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FIRSTHAND TECHNOLOGY VALUE FUND, INC. - 10-Q - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

May 8, 2014

FORWARD-LOOKING STATEMENTS The matters discussed in this report, as well as in future oral and written statements by management of the Company, include forward-looking statements based on current management expectations that involve substantial risks and uncertainties which could cause actual results to differ materially from the results expressed in, or implied by, these forward-looking statements. Forward-looking statements related to future events or our future financial performance. We generally identify forward-looking statements by terminology such as "may," "will," "should," "expects," "plans," "anticipates," "could," "intends," "target," "projects," "contemplates," "believes," "estimates," "predicts," "potential," or "continue" or the negative of these terms or other similar words. Important assumptions include our ability to originate new investments and to achieve certain margins and levels of profitability and the availability of additional capital. In light of these and other uncertainties, the inclusion of a projection or forward-looking statement in this report should not be regarded as a representation by us that our plans or objectives will be achieved. The forward-looking statements contained in this report include, without limitations, statements as to:

our future operating results;



our business prospects and the prospects of our prospective portfolio

companies; the impact of investments that we expect to make;



the impact of a protracted decline in the liquidity of the credit markets on

our business; our informal relationships with third parties;



the expected market for venture capital investments and our addressable market;

the dependence of our future success on the general economy and its impact on

the industries in which we invest; our ability to access the equity market; the ability of our portfolio companies to achieve their objectives; our expected financings and investments; our regulatory structure and tax status;



our ability to operate as a business development company and a regulated

investment company; the adequacy of our cash resources and working capital;



the timing of cash flows, if any, from the operation of our portfolio

companies; the timing, form, and amount of any dividend distributions; impact of fluctuation of interest rates on our business;



valuation of any investments in portfolio companies particularly those having

no liquid trading market; and our ability to recover unrealized losses.



You should not place undue reliance on these forward-looking statements. The forward-looking statements made in this report relate only to events as of the date on which the statements are made. We undertake no obligation to update any forward-looking statement to reflect events or circumstances occurring after the date of this report.

The following discussion should be read in conjunction with our consolidated financial statements and related notes and other financial information appearing elsewhere in this prospectus. In addition to historical information, the following discussion and other parts of this prospectus contain forward-looking information that involves risks and uncertainties. Our actual results could differ materially from those anticipated by such forward-looking information due to the factors discussed under "Risk Factors" and "Forward-Looking Statements" appearing elsewhere herein.

OVERVIEW

We are an externally managed, closed-end, non-diversified management investment company organized as a Maryland corporation that has elected to be treated as a BDC under the 1940 Act. As such, we are required to comply with certain regulatory requirements. For instance, we generally have to invest at least 70% of our total assets in "qualifying assets," including securities of private or micro-cap public U.S. companies, cash, cash equivalents, U.S. government securities and high-quality debt investments that mature in one year or less. In addition, for tax purposes we have elected to be treated as a RIC under Subchapter M of the Code. FCM serves as our investment adviser and manages the investment process on a daily basis.

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Our investment objective is to seek long-term growth of capital, principally by seeking capital gains on our equity and equity-related investments. There can be no assurance that we will achieve our investment objective. Under normal circumstances, we invest at least 80% of our net assets for investment purposes in technology companies. We consider technology companies to be those companies that derive at least 50% of their revenues from products and/or services within the information technology sector or in the "cleantech" sector. Information technology companies include, but are not limited to, those focused on computer hardware, software, telecommunications, networking, Internet, and consumer electronics. While there is no standard definition of cleantech, it is generally regarded as including goods and services designed to harness renewable energy and materials, eliminate emissions and waste, and reduce the use of natural resources. In addition, under normal circumstances we invest at least 70% of our total assets in privately held companies and public companies with market capitalizations of less than $250 million. Our portfolio is primarily composed of equity and equity derivative securities of technology and cleantech companies (as defined above). These investments generally range between $1 million and $10 million each, although the investment size will vary proportionately with the size of our capital base. We acquire our investments through direct investments in private companies, negotiations with selling shareholders, and in organized secondary marketplaces for private securities.

While our primary focus is to invest in illiquid private technology and cleantech companies, we also may invest in micro-cap publicly traded companies. In addition, we may invest up to 30 percent of the portfolio in opportunistic investments that do not constitute the private companies and micro-cap public companies described above. These other investments may include investments in securities of public companies that are actively traded or in actively traded derivative securities such as options on securities or security indices. These other investments may also include investments in high-yield bonds, distressed debt, or securities of public companies that are actively traded and securities of companies located outside of the United States. Our investment activities are managed by FCM.

