10-Q 1 v230941_10q.htm FORM 10-Q Unassociated Document
UNITED STATES
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 ended June 30, 2011

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

For the transition period from ____________ to _____________

Commission file number: 0-11576

HARRIS & HARRIS GROUP, INC.
(Exact Name of Registrant as Specified in Its Charter)

New York
13-3119827
(State or Other Jurisdiction of
(I.R.S. Employer Identification No.)
  Incorporation or Organization)
 

1450 Broadway, New York, New York
10018
(Address of Principal Executive Offices)
(Zip Code)

(212) 582-0900
(Registrant's Telephone Number, Including Area Code)

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.
Yes           x                      No           ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes           x                      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  ¨
Accelerated filer x
 
Non-accelerated filer ¨
Smaller reporting company ¨
 (Do not check if a 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           ¨                      No            x

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 August 8, 2011
Common Stock, $0.01 par value per share
 
31,000,601 shares

 
 

 

Harris & Harris Group, Inc.
Form 10-Q, June 30, 2011
 
Page Number
PART I. FINANCIAL INFORMATION
 
   
Item 1. Consolidated Financial Statements
1
   
Consolidated Statements of Assets and Liabilities
2
   
Consolidated Statements of Operations
3
   
Consolidated Statements of Cash Flows
4
   
Consolidated Statements of Changes in Net Assets
5
   
Consolidated Schedule of Investments
6
   
Notes to Consolidated Financial Statements
34
   
Financial Highlights
46
   
Item 2.  Management's Discussion and Analysis of Financial Condition and Results of Operations
47
   
Background
47
   
Overview
47
   
Investment Strategy
48
   
Involvement with Portfolio Companies
49
   
Historical Investments and Current Investment Pace
49
   
Importance of Availability of Liquid Capital
50
   
Our Sources of Liquid Capital
51
   
Recent and Pending Potential Liquidity Events from our Portfolio as of June 30, 2011
51
   
Maturity of Current Equity-Focused Venture Capital Portfolio
52
   
Current Business Environment
54
   
Valuation of Investments
56
   
Assessment of Venture Capital Investment Portfolio as of June 30, 2011
58
   
Investment Objective
65
   
Results of Operations
65
   
Financial Condition
73
   
Liquidity
75
   
Borrowings
76
   
Contractual Obligations
77
   
Capital Resources
77
   
Critical Accounting Policies
77
   
Recent Developments – Portfolio Companies
80
   
Forward-Looking Statements
81
   
Item 3.  Quantitative and Qualitative Disclosures About Market Risk
81
   
Item 4.  Controls and Procedures
83
   
PART II.  OTHER INFORMATION
 
   
Item 1A.  Risk Factors
84
   
Item 6.  Exhibits
85
   
Signatures
86
   
Exhibit Index
87

 
 

 

PART I.  FINANCIAL INFORMATION

Item 1.  Consolidated Financial Statements

 The information furnished in the accompanying consolidated financial statements reflects all adjustments that are, in the opinion of management, necessary for a fair statement of the results for the interim period presented.

Harris & Harris Group, Inc.® (the "Company," "us," "our" and "we"), is an internally managed venture capital company that has elected to operate as a business development company ("BDC") under the Investment Company Act of 1940 (the "1940 Act").  Certain information and disclosures normally included in the consolidated financial statements in accordance with accounting principles generally accepted in the United States of America ("GAAP") have been condensed or omitted as permitted by Regulation S-X and Regulation S-K.  Accordingly, they do not include all information and disclosures necessary for a fair presentation of our financial position, results of operations and cash flows in conformity with GAAP.  The results of operations for any interim period are not necessarily indicative of the results for the full year.  The accompanying consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto contained in our Annual Report on Form 10-K for the year ended December 31, 2010.

