10-Q 1 fp0027237_10q.htm

 
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549  

FORM 10-Q

 
[X]
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period of June 30, 2017 or

 
[  ]
TRANSITION QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number 333-168195

FIRSTHAND TECHNOLOGY VALUE FUND, INC.
(Exact Name of Registrant as Specified in Charter)  

MARYLAND
27-3008946
(State or Other Jurisdiction of
(I.R.S. Employer
Incorporation or Organization)
Identification No)
   
150 Almaden Boulevard, Suite 1250
  
San Jose, California
95113
(Address of Principal Executive Offices)
(Zip Code)

Registrant’s Telephone Number, Including Area Code: (408) 886-7096

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 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
[X]
Accelerated Filer
 
[   ]
Non-accelerated Filer
[   ]
Smaller Reporting Company
(Do not check if smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes        [X] No

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Class
Outstanding at July 31, 2017
Common Stock, $0.001 par value per share
7,430,697
 
TABLE OF CONTENTS

PART I.
FINANCIAL INFORMATION
2
Item 1.
Financial Statements
2
 
Consolidated Statements of Assets and Liabilities as of June 30, 2017 (Unaudited) and December 31, 2016
3
 
Consolidated Statements of Operations (Unaudited) for the Three Months Ended June 30, 2017, and June 30, 2016 and for the Six Months Ended June 30, 2017, and June 30, 2017
4
 
Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2017 (Unaudited) and the Six Months Ended June 30, 2016 (Unaudited)
5
 
Consolidated Statements of Changes in Net Assets for the Six Months Ended June 30, 2017 (Unaudited) and the Year Ended December 31, 2016
6
 
Selected Per Share Data and Ratios for the Six Months Ended June 30, 2017 (Unaudited) (Consolidated), for the Year Ended December 31, 2016 (Consolidated), for the Year Ended December 31, 2015 (Consolidated), for the Year Ended December 31, 2014, for the Year Ended December 31, 2013, and for the Year Ended December 31, 2012
7
 
Consolidated Schedule of Investments (Unaudited) as of June 30, 2017
8
 
Consolidated Notes To Financial Statements (Unaudited)
13
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
28
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
36
Item 4.
Controls and Procedures
38
PART II.
OTHER INFORMATION
39
Item 1.
Legal Proceedings
40
Item 1A.
Risk Factors
40
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
40
Item 3.
Defaults Upon Senior Securities
40
Item 4.
Mine Safety Disclosures
40
Item 5.
Other Information
40
Item 6.
Exhibits
40
SIGNATURES
 
41

1
PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS
 
See accompanying notes to financial statements

2
Firsthand Technology Value Fund, Inc.
Consolidated Statements of Assets and Liabilities

   
AS OF
JUNE 30, 2017
(UNAUDITED)
    
AS OF
DECEMBER 31, 2016
  
ASSETS
            
Investment securities:
            
Unaffiliated investments at acquisition cost
  
$
40,762,524
    
$
66,336,448
  
Affiliated investments at acquisition cost
    
23,561,205
      
11,898,906
  
Controlled investments at acquisition cost
    
103,960,410
      
96,551,795
  
Total acquisition cost
  
$
168,284,139
    
$
174,787,149
  
Unaffiliated investments at market value
  
$
30,762,722
    
$
51,202,592
  
Affiliated investments at market value
    
19,056,057
      
10,410,045
  
Controlled investments at market value
    
82,893,779
      
85,918,212
  
Total market value * (Note 6)
    
132,712,558
      
147,530,849
  
Cash
    
6,821,445
      
1,934,247
  
Receivable from dividends and interest
    
1,169,592
      
820,824
  
Other assets
    
24,669
      
28,513
  
Total Assets
    
140,728,264
      
150,314,433
  
LIABILITIES
                
Payable for securities purchased
    
90,066
      
395,532
  
Payable to affiliates (Note 4)
    
749,588
      
796,533
  
Consulting fee payable
    
25,000
      
27,250
  
Accrued expenses and other payables
    
118,509
      
182,727
  
Total Liabilities
    
983,163
      
1,402,042
  
NET ASSETS
  
$
139,745,101
    
$
148,912,391
  
Net Assets consist of:
                
Common Stock, par value $0.001 per share 100,000,000 shares authorized
  
$
7,431
    
$
7,431
  
Paid-in-capital
    
184,698,313
      
184,698,313
  
Accumulated net investment loss
    
(1,412,801
)
    
—
  
Accumulated net realized loss from security transactions
    
(7,976,261
)
    
(8,537,053
)
Net unrealized depreciation on investments and warrants transactions
    
(35,571,581
)
    
(27,256,300
)
NET ASSETS
  
$
139,745,101
    
$
148,912,391
  
Shares of Common Stock outstanding
    
7,430,697
      
7,430,697
  
Net asset value per share (Note 2)
  
$
18.81
    
$
20.04
  
 
*
Includes warrants whose primary risk exposure is equity contracts.

See accompanying notes to financial statements

3
Firsthand Technology Value Fund, Inc.
Consolidated Statements of Operations

   
FOR THE THREE MONTHS ENDED
    
FOR THE SIX MONTHS ENDED
  
   
JUNE 30, 2017
(UNAUDITED)
    
JUNE 30, 2016
(UNAUDITED)
    
JUNE 30, 2017
(UNAUDITED)
    
JUNE 30, 2016
(UNAUDITED)
  
INVESTMENT INCOME
                        
Unaffiliated dividends
  
$
—
    
$
4,342
    
$
—
    
$
4,342
  
Unaffiliated interest
    
22,557
      
11,231
      
29,265
      
11,467
  
Affiliated/Controlled interest
    
326,739
      
201,307
      
580,829
      
360,986
  
TOTAL INVESTMENT INCOME
    
349,296
      
216,880
      
610,094
      
376,795
  
EXPENSES
                                
Investment advisory fees (Note 4)
    
726,250
      
836,291
      
1,467,402
      
1,697,112
  
Administration fees
    
47,484
      
38,378
      
93,651
      
75,255
  
Custody fees
    
7,848
      
3,539
      
10,622
      
7,077
  
Transfer agent fees
    
7,506
      
6,244
      
14,701
      
13,419
  
Registration and filing fees
    
5,759
      
5,744
      
11,455
      
11,487
  
Professional fees
    
129,162
      
81,717
      
245,303
      
262,405
  
Printing fees
    
15,780
      
18,939
      
29,916
      
37,917
  
Trustees fees
    
25,000
      
25,000
      
50,000
      
50,000
  
Compliance fees
    
26,225
      
44,335
      
52,609
      
93,785
  
Miscellaneous fees
    
23,693
      
17,142
      
47,236
      
30,799
  
TOTAL NET EXPENSES
    
1,014,707
      
1,077,329
      
2,022,895
      
2,279,256
  
                                 
NET INVESTMENT LOSS
    
(665,411
)
    
