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)
|
111
West 57th
Street, New York, New York
|
10019
|
(Address
of Principal Executive Offices)
|
(Zip
Code)
|
(212)
582-0900
|
(Registrant's
Telephone Number, Including Area
Code)
|
Yes
x
|
No
¨
|
Large
accelerated filer ¨
|
Accelerated
filer x
|
Non-accelerated
filer ¨
|
Smaller
reporting company ¨
|
Yes
¨
|
No
x
|
Class
|
Outstanding
at November 7, 2008
|
Common
Stock, $0.01 par value per share
|
25,859,573 shares
|
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
|
21
|
Financial
Highlights
|
32
|
Item
2. Management's Discussion and Analysis of Financial Condition and
Results
of Operations
|
33
|
Background
and Overview
|
33
|
Results
of Operations
|
37
|
Financial
Condition
|
42
|
Liquidity
|
44
|
Capital
Resources
|
45
|
Critical
Accounting Policies
|
45
|
Recent
Developments - Other
|
48
|
Recent
Developments - Portfolio Companies
|
48
|
Forward-Looking
Statements
|
48
|
Item
3. Quantitative and Qualitative Disclosures About Market
Risk
|
49
|
Item
4. Controls and Procedures
|
51
|
PART
II. OTHER INFORMATION
|
|
Item
1A. Risk Factors
|
52
|
Item
6. Exhibits
|
54
|
Signatures
|
55
|
Exhibit
Index
|
56
|
HARRIS
& HARRIS GROUP, INC.
CONSOLIDATED
STATEMENTS OF ASSETS AND
LIABILITIES
|
ASSETS
|
|||||||
September
30, 2008
|
December
31, 2007
|
||||||
(Unaudited)
|
|||||||
Investments,
in portfolio securities at value
|
|||||||
(cost:
$87,913,862 and $82,677,528, respectively)
|
$
|
63,942,445
|
$
|
78,110,384
|
|||
Investments,
in U.S. Treasury obligations at value
|
|||||||
(cost:
$56,206,231 and $59,552,933, respectively)
|
57,032,781
|
60,193,593
|
|||||
Cash
and cash equivalents
|
937,914
|
330,009
|
|||||
Restricted
funds (Note 9)
|
124,664
|
2,667,020
|
|||||
Receivable
from portfolio company
|
0
|
524
|
|||||
Interest
receivable
|
463,732
|
647,337
|
|||||
Prepaid
expenses
|
148,515
|
488,667
|
|||||
Other
assets
|
426,449
|
455,798
|
|||||
Total
assets
|
$
|
123,076,500
|
$
|
142,893,332
|
|||
LIABILITIES
& NET ASSETS
|
|||||||
Accounts
payable and accrued liabilities (Note 9)
|
$
|
1,953,125
|
$
|
4,515,463
|
|||
Deferred
rent
|
9,715
|
14,525
|
|||||
Total
liabilities
|
1,962,840
|
4,529,988
|
|||||
Net
assets
|
$
|
121,113,660
|
$
|
138,363,344
|
|||
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 9/30/08 and
12/31/07; 27,688,313 issued at 9/30/08 and 25,143,313 issued at
12/31/07
|
276,884
|
251,434
|
|||||
Additional
paid in capital (Note 7)
|
179,619,630
|
160,927,691
|
|||||
Accumulated
net realized loss
|
(32,232,456
|
)
|
(15,483,766
|
)
|
|||
Accumulated
unrealized depreciation of investments
|
(23,144,867
|
)
|
(3,926,484
|
)
|
|||
Treasury
stock, at cost (1,828,740 shares at 9/30/08 and 12/31/07)
|
(3,405,531
|
)
|
(3,405,531
|
)
|
|||
Net
assets
|
$
|
121,113,660
|
$
|
138,363,344
|
|||
Shares
outstanding
|
25,859,573
|
23,314,573
|
|||||
Net
asset value per outstanding share
|
$
|
4.68
|
$
|
5.93
|
HARRIS
& HARRIS GROUP, INC.
