UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

 

FORM N-CSR

 

CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANY

Investment Company Act file number 811-07074

180 DEGREE CAPITAL CORP.

(Exact Name of Registrant as Specified in Its Charter)

  

7 N. Willow Street, Suite 4B, Montclair NJ		07042
(Address of Principal Executive Offices)		(Zip Code)

Daniel B. Wolfe President and Chief Financial Officer 180 Degree Capital Corp. 7 N. Willow Street, Suite 4B Montclair, NJ 07042

(Name and address of agent for service)

Copy to: John J. Mahon, Esq. Schulte Roth & Zabel, LLP 1152 Fifteenth Street, NW Suite 850 Washington, DC 20005 (202) 729-7477

Registrant's telephone number, including area code: (973) 746-4500

Date of fiscal year end: December 31

Date of reporting period: June 30, 2018

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Item 1. Report to Shareholders.

Fellow Shareholders:

I have many friends in the news business. They always tell me, “never bury the lead.” Meaning, when telling a story, don’t lead with the secondary importance while postponing more essential points or facts. The lead story is we grew our net asset value per share (“NAV”) this quarter by over 10%, to $2.91. In fact, it has been 7 years since we last reported a greater than 10% increase in our NAV for a single quarter. The entire increase is due to the continued positive performance of our public companies.

Even though my age says I am now in my 50’s, I like to think I keep current and stay up with the times. I have to. My kids are 16, 14 and 12 years old. I either get with the program, or I become a laughingstock in my house for being an old curmudgeonly dinosaur. I killed it the other night. My entire family was in the kitchen. My middle child was playing music. I walked in and said, “I love this song. Cardi B sings it, right?” They all looked at each other in amazement and said, “Look at you Dad, knowing all the hip-hop rockers of 2018! How do you know Cardi B?” I was on top of the world. I impressed my kids. As side note, and for those that don’t know, Cardi B is an award-winning, Bronx-born, breakout, hip-hop rapper. You are probably thinking, what is the point of this story as it relates to 180? The point is: A good investor stays current.

Legendary investor Peter Lynch’s core principles for investing were as follows: buy what you understand; always do your homework; and invest for the long term. He often talked about what information you could learn just by walking through a mall and observing what people are buying. 180 had a fantastic Q2 2018 and increased our book value by over 10%. Our growth was led by our investment in Turtle Beach Corporation, a company that designs and markets audio peripherals for video game consoles, personal computers, and mobile devices. If you have been reading about video games in the last few months, you will know that Fortnite is the hottest video game currently being played by gamers all over the world; a true pop-culture phenomenon. Turtle Beach’s headsets are used by gamers while they play Fortnite and other multiplayer games. We found Turtle Beach because of our investment in TheStreet, Inc. (“TST”). If you recall, we initiated a privately negotiated investment in TST’s publicly traded common stock with the purpose of retiring a $55 million preferred stock at a significant discount. Turtle Beach had a similar capital structure issue whereby the balance sheet included a preferred stock security with $19.3 million in redemption value that was accruing interest at a relatively high rate and had a distant maturity date. In the same manner as TST, we assisted Turtle Beach by participating in the buyout and retirement of the preferred stock for $7.5 million. We bought shares of common stock of Turtle Beach at $3.50 per share as part of that transaction. As the trade was being consummated, and resulting primarily from the explosion in Fortnite, Turtle Beach announced its Q1 and Q2 2018 revenue numbers would be twice the estimates of $21 million. In one short month, our investment in Turtle Beach rose nearly 400% and contributed $0.13 to our NAV, or nearly half the quarter’s increase.

What’s the moral of the story? It helps to stay current. It improves one’s ability to be a successful investor. It helps to know what the trends are. I never thought we would have spent so much time analyzing a video game named Fortnite and a maker of headsets to the gaming industry. But we did. As a result, that research helped propel 180 into having one of the best quarters in recent history.

NET ASSET VALUE PER SHARE

Our NAV increased this quarter from $2.64 to $2.91, an over 10% increase. 180 has three principal components to the variance in our NAV; our public portfolio, our private portfolio, and our expenses. For the quarter, our public companies contributed $0.30 to our NAV while the net change in our private portfolio companies was relatively flat. Operating expenses, net of income, reduced our NAV by $0.016. We also accrued $0.017 in expenses for bonus compensation. More on each of these items in the sections below.

Public Portfolio

A year and a half ago, we embarked on a new strategy to invest in small public companies. How has that worked out so far? Glad you asked. Over the course of the last six quarters, we have added $0.71 of NAV from our investments in public companies. That equates to $22 million in investment gains. Over that same period of time, we generated $0.07 of NAV growth from our private portfolio. I think it’s fair to say the decision to shift our investment focus has been nothing short of a wild success. Let’s dig into our public portfolio holdings:

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Adesto Technologies Corporation (NASDAQ:IOTS) continued its upward trend rising 14% in the quarter. As the stock reached a price that we believed made it fully valued, we sold 62% of our remaining position during the quarter at an average price of $8.81. Most recently, the company announced two separate acquisitions. Following the end of the quarter, the company also preannounced a disappointing quarter and conducted a $40 million equity raise at $6.00 per share. As such, the stock has declined to a more interesting entry price. For the quarter, Adesto added $0.06 to our NAV.

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Mersana Therapeutics, Inc. (NASDAQ:MRSN) advanced 13% in the quarter. Mersana is biotech company that produces novel drug conjugates. It specializes in oncology agents for the treatment of tumors and cancer. As everyone knows, there is tremendous volatility for a biotech company that is currently in the middle of clinical trials. In this quarter, we benefited as some of the early clinical data for one of Mersana’s trials looked promising and expectations increased for additional promising data to be released. As such, the stock price reacted favorably. We sold 22% of our holdings at an average price per share of $21.55. Following the end of the quarter, one patient in one of Mersana’s two ongoing trials died and the stock collapsed to $11. We are awaiting news on what occurred and whether the death was related to Mersana’s drug or another reason. We expect continued volatility around each and every data point associated with the company’s clinical trials. It is too early in Mersana’s lifecycle to claim either victory or defeat. For the quarter, Mersana added $0.03 to our NAV.

