resolution.
Section 4. SPECIAL MEETINGS. Special meetings of the Board of Directors may be called by or at the request of the chairman of the Board of Directors, the president or by a majority of the directors then in office. The person or persons authorized to call special meetings of the Board of Directors may fix the time and place of any special meeting of the Board of Directors called by them. The Board of Directors may provide, by resolution, the time and place of special meetings of the Board of Directors without notice other than such resolution.
Section 5. NOTICE. Notice of any special meeting of the Board of Directors shall be delivered personally or by telephone, electronic mail, facsimile transmission, United States mail or courier to each director at his or her business or residence address. Notice by personal delivery, telephone, electronic mail or facsimile transmission shall be given at least 24 hours prior to the meeting. Notice by United States mail shall be given at least three days prior to the meeting. Notice by courier shall be given at least two days prior to the meeting. Telephone notice shall be deemed to be given when the director or his or her agent is personally given such notice in a telephone call to which the director or his or her agent is a party. Electronic mail notice shall be deemed to be given upon transmission of the message to the electronic mail address given to the Corporation by the director. Facsimile transmission notice shall be deemed to be given upon completion of the transmission of the message to the number given to the Corporation by the director and receipt of a completed answer-back indicating receipt. Notice by United States mail shall be deemed to be given when deposited in the United States mail properly addressed, with postage thereon prepaid. Notice by courier shall be deemed to be given when deposited with or delivered to a courier properly addressed. Neither the business to be transacted at, nor the purpose of, any annual, regular or special meeting of the Board of Directors need be stated in the notice, unless specifically required by statute or these Bylaws.
Section 6. QUORUM. A majority of the directors shall constitute a quorum for transaction of business at any meeting of the Board of Directors, provided that, if less than a majority of such directors is present at such meeting, a majority of the directors present may adjourn the meeting from time to time without further notice, and provided further that if, pursuant to applicable law, the Charter or these Bylaws, the vote of a majority or other percentage of a particular group of directors is required for action, a quorum must also include a majority or such other percentage of such group.
The directors present at a meeting which has been duly called and at which a quorum has been established may continue to transact business until adjournment, notwithstanding the withdrawal from the meeting of enough directors to leave fewer than required to establish a quorum.
Section 7 VOTING. The action of a majority of the directors present at a meeting at which a quorum is present shall be the action of the Board of Directors, unless the concurrence of a greater proportion is required for such action by statute, the Charter or these Bylaws. If enough directors have withdrawn from a meeting to leave fewer than required to establish a quorum, but the meeting is not adjourned, the action of the majority of that number of directors necessary to constitute a quorum at such meeting shall be the action of the Board of Directors, unless the concurrence of a greater proportion is required for such action by statute, the Charter or these Bylaws.
Section 8. ORGANIZATION. At each meeting of the Board of Directors, the chairman of the Board or, in the absence of the chairman, the vice chairman of the Board, if any, shall act as chairman of the meeting. In the absence of both the chairman and vice chairman of the Board, the chief executive officer or, in the absence of the chief executive officer, the president or, in the absence of the president, a director chosen by a majority of the directors present, shall act as chairman of the meeting. The secretary or, in his or her absence, an assistant secretary of the Corporation, or, in the absence of the secretary and all assistant secretaries, an individual appointed by the chairman of the meeting, shall act as secretary of the meeting
Section 9. TELEPHONE MEETINGS. Subject to the provisions of the Investment Company Act, directors may participate in a meeting by means of a conference telephone or other communications equipment if all persons participating in the meeting can hear each other at the same time. Participation in a meeting by these means shall constitute presence in person at the meeting.
Section 10. CONSENT BY DIRECTORS WITHOUT A MEETING. Subject to the provisions of the Investment Company Act, any action required or permitted to be taken at any meeting of the Board of Directors may be taken without a meeting, if a consent to such action is given in writing or by electronic transmission by each director and is filed with the minutes of proceedings of the Board of Directors.
Section 11. VACANCIES. If for any reason any or all the directors cease to be directors, such event shall not terminate the Corporation or affect these Bylaws or the powers of the remaining directors hereunder, if any. Pursuant to the Corporation’s election in Article IV of the Charter, subject to applicable requirements of the Investment Company Act, except as may be provided by the Board of Directors in setting the terms of any class or series of preferred stock, (a) any vacancy on the Board of Directors may be filled only by a majority of the remaining directors, even if the remaining directors do not constitute a quorum and (b) any director elected to fill a vacancy shall serve for the remainder of the full term of the class in which the vacancy occurred and until a successor is elected and qualifies.
Section 12. COMPENSATION. Directors shall not receive any stated salary for their services as directors but, by resolution of the Board of Directors, may receive compensation per year and/or per meeting and/or per visit to real property or other facilities owned or leased by the Corporation and for any service or activity they perform or engage in as directors. Directors may be reimbursed for expenses of attendance, if any, at each annual, regular or special meeting of the Board of Directors or of any committee thereof and for their expenses, if any, in connection with each property visit and any other service or activity they perform or engage in as directors; but nothing herein contained shall be construed to preclude any directors from serving the Corporation in any other capacity and receiving compensation therefor.
Section 13. LOSS OF DEPOSITS. No director shall be liable for any loss which may occur by reason of the failure of the bank, trust company, savings and loan association, or other institution with whom moneys or stock have been deposited.
Section 14. SURETY BONDS. Unless required by law, no director shall be obligated to give any bond or surety or other security for the performance of any of his or her duties.
Section 15. RELIANCE. Each director and officer of the Corporation shall, in the performance of his or her duties with respect to the Corporation, be entitled to rely on any information, opinion, report or statement, including any financial statement or other financial data, prepared or presented by an officer or employee of the Corporation whom the director or officer reasonably believes to be reliable and competent in the matters presented, by a lawyer, certified public accountant or other person, as to a matter which the director or officer reasonably believes to be within the person’s professional or expert competence, or, with respect to a director, by a committee of the Board of Directors on which the director does not serve, as to a matter within its designated authority, if the director reasonably believes the committee to merit confidence.
Section 16. RATIFICATION. The Board of Directors or the stockholders may ratify any act, omission, failure to act or determination made not to act (an “Act”) by the Corporation or its officers to the extent that the Board of Directors or the stockholders could have originally authorized the Act and, if so ratified, such Act shall have the same force and effect as if originally duly authorized, and such ratification shall be binding upon the Corporation and its stockholders. Any Act questioned in any proceeding on the ground of lack of authority, defective or irregular execution, adverse interest of a director, officer or stockholder, non-disclosure, miscomputation, the application of improper principles or practices of accounting or otherwise, may be ratified, before or after judgment, by the Board of Directors or by the stockholders, and such ratification shall constitute a bar to any claim or execution of any judgment in respect of such questioned Act.
Section 17. EMERGENCY PROVISIONS. Notwithstanding any other provision in the Charter or these Bylaws, this Section 17 shall apply during the existence of any catastrophe, or other similar emergency condition, as a result of which a quorum of the Board of Directors under Article III of these Bylaws cannot readily be obtained (an “Emergency”). The existence of an Emergency shall be determined by the Board of Directors in its sole and absolute discretion. During any Emergency, unless otherwise provided by the Board of Directors, (i) a meeting of the Board of Directors or a committee thereof may be called by any director or officer by any means feasible under the circumstances; (ii) notice of any meeting of the Board of Directors during such an Emergency may be given less than 24 hours prior to the meeting to as many directors and by such means as may be feasible at the time, including publication, television or radio; and (iii) the number of directors necessary to constitute a quorum shall be one-third of the entire Board of Directors.
ARTICLE IV
COMMITTEES
Section 1. NUMBER, TENURE AND QUALIFICATIONS. The Board of Directors may appoint from among its members an Executive Committee, an Audit Committee, a Valuation Committee, a Nominating Committee, a Compensation Committee and other committees, composed of one or more directors, to serve at the pleasure of the Board of Directors. In the absence of any member of any such committee, the members thereof present at any meeting, whether or not they constitute a quorum, may appoint another director to act in the place of such absent member.
Section 2. POWERS. The Board of Directors may delegate to committees appointed under Section 1 of this Article any of the powers of the Board of Directors, except as prohibited by law. Except as may be otherwise provided by the Board of Directors, any committee may delegate some or all of its power and authority to one or more subcommittees, composed of one or more directors, as the committee deems appropriate in its sole discretion.
Section 3. MEETINGS. Notice of committee meetings shall be given in the same manner as notice for special meetings of the Board of Directors. A majority of the members of the committee shall constitute a quorum for the transaction of business at any meeting of the committee. The act of a majority of the committee members present at a meeting shall be the act of such committee. The Board of Directors may designate a chairman of any committee, and such chairman or, in the absence of a chairman, any two members of any committee (if there are at least two members of the committee) may fix the time and place of its meeting unless the Board of Directors shall otherwise provide.
Section 4. TELEPHONE MEETINGS. Members of a committee of the Board of Directors may participate in a meeting by means of a conference telephone or other communications equipment if all persons participating in the meeting can hear each other at the same time. Participation in a meeting by these means shall constitute presence in person at the meeting.
Section 5. CONSENT BY COMMITTEES WITHOUT A MEETING. Any action required or permitted to be taken at any meeting of a committee of the Board of Directors may be taken without a meeting, if a consent to such action is given in writing or by electronic transmission by each member of the committee and is filed with the minutes of proceedings of such committee.
Section 6. VACANCIES. Subject to the provisions hereof, the Board of Directors shall have the power at any time to change the membership of any committee, to appoint the chair of any committee, to fill all vacancies, to designate alternate members to replace any absent or disqualified member or to dissolve any such committee. Subject to the power of the Board of Directors, the members of the committee shall have the power to fill any vacancies on the committee.
ARTICLE V
OFFICERS
Section 1. GENERAL PROVISIONS. The officers of the Corporation shall include a president, a secretary and a treasurer and may include a chief executive officer, one or more vice presidents, a chief operating officer, a chief financial officer, a chief compliance officer, one or more assistant secretaries and one or more assistant treasurers. In addition, the Board of Directors may from time to time elect such other officers with such powers and duties as it shall deem necessary or desirable. The Board of Directors may designate a chairman of the Board and a vice chairman of the Board, who shall not, solely by reason of such designation, be officers of the Corporation but shall have such powers and duties as determined by the Board of Directors from time to time. The officers of the Corporation shall be elected annually by the Board of Directors, except that the chief executive officer or president may from time to time appoint one or more vice presidents, assistant secretaries and assistant treasurers or other officers. Each officer shall serve until his or her successor is elected and qualifies or until his or her death, or his or her resignation or removal in the manner hereinafter provided. Any two or more offices except president and vice president may be held by the same person. Election of an officer or agent shall not of itself create contract rights between the Corporation and such officer or agent.
Section 2. REMOVAL AND RESIGNATION. Any officer or agent of the Corporation may be removed, with or without cause, by the Board of Directors if in its judgment the best interests of the Corporation would be served thereby, but such removal shall be without prejudice to the contract rights, if any, of the person so removed. Any officer of the Corporation may resign at any time by delivering his or her resignation to the Board of Directors, the chairman of the Board, the president or the secretary. Any resignation shall take effect immediately upon its receipt or at such later time specified in the notice of resignation. The acceptance of a resignation shall not be necessary to make it effective unless otherwise stated in the resignation. Such resignation shall be without prejudice to the contract rights, if any, of the Corporation.
Section 3. VACANCIES. A vacancy in any office may be filled by the Board of Directors for the balance of the term.
Section 4. CHIEF EXECUTIVE OFFICER. The Board of Directors may designate a chief executive officer. In the absence of such designation, the president shall be the chief executive officer of the Corporation. The chief executive officer shall have general responsibility for implementation of the policies of the Corporation, as determined by the Board of Directors, and for the management of the business and affairs of the Corporation. He or she may execute any deed, mortgage, bond, contract or other instrument, except in cases where the execution thereof shall be expressly delegated by the Board of Directors or by these Bylaws to some other officer or agent of the Corporation or shall be required by law to be otherwise executed; and in general shall perform all duties incident to the office of chief executive officer and such other duties as may be prescribed by the Board of Directors from time to time.
Section 5. CHIEF OPERATING OFFICER. The Board of Directors may designate a chief operating officer. The chief operating officer shall have the responsibilities and duties as set forth by the Board of Directors or the chief executive officer.
Section 6. CHIEF FINANCIAL OFFICER. The Board of Directors may designate a chief financial officer. The chief financial officer shall have the responsibilities and duties as set forth by the Board of Directors or the chief executive officer.
Section 7. CHIEF COMPLIANCE OFFICER. The Board of Directors may designate a chief compliance officer. The chief compliance officer shall have the responsibilities and duties as set forth by the Board of Directors or the chief executive officer.
Section 8. PRESIDENT. In the absence of a designation of a chief operating officer by the Board of Directors, the president shall be the chief operating officer. In the absence of a designation of a chief executive officer by the Board of Directors, the president shall be the chief executive officer. He or she may execute any deed, mortgage, bond, contract or other instrument, except in cases where the execution thereof shall be expressly delegated by the Board of Directors or by these Bylaws to some other officer or agent of the Corporation or shall be required by law to be otherwise executed; and in general shall perform all duties incident to the office of president and such other duties as may be prescribed by the Board of Directors from time to time.
Section 9. VICE PRESIDENTS. In the absence of the president or in the event of a vacancy in such office, the vice president (or in the event there be more than one vice president, the vice presidents in the order designated at the time of their election or, in the absence of any designation, then in the order of their election) shall perform the duties of the president and when so acting shall have all the powers of and be subject to all the restrictions upon the president; and shall perform such other duties as from time to time may be assigned to such vice president by the president or the Board of Directors. The Board of Directors may designate one or more vice presidents as executive vice president or as vice president for particular areas of responsibility.
Section 10. SECRETARY. The secretary shall (a) keep the minutes of the proceedings of the stockholders, the Board of Directors and committees of the Board of Directors in one or more books provided for that purpose; (b) see that all notices are duly given in accordance with the provisions of these Bylaws or as required by law; (c) be custodian of the corporate records and of the seal of the Corporation; (d) keep a register of the post office address of each stockholder which shall be furnished to the secretary by such stockholder; (e) have general charge of the stock transfer books of the Corporation; and (f) in general perform such other duties as from time to time may be assigned to him by the chief executive officer, the president or the Board of Directors.
Section 11. TREASURER. The treasurer shall keep full and accurate accounts of receipts and disbursements in books belonging to the Corporation and shall deposit all moneys and other valuable effects in the name and to the credit of the Corporation in such depositories as may be designated by the Board of Directors and in general perform such other duties as from time to time may be assigned to him or her by the chief executive officer, the president or the Board of Directors. In the absence of a designation of a chief financial officer by the Board of Directors, the treasurer shall be the chief financial officer of the Corporation.
The treasurer shall disburse the funds of the Corporation as may be ordered by the Board of Directors, taking proper vouchers for such disbursements, and shall render to the president and Board of Directors, at the regular meetings of the Board of Directors or whenever it may so require, an account of all his or her transactions as treasurer and of the financial condition of the Corporation.
Section 12. ASSISTANT SECRETARIES AND ASSISTANT TREASURERS. The assistant secretaries and assistant treasurers, in general, shall perform such duties as shall be assigned to them by the secretary or treasurer, respectively, or by the president or the Board of Directors.
ARTICLE VI
CONTRACTS, CHECKS AND DEPOSITS
Section 1. CONTRACTS. The Board of Directors or any manager of the Corporation approved by the Board of Directors and acting within the scope of its authority pursuant to a management or advisory agreement with the Corporation may authorize any officer or agent to enter into any contract or to execute and deliver any instrument in the name of and on behalf of the Corporation and such authority may be general or confined to specific instances. Any agreement, deed, mortgage, lease or other document shall be valid and binding upon the Corporation when duly authorized or ratified by action of the Board of Directors or a manager or adviser acting within the scope of its authority pursuant to a management or advisory agreement and executed by the chief executive officer, the president or any other person authorized by the Board of Directors or such a manager or adviser.
Section 2. CHECKS AND DRAFTS. All checks, drafts or other orders for the payment of money, notes or other evidences of indebtedness issued in the name of the Corporation shall be signed by such officer or agent of the Corporation in such manner as shall from time to time be determined by the Board of Directors.
Section 3. DEPOSITS. All funds of the Corporation not otherwise employed shall be deposited or invested from time to time to the credit of the Corporation in such banks, trust companies or other depositories as the Board of Directors may designate.
ARTICLE VII
STOCK
Section 1. CERTIFICATES; REQUIRED INFORMATION. Except as may be otherwise provided by the Board of Directors or any officer of the Corporation, stockholders of the Corporation are not entitled to certificates representing the shares of stock held by them. In the event that the Corporation issues shares of stock represented by certificates, such certificates shall be in such form as prescribed by the Board of Directors or a duly authorized officer, shall contain the statements and information required by the MGCL and shall be signed by the officers of the Corporation in any manner permitted by the MGCL. In the event that the Corporation issues shares of stock without certificates, to the extent then required by the MGCL the Corporation shall provide to the record holders of such shares a written statement of the information required by the MGCL to be included on stock certificates. There shall be no difference in the rights and obligations of stockholders based on whether or not their shares are represented by certificates.
Section 2. TRANSFERS. All transfers of shares of stock shall be made on the books of the Corporation in such manner as the Board of Directors or any officer of the Corporation may prescribe and, if such shares are certificated, upon surrender of certificates duly endorsed. The issuance of a new certificate upon the transfer of certificated shares is subject to the determination of the Board of Directors or an officer of the Corporation that such shares shall no longer be represented by certificates. Upon the transfer of uncertificated shares, to the extent then required by the MGCL, the Corporation shall provide to record holders of such shares a written statement of the information required by the MGCL to be included on stock certificates.
The Corporation shall be entitled to treat the holder of record of any share of stock as the holder in fact thereof and, accordingly, shall not be bound to recognize any equitable or other claim to or interest in such share or on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise expressly provided by the laws of the State of Maryland.
Notwithstanding the foregoing, transfers of shares of any class or series of stock will be subject in all respects to the Charter and all of the terms and conditions contained therein.
Section 3. REPLACEMENT CERTIFICATE. Any officer of the Corporation may direct a new certificate or certificates to be issued in place of any certificate or certificates theretofore issued by the Corporation alleged to have been lost, destroyed, stolen or mutilated, upon the making of an affidavit of that fact by the person claiming the certificate to be lost, destroyed, stolen or mutilated; provided, however, if such shares have ceased to be certificated, no new certificate shall be issued unless requested in writing by such stockholder and the Board of Directors or an officer of the Corporation has determined that such certificates may be issued. Unless otherwise determined by an officer of the Corporation, the owner of such lost, destroyed, stolen or mutilated certificate or certificates, or his or her legal representative, shall be required, as a condition precedent to the issuance of a new certificate or certificates, to give the Corporation a bond in such sums as it may direct as indemnity against any claim that may be made against the Corporation.
Section 4. FIXING OF RECORD DATE. The Board of Directors may set, in advance, a record date for the purpose of determining stockholders entitled to notice of or to vote at any meeting of stockholders or determining stockholders entitled to receive payment of any dividend or the allotment of any other rights, or in order to make a determination of stockholders for any other proper purpose. Such date, in any case, shall not be prior to the close of business on the day the record date is fixed and shall be not more than 90 days and, in the case of a meeting of stockholders, not less than ten days, before the date on which the meeting or particular action requiring such determination of stockholders of record is to be held or taken.
When a record date for the determination of stockholders entitled to notice of and to vote at any meeting of stockholders has been set as provided in this section, such record date shall continue to apply to the meeting if adjourned or postponed, except if the meeting is adjourned or postponed to a date more than 120 days after the record date originally fixed for the meeting, in which case a new record date for such meeting may be determined as set forth herein.
Section 5. STOCK LEDGER. The Corporation shall maintain at its principal office or at the office of its counsel, accountants or transfer agent, an original or duplicate share ledger containing the name and address of each stockholder and the number of shares of each class held by such stockholder.
Section 6. FRACTIONAL STOCK. The Board of Directors may authorize the Corporation to issue fractional shares of stock on such terms and under such conditions as it may determine.
ARTICLE VIII
ACCOUNTING YEAR
The Board of Directors shall have the power, from time to time, to fix the fiscal year of the Corporation by a duly adopted resolution.
ARTICLE IX
DISTRIBUTIONS
Section 1. AUTHORIZATION. Dividends and other distributions upon the stock of the Corporation may be authorized by the Board of Directors, subject to the provisions of law and the Charter. Dividends and other distributions may be paid in cash, property or stock of the Corporation, subject to the provisions of law and the Charter.
Section 2. CONTINGENCIES. Before payment of any dividends or other distributions, there may be set aside out of any assets of the Corporation available for dividends or other distributions such sum or sums as the Board of Directors may from time to time, in its absolute discretion, think proper as a reserve fund for contingencies, for equalizing dividends or other distributions, for repairing or maintaining any property of the Corporation or for such other purpose as the Board of Directors shall determine to be in the best interest of the Corporation, and the Board of Directors may modify or abolish any such reserve.
ARTICLE X
SEAL
Section 1. SEAL. The Board of Directors may authorize the adoption of a seal by the Corporation. The seal shall contain the name of the Corporation and the year of its incorporation and the words “Incorporated Maryland,” or shall be in such other form as may approved by the Board of Directors. The Board of Directors may authorize one or more duplicate seals and provide for the custody thereof.
Section 2. AFFIXING SEAL. Whenever the Corporation is permitted or required to affix its seal to a document, it shall be sufficient to meet the requirements of any law, rule or regulation relating to a seal to place the word “(SEAL)” adjacent to the signature of the person authorized to execute the document on behalf of the Corporation.
ARTICLE XI
INDEMNIFICATION AND ADVANCE OF EXPENSES
To the maximum extent permitted by Maryland law, in effect from time to time, the Corporation shall indemnify and, without requiring a preliminary determination of the ultimate entitlement to indemnification, shall pay or reimburse reasonable expenses in advance of final disposition of a proceeding to (a) any individual who is a present or former director or officer of the Corporation and who is made or threatened to be made a party to, or witness in, the proceeding by reason of his or her service in that capacity or (b) any individual who, while a director or officer of the Corporation and at the request of the Corporation, serves or has served as a director, officer, partner, trustee, manager or member of another corporation, real estate investment trust, limited liability company, partnership, joint venture, trust, employee benefit plan or other enterprise and who is made or threatened to be made a party to, or witness in, the proceeding by reason of his or her service in that capacity. The rights to indemnification and advance for expenses provided by the Charter and these Bylaws shall vest immediately upon the election of a director or officer. The Corporation may, with the approval of its Board of Directors, provide such indemnification and advance for expenses to an individual who served a predecessor of the Corporation in any of the capacities described in (a) or (b) above and to any employee or agent of the Corporation or a predecessor of the Corporation. The indemnification and payment or reimbursement of expenses provided in these Bylaws shall not be deemed exclusive of or limit in any way other rights to which any person seeking indemnification or payment or reimbursement of expenses may be or may become entitled under any bylaw, resolution, insurance, agreement or otherwise. Any indemnification or payment or reimbursement of expenses made pursuant to this Article XI shall be subject to applicable requirements of the Investment Company Act.
Neither the amendment nor repeal of this Article, nor the adoption or amendment of any other provision of the Bylaws or the Charter inconsistent with this Article, shall apply to or affect in any respect the applicability of the preceding paragraph with respect to any act or failure to act which occurred prior to such amendment, repeal or adoption.
ARTICLE XII
WAIVER OF NOTICE
Whenever any notice of a meeting is required to be given pursuant to the Charter or these Bylaws or pursuant to applicable law, a waiver thereof in writing or by electronic transmission, given by the person or persons entitled to such notice, whether before or after the time stated therein, shall be deemed equivalent to the giving of such notice. Neither the business to be transacted at nor the purpose of any meeting need be set forth in the waiver of notice, unless specifically required by statute. The attendance of any person at any meeting shall constitute a waiver of notice of such meeting, except where such person attends a meeting for the express purpose of objecting to the transaction of any business on the ground that the meeting has not been lawfully called or convened.
