180 Degree Capital Corp (TURN) 2010 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to your Harris & Harris third quarter conference call. At this time all participants are in a listen-only mode. Later we will conduct a question and answer session, and instructions will be given at that time. (Operator Instructions). As a reminder, today's conference call is being recorded. I would now like to introduce your host for today's conference call, Ms. Harriet Fried from LHA. You may begin, ma'am.

Thank you everyone for joining us this morning for the Harris & Harris Group third quarter 2010 shareholders conference call. On this morning's call, Doug Jamison, Chairman and CEO, and Daniel Wolfe, President, Chief Operating Officer, and Chief Financial Officer, as well as Patty Egan, Chief Accounting Officer, will lead a discussion about the Company's business and its third quarter results. Today's conference call and webcast are being accompanied by a slide presentation. To access the presentation, please go to the Company's website at www.HHDC.com. A link to the presentation can be found on the home page.

Before starting the call, I will read the Safe Harbor statement. The matters being discussed on today's conference call may contain statements of a forward-looking nature, relating to future events. These forward-looking statements are subject to the inherent uncertainties in predicting future results and conditions. These statements reflect the Company's current beliefs and a number of important factors could cause actual results to differ materially from those expressed in the forward-looking statements.

Please see the Company's annual report on Form 10-K for the year ended December 31, 2009, as well as subsequent filings with the Securities & Exchange Commission, for a more detailed discussion of the risks and uncertainties associated with the Company's business, including but not limited to, the risks and uncertainties associated with venture capital investing and other significant factors, that could affect the Company's actual results. Except as otherwise required by federal securities laws, Harris & Harris Group undertake no obligation to update or revise these forward-looking statements to reflect new events or uncertainties.

With that introduction, I would like to turn the call over to Doug Jamison. Go ahead, please, Doug.

Thank you. Good morning. Thank you for joining us. This is Doug Jamison. Again, welcome to our third call reporting on our third quarter of 2010.

Harris & Harris Group is a venture capital firm that invests in companies that apply nanotechnology and microsystems to large, high growth markets. Basically, we invest in innovation. We invest in innovation because we believe innovation drives growth and market returns.

Innovation is risky, so we believe it is important to understand how to invest in innovation successfully, so that we can capture the value of that innovation. We do that in three primary ways. First, we identify existing and emerging market opportunities that we believe will be important in the coming years. Second, we create a pipeline of opportunities across various industry sectors. Then, third, we create a pipeline of opportunities at various stages of maturity.

I want to take a moment in this introduction and make the connection between nanotechnology and the emerging market opportunities that we are investing in. We remain convinced that nanotechnology is an exciting investment focus. Science is reductionist, meaning we gain greater understanding of what is happening as we understand what is actually happening in finer and finer detail.

In the industries we invest in, and the slides you see in front of you, clean tech, healthcare, electronics and semiconductors is discoveries occuring at this nanoscale size domain that are providing the technology break throughs that are truly impacting these industries. When we look at emerging market opportunities, in the vaccine space, for instance, in personalized medicine, and cancer therapeutics, and renewable fuels and chemical space, and next generation lighting, and energy storage and lithography and computing and image sensors, some of those circles you see up there on the slide, these are the spaces we believe will be very important commercially, and we see breakthroughs that are enabling these opportunities, coming from work done in fields of nanotechnology.

By focusing on nanotechnology, we have a window into these emerging breakthroughs and an opportunity to participate in what we believe will be the markets of the future. As one watches our portfolio continue to mature, I believe this strategy is already bearing fruit. We are seeing this first hand in the rapid uptake in the marketplace of some of our more mature nanotechnology enabled portfolio Company products.

Today throughout our 15 minute presentation, we will be referencing our recently filed quarterly report on Form 10-Q, and we refer to page numbers. We'll begin with Patty Egan, who will briefly provide highlights of our September 30, 2010, financials, then Daniel Wolfe, our President and CFO, will walk you through some of the additional slides, articulating some of our recent disclosures and strategic direction. We'll then open it up to questions. We expect the call to last approximately 45 minutes. Patty, would you take us through the financials?