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Synacor, Inc. (NASDAQ:SYNC) advanced 25% in the quarter. As we have told you previously, our view is that the issue at Synacor isn’t fundamental problems with its overall business; it is rather a management credibility issue resulting from the company over-promising and under-delivering. Finally, and at least for one quarter, the company got it right and reported in-line revenues and earnings for Q1 2018. The stock price responded positively. Approximately 40% of Synacor's revenues are recurring and fee-based from its email and Cloud ID businesses. Investors typically pay a minimum of 1x revenues for companies with such sources of revenue, and in many cases, significantly higher multiples. Synacor has approximately $60 million of recurring and fee-based revenue and an enterprise value of $66 million, which means that the market is valuing the rest of Synacor’s $80 million of revenue at $6 million. That valuation, in our view, is absurd. The issue isn’t the absolute numbers for Synacor. As I said before, it’s about management setting reasonable expectations, and then executing to those expectations. If they can execute, we think the stock has meaningful upside. For the quarter, Synacor added $0.02 to our NAV.

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TheStreet, Inc. (NASDAQ:TST) continued its climb and advanced 22% in the quarter. As we have said previously, we believe the retirement of TST’s preferred stock cleared the path to enhance value for all common shareholders. When we first got involved, we highlighted that if investors ascribed a multiple of 1x the company’s business-to-consumer revenues and 2x the company’s business-to-business revenues, the math said we would have upside of 100% to our cost. What did the TST management and Board do this past quarter? They sold its deposit and loan data collection subsidiary, RateWatch, to S&P Global for $33.5 million. At that valuation, RateWatch sold for a price that equals 4x its $8 million of revenues. Clearly, we underestimated the value for some of TST’s businesses. After nine months on TST’s Board, I have been thoroughly impressed with the management team, the Board, and the collection of its strategic assets. 180’s investment in TST symbolizes the kind of constructive activism that is core to our strategy. Since the announcement of our significant investment last fall, the stock is up 100%. For the quarter, TST added $0.06 to our NAV.

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Turtle Beach Corporation (NASDAQ:HEAR) was bought and sold in the quarter. We are, for the most part, investors and not traders. When we generate a 389% gross return or nearly a “4 bagger” in 42 days, we won’t apologize for taking a profit, especially when the stock price far surpasses our price target. Like TST, Turtle Beach also symbolizes the kind of constructive activism that is core to our strategy. For the quarter, Turtle Beach added $0.13 to our NAV.

Private Portfolio

As for the private portfolio, although it was relatively flat in the aggregate for the quarter, we did have several positions move around quite a bit. On the positive side, AgBiome, LLC and ORIG3N, Inc., added $0.06 and $0.02, respectively, to our NAV following the successful raise of new rounds of financing by each company. On the negative side, NGX Bio, Inc., and Petra Pharma Corporation reduced our NAV by $0.05 and $0.02, respectively, due to financing and/or business-related issues at each company.

We continue to believe in the potential for our most mature companies to build value, including AgBiome, LLC, D-Wave Systems, Inc., and Nanosys, Inc. With some of the recent progress at ORIG3N, Inc., we believe it should be added to this list as well. There are other companies in the portfolio that also hold promise, however these companies are in early stages of development and the timelines and potential exit values for these companies are highly uncertain.

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We have often talked about our desire to actively shepherd our existing private portfolio to exits or opportunities to sell our positions in those companies at what we believe are reasonable valuations. We are pleased to report that on July 5, 2018, we sold our entire position in HZO, Inc. to undisclosed buyers for $7 million, which is an 8% premium to its value as of March 31, 2018. This significant event helps us de-risk our private portfolio on the one hand, and on the other gives us more cash to invest in our core strategy of investing in small public companies. Had the sale of HZO occurred in Q2 2018, we would have reported cash and liquid securities of $43.8 million, which represents $1.40 of our NAV per share. For the quarter, this sale increased our NAV by $0.02.

Expenses

As we have noted, we have dramatically reduced our cost structure under our new strategy. Over the last 5 years, our operating expenses, excluding stock-based compensation and interest on outstanding debt, averaged approximately $1.6 million per quarter. In 2016, and before 180’s existence, our operating expenses, excluding stock-based compensation and interest on outstanding debt averaged $1.3 million per quarter. For Q1 2018, our operating expenses equaled $740,000 versus $1.05 million in Q1 2017, a 30% year-over-year reduction. Please note that Q1 2017 was the last quarter for our predecessor company, Harris & Harris Group. We told you last quarter that going forward the quarterly year-over-year comparisons will no longer show the drastic drop in expenses as those reported over the last four quarters. For Q2 2018, our operating expenses excluding sublease income equaled $778,000, a 3% increase from a year ago. This increase resulted from the costs associated with an additional employee and director, offset by decreases in rent and administration and operating expenses. We remain committed to treating every dollar of shareholder money with the utmost care and consideration.

Given our performance this quarter, our Compensation Committee determined that it was appropriate for us to accrue for the probable payment of a bonus to management at year-end. This expense accrual of $0.017 per share, or approximately $540,000, was derived using the same framework and considerations used to determine the bonus compensation in 2017. It also includes the concept of the deferral of a meaningful portion of the bonus to future years to encourage and reward persistent performance. We note that the final bonus amounts will be determined at year end and could change materially from what was accrued this quarter.