(860,449
)
    
(1,412,801
)
    
(1,902,461
)
Net Realized and Unrealized Gains (Losses) on Investments:
                                
Net realized gains (losses) from security transactions Affiliated/Controlled
    
—
      
864,024
      
—
      
503,271
  
Non-affiliated and other assets
    
1,633,244
      
3,348,667
      
560,792
      
7,024,263
  
Net change in unrealized depreciation on investments
    
(10,458,990
)
    
(4,600,443
)
    
(9,115,270
)
    
(20,825,801
)
Net change in unrealized appreciation on warrants transactions (1)
    
419,326
      
271,816
      
799,989
      
6,208,244
  
Net Realized and Unrealized Losses on Investments
    
(8,406,420
)
    
(115,936
)
    
(7,754,489
)
    
(7,090,023
)
Net Decrease In Net Assets Resulting From Operations
  
$
(9,071,831
)
  
$
(976,385
)
  
$
(9,167,290
)
  
$
(8,992,484
)
Net Decrease In Net Assets Per Share Resulting From Operations (2)
  
$
(1.22
)
  
$
(0.13
)
  
$
(1.23
)
  
$
(1.17
)

(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

4
Firsthand Technology Value Fund, Inc.
Consolidated Statements of Cash Flows

   
FOR THE
SIX MONTHS ENDED
JUNE 30, 2017
(UNAUDITED)
    
FOR THE
SIX MONTHS ENDED
JUNE 30, 2016
(UNAUDITED)
  
CASH FLOWS FROM OPERATING ACTIVITIES
            
Net decrease in Net Assets resulting from operations
  
$
(9,167,290
)
  
$
(8,992,484
)
                 
Adjustments to reconcile net decrease in Net Assets derived from operations to net cash provided by (used in) operating activities:
                
Purchases of investments
    
(8,509,165
)
    
(39,534,269
)
Proceeds from disposition of investments
    
18,918,692
      
49,309,176
  
Net purchases from short-term investments
    
(3,345,725
)
    
(1,381,102
)
Increase (decrease) in dividends, interest, and reclaims receivable
    
(348,768
)
    
2,863,020
  
Decrease in restricted cash
    
—
      
1,000,000
  
Decrease in other assets
    
3,844
      
738,153
  
Decrease in payable for investment purchased
    
(305,466
)
    
—
  
Decrease in payable to affiliates
    
(46,945
)
    
(59,081
)
Decrease in accrued expenses and other payables
    
(66,468
)
    
(111,502
)
Net realized gain from investments
    
(560,792
)
    
(7,527,534
)
Net unrealized (appreciation) and depreciation from investments, other assets, and warrants transactions
    
8,315,281
      
14,617,557
  
Net cash (used in) provided by operating activities
    
4,887,198
      
10,921,934
  
                 
CASH FLOWS FROM FINANCING ACTIVITIES
                
Cost of shares repurchased
    
—
      
(1,037,711
)
Net cash (used in) financing activities
    
—
      
(1,037,711
)
                 
Net increase in cash
    
4,887,198
      
9,884,223
  
Cash - beginning of period
    
1,934,247
      
767,286
  
Cash - end of period
  
$
6,821,445
    
$
10,651,509
  

See accompanying notes to financial statements
 
5
Firsthand Technology Value Fund, Inc.
Consolidated Statements of Changes in Net Assets

   
FOR THE SIX MONTHS ENDED JUNE 30, 2017 (UNAUDITED)
    
FOR THE YEAR ENDED DECEMBER 31, 2016
  
FROM OPERATIONS:
            
Net investment loss
  
$
(1,412,801
)
  
$
(3,835,503
)
Net realized gains (loss) from security transactions and warrants transactions
    
560,792
      
(6,167,339
)
Net change in unrealized depreciation on investments and warrants transactions
    
(8,315,281
)
    
(14,658,712
)
Net decrease in net assets from operations
    
(9,167,290
)
    
(24,661,554
)
                 
FROM CAPITAL SHARE TRANSACTIONS:
                
Value of shares repurchased
    
—
      
(2,005,434
)
Net increase (decrease) in net assets from capital share transactions
    
—
      
(2,005,434
)
TOTAL DECREASE IN NET ASSETS
    
(9,167,290
)
    
(26,666,988
)
                 
NET ASSETS:
                
Beginning of period
    
148,912,391
      
175,579,379
  
End of period
  
$
139,745,101
    
$
148,912,391
  
Accumulated Net Investment Loss
  
$
(1,412,801
)
  
$
—
  
                 
COMMON STOCK ACTIVITY:
                
Shares repurchased
    
—
      
(272,008
)
Net decrease in shares outstanding
    
—
      
(272,008
)
Shares outstanding, beginning of period
    
7,430,697
      
7,702,705
  
Shares outstanding, end of period
    
7,430,697
      
7,430,697
  
 
See accompanying notes to financial statements
6
Firsthand Technology Value Fund, Inc.
Financial Highlights: Selected per share data and ratios for a share outstanding throughout each period

   
FOR THE SIX MONTHS ENDED JUNE 30, 2017* (UNAUDITED)
    
FOR THE YEAR ENDED DECEMBER 31, 2016*
    
FOR THE YEAR ENDED DECEMBER 31, 2015*
    
FOR THE YEAR ENDED DECEMBER 31, 2014
    
FOR THE YEAR ENDED DECEMBER 31, 2013
    
FOR THE YEAR ENDED DECEMBER 31, 2012
  
Net asset value at beginning of period
  
$
20.04
    
$
22.79
    
$
24.49
    
$
28.32
    
$
22.90
    
$
23.92
  
Income from investment operations:
                                                
Net investment loss
    
(0.19
)
    
(0.52
)
    
(0.06
)(1)
    
(1.26
)
    
(1.42
)
    
(0.39
)
Net realized and unrealized gains (losses) on investments
    
(1.04
)
    
(2.76
)
    
(1.78
)
    
3.04
      
7.16
      
(1.01
)
Total from investment operations
    
(1.23
)
    
(3.28
)
    
(1.84
)
    
1.78
      
5.74
      
(1.40
)
                                                 
Distributions from:
                                                
Realized capital gains
    
—
      
—
      
—
      
(5.86
)
    