PORTFOLIO COMPOSITION We make investments in securities of both public and private companies. Our portfolio investments consist principally of equity and equity-like securities, including common and preferred stock, warrants for the purchase of common and stock, and convertible debt. The fair value of our investment portfolio was approximately $200.7 million as of March 31, 2014 as compared to approximately $181.9 million as of December 31, 2013.

The following table summarizes the fair value of our investment portfolio by industry sector as of March 31, 2014 and December 31, 2013.

March 31, 2014 December 31, 2013 Social Networking 31.5% 34.0% Medical Devices 9.4% 7.9% Advertising Technology 7.2% 7.0% Consumer Electronics 5.3% 5.4% Semiconductor Equipment 5.1% 3.6% Cloud Computing 4.0% 0.0% Mobile Computing 4.0% 0.0% Advanced Materials 3.7% 3.6% Renewable Energy 2.8% 2.3% Automotive 2.4% 2.3% Intellectual Property 2.3% 2.2% Other Electronics 2.1% 1.6% Internet 0.6% 0.7% Services 0.3% 0.2% Other Assets in Excess of Liabilities 19.3% 29.2% Net Assets 100.0% 100.0% 23



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RESULTS OF OPERATIONS

Comparison of the three months ended March 31, 2014 to the three months ended March 31, 2013.

INVESTMENT INCOME For the three months ended March 31, 2014, we had investment income of $413,209 primarily attributable to interest accrued on convertible/term note investments with Silicon Genesis Corporation.

For the three months ended March 31, 2013, we had interest income of $266,100 primarily attributable to interest accrued on convertible note investments with Silicon Genesis Corporation.

The higher level of interest income in the three months ended March 31, 2014 compared to the three months ended March 31, 2013 was due to new convertible/term note investments in IntraOp Medical Corp. and Pivotal Systems.

OPERATING EXPENSES Gross operating expenses totaled approximately $1,820,646 during the three months ended March 31, 2014 and $1,152,620 during the three months ended March 31, 2013.

Significant components of gross operating expenses for the three months ended March 31, 2014, were management fee expense of $1,291,989 and professional fees (audit, legal, and consulting) of $400,239. Significant components of operating expenses for the three months ended March 31, 2013, were management fee expense of $979,146 and professional fees (audit, legal, accounting, and consulting) of $71,164.

The higher level of gross operating expenses for the three months ended March 31, 2014 compared to the three months ended March 31, 2013 is primarily attributable to an increase in our total net assets, on which the investment advisory fees are based, and an increase in professional fees.

NET INVESTMENT LOSS The net investment income/(loss) was $267,550 for the three months ended March 31, 2014 and $(886,520) for the three months ended March 31, 2013.



The greater net investment income in the three months ended March 31, 2014 compared to the three months ended March 31, 2013 is primarily due to an incentive fee adjustment. Each quarter that we are in a net realized/unrealized gain position, we must accrue for an incentive fee and adjust the fee quarterly based on investment appreciation/depreciation in that quarter. In the three months ended March 31, 2014, we reduced our incentive fee accrual by $1,674,987 due to depreciation of our investments during the quarter.

NET INVESTMENT REALIZED GAINS AND LOSSES AND UNREALIZED APPRECIATION AND DEPRECIATION A summary of the net realized and unrealized gains and loss on investments for the three month periods ended March 31, 2014, and March 31, 2013, is shown below. Three Months Ended March 31, 2014 Realized gains 132



Net change in unrealized appreciation on investments (8,290,197 ) Net realized and unrealized loss on investments $ (8,290,065 )

As of March 31, 2014



Gross unrealized appreciation on portfolio investments $ 46,252,810 Gross unrealized depreciation on portfolio investments (15,344,886 ) Net unrealized appreciation on portfolio investments $ 30,907,924

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Three Months Ended March 31, 2013 Realized gains $ 1,177,436



Net change in unrealized depreciation on investments 2,787,283 Net realized and unrealized gain on investments $ 3,964,719

As of March 31, 2013



Gross unrealized appreciation on portfolio investments $ 2,384,708 Gross unrealized depreciation on portfolio investments (20,653,339 ) Net unrealized depreciation on portfolio investments $ (18,268,631 )

During the three months ended March 31, 2014, we recognized net realized gains of approximately $132 from a class action settlement. Realized gains were substantially lower than those in the year-ago period due to no sales of securities during the quarter.

During the three months ended March 31, 2014, net unrealized appreciation on total investments decreased by $8,290,197. The change in net unrealized appreciation and depreciation of our private investments is based on portfolio asset valuations determined in good faith by our Board of Directors. This change in net unrealized appreciation was primarily composed of a decrease in the fair value of our portfolio companies, notably Twitter.