TURN/NAV: SUM OF THE PARTS:

For purposes of this exercise, because the sale of our position in HZO closed shortly after the end of the quarter and the $7 million in cash is currently on 180’s balance sheet, we’re going to treat HZO as no longer a holding of the Company and instead include the $7 million in proceeds in cash and liquid securities. At the end of Q2 2018, our stock price was $2.31 and traded at 79% of its NAV. Our liquid assets, cash, and other assets, net of liabilities represent $1.36 of our NAV. If we received 100% credit for the value of these assets net of liabilities, the market is ascribing a value of $0.95 per share, or $29.5 million, of TURN’s stock price to our private portfolio. Given our private assets are valued at $48.2 million, the market is discounting the value of our private portfolio assets by 39%. As we grow our cash and liquid securities, the discount our stock trades to NAV should narrow. In September 2016, we had 20% of our net assets in cash and liquid securities less outstanding debt. At the beginning of our strategy in January 2017, we had 27% of our net assets in cash and liquid securities. At the end of this quarter, that number is 48%. We want that trend to continue. We have made substantial progress in reinventing ourselves and our balance sheet reflects just how far we have come.

Our goal at 180 is to be known as a leader in the small cap activist investing world, with a relentless focus on achieving excellence in our investment performance. Our Turtle Beach investment is the second time we have assisted a company in removing an overhang to its stock. The result was the same: there was a significant increase in shareholder value for Turtle Beach and its shareholders, and most importantly for 180 and our shareholders.

Here are some stats for you to consider. We have increased our cash and liquid securities from $0.64 per share on December 31, 2016, to $1.40 per share today. In our new strategy, our public market stock picking generated a 31% gross return this past quarter, 41% year to date, and 93% for the last six quarters. Over the same period, the Russell Microcap Value Index was up 10%, 11%, and 24%, respectively. Over the same period, the Russell 3000 Index was up by 4%, 3%, and 25%, respectively. I would humbly call that exceptional stock picking. We have drastically reduced our expense base, raised money for two special purpose vehicles, and have successfully exited two of our private portfolio companies, Mersana and HZO, through an IPO and a cash sale, respectively. When we first started, we told you what we were hoping to accomplish over the upcoming quarters. It’s nice to be able to report to you that we have exceeded our own expectations, and hopefully your expectations as well. All of these achievements resulted in a stock price that has increased 67% since we started.

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And all that said, I am having more fun than I would have if I were at a Cardi B concert!

Kevin Rendino

Chairman and Chief Executive Officer

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180 DEGREE CAPITAL CORP. CONSOLIDATED STATEMENT OF ASSETS AND LIABILITIES (UNAUDITED)

	June 30, 2018
ASSETS
Investments in portfolio securities, at value:
Unaffiliated privately held companies (cost: $13,385,820)	$	15,377,406
Unaffiliated publicly traded securities (cost: $14,787,634)	14,781,296
Non-controlled affiliated privately held companies (cost: $38,580,570)	33,510,263
Non-controlled affiliated publicly traded securities (cost: $4,949,734)	10,250,872
Controlled affiliated privately held companies (cost: $11,767,175)	3,993,103
Equity method privately held company (adjusted cost basis: $187,950)	187,950
Unaffiliated rights to payments (adjusted cost basis: $548,998)	2,178,165
Cash	11,720,454
Restricted cash	46,151
Interest receivable	944,255
Prepaid expenses	159,305
Receivable from portfolio companies and managed funds	68,800
Other assets	123,775
Total assets	$	93,341,795
LIABILITIES & NET ASSETS
Post-retirement plan liabilities	$	1,346,050
Accounts payable and accrued liabilities	1,140,843
Deferred rent	76,198
Directors' fee payable	69,375
Payable for securities purchased	50,250
Total liabilities	$	2,682,716
Commitments and contingencies (Note 10)
Net assets	$	90,659,079
Net assets are comprised of:
Preferred stock, $0.10 par value, 2,000,000 shares authorized; none issued	$	0
Common stock, $0.01 par value, 45,000,000 shares authorized; 34,623,341 issued	334,594
Additional paid in capital	134,038,475
Accumulated net investment loss	(6,851,634		)
Accumulated net realized loss	(28,328,005		)
Accumulated net unrealized depreciation of investments	(3,928,826		)
Treasury stock, at cost 3,501,779 shares	(4,605,525		)
Net assets	$	90,659,079
Shares outstanding	31,121,562
Net asset value per outstanding share	$	2.91

 

The accompanying unaudited notes are an integral part of these unaudited consolidated financial statements.

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180 DEGREE CAPITAL CORP. CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)

	Six Months Ended June 30, 2018
Income:
Interest from:
Unaffiliated companies-cash	$	9,730
Unaffiliated companies-PIK	5,207
Non-controlled affiliated companies-cash	233,087
Non-controlled affiliated companies-PIK	7,925
Controlled affiliated companies-PIK	25,569
Cash	533
Fees for providing managerial assistance to portfolio companies	95,440
Yield-enhancing fees on debt securities	87,531
Sub-lease income	124,333
Other income	33,109
Total income	622,464
Operating expenses:
Salaries, bonus and benefits (Notes 7 and 8)	1,405,011
Administration and operations	156,149
Professional fees	264,907
Rent	137,048
Directors' fees and expenses	138,750
Insurance expense	109,991
Custody fees	15,697
Depreciation	2,430
Total operating expenses	2,229,983
Income tax expense	32,364
Net investment loss	(1,639,883		)
Net realized gain (loss) from investments:
Realized gain (loss) from investments:
Unaffiliated publicly traded securities	6,445,334
Non-controlled affiliated privately held companies	(2,293,743		)
Controlled affiliated privately held companies	(7,613,301		)
Net realized loss from investments	(3,461,710		)
Realized loss from funds in escrow	(150		)
Net realized loss	(3,461,860		)
Change in unrealized (depreciation) appreciation on investments:
Unaffiliated privately held companies	(886,300		)
Unaffiliated publicly traded securities	1,489,151
Non-controlled affiliated privately held companies	3,040,177
Non-controlled affiliated publicly traded securities	3,762,033
Controlled affiliated privately held companies	7,415,146
Unaffiliated rights to payments	(33,702		)
Net change in unrealized appreciation on investments	14,786,505
Net realized loss and change in unrealized appreciation on investments	11,324,645
Share of loss on equity method investment	(68,672		)
Net increase in net assets resulting from operations	$	9,616,090

The accompanying unaudited notes are an integral part of these unaudited consolidated financial statements.