CONSOLIDATED
STATEMENTS OF OPERATIONS
(Unaudited)
|
Three
Months Ended Sept. 30
|
Nine
Months Ended Sept. 30
|
||||||||||||
2008
|
2007
|
2008
|
2007
|
||||||||||
Investment
income:
|
|||||||||||||
Interest
from:
|
|||||||||||||
Fixed-income
securities
|
$
|
585,418
|
$
|
743,375
|
$
|
1,626,176
|
$
|
2,033,574
|
|||||
Miscellaneous
income
|
2,500
|
39
|
5,669
|
39
|
|||||||||
Total
investment income
|
587,918
|
743,414
|
1,631,845
|
2,033,613
|
|||||||||
Expenses:
|
|||||||||||||
Salaries,
benefits and stock-based compensation (Note 5)
|
2,205,980
|
3,230,838
|
7,101,077
|
8,409,888
|
|||||||||
Administration
and operations
|
252,884
|
311,332
|
838,100
|
1,049,375
|
|||||||||
Professional
fees
|
138,461
|
155,999
|
478,559
|
673,261
|
|||||||||
Rent
|
80,358
|
60,314
|
197,960
|
178,634
|
|||||||||
Directors’
fees and expenses
|
79,318
|
80,364
|
263,633
|
333,717
|
|||||||||
Depreciation
|
13,447
|
16,734
|
41,251
|
47,955
|
|||||||||
Custodian
fees
|
14,209
|
5,428
|
26,905
|
17,163
|
|||||||||
Total
expenses
|
2,784,657
|
3,861,009
|
8,947,485
|
10,709,993
|
|||||||||
Net
operating loss
|
(2,196,739
|
)
|
(3,117,595
|
)
|
(7,315,640
|
)
|
(8,676,380
|
)
|
|||||
Net
realized (loss) gain from investments:
|
|||||||||||||
Realized
(loss) gain from investments
|
(4,373,124
|
)
|
14,828
|
(9,384,082
|
)
|
5,941
|
|||||||
Income
tax expense (Note 6)
|
2,102
|
4,083
|
48,968
|
88,988
|
|||||||||
Net
realized (loss) gain from investments
|
(4,375,226
|
)
|
10,745
|
(9,433,050
|
)
|
(83,047
|
)
|
||||||
Net
(increase) decrease in unrealized depreciation on
investments:
|
|||||||||||||
Change
as a result of investment sales
|
4,278,500
|
0
|
9,293,153
|
0
|
|||||||||
Change
on investments held
|
(31,739,282
|
)
|
3,711,087
|
(28,511,536
|
)
|
(1,120,140
|
)
|
||||||
Net
(increase) decrease in unrealized depreciation on
investments
|
(27,460,782
|
)
|
3,711,087
|
(19,218,383
|
)
|
(1,120,140
|
)
|
||||||
Net
(decrease) increase in net assets resulting from
operations
|
$
|
(34,032,747
|
)
|
$
|
604,237
|
$
|
(35,967,073
|
)
|
$
|
(9,879,567
|
)
|
||
Per
average basic and diluted outstanding share
|
$
|
(1.32
|
)
|
$
|
0.03
|
$
|
(1.48
|
)
|
$
|
(0.45
|
)
|
||
Average
outstanding shares
|
25,859,573
|
23,235,023
|
24,271,270
|
22,084,893
|
HARRIS
& HARRIS GROUP, INC.
CONSOLIDATED
STATEMENTS OF CASH FLOWS
(Unaudited)
|
Nine
Months Ended
|
Nine
Months Ended
|
||||||
September
30, 2008
|
September
30, 2007
|
||||||
Cash
flows used in operating activities:
|
|||||||
Net
decrease in net assets resulting from operations
|
$
|
(35,967,073
|
)
|
$
|
(9,879,567
|
)
|
|
Adjustments
to reconcile net decrease in net assets resulting from operations
to net
cash used in operating activities:
|
|||||||
Net
realized and unrealized loss on investments
|
28,602,465
|
1,114,199
|
|||||
Depreciation
of fixed assets, amortization of premium or discount on U.S. government
securities, and bridge note interest
|
(160,283
|
)
|
31,425
|
||||
Stock-based
compensation expense
|
4,333,892
|
5,725,031
|
|||||
Changes
in assets and liabilities:
|
|||||||
Restricted
funds
|
2,542,356
|
(384,144
|
)
|
||||
Receivable
from portfolio company
|
524
|
(5,000
|
)
|
||||
Receivable
from broker
|
0
|
819,905
|
|||||
Interest
receivable
|
213,520
|
126,292
|
|||||
Income
tax receivable
|
0
|
7,209
|
|||||
Prepaid
expenses
|
340,152
|
(131,514
|
)
|
||||
Other
assets
|
1,619
|
25,630
|
|||||
Accounts
payable and accrued liabilities
|
(2,562,338
|
)
|
122,356
|
||||
Accrued
profit sharing
|
0
|
(261,661
|
)
|
||||
Deferred
rent
|
(4,810
|
)
|
(5,101
|
)
|
|||
Net
cash used in operating activities
|
(2,659,976
|
)
|
(2,694,940
|
)
|
|||
Cash
flows from investing activities:
|
|||||||
Purchase
of U.S. government securities
|
(75,932,334
|
)
|
(60,744,292
|
)
|
|||
Sale
of U.S. government securities
|
79,326,692
|
56,454,594
|
|||||
Investment
in private placements and notes
|
(14,635,185
|
)
|
(17,480,885
|
)
|
|||
Proceeds
from sale of private placements and notes
|
140,257
|
51,669
|
|||||
Purchase
of fixed assets
|
(15,046
|
)
|
(36,367
|
)
|
|||
Net
cash used in investing activities
|
(11,115,616
|
)
|
(21,755,281
|
)
|
|||
Cash
flows from financing activities:
|
|||||||
Proceeds
from stock option exercises (Note 5)
|
0
|
9,673,662
|
|||||
Proceeds
from stock offering (Note 7)
|
14,383,497
|
12,993,168
|
|||||
Net
cash provided by financing activities
|
14,383,497
|
22,666,830
|
|||||
Net
increase (decrease) in cash and cash equivalents:
|
|||||||
Cash
and cash equivalents at beginning of the period
|
330,009
|
2,071,788
|
|||||
Cash
and cash equivalents at end of the period
|
937,914
|
288,397
|
|||||
Net
increase (decrease) in cash and cash equivalents
|
$
|
607,905
|
$
|
(1,783,391
|
)
|
||
Supplemental
disclosures of cash flow information:
|
|||||||
Income
taxes paid
|
$
|
48,427
|
$
|
87,920
|
HARRIS
& HARRIS GROUP, INC.