 
1

 


HARRIS & HARRIS GROUP, INC.
CONSOLIDATED STATEMENTS OF ASSETS AND LIABILITIES

   
June 30, 2011
   
December 31, 2010
 
   
(Unaudited)
       
ASSETS
           
Investments in portfolio securities, at value:
           
Unaffiliated privately held companies (cost: $27,131,646 and $37,480,266, respectively)
  $ 25,069,912     $ 56,315,330  
Unaffiliated rights to milestone payments (adjusted cost basis: $3,291,750 and $0, respectively)
    3,316,581       0  
Unaffiliated publicly traded securities (cost: $12,743,787 and $0, respectively)
    47,295,273       0  
Non-controlled affiliated privately held companies (cost: $50,748,092 and $51,451,965, respectively)
    48,200,820       42,775,415  
Non-controlled affiliated publicly traded companies (cost: $2,000,000 and $0, respectively)
    1,946,667       0  
Controlled affiliated privately held companies (cost: $10,090,884 and $9,715,153, respectively)
    6,058,029       7,059,677  
Total investments in private portfolio companies, rights to milestone payments and public securities, at value (cost: $106,006,159 and $98,647,384, respectively)
  $ 131,887,282     $ 106,150,422  
Investments in U.S. Treasury obligations, at value (cost: $32,197,584 and $38,273,349, respectively)
    32,198,847       38,274,617  
Cash
    5,301,335       3,756,919  
Restricted funds (Note 3)
    2,564,774       2,751  
Funds held in escrow from sale of investment, at value (Note 3)
    476,178       0  
Receivable from portfolio company
    15,879       10,000  
Interest receivable
    22,682       5,924  
Prepaid expenses
    238,776       379,705  
Other assets
    678,469       708,830  
Total assets
  $ 173,384,222     $ 149,289,168  
                 
LIABILITIES & NET ASSETS
               
                 
Post retirement plan liabilities
  $ 1,566,477     $ 1,506,906  
Revolving loan (Note 5)
    2,550,000       0  
Accounts payable and accrued liabilities
    511,034       589,592  
Deferred rent
    327,262       338,758  
Debt interest and other payable
    3,297       0  
Total liabilities
    4,958,070       2,435,256  
                 
Net assets
  $ 168,426,152     $ 146,853,912  
                 
Net assets are comprised of:
               
Preferred stock, $0.10 par value, 2,000,000 shares authorized; none issued
  $ 0     $ 0  
Common stock, $0.01 par value, 45,000,000 shares authorized at 06/30/11 and 12/31/10; 32,829,341 issued at 06/30/11 and 32,706,904 issued at 12/31/10
    328,294       327,070  
Additional paid in capital
    209,560,689       208,085,735  
Accumulated net operating and realized loss
    (63,939,686 )     (65,657,668 )
Accumulated unrealized appreciation of investments
    25,882,386       7,504,306  
Treasury stock, at cost (1,828,740 shares at 06/30/11 and 12/31/10)
    (3,405,531 )     (3,405,531 )
                 
Net assets
  $ 168,426,152     $ 146,853,912  
Shares outstanding
    31,000,601       30,878,164  
Net asset value per outstanding share
  $ 5.43     $ 4.76  

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

 
2

 

HARRIS & HARRIS GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
 
   
Three Months Ended June 30,
   
Six Months Ended June 30,
 
   
2011
   
2010
   
2011
   
2010
 
Investment income:
                       
Interest from:
                       
Fixed-income securities and bridge notes (Note 3)
  $ 173,667     $ 123,208     $ 295,444     $ 196,281  
Miscellaneous income
    14,159       6,000       29,206       12,000  
Total investment income
    187,826       129,208       324,650       208,281  
                                 
Expenses:
                               
Salaries, benefits and stock-based compensation (Note 7)
    1,344,781       1,465,520       2,583,879       2,854,797  
Administration and operations
    219,243       228,246       475,801       510,768  
Professional fees
    208,713       176,866       456,561       420,235  
Rent (Note 3)
    89,500       89,145       179,000       166,360  
Directors’ fees and expenses
    85,391       85,560       184,172       180,921  
Custody fees
    24,000       24,000       48,000       48,000  
Depreciation
    12,602       13,820       25,166       25,789  
Interest and other debt expenses
    9,989       0       13,767       0  
Lease termination costs
    0       0       0       68,038  
Total expenses
    1,994,219       2,083,157       3,966,346       4,274,908  
                                 