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180 DEGREE CAPITAL CORP. CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)

	Six Months Ended June 30, 2018
Cash flows used in operating activities:
Net increase in net assets resulting from operations	$	9,616,090
Adjustments to reconcile net increase in net assets resulting from operations to net cash provided by operating activities:
Net realized loss from investments	3,461,710
Realized loss from funds held in escrow	150
Net change in unrealized appreciation on investments	(14,786,505		)
Depreciation of fixed assets, prepaid assets and accretion of bridge note interest	(123,803		)
Share of loss on equity method investee	68,672
Purchase of unaffiliated privately held portfolio companies	(369,748		)
Purchase of unaffiliated publicly traded securities	(4,288,846		)
Purchase of non-controlled affiliated privately held portfolio companies	(195,334		)
Purchase of non-controlled affiliated publicly traded securities	(57,940		)
Proceeds from sale of unaffiliated privately held companies	132,000
Proceeds from sale of unaffiliated publicly traded securities	15,165,146
Proceeds from sale of non-controlled affiliated privately held companies	18,507
Proceeds from sale of non-controlled affiliated publicly traded securities	111,131
Proceeds from sale of controlled affiliated privately held companies	50,000
Proceeds from funds held in escrow	12,805
Changes in assets and liabilities:
Increase in interest receivable	(233,015		)
Decrease on prepaid expenses	77,146
Increase in receivable from portfolio companies and managed fund	(28,048		)
Decrease in other assets	41,106
Increase in post-retirement plan liabilities	6,704
Decrease in accounts payable and accrued liabilities	(306,702		)
Decrease in accrued severance	(140,923		)
Decrease in deferred rent	(22,620		)
Increase in directors' fee payable	11,250
Increase in payable for securities purchased	50,250
Net cash provided by operating activities	8,269,183
Cash flows from investing activities:
Purchase of fixed assets	(1,118		)
Net cash used in investing activities	(1,118		)
Net increase in cash	8,268,065
Cash and restricted cash at beginning of the period	3,498,540
Cash and restricted cash at end of the period	$	11,766,605
Supplemental disclosures of cash flow information:
Income taxes paid	$	32,364

The accompanying unaudited notes are an integral part of these unaudited consolidated financial statements.

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180 DEGREE CAPITAL CORP. CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS

	Six Months Ended June 30, 2018				Year Ended December 31, 2017
Changes in net assets from operations:	UNAUDITED
Net investment loss	$	(1,639,883	)		$	(3,645,515	)
Net realized loss	(3,461,860		)		(11,755,179		)
Net change in unrealized appreciation on investments	14,786,505				24,877,695
Share of loss on equity method investment	(68,672		)		(59,258		)
Net increase in net assets resulting from operations	9,616,090				9,417,743
Changes in net assets from capital stock transactions:
Acquisition of vested restricted stock awards to pay required employee withholding tax	0				(139,780		)
Stock-based compensation benefit	0				(190,347		)
Net decrease in net assets resulting from capital stock transactions	0				(330,127		)
Changes in net assets from accumulated other comprehensive loss:
Other comprehensive loss	0				(300,237		)
Net decrease in net assets resulting from accumulated other comprehensive loss	0				(300,237		)
Net increase in net assets	9,616,090				8,787,379
Net Assets:
Beginning of the period	81,042,989				72,255,610
End of the period	$	90,659,079			$	81,042,989
Accumulated net investment loss	$	(6,851,634	)		$	(5,211,751	)

 

The accompanying unaudited notes are an integral part of these unaudited consolidated financial statements.