CONSOLIDATED
STATEMENTS OF CHANGES IN NET ASSETS
|
Nine
Months Ended
September
30, 2008
|
Year
Ended
December
31, 2007
|
||||||
(Unaudited)
|
|||||||
Changes
in net assets from operations:
|
|||||||
Net
operating loss
|
$
|
(7,315,640
|
)
|
$
|
(11,827,543
|
)
|
|
Net
realized (loss) gain on investments
|
(9,433,050
|
)
|
30,162
|
||||
Net
decrease in unrealized depreciation on investments sold
|
9,293,153
|
0
|
|||||
Net
(increase) decrease in unrealized depreciation on investments
held
|
(28,511,536
|
)
|
5,080,936
|
||||
Net
decrease in net assets resulting from operations
|
(35,967,073
|
)
|
(6,716,445
|
)
|
|||
Changes
in net assets from capital stock transactions:
|
|||||||
Issuance
of common stock upon the exercise of stock options
|
0
|
9,996
|
|||||
Issuance
of common stock on offering
|
25,450
|
13,000
|
|||||
Additional
paid-in capital on common stock issued
|
14,358,047
|
23,075,683
|
|||||
Stock-based
compensation expense
|
4,333,892
|
8,050,807
|
|||||
Net
increase in net assets resulting from capital stock
transactions
|
18,717,389
|
31,149,486
|
|||||
Net
(decrease) increase in net assets
|
(17,249,684
|
)
|
24,433,041
|
||||
Net
assets:
|
|||||||
Beginning
of the period
|
138,363,344
|
113,930,303
|
|||||
End
of the period
|
$
|
121,113,660
|
$
|
138,363,344
|
HARRIS
& HARRIS GROUP, INC.
CONSOLIDATED
SCHEDULE OF INVESTMENTS AS OF SEPTEMBER
30, 2008
(Unaudited)
|
Method
of
|
Shares/
|
|||||||||
Valuation
(1)
|
Principal
|
Value
|
||||||||
Investments
in Unaffiliated Companies (2)(3) - 13.7% of net assets at
value
|
||||||||||
Private
Placement Portfolio (Illiquid) - 13.7% of net assets at
value
|
||||||||||
BioVex
Group, Inc. (4)(5)(6)(7) -- Developing novel biologics for treatment
of
cancer and infectious disease
|
||||||||||
Series
E Convertible Preferred Stock
|
(M
|
)
|
2,799,552
|
$
|
1,250,000
|
|||||
D-Wave
Systems, Inc. (4)(5)(6)(8) -- Developing high-performance quantum
computing systems
|
||||||||||
Series
B Convertible Preferred Stock
|
(M
|
)
|
1,144,869
|
1,199,212
|
||||||
Series
C Convertible Preferred Stock
|
(M
|
)
|
450,450
|
471,831
|
||||||
Series
D Convertible Preferred Stock
|
(M
|
)
|
1,533,395
|
1,606,181
|
||||||
3,277,224
|
||||||||||
Exponential
Business Development Company (4)(5) - Venture capital partnership
focused
on early stage companies
|
||||||||||
Limited
Partnership Interest
|
(M
|
)
|
1
|
2,219
|
||||||
Molecular
Imprints, Inc. (4)(5) -- Manufacturing nanoimprint lithography capital
equipment
|
||||||||||
Series
B Convertible Preferred Stock
|
(M
|
)
|
1,333,333
|
1,029,693
|
||||||
Series
C Convertible Preferred Stock
|
(M
|
)
|
1,250,000
|
965,337
|
||||||
Warrants
at $2.00 expiring 12/31/11
|
(I
|
)
|
125,000
|
36,875
|
||||||
2,031,905
|
||||||||||
Nanosys,
Inc. (4)(5) -- Developing zero and one-dimensional inorganic
nanometer-scale materials and devices
|
||||||||||
Series
C Convertible Preferred Stock
|
(M
|
)
|
803,428
|
2,370,113
|
||||||
Series
D Convertible Preferred Stock
|
(M
|
)
|
1,016,950
|
3,000,003
|
||||||
5,370,116
|
||||||||||
Nantero,
Inc. (4)(5)(6) -- Developing a high-density, nonvolatile, random
access
memory chip, enabled by carbon nanotubes
|
||||||||||
Series
A Convertible Preferred Stock
|
(M
|
)
|
345,070
|
1,046,908
|
||||||
Series
B Convertible Preferred Stock
|
(M
|
)
|
207,051
|
628,172
|
||||||
Series
C Convertible Preferred Stock
|
(M
|
)
|
188,315
|
571,329
|
||||||
2,246,409
|
HARRIS
& HARRIS GROUP, INC.