Net operating loss
    (1,806,393 )     (1,953,949 )     (3,641,696 )     (4,066,627 )
                                 
Net realized (loss) gain:
                               
Realized (loss) gain from investments:
                               
Unaffiliated companies
    (205,597 )     13,218       7,328,743       13,218  
Non-Controlled affiliated companies
    (1,966,590 )     (257,007 )     (1,966,590 )     (257,007 )
Publicly traded companies
    0       (152,980 )     0       (152,980 )
U.S. Treasury obligations/other
    (82 )     0       (82 )     (11,523 )
Realized (loss) gain from investments
    (2,172,269 )     (396,769 )     5,362,071       (408,292 )
                                 
Income tax expense (Note 8)
    103       0       2,393       2,632  
Net realized (loss) gain from investments
    (2,172,372 )     (396,769 )     5,359,678       (410,924 )
                                 
Net increase (decrease) in unrealized appreciation on investments:
                               
Change as a result of investment sales
    2,006,126       222,319       (5,522,992 )     222,319  
Change on investments held
    23,194,860       4,279,351       23,901,072       8,093,915  
Net increase (decrease) in unrealized appreciation on investments
    25,200,986       4,501,670       18,378,080       8,316,234  
                                 
Net increase in net assets resulting from operations:
                               
                                 
Total
  $ 21,222,221     $ 2,150,952     $ 20,096,062     $ 3,838,683  
                                 
Per average basic and diluted outstanding share
  $ 0.68     $ 0.07     $ 0.65     $ 0.12  
                                 
Average outstanding shares
    30,999,579       30,864,491       30,959,503       30,862,202  

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

 
3

 

HARRIS & HARRIS GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
 
   
Six Months Ended
   
Six Months Ended
 
   
June 30, 2011
   
June 30, 2010
 
Cash flows used in operating activities:
           
Net increase in net assets resulting from operations
  $ 20,096,062     $ 3,838,683  
Adjustments to reconcile net increase in net assets resulting from operations to net cash used in operating activities:
               
Net realized gain and unrealized appreciation on investments
    (23,740,151 )     (7,907,942 )
Depreciation of fixed assets, amortization of premium or discount on U.S. government securities, and bridge note interest
    (158,484 )     (142,420 )
Stock-based compensation expense
    985,120       1,214,938  
                 
Changes in assets and liabilities:
               
Restricted funds
    (2,562,023 )     0  
Receivable from portfolio company
    (5,879 )     28,247  
Interest receivable
    4,459       26,234  
Prepaid expenses
    140,929       (147,356 )
Other assets
    8,698       (264,374 )
Post retirement plan liabilities
    59,571       67,570  
Accounts payable and accrued liabilities
    (75,261 )     (90,618 )
Deferred rent
    (11,496 )     348,793  
                 
Net cash used in operating activities
    (5,258,455 )     (3,028,245 )
                 
Cash flows from investing activities:
               
Purchase of U.S. government securities
    (84,283,377 )     (58,644,919 )
Sale of U.S. government securities
    90,337,925       68,646,697  
Investments in affiliated portfolio companies
    (6,860,821 )     (5,469,691 )
Investments in unaffiliated portfolio companies
    (3,795,265 )     (857,473 )
Proceeds from conversion of bridge note
    0       1,356  
Principal payments received on debt investments
    109,763       0  
Proceeds from sale of investments
    8,257,334       407,543  
Purchase of fixed assets
    (3,746 )     (84,212 )
                 
Net cash provided by investing activities
    3,761,813       3,999,301  
                 
Cash flows from financing activities:
               
Proceeds from stock option exercises
    491,058       19,897  
Payment of offering costs
    0       (48,928 )
Proceeds from drawdown of credit facility
    2,550,000       0  
                 
Net cash provided by (used in) financing activities
    3,041,058       (29,031 )
                 
Net increase in cash:
               