(0.32
)
    
—
  
Premiums from shares sold in offerings
    
—
      
—
      
—
      
—
      
—
(2) 
    
0.38
  
Anti-dilutive effect from capital share transactions
    
—
      
0.53
      
0.14
      
0.25
      
—
      
—
  
Net asset value at end of period
  
$
18.81
    
$
20.04
    
$
22.79
    
$
24.49
    
$
28.32
    
$
22.90
  
                                                 
Market value at end of period
  
$
8.39
    
$
7.67
    
$
8.17
    
$
18.65
    
$
23.17
    
$
17.44
  
                                                 
Total return
                                                
Based on Net Asset Value
    
(6.14
)%(A)
    
(12.07
)%
    
(6.94
)%
    
12.54
%
    
25.30
%
    
(4.26
)%
Based on Market Value
    
9.39
%(A)
    
(6.12
)%
    
(56.19
)%
    
4.76
%
    
34.61
%
    
21.70
%
Net assets at end of period (millions)
  
$
139.7
    
$
148.9
   
$
175.6
    
$
209.7
    
$
256.9
    
$
195.9
  
Ratio of total expenses to average net assets
    
2.78
%(B)
    
2.90
%
    
1.36
%(3)
    
5.29
%(3)
    
6.52
%(3)
    
2.56
%
Ratio of total expenses to average net assets, excluding incentive fees
    
2.78
%(B)
    
2.90
%
    
2.68
%
    
3.12
%
    
2.67
%
    
2.56
%
Ratio of net investment loss to average net assets
    
(1.94
)%(B)
    
(2.36
)%
    
(0.24
)%
    
(4.31
)%
    
(5.96
)%
    
(2.12
)%
Portfolio turnover rate
    
11
%(A)
    
49
%
    
22
%
    
95
%
    
17
%
    
10
%
 
*
Consolidated.
(1)
Calculated using average shares outstanding.
(2)
Less than $0.005 per share.
(3)
Amount includes the incentive fee. For the year ended December 31, 2015, the year ended December 31, 2014, and the year ended December 31, 2013, the ratio of the incentive fee to average net assets was (1.32)%, 2.17%, and 3.85%, respectively.
(A)
Not Annualized.
(B)
Annualized.
 
See accompanying notes to financial statements
7
Firsthand Technology Value Fund, Inc.
Consolidated Schedule of Investments
JUNE 30, 2017 (UNAUDITED)
 
PORTFOLIO COMPANY (% OF NET ASSETS)AND INDUSTRY
TYPE OF INVESTMENT
  
SHARES/PAR VALUE ($)
    
COST BASIS
    
VALUE
  
ALIPHCOM, INC. (0.9%)
Common Stock *(1)
    
2,128,005
    
$
10,108,024
    
$
1,340,005
  
Consumer Electronics
                          
CLOUDERA, INC. (0.2%)
Common Stock *(1)
    
20,000
      
580,000
      
272,340
  
Software
                          
                           
EQX CAPITAL, INC. (2.9%)
Common Stock *(1)(2)
    
100,000
      
20,000
      
44,320
  
Equipment Leasing
Preferred Stock - Series A *(1)(2)
    
4,000,000
      
4,000,000
      
3,975,600
  
                       
4,019,920
  
HERA SYSTEMS, INC. (0.8%)
Convertible Note (1)(2)
                        
Aerospace
Matures August 2017
                        
 
Interest Rate 6%
    
30,000
      
30,000
      
13,428
  
 
Convertible Note (1)(2)
                        
 
Matures July 2017
                        
 
Interest Rate 10%
    
200,000
      
200,000
      
433,700
  
 
 Convertible Note (1)(2)                        
 
Matures July 2017
                        
 
Interest Rate 10%
    
65,000
      
65,000
      
140,953
  
 
 Convertible Promissory Note (1)(2)                        
 
Matures July 2017
                        
 
Interest Rate 10%
    
70,000
      
70,000
      
151,795
  
 
Term Note (1)(2)
                        
 
Matures July 2017
                        
 
Interest Rate 10%
    
50,000
      
50,000
      
108,425
  
 
Preferred Stock - Series A *(1)(2)
    
3,642,324
      
2,000,000
      
203,970
  
 
Term Note (1)(2)
                        
 
Matures July 2017
                        
 
Interest Rate 3%
    
20,000
      
20,000
      
43,370
  
                       
1,095,641
  
HIGHTAIL, INC. (6.2%)
Preferred Stock - Series E *(1)(4)
    
2,268,602
      
9,620,188
      
8,725,270
  
Cloud Computing
                          
 
See accompanying notes to financial statements
8
Firsthand Technology Value Fund, Inc.
Consolidated Schedule of Investments - continued
JUNE 30, 2017 (UNAUDITED)
 
PORTFOLIO COMPANY (% OF NET ASSETS)AND INDUSTRY
TYPE OF INVESTMENT
  
SHARES/PAR VALUE ($)
    
COST BASIS
    
VALUE
  
INTRAOP MEDICAL CORP. (16.5%)
Convertible Note (1)(2)
                  
Medical Devices
Matures June 2020
                  
 
Interest Rate 15%
    
1,000,000
    
$
1,000,000
    
$
1,000,000
  
 
Convertible Note (1)(2)
                        
 
Matures June 2020
                        
 
Interest Rate 15%
    
1,000,000
      
1,000,000
      
1,000,000
  
 
Preferred Stock - Series C *(1)(2)
    
26,856,187
      
26,299,938
      
16,018,641
  
 
Term Note (1)(2)
                        
 
Matures February 2020
                        
 
Interest Rate 8%
    
2,000,000
      
2,000,000
      
2,000,000
  
 
Term Note (1)(2)
                        
 
Matures February 2020
                        
 
Interest Rate 8%
    
3,000,000
      
3,000,000
      
3,000,000
  
                       
23,018,641
  
NUTANIX, INC. (6.6%)
Common Stock *
    
459,772
      
7,376,112
      
9,264,406
  
Networking
                          
PHUNWARE, INC. (4.9%)
Preferred Stock - Series E *(1)(3)
    
3,257,328
      
9,999,997
      
6,807,490
  
Mobile Computing
                          
PIVOTAL SYSTEMS CORP. (18.7%)
Common Stock Warrants -Class B *(1)(2)
    
18,180,475
      
0
      
5,529,228
  
Semiconductor Equipment
Preferred Stock Warrants -Series D *(1)(2)
    
4,158,654
      
0
      
279,877
  
 
Preferred Stock - Series A *(1)(2)
    