During the three months ended March 31, 2013, we recognized net realized gains of approximately $1,177,436 from the sale of investments.

During the three months ended March 31, 2013, net unrealized depreciation on total investments decreased by $2,787,283. The change in net unrealized appreciation and depreciation of our private investments is based on portfolio asset valuations determined in good faith by our Board of Directors. This change in net unrealized depreciation was primarily composed of a increase in the fair value of our portfolio companies, notably SolarCity and Twitter.

INCOME AND EXCISE TAXES It is our intent to continue to qualify as a RIC under Subchapter M of the Code; accordingly, the Company does not provide for income taxes. The Company does, however, recognize interest and penalties in income tax expense.

NET INCREASE/(DECREASE) IN ASSETS RESULTING FROM OPERATIONS AND CHANGE IN NET ASSETS PER SHARE For the three months ended March 31, 2014, the net decrease in net assets resulting from operations totaled $8,022,515 and basic and fully diluted net change in net assets per share for the three months ended March 31, 2014 was $(0.88).

For the three months ended March 31, 2013, the net increase in net assets resulting from operations totaled $3,078,199 and basic and fully diluted net change in net assets per share for the three months ended March 31, 2013 was $0.36.

The larger decrease in net assets resulting from operations for the three months ended March 31, 2014 as compared to the three months ended March 31, 2013, is due primarily to an increase unrealized depreciation from investments, most notably the depreciation of Twitter.

DISTRIBUTION POLICY Our board of directors will determine the timing and amount, if any, of our distributions. We intend to pay distributions on an annual basis out of assets legally available therefore. In order to qualify as a RIC and to avoid corporate-level tax on our income, we must distribute to our stockholders at least 90% of our ordinary income and realized net short-term capital gains in excess of realized net long-term capital losses, if any, on an annual basis. In addition, we also intend to distribute any realized net capital gains (i.e., realized net long-term capital gains in excess of realized net short-term capital losses) at least annually.

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CONTRACTUAL OBLIGATIONS The Fund does not have any Contractual Obligations that meet the requirements for disclosure under Item 303 of Regulation S-K.

OFF-BALANCE SHEET ARRANGEMENTS The Fund does not have any Off-Balance Sheet Arrangements.



CRITICAL ACCOUNTING POLICIES This discussion of our financial condition and results of operations is based upon our financial statements, which are prepared in accordance with accounting principles generally accepted in the United States of America, or GAAP. The preparation of these financial statements will require management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, and expenses. Changes in the economic environment, financial markets, and any other parameters used in determining such estimates could cause actual results to differ. In addition to the discussion below, we will describe our critical accounting policies in the notes to our future financial statements.

Valuation of Portfolio Investments As a business development company, we generally invest in illiquid equity and equity derivatives of securities of venture capital stage technology companies. Under written procedures established by our board of directors, securities traded on stock exchanges, or quoted by NASDAQ, are valued according to the NASDAQ Stock Market, Inc. ("NASDAQ") official closing price, if applicable, or at their last reported sale price as of the close of trading on the New York Stock Exchange ("NYSE") (normally 4:00 P.M. Eastern Time). If a security is not traded that day, the security will be valued at its most recent bid price. Securities traded in the over-the-counter market, but not quoted by NASDAQ, are valued at the last sale price (or, if the last sale price is not readily available, at the most recent closing bid price as quoted by brokers that make markets in the securities) at the close of trading on the NYSE. Securities traded both in the over-the-counter market and on a stock exchange are valued according to the broadest and most representative market. We obtain these market values from an independent pricing service or at the mean between the bid and ask prices obtained from at least two brokers or dealers (if available, otherwise by a principal market maker or a primary market dealer). In addition, a large percentage of our portfolio investments are in the form of securities that are not publicly traded. The fair value of securities and other investments that are not publicly traded may not be readily determinable. We value these securities quarterly at fair value as determined in good faith by our board of directors. Our board of directors may use the services of a nationally recognized independent valuation firm to aid it in determining the fair value of these securities. The methods for valuing these securities may include: fundamental analysis (sales, income, or earnings multiples, etc.), discounts from market prices of similar securities, purchase price of securities, subsequent private transactions in the security or related securities, or discounts applied to the nature and duration of restrictions on the disposition of the securities, as well as a combination of these and other factors. Because such valuations, and particularly valuations of private securities and private companies, are inherently uncertain, may fluctuate over short periods of time, and may be based on estimates, our determinations of fair value may differ materially from the values that would have been used if a ready market for these securities existed. Our net asset value could be adversely affected if our determinations regarding the fair value of our investments were materially higher than the values that we ultimately realize upon the disposal of such securities.