ARTICLE XIII
INSPECTION OF RECORDS
A stockholder that is otherwise eligible under applicable law to inspect the Corporation’s books of account, stock ledger, or other specified documents of the Corporation shall have no right to make such inspection if the Board of Directors determines that such stockholder has an improper purpose for requesting such inspection.
ARTICLE XIV
INVESTMENT COMPANY ACT
If and to the extent that any provision of the MGCL, including, without limitation, Subtitle 6 and Subtitle 7, of Title 3 of the MGCL, or any provision of the Charter or these Bylaws conflicts with any provision of the Investment Company Act, the applicable provision of the Investment Company Act shall control.
ARTICLE XV
EXCLUSIVE FORUM FOR CERTAIN LITIGATION
Unless the Corporation consents in writing to the selection of an alternative forum, the Circuit Court for Baltimore City, Maryland, or, if that Court does not have jurisdiction, the United States District Court for the District of Maryland, Northern Division, shall be the sole and exclusive forum for (a) any Internal Corporate Claim, as such term is defined in Section 1-101(p) of the MGCL, (b) any derivative action or proceeding brought on behalf of the Corporation, other than actions arising under federal securities laws, (c) any action asserting a claim of breach of any duty owed by any director or officer or other employee of the Corporation to the Corporation or to the stockholders of the Corporation, (d) any action asserting a claim against the Corporation or any director or officer or other employee of the Corporation arising pursuant to any provision of the MGCL or the Charter or these Bylaws, or (e) any other action asserting a claim against the Corporation or any director or officer or other employee of the Corporation that is governed by the internal affairs doctrine. None of the foregoing actions, claims or proceedings may be brought in any court sitting outside the State of Maryland unless the Corporation consents in writing to such court.
ARTICLE XVI
AMENDMENT OF BYLAWS
The Board of Directors shall have the exclusive power, at any time, to adopt, alter or repeal any provision of these Bylaws and to make new Bylaws.
Amended and restated as of August 7, 2020.
Transfer Agency and Service Agreement
Between
Firsthand Technology Value Fund Inc
and
Computershare Trust Company, N.A.
and
Computershare Inc.
U.S. Incorporated Issuer Rev. 04.02.2020
THIS TRANSFER AGENCY AND SERVICE AGREEMENT, effective as of [DATE] (“Effective Date”), is by and between [COMPANY NAME], a [STATE] corporation, having its principal office and place of business at [COMPANY ADDRESS] (“Company”), and Computershare Inc., a Delaware corporation (“Computershare”), and its fully owned subsidiary Computershare Trust Company, N.A., a federally chartered trust company (“Trust Company”, and together with Computershare, “Agent”), each having a principal office and place of business at 150 Royall Street, Canton, Massachusetts 02021.
WHEREAS, Company desires to appoint Trust Company as its sole transfer agent and registrar for the Shares, and administrator of any dividend reinvestment plan or direct stock purchase plan for Company, and Computershare as processor of all payments received or made by Company under this Agreement;
WHEREAS, Trust Company and Computershare will each separately provide specified services covered by this Agreement and, in addition, Trust Company may arrange for Computershare to act on behalf of Trust Company in providing certain of its services covered by this Agreement; and
WHEREAS, Trust Company and Computershare desire to accept such respective appointments and perform the services related to such appointments;
NOW THEREFORE, in consideration of the mutual covenants herein contained, the parties hereto agree as follows:
1. | Certain Definitions. |
1.1 “Account” means the account of each Shareholder which reflects any full or fractional Shares held by such Shareholder, outstanding funds, or reportable tax information.
1.2 "Agreement" means this agreement and any and all exhibits or schedules attached hereto and any and all amendments or modifications which may from time to time be executed.
1.3 “Confidential Information” means any and all technical or business information relating to a party, including, without limitation, financial, marketing and product development information, Shareholder Data (including any non-public information of such Shareholder), Personal Information, Proprietary Information, and the terms and conditions (but not the existence) of this Agreement, that is disclosed or otherwise becomes known to the other party or its affiliates, agents or representatives before or during the term of this Agreement. Confidential Information constitutes trade secrets and is of great value to the owner (or its affiliates). Except for Personal Information and Proprietary Information, Confidential Information shall not include any information that is: (a) already known to the other party or its affiliates at the time of the disclosure; (b) publicly known at the time of the disclosure or becomes publicly known through no wrongful act or failure of the other party; (c) subsequently disclosed to the other party or its affiliates on a non-confidential basis by a third party not having a confidential relationship with the owner and which rightfully acquired such information; or (d) independently developed by one party without access to the Confidential Information of the other.
1.4 “DSPP” means direct stock purchase plan.
1.5 “Personal Information” means information that identifies, relates to, describes, is reasonably capable of being associated with, or could reasonably be linked, directly or indirectly, with a particular living individual, including without limitation names, signatures, addresses, email addresses, telephone numbers, account numbers and information, social security numbers and other personal identification numbers, financial data, date of birth, transaction information, user names, passwords, security codes, employee ID numbers, identity photos, and any other information defined in applicable United States’ privacy laws or regulations as personal information, that Agent receives from Company, is otherwise obtained by Agent in connection with the Agreement, or to which Agent has access in the course of performing the Services.
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1.6 “Plans” means any dividend reinvestment plan, DSPP, or other investment programs administered by Trust Company for Company relating to the Shares, whether as of the Effective Date or at any time during the term of this Agreement.
1.7 “Services” means all services performed or made available by Agent pursuant to this Agreement.
1.8 “Share” means Company's common shares, par value $[AMOUNT] per share, and Company's preferred shares, par value $[AMOUNT] per share, authorized by Company’s Articles of Incorporation, and other classes of Company’s shares to be designated by Company in writing and which Agent agrees to service under this Agreement.
1.9 “Shareholder” means a holder of record of Shares.
1.10 “Shareholder Data” means all information maintained on the records database of Agent concerning Shareholders, including any Personal Information of Shareholders.
2. | Appointment of Agent. |
2.1 Appointments. Company hereby appoints Trust Company to act as sole transfer agent and registrar for all Shares and as administrator of Plans in accordance with the terms and conditions hereof and appoints Computershare as the service provider to Trust Company and as processor of all payments received or made by or on behalf of Company under this Agreement, and Trust Company and Computershare accept the respective appointments.
2.2 Documents. In connection with the appointments herein, Company has provided or will provide the following appointment and corporate authority documents to Agent:
(a) | Board resolution appointing Trust Company as the transfer agent; |
(b) | If applicable, specimens of all forms of outstanding Share certificates, in forms approved by the Board of Directors of Company, with a certificate of the Secretary of Company as to such approval; |
(c) | Board resolution and/or certificate of incumbency designating officers or other designated persons of Company authorized to sign written instructions and requests and, if applicable, Share certificates, in connection with this Agreement (each an “Authorized Person”); |
(d) | An opinion of counsel for Company addressed to both Trust Company and Computershare stating that: |
(i) | Company is duly organized, validly existing and in good standing under the laws of its state of organization; |
(ii) | All Shares issued and outstanding on the date hereof were issued as part of an offering that was registered under the Securities Act of 1933, as amended (“1933 Act”) and any other applicable federal or state statute or that was exempt from such registration; |
(iii) | All Shares issued and outstanding on the date hereof are duly authorized, validly issued, fully paid and non-assessable; and |
(iv) | The use of facsimile signatures by Agent in connection with the countersigning and registering of Share certificates has been duly authorized by Company and is valid and effective. |
(e) | A certificate of Company as to the Shares authorized, issued and outstanding, as well as a description of all reserves of unissued Shares relating to the exercise of options; |
(f) | A completed Internal Revenue Service Form 2678; and |
(g) | A completed Form W-8 or W-9, as applicable. |
In addition, upon any future original issuance of Shares for which Agent will act as transfer agent hereunder, Company shall deliver an opinion of counsel for Company addressed to both Trust Company and Computershare stating that such Shares (i) have been issued as part of an offering that was registered under the 1933 Act and any other applicable federal or state statute, or that was exempt from such registration, and (ii) are duly authorized, validly issued, fully paid and non-assessable.
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2.3 Records. Agent may adopt as part of its records all Shareholder lists, Share ledgers, records, books, and documents provided to Agent by Company or any of its agents. In order to enable Agent to perform the duties of transfer agent and registrar, Company shall provide, or shall cause its prior transfer agent and registrar to provide, a complete and accurate register of Shareholders on or before the Effective Date, and shall indemnify Agent under Section 9.2 of this Agreement for the failure to provide such register on or before the Effective Date. Agent shall keep records relating to the Services, in the form and manner it deems advisable, but in any event consistent with the reasonable standards of the transfer agency industry. Agent agrees that all such records prepared or maintained by it relating to the Services are the property of Company and will be preserved, maintained and made available in accordance with the requirements of law and Agent’s records management policy, and will be surrendered promptly to Company in accordance with its request subject to applicable law and Agent’s records management policy.
2.4 Shares. Company shall, if applicable, inform Agent as soon as possible in advance as to: (a) the existence or termination of any restrictions on the transfer of Shares, the application to or removal from any Share of any legend restricting the transfer of such Shares (which may be subject, in the case of removal of any such legend, to delivery of such legal opinion in form and substance acceptable to Agent), or the substitution for such Share of a Share without such legend; (b) any authorized but unissued Shares reserved for specific purposes; (c) any outstanding Shares which are exchangeable for Shares and the basis for exchange; (d) reserved Shares subject to option and the details of such reservation; (e) any Share split or Share dividend; (f) any other relevant event or special instructions which may affect the Shares; and (g) any bankruptcy, insolvency or other proceeding regarding Company affecting the enforcement of creditors’ rights.
2.5 Share Certificates. If applicable, Company shall provide Agent with (a) documentation required to print on demand Share certificates, or (b) an appropriate supply of Share certificates which contain a signature panel for use by an authorized signor of Agent and state that such certificates are only valid after being countersigned and registered, whichever is applicable.
2.6 Company Responsibility. Company shall perform, execute, acknowledge and deliver or cause to be performed, executed, acknowledged and delivered all such further and other acts, documents, instruments and assurances as Agent may reasonably require in order to carry out or perform its obligations under this Agreement.
2.7 Scope of Agency.
(a) | Agent shall act solely as agent for Company under this Agreement and owes no duties hereunder to any other person. Agent undertakes to perform the duties and only the duties that are specifically set forth in this Agreement, and no implied covenants or obligations shall be read into this Agreement against Agent. |
(b) | Agent may rely upon, and shall be protected in acting or refraining from acting in good faith reliance upon, (i) any communication from Company, any predecessor transfer agent or co-transfer agent or any registrar (other than Agent), predecessor registrar or co-registrar; (ii) any instruction, notice, request, direction, consent, report, certificate, opinion or other instrument, paper, document or electronic transmission believed in good faith by Agent to be genuine and to have been signed or given by the proper party or parties; (iii) any guaranty of signature by an “eligible guarantor institution” that is a member or participant in the Securities Transfer Agents Medallion Program or other comparable “signature guarantee program” or insurance program in addition to, or in substitution for, the foregoing; or (iv) any instructions received through Direct Registration System/Profile. In addition, Agent is authorized to refuse to make any transfer that it determines in good faith not to be in good order. |
(c) | From time to time, Company may provide Agent with instructions concerning the Services. Further, Agent may apply to any Authorized Person for instruction, and may consult with legal counsel for Company with respect to any matter arising in connection with the Services. Agent and its agents and subcontractors shall not be liable and shall be indemnified by Company under Section 9.2 of this Agreement for any action taken or omitted by Agent in good faith reliance upon any Company instructions given by an Authorized Person or upon the advice or opinion of Company counsel. Company shall promptly provide Agent with an updated board resolution and/or certificate of incumbency regarding any change of authority for any Authorized Person. Agent shall not be held to have notice of any change of authority of any Authorized Person, until receipt of written notice thereof from Company. |
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(d) | Compliance with Laws. Agent is obligated and agrees to comply with all applicable U.S. federal, state and local laws and regulations, codes, orders and government rules in the performance of its duties under this Agreement. |
3. Standard Services.
3.1 Share Services. Agent shall perform the Services set forth in the Fee and Service Schedule (“Fee and Service Schedule”) attached hereto and incorporated herein. Further, Agent shall issue and record Shares as authorized, hold Shares in the appropriate Account, and effect transfers of Shares upon receipt of appropriate documentation.
3.2 Replacement Shares. Agent shall issue replacement Shares for those certificates alleged to have been lost, stolen or destroyed, upon receipt by Agent of an open penalty surety bond satisfactory to it and holding it and Company harmless, absent notice to Agent that such certificates have been acquired by a bona fide purchaser. Agent may, at its option, issue replacement Shares for mutilated certificates upon presentation thereof without such indemnity. Agent may, at its sole option, accept indemnification from Company to issue replacement Shares for those certificates alleged to have been lost, stolen or destroyed in lieu of an open penalty bond. Agent shall charge Shareholders an administrative fee for replacement of lost certificates, which shall be charged only once in instances where a single surety bond obtained covers multiple certificates. Agent may receive compensation, including in the form of commissions, for services provided in connection with surety programs offered to Shareholders.
3.3 Internet Services. Agent shall make available to Company and Shareholders, through its web sites, including but not limited to www.computershare.com (collectively, “Web Site”), online access to certain Account and Shareholder information and certain transaction capabilities (“Internet Services”), subject to Agent’s security procedures and the terms and conditions set forth herein and on the Web Site. Agent provides Internet Services “as is,” on an “as available” basis, and hereby specifically disclaims any and all representations or warranties, express or implied, regarding such Internet Services, including any implied warranty of merchantability or fitness for a particular purpose and implied warranties arising from course of dealing or course of performance.
3.4 Proprietary Information. Company agrees that the databases, programs, screen and report formats, interactive design techniques, Internet Services, software (including methods or concepts used therein, source code, object code, or related technical information) and documentation manuals furnished to Company by Agent as part of the Services are under the control and ownership of Agent or a third party (including its affiliates) and constitute copyrighted, trade secret, or other proprietary information (collectively, “Proprietary Information”). Shareholder Data is not Proprietary Information. Company agrees that Proprietary Information is of substantial value to Agent or other third party and will treat all Proprietary Information as confidential in accordance with Section 11 of this Agreement. Company shall take reasonable efforts to advise its relevant employees and agents of its obligations pursuant to this Section 3.4.
3.5 Third Party Content. Agent may provide real-time or delayed quotations and other market information and messages (“Market Data”), which Market Data is provided to Agent by certain third parties who may assert a proprietary interest in Market Data disseminated by them but do not guarantee the timeliness, sequence, accuracy or completeness thereof. Company agrees and acknowledges that Agent shall not be liable in any way for any loss or damage arising from or occasioned by any inaccuracy, error, delay in, omission of, or interruption in any Market Data or the transmission thereof.
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3.6 Lost Shareholders; In-Depth Shareholder Search.
(a) | Agent shall conduct such database searches to locate lost Shareholders as are required by Rule 17Ad-17 (“Rule 17Ad-17”) promulgated under the Securities Exchange Act of 1934, as amended (“1934 Act”), without charge to the Shareholder. If a new address is so obtained in a database search for a lost Shareholder, Agent shall conduct a verification mailing and update its records for such Shareholder accordingly. |
(b) | Computershare may facilitate the performance of a more in-depth search for the purpose of (i) locating lost Shareholders for whom a new address is not obtained in accordance with clause (a) above, (ii) identifying Shareholders who are deceased (or locating the deceased Shareholder’s estate representative, heirs or other party entitled to act with respect to such Shareholder’s Account (“Authorized Representative”)), and (iii) locating Shareholders whose Accounts contain an uncashed check older than 180 days and who have already received the required unresponsive payee notification under Rule 17Ad-17, in each case using the services of a locating service provider selected by Computershare (“Locating Service Provider”), which Locating Service Provider may be an affiliate of Computershare. Such Locating Service Provider may compensate Computershare for processing and other services that Computershare provides in connection with such in-depth search, including providing Computershare a portion of its service fees. |
(c) | Upon locating any Shareholder (or such Shareholder’s Authorized Representative) pursuant to clause (b) above, the Locating Service Provider shall clearly identify to such Shareholder (or such Shareholder’s Authorized Representative) all assets held in such Shareholder’s Account. Such Locating Service Provider shall inform any such located Shareholders (or such Shareholder’s Authorized Representative) that such Shareholder (or such Shareholder’s Authorized Representative) may choose either (i) to contact Agent directly to obtain the assets in such Account, at no charge other than any applicable fees to replace lost certificates, if applicable, or (ii) to use the services of such Locating Service Provider for a processing fee, which may not exceed 20% of the asset value of such Shareholder’s property where the registered Shareholder is living, deceased, or not a natural person; provided that in no case shall such fee exceed the maximum statutory fee permitted by the applicable state jurisdiction. If Company selects a locating service provider other than one selected by Computershare, then Agent shall not be responsible for the terms of any agreement between such provider and Company and additional fees may apply. |
(d) | Pursuant to Section 2.7(c) of this Agreement, Company hereby authorizes and instructs Agent to provide to the Locating Service Provider: |
(i) | aggregate Shareholder Data including number of projected eligible Accounts, value of projected eligible Accounts (includes sum of outstanding checks and value of Shares) in order for the Locating Service Provider to determine the feasibility of providing in-depth search services; |
(ii) | upon determination by the Locating Service Provider that an in-depth Shareholder location program will be implemented and after notification of implementation to Company by Agent (including by e-mail): |
(1) | a complete Shareholder file (from which the Locating Service Provider will eliminate those Accounts for which a search is still required by Rule 17Ad-17), and |
(2) | preliminary escheatment files (used to block Accounts that may not be serviced under the program based on state unclaimed property laws); and |
(iii) | view-only access (during the time a program is in place) to Shareholder Data for the limited purposes of verifying Account information and reconcilement for program eligible Accounts. |
4. | PLAN SERVICES. |
4.1 Trust Company shall perform all services under the Plans, as the administrator of such Plans, with the exception of payment processing for which Computershare has been appointed as agent by Company, and certain other services that Trust Company may subcontract to Computershare as permitted by applicable law (e.g., ministerial services).
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4.2 To the extent Company does not have a DSPP as of the Effective Date, Company agrees that Trust Company may implement and administer a Trust Company-sponsored DSPP on behalf of Company for the Shares at any time during the term of this Agreement, upon providing prior written notice to Company. In consideration of Trust Company receiving service and transaction fees from the DSPP participants in connection with its administration of the DSPP, Agent shall not charge any fees to Company for such administration.
4.3 Agent shall act as agent for Shareholders pursuant to the Plans in accordance with the terms and conditions of such Plans.
5. Computershare Dividend Disbursing and Payment Services.
5.1 Declaration of Dividends. Company must provide Computershare with written notice from an Authorized Person of any declaration of a dividend. Computershare will initiate dividend payments to the extent Computershare receives sufficient funds from Company in advance of such initiation. The payment of such funds to Computershare for the purpose of being available for the payment of dividends from time to time is not intended by Company to confer any rights in such funds on Shareholders whether in trust, contract, or otherwise.
5.2 Stop Payments. Company hereby authorizes Computershare to stop payment of checks issued in payment of sales proceeds and of dividends, if applicable, but not presented for payment, when the payees thereof allege either that they have not received the checks or that such checks have been mislaid, lost, stolen, destroyed or, through no fault of theirs, are otherwise beyond their control and cannot be produced by them for presentation and collection, and Computershare shall issue and deliver duplicate checks in replacement thereof, and Company shall indemnify Agent against any loss or damage resulting from reissuance of the checks.
5.3 Tax Withholding. Company hereby authorizes Computershare to deduct from all payments of sales proceeds and of dividends declared by Company and disbursed by Computershare to Shareholders, if applicable, the tax required to be withheld pursuant to Sections 1441, 1442, 1445, 1471 through 1474, and 3406 of the Internal Revenue Code of 1986, as amended, or by any federal or state statutes subsequently enacted, and to make the necessary returns and payment of such tax to the relevant taxing authority. Company will provide withholding and reporting instructions to Computershare from time to time as relevant, and upon request of Computershare.
5.4 Plan Payments. If applicable, Company hereby authorizes Computershare to receive all payments made to Company (i.e., optional cash purchases) or Agent under the Plans and make all payments required to be made under such Plans, including all payments required to be made to Company. For optional cash purchases, in the event funds are unavailable for any reason (including, without limitation, due to a rejection or reversal of the payment), Computershare shall sell the Shares purchased and any gain thereon shall accrue to Computershare.
5.5 Bank Accounts. All funds received by Computershare under this Agreement that are to be distributed or applied by Computershare in the performance of Services (the “Funds”) shall be held by Computershare as agent for Company and deposited in one or more bank accounts to be maintained by Computershare in its name as agent for Company. Until paid pursuant to this Agreement, Computershare may hold or invest the Funds through such accounts in: (a) obligations of, or guaranteed by, the United States of America; (b) commercial paper obligations rated A-1 or P-1 or better by Standard & Poor's Corporation (“S&P”) or Moody's Investors Service, Inc. (“Moody’s”), respectively; (c) AAA rated money market funds that comply with Rule 2a-7 of the Investment Company Act of 1940; or (d) demand deposit accounts, short term certificates of deposit, bank repurchase agreements or bankers’ acceptances, of commercial banks with Tier 1 capital exceeding $1 billion or with an average rating above investment grade by S&P (LT Local Issuer Credit Rating), Moody’s (Long Term Rating) and Fitch Ratings, Inc. (LT Issuer Default Rating) (each as reported by Bloomberg Finance L.P.). Computershare shall have no responsibility or liability for any diminution of the Funds that may result from any deposit or investment made by Computershare in accordance with this paragraph, including any losses resulting from a default by any bank, financial institution or other third party. Computershare may from time to time receive interest, dividends or other earnings in connection with such deposits or investments. Computershare shall not be obligated to pay such interest, dividends or earnings to Company, any Shareholder or any other party.
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6. ADDITIOnal Services. To the extent that Company elects to engage any entity other than Agent (“Vendor”) to provide any additional services (e.g., plans, restricted stock, corporate actions, etc.), Company shall give Agent or its affiliates an opportunity to bid on such services upon the same terms and conditions as Vendor.
7. Fees and Expenses.
7.1 Fee and Service Schedules. Company agrees to pay Agent the fees and expenses for Services performed pursuant to this Agreement as set forth in the Fee and Service Schedule. At least sixty (60) days before the expiration of the Initial Term (as defined below) or a Renewal Term (as defined below), whichever is applicable, the parties to this Agreement will agree upon a new fee schedule for the upcoming Renewal Term. If no new fee schedule is agreed upon, the fees will increase as set forth in the Term Section of the Fee and Service Schedule.
7.2 Out-of-Balance Conditions. If any out-of-balance condition caused by Company or any of its prior agents arises during any term of this Agreement, Company will, promptly upon Agent’s request, provide Agent with funds or Shares sufficient to resolve the out-of-balance condition.
7.3 Invoices. Company agrees to pay all fees and expenses within 30 days of the date of the respective billing notice, except for any fees or expenses that are subject to good faith dispute. In the event of such dispute, Company must promptly notify Agent of such dispute and may only withhold that portion of the fee or expense subject to such dispute. Company shall settle such disputed amounts within five (5) business days of the date on which the parties agree on the amount to be paid by payment of the agreed amount. If no agreement is reached, then such disputed amounts shall be settled as may be required by law or legal process.