11,914,217
      
6,000,048
      
6,621,922
  
 
Preferred Stock - Series B *(1)(2)
    
13,065,236
      
6,321,482
      
7,261,658
  
 
Preferred Stock - Series C *(1)(2)
    
2,291,260
      
2,657,862
      
2,310,048
  
 
Preferred Stock - Series D *(1)(2)
    
6,237,978
      
3,975,801
      
4,174,455
  
                       
26,177,188
  
QMAT, INC. (10.3%)
Convertible Note (1)(2)
                        
Advanced Materials
Matures March 2019
                        
 
Interest Rate 8%
    
1,000,000
      
1,000,000
      
1,000,000
  
 
Preferred Stock - Series A *(1)(2)
    
16,000,240
      
16,000,240
      
10,962,564
  
 
Preferred Stock - Series B *(1)(2)
    
2,000,000
      
2,000,000
      
2,000,000
  
 
Preferred Stock Warrants -Series A *(1)(2)
    
2,000,000
      
0
      
394,600
  
                       
14,357,164
  
QUICKLOGIC CORP. (1.1%)
Common Stock *
    
1,030,000
      
1,578,772
      
1,503,800
  
Semiconductors                          
 
See accompanying notes to financial statements
9
Firsthand Technology Value Fund, Inc.
Consolidated Schedule of Investments - continued
JUNE 30, 2017 (UNAUDITED)
 
PORTFOLIO COMPANY (% OF NET ASSETS)AND INDUSTRY
TYPE OF INVESTMENT
  
SHARES/PAR VALUE ($)
    
COST BASIS
    
VALUE
  
REVASUM, INC. (3.7%)
Common Stock *(1)(2)
  
 
10,000
    
$
1,000
  
$
 11,538  
Semiconductor Equipment
Term Note (1)(2)
                      
 
Matures February 2020
                      
 
Interest Rate 5%
    
1,000,000
      
1,000,000
      
1,000,000
  
 
Preferred Stock - Series A *(1)(2)
    
441,998
      
1,999,997
      
1,474,594
  
 
Preferred Stock - Series Seed *(1)(2)
    
2,200,000
      
2,200,000
      
2,714,800
  
                       
5,200,932
  
ROKU, INC. (1.2%)
Common Stock *(1)
    
1,500,000
      
2,312,500
      
1,688,250
  
Consumer Electronics
                          
RORUS, INC. (0.0%)
Convertible Note (1)
                        
Water Purification
Matures June 2021
                        
 
Interest Rate 2%
    
50,000
      
50,000
      
50,000
  
SILICON GENESIS CORP. (4.2%)
Common Stock *(1)(2)
    
921,892
      
169,045
      
15,488
  
Intellectual Property
Common Stock Warrants *(1)(2)
    
5,000,000
      
0
      
10,000
  
 
Common Stock Warrants *(1)(2)
    
37,982
      
6,678
      
323
  
 
Common Stock Warrants *(1)(2)
    
3,000,000
      
0
      
6,000
  
 
Preferred Stock -Series 1-C *(1)(2)
    
82,914
      
109,518
      
70,460
  
 
Preferred Stock -Series 1-D *(1)(2)
    
850,830
      
431,901
      
194,500
  
 
Preferred Stock -Series 1-E *(1)(2)
    
5,704,480
      
2,614,401
      
1,994,286
  
 
Preferred Stock -Series 1-F *(1)(2)
    
912,453
      
509,785
      
444,365
  
 
Preferred Stock -Series 1-G *(1)(2)(5)
    
48,370,793
      
4,729,221
      
2,886,769
  
 
Preferred Stock -Series 1-H *(1)(2)
    
837,942
      
963,494
      
229,847
  
                       
5,852,038
  
SUNRUN, INC. (2.7%)
Common Stock *
    
524,820
      
4,954,995
      
3,736,718
  
Renewable Energy
                          
SVXR, INC. (0.7%)
Preferred Stock - Series A *(1)(3)
    
2,013,491
      
1,000,000
      
1,000,000
  
Semiconductor Equipment                          
 
See accompanying notes to financial statements
10
Firsthand Technology Value Fund, Inc.
Consolidated Schedule of Investments - continued
JUNE 30, 2017 (UNAUDITED)
 
PORTFOLIO COMPANY
(% OF NET ASSETS)
 AND INDUSTRY
  
TYPE OF INVESTMENT
    
SHARES/PAR
 VALUE ($)
      
COST BASIS
      
VALUE
  
TELEPATHY INVESTORS, INC. (1.0%)
Consumer Electronics
 
Convertible Note (1)(2)
Matures January 2018
 Interest Rate 10%
    
2,000,000
    
$
2,000,000
    
$
267,400
  
 
Convertible Note (1)(2)
Matures January 2018
 Interest Rate 10%
    
500,000
      
500,000
      
66,850
  
 
Convertible Note (1)(2)
Matures January 2018
 Interest Rate 10%
    
300,000
      
300,000
      
40,110
  
 
Convertible Note (1)(2)
Matures January 2018
 Interest Rate 10%
    
500,000
      
500,000
      
66,850
  
 
Convertible Note (1)(2)
Matures January 2018
 Interest Rate 10%
    
150,000
      
150,000
      
20,055
  
 
Convertible Note (1)(2)
Matures January 2018
 Interest Rate 10%
    
300,000
      
300,000
      
40,110
  
 
Preferred Stock - Series A *(1)(2)
    
15,238,000
      
3,999,999
      
882,280
  
                       
1,383,655
  
UCT COATINGS, INC. (0.6%)
Common Stock *(1)(3)
    
1,500,000
      
662,235
      
833,400
  
Advanced Materials
Common Stock Warrants *(1)(3)
    
2,283
      
67
      
3
  
                       
833,403
  
VUFINE, INC. (1.3%)
Consumer Electronics
Common Stock *(1)(2)
    
750,000
      
15,000
      
600
  
 
Convertible Note (1)(2)
Matures February 2018
 Interest Rate 6%
    
500,000
      
500,000
      
500,000
  
 
Convertible Note (1)(2)
Matures September 2017
 Interest Rate 6%
    
1,000,000
      
1,000,000
      
1,000,000
  
 
Preferred Stock - Series A *(1)(2)
    
22,500,000
      
2,250,000
      
288,000
  
                       
1,788,600
  
WRIGHTSPEED, INC. (7.5%)
Preferred Stock - Series C *(1)(3)(4)
    
2,267,659
      
6,864,023
      
5,819,040
  
Automotive
Preferred Stock - Series D *(1)(3)
    