Cash at beginning of the period
    3,756,919       1,611,465  
Cash at end of the period.
    5,301,335       2,553,490  
                 
Net increase in cash
  $ 1,544,416     $ 942,025  
                 
Supplemental disclosures of cash flow information:
               
Income taxes paid
  $ 2,393     $ 2,632  

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

 
4

 

HARRIS & HARRIS GROUP, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS

   
Six Months Ended
   
Year Ended
 
   
June 30, 2011
   
December 31, 2010
 
   
(Unaudited)
       
             
Changes in net assets from operations:
           
             
Net operating loss
  $ (3,641,696 )   $ (7,555,807 )
Net realized gain (loss) on investments
    5,359,678       (3,740,518 )
Net (decrease) increase in unrealized appreciation on investments as a result of sales
    (5,522,992 )     3,608,205  
Net increase in unrealized appreciation on investments held
    23,901,072       18,274,970  
                 
Net increase in net assets resulting from operations
    20,096,062       10,586,850  
                 
Changes in net assets from capital stock transactions:
               
                 
Issuance of common stock upon the exercise of stock options
    1,224       186  
Additional paid-in capital on common stock issued net of offering expenses
    489,834       20,527  
Stock-based compensation expense
    985,120       2,088,091  
                 
Net increase in net assets resulting from capital stock transactions
    1,476,178       2,108,804  
                 
Net increase in net assets
    21,572,240       12,695,654  
                 
Net assets:
               
                 
Beginning of the period
    146,853,912       134,158,258  
                 
End of the period
  $ 168,426,152     $ 146,853,912  

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

 
5

 

HARRIS & HARRIS GROUP, INC.
CONSOLIDATED SCHEDULE OF INVESTMENTS AS OF JUNE 30, 2011
(Unaudited)

   
Method of
           
Shares/
       
   
Valuation (1)
 
Industry (2)
 
Cost
   
Principal
   
Value
 
                           
Investments in Unaffiliated Companies (3)(4)(5)(6) – 44.9% of net assets at value
                         
                           
Private Placement Portfolio (Illiquid) – 14.9% of net assets at value
                         
                           
Bridgelux, Inc. (7)(8)
     
Cleantech
                 
Manufacturing high-power light emitting diodes (LEDs) and arrays
                         
Series B Convertible Preferred Stock
 
(M)
      $ 1,000,000       1,861,504     $ 2,622,766  
Series C Convertible Preferred Stock
 
(M)
        1,352,196       2,130,699       3,002,048  
Series D Convertible Preferred Stock
 
(M)
        1,371,622       999,999       1,408,948  
Series E Convertible Preferred Stock
 
(M)
        730,369       440,334       620,409  
Warrants for Series C Convertible Preferred Stock expiring 12/31/14
 
( I )
        168,270       163,900       139,970  
Warrants for Series D Convertible Preferred Stock expiring 8/26/14
 
( I )
        128,543       166,665       91,499  
Warrants for Series E Convertible Preferred Stock expiring 12/31/17
 
( I )
        108,867       170,823       77,212  
              4,859,867               7,962,852  
                                 
Cambrios Technologies Corporation (7)(9)
     
Electronics
                       
Developing nanowire-enabled electronic materials for the display industry
                               
Series B Convertible Preferred Stock
 
(M)
        1,294,025       1,294,025       1,204,270  
Series C Convertible Preferred Stock
 
(M)
        1,300,000       1,300,000       1,209,832  
Series D Convertible Preferred Stock
 
(M)
        608,156       608,156       788,079  
              3,202,181               3,202,181  
                                 
Cobalt Technologies, Inc. (7)(9)(10)
     
Cleantech
                       
Developing processes for making bio-butanol through biomass fermentation
                               
Series C-1 Convertible Preferred Stock
 
(M)
        749,998       352,112       660,211  
Series D-1 Convertible Preferred Stock
 
(M)
        122,070       48,828       91,553  
              872,068               751,764  
                                 
Ensemble Therapeutics Corporation (7)(9)(11)
     
Healthcare
                       
Developing DNA- Programmed ChemistryTM for the discovery of new classes of therapeutics
                               