CONSOLIDATED
SCHEDULE OF INVESTMENTS AS OF SEPTEMBER
30, 2008
(Unaudited)
|
Method
of
Valuation
(1)
|
Shares/
Principal
|
Value
|
||||||||
Investments
in Unaffiliated Companies (2)(3) - 13.7% of net assets at value
(cont.)
|
||||||||||
Private
Placement Portfolio (Illiquid) - 13.7% of net assets at value
(cont.)
|
||||||||||
NeoPhotonics
Corporation (4)(5) -- Developing and manufacturing optical devices
and
components
|
||||||||||
Common
Stock
|
(M
|
)
|
716,195
|
$
|
93,106
|
|||||
Series
1 Convertible Preferred Stock
|
(M
|
)
|
1,831,256
|
613,941
|
||||||
Series
2 Convertible Preferred Stock
|
(M
|
)
|
741,898
|
243,932
|
||||||
Series
3 Convertible Preferred Stock
|
(M
|
)
|
2,750,000
|
904,184
|
||||||
Series
X Convertible Preferred Stock
|
(M
|
)
|
2,000
|
400,000
|
||||||
Warrants
at $0.15 expiring 01/26/10
|
(I
|
)
|
16,364
|
884
|
||||||
Warrants
at $0.15 expiring 12/05/10
|
(I
|
)
|
14,063
|
760
|
||||||
2,256,807
|
||||||||||
Polatis,
Inc. (4)(5)(6)(9) -- Developing MEMS-based optical networking
components
|
||||||||||
Series
A-1 Convertible Preferred Stock
|
(M
|
)
|
16,775
|
0
|
||||||
Series
A-2 Convertible Preferred Stock
|
(M
|
)
|
71,611
|
0
|
||||||
Series
A-4 Convertible Preferred Stock
|
(M
|
)
|
4,774
|
0
|
||||||
Series
A-5 Convertible Preferred Stock
|
(M
|
)
|
16,438
|
0
|
||||||
0
|
||||||||||
PolyRemedy,
Inc. (4)(5)(6)(10) --Developing a robotic manufacturing platform
for wound
treatment patches
|
||||||||||
Series
B-1 Convertible Preferred Stock
|
(M
|
)
|
287,647
|
122,250
|
||||||
Starfire
Systems, Inc. (4)(5) -- Producing ceramic-forming polymers
|
||||||||||
Common
Stock
|
(M
|
)
|
375,000
|
0
|
||||||
Series
A-1 Convertible Preferred Stock
|
(M
|
)
|
600,000
|
0
|
||||||
0
|
||||||||||
Total
Unaffiliated Private Placement Portfolio (cost:
$24,854,430)
|
$
|
16,556,930
|
||||||||
Total
Investments in Unaffiliated Companies (cost:
$24,854,430)
|
$
|
16,556,930
|
HARRIS
& HARRIS GROUP, INC.
CONSOLIDATED
SCHEDULE OF INVESTMENTS AS OF SEPTEMBER
30, 2008
(Unaudited)
|
Method
of
Valuation
(1)
|
Shares/
Principal
|
Value
|
||||||||
Investments
in Non-Controlled Affiliated Companies (2)(11) -
|
||||||||||
33.9%
of net assets at value
|
||||||||||
Private
Placement Portfolio (Illiquid)
- 33.9% of net assets
|
||||||||||
at
value
|
||||||||||
Adesto
Technologies Corporation (4)(5)(6) -- Developing
|
||||||||||
semiconductor-related
products enabled at the nanoscale
|
||||||||||
Series
A Convertible Preferred Stock
|
(M
|
)
|
6,547,619
|
$
|
1,100,000
|
|||||
Ancora
Pharmaceuticals, Inc. (4)(5)(6) -- Developing synthetic
|
||||||||||
carbohydrates
for pharmaceutical applications
|
||||||||||
Series
B Convertible Preferred Stock
|
(M
|
)
|
1,663,808
|
1,200,000
|
||||||
BridgeLux,
Inc. (4)(5)(12) -- Manufacturing high-power light
|
||||||||||
emitting
diodes
|
||||||||||
Series
B Convertible Preferred Stock
|
(M
|
)
|
1,861,504
|
2,792,256
|
||||||
Series
C Convertible Preferred Stock
|
(M
|
)
|
2,130,699
|
3,196,050
|
||||||
Series
D Convertible Preferred Stock
|
(M
|
)
|
666,667
|
1,000,001
|
||||||
Warrants
at $0.7136 expiring 02/02/17
|
(I
|
)
|
98,340
|
137,184
|
||||||
Warrants
at $0.7136 expiring 04/26/17
|
(I
|
)
|
65,560
|
91,784
|
||||||
7,217,275
|
||||||||||
Cambrios
Technologies Corporation (4)(5)(6) -- Developing
|
||||||||||
nanowire-enabled
electronic materials for the display industry
|
||||||||||
Series
B Convertible Preferred Stock
|
(M
|
)
|
1,294,025
|
647,013
|
||||||
Series
C Convertible Preferred Stock
|
(M
|
)
|
1,300,000
|
650,000
|
||||||
1,297,013
|
||||||||||
CFX
Battery, Inc. (4)(5)(6)(13) -- Developing
batteries using
|
||||||||||
nanostructured
materials
|
||||||||||
Series
A Convertible Preferred Stock
|
(M
|
)
|
1,208,262
|
946,528
|
HARRIS
& HARRIS GROUP, INC.