7.4 Late Payments.
(a) | If any undisputed amount in an invoice of Agent is not paid within 30 days after the date of such invoice, Agent may charge Company interest thereon (from the due date to the date of payment) at a monthly rate equal to one and a half percent (1.5%). Notwithstanding any other provision hereof, such interest rate shall be no greater than permitted under applicable law. |
(b) | The failure by Company to (i) pay the undisputed portion of an invoice within 90 days after the date of such invoice or (ii) timely pay the undisputed portions of two consecutive invoices shall constitute a material breach of this Agreement by Company. Notwithstanding terms to the contrary in Section 12.2 below, Agent may terminate this Agreement for such material breach immediately and shall not be obligated to provide Company with 30 days to cure such breach. |
7.5 Transaction Taxes. Company is responsible for all taxes, levies, duties, and assessments levied on Services purchased under this Agreement (collectively, “Transaction Taxes”). Computershare is responsible for collecting and remitting Transaction Taxes in all jurisdictions in which Computershare is registered to collect such Transaction Taxes. Computershare shall invoice Company for such Transaction Taxes that Computershare is obligated to collect upon the furnishing of Services. Company shall pay such Transaction Taxes according to the terms in Section 7.3. Computershare shall timely remit to the appropriate governmental authorities all such Transaction Taxes that Computershare collects from Company. To the extent that Company provides Computershare with valid exemption certificates, direct pay permits, or other documentation that exempts Computershare from collecting Transaction Taxes from Company, invoices issued for Services provided after Computershare’s receipt of such certificates, permits, or other documentation will not reflect exempted Transaction Taxes. Computershare is solely responsible for the payment of all personal property taxes, franchise taxes, corporate excise or privilege taxes, property or license taxes, taxes relating to Computershare’s personnel, and taxes based on Computershare’s net income or gross revenues relating to Services.
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8. | Representations and Warranties. |
8.1 Agent. Agent represents and warrants to Company that:
(a) | Governance. Trust Company is a federally chartered trust company duly organized, validly existing, and in good standing under the laws of the United States and Computershare is a corporation duly organized, validly existing, and in good standing under the laws of the State of Delaware and each has full power, authority and legal right to execute, deliver and perform this Agreement; and |
(b) | Compliance with Laws. The execution, delivery and performance of this Agreement by Agent has been duly authorized by all necessary action, constitutes a legal, valid and binding obligation of Agent enforceable against Agent in accordance with its terms, will not require the consent of any third party that has not been given, and will not violate, conflict with or result in the breach of any material term, condition or provision of (i) any existing law, ordinance, or governmental rule or regulation to which Agent is subject, (ii) any judgment, order, writ, injunction, decree or award of any court, arbitrator or governmental or regulatory official, body or authority applicable to Agent, (iii) Agent’s incorporation documents or by-laws, or (iv) any material agreement to which Agent is a party. |
8.2 Company. Company represents and warrants to Agent that:
(a) | Governance. It is a corporation duly organized, validly existing and in good standing under the laws of the State of [STATE OF INCORPORATION], and it has full power, authority and legal right to enter into and perform this Agreement; |
(b) | Compliance with Laws. The execution, delivery and performance of this Agreement by Company has been duly authorized by all necessary action, constitutes a legal, valid and binding obligation of Company enforceable against Company in accordance with its terms, will not require the consent of any third party that has not been given, and will not violate, conflict with or result in the breach of any material term, condition or provision of (i) any existing law, ordinance, or governmental rule or regulation to which Company is subject, (ii) any judgment, order, writ, injunction, decree or award of any court, arbitrator or governmental or regulatory official, body or authority applicable to Company, (iii) Company’s incorporation documents or by-laws, (iv) any material agreement to which Company is a party, or (v) any applicable stock exchange rules; |
(c) | Securities Laws. Registration statements under the 1933 Act and the 1934 Act have been filed and are currently effective, or will be effective prior to the sale of any Shares, and will remain so effective, and all appropriate state securities law filings have been made with respect to all Shares being offered for sale except for any Shares which are offered in a transaction or series of transactions which are exempt from the registration requirements of the 1933 Act, 1934 Act and state securities laws; Company will immediately notify Agent of any information to the contrary; |
(d) | Shares. The Shares issued and outstanding on the date hereof are duly authorized, validly issued, fully paid and non-assessable; and any Shares to be issued hereafter, when issued, will be duly authorized, validly issued, fully paid and non-assessable; and |
(e) | Facsimile Signatures. The use of facsimile signatures by Agent in connection with the countersigning and registering of Share certificates has been duly authorized by Company and is valid and effective. |
9. | Indemnification and Limitation of Liability. |
9.1 Liability. Agent shall only be liable for any loss or damage determined by a court of competent jurisdiction to be a result of Agent’s gross negligence or willful misconduct; provided that any liability of Agent will be limited in the aggregate to the ongoing account management fees paid hereunder by Company to Agent during the twelve (12) months immediately preceding the event for which recovery from Agent is being sought.
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9.2 Indemnity. Company shall indemnify and hold Agent harmless from and against, and Agent shall not be responsible for, any and all losses, claims, damages, costs, charges, counsel fees and expenses, payments, expenses and liability (collectively, “Losses”) arising out of or attributable to Agent’s duties under this Agreement or this appointment, including the reasonable costs and expenses of defending itself against any Loss or enforcing this Agreement, except for any liability of Agent as set forth in Section 9.1 above.
10. Damages. Notwithstanding anything in this Agreement to the contrary, neither party shall be liable to the other for any incidental, indirect, special or consequential damages of any nature whatsoever, including, but not limited to, loss of anticipated profits, occasioned by a breach of any provision of this Agreement even if apprised of the possibility of such damages.
11. Confidentiality AND DATA PRIVACY.
11.1 General. All Confidential Information of a party will be held in confidence by the other party with at least the same degree of care as such party protects its own confidential or proprietary information of like kind and import, but not less than a reasonable degree of care. Neither party will disclose in any manner Confidential Information of the other party in any form to any person or entity without the other party's prior consent. However, each party may disclose relevant aspects of the other party's Confidential Information to its officers, affiliates, agents, subcontractors and employees to the extent reasonably necessary to perform its duties and obligations under this Agreement and such disclosure is not prohibited by applicable law. Without limiting the foregoing, each party will implement physical and other security measures and controls designed to protect (a) the security and confidentiality of Confidential Information; (b) against any threats or hazards to the security and integrity of Confidential Information; and (c) against any unauthorized access to or use of Confidential Information. To the extent that a party delegates any duties and responsibilities under this Agreement to an agent or other subcontractor, the party ensures that such agent and subcontractor are contractually bound to confidentiality terms consistent with the terms of this Section 11.
11.2 Required or Permitted Disclosure. In the event that any requests or demands are made for the disclosure of Confidential Information, other than requests to Agent for Shareholder records pursuant to subpoenas from state or federal government authorities (e.g., probate, divorce and criminal actions), the party receiving such request will promptly notify the other party to secure instructions from an authorized officer of such party as to such request and to enable the other party the opportunity to obtain a protective order or other confidential treatment, unless such notification is otherwise prohibited by law or court order. Each party expressly reserves the right, however, to disclose Confidential Information to any person whenever it is advised by counsel that it may be held liable for the failure to disclose such Confidential Information or if required by law or court order.
11.3 Unauthorized Disclosure. As may be required by law and without limiting any party's rights in respect of a breach of this Section 11, each party will promptly:
(a) | notify the other party in writing of any unauthorized possession, use or disclosure of the other party's Confidential Information by any person or entity that may become known to such party; |
(b) | furnish to the other party full details of the unauthorized possession, use or disclosure; and |
(c) | use commercially reasonable efforts to prevent a recurrence of any such unauthorized possession, use or disclosure of Confidential Information. |
11.4 Data Privacy.
(a) | Agent will not retain, use, process, or disclose Personal Information for any purpose other than (i) the specific purpose of performing the Services specified in the Agreement on behalf of Company and the services reasonably related thereto; (ii) Agent’s business purposes, including, without limitation, as may be defined by applicable U.S. privacy laws, or (iii) as otherwise required or permitted by applicable law and the terms of the Agreement. |
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(b) | Agent will not sell, rent, release, disclose, disseminate, make available, transfer, or otherwise communicate orally, in writing, or by electronic or other means, any Personal Information to a third party for monetary or other valuable consideration from such third party, except as permitted by applicable law. |
(c) | Agent will reasonably assist Company to support Company’s obligations to respond to requests of Shareholders exercising their rights under applicable U.S. privacy laws, as directed by Company and agreed to by Agent. |
12. Term and Termination.
12.1 Term. The initial term of this Agreement shall be three (3) years from the Effective Date (“Initial Term”) unless terminated pursuant to the provisions of this Section 12. This Agreement will renew automatically from year to year (each a “Renewal Term”), unless a terminating party gives written notice to the other party not less than sixty (60) days before the expiration of the Initial Term or Renewal Term, whichever is in effect.
12.2 Termination for Cause. This Agreement may be terminated at any time by any party (a) upon a material breach of a representation, covenant or term of this Agreement by any other party which is not cured within thirty (30) days after receipt of written notice thereof from the terminating party or (b) if any proceeding in bankruptcy, reorganization, receivership or insolvency is commenced by or against any other party, such other party shall become insolvent or shall cease paying its obligations as they become due or such other party shall make any assignment for the benefit of its creditors.
12.3 Fees and Expenses. Upon termination or expiration of this Agreement for any reason, Company shall pay to Agent on or before the effective date of such termination or expiration (a) all fees and expenses due and payable to Agent up to and including the date of such termination or expiration, and (b) in connection with the movement of records, materials, and services to Company or the successor agent, (i) all reasonable expenses and (ii) a conversion fee in an amount equal to 10% of the aggregate fees (not including expenses) incurred by Company during the immediately preceding twelve (12) month period, for the standard conversion services listed on the attached Exhibit A to this Agreement; provided, however, the fee under this Section 12.3(b)(ii) shall in no event be less than $5,000.00. In the event any of the extended conversion services listed on Exhibit A are requested by Company, the fee for each extended conversion service will be $2,500.00.
12.4 Early Termination. Notwithstanding anything in this Agreement to the contrary, if this Agreement is terminated prior to the expiration of the then-current term (a) by Company for any reason other than pursuant to Section 12.2 above, including but not limited to, Company’s liquidation, acquisition, merger or restructuring, or (b) by Agent pursuant to Section 12.2 above, then, in addition to the payments required in Section 12.3 above, Company shall pay to Agent all fees accelerated through the end of, and including all months that would have remained in, the then-current term at the time of termination. Such fees will be calculated using the rates, volumes, and Services in effect as of the termination date. If Company does not provide notice of early termination within the time period referenced in Section 12.1 above, Agent shall make a good faith effort, but cannot guarantee, to convert Company’s records on the date requested by Company.
13. Assignment. Neither this Agreement nor any rights or obligations hereunder may be assigned by Company or Agent without the written consent of the other, such consent not to be unreasonably withheld; provided, however, that Agent may, without further consent of Company, assign any of its rights and obligations hereunder to any affiliated transfer agent registered under Rule 17Ac2-1 promulgated under the 1934 Act.
14. | SUBCONTRACTORS AND UNAFFILIATED THIRD PARTIES. |
14.1 Subcontractors. Agent may, without further consent of Company, subcontract with (a) any affiliates, or (b) unaffiliated subcontractors for such services as may be required from time to time (e.g., lost shareholder searches, escheatment, telephone and mailing services); provided, however, that Agent shall be as fully responsible to Company for the acts and omissions of any subcontractor as it is for its own acts and omissions under this Agreement.
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14.2 Unaffiliated Third Parties. Nothing herein shall impose any duty upon Agent in connection with or make Agent liable for the actions or omissions to act of unaffiliated third parties (other than subcontractors referenced in Section 14.1 of this Agreement) such as, by way of example and not limitation, airborne services, delivery services, the U.S. mails, and telecommunication companies, provided, if Agent selected such company, Agent exercised due care in selecting the same.
15. | Miscellaneous. |
15.1 Notices. Any notice or communication by Agent or Company to the other pursuant to this Agreement is duly given if in writing and delivered in person or sent by overnight delivery service or first-class mail, postage prepaid, to the other’s address:
15.2 No Expenditure of Funds. No provision of this Agreement shall require Agent to expend or risk its own funds or otherwise incur any financial liability in the performance of any of its duties hereunder or in the exercise of its rights if it shall believe in good faith that repayment of such funds or adequate indemnification against such risk or liability is not reasonably assured to it.
15.3 Successors. All the covenants and provisions of this Agreement by or for the benefit of Company or Agent shall bind and inure to the benefit of their respective successors and assigns hereunder.
15.4 Amendments. This Agreement may be amended or modified by a written amendment executed by the parties hereto and, to the extent required, authorized by a resolution of the Board of Directors of Company.
15.5 Severability. If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction or other authority to be invalid, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions of this Agreement shall remain in full force and effect and shall in no way be affected, impaired or invalidated.
15.6 Governing Law; Jurisdiction. This Agreement shall be governed by the laws of the State of New York, without regard to principles of conflicts of law. The parties irrevocably (a) submit to the non-exclusive jurisdiction of any New York State court sitting in New York City or the United States District Court for the Southern District of New York in any action or proceeding arising out of or relating to this Agreement, (b) waive, to the fullest extent they may effectively do so, any defense based on inconvenient forum, improper venue or lack of jurisdiction to the maintenance of any such action or proceeding, and (c) waive, to the fullest extent permitted by law, all right to trial by jury in any action, proceeding or counterclaim arising out of this Agreement or the transactions contemplated hereby. Agent shall not be required hereunder to comply with the laws or regulations of any country other than the United States of America or any political subdivision thereof. Agent may consult with foreign counsel, at Company’s expense, to resolve any foreign law issues that may arise as a result of Company or any other party being subject to the laws or regulations of any foreign jurisdiction.
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15.7 Force Majeure. Agent will not be liable for any delay or failure in performance when such delay or failure arises from circumstances beyond its reasonable control, including without limitation acts of God, acts of government in its sovereign or contractual capacity, acts of public enemy or terrorists, acts of civil or military authority, war, riots, civil strife, terrorism, blockades, sabotage, rationing, embargoes, epidemics, pandemics, outbreaks of infectious diseases or any other public health crises, earthquakes, fire, flood, other natural disaster, quarantine or any other employee restrictions, power shortages or failures, utility or communication failure or delays, labor disputes, strikes, or shortages, supply shortages, equipment failures, or software malfunctions.
15.8 Third Party Beneficiaries. The provisions of this Agreement are intended to benefit only Agent, Company and their respective permitted successors and assigns. No rights shall be granted to any other person by virtue of this Agreement, and there are no third party beneficiaries hereof.
15.9 Survival. All provisions regarding indemnification, warranty, liability and limits thereon, compensation and expenses and confidentiality and protection of proprietary rights and trade secrets shall survive the termination or expiration of this Agreement.
15.10 Priorities. In the event of any conflict, discrepancy, or ambiguity between the terms and conditions contained in this Agreement and any schedules or attachments hereto, the terms and conditions contained in this Agreement shall take precedence.
15.11 Merger of Agreement. This Agreement constitutes the entire agreement between the parties hereto and supersedes any prior agreement with respect to the subject matter hereof, whether oral or written.
15.12 No Strict Construction. The parties hereto have participated jointly in the negotiation and drafting of this Agreement. In the event any ambiguity or question of intent or interpretation arises, this Agreement shall be construed as if drafted jointly by all parties hereto, and no presumption or burden of proof shall arise favoring or disfavoring any party by virtue of the authorship of any provision of this Agreement.
15.13 Descriptive Headings. Descriptive headings contained in this Agreement are inserted for convenience only and shall not control or affect the meaning or construction of any of the provisions hereof.
15.14 Counterparts. This Agreement may be executed in any number of counterparts and each of such counterparts shall for all purposes be deemed to be an original, and all such counterparts shall together constitute but one and the same instrument. A signature to this Agreement executed and/or transmitted electronically shall have the same authority, effect, and enforceability as an original signature.
[The remainder of page intentionally left blank.]
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IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to be executed by one of its officers thereunto duly authorized, all as of the Effective Date.
Computershare Inc. and | |||||
Computershare Trust Company, N. A. | Firsthand Technology Value Fund Inc | ||||
On Behalf of Both Entities: | |||||
By: | Rachel Fisher | By: | ![]() |
||
Name: | Rachel Fisher | Name: | Kevin Landis | ||
Title: | Sr Contract Negotiation Specialist | Title: | President |
[SIGNATURE PAGE TO TRANSFER AGENCY AND SERVICE AGREEMENT]
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Exhibit A
Standard and Extended Conversion Services
Termination Phase | Standard Services. $5,000.00 Minimum Fee Per Termination | Extended Services. $2,500.00 for each of the individual Services listed below. |
Test of Conversion Services | · Not applicable |
· Test full audit extracts files (which are either transmitted to the agent or copied on to a protected CD); test Full Registered List, all classes Opened and/or Closed · Additional test audit extracts (includes all shareholder details. Control totals & codes sent w/extracts) · Test separate exchange lists for each class · Test certificate stop list · Test certificate legend list · Test RPO accounts · Test full transactions lists · Test ACH debit list including plan shares and reinvestment code · Test ACH credit list and secondary address list |
Final Conversion Services |
· Full audit extracts · Full registered list opened and closed · Certificate stop list · Certificate legend list · RPO accounts · End of year tax report* · Parallel processing for up to 4 days |
· Separate exchange lists for each class · Full transactions list · ACH Debit including plan shares and reinvestment code* · ACH Credit list and secondary address list* · 1099D detailed report* · 1042S detailed report* · Parallel processing for more than 4 days (each additional day is considered one extended service) |
Post Conversion Services |
· Certification letter · Due Diligence statement · 3 months post conversion · Check extract files · Check reports · Check reports and extracts to CDs · Communications with new agent as applicable |
· Not applicable |
* | Not applicable to terminations for non-dividend payers. |
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Exhibit 31.1
CERTIFICATION
I, Kevin Landis, Chief Executive Officer, certify that:
1. I have reviewed this annual report on Form 10-K of Firsthand Technology Value Find, Inc. (the “registrant”) for the fiscal year ended December 31, 2021;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report.
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s fourth fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: March 24, 2022 | By: | /s/ Kevin Landis | |
Kevin Landis | |||
Chief Executive Officer | |||
(Principal Executive Officer) |
CERTIFICATION
I, Omar Billawala, Chief Financial Officer of the Company, certify that:
1. I have reviewed this annual report on Form 10-K of Firsthand Technology Value Find, Inc. (the “registrant”) for the fiscal year ended December 31, 2021;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report.
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s fourth fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: March 24, 2022 | By: | /s/ Omar Billawala | |
Omar Billawala | |||
Chief Financial Officer | |||
(Principal Financial Officer) |
Exhibit 32.1
CERTIFICATION PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the accompanying Annual Report on Form 10-K of Firsthand Technology Value Fund, Inc. (the “Company”) for the fiscal year ended December 31, 2021 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Kevin Landis, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, to the best of my knowledge, that:
(1) the Report fully complies with the requirements of Section 13(a) or Section 15(d), as applicable, of the Securities Exchange Act of 1934, as amended; and
(2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date: March 24, 2022 | By: | /s/ Kevin Landis | |
Kevin Landis | |||
Chief Executive Officer | |||
(Principal Executive Officer) |
CERTIFICATION PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the accompanying Annual Report on Form 10-K of Firsthand Technology Value Fund, Inc. (the “Company”) for the fiscal year ended December 31, 2021 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Omar Billawala, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, to the best of my knowledge, that:
(1) the Report fully complies with the requirements of Section 13(a) or Section 15(d), as applicable, of the Securities Exchange Act of 1934, as amended; and
(2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date: March 24, 2022 | By: | /s/ Omar Billawala | |
Omar Billawala | |||
Chief Financial Officer | |||
(Principal Financial Officer) |
APPENDIX 4E – PRELIMINARY FINAL REPORT FOR THE
PERIOD ENDED 2 JANUARY 2022
1. | Company Details |
Name of entity: Revasum, Inc.
ARBN: 629 268 533
Reporting Period: Fiscal period ended 2 January 2022
Previous Corresponding Period: Fiscal period ended 3 January 2021
2. | Results for Announcement to the Market |
2 Jan 2022 | 3 Jan 2021 | Movement Up/(Down) | ||||||||||||||
US$’000 | US$’000 | US$’000 | % | |||||||||||||
Revenue from ordinary activities | 13,710 | 15,368 | (1,658 | ) | (11 | %) | ||||||||||
Gross profit | 4,843 | 4,888 | (45 | ) | - | |||||||||||
Operating loss | (5,244 | ) | (8,927 | ) | 3,683 | 41 | % | |||||||||
Loss from ordinary activities after tax attributable to members of the parent entity | (1,965 | ) | (9,156 | ) | 7,191 | 79 | % |
3. | Review of Operations and Financial Results |
Refer to the accompanying Annual Financial Report for the Consolidated Statement of Profit or Loss and Other Comprehensive Income, Consolidated Statement of Financial Position, Consolidated Statement of Changes in Equity, Consolidated Statement of Cash Flows and accompanying notes.
Also refer to the Operational Update and Directors’ Report in the accompanying Annual Financial Report and accompanying announcement for further details and commentary on the results.
4. | Dividends |
No dividends have been paid or are proposed to be paid by Revasum, Inc. for the fiscal period ended 2 January 2022 (2021: $Nil).
5. | Net Tangible Assets per share: |
2 Jan 2022 | 3 Jan 2021 | |
Net tangible assets per share (US$ per share) | 0.11 | 0.08 |
6. | Control Gained or Lost over Entities |
During the fiscal period, no control was gained or lost over entities.
7. | Details of Associates and Joint Venture Entities |
The Group has no investments in associates or joint ventures during the reporting period.
8. | Accounting Standards |
The annual financial report has been compiled using Australian Accounting Standards and Interpretations issued by the Australian Accounting Standards Board (“AASB”).
9. | Audit Status |
The Revasum, Inc. annual financial report for the fiscal period ended 2 January 2022 has been subject to audit by our external auditors, BDO Audit Pty Ltd. A copy of the independent audit report to the members of Revasum, Inc. is included in the accompanying annual report.
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Rebecca Shooter-Dodd (President and CEO & Executive Director) | ||
24 February 2022 |
REVASUM, INC.
A DELAWARE CORPORATION
ARBN 629 268 533
ANNUAL FINANCIAL REPORT
FOR THE PERIOD ENDED
2 JANUARY 2022
TABLE OF CONTENTS
Corporate Directory | 2 |
Chairman’s Letter | 3 |
Operational Update | 5 |
Directors’ Report | 7 |
Consolidated Statement of Profit or Loss and Other Comprehensive Income | 13 |
Consolidated Statement of Financial Position | 14 |
Consolidated Statement of Changes in Equity | 15 |
Consolidated Statement of Cash Flows | 16 |
Notes to the Consolidated Financial Statements | 17 |
Directors’ Declaration | 42 |
Independent Auditor’s Report | 43 |
Additional Shareholder Information | 46 |
Revasum, Inc. | 1 |
CORPORATE DIRECTORY
Company
Revasum, Inc. 825
Buckley Road
San Luis Obispo, 93401 USA
Phone: +1 (805) 541 6424
Website: www.revasum.com
Directors
Kevin Landis | Chairman, Non-Executive Director |
Rebecca Shooter-Dodd | President and CEO & Executive Director |
Ryan Benton | Non-Executive Director |
Paul Mirabelle | Independent Non-Executive Director |
Company Secretary
Rebecca Shooter-Dodd
Australian Securities Exchange Representative
Danny Davies
United States Registered Office
c/o Incorporating Services Ltd
3500 South Dupont Highway
Dover, Delaware 19901 USA
Australian Registered Office
c/o Company Matters Pty Limited Level
12, 680 George Street
Sydney, NSW 2000 Australia
United States Legal Adviser
Troutman Pepper Hamilton Sanders LLP
5 Park Plaza
Suite 1400
Irvine, CA, 92614 USA
Australian Legal Adviser
Maddocks
Angel Place Level 27
123 Pitt Street
Sydney, NSW 2000 Australia
Share Registries
Link Market Services | American Stock Transfer and Trust Company, LLC |
Level 12, 680 George Street | 6201, 15th Avenue |
Sydney, NSW 2000 Australia | Brooklyn, NY 11219 USA |
Telephone: +61 1300 554 474 | Telephone: +1 (718) 921 8386 |
Securities Exchange Listing
Revasum, Inc. (ASX Code: RVS)
Chess Depository Interests (“CDIs”) over shares of the Company’s common stock are quoted on the Australian Securities Exchange. One CDI represents one fully paid share in the Company.