Series B Convertible Preferred Stock
 
(M)
        2,000,000       1,449,275       1,038,986  
Secured Convertible Bridge Notes (including interest)
 
(M)
        361,374     $ 299,169       722,748  
              2,361,374               1,761,734  

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

 
6

 

HARRIS & HARRIS GROUP, INC.
CONSOLIDATED SCHEDULE OF INVESTMENTS AS OF JUNE 30, 2011
(Unaudited)

   
Method of
           
Shares/
       
   
Valuation (1)
 
Industry (2)
 
Cost
   
Principal
   
Value
 
                           
Investments in Unaffiliated Companies (3)(4)(5)(6) – 44.9% of net assets at value (Cont.)
                         
                           
Private Placement Portfolio (Illiquid) – 14.9% of net assets at value (Cont.)
                         
                           
GEO Semiconductor Inc.
     
Electronics
                 
Developing programmable, high-performance video and geometry processing solutions
                         
Participation Agreement with Montage Capital relating to the following assets:
                         
Senior secured debt, 13.75%, maturing on 06/30/12
 
( I )
      $ 397,299     $ 500,000     $ 443,125  
Warrants for Series A Pref. Stock expiring on 09/17/17
 
( I )
        66,684       100,000       56,820  
Warrants for Series A-1 Pref. Stock expiring on 06/30/18
 
( I )
        23,566       34,500       19,908  
Loan and Security Agreement with GEO Semiconductor relating to the following assets:
                               
Subordinated secured debt, 15.75%, maturing on 01/01/12
 
( I )
        106,470     $ 125,000       117,150  
Warrants for Series A Pref. Stock expiring on 03/01/18
 
( I )
        7,512       10,000       4,981  
Warrants for Series A-1 Pref. Stock expiring on 06/29/18
 
( I )
        7,546       10,000       4,996  
              609,077               646,980  
                                 
Molecular Imprints, Inc. (7)
     
Electronics
                       
Manufacturing nanoimprint lithography capital equipment
                               
Series B Convertible Preferred Stock
 
(M)
        2,000,000       1,333,333       572,050  
Series C Convertible Preferred Stock
 
(M)
        2,309,098       1,250,000       636,937  
Warrants for Series C Convertible Preferred Stock expiring 12/31/11
 
( I )
        190,902       125,000       1,250  
Non-Convertible Bridge Note
 
(M)
        1,348,150     $ 1,348,150       4,381,488  
              5,848,150               5,591,725  
                                 
Nanosys, Inc. (7)(12)
     
Cleantech
                       
Developing inorganic nanowires and quantum dots for use in batteries and LED-backlit devices
                               
Series C Convertible Preferred Stock
 
(M)
        1,500,000       803,428       574,782  
Series D Convertible Preferred Stock
 
(M)
        3,000,003       1,016,950       1,135,416  
Series E Convertible Preferred Stock
 
(M)
        496,573       433,688       465,537  
              4,996,576               2,175,735  
 
The accompanying notes are an integral part of these consolidated financial statements.

 
7

 

HARRIS & HARRIS GROUP, INC.
CONSOLIDATED SCHEDULE OF INVESTMENTS AS OF JUNE 30, 2011
(Unaudited)

   
Method of
           
Shares/
       
   
Valuation (1)
 
Industry (2)
 
Cost
   
Principal
   
Value
 
                           
Investments in Unaffiliated Companies (3)(4)(5)(6) – 44.9% of net assets at value (Cont.)
                         
                           
Private Placement Portfolio (Illiquid) – 14.9% of net assets at value (Cont.)
                         