Revenue Recognition We record interest or dividend income on an accrual basis to the extent that we expect to collect such amounts. We do not accrue as a receivable interest on loans and debt securities if we have reason to doubt our ability to collect such interest. Loan origination fees, original issue discount, and market discount are capitalized, and we amortize any such amounts as interest income. Upon the prepayment of a loan or debt security, any unamortized loan origination is recorded as interest income. We will record prepayment premiums on loans and debt securities as interest income when we receive such amounts.

Net Realized Gains or Losses and Net Change in Unrealized Appreciation or Depreciation We measure realized gains or losses by the difference between the net proceeds from the repayment or sale and the cost basis of the investment, without regard to unrealized appreciation or depreciation previously recognized. Net change in unrealized appreciation or depreciation reflects the change in portfolio investment values during the reporting period, including any reversal of previously recorded unrealized appreciation or depreciation, when gains or losses are realized.

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Recently Issued Accounting Standards From time to time, new accounting pronouncements are issued by the FASB or other standards setting bodies that are adopted by us as of the specified effective date. We believe that the impact of recently issued standards that are not yet effective will not have a material impact on our financial statements upon effectiveness.

Inflation

Inflation has not had a significant effect on our results of operations in any of the reporting periods presented herein. However, our portfolio companies have experienced, and may in the future experience, the impacts of inflation on their operating results.

SUBSEQUENT EVENTS

Subsequent to the close of the fiscal quarter on March 31, 2014, and through the date of the issuance of the financial statements included herein, a number of material events related to our portfolio of investments occurred, consisting primarily of purchased securities. Since that date, we have purchased public securities with an aggregate cost of approximately $2.5 million and private securities with an aggregate cost of $5.0 million.

On May 1, 2014, Firsthand Technology Value Fund, Inc. (the "Fund") entered into a Settlement Agreement and Mutual Release (the "Settlement Agreement") to settle certain matters with Bulldog Investors, LLC and certain of its affiliates (collectively, "Bulldog"). Bulldog is currently the Fund's largest shareholder group.

Under the terms of the Settlement Agreement, Bulldog agreed to (1) terminate its proxy solicitation and withdraw its nominees for election to the Board of Directors of the Fund (the "Board"), (2) withdraw its proposals regarding termination of the Fund's Investment Management Agreement and consideration by the Board of a share repurchase program, (3) not present any proposals at the Fund's 2014 Annual Meeting, (4) vote in favor of the Board's director nominees and in the manner recommended by the Board on each other matter that is voted on at the Fund's 2014 Annual Meeting, and (5) enter into a standstill agreement in favor of the Fund as described below.

The Settlement Agreement also provides that, subject to certain specified conditions, the Fund agreed to (1) liquidate its holdings in Facebook, Inc. and Twitter, Inc. no later than September 30, 2014 and October 31, 2014, respectively, and to distribute any net realized gains from those holdings to shareholders within 60 days of completing those liquidations, (2) establish an open-market stock repurchase program during 2014 for up to $10 million worth of the Fund's outstanding common stock during periods in which its common stock trades below net asset value, (3) commence a tender offer for at least $20 million worth of the Fund's outstanding common stock at a price equal to 95% of net asset value to be completed no later than January 31, 2015, and (4) reimburse Bulldog for certain reasonable expenses incurred in connection with the proxy solicitation and settlement matters and provide to Bulldog an additional payment to be agreed upon by the parties. The Fund also agreed under the Settlement Agreement not to conduct any rights or debt offering without Bulldog's consent during a certain restricted period that is not expected to exceed 9 months from the date of the Settlement Agreement.

The Fund has not commenced the tender offer or established the stock repurchase program and the description of the tender offer and the stock repurchase program contained herein is neither an offer to purchase nor a solicitation of an offer to sell shares of the Fund. There can be no assurance that any stock repurchase program will be established or that any tender offer will be commenced or, if commenced, that it will be consummated.

Under the Settlement Agreement, the Fund and Bulldog signed mutual releases with respect to any claims that they may have had against each other.

In connection with the Settlement Agreement, the Fund also entered into a Standstill Agreement (the "Standstill Agreement"), dated May 1, 2014, with Bulldog, pursuant to which, among other things, Bulldog agreed that it (1) will not engage in any solicitation of proxies or consents with respect to the Fund or make shareholder proposals for consideration at any meeting of stockholders or take certain other actions with respect to the securities of the Fund and (2) will vote all common stock of the Fund held by it or funds or accounts over which it has voting, dispositive or investment power in accordance with the Board's recommendation regarding the nomination or election of directors, selection of auditors, or any shareholder proposal, in each case, during the 10-year term of the Standstill Agreement.

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