1,100,978
      
3,375,887
      
3,220,691
  
 
Preferred Stock - Series E *(1)(3)
    
450,814
      
1,658,996
      
1,375,433
  
                       
10,415,164
  
INVESTMENT COMPANY (3.0%)
Fidelity Investments Money Market Treasury Portfolio - Class I (6)
    
4,181,933
      
4,181,933
      
4,181,933
 
 
TOTAL INVESTMENTS
(Cost $168,284,139)
 —95.0%
  
$
132,712,558
  
OTHER ASSETS IN EXCESS OF
LIABILITIES — 5.0%
    
7,032,543
  
NET ASSETS — 100.0%
  
$
139,745,101
  
 
See accompanying notes to financial statements
11
Firsthand Technology Value Fund, Inc.
Consolidated Schedule of Investments - continued
JUNE 30, 2017 (UNAUDITED)
 
*
Non-income producing security.
(1)
Restricted security. Fair Value is determined by or under the direction of the Company’s Board of Directors (See note 3).
(2)
Controlled investments.
(3)
Affiliated issuer.
(4)
A portion represents position held in Firsthand Holdings, Ltd. (See Note 1).
(5)
A portion represents position held in Firsthand Development, Ltd. (See Note 1).
(6)
The Fidelity Investments Money Market Portfolio invests primarily in U.S. Treasury securities.
 
See accompanying notes to financial statements
12
Firsthand Technology Value Fund, Inc.
Consolidated Notes to Financial Statements
JUNE 30, 2017 (UNAUDITED)
 
NOTE 1.  THE COMPANY
 
Firsthand Technology Value Fund, Inc.  (the “Company,” “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 18, 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.”
 
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 July 1, 2015. Under this new structure, we will have all or substantially all of our investment activities conducted through our fully owned subsidiary, FVI.
 
On June 10, 2016, the Board of Directors of the Company approved the formation of a fully owned and controlled subsidiary (as defined by the 1940 Act) of FVI named Firsthand Holdings, Ltd. (“FHL”), a Cayman Islands corporation formed on May 4, 2016. Under this structure, we may from time to time transfer investments in the Company held in the Company or FVI to FHL in return for ownership interests in FHL. The net assets of FHL at June 30, 2017, were $6,105,488 or 4.4% of the Company’s consolidated net assets. On September 27, 2016, the Board of Directors of the Company approved the formation of a fully owned and controlled subsidiary (as defined by the 1940 Act) of FVI named Firsthand Development, Ltd (“FDL”), a Cayman Islands corporation formed on September 22, 2016. Under this structure, we may from time to time transfer investments in the Company held in the Company or FVI to FDL in return for ownership interests in FDL. The net assets of FDL at June 30, 2017, were $8,910,244 or 6.4% of the Company’s consolidated net assets. The financial statements of the Company, FVI, FHL, and FDL are presented in the report on a consolidated basis.
 
FHL and FDL are both treated as a controlled foreign corporation under the Internal Revenue Code and are not expected to be subject to U.S. federal income tax. FVI is treated as a U.S. shareholder of each of FHL and FDL. As a result, FVI is required to include in gross income for U.S. federal tax purposes all of FHL and FDL’s income, whether or not such income is distributed by FHL or FDL. If a net loss is realized by FHL or FDL, such loss is not generally available to offset the income earned by FVI.
13
Firsthand Technology Value Fund, Inc.
Consolidated Notes to Financial Statements - continued
JUNE 30, 2017 (UNAUDITED)
 
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:
 
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.
 
INTERIM FINANCIAL STATEMENTS. Interim financial statements are condensed and should be read in conjunction with the Company’s latest annual financial statements. Interim disclosures generally do not repeat those of the annual statements.  It is Management’s opinion that all adjustments necessary for a fair statement of the periods presented have been made and all adjustments are of a normal recurring nature.
 
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 June 30, 2017, our financial statements include venture capital investments valued at approximately $113.8 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 June 30, 2017, we held $114.0 million 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.
 
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.  Unrealized appreciation or depreciation is computed as the difference between the fair value of the investment and the cost basis of such investment.
14
Firsthand Technology Value Fund, Inc.
Consolidated Notes to Financial Statements - continued
JUNE 30, 2017 (UNAUDITED)
 
INCOME TAXES.  As we intend to continue to qualify as a regulated investment company (“RIC”) under Subchapter M of the Internal Revenue Code of 1986, as amended (the “Code”), the Company does not provide for income taxes.  The Company recognizes interest and penalties in income tax expense.
 
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 rate of exchange of such currencies against U.S. dollars on the date of valuation.
 
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 market value of the Company’s purchased options as of June 30, 2017 can be found on the Schedule of Investments. The net realized gains/(loss) from purchased and written options and the net change in unrealized appreciation (depreciation) on purchased and written options for the year ended June 30, 2017 can be found on the Statement of Operations.
 
The Company had no option transactions for the six months ended June 30, 2017.
 
The average volume of the Fund’s derivatives during the six months ended June 30, 2017, is as follows:

 
Purchased Options (Contracts)
Warrants (Shares)
Written Options (Contracts)
Firsthand Technology Value Fund, Inc.
—
32,379,394
—
 
NOTE 3.  BUSINESS RISKS AND UNCERTAINTIES
 
We plan to 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.  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.
15
Firsthand Technology Value Fund, Inc.
Consolidated Notes to Financial Statements - continued
JUNE 30, 2017 (UNAUDITED)
 
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 may, from time to time, engage 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 Valuation Committee of the Advisor (as defined below) (the “Adviser Valuation Committee”) or the independent valuation firm;
 
(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 Firsthand Capital Management, Inc. (“FCM” or the “Adviser”), 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 our 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 quarter will be pro-rated.
16
Firsthand Technology Value Fund, Inc.
Consolidated Notes to Financial Statements - continued
JUNE 30, 2017 (UNAUDITED)
 
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, 2015, was 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. As of June 30, 2017, there were no accrued incentive fees.
 
NOTE 5.  DEBT
 
The Company does not currently have any significant outstanding debt obligations (other than normal operating expense accruals).
 
NOTE 6. FAIR VALUE
 
Securities traded on, or quoted by, the NASDAQ Stock Market, Inc. (“NASDAQ”) are valued according to the NASDAQ official closing price. Securities traded on other stock exchanges, including the New York Stock Exchange (“NYSE”), are valued at their last reported sale price as of the close of trading of that exchange (normally 4:00 P.M. Eastern Time for the NYSE). 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.
 