                           
NanoTerra, Inc. (9)(13)
     
Cleantech
                 
Developing surface chemistry and nano-manufacturing solutions
                         
Senior secured debt, 12.0%, maturing on 02/22/14
 
( I )
      $ 405,783     $ 452,870     $ 400,950  
Senior secured debt, 12.0%, maturing on 02/22/13
 
( I )
        190,286     $ 212,367       196,360  
Warrants for Series A-2 Pref. Stock expiring on 02/22/21
 
( I )
        69,168       446,248       68,722  
              665,237               666,032  
                                 
Nantero, Inc. (7)(9)(12)
     
Electronics
                       
Developing a high-density, nonvolatile, random access memory chip, enabled by carbon nanotubes
                               
Series A Convertible Preferred Stock
 
(M)
        489,999       345,070       1,046,908  
Series B Convertible Preferred Stock
 
(M)
        323,000       207,051       628,172  
Series C Convertible Preferred Stock
 
(M)
        571,329       188,315       571,329  
              1,384,328               2,246,409  
                                 
Polatis, Inc. (7)(12)
     
Electronics
                       
Developing MEMS-based optical networking components and systems
                               
Common Stock
 
(M)
        135,105       16,438       0  
Series A-1 Convertible Preferred Stock
 
(M)
        1,000,000       16,775       0  
Series A-2 Convertible Preferred Stock
 
(M)
        839,000       71,611       0  
Series A-4 Convertible Preferred Stock
 
(M)
        44,183       4,774       0  
              2,018,288               0  
                                 
TetraVitae Bioscience, Inc. (7)(9)(12)
     
Cleantech
                       
Developing methods of producing alternative chemicals and fuels through biomass fermentation
                               
Common Stock
 
(M)
        250,000       118,804       0  

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

 
8

 

HARRIS & HARRIS GROUP, INC.
CONSOLIDATED SCHEDULE OF INVESTMENTS AS OF JUNE 30, 2011
(Unaudited)

   
Method of
           
Shares/
       
   
Valuation (1)
 
Industry (2)
 
Cost
   
Principal
   
Value
 
                           
Investments in Unaffiliated Companies (3)(4)(5)(6) – 44.9% of net assets at value (Cont.)
                         
                           
Private Placement Portfolio (Illiquid) – 14.9% of net assets at value (Cont.)
                         
                           
Ultora, Inc. (7)(9)(12)
     
Cleantech
                 
Developing energy-storage devices enabled by carbon nanotubes
                         
Series A Convertible Preferred Stock
 
(M)
      $ 64,500       64,500     $ 64,500  
                                 
Total Unaffiliated Private Placement Portfolio (cost: $27,131,646)
                          $ 25,069,912  
 
   
Method of
     
Adjusted
   
Shares/
       
   
Valuation (1)
 
Industry(2)
 
Cost
   
Principal
   
Value
 
                           
Rights to Milestone Payments (Illiquid) – 1.9% of net assets at value
                         
                           
Amgen, Inc. (7)(12)
     
Healthcare
                 
Rights to Milestone Payments from Acquisition of BioVex Group, Inc.
 
( I )
      $ 3,291,750     $ 3,291,750     $ 3,316,581  
                                 
Total Unaffiliated Rights to Milestone Payments (cost: $3,291,750)
                          $ 3,316,581  

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

 
9

 

HARRIS & HARRIS GROUP, INC.
CONSOLIDATED SCHEDULE OF INVESTMENTS AS OF JUNE 30, 2011
(Unaudited)

   
Method of
           
Shares/
       
   
Valuation (1)
 
Industry(2)
 
Cost
   
Principal
   
Value
 
                           
Publicly Traded Portfolio (Illiquid) – 28.1% of net assets at value
                         
                           
NeoPhotonics Corporation (7)(12)(14)
     
Electronics
                 
Developing and manufacturing optical devices and components
                         
Common Stock
 
(M)
      $ 7,299,590       450,907     $ 2,940,405  
                                 
Solazyme, Inc. (7)(12)(15)
     
Cleantech
                       
Developing algal biodiesel, industrial chemicals and specialty ingredients using synthetic biology
                               
Common Stock
 
(M)
        5,444,197       2,304,149       44,354,868  
                                 
Total Unaffiliated Publicly Traded Portfolio (cost: $12,743,787)
                          $ 47,295,273  
                                 
Total Investments in Unaffiliated Companies (cost: $43,167,183)
                          $ 75,681,766  

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

 
10

 