Thank you, Doug. At September 30, 2010, we had total assets of $141.6 million on our balance sheet. Included in our total assets is our venture capital portfolio, which was valued at $96.7 million, versus its cost basis of $98.4 million at September 30, 2010. Therefore, at September 30, 2010, our venture capital portfolio was in a depreciated position of $1.6 million.

We also held $44.1 million in cash and US Treasuries as of September 30. We have no debt. Our net assets at September 30, were approximately $139.3 million, and our net asset value per share was $4.51. This is the same as our net asset value of $4.51 per share at June 30, 2010, and an increase from our net asset value of $4.35 per share at December 31, 2009.

Turning to our income statement, through the first nine months of 2010, we had investment income of approximately $349,000. This compares with $166,000 in investment income during the first nine months of 2009. The increase in our investment income reflects an increase in our bridge note interest, as well as interest and fees earned from the participation agreement in the assets of GEO Semi, our first investment in convertible debt. Interest income generated from our US Government security holdings continues to be lower as compared to prior periods due to the decrease in yield.

Our total expenses were $6.2 million during the first nine months of 2010, compared with approximately $6.5 million during the same period of 2009. These total expense figures include both cash and noncash based operating expenses, such as stock-based compensation. Our non-cash stock-based compensation expense was approximately $1.7 million for the nine months ended September 30, 2010, as compared with $2.4 million in stock-based compensation during the same period last year. We had increases to rent expense, depreciation and lease termination costs during the nine months ended September 30, 2010, and decreases to salaries, benefits and stock-based compensation, as well as decreases in administrative and operation expenses.

Rent expense also includes both cash and noncash components. The noncash portion of rent expense relates to the accounting for rent abatements and future escalation charges over the term of our ten-year lease. Our total cash paid in rent expense year-to-date for 2010 is approximately $213,000 versus cash paid of approximately $237,000 during the same period in 2009.

Our total cash based operating expenses, which includes accruals for expenses that will be paid in cash for the nine months ended September 30, 2010, were approximately $4.2 million, as compared with $3.9 million for the first nine months of 2009. This yielded a net operating loss of $5 million(Sic) for the nine months ended September 30, 2010, as compared to a net operating loss of $6.3 million for the nine months ended September 30, 2009.

During the nine months ended September 30, 2010, we realized $3.5 million of losses on the disposal of investments. This compares to approximately $4.7 million in losses, realized during the first nine months of 2009. During the nine months ended September 30, 2010, there was a $12 million(Sic) charge, change in the value of our investment portfolio. Of this $12.8 million increase, approximately $3.4 million relates to investments that were disposed of during the first nine months of the year. The remaining $9.4 million represents a net increase in the value of the portfolio that was still on our balance sheet at September 30, 2010.

Thanks, Patty. Daniel, will you take us through the MD&A?

Absolutely. Thank you, Doug. Some of our continued efforts to provide meaningful transparency into our business are captured in our quarterly report filed on Form 10-Q in the management's discussion and analysis.

On page 45, we discuss our investment strategy. As we discussed in prior shareholder letters and on prior shareholder calls, we seek to execute on a strategy that increases the frequency and predictability of returns on our investments. We believe that we can achieve this goal by expanding our venture capital investments in equity and convertible debt of privately held companies to include investments in publicly traded companies and in non-convertible debt, which is also referred to as venture debt.

Current market conditions create favorable opportunities for investment in each of these asset classes. We believe these conditions present a number of interesting investment opportunities for us to generate current income, particularly through venture debt investments. This current income can offset our annual expenses while we seek exits for our equity and convertible debt investments. We continue to expect our future growth to come from exits from our investments in equity and convertible debt.