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180 DEGREE CAPITAL CORP. FINANCIAL HIGHLIGHTS

	Six Months Ended June 30, 2018				Year Ended Dec. 31, 2017				Year Ended Dec. 31, 2016				Year Ended Dec. 31, 2015				Year Ended Dec. 31, 2014				Year Ended Dec. 31, 2013
Per Share Operating Performance	UNAUDITED
Net asset value per share, beginning of period/year	$	2.60			$	2.34			$	2.88			$	3.51			$	3.93			$	4.13
Net investment loss*	(0.05		)		(0.12		)		(0.15		)		(0.23		)		(0.25		)		(0.26		)
Net realized (loss) gain from investments*	(0.11		)		(0.38		)		(0.26		)		0.15				(0.16		)		0.59
Net change in unrealized appreciation (depreciation) on investments and written call options*1	0.47				0.80				(0.12		)		(0.56		)		(0.02		)		(0.58		)
Share of loss on equity method investment*2	0.00				0.00				0.00				(0.01		)		0.00				0.00
Total*	0.31				0.30				(0.53		)		(0.65		)		(0.43		)		(0.25		)
Net (decrease) increase as a result of stock-based compensation expense*2	0.00				(0.01		)		0.01				0.03				0.03				0.04
Net increase as a result of purchase of treasury stock	0.00				0.00				0.00				0.01				0.00				0.00
Net decrease as a result of acquisition of vested restricted stock awards related to employee withholding2	0.00				(0.02		)		(0.01		)		(0.01		)		(0.01		)		(0.01		)
Total (decrease) increase from capital stock transactions	0.00				(0.03		)		0.00				0.03				0.02				0.03
Net (decrease) increase as a result of other comprehensive (loss) income*2	0.00				(0.01		)		(0.01		)		(0.01		)		(0.01		)		0.02
Net increase (decrease) in net asset value	0.31				0.26				(0.54		)		(0.63		)		(0.42		)		(0.20		)
Net asset value per share, end of period/year	$	2.91			$	2.60			$	2.34			$	2.88			$	3.51			$	3.93
Stock price per share, end of period/year	$	2.31			$	1.97			$	1.38			$	2.20			$	2.95			$	2.98
Total return based on stock price	17.26		%		42.75		%		(37.27		)%		(25.42		)%		(1.01		)%		(9.70		)%
Supplemental Data:
Net assets, end of period/year	$	90,659,079			$	81,042,989			$	72,255,610			$	88,711,671			$	109,654,427			$	122,701,575
Ratio of expenses, excluding taxes, to average net assets3	2.63		%	**	6.26		%	**	7.88		%		8.15		%		7.14		%		6.62		%
Ratio of expenses, including taxes, to average net assets3	2.67		%	**	6.28		%	4 **	7.89		%		8.15		%		7.15		%		6.65		%
Ratio of net investment loss to average net assets3	(1.94		)%		(4.68		)%		(5.64		)%		(7.22		)%		(6.70		)%		(6.26		)%
Average debt outstanding	$	0			$	0			$	4,590,164			$	3,780,822			$	0			$	0
Average debt per share	$	0.00			$	0.00			$	0.15			$	0.12			$	0.00			$	0.00
Portfolio turnover	6.11		%		8.83		%		***				***				***				***
Number of shares outstanding, end of period/year	31,121,562				31,121,562				30,904,209				30,845,754				31,280,843				31,197,438

 

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*Based on average shares outstanding.

**The Company has entered into an expense offsetting arrangement with one of its unaffiliated brokers relating to broker fees paid. The total broker fee charged to the Company was applied as a credit to fees charged by an affiliate of the unaffiliated broker who the Company subscribes to for data services billed during the year. The Company received an offset to expense totaling approximately $11,000 and $5,700 with that broker for the six months ended June 30, 2018 and the year ended December 31, 2017.

***Prior to March 2017, the Company was a business development company investing primarily in privately held securities. Portfolio turnover was not a relevant indicator for such investments given that the Company did not generally pay brokerage fees on such investments.

¹ Net unrealized losses include rounding adjustments to reconcile change in net asset value per share.

² Amounts listed as zero are amounts calculated as less than $0.005.

³ Not annualized.

⁴ Ratio of expenses, including taxes and excluding expenses related to restructuring, to average net assets for the year ended December 31, 2017 was 5.19%.

The accompanying unaudited notes are an integral part of these unaudited consolidated financial statements.

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180 DEGREE CAPITAL CORP. CONSOLIDATED SCHEDULE OF INVESTMENTS AS OF JUNE 30, 2018 (UNAUDITED)
	Method of Valuation (1)		Industry		Cost		Shares/ Principal		Value

Investments in Unaffiliated Companies (2) -
33.3% of net assets at value
Privately Held Companies (Illiquid) (3) -
17.0% of net assets at value
AutoTech Ventures Management I, LLC (4)(5)(6)
Venture capital investing in automotive-related companies			Asset Management & Custody Banks
LLC Interests (acquired 12/1/17)	(M) (L3)				$	0			0				$	0
D-Wave Systems, Inc. (4)(5)(7)			Technology Hardware, Storage & Peripherals
Developing high-performance quantum computing systems
Series 1 Class B Convertible Preferred Stock (acquired 9/30/08)	(M) (L3)				1,002,074				1,144,869				2,033,089
Series 1 Class C Convertible Preferred Stock (acquired 9/30/08)	(M) (L3)				487,804				450,450				816,769
Series 1 Class D Convertible Preferred Stock (acquired 9/30/08)	(M) (L3)				748,473				855,131				1,550,548
Series 1 Class E Convertible Preferred Stock (acquired 11/24/10)	(M) (L3)				248,049				269,280				509,324
Series 1 Class F Convertible Preferred Stock (acquired 11/24/10)	(M) (L3)				238,323				258,721				489,352
Series 1 Class H Convertible Preferred Stock (acquired 6/27/14)	(M) (L3)				909,088				460,866				1,185,088
Series 2 Class D Convertible Preferred Stock (acquired 9/30/08)	(M) (L3)				736,019				678,264				1,229,847
Series 2 Class E Convertible Preferred Stock (acquired 6/1/12-3/22/13)	(M) (L3)				659,493				513,900				1,017,435
Series 2 Class F Convertible Preferred Stock (acquired 6/1/12-3/22/13)	(M) (L3)				633,631				493,747				977,535
Warrants for Common Stock expiring 5/12/19 (acquired 5/12/14)	(M) (L3)				26,357				20,415				10,307
					5,689,311								9,819,294
Fleet Health Alliance, LLC (4)(5)			Health Care Technology
Developing software for information transfer amongst healthcare providers and consumers
Unsecured Convertible Bridge Note, 0%, (acquired 4/22/16, no maturity date)	(M) (L3)				225,000				$	225,000			225,000

The accompanying unaudited notes are an integral part of these unaudited consolidated financial statements.