HARRIS & HARRIS GROUP, INC.
CONSOLIDATED SCHEDULE OF INVESTMENTS AS OF JUNE 30, 2011
(Unaudited)

   
Method of
           
Shares/
       
   
Valuation (1)
 
Industry (2)
 
Cost
   
Principal
   
Value
 
                           
Investments in Non-Controlled Affiliated Companies (3)(16)(17) – 29.8% of net assets at value
                         
                           
Private Placement Portfolio (Illiquid) – 28.6% of net assets at value
                         
                           
ABSMaterials, Inc. (7)(9)(12)
     
Cleantech
                 
Developing nano-structured absorbent materials for environmental remediation
                         
Series A Convertible Preferred Stock
 
(M)
      $ 375,000       375,000     $ 1,312,500  
                                 
Adesto Technologies Corporation (7)(9)
     
Electronics
                       
Developing low-power, high- performance memory devices
                               
Series A Convertible Preferred Stock
 
(M)
        2,200,000       6,547,619       4,583,333  
Series B Convertible Preferred Stock
 
(M)
        2,200,000       5,952,381       4,166,667  
Secured Convertible Bridge Note (including interest)
 
(M)
        452,887     $ 445,659       452,887  
              4,852,887               9,202,887  
                                 
Contour Energy Systems, Inc. (7)(9)(12)
     
Cleantech
                       
Developing batteries using nanostructured materials
                               
Series A Convertible Preferred Stock
 
(M)
        2,009,995       2,565,798       2,681,260  
Series B Convertible Preferred Stock
 
(M)
        1,300,000       812,500       1,235,000  
Series C Convertible Preferred Stock
 
(M)
        720,000       688,995       720,000  
              4,029,995               4,636,260  
                                 
Crystal IS, Inc. (7)(12)
     
Cleantech
                       
Developing single-crystal aluminum nitride substrates for light-emitting diodes
                               
Common Stock
 
(M)
        1,734,199       3,994,468       0  
Warrants for Series A-1 Pref. Stock expiring 05/05/13
 
( I )
        8,746       15,231       0  
Warrants for Series A-1 Pref. Stock expiring 05/12/13
 
( I )
        1,351       2,350       0  
Warrants for Series A-1 Pref. Stock expiring 08/08/13
 
( I )
        2,543       4,396       0  
              1,746,839               0  

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

 
11

 

HARRIS & HARRIS GROUP, INC.
CONSOLIDATED SCHEDULE OF INVESTMENTS AS OF JUNE 30, 2011
(Unaudited)
 
   
Method of
           
Shares/
       
   
Valuation (1)
 
Industry (2)
 
Cost
   
Principal
   
Value
 
                           
Investments in Non-Controlled Affiliated Companies (3)(16)(17) – 29.8% of net assets at value (Cont.)
                         
                           
Private Placement Portfolio (Illiquid) – 28.6% of net assets at value (Cont.)
                         
                           
D-Wave Systems, Inc. (7)(9)(18)
     
Electronics
                 
Developing high- performance quantum computing systems
                         
Series B Convertible Preferred Stock
 
(M)
      $ 1,002,074       1,144,869     $ 1,040,767  
Series C Convertible Preferred Stock
 
(M)
        487,804       450,450       409,491  
Series D Convertible Preferred Stock
 
(M)
        1,484,492       1,533,395       1,393,963  
Series E Convertible Preferred Stock
 
(M)
        248,049       269,280       244,794  
Series F Convertible Preferred Stock
 
(M)
        238,323       258,721       235,195  
Warrants for Common Stock expiring 06/30/15
 
( I )
        98,644       153,890       50,938  
              3,559,386               3,375,148  
                                 
Enumeral Biomedical Corp. (7)(9)
     
Healthcare
                       
Developing therapeutics and diagnostics through functional assaying of single cells
                               
Series A Convertible Preferred Stock
 
(M)
        1,026,832       957,038       1,110,164  
                                 
Innovalight, Inc. (7)(9)(19)
     