CONSOLIDATED
SCHEDULE OF INVESTMENTS AS OF SEPTEMBER 30, 2008
(Unaudited)
|
Method
of
Valuation
(1)
|
Shares/
Principal
|
Value
|
||||||||
Investments
in Non-Controlled Affiliated Companies (2)(10) -
|
||||||||||
33.9%
of net assets at value (cont.)
|
||||||||||
Private
Placement Portfolio (Illiquid)
- 33.9% of net assets
|
||||||||||
at
value (cont.)
|
||||||||||
Crystal
IS, Inc. (4)(5) -- Developing single-crystal
|
||||||||||
aluminum
nitride substrates for optoelectronic devices
|
||||||||||
Series
A Convertible Preferred Stock
|
(M
|
)
|
391,571
|
$
|
76,357
|
|||||
Series
A-1 Convertible Preferred Stock
|
(M
|
)
|
1,300,376
|
253,574
|
||||||
Warrants
at $0.78 expiring 05/05/13
|
(
I
|
)
|
15,231
|
4,006
|
||||||
Warrants
at $0.78 expiring 05/12/13
|
(
I
|
)
|
2,350
|
618
|
||||||
Warrants
at $0.78 expiring 08/08/13
|
(
I
|
)
|
4,396
|
1,187
|
||||||
335,742
|
||||||||||
CSwitch
Corporation (4)(5)(6)(14) -- Developing next-generation,
system-
|
||||||||||
on-a-chip
solutions for communications-based platforms
|
||||||||||
Series
A-1 Convertible Preferred Stock
|
(M
|
)
|
6,863,118
|
0
|
||||||
Unsecured
Convertible Bridge Note (including interest)
|
(M
|
)
|
$
|
1,581,202
|
493,411
|
|||||
493,411
|
||||||||||
Ensemble
Discovery Corporation (4)(5)(6)(15) -- Developing
DNA
|
||||||||||
Programmed
Chemistry for the discovery of new classes of
|
||||||||||
therapeutics
and bioassays
|
||||||||||
Series
B Convertible Preferred Stock
|
(M
|
)
|
1,449,275
|
1,000,000
|
||||||
Unsecured
Convertible Bridge Note (including interest)
|
(M
|
)
|
251,328
|
251,328
|
||||||
1,251,328
|
||||||||||
Innovalight,
Inc. (4)(5)(6) -- Developing solar power
|
||||||||||
products
enabled by silicon-based nanomaterials
|
||||||||||
Series
B Convertible Preferred Stock
|
(M
|
)
|
16,666,666
|
4,288,662
|
||||||
Series
C Convertible Preferred Stock
|
(M
|
)
|
5,810,577
|
1,495,176
|
||||||
5,783,838
|
HARRIS
& HARRIS GROUP, INC.
CONSOLIDATED
SCHEDULE OF INVESTMENTS AS OF SEPTEMBER 30, 2008
(Unaudited)
|
Method
of
Valuation
(1)
|
Shares/
Principal
|
Value
|
||||||||
Investments
in Non-Controlled Affiliated Companies (2)(10) -
|
||||||||||
33.9%
of net assets at value (cont.)
|
||||||||||
Private
Placement Portfolio (Illiquid)
- 33.9% of net assets
|
||||||||||
at
value (cont.)
|
||||||||||
Kereos,
Inc. (4)(5)(6) -- Developing emulsion-based imaging
|
||||||||||
agents
and targeted therapeutics to image and treat cancer
|
||||||||||
and
cardiovascular disease
|
||||||||||
Series
B Convertible Preferred Stock
|
(M
|
)
|
545,456
|
$
|
0
|
|||||
Kovio,
Inc. (4)(5)(6) -- Developing semiconductor products
|
||||||||||
using
printed electronics and thin-film technologies
|
||||||||||
Series
C Convertible Preferred Stock
|
(M
|
)
|
2,500,000
|
3,125,000
|
||||||
Series
D Convertible Preferred Stock
|
(M
|
)
|
800,000
|
1,000,000
|
||||||
4,125,000
|
||||||||||
Mersana
Therapeutics, Inc. (4)(5)(6)(16) -- Developing advanced
|
||||||||||
polymers
for drug delivery
|
||||||||||
Series
A Convertible Preferred Stock
|
(M
|
)
|
68,451
|
68,451
|
||||||
Series
B Convertible Preferred Stock
|
(M
|
)
|
866,500
|
866,500
|
||||||
Warrants
at $2.00 expiring 10/21/10
|
(
I
|
)
|
91,625
|
37,658
|
||||||
Unsecured
Convertible Bridge Note (including interest)
|
(M
|
)
|
203,068
|
203,068
|
||||||
1,175,677
|
||||||||||
Metabolon,
Inc. (4)(5) -- Discovering biomarkers through
|
||||||||||
the
use of metabolomics
|
||||||||||
Series
B Convertible Preferred Stock
|
(M
|
)
|
2,173,913
|
882,768
|
||||||
Series
B-1 Convertible Preferred Stock
|
(M
|
)
|
869,565
|
353,107
|
||||||
Warrants
at $1.15 expiring 3/25/15
|
(
I
|
)
|
434,783
|
131,739
|
||||||
1,367,614
|
||||||||||
NanoGram
Corporation (4)(5) -- Developing solar power products
|
||||||||||
enabled
by silicon-based nanomaterials
|
||||||||||
Series
I Convertible Preferred Stock
|
(M
|
)
|
63,210
|
62,262
|
||||||
Series
II Convertible Preferred Stock
|
(M
|
)
|
1,250,904
|
1,232,141
|
||||||
Series
III Convertible Preferred Stock
|
(M
|
)
|
1,242,144
|
1,223,512
|
||||||
Series
IV Convertible Preferred Stock
|
(M
|
)
|
432,179
|
425,696
|
||||||
2,943,611
|
HARRIS
& HARRIS GROUP, INC.