12

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180 DEGREE CAPITAL CORP. CONSOLIDATED SCHEDULE OF INVESTMENTS AS OF JUNE 30, 2018 (UNAUDITED)
	Method of Valuation (1)		Industry		Cost		Shares/ Principal		Value

Investments in Unaffiliated Companies (2) -
33.3% of net assets at value (cont.)
Privately Held Companies (Illiquid) (3) -
17.0% of net assets at value (cont.)
Genome Profiling, LLC (4)			Life Sciences Tools & Services
Developing a platform to analyze and understand the epigenome
Unsecured Convertible Bridge Note, 8%, (acquired 8/4/16, maturing 8/4/19)	(M) (L3)				$	230,000			$	230,000			$	287,500
Nanosys, Inc. (4)(5)			Specialty Chemicals
Developing inorganic nanowires and quantum dots for use in LED-backlit devices
Series C Convertible Preferred Stock (acquired 4/10/03)	(I) (L3)				1,500,000				803,428				901,696
Series D Convertible Preferred Stock (acquired 11/7/05)	(I) (L3)				3,000,003				1,016,950				1,790,363
Series E Convertible Preferred Stock (acquired 8/13/10)	(I) (L3)				496,573				433,688				793,372
					4,996,576								3,485,431
NanoTerra, Inc. (4)(5)			Research & Consulting Services
Developing surface chemistry and nano-manufacturing solutions
Warrants for Common Stock expiring on 2/22/21 (acquired 2/22/11)	(I) (L3)				69,168				4,462				37
Warrants for Series A-3 Preferred Stock expiring on 11/15/22 (acquired 11/15/12)	(I) (L3)				35,403				47,508				55,667
					104,571								55,704
Petra Pharma Corporation (4)(5)(8)			Pharmaceuticals
Developing small molecule inhibitors for treatment of cancer and metabolic diseases
Series A Convertible Preferred Stock (acquired 12/23/15-1/8/18)	(I) (L3)				1,894,798				1,894,798				1,160,687

The accompanying unaudited notes are an integral part of these unaudited consolidated financial statements.

13

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180 DEGREE CAPITAL CORP. CONSOLIDATED SCHEDULE OF INVESTMENTS AS OF JUNE 30, 2018 (UNAUDITED)
	Method of Valuation (1)		Industry		Cost		Shares/ Principal		Value

Investments in Unaffiliated Companies (2) -
33.3% of net assets at value (cont.)
Privately Held Companies (Illiquid) (3) -
17.0% of net assets at value (cont.)
Phylagen, Inc. (4)			Research & Consulting Services
Developing technology to improve human health and business productivity
Secured Convertible Bridge Note, 5% PIK, (acquired 2/5/15, maturing 6/12/19)	(M) (L3)				$	234,027			$	200,000			$	327,638
Secured Convertible Bridge Note, 5% PIK, (acquired 6/5/15, maturing 6/12/19)	(M) (L3)				11,537				$	10,000			16,152
					245,564								343,790
Total Unaffiliated Privately Held Companies (cost: $13,385,820)													$	15,377,406
Unaffiliated Publicly Traded Securities (9) -
16.3% of net assets at value
Adesto Technologies Corporation (5)			Semiconductors
Developing low-power, high-performance memory devices
Common Stock (acquired 10/27/15)	(M) (L1)				$	3,796,189			585,134				$	4,915,126
Champions Oncology, Inc. (5)			Life Sciences Tools & Services
Developing its TumorGraftTM platform for personalized medicine and drug development
Warrants for Common Stock expiring 1/28/19 (acquired 1/28/13)	(I) (L3)				400				5,500				10,882
Mersana Therapeutics, Inc. (5)			Biotechnology
Developing antibody drug conjugates for cancer therapy
Common Stock (acquired 7/27/12-6/7/18)	(M) (L1)				3,960,261				240,155				4,289,168
OpGen, Inc. (5)			Biotechnology
Developing tools for genomic sequence assembly and analysis
Warrants for the Purchase of Common Stock expiring 5/8/20 (acquired 5/5/15)	(M) (L2)				425,579				12,033				8,712
Warrants for the Purchase of Common Stock expiring 2/17/25 (acquired 5/5/15)	(I) (L3)				785				1,248				536
					426,364								9,248

The accompanying unaudited notes are an integral part of these unaudited consolidated financial statements.

14

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180 DEGREE CAPITAL CORP. CONSOLIDATED SCHEDULE OF INVESTMENTS AS OF JUNE 30, 2018 (UNAUDITED)
	Method of Valuation (1)		Industry		Cost		Shares/ Principal		Value

Investments in Unaffiliated Companies (2) -
33.3% of net assets at value (cont.)
Unaffiliated Publicly Traded Securities (9) -
16.3% of net assets at value (cont.)
Synacor, Inc. (5)			Internet Software & Services
Providing technology development, multiplatform services and revenue partner for video, internet and communications providers, device manufacturers, and enterprises
Common Stock (acquired 4/6/17-4/12/18)	(M) (L1)				$	4,040,458			1,400,000				$	2,800,000
Miscellaneous Common Stocks (10)(11)	(M) (L1)				2,563,962								2,756,872
Total Unaffiliated Publicly Traded Securities (cost: $14,787,634)													$	14,781,296
Total Investments in Unaffiliated Companies (cost: $28,173,454)													$	30,158,702
Investments in Non-Controlled Affiliated Companies (3) -
48.3% of net assets at value
Privately Held Companies (Illiquid) (12) -
37.0% of net assets at value
ABSMaterials, Inc. (4)			Specialty Chemicals
Developing nano-structured absorbent materials for water remediation and consumer applications
Series A Convertible Preferred Stock (acquired 2/17/10-10/24/11)	(I) (L3)				$	435,000			390,000				$	21,097
Series B Convertible Preferred Stock (acquired 11/8/13-6/25/14)	(I) (L3)				1,217,644				1,037,751				354,165
Secured Convertible Bridge Note, 8% PIK, (acquired 1/20/16, maturing 12/31/18)	(M) (L3)				119,573				$	100,000			119,573
Secured Convertible Bridge Note, 8% PIK, (acquired 3/28/17, maturing 12/31/19)	(M) (L3)				27,521				$	25,000			27,521
					1,799,738								522,356

The accompanying unaudited notes are an integral part of these unaudited consolidated financial statements.