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 of the Board is responsible for determining the valuation of the Company’s assets within the guidelines established by the Board of Directors.  The Valuation Committee of the Board 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.
17
Firsthand Technology Value Fund, Inc.
Consolidated Notes to Financial Statements - continued
JUNE 30, 2017 (UNAUDITED)
 
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.  FCM and the independent valuation firm rely primarily on the market and income approaches. We also considered the asset-based approach 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 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.
 
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.
18
Firsthand Technology Value Fund, Inc.
Consolidated Notes to Financial Statements - continued
JUNE 30, 2017 (UNAUDITED)
 
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 June 30, 2017:
 
  
LEVEL 1 QUOTED
PRICES
    
LEVEL 2 OTHER
SIGNIFICANT OBSERVABLE INPUTS
    
LEVEL 3 SIGNIFICANT
UNOBSERVABLE INPUTS
  
Assets
                  
Common Stocks
                  
Advanced Materials
  
$
—
    
$
—
    
$
833,400
  
Consumer Electronics
    
—
      
—
      
3,028,855
  
Equipment Leasing
    
—
      
—
      
44,320
  
Intellectual Property
    
—
      
—
      
15,488
  
Networking
    
9,264,406
      
—
      
—
  
Renewable Energy
    
3,736,718
      
—
      
—
  
Semiconductor
    
1,503,800
      
—
      
—
  
Semiconductors Equipment
    
—
      
—
      
11,538
  
Software
    
—
      
—
      
272,340
  
Total Common Stocks
    
14,504,924
      
—
      
4,205,941
  
Preferred Stocks
                        
Advanced Materials
    
—
      
—
      
12,962,564
  
Aerospace
    
—
      
—
      
203,970
  
Automotive
    
—
      
—
      
10,415,164
  
Cloud Computing
    
—
      
—
      
8,725,270
  
Consumer Electronics
    
—
      
—
      
1,170,280
  
Equipment Leasing
    
—
      
—
      
3,975,600
  
Intellectual Property
    
—
      
—
      
5,820,227
  
Medical Devices
    
—
      
—
      
16,018,641
  
Mobile Computing
    
—
      
—
      
6,807,490
  
Semiconductor Equipment
    
—
      
—
      
25,557,477
  
Total Preferred Stocks
    
—
      
—
      
91,656,683
  
Asset Derivatives *
                        
Equity Contracts
    
—
      
—
      
6,220,031
  
Total Asset Derivatives
    
—
      
—
      
6,220,031
  
Convertible Notes
                        
Advanced Materials
    
—
      
—
      
1,000,000
  
Aerospace
    
—
      
—
      
891,671
  
Consumer Electronics
    
—
      
—
      
2,001,375
  
Medical Devices
    
—
      
—
      
7,000,000
  
Semiconductor Equipment
    
—
      
—
      
1,000,000
  
Water Purification
    
—
      
—
      
50,000
  
Total Convertible Notes
    
—
      
—
      
11,943,046
  
Mutual Funds
    
4,181,933
      
—
      
—
  
Total
  
$
18,686,857
    
$
—
    
$
114,025,701
  
 
*
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. Transfers in and out of the levels are recognized at the value at the end of the quarter. There were no transfers between Levels 1 and 2 as of June 30, 2017.
19
Firsthand Technology Value Fund, Inc.
Consolidated Notes to Financial Statements - continued
JUNE 30, 2017 (UNAUDITED)
 
Following is a reconciliation of Level 3 assets (at either the beginning or the ending of the quarter) for which significant unobservable inputs were used to determine fair value.

INVESTMENTS AT FAIR VALUE USING SIGNIFICANT UNOBSERVABLE INPUTS
(LEVEL 3)
  
BALANCE AS OF 12/31/16
    
NET PURCHASES
    
NET SALES
    
NET REALIZED GAINS / (LOSSES)
    
NET UNREALIZED APPRECIATION (DEPRECIATION)(1)
    
TRANSFERS IN (OUT) OF LEVEL 3
    
BALANCE AS OF 6/30/17
  
Common Stocks
                                          
Advanced Materials
  
$
394,200
    
$
—
    
$
—
    
$
—
    
$
439,200
    
$
—
    
$
833,400
  
Consumer Electronics
    
3,037,441
      
—
      
—
      
—
      
(8,586
)
    
—
      
3,028,855
  
Equipment Leasing
    
44,430
      
—
      
—
      
—
      
(110
)
    
—
      
44,320
  
Intellectual Property
    
14,750
      
—
      
—
      
—
      
738
      
—
      
15,488
  
Networking
    
10,990,390
      
—
      
—
      
—
      
(1,725,984
)
    
(9,264,406
)
    
—
  
Semiconductor Equipment
    
7,524
      
—
      
—
      
—
      
4,014
      
—
      
11,538
  
Software
    
245,466
      
—
      
—
      
—
      
26,874
      
—
      
272,340
  
Preferred Stocks
                                                        
Advanced Materials
    
12,724,961
      
—
      
—
      
—
      
237,603
      
—
      
12,962,564
  
Advertising Technology
    
9,757,918
      
—
      
(12,355,330
)
    
1,015,419
      
1,581,993
      
—
      
—
  
Aerospace
    
445,456
      
—
      
—
      
—
      
(241,486
)
    
—
      
203,970
  
Automotive
    
10,410,045
      
—
      
—
      
—
      
5,119
      
—
      
10,415,164
  
Cloud Computing
    
8,550,361
      
—
      
—
      
—
      
174,909
      
—
      
8,725,270
  
Consumer Electronics
    
3,752,749
      
—
      
—
      
—
      
(2,582,469
)
    
—
      
1,170,280
  
Equipment Leasing
    
3,975,600
      
—
      
—
      
—
      
—
      
—
      
3,975,600
  
Intellectual Property
    
6,137,917
      
—
      
(455,231
)
    
—
      
137,541
      
—
      
5,820,227
  
Medical Devices
    
24,511,642
      
—
      
—
      
—
      
(8,493,001
)
    
—
      
16,018,641
  
Mobile Computing
    
7,365,796
      
—
      
—
      
—
      
(558,306
)
    
—
      
6,807,490
  
Semiconductor Equipment
    
21,883,997
      
2,999,997
      
—
      
—
      
673,483
      
—
      
25,557,477
  
20
Firsthand Technology Value Fund, Inc.
Consolidated Notes to Financial Statements - continued
JUNE 30, 2017 (UNAUDITED)
 
INVESTMENTS AT FAIR VALUE USING SIGNIFICANT UNOBSERVABLE INPUTS
(LEVEL 3)
  