Our processes for identification of investment opportunities in quality companies and in management teams and thorough due diligence are consistent regardless of the type of a company or financing structure. The expansion of financial structures in which we invest opens up additional deal flow in high quality companies to generate returns for our shareholders. On page 46, we provide data on our investment pace through the past four years and nine months. Through September 30, 2010, we have invested $9.7 million in three new and 25 follow-on investments in our portfolio companies.

The new investment during the third quarter of 2010 was a venture debt investment in a company called GEO Semiconductor. GEO Semiconductor was founded on two assets purchased from a failed venture capital backed company that enabled the correction of distortions and nonuniformities in displays and SmartPhone cameras and enabled the use of nanotechnology-enabled products such as light emitting diodes and high resolution image sensors in each application respectively.

Displays with backlights, or powered by light emitting diodes, suffer from nonuniformity of brightness and color, particularly as screens increase in size. Corrections of these distortions typically require complex correction optics and other expensive solutions. Image sensors on SmartPhones that enable the taking of pictures and video continue to increase in resolution and decrease in size. The decrease in size reduces the sensitivity of the sensor and introduces significant nonuniformities in the images that are captured.

GEO Semi's chips can resolve issues that plague both technologies using its geometry processing technology, and negate the need for expensive complex optics or correction circuitry. Cuts to consumers would see these improvements in the form of better images on LED backlit flat panel televisions, and in better pictures taken with camera phones. GEO Semi currently sells its chips to customers such as NEC, Panasonic, and Denon, and has secured design wins that incorporate its chips into additional products that are expected to hit the market in 2011.

We invested through a participation agreement with Montage Capital, a venture debt provider, whose principals have over 15 years of experience providing debt capital to high growth companies. In addition to an interest rate of 13.75%, we received an up front fee, warrants to purchase shares of the Company at a set price in the future and pre-emptive rights to invest in a future round of financing. We were able to secure favorable terms as a result of the limited availability of capital to small businesses and the high cost of equity investments for venture capital firms, particularly in companies that are developing semiconductor-related products.

On page 53 we provide a chart that illustrates our pipeline of investment maturities across industry clusters. We seek to create a portfolio of companies that enables consistent flows of potential exit events as companies mature. We believe a portfolio of companies focused on a diverse set of industry clusters reduces the impact of cyclicality of any one cluster on the flow of potential exit events. Our pipeline is demonstrated by the distribution of our current portfolio companies by stage within each industry cluster.

On page 54, we mention steps being taken by three of our portfolio companies to pursue potential exit opportunities. These steps include the filing of a registration statement by NeoPhotonics, and the hiring of bankers by two of our portfolio companies to pursue opportunities to sell those companies. We also believe that in the next six to twelve months, one or more of our other late stage portfolio companies could take steps towards a filing of registration statement on Form S-1 for an IPO. We note that a variety of factors including general business conditions and the state of the capital markets could lead any or all of those companies to terminate such efforts.

There are many inputs used by our valuation committee to value our privately held portfolio companies each quarter. On page 57, we provide a table that discusses examples of some of the quantitative inputs that contribute to changes in the value of our privately held venture capital portfolio during the last four quarters. These changes contribute significantly to movement of our net asset value. The terms of new equity rounds of financing completed in the third quarter of 2010, and the value of comparable publicly traded companies were significant inputs that led to a net increase in the value of our portfolio companies by approximately $2.4 million.

This increase in value was offset in part by a net decrease in value of $1.3 million, due to nonperformance risk. We define nonperformance risk on page 58 as the potential risk that a Company will not be able to raise additional capital or will raise additional capital at a reduced valuation from the prior round of investment. We changed the contribution nonperformance risk in three companies. The increases in nonperformance risk that led to decreases in value of two of these three portfolio companies were based in part on future financing needs of those companies.

On page 59, we provide a list of our top ten venture capital investments by value. These top ten investments represent 71% of the value of our venture capital portfolio as of September 30, 2010. I will now turn the call back over to Doug.