Revasum, Inc. | 2 |
CHAIRMAN’S LETTER
Fellow Shareholders,
While 2021 saw pandemic-related challenges affect supply chains and production across the semiconductor industry, Revasum was able to successfully navigate through these headwinds, and through a refocus and expansion of revenue streams for the business we are well placed to capture the positive momentum in demand we are now seeing in the Silicon Carbide (SiC) industry.
I am proud and optimistic of the progress we achieved during FY21. We were able to offset the decline in equipment revenue brought about by global supply chain disruptions with increases in our other revenue streams, including spare parts, upgrades and consumables. Improving the revenue stream mix has been a key strategic focus for the team and has resulted in a more consistent cashflow profile.
We are one of only a few companies globally with grinding and polishing technology designed specifically for SiC, a material that is hard to process. It is core to our business strategy and we remain committed to harnessing our extensive design and engineering expertise to meet our clients’ needs. The growing sales order backlog of US$8.7 million at 18 January 2022 reflects increased SiC industry demand and our ability to capture this demand.
Most recently, Revasum achieved process acceptance (meeting agreed process criteria for the tool) on the first 6EZ SiC Polisher shipped to Europe. This is a significant achievement confirming that our technology works to its advanced specifications and solidifies our market leading position for SiC equipment. We are seeing strong elevation activity on our flagship 6EZ, which alongside the 7AF-HMG SiC Grinder, positions us well to capitalise on the increasing industry demand.
While revenue of US$13.7 million for FY21 was slightly down from FY20 (US$15.4 million) we were pleased by two emerging trends. First, and as previously mentioned, our focus on further diversifying our revenue streams was achieved with the spare parts, upgrades and consumables revenue streams up 13% year on year to US$6.2 million, representing 45% of total revenue. Secondly, we generated strong second half earnings momentum, totaling US$9.1 million. With an increasing sales order backlog, we are confident that the earnings momentum will continue.
Gross margin improved to 35.3% in FY21, up from 31.8% in FY20. This was achieved through list prices reviewed across all product lines and higher margin product mix.
Strengthening our balance sheet has been a key priority for us in FY21. We finished the financial year with US$4.3 million cash in the bank, and successfully completed an entitlement offer in Q1 of A$7.9 million (US$6.1 million). It was pleasing to see our two major shareholders, Firsthand Venture Investors and Perennial, take up their full entitlements, while we also welcomed several new institutional investors to our register.
Looking forward, the two key fundamentals underpinning Revasum’s markets are very attractive:
· | Global fab equipment spending for front end facilities is expected to increase 10% YOY in 2022 to an all-time high of over US$98 billion. This represents the third consecutive year of growth following increases of 39% in 2021 and 17% in 20201 |
· | Our technology is a critical part of the supply chain for the manufacture of electric vehicles (EV), 5G and solar products. While these end markets are contributing to the significant growth in SiC products, the EV industry has been particularly influential and represents a significant growth opportunity. For EVs, automakers are switching to SiC invertors, for the superior semiconductor properties, which in turn assist in reducing EV weight, achieve faster charging and ensure longer driving ranges. As more automakers switch to SiC invertors for EVs, demand for SiC is expected to increase exponentially. |
1 | https://www.semi.org/en/news-media-press-releases/global-fab-equipment-spending-projected-to-log- record-high-in-2022-to-mark-third-consecutive-year-of-growth-semi-reports |
Revasum, Inc. | 3 |
CHAIRMAN’S LETTER
We will continue to ensure that we retain the right capital structure to deliver on the growth strategy in those markets and support increased shareholder value. We recently announced a new secured loan up to US$8 million growth capital facility with SQN Venture Partners. The facility will be utilized for product development (next generation on 6EZ SiC polisher) and working capital requirements. We feel our current capital structure is well placed to fund the business moving forward and enable us to deliver on our growth aspirations.
We have strong leadership in place to enable us to meet our business goals. Rebecca Shooter-Dodd was appointed President, CEO and Executive Director on 13 September 2021. In her previous role as CFO & COO she was instrumental in bring the 6EZ to market and overseeing the first sales and initial steps in the tool’s commercialisation. Most recently Alejandro Garcia was named COO (commencing 3 January 2022). With over 30 years of experience, Alejandro will be focused on driving operational processes and manufacturing systems and guide the infrastructure scale-up of the Company’s silicon and SiC wafer grinding and polishing equipment technology.
We have had a very busy and successful year in 2021, and none of it would have been possible without the world-class team we have in place. I would like to thank my fellow directors for their counsel and advice over the past year. In addition, I want to thank all our employees for their commitment and professionalism.
Finally, I would like to take this opportunity to thank all our shareholders for their continued support. We look forward to providing updates on further progress and continuing to grow shareholder value.
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Kevin Landis | ||
Chairman and Independent Non-Executive Director | ||
24 February 2022 | ||
San Jose, California |
Revasum, Inc. | 4 |
OPERATIONAL UPDATE
FISCAL PERIOD ENDED 2 JANUARY 2022 HEADLINES
• | Total revenue US$13.7M (FY20: US$15.4M) |
• | Other revenue of US$6.2M (FY20: US$5.5M), an increase of 13% year on year (YOY) |
• | Gross margin improvement to 35.3% (FY20: 31.8%) |
• | EBITDA loss of US$3.2M (FY20: US$7.4M loss), a 57% improvement YOY as a result of improved margins and continual reduction in discretionary spend |
• | Total backlog of US$8.7 million as of 18 January 2022 |
• | Equipment backlog of US$6.3 million as of 18 January 2022 |
• | Other revenue backlog of US$2.4 million as of 18 January 2022 |
• | Total FY22 revenue guidance of US$25 million – US$35 million |
• | Engaging with contract manufacturers to support capacity expansion and meet customer demand |
• | PPP loans of US$3.4 million fully forgiven |
• | Installation and process acceptance achieved for first 6EZ shipped during the fiscal year |
• | Global fab equipment spending for front-end facilities expected to increase 10% YOY in 2022 to an all-time high of over US$98 billion |
Revenue, Gross Margin Expansion and Robust Sales Order Backlog
Total revenue for FY21 is US$13.7 million (FY20: US$15.4 million), of which US$7.5 million (FY20: US$9.9 million) is equipment revenue and US$6.2 million (FY20: US$5.5 million) is other revenues – including spares, service and other revenue streams. While equipment revenues were down slightly on FY20 due to supply chain delays and product transition, other revenues increased 13% YOY. This reflects the strategic focus to expand other revenues to provide more consistent cash flow on an ongoing basis. Importantly, FY21 equipment revenues also included the first shipment for revenue of the 6EZ SiC Polisher.
Revasum improved gross margin – now 35.3%, up 10% year on year. This was achieved through list prices reviews across all product lines and the increase in other revenues which attract a higher gross margin.
The total sales order backlog of US$8.7 million as of 18 January 2022 (US$8.4 million as of 13 October 2021) reflects the increased demand in the SiC industry. We continued to take orders for our 6DZ Si Polisher and 7AF-HMG Grinder during the quarter and saw strong evaluation activity on the 6EZ SiC Polisher.
FY22 Revenue Guidance
The Company has announced total FY22 revenue guidance of US$25 million – US$35 million in light of increased customer demand and strong market dynamics for the SiC industry. This is comprised of US$18 million – US$25 million of equipment revenue, and US$7 million – US$10 million for other revenues.
Revasum anticipates it will ship 40 to 50 tools over FY22 and FY23 across all product lines.
The Company is partnering with industry-leading contract manufacturers to support the capacity expansion required to achieve rapid revenue growth. Management is implementing processes to meet the increased demand.
Revasum, Inc. | 5 |
OPERATIONAL UPDATE
Executive Leadership Appointments
During the fiscal year Rebecca Shooter-Dodd was appointed to the roles of President and Chief Executive Officer (CEO) & Executive Director. Ms. Shooter-Dodd was previously the Company's Chief Financial and Operating Officer (CFOO), and Company Secretary.
Ms. Shooter-Dodd has made a significant contribution to Revasum since joining the firm in January 2019, initially as Corporate Controller. She was promoted to CFO in November 2020 and took on the additional operating role in May this year. She was previously an auditor in BDO’s assurance practice in Sydney and London, and is an ICAEW Charted Accountant, licensed in the UK.
In her capacity as CFOO, Ms. Shooter-Dodd was instrumental in bringing the 6EZ Silicon Carbide (SiC) Wafer Polisher to the market and overseeing the first sales and the initial steps in the tool's commercialization. Under her management, business margins have significantly improved, a sizeable backlog of equipment orders has positioned the Company well for growth in the remainder of the financial year, and she led a successful A$7.9M capital raise.
Dr. Karey Holland was also appointed to the role of Chief Technology Officer (CTO). Dr. Holland oversees the research and development of the Company's silicon and silicon carbide wafer processing equipment and technology. She is leading the drive to increase Revasum's wafer grinding and polishing equipment offering while enhancing existing product capabilities.
For more than 30 years, Dr. Holland has led advances in chemical mechanical planarization (CMP) and photolithography and specialized in advanced semiconductor transistor fabrication, including metrology, etch, deposition and interconnect technologies.
Semiconductor Capital Equipment & SiC Market Update
Global fab equipment spending for front-end facilities is expected to Increase 10% YOY in 2022 to an all-time high of over US$98 billion. This is the third consecutive year of substantial growth following increases of 39% in 2021 and 17% in 2020. The industry last saw three consecutive years of growth from 2016 to 2018, more than 20 years after a three-year run in the mid-1990s.1
This provides an exceptional market opportunity for Revasum, with demand for capital equipment at unprecedented levels, reflected in the increasing sales order backlog over the last six months.
Carmakers and automotive suppliers are embracing 800-V drive systems to reduce electric vehicle (EV) weight, achieve much faster charging, and ensure longer driving ranges. That is pushing SiC semiconductors to the forefront in EV powertrains and other applications where power density, energy efficiency, and reliability are critical design considerations.
Most recently Vitesco Technologies announced a huge order for 800 V SiC inverters from an undisclosed major US automaker. The order is worth more than €1 billion euro ($1.13 billion) and will result in the supply of "millions" of inverters.2
As more automakers switch to SiC inverters for electric vehicles, demand for SiC is expected to increase exponentially. Demand for 6-inch SiC wafers is growing rapidly, with a forecast CAGR of 33% between 2020 and 2025, while CAGR of 183% is expected for 8-inch SiC wafers during the same period.3
Revasum is a part of the rapidly growing SiC industry with incredible opportunity over the coming years.
1 | https://www.semi.org/en/news-media-press-releases/global-fab-equipment-spending-projected-to-log-record- high-in-2022-to-mark-third-consecutive-year-of-growth-semi-reports |
2 | https://www.vitesco-technologies.com/en-us/press/22-01-10 |
3 | YOLE Power SiC Market & Technology Report 2020 |
Revasum, Inc. | 6 |
DIRECTORS’ REPORT
The directors present their report for Revasum, Inc. (“Revasum” or “Company”) together with the financial statements on the Consolidated Entity (referred to hereafter as the “Consolidated Entity” or “Group”) consisting of the Company and its subsidiary for the fiscal period ended 2 January 2022 and the auditor’s report thereon.
DIRECTORS
The following persons were directors of the Company during the whole of the fiscal period and up to the date of this report, unless otherwise stated:
Kevin Landis | Chairman, Non-Executive Director (Appointed Chairman 27 September 2021) |
Rebecca Shooter-Dodd | President and CEO & Executive Director (Appointed 13 September 2021, previously CFOO) |
Ryan Benton | Independent Non-Executive Director |
Paul Mirabelle | Independent Non-Executive Director |
Vivek Rao | Chairman & Independent Non-Executive Director (Resigned 27 September 2021) |
PRINCIPAL ACTIVITIES
Revasum designs, manufactures, and markets a portfolio of semiconductor processing equipment. The Group’s product portfolio includes grinding, polishing and chemical mechanical planarization (CMP) equipment (also referred to as ‘‘systems”) used to manufacture substrates and devices for the global semiconductor industry.
The systems that Revasum manufactures are a key part of the production chain in manufacturing and processing wafers sized 200mm and below that are used to make microchips, sensors, LEDs, RF devices and power devices which are commonly used in connected IoT devices, cellphones, wearables, automotive, 5G and industrial applications.
No significant change in the nature of these activities occurred during the fiscal period.
REVIEW OF OPERATIONS AND FINANCIAL RESULTS
Revenue for the period ended 2 January 2022 decreased by 11% to $13.71 million (3 Jan 2021: $15.37 million), including systems revenue of $7.50 million (3 Jan 2021: $9.88 million).
For the period ended 2 January 2022, the net operating loss was $1.97 million (3 Jan 2021: $9.16 million).
GOING CONCERN
The consolidated financial statements of the Group have been prepared on a Going Concern basis, which indicates the continuity of business activities and realization of assets and settlement of liabilities in the normal course of business.
As disclosed in the consolidated financial statements, the consolidated entity’s loss after income tax for the period ended 2 January 2022 was $1.97 million (3 January 2021: $9.16 million) and the consolidated entity’s net cash outflows from operating activities for the period ended 2 January 2022 were $2.22 million (3 January 2021: $5.49 million). As at the fiscal period end date, the consolidated entity has net current assets of $9.43 million (3 January 2021: $5.26 million) and total net assets of $15.82 million (3 January 2021: $11.99 million).
The Directors believe that there are reasonable grounds to conclude that the consolidated entity will continue as a going concern, after consideration of the following factors:
· | The Company has a total backlog (defined as confirmed purchase orders not yet shipped) of $8.7 million as at 18 January 2022, comprised of $6.3 million equipment backlog and $2.4 million spares, service and other backlog; |
· | Operating cash outflows for the year were reduced to $2.22 million, and the Company closed the fiscal year with a cash balance of $4.3 million and no debt; |
· | Subsequent to the fiscal year end the Company secured an $8 million Growth Capital Facility with SQN Venture Partners, further details of which are included in Note 22, events after the reporting period; and |
· | The ongoing expansion of market opportunities as a result of the development and production of new products. |
Accordingly, the directors believe the consolidated entity will be able to continue as a going concern and that it is appropriate to adopt the going concern basis in the preparation of the consolidated financial report.
Revasum, Inc. | 7 |
DIRECTORS’ REPORT
SIGNIFICANT CHANGES IN THE STATE OF AFFAIRS
There were no significant changes in the state of affairs of the Group during the fiscal period.
DIVIDENDS
No dividends were paid or proposed during the period ended 2 January 2022 and the Company does not intend to pay any dividends for the fiscal period (3 Jan 2021: $Nil).
PRESENTATION CURRENCY
The functional and presentation currency of the Group is United States Dollars. The financial report is presented in United States Dollars with all references to dollars, cents or $’s in these financial statements presented in US currency, unless otherwise stated.
ROUNDING OF AMOUNTS
Unless otherwise stated, amounts have been rounded to the nearest thousand United States Dollars.
JURISDICTION OF INCORPORATION
The Company is incorporated in the State of Delaware, United States of America and is a registered foreign entity in Australia. As a foreign company registered in Australia, the Company is subject to different reporting and regulatory regimes than Australian companies.
DELAWARE LAW, CERTIFICATE OF INCORPORATION AND BYLAWS
As a foreign Company registered in Australia, the Company will not be subject to Chapters 6, 6A, 6B and 6C of the Corporations Act dealing with the acquisition of shares (including substantial shareholdings and takeovers). Under the provisions of Delaware General Corporation Law (“DGCL”), shares are freely transferable subject to restrictions imposed by US federal or state securities laws, by the Company’s certificate of incorporation or bylaws, or by an agreement signed with the holders of the shares at issue. The Company’s amended and restated certificate of incorporation and bylaws do not impose any specific restrictions on transfer. However, provisions of the DGCL, the Company’s Certificate of Incorporation and the Company’s Bylaws could make it more difficult to acquire the Company by means of a tender offer (takeover), a proxy contest or otherwise, or to remove incumbent officers and Directors of the Company. These provisions could discourage certain types of coercive takeover practices and takeover bids that the Board may consider inadequate and to encourage persons seeking to acquire control of the Company to first negotiate with the Board. The Company believes that the benefits of increased protection of its ability to negotiate with the proponent of an unfriendly or unsolicited proposal to acquire or restructure the Company outweigh the disadvantages of discouraging takeover or acquisition proposals because, among other things, negotiation of these proposals could result in an improvement of their terms.
MATTERS SUBSEQUENT TO THE END OF THE FISCAL PERIOD
On 2 February 2022, 1,000,000 options with an exercise price of $0.73 were granted to employees.
On 18 February 2022 the Company secured a growth capital facility from SQN Venture Partners, LLC ('SQN'). The facility will provide up to $8 million in debt financing to accelerate new product development and provide the working capital necessary to support rapid growth. The funds are available in two tranches as follows:
• | $5 million funded upon execution of the facility on 18 February 2022 (‘Tranche 1’) |
• | $3 million available to the Company upon achieving YTD Purchase Orders for the 7AF-HMG and 6EZ of at least $12 million by 30 September 2022 (‘Tranche 2’) |
The loan has an interest rate of 9.75% per annum. Tranche I has an interest only period of 12 months, but can extend an additional 6 months upon achievement of Tranche II. Tranche II has an interest only period of 12 months. The facility matures in 42 months. The Company also granted SQN Venture Partners warrants to purchase shares of the Company’s stock equal to 10% of the Total Loan Amount with an exercise price of $0.01/share.
No other matter or circumstance has arisen since 2 January 2022 that has significantly affected, or may significantly affect the Group’s operations, the results of those operations, or the Group’s state of affairs in future fiscal years.
Revasum, Inc. | 8 |
DIRECTORS’ REPORT
LIKELY DEVELOPMENTS AND EXPECTED RESULTS OF OPERATIONS
The Group’s core growth strategy involves continuing its strong market-driven product development focus in order to continue to capitalize on strong growth in demand for 200mm substrate and device fabrication capacity. The Group’s growth strategy also includes:
1. | Increasing sales, marketing and product demonstration capabilities to secure new customers and help expedite the conversion of existing pipeline customers; |
2. | Expanding the product portfolio which in turn increases the addressable market size; and |
3. | Continuing two customer-led product development projects, which are expected to add incremental sales and further enable Revasum to capitalize on key market trends. |
CORPORATE GOVERNANCE
The Company, as a Delaware incorporated corporation listed on the ASX, seeks to achieve substantive compliance with the governance recommendations set out in the ‘Corporate Governance Principles and Recommendations 4th Edition’, published by the ASX Corporate Governance Council (the ASX Principles). The Company’s Corporate Governance Statement can be viewed at https://investors.revasum.com/investor-centre/.
ENVIRONMENTAL REGULATION
The Group is not subject to any significant environmental regulation under United States of America legislation. The Group is committed to the sustainable management of environmental, health, and safety (EHS) concerns as a core business principle. This includes ensuring compliance with all applicable government standards and regulations and providing a safe and healthy workplace, while reducing our environmental footprint. We integrate health, safety, and environmental considerations into all aspects of our business, including product design and services, to provide productive and responsible solutions by:
· | Striving for zero accidents through the application of an EHS Management System; |
· | Implementing pollution prevention control strategies; and |
· | Committing to continual improvement for our customers, Company, and personnel of the Group. |
The Board of Directors considers that adequate systems are in place to manage the Group’s obligations and is not aware of any breach of environmental requirements as they relate to the Group.
SHARE OPTIONS AND RESTRICTED STOCK UNITS
Options to acquire shares and restricted stock units to be issued shares (“RSUs”) in the Company were granted both during the period, and also subsequent to the fiscal year end. The number of options and RSUs outstanding as at the date of this report, and all other movements in share options and RSUs, are disclosed in Note 19 to the financial statements.
SECURITIES ON ISSUE
The Company has the following securities on issue as of 2 January 2022:
Shares of common stock | 106,267,204 (of which 89,605,359 are held as CDIs) |
Options to acquire shares of common stock | 8,252,905 |
Restricted Stock Units | 81,405 |
INFORMATION ON DIRECTORS
Kevin Landis
Chairman, Non-Executive Director
Experience and expertise: |
Kevin joined the Board in 2016 and is the CEO and CIO of Firsthand Capital Management, an investment management firm he founded in 1994. Firsthand Capital Management is the investment adviser to Firsthand Technology Value Fund, Inc. (NASDAQ: SVVC), a publicly traded venture capital fund. Kevin has over two decades of experience in engineering, market research, product management and investing in the technology sector. Kevin is Firsthand’s nominee director to the board of Revasum, Inc.
|
Special responsibilities: |
Member of the Audit and Risk Committee. Chairman of the Remuneration and Nomination Committee.
|
Other directorships: | Non-executive director of Pivotal Systems Corporation (ASX: PVS). |
Revasum, Inc. | 9 |
DIRECTORS’ REPORT
INFORMATION ON DIRECTORS (CONTINUED)
Rebecca Shooter-Dodd
President and CEO & Executive Director
Experience and expertise: |
Rebecca was appointed as President and CEO & Executive Director in September 2021. Rebecca joined Revasum in January 2019, initially as Corporate Controller. She was promoted to CFO in November 2020, and CFOO in May. She was previously an auditor in BDO’s assurance practice in Sydney and London, and is an ICAEW Charted Accountant, licensed in the UK. |
Special responsibilities: |
None. |
Other directorships: |
None. |
Ryan Benton | |
Non-Executive Director |
|
Experience and expertise: |
Ryan joined Revasum as CFO in September 2018 bringing over 25 years of finance, operations, and transaction experience. Ryan resigned from this role in November 2020, and now serves as CFO of Tempo Automation. Prior to this role, he served as CFO of BrainChip Holdings Ltd (ASX: BRN) and CEO and Board Member at Exar Corporation (NYSE: EXAR), which was acquired by MaxLinear Corporation (NASDAQ: MXL) in May 2017. Previous roles included senior and consulting positions at ASM International NV (NASDAQ: ASMI), and eFunds Corporation (NASDAQ: EFDS). |
Special responsibilities: |
Member of the Audit and Risk Committee. Member of the Remuneration and Nomination Committee. |
Other directorships: |
Non-executive director and Audit Committee Chairman of Pivotal Systems Corporation (ASX: PVS) and ACE Convergence Acquisition Corporation (NASDAQ: ACEVU). |
Paul Mirabelle | |
Independent Non-Executive Director | |
Experience and expertise: |
Paul is a business executive based in Australia with extensive leadership experience across both private and public companies, specializing in strategy, international growth, mergers and acquisitions, and private equity-backed ventures. Paul has extensive commercial experience, most recently as Asia Pacific Regional Director at Amplifon, the global leader in audiology, a role he has held since 2010. |
Special responsibilities: |
Chairman of the Audit and Risk Committee. Member of the Remuneration and Nomination Committee.
|
Other directorships: | Independent non-executive director of Vita Group Limited (ASX: VTG). |
DIRECTORS’ INTEREST IN EQUITY INSTRUMENTS OF THE COMPANY
The directors of the Group are shown together with their holdings of common stock, options and RSUs, held directly or indirectly:
Direct | Indirect | |||||||||||||||
Common Stock | Options/RSUs | Common Stock | Options/RSUs | |||||||||||||
Kevin Landis | - | - | - | - | ||||||||||||
Rebecca Shooter-Dodd | - | 1,574,960 | - | - | ||||||||||||
Ryan Benton | 600,088 | 2,046,405 | - | - | ||||||||||||
Paul Mirabelle | 38,572 | 275,000 | - | - | ||||||||||||
638,660 | 3,896,365 | - | - |
Revasum, Inc. | 10 |
DIRECTORS’ REPORT
REMUNERATION REPORT
EXECUTIVE COMPENSATION
This section discusses the principles underlying our policies and decisions with respect to the compensation of our named executive officers, and all material factors relevant to an analysis of these policies and decisions. Our named executive officers for the fiscal period ended 2 January 2022 were:
· | Rebecca Shooter-Dodd | President & Chief Executive Officer (appointed 13 September 2021 – previously CFOO) |
COMPONENTS OF EXECUTIVE COMPENSATION
The principal components of our executive compensation are base salary, cash bonuses and long-term incentives. Our Remuneration and Nomination Committee consider that each component of executive compensation must be evaluated and determined with reference to competitive market data, individual and corporate performance, our recruiting and retention goals and other information we deem relevant.