CONSOLIDATED
SCHEDULE OF INVESTMENTS AS OF SEPTEMBER 30, 2008
(Unaudited)
|
Method
of
Valuation
(1)
|
Shares/
Principal
|
Value
|
||||||||
Investments
in Non-Controlled Affiliated Companies (2)(10) -
|
||||||||||
33.9%
of net assets at value (cont.)
|
||||||||||
Private
Placement Portfolio (Illiquid)
- 33.9% of net assets
|
||||||||||
at
value (cont.)
|
||||||||||
Nanomix,
Inc. (4)(5) -- Producing nanoelectronic sensors that
|
||||||||||
integrate
carbon nanotube electronics with silicon microstructures
|
||||||||||
Series
C Convertible Preferred Stock
|
(M
|
)
|
977,917
|
$
|
23,622
|
|||||
Series
D Convertible Preferred Stock
|
(M
|
)
|
6,802,397
|
6,428
|
||||||
30,050
|
||||||||||
Nextreme
Thermal Solutions, Inc. (4)(5) -- Developing thin-film
|
||||||||||
thermoelectric
devices for cooling and energy conversion
|
||||||||||
Series
A Convertible Preferred Stock
|
(M
|
)
|
1,750,000
|
875,000
|
||||||
Series
B Convertible Preferred Stock
|
(M
|
)
|
4,870,244
|
1,327,629
|
||||||
2,202,629
|
||||||||||
Questech
Corporation (4)(5) -- Manufacturing and marketing
|
||||||||||
proprietary
metal and stone decorative tiles
|
||||||||||
Common
Stock
|
(M
|
)
|
655,454
|
193,846
|
||||||
Warrants
at $1.50 expiring 11/19/08
|
(
I
|
)
|
5,000
|
0
|
||||||
Warrants
at $1.50 expiring 11/19/09
|
(
I
|
)
|
5,000
|
125
|
||||||
193,971
|
||||||||||
Siluria
Technologies, Inc. (4)(5)(6) -- Developing next-generation
|
||||||||||
nanomaterials
|
||||||||||
Series
S-2 Convertible Preferred Stock
|
(M
|
)
|
482,218
|
40,181
|
||||||
Solazyme,
Inc. (4)(5)(6) -- Developing algal biodiesel, industrial
|
||||||||||
chemicals
and special ingredients based on synthetic biology
|
||||||||||
Series
A Convertible Preferred Stock
|
(M
|
)
|
988,204
|
2,489,088
|
||||||
Series
B Convertible Preferred Stock
|
(M
|
)
|
495,246
|
1,247,426
|
||||||
Series
C Convertible Preferred Stock
|
(M
|
)
|
651,309
|
1,640,517
|
||||||
5,377,031
|
HARRIS
& HARRIS GROUP, INC.
CONSOLIDATED
SCHEDULE OF INVESTMENTS AS OF SEPTEMBER
30, 2008
(Unaudited)
|
Method
of
Valuation (1)
|
Shares/
Principal
|
Value
|
||||||||
Investments
in Non-Controlled Affiliated Companies (2)(10) -
|
||||||||||
33.9%
of net assets at value (cont.)
|
||||||||||
Private
Placement Portfolio (Illiquid)
- 33.9% of net assets
|
||||||||||
at
value (cont.)
|
||||||||||
Xradia,
Inc. (4)(5) -- Designing, manufacturing and selling
ultra-high
|
||||||||||
resolution
3D x-ray microscopes and fluorescence imaging systems
|
||||||||||
Series
D Convertible Preferred Stock
|
(M
|
)
|
3,121,099
|
$
|
4,000,000
|
|||||
Total
Non-Controlled Private Placement Portfolio (cost:
$56,974,432)
|
$
|
41,080,899
|
||
Total
Investments in Non-Controlled Affiliated Companies (cost:
$56,974,432)
|
$
|
41,080,899
|
HARRIS
& HARRIS GROUP, INC.
CONSOLIDATED
SCHEDULE OF INVESTMENTS AS OF SEPTEMBER 30, 2008
(Unaudited)
|
Method
of
Valuation
(1)
|
Shares/
Principal
|
Value
|
||||||||
Investments
in Controlled Affiliated Companies (2)(17) -
|
||||||||||
5.2%
of net assets at value
|
||||||||||
Private
Placement Portfolio (Illiquid)
- 5.2% of
|
||||||||||
net
assets at value
|
||||||||||
Laser
Light Engines, Inc. (4)(5)(6)(10) -- Manufacturing solid-state
light
|
||||||||||
sources
for digital cinema and large-venue projection displays
|
||||||||||
Series
A Convertible Preferred Stock
|
(M
|
)
|
7,499,062
|
2,000,000
|
||||||
SiOnyx,
Inc. (4)(5)(6) -- Developing silicon-based optoelectronic
|
||||||||||
products
enabled by its proprietary "Black Silicon"
|
||||||||||
Series
A Convertible Preferred Stock
|
(M
|
)
|
233,499
|
135,686
|
||||||
Series
A-1 Convertible Preferred Stock
|
(M
|
)
|
2,966,667
|
1,723,930
|
||||||
Series
A-2 Convertible Preferred Stock
|
(M
|
)
|
4,207,537
|
2,445,000
|
||||||
4,304,616
|
||||||||||
Total
Controlled Private Placement Portfolio (cost:
$6,085,000)
|
$
|
6,304,616
|
||||||||
Total
Investments in Controlled Affiliated Companies (cost:
$6,085,000)
|
$
|
6,304,616
|
||||||||
Total
Private Placement Portfolio (cost: $87,913,862)
|
$
|
63,942,445
|
HARRIS
& HARRIS GROUP, INC.