Thanks, Daniel. So in summary, even as we are optimistic about the prospects of business success for our portfolio of companies, we are fully aware of our existing circumstances, the current economic environment remains uncertain, the capital markets remain volatile and uncertain, and we must begin to effect exit events within our portfolio to provide us with access to future liquidity. These are the challenges in which we remain focused. Our team is fully engaged, focusing on opportunities to generate returns from our existing portfolio and on finding and diligencing new opportunities for investments across a spectrum of structures Daniel described previously.

There remains a tremendous vibrancy from entrepreneurs to bring exciting new nanotechnology enabled break throughs to the market and there remains a tremendous disconnect between the financing community and these opportunities. We enjoy operating in this environment. Additionally, as our visibility to liquidity continues to increase, we will reach out and tell our story to a wider audience of institutional and retail investors. Our credibility is important to us. We want to be certain that the story we tell begins to unfold as we describe it, and within the timeframe we describe.

Thank you. I would like to now open it up to any questions.

(Operator Instructions). Our first question comes from Ted Kundtz with Needham.

Good morning, Doug, Daniel and Patty. A couple questions for you. Doug, can you go back over the three events you were talking about, liquidity events, and maybe give us a little more color perhaps on timing, if you've got anymore thoughts on that. One, you mentioned the potential IPO with NeoPhotonics that's registered. Just to wanted to see where that was. I think you talked about that last quarter as well. And then you mentioned two companies available for sale. If you could just maybe update us on timing.

Certainly, I can start there. So on the liquidity events, unfortunately I'm not going to be able to help you all that much because we're just not able to disclose confidential information. We touched briefly on Neo. Neo, as you know, has an S-1 on file. I believe it was filed in April of 2010. I am not able to comment on their process at this point in time.

The only statements I would make are that, as has been reported publicly, they had record revenue in the second quarter. They had record revenue in the third quarter, so they continue to perform and execute on their business plan very well. And they are net income positive as well, which gives them a lot of flexibility in what they decide to do. And I think you're seeing that potentially in some of their timing.

As it relates to other companies that we reference when we talk about filing S-1, we do have multiple fairly mature companies. They are, and their boards and their investors are mulling over what their exit will look like. The thing that we like about most of these companies is they all have very strong balance sheets, so they don't need to exit or go to the market to raise capital immediately. They're in very strong position both operationally and financially, which will again, probably impact some of their exit opportunities.

And then lastly, the Companies we mentioned that have higher bankers, as you all know, and I think it's going to be pervasive in nanotechnology, a lot of the companies in our portfolio probably will not pursue IPOs. They'll probably end up being acquired. And we have a couple of companies that the investors, the Board, and the Companies decided may now over the next period of time, and I'll put that at about twelve months, they believe that there's an interesting opportunity for exit. And so they are beginning to prepare for that. But again, I can't give you any insight into when those will be done, mainly for confidentiality reasons. Of course we sit on the boards of some of these companies. We have access to information and we're not allowed to disclose that.

Okay. Could you give us any thoughts on what percentage of your portfolio could fall into that category of a potential liquidity event in the next twelve months?

Very interesting way of asking that question. I can't, because by doing that I would probably disclose it. But I can tell you, we break our portfolio into what we call our most mature portfolio companies. We call them late stage in our filings. And the companies we're talking about all fall into that stage, and if you look at the top ten holdings by value, you'll also recognize that some of those are significant contributors to our value. And again, from a portfolio perspective, we like that, right?

It's not great for us if a company we have $300,000 in is thinking about exiting. That's only $300,000 we have to work. But we like the fact that some of the more mature companies that we have more dollars invested in, that have been operating and executing well, and their valuations reflect that, are the ones that are most likely to look at those exit opportunities.

Sounds like your tone is much more positive on that potential over the next twelve months than it has been, obviously, as we're coming out of this recession and seeing some decent growth in a healthier stock market.