Our executive officers are also eligible to participate in our 401(k)-retirement plan.
The terms of each named executive officer’s compensation are derived from the employment agreements the Company has entered into with them.
The components of the executive compensation packages for our named executive officers for the fiscal period were as follows:
Rebecca Shooter-Dodd – President & Chief Executive Officer (appointed 13 September 2021, previously CFOO)
Ms. Shooter-Dodd received a fixed remuneration package of US$300,000 per annum. Ms. Shooter-Dodd was also eligible to participate in various customary employee benefit programs maintained by Revasum and is eligible for an annual discretionary bonus as determined by the Board or the Remuneration and Nomination Committee. The following table sets out the executive compensation (excluding share options and RSUs issued) paid to our named executive officers under the above employment contracts during the fiscal period ended 2 January 2022:
Executive Officer | Base Salary | Cash Bonus | 401(K) | Total | ||||||||||||
(Gross $) | $ | $ | $ | |||||||||||||
Rebecca Shooter-Dodd | 259,039 | - | - | 259,039 | ||||||||||||
$ | 259,039 | - | $ | - | $ | 259,039 |
NON-EXECUTIVE DIRECTORS’ COMPENSATION
The non-executive directors for the fiscal period ended 2 January 2022 were as follows:
· | Ryan Benton | Non-Executive Director; |
· | Kevin Landis | Chairman & Non-Executive Director; |
· | Paul Mirabelle | Independent Non-Executive Director; and |
· | Vivek Rao | Chairman & Independent Non-Executive Director (Resigned 27 September 2021). |
The following table sets out the compensation (excluding share options and RSUs issued) paid to each of our non-executive directors during the fiscal period ended 2 January 2022, which does not include Mr. Landis, who did not receive compensation for his service as a director:
Non-Executive Director | Directors’ Fees ($) | |||
Ryan Benton | $ | 60,000 | ||
Paul Mirabelle | 60,000 | |||
Vivek Rao | 45,000 | |||
$ | 165,000 |
The Company has entered into non-executive director agreements with Mr. Benton and Mr. Mirabelle whereby they are entitled to receive US$60,000 per annum for their role as a non-executive director.
Revasum, Inc. | 11 |
DIRECTORS’ REPORT
INDEMNITY AND INSURANCE OF DIRECTORS AND OFFICERS
The Company has indemnified directors and executives of the Company for costs incurred, in their capacity as a director or officer, for which they may be held personally liable, except where there is a lack of good faith.
INDEMNITY AND INSURANCE OF AUDITOR
The Company has not, during or since the end of the fiscal year, indemnified or agreed to indemnify the auditor of the Company or any related entity against a liability incurred by the auditor. During the fiscal year, the Company has not paid a premium in respect of a contract to insure the auditor of the Company or any related entity.
NON-AUDIT SERVICES
The external auditor did not provide non-audit services to the Company during the period ended 2 January 2022.
PROCEEDINGS ON BEHALF OF THE COMPANY
No proceedings have been brought or intervened in on behalf of the Company. On behalf of the directors
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Kevin Landis | ||
Chairman and Non-Executive Director | ||
24 February 2022 | ||
San Jose, California, USA |
Revasum, Inc. | 12 |
CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER
COMPREHENSIVE INCOME
FOR THE FISCAL PERIOD ENDED 2 JANUARY 2022
(in thousands, except share and per share amounts)
Note | 2 Jan 2022 | 3 Jan 2021 | ||||||||
Revenue | 2 | $ | 13,710 | $ | 15,368 | |||||
Cost of goods sold | (8,867 | ) | (10,480 | ) | ||||||
Gross profit | 4,843 | 4,888 | ||||||||
Gross margin | 35.3 | % | 31.8 | % | ||||||
Expenses | ||||||||||
Research & development | 3 | (4,606 | ) | (4,173 | ) | |||||
Selling & marketing | 3 | (2,178 | ) | (2,857 | ) | |||||
General & administrative | 3 | (3,532 | ) | (4,016 | ) | |||||
Intangibles impairment | 11 | - | (2,976 | ) | ||||||
Stock based compensation | 19 | 229 | 207 | |||||||
Total expenses | (10,087 | ) | (13,815 | ) | ||||||
Operating loss | (5,244 | ) | (8,927 | ) | ||||||
Finance income | 8 | 11 | ||||||||
Finance expenses | (107 | ) | (240 | ) | ||||||
Other income | 16(b) | 3,378 | - | |||||||
Net loss before income tax expense | (1,965 | ) | (9,156 | ) | ||||||
Income tax expense | 4 | - | - | |||||||
Net loss for the period | $ | (1,965 | ) | $ | (9,156 | ) | ||||
Other comprehensive income for the period, net of tax | - | - | ||||||||
Total comprehensive loss for the period attributable to the members of Revasum, Inc. | $ | (1,965 | ) | $ | (9,156 | ) | ||||
Loss per share attributable to the members of Revasum, Inc.: | ||||||||||
Basic and diluted loss per share | 5 | $ | (0.02 | ) | $ | (0.12 | ) |
The above consolidated statement of profit or loss and other comprehensive income should be read in conjunction with the accompanying notes.
Revasum, Inc. | 13 |
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
AS AT 2 JANUARY 2022
(in thousands)
Note | 2 Jan 2022 | 3 Jan 2021 | ||||||||
Assets | ||||||||||
Current assets | ||||||||||
Cash and cash equivalents | 6 | $ | 4,311 | $ | 1,364 | |||||
Trade and other receivables | 7 | 1,750 | 2,765 | |||||||
Inventories - net | 8 | 7,541 | 6,798 | |||||||
Other current assets | 9 | 1,817 | 390 | |||||||
Total current assets | 15,419 | 11,317 | ||||||||
Non-current assets | ||||||||||
Property, plant and equipment – net | 10 | 2,819 | 3,079 | |||||||
Right-of-use asset | 1,295 | 1,943 | ||||||||
Intangible assets - net | 11 | 2,968 | 3,792 | |||||||
Other non-current assets | 41 | 59 | ||||||||
Total non-current assets | 7,123 | 8,873 | ||||||||
Total assets | $ | 22,542 | $ | 20,190 | ||||||
Liabilities | ||||||||||
Current liabilities | ||||||||||
Trade and other payables | 12 | $ | 2,530 | $ | 2,237 | |||||
Customer deposits | 13 | 2,055 | 113 | |||||||
Deferred revenue | 219 | 71 | ||||||||
Employee benefits | 14 | 265 | 214 | |||||||
Warranty provision | 15 | 214 | 256 | |||||||
Borrowings, current | 16 | - | 2,500 | |||||||
Lease liabilities, current | 20 | 708 | 668 | |||||||
Total current liabilities | $ | 5,991 | $ | 6,059 | ||||||
Non-current liabilities | ||||||||||
Borrowings, non-current | 16 | - | 723 | |||||||
Lease liabilities, non-current | 20 | 728 | 1,418 | |||||||
Total non-current liabilities | 728 | 2,141 | ||||||||
Total liabilities | $ | 6,719 | $ | 8,200 | ||||||
Net assets | $ | 15,823 | $ | 11,990 | ||||||
Contributed equity | 17 | $ | 49,996 | $ | 43,610 | |||||
Share-based payment reserve | 19 | 434 | 1,022 | |||||||
Accumulated losses | (34,607 | ) | (32,642 | ) | ||||||
Total equity | $ | 15,823 | $ | 11,990 |
The above consolidated statement of financial position should be read in conjunction with the accompanying notes.
Revasum, Inc. | 14 |
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE FISCAL PERIOD ENDED 2 JANUARY 2022
(in thousands)
Contributed equity | Share-based payment reserve | Accumulated losses | Total equity | |||||||||||||
Balance at 5 January 2020 | $ | 43,407 | $ | 1,407 | $ | (23,486 | ) | $ | 21,328 | |||||||
Loss after income tax expense for the period | - | - | (9,156 | ) | (9,156 | ) | ||||||||||
Other comprehensive loss for the period, net of tax | - | - | - | - | ||||||||||||
Total comprehensive loss for the period | $ | - | $ | - | $ | (9,156 | ) | $ | (9,156 | ) | ||||||
Transactions with owners in their capacity as owners: | ||||||||||||||||
Shares issued on vesting of RSUs (Note 19) | 154 | (154 | ) | - | - | |||||||||||
Shares issued on the exercise of options (Note 19) | 49 | (24 | ) | - | 25 | |||||||||||
Share-based payments (Note 19) | - | (207 | ) | - | (207 | ) | ||||||||||
Balance at 3 January 2021 | $ | 43,610 | $ | 1,022 | $ | (32,642 | ) | 11,990 | ||||||||
Loss after income tax expense for the period | - | - | (1,965 | ) | (1,965 | ) | ||||||||||
Other comprehensive loss for the period, net of tax | - | - | - | - | ||||||||||||
Total comprehensive loss for the period | $ | - | $ | - | $ | (1,965 | ) | $ | (1,965 | ) | ||||||
Transactions with owners in their capacity as owners: | ||||||||||||||||
Issue of Share Capital (Note 17) | 5,729 | - | - | 5,729 | ||||||||||||
Shares issued on vesting of RSUs (Note 19) | 226 | (226 | ) | - | - | |||||||||||
Shares issued on the exercise of options (Note 19) | 316 | (133 | ) | - | 183 | |||||||||||
Shares issued on former CEO settlement (Note 21) | 115 | - | 115 | |||||||||||||
Share-based payments (Note 19) | - | (229 | ) | - | (229 | ) | ||||||||||
Balance at 2 January 2022 | $ | 49,996 | $ | 434 | $ | (34,607 | ) | $ | 15,823 |
The above consolidated statement of changes in equity should be read in conjunction with the accompanying notes.
Revasum, Inc. | 15 |
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE FISCAL PERIOD ENDED 2 JANUARY 2022
(in thousands)
Note | 2 Jan 2022 | 3 Jan 2021 | ||||||||
Cash flows used in operating activities | ||||||||||
Receipts from customers | $ | 16,678 | $ | 12,258 | ||||||
Payments to suppliers and employees | (18,789 | ) | (17,592 | ) | ||||||
Interest received | 8 | 18 | ||||||||
Interest paid | (118 | ) | (177 | ) | ||||||
Taxes paid | - | - | ||||||||
Net cash used in operating activities | 6 | $ | (2,221 | ) | $ | (5,493 | ) | |||
Cash flows used in investing activities | ||||||||||
Payments for property, plant and equipment | (152 | ) | (85 | ) | ||||||
Payments for capitalized development costs | - | (433 | ) | |||||||
Net cash used in investing activities | $ | (152 | ) | $ | (518 | ) | ||||
Cash flows from financing activities | ||||||||||
Proceeds from the exercise of share options | 183 | 31 | ||||||||
Proceeds from borrowings | 16(b) | 1,165 | 4,413 | |||||||
Repayment of borrowings | 16(a) | (1,000 | ) | (3,148 | ) | |||||
Proceeds from equity capital raise | 17 | 6,122 | - | |||||||
Costs of equity capital raise | 17 | (394 | ) | - | ||||||
Lease principal repayments | (756 | ) | (759 | ) | ||||||
Net cash from financing activities | $ | 5,320 | $ | 537 | ||||||
Net increase/(decrease) in cash and cash equivalents | 2,947 | (5,474 | ) | |||||||
Cash and cash equivalents at the beginning of the fiscal period | 1,364 | 6,838 | ||||||||
Cash and cash equivalents at the end of the period | 6 | $ | 4,311 | $ | 1,364 |
The above consolidated statement of cash flows should be read in conjunction with the accompanying notes.
Revasum, Inc. | 16 |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE FISCAL PERIOD ENDED 2 JANUARY 2022
NOTE 1. SIGNIFICANT ACCOUNTING POLICIES
The principal accounting policies adopted in the preparation of the consolidated financial statements are set out either in the respective notes or below. These policies have been consistently applied to all the periods presented, unless otherwise stated. The financial statements are for the Group including Revasum, Inc. and its subsidiary.
BASIS OF PREPARATION
These general-purpose financial statements have been prepared in accordance with Australian Accounting Standards and Interpretations issued by the Australian Accounting Standards Board (“AASB”). The financial statements also comply with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board. The financial statements comprise the consolidated financial statements of the Group which is a for-profit entity for financial reporting purposes under Australian Accounting Standards.
Historical cost convention
The consolidated financial statements, except for the cash flow information, have been prepared on an accruals basis and are based on historical costs, modified, where applicable, by the measurement at fair value of selected non-current assets, financial assets and financial liabilities.
Critical accounting estimates
The preparation of the consolidated financial statements requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the Group's accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the financial statements, are disclosed throughout the financial statements.
BASIS OF CONSOLIDATION
The consolidated financial statements comprise the financial statements of the Group as at the end of the reporting period. Control is achieved when the Group is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. Specifically, the Group controls an investee if and only if the Group has:
· | Power over the investee (i.e. existing rights that give it the current ability to direct the relevant activities of the investee) |
· | Exposure, or rights, to variable returns from its involvement with the investee, and |
· | The ability to use its power over the investee to affect its returns |
When the Group has less than a majority of the voting or similar rights of an investee, the Group considers all relevant facts and circumstances in assessing whether it has power over an investee, including:
· | The contractual arrangement with the other vote holders of the investee |
· | Rights arising from other contractual arrangements |
· | The Group’s voting rights and potential voting rights |
The Group re-assesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements of control. Consolidation of a subsidiary begins when the Group obtains control over the subsidiary and ceases when the Group loses control of the subsidiary. Assets, liabilities, income and expenses of a subsidiary acquired or disposed of during the year are included in the statement of profit and loss and other comprehensive income from the date the Group gains control until the date the Group ceases to control the subsidiary.
Profit or loss and each component of other comprehensive income are attributed to the equity holders of the parent of the Group and to the non-controlling interests, even if this results in the non-controlling interests having a deficit balance. When necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies into line with the Group’s accounting policies. All intra-Group assets and liabilities, equity, income, expenses and cash flows relating to transactions between members of the Group are eliminated in full on consolidation.
GOING CONCERN
The consolidated financial statements of the Group have been prepared on a Going Concern basis, which indicates the continuity of business activities and realization of assets and settlement of liabilities in the normal course of business.
As disclosed in the consolidated financial statements, the consolidated entity’s loss after income tax for the period ended 2 January 2022 was $1.97 million (3 January 2021: $9.16 million) and the consolidated entity’s net cash outflows from operating activities for the period ended 2 January 2022 were $2.22 million (3 January 2021: $5.49 million). As at the fiscal period end date, the consolidated entity has net current assets of $9.43 million (3 January 2021: $5.26 million) and total net assets of $15.82 million (3 January 2021: $11.99 million).
Revasum, Inc. | 17 |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE FISCAL PERIOD ENDED 2 JANUARY 2022
GOING CONCERN (CONTINUED)
The Directors believe that there are reasonable grounds to conclude that the consolidated entity will continue as a going concern, after consideration of the following factors:
· | The Company has a total backlog (defined as confirmed purchase orders not yet shipped) of $8.7 million as at 18 January 2022, comprised of $6.3 million equipment backlog and $2.4 million spares, service and other backlog; |
· | Operating cash outflows for the year were reduced to $2.22 million, and the Company closed the fiscal year with a cash balance of $4.3 million and no debt; |
· | Subsequent to the fiscal year end the Company secured an $8 million Growth Capital Facility with SQN Venture Partners, further details of which are included in Note 22, events after the reporting period; and |
· | The ongoing expansion of market opportunities as a result of the development and production of new products. |
Accordingly, the directors believe the consolidated entity will be able to continue as a going concern and that it is appropriate to adopt the going concern basis in the preparation of the consolidated financial report.
ROUNDING OF AMOUNTS
Amounts in this report have been rounded off to the nearest thousand United States dollars, except share and per share amounts.
FUNCTIONAL CURRENCY
The financial statements are presented in US dollars, which is the functional and presentational currency of the Group. There has been no change in the functional and presentational currency of the Group.
FOREIGN CURRENCY TRANSACTIONS
Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the date of the transaction. Foreign currency monetary items are translated at the year-end exchange rate. Non-monetary items measured at historical cost continue to be carried at the exchange rate at the date of the transaction. Non-monetary items held at fair value are reported at the exchange rate at the date when the fair values were determined.
Exchange differences arising on the translation of monetary items are recognized in profit or loss.
Exchange differences arising on the translation of non-monetary items are recognized directly in other comprehensive income to the extent that the underlying gain or loss is directly recognized in other comprehensive income; otherwise the exchange difference is recognized in profit or loss.
CURRENT AND NON-CURRENT CLASSIFICATION
Assets and liabilities are presented in the statement of financial position based on current and non-current classification.
An asset is current when it is expected to be realized or intended to be sold or consumed in normal operating cycle; it is held primarily for the purpose of trading; it is expected to be realized within 12 months after the reporting period; or the asset is cash or cash equivalent unless restricted from being exchanged or used to settle a liability for at least 12 months after the reporting period. All other assets are classified as non-current.
A liability is current when it is expected to be settled in normal operating cycle; it is held primarily for the purpose of trading; it is due to be settled within 12 months after the reporting period; or there is no unconditional right to defer the settlement of the liability for at least 12 months after the reporting period. All other liabilities are classified as non-current.
Deferred tax assets and liabilities are always classified as non-current.
NEW, REVISED OR AMENDED ACCOUNTING STANDARDS ADOPTED
The Group has retrospectively adopted, as at the date of incorporation, all of the new, revised or amended Accounting Standards and Interpretations issued by the Australian Accounting Standards Board (‘AASB’) and the International Financial Reporting Interpretations Committee (IFRIC) that are relevant to its operations and effective for the year commencing 4 January 2021. There was no material impact on the group’s financial statements on the adoption of these Standards and Interpretations.
Revised or amending Accounting Standards or Interpretations that are not yet mandatory for the year ended 2 January 2022 have not been early adopted.
Revasum, Inc. | 18 |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE FISCAL PERIOD ENDED 2 JANUARY 2022
NOTE 2. REVENUE
Revenue consists of the following (in thousands):
2 Jan 2022 | 3 Jan 2021 | |||||||
Systems revenue | $ | 7,505 | $ | 9,879 | ||||
Service, spares and other revenue | 6,205 | 5,489 | ||||||
$ | 13,710 | $ | 15,368 |
Accounting policy for revenue recognition
The Group has disaggregated revenue recognized from contracts with customers into categories that depict how the nature, amount, timing and uncertainty of revenue and cash flows are affected by economic factors.
Revasum recognizes revenue from systems and spares when the Customer obtains control of the Group’s product, which occurs at a point in time, typically upon leaving the Group’s factory. Taxes collected from customers relating to this revenue and remitted to governmental authorities are excluded from revenues. The Group expenses incremental costs of obtaining a contract as and when incurred because the expected amortization period of the asset that the Group would have recognized is one year or less and the commission rate on the future orders, if any, is commensurate with the commission rate on the initial sale. Revenues from systems and spares are recorded at the net sales price (transaction price), which includes estimates of variable consideration for which reserves are established and which result from discounts, returns, and other allowances that are offered within contracts between the Group and its customers.
Other revenue is recognized when the related services are performed or when the revenue is earned.
Disaggregation of revenue
The Group derives its revenue from the transfer of goods and services at a point in time. The table above provides a breakdown of revenue by major business line. The categories above depict how the nature, amount, timing and uncertainty of revenue and cash flows are affected by economic data. As disclosed in note 24, the Group has one operating segment.
NOTE 3. EXPENSES
Net loss before income tax expense includes the following specific expenses (in thousands):
2 Jan 2022 | 3 Jan 2021 | |||||||
Research & development | ||||||||
Salary and benefits | $ | 2,184 | $ | 2,120 | ||||
Travel | 91 | 23 | ||||||
Amortization of capitalized development (Note 11) | 828 | 434 | ||||||
Other | 1,503 | 1,596 | ||||||
$ | 4,606 | $ | 4,173 | |||||
Selling & marketing | ||||||||
Salary and benefits | $ | 1,260 | $ | 1,752 | ||||
Commissions and bonuses | 221 | 295 | ||||||
Travel | 193 | 117 | ||||||
Other | 504 | 693 | ||||||
$ | 2,178 | $ | 2,857 | |||||
General & administrative | ||||||||
Salary and benefits | $ | 1,234 | $ | 1,580 | ||||
Former CEO Settlement (Note 21) | 471 | - | ||||||
Other | 1,827 | 2,436 | ||||||
$ | 3,532 | $ | 4,016 |
Revasum, Inc. | 19 |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE FISCAL PERIOD ENDED 2 JANUARY 2022
NOTE 3. EXPENSES (CONTINUED)
Accounting policy for expenses
Research costs
Expenditure on research activities, undertaken with the prospect of obtaining new technical knowledge and understanding, is recognized in the statement of profit or loss and other comprehensive income as an expense when it is incurred.
Other expenses
Other expenses are classified according to their function, as selling & marketing or general & administrative, include expenses mainly related with facilities, materials and depreciation.
NOTE 4. INCOME TAX EXPENSE
Income tax expense consists of the following (in thousands):
2 Jan 2022 | 3 Jan 2021 | |||||||
Deferred tax expense | $ | - | $ | - | ||||
Current tax expense | - | - | ||||||
Aggregate income tax expense | $ | - | $ | - |
Effective tax rate reconciliation (in thousands):
2 Jan 2022 | 3 Jan 2021 | |||||||
Loss before income tax expense | $ | (1,965 | ) | $ | (9,156 | ) | ||
Tax at the statutory tax rate of 21% (2020: 21%) | (413 | ) | (1,922 | ) | ||||
Tax effect amounts which are not deductible/(taxable) in calculating taxable income: | ||||||||
Temporary differences | 1,655 | (814 | ) | |||||
Permanent differences | (774 | ) | 8 | |||||
Unutilized losses carried forward | 1,497 | 2,728 | ||||||
Income tax expense | $ | - | $ | - |
Based on historical losses and the expectation of future losses, management cannot conclude that it is more likely than not that the net deferred tax assets will be fully realizable. Accordingly, the Group has provided a full valuation allowance against its net deferred tax assets for the fiscal years ended 2 January 2022 and 3 January 2021.
As of 2 January 2022, the Group had federal and state net operating loss carry forwards of approximately $36.7 million and $24.3 million (2020: federal $32.0 million and state $25.0 million), respectively, available to reduce future taxable income, if any. The net operating loss carry forwards will expire beginning 2036 for both federal and California income tax purposes. Beginning in 2018, federal net operating losses are carried forward indefinitely.
As of 2 January 2022, the Group had federal and state research credit carry forwards of $1.2 million (2020: $1.0 million) and $0.9 million (2020: $0.7 million). Federal tax credits begin to expire in 2038. The state tax credits have no expiration date.
Utilization of the net operating loss carry forwards and credits may be subject to a substantial annual limitation due to the ownership change limitations provided by the Internal Revenue Code of 1986, as amended and similar state provisions. The annual limitation may result in the expiration of net operating losses and credits before utilization.
Accounting policy for income tax
The income tax expense for the year comprises current income tax expenses and deferred tax expenses.
Current income tax expense charged to the profit or loss in the tax payable on taxable income for the current period. Current tax liabilities are measured as the amounts expected to be paid to the relevant tax authority using the tax rates and tax laws that have been enacted or substantively enacted by the end of the reporting period.
Deferred income tax expense reflects movements in deferred tax asset and deferred tax liability balances during the year as well as unused tax losses.
Deferred tax assets and liabilities are calculated at the tax rates that are expected to apply to the period when the asset is realized, or the liability is settled, and their measurement also reflects the manner in which management expects to recover or settle the carrying amount of the related asset or liability.