CONSOLIDATED
SCHEDULE OF INVESTMENTS AS OF SEPTEMBER 30, 2008
(Unaudited)
|
Method
of
|
Shares/
|
|
||||||||
Valuation
(1)
|
Principal
|
Value
|
||||||||
U.S.
Government and Agency Securities (18) - 47.1% of net assets at
value
|
||||||||||
U.S.
Treasury Bill -- due date 02/12/09
|
(M
|
)
|
$
|
4,495,000
|
$
|
4,477,200
|
||||
U.S.
Treasury Notes -- due date 01/15/09, coupon 3.25%
|
(M
|
)
|
3,000,000
|
3,020,640
|
||||||
U.S.
Treasury Notes -- due date 02/15/09, coupon 4.50%
|
(M
|
)
|
5,100,000
|
5,158,956
|
||||||
U.S.
Treasury Notes -- due date 04/15/09, coupon 3.125%
|
(M
|
)
|
3,000,000
|
3,024,840
|
||||||
U.S.
Treasury Notes -- due date 07/15/09, coupon 3.625%
|
(M
|
)
|
3,000,000
|
3,041,940
|
||||||
U.S.
Treasury Notes -- due date 10/15/09, coupon 3.375%
|
(M
|
)
|
3,000,000
|
3,046,410
|
||||||
U.S.
Treasury Notes -- due date 01/15/10, coupon 3.625%
|
(M
|
)
|
3,000,000
|
3,068,430
|
||||||
U.S.
Treasury Notes -- due date 04/15/10, coupon 4.00%
|
(M
|
)
|
3,000,000
|
3,097,980
|
||||||
U.S.
Treasury Notes -- due date 06/30/10, coupon 2.875%
|
(M
|
)
|
1,250,000
|
1,270,600
|
||||||
U.S.
Treasury Notes -- due date 07/15/10, coupon 3.875%
|
(M
|
)
|
3,000,000
|
3,108,060
|
||||||
U.S.
Treasury Notes -- due date 09/15/10, coupon 3.875%
|
(M
|
)
|
2,000,000
|
2,077,500
|
||||||
U.S.
Treasury Notes -- due date 10/15/10, coupon 4.25%
|
(M
|
)
|
2,000,000
|
2,092,660
|
||||||
U.S.
Treasury Notes -- due date 12/15/10, coupon 4.375%
|
(M
|
)
|
2,000,000
|
2,102,040
|
||||||
U.S.
Treasury Notes -- due date 03/31/11, coupon 4.750%
|
(M
|
)
|
2,000,000
|
2,131,560
|
||||||
U.S.
Treasury Notes -- due date 06/30/11, coupon 5.125%
|
(M
|
)
|
2,000,000
|
2,157,960
|
||||||
U.S.
Treasury Notes -- due date 09/30/11, coupon 4.500%
|
(M
|
)
|
2,000,000
|
2,126,400
|
||||||
U.S.
Treasury Notes -- due date 12/31/11, coupon 4.625%
|
(M
|
)
|
2,000,000
|
2,133,600
|
||||||
U.S.
Treasury Notes -- due date 10/31/12, coupon 3.875%
|
(M
|
)
|
2,000,000
|
2,091,880
|
||||||
U.S.
Treasury Notes -- due date 02/15/13, coupon 3.875%
|
(M
|
)
|
7,500,000
|
7,804,125
|
||||||
Total
Investments in U.S. Government and Agency Securities (cost:
$56,206,231)
|
$
|
57,032,781
|
||||||||
Total
Investments (cost: $144,120,093)
|
$
|
120,975,226
|
HARRIS
& HARRIS GROUP, INC.
CONSOLIDATED
SCHEDULE OF INVESTMENTS AS OF SEPTEMBER
30, 2008
(Unaudited)
|
(1)
|
See
Footnote to Consolidated Schedule of Investments on page 17 for a
description of the Valuation
Procedures.
|
(2)
|
Investments
in unaffiliated companies consist of investments in which we own
less than
five percent of the voting shares of the portfolio company. Investments
in
non-controlled affiliated companies consist of investments in which
we own
five percent or more, but less than 25 percent, of the voting shares
of
the portfolio company, or where we hold one or more seats on the
portfolio
company’s Board of Directors but do not control the company. Investments
in controlled affiliated companies consist of investments in which
we own
25 percent or more of the voting shares of the portfolio company
or
otherwise control the company.