Yes, but I'll temper that. We know in this business you need to be tempered and conservative, and we are optimistic. And I think the tone comes out in the letter to shareholders that came out this morning as well, that our top companies are executing very well on their businesses. But that's what we do. We try to invest in good businesses that can become great businesses. They're operating effectively.

I do always make sure there's a difference between companies that are operating and executing well, and the fact that we need to exit those companies and get good valuations, or return on our invested dollars. And those two over time usually reflect each other, but not always. As I mentioned, you know, we remain aware of economic uncertainties. We remain aware of Capital Market volatility, both of which can potentially impact exits. But yes. The Companies have come through the recession operating very well. Lot of exciting news out there in the portfolio, and our job over the next period of time, is to take that, and make sure we realize that in investment returns.

The next question I have for you is, just what kind of required capital investment do you anticipate for the current portfolio of companies over the next year?

I think we look at that in multiple ways. One of the ways we have been looking at that is, the capital needed by our existing portfolio is decreasing fairly dramatically from what it did if you look at 2005 to the 2008 timeframe. And the reason that is because some of these companies are actually cash flow positive. Some of them, with the financings they've done over the last year or two, may not ever have to go back to the market for venture financing again. So I think as we look forward, I would put that in the range next year of probably between $5 million and $10 million for the existing portfolio of cash that we would use for the existing portfolio. That may be less than that. It may be -- I don't think it will be much more than that.

Okay. And then, the balance then, that you would plan to look to invest in additional, either public companies or other privates, I guess more the focus will be on public companies. But if you could touch on that a bit, and where you expect to see that level of investment being?

Daniel touched on that. We'll continue to look at private companies. As you saw in a previous letter in June of this summer, we will be careful until we have good visibility into exit before putting too much money into early stage private companies, where again the money could be at work for five to seven years, requiring more capital. But we continue to keep the deal flow we have, excellent opportunities there. You'll continue to see us looking there, and for the future that'll be the growth.

I think where we've really focused the Company and really believe the strategy can work effectively for the future, is in looking for opportunities as Daniel discussed, for investments where we have greater frequency of exits and more predictability. So I think as you look forward, where Daniel focused today on the debt deal, the nonconvertible venture debt of GEO Semi, we see that deal flow. Often times we see them for potential exit equity investments. But in some cases, we don't think the equity returns justify the risk, but what we can do on debt, truly may. So I think what you're going to see is you are going to see us putting more capital to work.

You're going to probably see more venture debt deals. Right now the interest rates we can get on these deals, the warrants we can get on these deals, the assurances we can get from both companies and individuals on these deals, is probably some of the best we've seen over the past decade. And for us, they create predictable returns, they create tremendous more interest than anything we have in T-bills out there. And the one area we're really focusing on is, if we could move that up and start returning that type of predictable return annually, that offsets our annual expenses, and really gives our shareholders the option value of that equity portfolio without having to really worry about what the cash burn is year to year, because we have return.

Public companies do that as well. As we've really looked at public companies, we continue to look at public companies. In the very small space, they're very similar to venture deals. The diligence is the same. They take a little bit longer to come together. We do believe we'll have more frequency of exit. There's not a tremendous more predictability than we currently have. So you'll continue to see us move there, both from a frequency perspective and debt, both from a frequency and predictability perspective.

So you would be saying your cash burn will probably go down next year. Do you have any forecast for that?

Our cash burn will decrease, and our shareholder letter that we just put out this morning, which was filed with this call very well, you may want to take a look at the last couple paragraphs. The budget we've put together for this year actually is a decrease, so we're doing it two two ways. We're looking to have a leaner budget going forward. It's down about 8%. But with the venture debt deals we hope to do, we also hope to be able to decrease our cash burn, which our proposed budget is under $5.8 million, decrease that further by having interest come in that off sets some of that.