Revasum, Inc. | 20 |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE FISCAL PERIOD ENDED 2 JANUARY 2022
NOTE 4. INCOME TAX EXPENSE (CONTINUED)
Deferred tax assets relating to temporary differences and unused tax losses are only recognized to the extent that it is probably that future taxable profit will be available against which the benefits of the deferred tax asset can be utilized.
Deferred tax assets and liabilities are offset only where there is a legally enforceable right to offset current tax assets against current tax liabilities and deferred tax assets against deferred tax liabilities; and they relate to the same taxable authority on either the same taxable entity or different taxable entities which intend to settle simultaneously.
Critical accounting judgements, estimates and assumptions
The Group is subject to income taxes in the jurisdictions in which it operates. Significant judgement is required in determining the provision for income tax. There are many transactions and calculations undertaken during the ordinary course of business for which the ultimate tax determination is uncertain. The Group recognizes liabilities for anticipated tax audit issues based on the Group's current understanding of the tax law. Where the final tax outcome of these matters is different from the carrying amounts, such differences will impact the current and deferred tax provisions in the period in which such determination is made.
NOTE 5. LOSS PER SHARE
The calculation of the basic and diluted loss per share is based on the following information (in thousands, except share and per share amounts):
2 Jan 2022 | 3 Jan 2021 | |||||||
Reconciliation of earnings used in calculating earnings per share | ||||||||
Loss attributable to ordinary equity holders of Revasum, Inc. | $ | (1,965 | ) | $ | (9,156 | ) |
No. of shares | No. of shares | |||||||
Reconciliation of shares used in calculating earnings per share | ||||||||
Opening balance | 78,998,473 | 78,008,441 | ||||||
Shares issued on vesting of RSUs & exercise of options (29-May-2020) | - | 790,032 | ||||||
Shares issued on exercise of options (11-Nov-2020) | - | 100,000 | ||||||
Shares issued on exercise of options (18-Nov-2020) | - | 100,000 | ||||||
Shares issued on exercise of options (01-Feb-2021) | 568,365 | - | ||||||
Shares issued on equity raise – institutional (11-Feb-2021) | 19,773,273 | - | ||||||
Shares issued on exercise of options (12-Feb-2021) | 646,510 | - | ||||||
Shares issued on equity raise – retail (23-Feb-2021) | 2,797,965 | - | ||||||
Shares issued on exercise of options (24-Mar-2021) | 2,391,275 | - | ||||||
Shares issued on exercise of options (1-Apr-2021) | 450,000 | - | ||||||
Shares issued on settlement with former CEO (16-Sep-2021) | 350,550 | - | ||||||
Shares issued on vesting of RSUs (15-October-2021) | 244,209 | - | ||||||
Shares issued on exercise of options (3-Nov-2021) | 46,584 | - | ||||||
106,267,204 | 78,998,473 | |||||||
Weighted average number of ordinary shares | 102,539,531 | 78,513,680 | ||||||
Basic and diluted loss per share | $ | (0.02 | ) | $ | (0.12 | ) |
Preferred stock and options to acquire ordinary shares that would be dilutive if the Group was generating a profit have been excluded from the weighted average number of issued ordinary shares as the Group is generating a loss.
Revasum, Inc. | 21 |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE FISCAL PERIOD ENDED 2 JANUARY 2022
NOTE 6. CASH AND CASH EQUIVALENTS
Cash and cash equivalents consisted of the following (in thousands):
2 Jan 2022 | 3 Jan 2021 | |||||||
Cash at bank | $ | 906 | $ | 652 | ||||
Call deposits | 3,405 | 712 | ||||||
$ | 4,311 | $ | 1,364 |
There are no restrictions or limitations on the use of cash and cash equivalents.
Accounting policy for cash and cash equivalents
Cash and cash equivalents include cash on hand, deposits held at call with financial institutions, other short-term, highly liquid investments with original maturities of three months or less or that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value.
Reconciliation of Cash Flow from Operations with net loss for the period (in thousands):
2 Jan 2022 | 3 Jan 2021 | |||||||
Net loss for the year | $ | (1,965 | ) | $ | (9,155 | ) | ||
Depreciation expense | 549 | 498 | ||||||
Amortization expense | 828 | 434 | ||||||
Impairment of intangible assets | - | 2,976 | ||||||
Share-based payment expense | (229 | ) | (207 | ) | ||||
Share settlement with former CEO | 115 | - | ||||||
Right of use asset – depreciation | 648 | 669 | ||||||
Right of use asset – interest | - | 137 | ||||||
Transfer of PPE to WIP | - | 195 | ||||||
PPP loans forgiven | (3,394 | ) | - | |||||
Change in operating assets and liabilities | ||||||||
Decrease/(increase) in trade and other receivables | 1,015 | (944 | ) | |||||
(Increase)/decrease in inventories - net | (743 | ) | 3,370 | |||||
(Increase)/decrease in other assets | (1,427 | ) | 303 | |||||
Increase/(decrease) in trade and other payables | 281 | (1,487 | ) | |||||
Increase/(decrease) in deferred revenue | 149 | (202 | ) | |||||
Increase/(decrease) in customer deposits | 1,942 | (1,964 | ) | |||||
Increase/(decrease) in employee benefits | 51 | (82 | ) | |||||
Decrease in warranty provision | (41 | ) | (34 | ) | ||||
Net cash outflow from operating activities | $ | (2,221 | ) | $ | (5,493 | ) |
Revasum, Inc. | 22 |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE FISCAL PERIOD ENDED 2 JANUARY 2022
NOTE 7. TRADE AND OTHER RECEIVABLES
Trade and other receivables consisted of the following (in thousands):
2 Jan 2022 | 3 Jan 2021 | |||||||
Trade receivables | $ | 1,510 | $ | 2,454 | ||||
Accrued income | 240 | 311 | ||||||
$ | 1,750 | $ | 2,765 |
Trade receivables past due but not impaired (in thousands):
Months overdue | 2 Jan 2022 | 3 Jan 2021 | ||||||
1 to 3 months | $ | 67 | $ | 780 | ||||
4 to 6 months | 63 | 357 | ||||||
7 to 9 months | - | - | ||||||
Over 9 months | - | - | ||||||
$ | 130 | $ | 1,137 |
Amounts are considered as ‘past due’ when the debt has not been settled within the terms and conditions agreed between the Group and the customer or counter party to the transaction. Receivables that are past due are assessed for impairment by ascertaining solvency of the debtors and are provided for where there are specific circumstance indicating that the debt may not be fully repaid to the Group. Trade receivables that were past due but not impaired relate to a number of independent customers for whom there is no history of default.
Accounting policy for trade and other receivables
Trade receivables are initially recognized at fair value and subsequently measured at amortized cost using the effective interest method, less any provision for impairment. Trade receivables generally have 30 to 90 day payment terms.
Collectability of trade receivables is reviewed on an ongoing basis in accordance with the expected credit loss (“ECL”) model. Credit losses are measured at the present value of all cash shortfalls (i.e. the difference between the cash flows due to the Group in accordance with the contract and the cash flows that the Group expects to receive). ECLs are discounted at the effective interest rate of the financial asset.
The ECL assessment completed by the Group as at 2 January 2022 has resulted in an immaterial credit loss and no impairment allowance has been recognized by the Group (3 January 2021: $Nil).
Critical accounting judgements, estimates and assumptions
The provision for impairment of receivables and the ECL calculation assessment requires a degree of estimation and judgment. The level of provision is assessed by taking into account the recent sales experience, the ageing of receivables, historical collection rates and specific knowledge of the individual debtor’s financial position.
NOTE 8. INVENTORIES - NET
Inventories consisted of the following (in thousands):
2 Jan 2022 | 3 Jan 2021 | |||||||
Raw materials | $ | 5,270 | $ | 6,268 | ||||
Work in progress | 3,142 | 1,985 | ||||||
Finished goods | 1,138 | 1,138 | ||||||
Inventories - gross | $ | 9,550 | $ | 9,391 | ||||
Less: Provision for impairment of inventories | (2,009 | ) | (2,593 | ) | ||||
Inventories - net | $ | 7,541 | $ | 6,798 |
Revasum, Inc. | 23 |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE FISCAL PERIOD ENDED 2 JANUARY 2022
NOTE 8. INVENTORIES – NET (CONTINUED)
Accounting policy for inventory
Raw materials, work in progress and finished goods are stated at the lower of cost and net realizable value on a 'first in first out' basis. Cost comprises of direct materials and delivery costs, direct labor, import duties and other taxes, an appropriate proportion of variable and fixed overhead expenditure based on normal operating capacity. Costs of purchased inventory are determined after deducting rebates and discounts received or receivable.
The Group’s inventories are concentrated in high-technology parts and components that may be specialized in nature or subject to rapid technological obsolescence. These factors are considered in estimating required reserves to state inventories at the lower of cost or net realizable value (“NRV”). NRV is the estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated costs necessary to make the sale.
Critical accounting judgements, estimates and assumptions
The provision for impairment of inventories assessment requires a degree of estimation and judgement. The level of the provision is assessed by taking into account the recent sales experience, the ageing of inventories and other factors that affect inventory obsolescence.
NOTE 9. OTHER CURRENT ASSETS
Other current assets consisted of the following (in thousands):
2 Jan 2022 | 3 Jan 2021 | |||||||
Prepaid expenses | $ | 452 | $ | 352 | ||||
Advances on purchases | 1,365 | 38 | ||||||
$ | 1,817 | $ | 390 |
NOTE 10. PROPERTY, PLANT AND EQUIPMENT – NET
Property, plant and equipment consisted of the following (in thousands):
2 Jan 2022 | 3 Jan 2021 | |||||||
Leasehold improvements - at cost | $ | 116 | $ | 92 | ||||
Less: Accumulated depreciation | (66 | ) | (45 | ) | ||||
Leasehold improvements - net | $ | 50 | $ | 47 | ||||
Plant and equipment - at cost | $ | 4,029 | $ | 3,778 | ||||
Less: Accumulated depreciation | (1,279 | ) | (784 | ) | ||||
Plant and equipment - net | $ | 2,750 | $ | 2,994 | ||||
Leased equipment | $ | 71 | $ | 71 | ||||
Less: Accumulated depreciation | (52 | ) | (33 | ) | ||||
Leased equipment - net | $ | 19 | $ | 38 | ||||
Property, plant and equipment - net | $ | 2,819 | $ | 3,079 |
Revasum, Inc. | 24 |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE FISCAL PERIOD ENDED 2 JANUARY 2022
NOTE 10. PROPERTY, PLANT AND EQUIPMENT – NET (CONTINUED)
Movements (in thousands):
Leasehold improvements | Plant & equipment | Leased equipment | Total | |||||||||||||
Balance at 5 January 2020 | $ | 67 | $ | 3,567 | $ | 54 | $ | 3,688 | ||||||||
Additions | - | 85 | - | 85 | ||||||||||||
Transfer to inventory- work in progress | - | (196 | ) | - | (196 | ) | ||||||||||
Disposals - net | - | - | - | - | ||||||||||||
Depreciation expense | (20 | ) | (462 | ) | (16 | ) | (498 | ) | ||||||||
Balance at 3 January 2021 | $ | 47 | $ | 2,994 | $ | 38 | $ | 3,079 | ||||||||
Additions | 24 | 265 | - | 289 | ||||||||||||
Transfer to inventory- work in progress | - | - | - | - | ||||||||||||
Disposals - net | - | - | - | - | ||||||||||||
Depreciation expense | (21 | ) | (509 | ) | (19 | ) | (549 | ) | ||||||||
Balance at 2 January 2022 | $ | 50 | $ | 2,750 | $ | 19 | $ | 2,819 |
Reconciliation of depreciation expense (in thousands):
2 Jan 2022 | 3 Jan 2021 | |||||||
Depreciation allocated to research & development | $ | 523 | $ | 458 | ||||
Depreciation expensed to cost of goods sold | 26 | 40 | ||||||
Total depreciation expense | $ | 549 | $ | 498 |
Accounting policy for property, plant and equipment
Plant and equipment are stated at cost less accumulated depreciation and any accumulated impairment losses. Cost includes expenditure that is directly attributable to the acquisition of the items. Subsequent costs are included in the assets carrying amount or recognized as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably.
Plant and equipment are depreciated, and leasehold improvements are amortized, over their estimated useful lives using the straight-line method.
Accounting policy for property, plant and equipment (continued)
The expected useful lives of the assets are as follows:
Plant & equipment | 3-10 years |
Leasehold improvements | over the shorter of the useful life and the remaining lease term |
Leased equipment | over the shorter of the useful life and the remaining lease term |
The residual values and useful lives are reviewed, and adjusted if appropriate, at each statement of financial position date or when there is an indication that they have changed.
A carrying amount is written down immediately to its recoverable amount if the carrying amount is greater than its estimated recoverable amount.
Gains and losses on disposals are determined by comparing proceeds with carrying amount. These are included in the statement profit or loss and other comprehensive income.
Critical accounting judgements, estimates and assumptions
Estimation of useful lives of assets
The Group determines the estimated useful lives and related depreciation and amortization charges for its property, plant and equipment and finite life intangible assets. The useful lives could change significantly as a result of technical innovations or some other event. The depreciation and amortization charge will increase where the useful lives are less than previously estimated lives, or technically obsolete or non-strategic assets that have been abandoned or sold will be written off or written down.
Revasum, Inc. | 25 |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE FISCAL PERIOD ENDED 2 JANUARY 2022
NOTE 11. INTANGIBLE ASSETS - NET
Intangible assets consisted of the following (in thousands):
2 Jan 2022 | 3 Jan 2021 | |||||||
Capitalized development costs – at cost | $ | 9,123 | $ | 9,123 | ||||
Less: Accumulated amortization | (1,292 | ) | (468 | ) | ||||
Less: Accumulated Impairment | (4,863 | ) | (4,863 | ) | ||||
Intangible assets - net | $ | 2,968 | $ | 3,792 |
Capitalized development costs | ||||
Balance at 5 January 2020 | $ | 6,770 | ||
Additions | 432 | |||
Amortization | (434 | ) | ||
Impairment | (2,976 | ) | ||
Balance at 3 January 2021 | 3,792 | |||
Amortization | (824 | ) | ||
Balance at 2 January 2022 | $ | 2,968 |
Accounting policy for capitalized development costs
Development costs on an individual project are recognized as an intangible asset when the Group can demonstrate:
· | The technical feasibility of completing the intangible asset so that the asset will be available for use or sale. |
· | Its intention to complete and its ability and intention to use or sell the asset. |
· | How the asset will generate future economic benefits. |
· | The availability of resources to complete the asset. |
The costs that are eligible for capitalization of development costs are the following:
· | Engineers’ compensation for time directly attributable to developing the project. |
· | An allocated amount of direct costs, such as overhead related to the project and the facilities they occupy. |
· | Costs associated with testing of the product for market. |
· | Patents acquisition and registration costs (patents, application fees, and legal fees). |
· | Other direct developing costs that are incurred to bring the product to market. |
Following initial recognition of the development expenditure as an asset, the asset is carried at cost less any accumulated amortization and accumulated impairment losses. Amortization of the asset begins when development is complete, and the asset is available for use. Development costs are amortized on a straight-line basis over the period of expected future sales from the related project which is 5 years. Amortization is recorded in profit or loss.
Critical accounting judgements, estimates and assumptions
Capitalized development costs
The Group capitalizes development costs for a project in accordance with the above accounting policy. Initial capitalization of cost is based on management’s judgement that technological and economic feasibility is confirmed. In determining the amounts to be capitalized, management makes assumptions regarding the expected future cash generation of the project, discount rates to be applied and the expected period of the benefits.
Revasum, Inc. | 26 |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE FISCAL PERIOD ENDED 2 JANUARY 2022
NOTE 11. INTANGIBLE ASSETS – NET (CONTINUED)
Impairment of intangible assets
The Group assesses impairment of intangible assets other than goodwill at each reporting date by evaluating conditions specific to the Group and to the particular asset that may lead to impairment. If an impairment trigger exists, the recoverable amount of the asset is determined. This involves fair value less costs of disposal or value-in-use calculations, which incorporate several key estimates and assumptions.
Assessment of carrying values
The recoverable amounts were determined based on value-in-use calculations using cash flow projections covering a five-year period, which are based on strategic plans and forecasts approved by the Board of Directors. Estimates beyond the five-year period are calculated using terminal growth rates that are applicable to the trading environment in which the CGU operates. As disclosed in Note 24 of the report, the Company is considered to be one CGU.
Key assumptions used in assessment
The valuation used to support the carrying amounts of intangible assets are based on forward looking key assumptions that are, by nature, uncertain. The nature and basis of the key assumptions used to estimate future cash flows and the discount rates used in the projections, when determining the recoverable amount of the CGU, are set out below:
· | Operating cash flows – Operating cash flow projections are extracted from the most recent approved strategic plans or forecasts that relate to the existing asset base. The cash flow projections for a five-year period have been determined based on expectations of future performance. Key assumptions in the cash flows include sales volume growth, cost of sales, costs of doing business and the anticipated success of capitalized development projects. The assumptions are based on expectations of market demand and operational performance. Cash flow projections are based on risk-adjusted forecasts allowing for estimated changes in the business, the competitive trading environment, legislation and economic growth. |
· | Discount rates – Discount rates are based on the weighted average cost of capital (“WACC”) for the Group. The calculation of WACC is market-driven and key inputs include target capital structure, equity beta, market risk premium and risk-free rate of return and debt risk premium. The pre-tax discount rate used was 16.36%. |
· | Terminal growth rates – Cash flows beyond the projection period are extrapolated indefinitely using estimated long-term growth rates applicable to the trading environment in which the Company operates. A terminal growth rate of 2.00% was applied. |
Results of assessment
At 2 January 2022, management have prepared a value-in-use calculation to assess the recoverable amount of the CGU at year end. The valuation supported the recoverable amount at the reporting date and no additional impairment has been recognized during the financial year.
Sensitivity to changes in key assumptions
The enterprise value of the CGU is in line with the current carrying value of the CGU. Any future events that result in adverse changes to forward assumptions would accordingly result in further impairment. As at the assessment date, no reasonably likely change in key assumptions would cause the carrying amount of the CGU to exceed the recoverable amount.
NOTE 12. TRADE AND OTHER PAYABLES
Trade and other payables consisted of the following (in thousands):
2 Jan 2022 | 3 Jan 2021 | |||||||
Trade payables | $ | 1,668 | $ | 1,542 | ||||
Accrued expenses | 862 | 695 | ||||||
$ | 2,530 | $ | 2,237 |
Accounting policy for trade and other payables
These amounts represent liabilities for goods and services provided to the Group prior to the end of the fiscal year and which are unpaid. Due to their short-term nature they are measured at amortized cost and are not discounted. The amounts are unsecured and are usually paid within 30 days of recognition.
Revasum, Inc. | 27 |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE FISCAL PERIOD ENDED 2 JANUARY 2022
NOTE 13. CUSTOMER DEPOSITS
Customer deposits consisted of the following (in thousands):
2 Jan 2022 | 3 Jan 2021 | |||||||
Customer deposits on sales | $ | 2,055 | $ | 113 | ||||
$ | 2,055 | $ | 113 |
Accounting policy for customer deposits
These amounts represent deposits for sales provided to the Group in accordance with contract terms. Due to their short-term nature they are measured at amortized cost.
NOTE 14. EMPLOYEE BENEFITS
Employee benefits consisted of the following (in thousands):
2 Jan 2022 | 3 Jan 2021 | |||||||
Provision for annual leave | $ | 265 | $ | 214 | ||||
$ | 265 | $ | 214 |
Accounting policy for employee benefits
Provision for annual leave expected to be settled wholly within 12 months of the reporting date are measured at the amounts expected to be paid when the balances are settled.
NOTE 15. WARRANTY PROVISION
Warranty provision consisted of the following (in thousands):
2 Jan 2022 | 3 Jan 2021 | |||||||
Warranty provision | $ | 214 | $ | 256 | ||||
$ | 214 | $ | 256 |
Accounting policy for warranty provision
The provision represents the estimated warranty claims in respect of products sold which are still under warranty at the reporting date. The provision is estimated based on historical warranty claim information, sales levels and any recent trends that may suggest future claims could differ from historical amounts.
Critical accounting judgements, estimates and assumptions
In determining the level of provision required for warranties the Group has made judgements in respect of the expected performance of the products, the number of customers who will actually claim under the warranty and how often, and the costs of fulfilling the conditions of the warranty. The provision is based on estimates made from historical warranty data associated with similar products and services.
NOTE 16. BORROWINGS
Borrowings includes the following liabilities carried at amortized cost (in thousands):
2 Jan 2022 | 3 Jan 2021 | |||||||
Current | ||||||||
Bridge Bank Loan (a) | $ | - | $ | 1,000 | ||||
Paycheck Protection Program Loan (b) | - | 1,500 | ||||||
Non-current | ||||||||
Bridge Bank Loan (a) | - | - | ||||||
Paycheck Protection Program Loan (b) | - | 723 | ||||||
$ | - | $ | 3,223 |
Revasum, Inc. | 28 |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE FISCAL PERIOD ENDED 2 JANUARY 2022
NOTE 16. BORROWINGS (CONTINUED)
(a) Bridge Bank Loan
Movements in borrowings (in thousands):
2 Jan 2022 | 3 Jan 2021 | |||||||
Opening Balance | $ | 1,000 | $ | 1,931 | ||||
Proceeds from Bridge Bank Loan | - | 2,200 | ||||||
Interest accrued on facility | 8 | 73 | ||||||
Interest paid on facility | (8 | ) | (73 | ) | ||||
Repayment of Bridge Bank Loan Principal | (1,000 | ) | (3,148 | ) | ||||
Amortization of transaction costs | - | 17 | ||||||
Closing Balance | $ | - | $ | 1,000 |
During the year the Company had a US$8.0 million working capital revolving credit line (“Revolving Credit Line”) with Bridge Bank, a division of Western Alliance Bank (NYSE: WAL). The amount of liquidity available under the US$8.0 million Revolving Credit Line is based upon the Company’s balances and composition of eligible customer receivables and inventory, as well as other factors. Amounts borrowed under the Revolving Credit Line mature and become due and payable in 24 months, unless extended by the parties. The Revolving Credit Line bears interest at a rate equal to 0.5% above the Prime Rate.
During the year the Company fully repaid and closed the Revolving Credit Line.
(b) Paycheck Protection Program Loan
Movements in borrowings (in thousands):
2 Jan 2022 | 3 Jan 2021 | |||||||
Opening Balance | $ | 2,223 | $ | - | ||||
Proceeds from Paycheck Protection Loan | 1,165 | 2,213 | ||||||
Interest accrued on facility | 6 | 10 | ||||||
Loan principal forgiveness | (3,378 | ) | - | |||||
Interest accrued forgiveness | (16 | ) | ||||||
Closing Balance | $ | - | $ | 2,223 |
On 21 April 2020, the Company received loan proceeds of US$2,213,100 under the Paycheck Protection Program (“PPP”) provisions of the CARES Act. On 27 January 2021, the Company received further loan proceeds of US$1,165,370 under the PPP provisions of the CARES Act.
The PPP provides a mechanism for forgiveness of up to the full amount borrowed, as long as the borrower uses the loan proceeds for eligible purposes, including payroll costs, certain benefits costs, rent and utilities costs or other permitted purposes, and maintains its payroll levels, subject to certain other requirements and limitations. The amount of loan forgiveness is subject to reduction for numerous reasons, including if the borrower has recently terminated employees or reduce salaries.
The PPP Loan is evidenced by a promissory note (“Note”) given by the Company as borrower to Western Alliance Bank, an Arizona Corporation, as the lender. The PPP Loan is unsecured and is guaranteed by the U.S. Small Business Administration. The interest rate on the Note is 1.0% per annum. Any unforgiven portion of the PPP Loan is payable over a two-year term, with payments deferred for seven months from the date of the Note. The Company is permitted to prepay the Note at any time without payment of any premium.