Cleantech
                       
Developing silicon-based nanomaterials for use in the solar energy industry
                               
Series B Convertible Preferred Stock
 
(M)
        2,500,000       16,666,666       2,147,531  
Series C Convertible Preferred Stock
 
(M)
        1,993,568       5,810,577       1,776,676  
Series D Convertible Preferred Stock
 
(M)
        721,090       4,046,974       647,052  
Warrants for Series D Preferred Stock expiring 03/03/18
 
(M)
        37,196       304,194       0  
Unsecured Convertible Bridge Note (including interest)
 
(M)
        422,158     $ 452,586       457,992  
              5,674,012               5,029,251  
                                 
Kovio, Inc. (7)(9)(12)(20)
     
Electronics
                       
Developing semiconductor products using printed electronics and thin-film technologies
                               
Series A' Convertible Preferred Stock
 
(M)
        5,242,993       2,160,000       1,437,286  
Series B' Convertible Preferred Stock
 
(M)
        1,418,540       2,131,827       1,418,539  
              6,661,533               2,855,825  

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

 
12

 

HARRIS & HARRIS GROUP, INC.
CONSOLIDATED SCHEDULE OF INVESTMENTS AS OF JUNE 30, 2011
(Unaudited)
 
   
Method of
           
Shares/
       
   
Valuation (1)
 
Industry (2)
 
Cost
   
Principal
   
Value
 
                           
Investments in Non-Controlled Affiliated Companies (3)(16)(17) – 29.8% of net assets at value (Cont.)
                         
                           
Private Placement Portfolio (Illiquid) – 28.6% of net assets at value (Cont.)
                         
                           
Mersana Therapeutics, Inc. (7)(9)
     
Healthcare
                 
Developing treatments for cancer based on novel drug delivery polymers
                         
Series A Convertible Preferred Stock
 
(M)
      $ 700,000       68,451     $ 77,008  
Series B Convertible Preferred Stock
 
(M)
        1,542,098       866,500       1,325,419  
Unsecured Convertible Bridge Notes (including interest)
 
(M)
        1,309,748     $ 1,120,875       1,309,748  
              3,551,846               2,712,175  
                                 
Metabolon, Inc. (7)(12)
     
Healthcare
                       
Developing service and diagnostic products through the use of a metabolomics, or biochemical, profiling platform
                               
Series B Convertible Preferred Stock
 
(M)
        2,500,000       371,739       1,951,723  
Series B-1 Convertible Preferred Stock
 
(M)
        706,214       148,696       780,689  
Series C Convertible Preferred Stock
 
(M)
        1,000,000       1,000,000       1,794,510  
Warrants for Series B-1 Convertible Preferred
                               
Stock expiring 3/25/15
 
( I )
        293,786       74,348       189,245  
              4,500,000               4,716,167  
                                 
Nextreme Thermal Solutions, Inc. (7)(9)(12)
     
Cleantech
                       
Developing thin-film thermoelectric devices for cooling and energy conversion
                               
Series A Convertible Preferred Stock
 
(M)
        1,750,000       17,500       1,485  
Series B Convertible Preferred Stock
 
(M)
        2,634,762       4,870,244       136,179  
              4,384,762               137,664  
                                 
Produced Water Absorbents, Inc. (7)(9)(12)(13)
     
Cleantech
                       
Developing nano-structured absorbent materials for environmental remediation of contaminated water in the oil and gas industries
                               
Series A Convertible Preferred Stock
 
(M)
        1,000,000       1,000,000       1,000,000  

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

 
13

 

HARRIS & HARRIS GROUP, INC.
CONSOLIDATED SCHEDULE OF INVESTMENTS AS OF JUNE 30, 2011
(Unaudited)
 
   
Method of
           
Shares/
       
   
Valuation (1)
 
Industry (2)
 
Cost
   
Principal
   
Value
 
                           
Investments in Non-Controlled
                         
Affiliated Companies (3)(16)(17) –
                         
29.8% of net assets at value (Cont.)
                         
                           
Private Placement Portfolio (Illiquid) –
                         
28.6% of net assets at value (Cont.)