In 2011, I don't think it'll dramatically decrease it. But as we get more money to work in some of these companies like GEO Semi, I think ultimately we could work to move that down $1 million to $2 million to $3 million, I think, over the long-term. We'd like to build a business where we have $6 million in interest income coming in a year, that can offset our annual expenses entirely. Again, giving us the flexibility and the ability to last long to get to these equity investments and to maximize our returns in them.

Okay. Last question I have for you guys. A quick comment on Laser Light. I saw that was the valuation that went up by roughly 60%. So it was a nice increase quarter over quarter. Could you comment on that?

Daniel, could you comment on Laser Light Engines?

Yes, I'd be happy to. Hi, Ted. So the increase from Laser Light Engines was two-fold. One, was that a financing that announced, came together with IMAX participating. That price per share was actually the same as the last round of financing, and removed the non-performance risk that we had on the valuation as of June 30th. The remainder of the increase in value was actually a follow-on investment that we made in the Company, as part of that round of financing.

And again, that's a great question and a great lead in -- that we have been trying to -- in our 10-Qs we've been providing the transparency on how valuations move. We think investors may find that important. And as you know, we have these non-performance discounts. Sometimes we're right, and we get the discount correct. Sometimes we're wrong, and Laser Light Engines we were wrong.

When the financing came together, it came together previous round, and we had held it at a discount, so you saw it move up in value. But again, we tend to believe with the financing environment, we tend to be conservative about companies that need to raise financing. So again, in the quarterly shareholder letter, you'll see a paragraph that relates to that. We try to be out in front of it, and we try to realize that any company that needs the financing still face a risk beyond execution risk of the company. And again, sometimes we're right, and Laser Light Engines we were wrong, and had to write up the investment.

Good way to be wrong.

I hope. You know, our credibility is important. We try to be out in front of these things, so our book value does have meaning to people.

Yes. Absolutely. Thanks very much.

Our next question comes from Kris Tuttle with Research 2.0.

Hey, guys. I just wanted to ask you a little bit about what you're seeing in the markets that you're in, with respect to the other companies that you've invested with. You invested with a lot of the other VC firms. And I want to know what kind of activity you're seeing in your space from your historical co-investors and competitors, if you will. And in the same thing, now that you're looking at these debt deals, and doing them in a more active way, if there are some new kind of syndicate partners or competitors that you're seeing in that market? It's really to get a level of what's the go for, either competition and higher pricing, or the opportunity that you guys may have to get better terms from fewer people playing in this nano and related market?

Maybe I'll tackle the first part of that question, and maybe Daniel can tackle part of the second, on the debt. On the equity side, venture capital, you know, we talked about this. There's a lot of venture capital firms out there that are LPGP structures, that are out of money in their funds. And it's not a very nice world to be out of money in your fund.

We are lucky with our structure that we have permanent capital, that we have been able to raise capital and been able to participate in these investments going forward. So sometimes that's creating nice opportunities for us, because we're able to pick up ownership in these companies over these difficult times, because we've had the capital. In a lot of our companies, and again, this is part of being a venture capital, the syndicates are strong. We were smart.

We invested with really strong syndicates, and they're coming together. You saw this in Solazyme, and you saw it in SiOnyx. Everybody wanted more. In the good deals, your partners want more of the ownership and more of the deal. So they're over subscribed in very difficult to get into. Even the most recent Nanosys financing was over subscribed on that front. That's good. The syndicates are holding together in those.

The other thing is, as you saw, and we tried to break out in the shareholder letters as well, we spent a lot of time talking about our most mature companies, because I think our shareholders are interested in when they're going to see exit. But coming up through the pipeline, there's exciting things happening, like the LLE, the SiOnyx financing, and even some of these earlier stage companies. There is excitement out there to do some of the best deals. And we're seeing that play.

But there's a bigger bifurcation happening. The deals that aren't exciting to people, are much, much more difficult to finance than they were three or four years ago. So that's important to notice as well. As it relates to debt, we sit in a very nice position. Many of the venture investors we invest beside, they can't do venture debt. They can't provide that. They're always locked into equity.