The Company received full forgiveness of the first-round loan including all interest accrued in the amount of US$2,213,100 on June 17, 2021. The Company received full forgiveness of the second-round loan including all interest accrued in the amount of US$1,165,370 on December 24, 2021.
Accounting policy for borrowings
Borrowings are initially valued at the fair value of consideration received net of transaction costs. They are subsequently measured at amortized cost using the effective interest method.
Revasum, Inc. | 29 |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE FISCAL PERIOD ENDED 2 JANUARY 2022
NOTE 17. CONTRIBUTED EQUITY
Contributed equity consisted of the following:
2 Jan 2022 | 3 Jan 2021 | |||||||||||||||||
Shares | US$’000 | Shares | US$’000 | |||||||||||||||
Shares of Common Stock | 106,267,204 | $ | 49,996 | 78,998,473 | $ | 43,610 | ||||||||||||
106,267,204 | $ | 49,996 | 78,998,473 | $ | 43,610 |
Issued capital
Shares of common stock are classified as equity.
Incremental costs directly attributable to the issue of new shares, warrants or options are shown in equity as a deduction, net of tax, from the proceeds.
Movements in common stock:
Shares | US$’000 | |||||||
Balance as at 5 January 2020 | 78,008,441 | 43,407 | ||||||
Shares issued on vesting of RSUs (Note 19) | 153,217 | 154 | ||||||
Shares issued on exercise of Options (Note 19) | 826,815 | 49 | ||||||
Balance as at 3 January 2021 | 78,998,473 | 43,610 | ||||||
Shares of Common Stock issued on equity capital raise (a) | 22,571,238 | 6,122 | ||||||
Issuance cost of equity capital raise (a) | - | (393 | ) | |||||
Shares issued on vesting of RSUs (Note 19) | 244,209 | 226 | ||||||
Shares issued on exercise of Options (Note 19) | 4,102,734 | 316 | ||||||
Shares issued on ex-CEO Settlement (Note 21) | 350,550 | 115 | ||||||
Balance as at 2 January 2022 | 106,267,204 | 49,996 |
(a) Equity Capital Raise
During the fiscal year, the Company undertook a pro rata accelerated non-renounceable entitlement offer of new shares of common stock (“New Shares”) and CHESS Depositary Interests (“New CDIs”) (“New Securities”) to raise A$7.9 million (US$6.1 million) (“Entitlement Offer”).
Under the Entitlement Offer, Revasum issued 22,571,238 New Securities at an offer price of A$0.35 per New Security. Eligible security holders were entitled to subscribe for 1 New Share (for eligible security holders in the United States) or 1 New CDI (for eligible security holders outside the United States) for every 3.5 Shares or CDIs held at the record date for the Entitlement Offer.
19,773,273 shares were issued on 11 February 2021, with a further 2,797,965 shares issued on 23 February 2021. The New Shares rank equally with the shares of common stock already on issue in all respects.
Costs of US$0.4 million were incurred as a result of the equity capital raise.
Terms and conditions of contributed equity
The holders of shares of common stock participate in dividends and the proceeds on the winding up of the Company in proportion to the number of and amounts paid on the shares held. The fully paid shares of common stock have a par value of $0.0001 and the Company has a limited amount of authorized capital of 226,128,108 shares, 174,128,108 of which are designated “Common Stock” and 52,000,000 of which are designated “Common Prime Stock”. As at the fiscal year end date, no Common Prime Stock was on issue.
The holders of Common Stock are entitled to one vote for each share of common stock held at the meetings of stockholders. There shall be no cumulative voting. They are also entitled to receive, when, as and if declared by the Board, out of any assets of the Company legally available therefore, any dividends as may be declared from time to time by the Board.
In connection with the Company’s IPO and ASX listing in 2018, certain stockholders entered into an escrow agreement with the Company under which the stockholder agreed, among other things, to certain restrictions and prohibitions for a period of time (the “Lock-Up Period”), from engaging in transactions in the shares of Common Stock (including Common Stock in the form of CDIs), shares of Common Stock that may be acquired upon exercise of a stock option, warrant or other right, and shares of Common Stock that arise from such Common Stock (collectively, the “Restricted Securities”).
Revasum, Inc. | 30 |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE FISCAL PERIOD ENDED 2 JANUARY 2022
NOTE 17. CONTRIBUTED EQUITY (CONTINUED)
The Restricted Securities shall automatically be converted into shares of Common Prime Stock, on a one for one basis if the Company determines, in its sole discretion, that the stockholder breached any term of the stockholder’s escrow agreement or breached the official listing rules of the ASX relating to the Restricted Securities. Any shares of Common Stock converted to Common Prime Stock under these terms should be automatically converted back into shares of Common Stock, on a one for one basis, upon the earlier to occur of (i) the expiration of the Lock-Up Period in the escrow agreement or the (ii) breach of the listing rules being remedied, as applicable. All shares were released from escrow as of December 4th, 2020.
Terms and conditions of contributed equity
The holders of Preferred Stock are entitled to the number of voting rights equal to the number of shares of Common Stock into which such shares of Preferred Stock held by such holder could then be converted. The Preferred Stockholders are eligible to vote on all matters on which the Common Stockholder is entitled to vote.
NOTE 18. CAPITAL MANAGEMENT
Capital managed by the Board comprises contributed equity totaling $50.0 million (2020: $43.6 million). When managing capital, management’s objective is to ensure the entity continues as a going concern as well as to maintain optimal returns to shareholders and benefits for other stakeholders. Management also aims to maintain a capital structure that ensures the lowest cost of capital available to the entity. Managed capital is disclosed on the face of the statement of financial position and comprises contributed equity and reserves.
Management may adjust the capital structure to take advantage of favorable costs of capital or higher returns on assets. As the market is constantly changing, management may issue new shares or sell assets to raise cash, change the amount of dividends to be paid to shareholders (if at all) or return capital to shareholders.
During the fiscal period ending 2 January 2022 management did not pay a dividend and does not expect to pay a dividend in the foreseeable future. The Group encourages employees to be shareholders through the 2017 Omnibus Incentive Plan (Note 19).
There were no changes in the Group’s approach to capital management during the year. Risk management policies and procedures are established with regular monitoring and reporting.
Neither the Company nor its subsidiary are subject to externally imposed capital requirements.
NOTE 19. SHARE BASED PAYMENTS
2017 Omnibus Incentive Plan (2017 Plan)
The Company’s Amended and Restated 2017 Omnibus Incentive Plan (2017 Plan) provides for the grant of incentive stock options, non-qualified stock options, stock appreciation rights, restricted stock awards, restricted stock units, incentive awards, other stock-based awards, dividend equivalents and cash awards to directors, employees, consultants and contractors. Only employees of the Company are eligible to receive incentive stock options.
The 2017 Plan is administered by the Remuneration and Nomination Committee. Subject to the provisions of the 2017 Plan and the ASX Listing Rules, the administrator of the 2017 Plan generally has the authority to, among other things, construe and interpret all provisions of the 2017 Plan; approve persons to receive awards; approve the form and terms of awards and terms of vesting, exercisability and payment of awards; determine the number of Shares subject to awards; adopt, amend and rescind rules and regulations pertaining to the administration of the 2017 Plan; and accelerate the time at which any award may be exercised, become transferable or nonforfeitable or be earned and settled including, without limitation, in the event of a participant’s death, disability, retirement or involuntary termination of employment or service or in connection with a change in control of the Company.
In the event of certain corporate events or changes in the Company’s capitalization, the administrator will make adjustments to the number of Shares reserved for issuance under the 2017 Plan, the exercise prices of and the number of Shares subject to outstanding options and stock appreciation rights, and the purchase prices of and/or number of Shares subject to other outstanding awards, subject to compliance with applicable rules and regulations, including the ASX Listing Rules.
In the event of an acquisition or other combination, any or all outstanding awards may be assumed, converted or replaced by the successor or acquiring entity or may be substituted for equivalent awards granted by the successor or acquiring entity. Any awards not assumed or replaced in the acquisition or combination will terminate, without accelerating vesting on the date of such acquisition or combination.
Revasum, Inc. |
31 |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE FISCAL PERIOD ENDED 2 JANUARY 2022
NOTE 19. SHARE BASED PAYMENTS (CONTINUED)
Subject to compliance with applicable law, including the ASX Listing Rules, the Board has the authority to amend or terminate the 2017 Plan at any time and the ability to amend any outstanding awards under the 2017 Plan, provided that no such amendment or termination may materially adversely impair the rights of the participant with respect to such outstanding awards without the participant’s consent. Certain amendments require the approval of the Shareholders. Unless earlier terminated, the 2017 Plan will terminate in 2027.
Share based payment reserve (in thousands):
2 Jan 2022 | 3 Jan 2021 | |||||||
Options issued to directors, employee and consultants (a) | $ | 373 | $ | 448 | ||||
Restricted stock units (‘RSUs’) issued to employees and consultants (b) | 61 | 574 | ||||||
Total share-based payment reserve: | $ | 434 | $ | 1,022 |
Share based payment expense (in thousands):
2 Jan 2022 | 3 Jan 2021 | |||||||
Options issued to directors, employee, and consultants (a) | $ | 58 | $ | (61 | ) | |||
Restricted stock units (‘RSUs’) issued to employees and consultants (b) | (287 | ) | (146 | ) | ||||
Total share-based payment expense: | $ | (229 | ) | $ | (207 | ) |
(a) Options issued as share based payments
The Company grants stock options to its employees, directors, and consultants for a fixed number of shares with an exercise price equal to or greater than the fair value of the common stock at the date of grant and expire no later than 10 years from the date of grant.
(in thousands, except share and per share amounts)
WAEP $ | Share options Number | Share-Based Payment Reserve | ||||||||||
Opening balance as at 5 January 2020 | 0.28 | 13,617,605 | $ | 533 | ||||||||
Expense in the period | - | 283 | ||||||||||
Granted | 0.21 | 2,524,960 | - | |||||||||
Exercised | 0.03 | (836,815 | ) | (24 | ) | |||||||
Forfeited | 0.54 | (4,172,945 | ) | (344 | ) | |||||||
Expired | - | - | ||||||||||
Closing balance as at 3 January 2021 | 0.19 | 11,132,805 | $ | 448 | ||||||||
Expense in the period | - | 240 | ||||||||||
Granted | 0.29 | 2,700,000 | - | |||||||||
Exercised | 0.03 | (4,102,734 | ) | (133 | ) | |||||||
Forfeited | 0.55 | (1,477,166 | ) | (182 | ) | |||||||
Expired | - | - | ||||||||||
Closing balance as at 2 January 2022 | 0.24 | 8,252,905 | $ | 373 |
Revasum, Inc. | 32 |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE FISCAL PERIOD ENDED 2 JANUARY 2022
NOTE 19. SHARE BASED PAYMENTS (CONTINUED)
Option Pricing Model
For all share options issued during the fiscal year, the fair value of the equity-settled share options granted is estimated as at the date of grant using a Black Scholes Option Pricing Model. The following tables list the inputs to the models used for the valuation of options granted in the period ended 2 January 2022.
Grant Date | ||||||
1-Mar-21 | 1-Mar-21 | 1-Mar-21 | 3-May-21 | 3-May-21 | 3-May-21 | |
Number of options issued | 300,000 | 200,000 | 100,000 | 350,000 | 250,000 | 100,000 |
Fair value at measurement date US$ | 0.265 | 0.265 | 0.265 | 0.212 | 0.212 | 0.212 |
Share price at Grant date US$ | 0.35 | 0.35 | 0.35 | 0.28 | 0.28 | 0.28 |
Exercise price US$ | 0.35 | 0.35 | 0.35 | 0.28 | 0.28 | 0.28 |
Expected volatility % | 132 | 132 | 132 | 132 | 132 | 132 |
Risk free interest rate % | 2.24 | 2.24 | 2.24 | 2.24 | 2.24 | 2.24 |
Expected life of options in years | 3 | 3 | 3 | 3 | 3 | 3 |
Vesting conditions | Type 1 | Type 2 | Type 3 | Type 1 | Type 4 | Type 5 |
Grant Date | ||||
20-May-21 | 10-Sep-21 | 10-Sep-21 | 10-Sep-21 | |
Number of options issued | 400,000 | 500,000 | 300,000 | 200,000 |
Fair value at measurement date US$ | 0.114 | 0.235 | 0.235 | 0.235 |
Share price at Grant date US$ | 0.15 | 0.31 | 0.31 | 0.31 |
Exercise price US$ | 0.15 | 0.31 | 0.31 | 0.31 |
Expected volatility % | 132 | 132 | 132 | 132 |
Risk free interest rate % | 2.24 | 2.24 | 2.24 | 2.24 |
Expected life of options in years | 3 | 3 | 3 | 3 |
Vesting conditions | Type 6 | Type 1 | Type 7 | Type 2 |
Revasum, Inc. | 33 |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE FISCAL PERIOD ENDED 2 JANUARY 2022
NOTE 19. SHARE BASED PAYMENTS (CONTINUED)
Type 6 | On the First Vesting Date 30,000 of the Shares will become Vested Shares, and on the same day of each succeeding calendar month thereafter (or if there is no such day in any month, then the last day of such calendar month), an additional 4,146 of the Shares shall vest. |
Type 7 | (1) 1/4th of the Shares will become vested on the later to occur of (a) first anniversary of grant or (b) PO for new CMP tool (or equivalent) has been received and accepted by the Company; (2) 1/4th of the Shares will become vested on the later to occur of (a) second anniversary of grant or (b) PO for new CMP tool (or equivalent) has been received and accepted by the Company; (3)1/4th of the Shares will become vested on the later to occur of (a) third anniversary of grant or (b) PO for new CMP tool (or equivalent) has been received and accepted by the Company; (4) 1/4th of the Shares will become vested on the later to occur of (a) fourth anniversary of grant or (b) PO for new CMP tool (or equivalent) has been received and accepted by the Company. |
The expected dividend yield for all options granted during these periods was nil. The expected volatility reflects the assumption that the historical volatility over a period similar to the life of the options is indicative of future trends, which may not necessarily be the actual outcome.
(b) Restricted Stock Units issued as share based payments
(in thousands, except share and per share amounts)
RSU Number | Share-Based Payment Reserve | |||||||
Opening balance as at 5 January 2020 | 2,401,087 | $ | 874 | |||||
Expense in the period | - | (146 | ) | |||||
Issued during the year | - | - | ||||||
Converted during the year | (153,217 | ) | (154 | ) | ||||
Forfeited during the year | (651,231 | ) | - | |||||
Closing balance as at 3 January 2021 | 1,596,639 | $ | 574 | |||||
Expense in the period | - | 66 | ||||||
Issued during the year | - | - | ||||||
Converted during the year | (244,209 | ) | (226 | ) | ||||
Forfeited during the year | (1,271,025 | ) | (353 | ) | ||||
Closing balance as at 2 January 2022 | 81,405 | $ | 61 |
Restricted Stock Units Pricing Model
The fair value of the equity-settled restricted stock units granted throughout the year is estimated as at the date of grant with reference to the IPO price, discounted accordingly for lack of marketability and non-controlling interest.
Accounting policy for share-based payments
The Company provides benefits to directors, employees and consultants in the form of share-based payment transactions, whereby employees render services in exchange for shares or rights to acquire or be issued shares (equity-settled transactions) via the 2017 Omnibus Incentive Plan (“the Plan”).
The terms of the share options are as determined by the Board. The cost of these equity-settled transactions to employees is measured by reference to the fair value at the date at which they are granted. The fair value is determined by using a Black & Scholes model.
In valuing equity-settled transactions, no account is taken of any vesting conditions, other than conditions linked to the price of the shares of the Company (market conditions) if applicable.
The cost of equity-settled transactions is recognized, together with a corresponding increase in equity, over the period in which the performance and/or service conditions are fulfilled (the vesting period), ending on the date on which the relevant employees become fully entitled to the award (the vesting date).
Revasum, Inc. | 34 |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE FISCAL PERIOD ENDED 2 JANUARY 2022
NOTE 19. SHARE BASED PAYMENTS (CONTINUED)
At each subsequent reporting date until vesting, the cumulative charge to the statement of profit or loss and other comprehensive income is the product of (i) the grant date fair value of the award; (ii) the current best estimate of the number of awards that will vest, taking into account such factors as the likelihood of employee turnover during the vesting period and the likelihood of non-market performance conditions being met; and (iii) the expired portion of the vesting period.
The charge to the statement of profit or loss and other comprehensive income for the period is the cumulative amount as calculated above less the amounts already charged in previous periods. There is a corresponding credit to equity.
Until an award has vested, any amounts recorded are contingent and will be adjusted if more or fewer awards vest than were originally anticipated to do so. Any award subject to a market condition is considered to vest irrespective of whether or not the market condition is fulfilled, provided that all other conditions are satisfied.
If a non-vesting condition is within the control of the Company or the employee, the failure to satisfy the condition is treated as a cancellation. If a non-vesting condition within the control of neither the Company nor employee is not satisfied during the vesting period, any expense for the award not previously recognized is recognized over the remaining vesting period, unless the award is forfeited.
Critical accounting judgements, estimates and assumptions
The Company measures the cost of equity-settled transactions with employees by reference to the fair value of the equity instruments at the date at which they are granted. The fair value is determined by using the Black Scholes option pricing model, using the assumptions noted above.
NOTE 20. LEASE LIABILITIES
Lease liabilities consisted of the following (in thousands):
2 Jan 2022 | 3 Jan 2021 | |||||||
Current | $ | 708 | $ | 668 | ||||
Non-current | 728 | 1,418 | ||||||
$ | 1,436 | $ | 2,086 |
Net present value of lease liabilities (in thousands):
Less than 6 months | 6 to 12 months | Between 1 and 5 years | Total | |||||||||||||
Lease payments | $ | 379 | $ | 379 | $ | 757 | $ | 1,515 | ||||||||
Finance charges | (25 | ) | (25 | ) | (29 | ) | (79 | ) | ||||||||
$ | 354 | $ | 354 | $ | 728 | $ | 1,436 |
Accounting policy for lease liabilities
Where a lease is identified at inception, the Group recognizes a right-of-use asset and a lease liability at the lease commencement date. The right-of-use asset is initially measured at cost, which comprises the initial amount of the lease liability adjusted for any lease payments made at or before the commencement date, plus any initial direct costs incurred and an estimate of costs to dismantle and remove the underlying asset or to restore the underlying asset or the site on which it is located, less any lease incentives received.
The right-of-use asset is subsequently depreciated using the straight-line method from the commencement date to the earlier of the end of the useful life of the right-of-use asset or the end of the lease term. The estimated useful lives of right-of-use assets are determined on the same basis as those of property and equipment. In addition, the right-of-use asset is periodically reduced by impairment losses, if any, and adjusted for certain remeasurements of the lease liability.
The lease liability is initially measured at the present value of the lease payments that are to be made over the term of the lease, discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, the Group's incremental borrowing rate.
Revasum, Inc. | 35 |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE FISCAL PERIOD ENDED 2 JANUARY 2022
NOTE 20. LEASE LIABILITIES (CONTINUED)
On initial recognition, the carrying value of the lease liability also includes:
· | amounts expected to be payable under any residual value guarantee; |
· | the exercise price of any purchase option granted in favour of the group if it is reasonably certain to assess that option; and |
· | any penalties payable for terminating the lease, if the term of the lease has been estimated on the basis of termination option being exercised. |
Variable lease payments are only included in measuring the lease liability if they depend on an index or rate. In such cases, the initial measurement of the lease liability assumes the variable element will remain unchanged throughout the lease term.
Subsequently, the lease liability is measured at amortized cost using the effective interest method. It is remeasured when there is a change in future lease payments arising from a change in an index or rate, if there is a change in the Group's estimate of the amount expected to be payable under a residual value guarantee, or if the Group changes its assessment of whether it will exercise a purchase, extension or termination option.
When the lease liability is remeasured in this way, a corresponding adjustment is made to the carrying amount of the right-of-use asset or is recorded in profit or loss if the carrying amount of the right-of-use asset has been reduced to zero.
NOTE 21. RELATED PARTY TRANSACTIONS
Subsidiaries
The consolidated financial statements include the financial statements of Revasum, Inc. and the following subsidiary:
Beneficial interest | |||
Name | Country of incorporation | 2 Jan 2022 | 3 Jan 2021 |
Revasum Australia, Inc. | United States of America | 100% | 100% |
Key management personnel
The following persons were identified as key management personnel of Revasum during the fiscal period ended 2 Jan 2022:
Rebecca Shooter-Dodd | President and CEO & Executive Director | Appointed 13 September 2021 (previously CFOO) |
Kevin Landis | Chairman & Non-Executive Director | |
Ryan Benton | Independent Non-Executive Director | |
Paul Mirabelle | Independent Non-Executive Director | |
Vivek Rao | Chairman & Independent Non-Executive Director | Resigned 27 September 2021 |
Compensation
The compensation paid to directors and key management personnel for the fiscal year ended 2 Jan 2022 is as follows:
Base Salary (Gross) | Cash Bonus | 401(K) | Directors’ Fees | Total 2 Jan 2022 | Total 3 Jan 2021 | ||||||||||||||||||
$ | $ | $ | $ | $ | $ | ||||||||||||||||||
Rebecca Shooter-Dodd | 259,039 | - | - | - | 259,039 | 70,461 | |||||||||||||||||
Kevin Landis | - | - | - | - | - | - | |||||||||||||||||
Ryan Benton | - | - | - | 60,000 | 60,000 | 139,814 | |||||||||||||||||
Paul Mirabelle | - | - | - | 60,000 | 60,000 | 60,000 | |||||||||||||||||
Vivek Rao | - | - | - | 45,000 | 45,000 | 60,000 | |||||||||||||||||
259,039 | - | - | 165,000 | 424,039 | 330,275 |
Revasum, Inc. | 36 |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE FISCAL PERIOD ENDED 2 JANUARY 2022
NOTE 21. RELATED PARTY TRANSACTIONS (CONTINUED)
Share options granted to directors and other key management personnel during the fiscal year:
Class of underlying shares | 2 Jan 2022 Number | 3 Jan 2021 Number | ||||||||
Rebecca Shooter-Dodd | Common Stock | 500,000 | 1,074,960 | |||||||
Kevin Landis | Common Stock | - | - | |||||||
Ryan Benton | Common Stock | - | - | |||||||
Paul Mirabelle | Common Stock | 200,000 | - | |||||||
Vivek Rao | Common Stock | 200,000 | - | |||||||
900,000 | 1,074,960 |
Transactions with related parties
Receivable from and payable to related parties
There were no trade receivables from or trade payables to related parties at the current and previous reporting dates.
Loans to and from related parties
There were no loans to or from related parties at the current and previous reporting dates.
Financial instrument balances held with related parties
Related party name | Nature of related party relationship | Financial instrument type | Number of instruments held 2 Jan 2022 | Number of instruments held 3 Jan 2021 | ||||||||
Firsthand Funds | Nominee director | Common stock | 69,361,889 | 53,948,136 | ||||||||
Ryan Benton | Director | Common stock | 600,088 | 276,795 | ||||||||
Paul Mirabelle | Director | Common stock | 38,572 | 30,000 | ||||||||
Vivek Rao | Director | Common stock | - | * | 22,605 | |||||||
70,000,549 | 54,277,536 |
Share options and Restricted Stock Units held by related parties
Related party name | Nature of related party relationship | Financial instrument type | Number of instruments held 2 Jan 2022 | Number of instruments held 3 Jan 2021 | ||||||||
Ryan Benton | Director | Stock Options | 1,965,000 | 1,965,000 | ||||||||
Ryan Benton | Director | RSUs | 81,405 | 325,614 | ||||||||
Paul Mirabelle | Director | Stock Options | 275,000 | 75,000 | ||||||||
Vivek Rao | Director | Stock Options | - | * | 75,000 | |||||||
Rebecca Shooter-Dodd | CEO & Director | Stock Options | 1,574,960 | 1,074,960 | ||||||||
3,896,365 | 3,515,574 |
* | Instruments were not disposed of but are no longer disclosed due to Mr. Rao ceasing to be a KMP and related party following his resignation on 27 September 2021. |
Settlement with Former CEO
On 6 September 2021 the Company reached a settlement and release agreement with its former Chief Executive Officer, Mr. Jerry Cutini, on terms agreeable to the parties. The material terms of the settlement agreement are outlined below.