15

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180 DEGREE CAPITAL CORP. CONSOLIDATED SCHEDULE OF INVESTMENTS AS OF JUNE 30, 2018 (UNAUDITED)
	Method of Valuation (1)		Industry		Cost		Shares/ Principal		Value

Investments in Non-Controlled Affiliated Companies (3) -
48.3% of net assets at value (cont.)
Privately Held Companies (Illiquid) (12) -
37.0% of net assets at value (cont.)
AgBiome, LLC (4)(5)			Fertilizers & Agricultural Chemicals
Providing early-stage research and discovery for agriculture and utilizing the crop microbiome to identify products that reduce risk and improve yield
Series A-1 Convertible Preferred Stock (acquired 1/30/13)	(I) (L3)				$	2,000,000			2,000,000				$	9,881,094
Series A-2 Convertible Preferred Stock (acquired 4/9/13-10/15/13)	(I) (L3)				521,740				417,392				2,106,090
Series B Convertible Preferred Stock (acquired 8/7/15)	(I) (L3)				500,006				160,526				936,039
					3,021,746								12,923,223
Coba Therapeutics Corporation (4)
Developing therapeutics for obesity, diabetes and liver diseases			Pharmaceuticals
Unsecured Convertible Bridge Note, 6%, (acquired 2/27/18, maturing 2/27/19)	(M) (L3)				148,496				$	145,530			148,496
EchoPixel, Inc. (4)(5)			Health Care Equipment
Developing virtual reality 3-D visualization software for life sciences and health care applications
Series Seed Convertible Preferred Stock (acquired 6/21/13-6/30/14)	(I) (L3)				1,250,000				4,194,630				1,026,604
Series Seed-2 Convertible Preferred Stock (acquired 1/22/16)	(I) (L3)				500,000				1,476,668				366,825
Series A-2 Convertible Preferred Stock (acquired 3/23/17)	(I) (L3)				350,000				1,471,577				442,167
					2,100,000								1,835,596
Ensemble Therapeutics Corporation (4)(5)(13)			Pharmaceuticals
Developed DNA-Programmed ChemistryTM for the discovery of new classes of therapeutics
Series B Convertible Preferred Stock (acquired 6/6/07)	(I) (L3)				2,000,000				1,449,275				0
Series B-1 Convertible Preferred Stock (acquired 4/21/14)	(I) (L3)				574,079				492,575				282,714
					2,574,079								282,714

The accompanying unaudited notes are an integral part of these unaudited consolidated financial statements.

16

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180 DEGREE CAPITAL CORP. CONSOLIDATED SCHEDULE OF INVESTMENTS AS OF JUNE 30, 2018 (UNAUDITED)
	Method of Valuation (1)		Industry		Cost		Shares/ Principal		Value

Investments in Non-Controlled Affiliated Companies (2) -
48.3% of net assets at value (cont.)
Privately Held Companies (Illiquid) (12) -
37.0% of net assets at value (cont.)
Essential Health Solutions, Inc. (4)(5)			Health Care Technology
Developing software for information transfer amongst healthcare providers and consumers
Common Stock (acquired 11/18/16)	(I) (L3)				$	20			200,000				$	123,297
Series A Convertible Preferred Stock (acquired 11/18/16)	(I) (L3)				2,750,000				2,750,000				2,755,000
					2,750,020								2,878,297
HZO, Inc. (4)(5)(14)			Semiconductor Equipment
Developing novel industrial coatings that protect electronics against damage from liquids
Common Stock (acquired 6/23/14)	(M) (L2)				666,667				405,729				829,738
Series I Convertible Preferred Stock (acquired 6/23/14)	(M) (L2)				5,709,835				2,266,894				4,635,923
Series II Convertible Preferred Stock (acquired 6/23/14-8/3/15)	(M) (L2)				2,500,006				674,638				1,379,672
Series II-A Convertible Preferred Stock (acquired 9/9/16)	(M) (L2)				226,070				69,053				141,217
Warrants for Series II-A Convertible Preferred Stock expiring 7/15/23 (acquired 7/15/16)	(M) (L2)				29,820				6,577				13,450
					9,132,398								7,000,000
Lodo Therapeutics Corporation (4)(5)			Pharmaceuticals
Developing and commercializing novel therapeutics derived from a metagenome-based Natural Product Discovery Platform
Series A Convertible Preferred Stock (acquired 12/21/15-4/22/16)	(I) (L3)				658,190				658,190				766,208
NGX Bio, Inc. (4)(5)			Research & Consulting Services
Developing translational genomics solutions
Series Seed Convertible Preferred Stock (acquired 6/6/14-1/10/16)	(M) (L3)				500,002				666,667				156,417
Series Seed 2 Convertible Preferred Stock (acquired 8/20/15-9/30/15)	(M) (L3)				499,999				329,989				117,313
Series Seed 3 Convertible Preferred Stock (acquired 6/26/17)	(M) (L3)				686,329				666,001				175,012
					1,686,330								448,742

The accompanying unaudited notes are an integral part of these unaudited consolidated financial statements.