BALANCE AS OF 12/31/16
    
NET PURCHASES/ CONVERSION
    
NET SALES/ CONVERSION
    
NET REALIZED GAINS / (LOSSES)
    
NET UNREALIZED APPRECIATION (DEPRECIATION)(1)
    
TRANSFERS IN (OUT) OF LEVEL 3
    
BALANCE AS OF 6/30/17
  
Asset Derivatives
                                          
Equity Contracts
  
$
5,420,042
    
$
—
    
$
—
    
$
—
    
$
799,989
    
$
—
    
$
6,220,031
  
Convertible Notes
                                                        
Advanced Materials
    
—
      
1,000,000
      
—
      
—
      
—
      
—
      
1,000,000
  
Advertising Technology
                                                        
 
    
559,360
      
—
      
(1,118,720
)
    
559,360
      
—
      
—
      
—
  
Aerospace
    
71,208
      
405,000
      
(41,208
)
    
—
      
456,671
      
—
      
891,671
  
Automotive
    
—
      
200,000
      
(200,000
)
    
—
      
—
      
—
      
—
  
Consumer Electronics
                                                        
 
    
2,913,612
      
2,800,000
      
(2,000,000
)
    
—
      
(1,712,237
)
    
—
      
2,001,375
  
Medical Devices
   
4,000,000
      
3,000,000
      
—
      
—
      
—
      
—
      
7,000,000
  
 
                                                        
Semiconductor Equipment
    
—
      
1,000,000
      
—
      
—
      
—
      
—
      
1,000,000
  
Water Purification
    
50,000
      
—
      
—
      
—
      
—
      
—
      
50,000
  
Total
  
$
137,264,865
    
$
11,404,997
    
$
(16,170,489
)
  
$
1,574,779
    
$
(10,784,045
)
  
$
(9,264,406
)
  
$
114,025,701
  
 
(1)
The net change in unrealized depreciation from Level 3 instruments held as of June 30, 2017 was $(11,530,713).
 
The below chart represents quantitative disclosure about significant unobservable inputs for Level 3 fair value measurements at June 30, 2017.
 
 
FAIR VALUE AT 6/30/17
VALUATION TECHNIQUES
UNOBSERVABLE INPUTS
RANGE
(WEIGHTED AVG.)
Direct venture capital investments: Advanced Materials
$15.2M
Market Comparable Companies
Prior Transaction Analysis
 Option Pricing Model
EBITDA Multiple
Years to Expiration
Volatility
Risk-Free Rate
 Discount for Lack of Marketability
8.7x - 11.5x
5 years
50.0% - 55.0%
1.85%
 22.7%
Direct venture capital investments: Aerospace
$1.1M
Prior Transaction Analysis
Option Pricing Model
Years to Expiration
Volatility
 Risk-Free Rate
5 years
60.0%
 1.85%
Direct venture capital investments: Automotive
$10.4M
Prior Transaction Analysis
Option Pricing Model
Years to Expiration
Volatility
 Risk-Free Rate
3 years
55.0%
 1.53%
21
Firsthand Technology Value Fund, Inc.
Consolidated Notes to Financial Statements - continued
JUNE 30, 2017 (UNAUDITED)
 
continued
FAIR VALUE AT 6/30/17
VALUATION TECHNIQUES
UNOBSERVABLE INPUTS
RANGE
(WEIGHTED AVG.)
Direct venture capital investments: Cloud Computing
$8.7M
Market Comparable Companies
Prior Transaction Analysis
 Option Pricing Model
Revenue Multiple
Years to Expiration
Volatility
 Risk-Free Rate
1.7x - 2.1x
2 years
40.0%
 1.38%
Direct venture capital investments: Consumer Electronics
$6.2M
Market Comparable Companies
Prior Transaction Analysis
 Probability-Weighted Expected
Return
Invested Capital (Cost)
Option Pricing Model
Revenue Multiple
IPO Exit Probability
 Merger & Acquisition
Probability
Going Concern Probability
Years to Expiration
Volatility
Risk-Free Rate
 Discount for Lack of
Marketability
Adjustment for Market
Movement
0.9x - 1.9x
75%
25%
       
25% - 100%
1 year - 5 years
50.0% - 70.0%
1.23% - 1.85%
  
0.0% - 25.8%
  
0.0% - 23.6%
Direct venture capital investments: Equipment Leasing
$4.0M
Prior Transaction Analysis
 Option Pricing Model
Years to Expiration
Volatility
 Risk-Free Rate
5 years
50.00%
 1.85%
Direct venture capital investments: Intellectual Property
$5.8M
Prior Transaction Analysis
Option Pricing Model
Years to Expiration
Volatility
Risk-Free Rate
 Discount for Lack of
Marketability
Adjustment for Market
Movement
5 years
55%
1.85%
  
0% - 24.3%
   
(23.9%)
Direct venture capital investments: Medical Devices
$23.0M
Market Comparable Companies
Prior Transaction Analysis
 Option Pricing Model
Revenue Multiple
Years to Expiration
Volatility
 Risk-Free Rate
2.8x - 3.4x
4 years
50.0%
 1.69%
Direct venture capital investments: Mobile Computing
$6.8M
Prior Transaction Analysis
Option Pricing Model
Years to Expiration
Volatility
 Risk-Free Rate
2 years
60.0%
 1.38%
Direct venture capital investments: Semiconductor Equipment
$32.4M
Prior Transaction Analysis
 Option Pricing Model
Years to Expiration
Volatility
Risk-Free Rate
 Discount for Lack of
Marketability
2 years - 5 years
40.0% - 60.0%
1.38% - 1.85%
  
0.0% - 15.5%
Direct venture capital investments: Software
$0.3M
Prior Transaction Analysis
Discount for Lack of
Marketability
15%
Direct venture capital investments: Water Purification
$0.1M
Prior Transaction Analysis
 Option Pricing Model
Years to Expiration
Volatility
 Risk-Free Rate
5 years
40.0%
 1.85%
22
Firsthand Technology Value Fund, Inc.
Consolidated Notes to Financial Statements - continued
JUNE 30, 2017 (UNAUDITED)
 
NOTE 7.  FEDERAL INCOME TAXES
 
The Company has elected, and intends to qualify annually, for the special tax treatment afforded regulated investment companies under the Internal Revenue Code of 1986, as amended (the “Code”).  As provided in the Code, in any fiscal year in which a BDC so qualifies and distributes at least 90% of its taxable net income, the BDC (but not the shareholders) will be relieved of federal income tax on the income distributed.  Accordingly, no provision for income taxes has been made.  To avoid imposition of the excise tax applicable to regulated investment companies, the Company intends to declare as dividends in each calendar year at least 98% of its net investment income (earned during the calendar year) and 98.2% of its net realized capital gains (earned during the 12 months ended October 31) plus undistributed amounts, if any, from prior years.
 