As part of the settlement agreement, Mr. Cutini will receive a total gross amount of US$307,500, to be paid out in twelve (12) monthly installments of US$25,625, with payments to commence on 1 October 2021. Mr. Cutini will also receive a lump sum payment of US$48,275 on 7 September 2021. All such payments will be subject to all required tax withholdings. In addition, the Company issued 350,550 shares of common stock to Mr. Cutini on 7 September 2021 as part of the settlement. The fair value of these shares as at the date of issue was US$115,250, and this expense is included in other general and admin spend in the statement of profit and loss and other comprehensive income. The settlement also includes mutual releases of claims by both the Company and Mr. Cutini, bringing this matter to a close.
Revasum, Inc. | 37 |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE FISCAL PERIOD ENDED 2 JANUARY 2022
NOTE 22. EVENTS AFTER THE REPORTING PERIOD
On 2 February 2022, 1,000,000 options with an exercise price of $0.73 were granted to employees.
On 18 February 2022 the Company secured a growth capital facility from SQN Venture Partners, LLC ('SQN'). The facility will provide up to $8 million in debt financing to accelerate new product development and provide the working capital necessary to support rapid growth. The funds are available in two tranches as follows:
• | $5 million funded upon execution of the facility on 18 February 2022 (‘Tranche 1’) |
• | $3 million available to the Company upon achieving YTD Purchase Orders for the 7AF-HMG and 6EZ of at least $12 million by 30 September 2022 (‘Tranche 2’) |
The loan has an interest rate of 9.75% per annum. Tranche I has an interest only period of 12 months, but can extend an additional 6 months upon achievement of Tranche II. Tranche II has an interest only period of 12 months. The facility matures in 42 months. The Company also granted SQN Venture Partners warrants to purchase shares of the Company’s stock equal to 10% of the Total Loan Amount with an exercise price of $0.01/share.
No other matter or circumstance has arisen since 2 January 2022 that has significantly affected, or may significantly affect the Group’s operations, the results of those operations, or the Group’s state of affairs in future fiscal years.
NOTE 23. FINANCIAL RISK MANAGEMENT
The Group’s activities expose it to a variety of financial risks: market risk (including foreign exchange risk, price risk and interest rate risk), credit risk and liquidity risk. The Group’s overall risk management program focuses on the unpredictability of financial markets and seeks to minimize potential adverse effects on the financial performance of the Group. The Group uses different methods to measure different types of risk to which it is exposed. These methods include sensitivity analysis in the case of interest rate and other price risks, ageing analysis for credit risk and liquidity risk.
Risk management is carried out by senior finance executives (“Finance”). Risk management includes identification and analysis of the risk exposure of the Group and appropriate procedures, controls and risk limits. Finance identifies, evaluates and hedges financial risks within the Group’s operating units. Finance reports to the Board on a quarterly basis.
The Group financial instruments consist mainly of deposits with banks, accounts receivables and payables, financial liabilities, and borrowings. The directors consider that the fair value of financial assets and liabilities approximates their carrying amounts.
(in thousands) | ||||||||
2 Jan 2022 | 3 Jan 2021 | |||||||
Financial assets | ||||||||
Cash and cash equivalents | $ | 4,311 | $ | 1,364 | ||||
Trade and other receivables | 1,750 | 2,765 | ||||||
$ | 6,061 | $ | 4,129 | |||||
Financial liabilities | ||||||||
Trade and other payables | 2,530 | 2,237 | ||||||
Customer deposits | 2,055 | 113 | ||||||
Lease liabilities | 1,436 | 2,086 | ||||||
Borrowings | - | 3,223 | ||||||
$ | 6,021 | $ | 7,659 |
Liquidity Risk
Liquidity Risk arises from the possibility that the Group may encounter difficulty in settling its debt or otherwise meeting its obligations related to financial liabilities. The Group manages liquidity by monitoring forecast cash flows and ensuring that adequate liquid cash balances are maintained.
Revasum, Inc. | 38 |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE FISCAL PERIOD ENDED 2 JANUARY 2022
NOTE 23. FINANCIAL RISK MANAGEMENT (CONTINUED)
The following are the contractual maturities of financial liabilities, including estimated interest payments and excluding the impact of netting agreements (in thousands):
2 Jan 2022 | Less than 6 months | 6 to 12 months | Between 1 and 2 years | Total contractual cashflow | ||||||||||||
Trade and other payables | $ | 2,530 | $ | - | $ | - | $ | 2,530 | ||||||||
Customer deposits | 2,055 | - | - | 2,055 | ||||||||||||
Lease liabilities | 354 | 354 | 728 | 1,436 | ||||||||||||
Borrowings | - | - | - | - | ||||||||||||
$ | 4,939 | $ | 354 | $ | 728 | $ | 6,021 |
3 Jan 2021 | Less than 6 months | 6 to 12 months | Between 1 and 2 years | Total contractual cashflow | ||||||||||||
Trade and other payables | $ | 2,237 | $ | - | $ | - | $ | 2,237 | ||||||||
Customer deposits | 113 | - | - | 113 | ||||||||||||
Lease liabilities | 335 | 333 | 1,418 | 2,086 | ||||||||||||
Borrowings | 1,000 | 1,500 | 723 | 3,223 | ||||||||||||
$ | 3,685 | $ | 1,833 | $ | 2,141 | $ | 7,659 |
Credit Risk
Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its contractual obligations and arises principally from the Group’s cash and cash equivalents and receivables from customers (refer to Note 6 or further disclosure on this matter).
Cash and cash equivalents
The Group limits its exposure to credit risk by only investing in liquid securities and only with counterparties that have an acceptable credit rating.
Trade and other receivables
The Group operates primarily in developing, manufacturing and selling a portfolio of semiconductor processing equipment and has trade receivables. There is risk that these receivables may not be recovered, and the Group monitors its receivables balances and collections on a monthly basis to mitigate any risk. The Group monitors the expected credit loss model and values trade and other receivables accordingly.
Currency Risk
The Group is exposed to fluctuations in foreign currencies arising from the purchase of goods and services in currencies other than the transacting entity’s functional currency.
NOTE 24. OPERATING SEGMENTS
For operating purposes, the Group is organized into one main operating segment, focused on the technological design, development, manufacture and sale of semiconductor processing equipment.
All the activities of the Group are interrelated, and each activity is dependent on the others. Accordingly, all significant operating disclosures are based upon analysis of the Group as one segment. The financial results from this segment are equivalent to the financial statements of the Group as a whole.
Revasum, Inc. | 39 |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE FISCAL PERIOD ENDED 2 JANUARY 2022
NOTE 24. OPERATING SEGMENTS (CONTINUED)
Geographically, the Group has the following revenue information based on the location of its customers (in thousands):
2 Jan 2022 | 3 Jan 2021 | |||||||
North America | $ | 6,269 | $ | 10,496 | ||||
Asia | 2,923 | 3,576 | ||||||
Europe | 4,518 | 1,296 | ||||||
$ | 13,710 | $ | 15,368 |
The following customers accounted for more than 10% of revenues:
Customer A | 21 | % | 2 | % | ||||
Customer B | 18 | % | 13 | % | ||||
Customer C | 11 | % | 38 | % | ||||
50 | % | 53 | % |
NOTE 25. CONTINGENT LIABILITIES AND CONTINGENT ASSETS
The Group has no other material contingent liabilities or contingent assets as at 2 January 2022 (3 January 2021: $Nil).
NOTE 26. AUDITOR’S REMUNERATION
During the fiscal year, the following fees were paid or payable for audit services provided by BDO:
2 Jan 2022 | 3 Jan 2021 | |||||||
Audit services | ||||||||
Audit or review of financial statements – BDO Audit Pty Ltd | $ | 148,610 | $ | 187,020 | ||||
$ | 148,610 | $ | 187,020 |
NOTE 27. PARENT ENTITY INFORMATION
(in thousands) | ||||||||||||
Note | 2 Jan 2022 | 3 Jan 2021 | ||||||||||
Current assets | $ | 15,419 | $ | 11,317 | ||||||||
Non-current assets | 7,123 | 8,873 | ||||||||||
Total assets | $ | 22,542 | $ | 20,190 | ||||||||
Current liabilities | 5,991 | 4,559 | ||||||||||
Non-Current liabilities | 728 | 3,641 | ||||||||||
Total liabilities | $ | 6,719 | $ | 8,200 | ||||||||
Net Assets | $ | 15,823 | $ | 11,990 | ||||||||
Contributed equity | 17 | $ | 49,996 | $ | 43,610 | |||||||
Share based payment reserve | 19 | 434 | 1,022 | |||||||||
Accumulated losses | (34,607 | ) | (32,642 | ) | ||||||||
Total shareholders’ equity | $ | 15,823 | $ | 11,990 | ||||||||
Loss of the parent entity | $ | (1,965 | ) | $ | (9,156 | ) | ||||||
Total comprehensive income of the parent entity | $ | (1,965 | ) | $ | (9,156 | ) |
Revasum, Inc. | 40 |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE FISCAL PERIOD ENDED 2 JANUARY 2022
NOTE 27. PARENT ENTITY INFORMATION (CONTINUED)
Guarantees entered into by the parent entity
No guarantees have been entered into by the parent entity during FY2021 or FY2020.
Commitments and contingent liabilities of the parent entity
See Note 25 for details on contingent liabilities of the parent entity.
Revasum, Inc. | 41 |
DIRECTORS’ DECLARATION FOR THE FISCAL YEAR ENDED 2 JANUARY 2022
In accordance with a resolution of the directors of Revasum, Inc., the directors of the Company declare that:
1. | The financial statements and notes thereto, are in accordance with Australian Accounting Standards; |
2. | The financial statements and notes thereto, give a true and fair view of the Group’s financial position as at 2 January 2022 and of the performance for the period ended on that date; and |
3. | In the directors’ opinion there are reasonable grounds to believe that Revasum, Inc. will be able to pay its debts as and when they become due and payable. |
On behalf of the directors
![]() |
||
Kevin Landis | ||
Chairman and Non-Executive Director | ||
24 February 2022 | ||
San Jose, California, USA |
Revasum, Inc. | 42 |
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Tel: +61 2 9251 4100 | Level 11, 1 Margaret St |
Fax: +61 2 9240 9821 | Sydney NSW 2000 | |
www.bdo.com.au | Australia |
INDEPENDENT AUDITOR'S REPORT
To the members of Revasum, Inc.
Report on the Audit of the Financial Report
Opinion
We have audited the financial report of Revasum, Inc. (the Company) and its subsidiaries (the Group), which comprises the consolidated statement of financial position as at 2 January 2022, the consolidated statement of profit or loss and other comprehensive income, the consolidated statement of changes in equity and the consolidated statement of cash flows for the year then ended, and notes to the financial report, including a summary of significant accounting policies and the directors’ declaration.
In our opinion the accompanying financial report of the Group:
(i) | Gives a true and fair view of the Group’s financial position as at 2 January 2022 and of its financial performance for the year ended on that date; and |
(ii) | Complies with Australian Accounting Standards. |
Basis for opinion
We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of the Financial Report section of our report. We are independent of the Group in accordance with the Corporations Act 2001 and the ethical requirements of the Accounting Professional and Ethical
Standards Board’s APES 110 Code of Ethics for Professional Accountants (including Independence Standards) (the Code) that are relevant to our audit of the financial report in Australia. We have also fulfilled our other ethical responsibilities in accordance with the Code. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Key audit matters
Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial report of the current period. These matters were addressed in the context of our audit of the financial report as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.
BDO Audit Pty Ltd ABN 33 134 022 870 is a member of a national association of independent entities which are all members of BDO Australia Ltd ABN 77 050 110 275, an Australian company limited by guarantee. BDO Audit Pty Ltd and BDO Australia Ltd are members of BDO International Ltd, a UK company limited by guarantee, and form part of the international BDO network of independent member firms. Liability limited by a scheme approved under Professional Standards Legislation.
Revenue Recognition
Key audit matter | How the matter was addressed in our audit |
Australian Accounting Standard AASB 15: Revenue from Contracts with Customers (‘AASB 15’) users a five step model to recognise revenue. A number of estimates and judgements are made by management in order to determine the point at which performance obligations are met and when revenue can be recognised.
Due to these factors and the overall significance of revenue to the Group as a key performance indicator, we considered this area to be a key audit matter. |
To determine whether revenue was appropriately accounted for and disclosed within the financial statements, we performed, amongst others, the following audit procedures: |
· Critically evaluated the revenue recognition policies for all material revenue sources to ensure compliance with AASB 15: Revenue from Contracts with Customers. | |
· Performed substantive analytical procedures over service, spare parts and other revenues in comparison to prior periods, budget and our expectations. | |
· Substantively tested a sample of revenue transactions throughout the financial period and evaluated whether performance obligations (shipment and installation) had been met and revenue recognised in the correct period. | |
· Performed detailed cut-off testing to ensure that revenue transactions around the period end had been recorded in the correct period. |
Other information
The directors are responsible for the other information. The other information comprises the information in the Group’s annual report for the year ended 2 January 2022, but does not include the financial report and the auditor’s report thereon.
Our opinion on the financial report does not cover the other information and we do not express any form of assurance conclusion thereon.
In connection with our audit of the financial report, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial report or our knowledge obtained in the audit or otherwise appears to be materially misstated.
If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard.
Responsibilities of the directors for the Financial Report
The directors of the Company are responsible for the preparation and fair presentation of the financial report in accordance with Australian Accounting Standards and for such internal control as the directors determine is necessary to enable the preparation of the financial report that is free from material misstatement, whether due to fraud or error.
In preparing the financial report, the directors are responsible for assessing the ability of the Group to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the Group or to cease operations, or has no realistic alternative but to do so.
Auditor’s responsibilities for the audit of the Financial Report
Our objectives are to obtain reasonable assurance about whether the financial report as a whole is free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with the Australian Auditing Standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of this financial report.
A further description of our responsibilities for the audit of the financial report is located at the Auditing and Assurance Standards Board website (http://www.auasb.gov.au/Home.aspx) at:
https://www.auasb.gov.au/admin/file/content102/c3/ar1_2020.pdf
This description forms part of our auditor’s report.
BDO Audit Pty Ltd
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Martin Coyle | |
Director
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Sydney, 24 February 2022
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ADDITIONAL SHAREHOLDER INFORMATION
SHAREHOLDER INFORMATION AS AT 16 FEBRUARY 2022
Shareholder Information required by the ASX Listing Rules and not disclosed elsewhere in the Report is set out below.
In accordance with the 4th edition of the ASX Corporate Governance Council’s Principles and Recommendations, the 2021 Corporate Governance Statement, as approved by the Board, is available on the Company’s website at: www.investors.revasum.com/investor-centre/. The Corporate Governance Statement sets out the extent to which Revasum has followed the ASX Corporate Governance Council’s Recommendations during the 2021 financial year.
The information in this section is current as at 16 February 2022 unless otherwise indicated.
The Company has issued a total of 106,267,204 Shares of common stock (Shares) which equates to 106,267,204 Chess Depository Receipts (CDIs). 1 CDI represents the beneficial interest in 1 Share. As at the date of this report, 89,605,359 CDIs are issued and held by 902 CDI Holders which represents 89,605,359 Shares. 16,661,845 Shares are held by 10 shareholders who have not elected to hold Company securities in the form of CDIs.
1. | Substantial shareholders |
The number of CDIs held by substantial shareholders and their associates as advised to the ASX are set out below, assuming all shares of common stock are held as CDIs:
Name | Number Shares | Number CDIs | % |
Perennial Value Management Limited | 13,201,893 | 13,201,893 | 12.42 |
Firsthand Venture Investors | 54,218,136 | 54,218,136 | 51.02 |
Firsthand Technology Opportunities Fund | 15,413,753 | - | 14.50 |
2. | Number of security holders and securities on issue |
Revasum has issued the following securities:
(a) 16,661,845 fully paid ordinary shares held by 10 shareholders;
(b) 89,605,359 CDIs held by 902 CDI holders;
(c) 9,252,905 unquoted options held by 22 option holders; and
(d) 81,405 unquoted restricted stock units held by 1 restricted stock unit holders.
Details of the Top 20 Shareholders are set out in section 6 below.
3. | Voting rights |
Ordinary shares
At a meeting of the Company’s stockholders, every stockholder present, in person or by proxy is entitled to one vote for each share held on the record date for the meeting on all matters submitted to a vote of stockholders.
CDIs
CDI holders will be entitled to one vote for every one CDI they hold on the record date for the meeting on all matters submitted to a vote of stockholders.
Options
Option holders do not have any voting rights on the options held by them.
Restricted stock units
Restricted stock unit holders do not have any voting rights on the restricted stock units held by them.
Revasum, Inc. | 46 |
ADDITIONAL SHAREHOLDER INFORMATION
4. Distribution of security holders
Category | Fully Paid Shares of Common Stock | |||
Total Shareholders | Number of Shares | % | ||
1 - | 1,000 | - | - | - |
1,001 - | 5,000 | - | - | - |
5,001 - | 10,000 | - | - | - |
10,001 - | 100,000 | 6 | 336,974 | 2.00 |
100,001 and over | 4 | 16,324,871 | 98.00 | |
Total | 10 | 16,661,845 | 100.00 |
Category | Chess Depositary Interests (CDIs) | |||
Total CDI Holders | Number of CDIs | % | ||
1 - | 1,000 | 148 | 90,770 | 0.10 |
1,001 - | 5,000 | 344 | 962,797 | 1.07 |
5,001 - | 10,000 | 148 | 1,193,848 | 1.33 |
10,001 - | 100,000 | 226 | 6,798,763 | 7.59 |
100,001 and over | 36 | 80,559,181 | 89.90 | |
Total | 902 | 89,605,359 | 100.00 |
Category | Unquoted Options | |||
Total Option Holders | Number of Options | % | ||
1 - | 1,000 | - | - | - |
1,001 - | 5,000 | - | - | - |
5,001 - | 10,000 | - | - | - |
10,001 - | 100,000 | 11 | 562,500 | 6.08 |
100,001 and over | 11 | 8,690,405 | 93.92 | |
Total | 22 | 9,252,905 | 100.00 |
Note that the Unlisted Options as stated above have various exercise prices and expiry dates.
Category | Restricted Stock Units | |||
Total Option Holders | Number of Options | % | ||
1 - | 1,000 | - | - | - |
1,001 - | 5,000 | - | - | - |
5,001 - | 10,000 | - | - | - |
10,001 - | 100,000 | 1 | 81,405 | 100.00 |
100,001 and over | - | - | 100.00 | |
Total | 1 | 81,405 | 100.00 |
5. | Unmarketable parcel of shares and CDIs |
The number of securityholders holding less than a marketable parcel of CDIs or Shares of Common Stock (being AU$500) is 58 based on the Company’s closing CDI price of A$0.86, on 16 February 2022.
Revasum, Inc. | 47 |
ADDITIONAL SHAREHOLDER INFORMATION
6. | Twenty largest shareholders of quoted equity securities |
Chess Depositary Interests
Details of the 20 largest CDI Holders by registered CDI holding are as follows.
Name | No. of CDIs | % of CDIs on issue | |
1 | HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED | 53,633,494 | 59.86 |
2 | NATIONAL NOMINEES LIMITED | 11,508,389 | 12.84 |
3 | WASHINGTON H SOUL PATTINSON AND COMPANY LIMITED | 2,700,000 | 3.01 |
4 | J P MORGAN NOMINEES AUSTRALIA PTY LIMITED | 1,404,021 | 1.57 |
5 | MR JERAULD CUTINI | 1,399,525 | 1.56 |
6 | PAT O’CONNOR | 793,890 | 0.89 |
7 | MR DECLAN MCEVOY | 690,050 | 0.77 |
8 | MIBERTY INVESTING PTY LTD | 635,000 | 0.71 |
9 | CASNEY PTY LTD | 605,000 | 0.68 |
10 | BNP PARIBAS NOMINEES PTY LTD | 559,068 | 0.62 |
11 | BULL EQUITIES PTY LTD | 500,000 | 0.56 |
12 | BELINDA REYNA | 457,800 | 0.51 |
13 | REVEL PTY LTD | 450,000 | 0.50 |
14 | APPWAM PTY LTD | 422,207 | 0.47 |
15 | HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED | 410,000 | 0.46 |
16 | BRUCAR PTY LTD | 352,000 | 0.39 |
17 | BYRON BAY MEDIA PTY LTD | 351,450 | 0.39 |
18 | GILL FAMILY INVESTING PTY LTD | 303,000 | 0.34 |
19 | MR PAUL MASI & MRS ANNE MASI | 277,830 | 0.31 |
20 | J T NOMINEES PTY LTD | 269,000 | 0.30 |
Total | 77,721,724 | 86.74 | |
Balance of register | 11,883,635 | 13.26 | |
Grand total | 89,605,359 | 100.00 |
Revasum, Inc. | 48 |
ADDITIONAL SHAREHOLDER INFORMATION
Fully Paid Ordinary Shares of Common Stock
Details of the Shareholders by registered shareholding are as follows.
Name | No. of Shares | % | |
1 | Firsthand Technology Opportunities Fund | 15,413,753 | 92.51 |
2 | Ryan Benton | 600,088 | 3.60 |
3 | Kevin T Crofton | 184,530 | 1.10 |
4 | Sarah Okada | 126,500 | 0.76 |
5 | Rutgers Chow | 92,265 | 0.55 |
6 | Bill Kalenian | 76,500 | 0.46 |
7 | Riya LLC | 75,000 | 0.45 |
8 | Vivek Rao | 46,584 | 0.28 |
9 | Bryan Allen Benton | 46,125 | 0.28 |
10 | Robert Rhoades | 500 | 0.01 |
Total | 16,661,845 | 100.00 | |
Balance of register | - | - | |
Grand total | 16,661,845 | 100.00 |
7. | Ryan Benton is the Company Secretary appointed under Delaware General Corporation Law. |
The Company has not formally appointed an Australian Company Secretary. Mr Danny Davies has been appointed as the Company’s ASX Representative pursuant to ASX Listing Rule 12.6 who is also providing company secretarial services to the Company.
8. | The address and telephone number of the Company’s registered office in Australia; and of its principal administrative office. The Company’s registered office in the USA is: C/O Incorporating Services Ltd, 3500 South Dupont Highway, Dover, Delaware 19901 USA |
The Company’s Principal place of business is:
825 Buckley Road, San Luis Obispo, CA, 93401 United States.
T: +1 (805) 541 6424
The Company’s registered Australian office is:
Company Matters Pty Ltd Level
12, 680 George Street, Sydney NSW 2000
T: +61 (02) 8280 7355
9. | The address and telephone number of each office at which a register of securities, register of depositary receipts or other facilities for registration of transfers is kept. |
Australian Registry
Link Market Services
Level 12, 680 George Street
Sydney NSW 2000 Australia
T: +61 1300 554 474
United States Registry
Revasum, Inc. | 49 |
ADDITIONAL SHAREHOLDER INFORMATION
American Stock Transfer & Trust Company, LLC
6201, 15th Avenue
Brooklyn, NY 11219
T: +1 (718) 921-8386
10. | The Company’s Securities are not traded on any other exchange other than the ASX. |
11. | Review of operations and activities |
A detailed review of operations and activities is reported in the Annual Report for the period ending 2 January 2022.
12. | On market buy-back |
There is no current on market buy-back.
13. | Statement regarding use of cash and assets. |
During the period between 3 January 2021 and 2 January 2022, the Company has used its cash and assets readily convertible to cash that it had at the time of ASX admission in a way consistent with its business objectives set out in the Prospectus dated 9 November 2018.
14. | Other |
Revasum is not subject to Chapters 6, 6A, 6B and 6C of the Corporations Act 2001 (Cth) dealing with the acquisition of its shares (including substantial holdings and takeovers).
Revasum, Inc. | 50 |