One of the things we've seen is, and even with public companies, they're sometimes locked in, one of the things we've seen is, to have a little bit more flexibility. When you look at a company and the structure you want to use to finance it can be very interesting. So, we know venture debt. The majority of our own portfolio companies have venture debt. We have never provided it.

But as we look to other groups, we're really not competing against venture capitalists in that market. We're competing against the existing debt providers. And just like in venture capital, a lot of them to make their models work because they do all debt. They need to raise tremendous amounts of money, and put tremendous amount of money to work. They're more interested in doing debt deals of larger size. You know, banks are the same way. There's a huge dislocation between getting a small loan for a small company, than for GE taking out debt. Or even for Harris & Harris Group, and the cash on our balance sheet, what we could borrow at, which is very low.

Because we're looking in the $0.5 million to $2 million range in that debt, there's not a lot of providers there that come into that market. Which means there is not a lot of competition. Which means you can name your own terms. So the GEO Semi deal, are fantastic terms for a debt deal. But we are working. There are a small segment of debt providers that we know from our own portfolio of companies that work in that sector. Maybe, Daniel, you can talk about them.

Yes. So we did this last deal with Montage Capital, for example, who were interested in providing small amounts of capital to these companies. There are other groups that we've worked with in the past, who are interested in working with us potentially on these. But as Doug mentioned, the availability of capital for companies looking for less than $2 million, either equity or debt is very, very difficult, and that's -- and equity is even more expensive, which is why we can describe the types of terms -- One of the things we would like to do potential equity, but they just won't take it at the prices that are out there in the market. And again, as I mentioned earlier, we like those opportunities in the markets.

I will note one thing. I'm sure, as all of you have read in the papers, the hedge funds have piled into junk bonds and debt awhile ago, months and months ago, at the early part of this year. And a lot of those are now starting to sell. As everybody else has come into them and drove them up. And they're looking to put their money to work elsewhere, probably at lower valuations.

Venture debt as well, the opportunities we have now, they won't last forever. There is a huge dislocation going on now in the debt market, which create wonderful opportunities. But we don't expect them to last. And again, one of the beauties of the structure of our model, doing public companies, doing private, doing debt, is that you can tune across that. We like that opportunity. But I don't want to you think that venture debt will always exist. We'll probably play in that field, but the terms you see in GEO Semi won't last forever.

Okay. I get it. All right. Thanks, guys.

Thank you.

Our next question comes from Robert Littlehale with JPMorgan.

Good morning. Just to be clear on the GEO Semi deal. Are there any circumstances under which those terms can be renegotiated before maturity?

There is only one term, that it's not a renegotiation, it's actually built into it. That if they raise a certain amount of capital, the interest rate would go down slightly, but it's a fairly high threshold. The remainder of the -- it's a short-term note, so it's 21 months. And so there's no anticipation of renegotiation on that note.

Great. Thank you.

Just want to be clear there again. The idea of this is, we're tying up money for 21 months. We're getting very nice interest, far more than we can get on Treasury. We're taking far more risk, of course,as well, as I hope you all can understand. But by doing that, we provide predictable returns while we have cash in our balance sheet, that can offset our expenses, giving us more time and more dollars to also invest in doing equity deals that have the tremendous upside, if they're successful. And again, we think that balance is good.

I don't want to go forward burning $5 million to $6 million a year, waiting for exits down the road. If we can take that burn off the table, and still get the high exit and equity returns that we have seen historically, I think that works for a very nice business model.

Thank you.

(Operator Instructions). I'm not showing any further questions at this time.

Okay. Very good. I will conclude it then. So first again, we thank you all for joining us, and for your time. We will do our next shareholder call in March of 2011, after the filing of our December 31, 2010, financials on form 10-K. So again, thank you. And we look forward to speaking with you later.

Ladies and gentlemen, this does conclude today's presentation. You may now disconnect.