17

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180 DEGREE CAPITAL CORP. CONSOLIDATED SCHEDULE OF INVESTMENTS AS OF JUNE 30, 2018 (UNAUDITED)
	Method of Valuation (1)		Industry		Cost		Shares/ Principal		Value

Investments in Non-Controlled Affiliated Companies (2) -
48.3% of net assets at value (cont.)
Privately Held Companies (Illiquid) (12) -
37.0% of net assets at value (cont.)
ORIG3N, Inc. (4)(5)			Health Care Technology
Developing precision medicine applications for induced pluripotent stems cells
Series 1 Convertible Preferred Stock (acquired 2/5/15-8/5/15)	(H) (L3)				$	500,000			1,195,315				$	1,311,901
Series A Convertible Preferred Stock (acquired 11/25/15-9/7/16)	(H) (L3)				1,500,000				1,364,666				1,510,188
Series A-2 Convertible Preferred Stock (acquired 5/11/17-2/8/18)	(H) (L3)				200,002				176,386				197,647
					2,200,002								3,019,736
Produced Water Absorbents, Inc. (4)(15)			Oil & Gas Equipment & Services
Providing integrated process separation solutions to the global oil and gas industries, enabling onsite treatment of produced and flowback water
Common Stock (acquired 4/30/16)	(M) (L3)				7,670,281				50,243,350				0
Warrants for Common Stock expiring upon liquidation event (acquired 4/30/16)	(M) (L3)				65,250				450,000				0
Senior Secured Debt, 15% commencing on 4/1/16, maturing on 12/31/19 (acquired 4/1/16)	(M) (L3)				2,228,527				$	2,533,766			218,337
					9,964,058								218,337
TARA Biosystems, Inc. (4)(5)			Life Sciences Tools & Services
Developing human tissue models for toxicology and drug discovery applications
Common Stock (acquired 8/20/14)	(I) (L3)				20				2,000,000				659,019
Series A Convertible Preferred Stock (acquired 3/31/17)	(I) (L3)				2,545,493				6,878,572				2,807,539
					2,545,513								3,466,558
Total Non-Controlled Affiliated Privately Held Companies (cost: $38,580,570)													$	33,510,263

The accompanying unaudited notes are an integral part of these unaudited consolidated financial statements.

18

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180 DEGREE CAPITAL CORP. CONSOLIDATED SCHEDULE OF INVESTMENTS AS OF JUNE 30, 2018 (UNAUDITED)
	Method of Valuation (1)		Industry		Cost		Shares/ Principal		Value

Investments in Non-Controlled Affiliated Companies (2) -
48.3% of net assets at value (cont.)
Non-Controlled Affiliated Publicly Traded Securities (16) -
11.3% of net assets at value (cont.)
TheStreet, Inc. (4)(5)(17)			Financial Exchanges & Data
Providing financial news and proprietary data to consumers and businesses
Common Stock (acquired 4/19/17-5/18/18)	(M) (L1)				$	4,949,734			4,668,552				$	10,177,443
Stock Options for Common Stock Expiring 1/1/25 (acquired 1/1/18)	(I) (L3)				0				3,333				2,719
Stock Options for Common Stock Expiring 5/18/25 (acquired 5/18/18)	(I) (L3)				0				10,000				5,801
Restricted Stock Units (acquired 11/10/17)	(M) (L3)				0				33,333				64,909
					4,949,734								10,250,872
Total Non-Controlled Affiliated Publicly Traded Securities (cost: $4,949,734)													$	10,250,872
Total Investments in Non-Controlled Affiliated Companies (cost: $43,530,304)													$	43,761,135
Investments in Controlled Affiliated Companies (2) -
4.4% of net assets at value
Privately Held Companies (Illiquid) (18) -
4.4% of net assets at value
Black Silicon Holdings, Inc. (4)(13)(19)			Semiconductors
Holding company for interest in a company that develops silicon-based optoelectronic products
Series A Convertible Preferred Stock (acquired 8/4/15)	(I) (L3)				$	750,000			233,499				$	0
Series A-1 Convertible Preferred Stock (acquired 8/4/15)	(I) (L3)				890,000				2,966,667				0
Series A-2 Convertible Preferred Stock (acquired 8/4/15)	(I) (L3)				2,445,000				4,207,537				0
Series B-1 Convertible Preferred Stock (acquired 8/4/15)	(I) (L3)				1,169,561				1,892,836				0
Series C Convertible Preferred Stock (acquired 8/4/15)	(I) (L3)				1,171,316				1,674,030				0
Secured Convertible Bridge Note, 8% PIK, (acquired 8/25/16, maturing 8/4/21)	(I) (L3)				1,444,368				1,278,453				96,173
					7,870,245								96,173

The accompanying unaudited notes are an integral part of these unaudited consolidated financial statements.

19

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180 DEGREE CAPITAL CORP. CONSOLIDATED SCHEDULE OF INVESTMENTS AS OF JUNE 30, 2018 (UNAUDITED)
	Method of Valuation (1)		Industry		Cost		Shares/ Principal		Value

Investments in Controlled Affiliated Companies (2) -
4.4% of net assets at value (cont.)
Privately Held Companies (Illiquid) (18) -
4.4% of net assets at value (cont.)
HALE.life Corporation (4)(5)(8)			Health Care Technology
Developing a platform to facilitate precision health and medicine
Common Stock (acquired 3/1/16)	(M) (L3)				$	10			1,000,000				$	10
Series Seed Convertible Preferred Stock (acquired 3/28/17)	(M) (L3)				1,896,920				11,000,000				1,896,920
Unsecured Convertible Bridge Note, 0%, (acquired 3/28/17, no maturity date)	(M) (L3)				2,000,000				$	2,000,000			2,000,000
					3,896,930								3,896,930
Total Controlled Affiliated Privately Held Companies (cost: $11,767,175)													$	3,993,103
Total Investments in Controlled Affiliated Privately Held Companies (cost: $11,767,175)													$	3,993,103
Total Investments in Privately Held Companies and Publicly Traded Securities (cost: $83,470,933)													$	77,912,940
Investment in Equity Method Privately Held Company (20) -
0.2% of net assets at value
Privately Held Company (Illiquid) (20) -