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. The Company’s engaging in investment activities through FVI does not, in our view, jeopardize the Company’s ability to continue to qualify as a RIC under the Code.
 
The following information is based upon the federal income tax cost of portfolio investments as of June 30, 2017.
 
Gross unrealized appreciation
  
$
12,956,208
  
Gross unrealized depreciation
    
(48,527,789
)
Net unrealized depreciation
  
$
(35,571,581
)
Federal income tax cost, investments
  
$
168,284,139
  
 
The Company is subject to tax provisions that establish a minimum threshold for recognizing, and a system for measuring, the benefits of a tax position taken or expected to be taken in a tax return. Taxable years ending 2013, 2014, 2015, and 2016 remain open to federal and state audit. As of December 31, 2016, management has evaluated the application of these provisions to the Company and has determined that no provision for income tax is required in the Company’s financial statements for uncertain tax provisions.
 
NOTE 8.  INVESTMENT TRANSACTIONS
 
Investment transactions (excluding short-term investments) were as follows for the six months ended June 30, 2017.
 
PURCHASES AND SALES
      
Purchases of investment securities
  
$
8,509,165
  
Proceeds from sales and maturities of investment securities
  
$
18,918,692
  
 
NOTE 9.  SHARE BUYBACK/TENDER OFFER
 
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 net asset value (NAV) per share, in accordance with the guidelines specified in Rule 10b-18 of the Securities Act of 1934, as amended. 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. As of June 30, 2017, the Fund had 7,430,697 shares outstanding.
23
Firsthand Technology Value Fund, Inc.
Consolidated Notes to Financial Statements - continued
JUNE 30, 2017 (UNAUDITED)
 
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, 2016, through June 30, 2017, is noted below:

   
SHARES/PAR ACTIVITY
                          
AFFILIATE/ CONTROLLED INVESTMENT*
  
BALANCE AT 12/31/16
    
PURCHASES/ MERGER
    
SALES/ MATURITY/ EXPIRATION
    
BALANCE AT 6/30/17
    
REALIZED GAIN (LOSS)
    
INTEREST
    
VALUE 6/30/17
    
ACQUISITION COST
  
EQX, Inc. Common Stock*
    
100,000
      
—
      
—
      
100,000
    
$
—
    
$
—
    
$
44,320
    
$
20,000
  
EQX, Inc. Preferred Stock - Series A*
    
4,000,000
      
—
      
—
      
4,000,000
      
—
      
—
      
3,975,600
      
4,000,000
  
Hera Systems, Inc. Term Note*
    
41,208
      
—
      
(41,208
)
    
—
      
—
      
70
      
—
      
—
  
Hera Systems, Inc. Series A Preferred*
    
3,642,324
      
—
      
—
      
3,642,324
      
—
      
—
      
203,970
      
2,000,000
  
Hera Systems, Inc. Term Note*
    
—
      
20,000
      
—
      
20,000
      
—
      
282
      
43,370
      
20,000
  
Hera Systems, Inc. Convertible Note*
    
—
      
200,000
      
—
      
200,000
      
—
      
8,333
      
433,700
      
200,000
  
Hera Systems, Inc. Convertible Note*
    
30,000
      
—
      
—
      
30,000
      
—
      
893
      
13,428
      
30,000
  
Hera Systems, Inc. Convertible Note*
    
—
      
65,000
      
—
      
65,000
      
—
      
903
      
140,953
      
65,000
  
Hera Systems, Inc. Convertible Note*
    
—
      
70,000
      
—
      
70,000
      
—
      
703
      
151,795
      
70,000
  
Hera Systems, Inc. Term Note*
    
—
      
50,000
      
—
      
50,000
      
—
      
1,101
      
108,425
      
50,000
  
IntraOp Medical Corp. Series C Preferred*
    
26,856,187
      
—
      
—
      
26,856,187
      
—
      
—
      
16,018,641
      
26,299,938
  
24
Firsthand Technology Value Fund, Inc.
Consolidated Notes to Financial Statements - continued
JUNE 30, 2017 (UNAUDITED)

   
SHARES/PAR ACTIVITY
                          
AFFILIATE/ CONTROLLED INVESTMENT*
  
BALANCE AT 12/31/16
    
PURCHASES/ MERGER
    
SALES/ MATURITY/ EXPIRATION
    
BALANCE AT 6/30/17
    
REALIZED GAIN (LOSS)
    
INTEREST
    
VALUE 6/30/17
    
ACQUISITION COST
  
IntraOp Medical Corp. Convertible Note*
    
1,000,000
      
—
      
—
      
1,000,000
    
$
—
    
$
99,246
    
$
1,000,000
    
$
1,000,000
  
IntraOp Medical Corp. Convertible Note*
    
—
      
1,000,000
      
—
      
1,000,000
      
—
      
12,740
      
1,000,000
      
1,000,000
  
IntraOp Medical Corp. Term Note*
    
3,000,000
      
—
      
—
      
3,000,000
      
—
      
119,014
      
3,000,000
      
3,000,000
  
IntraOp Medical Corp. Term Note*
    
—
      
2,000,000
      
—
      
2,000,000
      
—
      
61,808
      
2,000,000
      
2,000,000
  
Phunware Preferred Stock Series E
    
3,257,328
      
—
      
—
      
3,257,328
      
—
      
—
      
6,807,490
      
9,999,997
  
Pivotal Systems, Series A Preferred*
    
11,914,217
      
—
      
—
      
11,914,217
      
—
      
—
      
6,621,922
      
6,000,048
  
Pivotal Systems, Series B Preferred*
    
13,065,236
      
—
      
—
      
13,065,236
      
—
      
—
      
7,261,658
      
6,321,482
  
Pivotal Systems, Series C Preferred*
    
2,291,260
      
—
      
—
      
2,291,260
      
—
      
—
      
2,310,048
      
2,657,862
  
Pivotal Systems, Series D Preferred*
    
6,237,978
      
—
      
—
      
6,237,978
      
—
      
—
      
4,174,455
      
3,975,801
  
Pivotal Systems, Series D Warrants*
    
4,158,654
      
—
      
—
      
4,158,654
      
—
      
—
      
279,877
      
—