|
(3)
|
The
aggregate cost for federal income tax purposes of investments in
unaffiliated companies is $24,854,430. The gross unrealized appreciation
based on the tax cost for these securities is $2,035,048. The gross
unrealized depreciation based on the tax cost for these securities
is
$10,332,548.
|
(4)
|
Legal
restrictions on sale of investment.
|
(5)
|
Represents
a non-income producing security. Equity investments that have not
paid
dividends within the last 12 months are considered to be non-income
producing.
|
(6)
|
These
investments are development stage companies. A development stage
company
is defined as a company that is devoting substantially all of its
efforts
to establishing a new business, and either it has not yet commenced
its
planned principal operations, or it has commenced such operations
but has
not realized significant revenue from
them.
|
(7)
|
With
our purchase of Series E Convertible Preferred Stock of BioVex, we
received a warrant to purchase a number of shares of common stock
of
BioVex as determined by dividing 624,999.99 by the price per share
at
which the common stock is offered and sold to the public in connection
with the initial public offering. The ability to exercise this
warrant is therefore contingent on BioVex completing successfully
an
initial public offering before the expiration date of the warrant
on
September 27, 2012. The exercise price of this warrant shall be 110
percent of the initial public offering
price.
|
(8)
|
D-Wave
Systems, Inc., is located and is doing business primarily in Canada.
We
invested in D-Wave Systems, Inc., through D-Wave USA, a Delaware
company.
Our investment is denominated in Canadian dollars and is subject
to
foreign currency translation. See "Note 3. Summary of Significant
Accounting Policies."
|
HARRIS
& HARRIS GROUP, INC.
CONSOLIDATED
SCHEDULE OF INVESTMENTS AS OF SEPTEMBER
30, 2008
(Unaudited)
|
(9)
|
Continuum
Photonics, Inc., merged with Polatis, Ltd., to form Polatis,
Inc.
|
(10)
|
Initial
investment was made during 2008.
|
(11)
|
The
aggregate cost for federal income tax purposes of investments in
non-controlled affiliated companies is $56,974,432. The gross unrealized
appreciation based on the tax cost for these securities is $6,545,710.
The
gross unrealized depreciation based on the tax cost for these securities
is $22,439,243.
|
(12)
|
BridgeLux,
Inc., was previously named eLite Optoelectronics,
Inc.
|
(14)
|
With
our investments in secured convertible bridge notes issued by CSwitch,
we
received two warrants to purchase a number of shares of the class
of stock
sold in the next financing of CSwitch equal to $529,322 and $985,835,
respectively, the principal of the notes, divided by the lowest price
per
share of the class of stock sold in the next financing of CSwitch.
The ability to exercise these warrants is, therefore, contingent
on
CSwitch completing successfully a subsequent round of financing. The
warrants will expire five years from the date of the close of the
next
round of financing. The cost basis of these warrants is $529 and
$986, respectively.
|
(15)
|
With
our investment in a convertible bridge note issued by Ensemble Discovery,
we received a warrant to purchase a number of shares of the class
of stock
sold in the next financing of Ensemble Discovery equal to $125,105.40
divided by the price per share of the class of stock sold in the
next
financing of Ensemble Discovery. The ability to exercise this warrant
is,
therefore, contingent on Ensemble Discovery completing successfully
a
subsequent round of financing. This warrant shall expire and no longer
be
exercisable on September 10, 2015. The cost basis of this warrant
is
$75.20.
|
(16)
|
Mersana
Therapeutics, Inc., was previously named Nanopharma
Corp.
|
(17)
|
The
aggregate cost for federal income tax purposes of investments in
controlled affiliated companies is $6,085,000. The gross unrealized
appreciation based on the tax cost for these securities is $219,616.
The
gross unrealized depreciation based on the tax cost for these securities
is $0.
|
(18)
|
The
aggregate cost for federal income tax purposes of our U.S. government
securities is $56,206,231. The gross unrealized appreciation on the
tax
cost for these securities is $941,828. The gross unrealized depreciation
on the tax cost of these securities is
$115,278.
|
HARRIS
& HARRIS GROUP, INC.
FOOTNOTE
TO CONSOLIDATED SCHEDULE OF INVESTMENTS
(Unaudited)
|
·
|
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 judgment 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; option-pricing models, such as
the
Black-Scholes-Merton formula (a closed-form model) and a binomial
model (a
lattice model), which incorporate present value techniques; and the
multi-period excess earnings method, which is used to measure the
fair
value of certain assets.
|
·
|
Level
1:
Unadjusted quoted prices in active markets for identical assets or
liabilities.
|
·
|
Level
2:
Quoted prices in active markets for similar assets or liabilities,
or
quoted prices for identical or similar assets or liabilities in markets
that are not active, or inputs other than quoted prices that are
observable for the asset or
liability.
|
·
|
Level
3:
Unobservable inputs for the asset or
liability.
|
·
|
Equity-related
securities;
|
·
|
Long-term
fixed-income securities;
|
·
|
Short-term
fixed-income securities;
|
·
|
Investments
in intellectual property, patents, research and development in technology
or product development; and
|
·
|
All
other securities.
|
§
|
Readily
available public market quotations;
|
§
|
The
cost of the Company’s investment;
|
§
|
Transactions
in a company's securities or unconditional firm offers by responsible
parties as a factor in determining
valuation;
|
§
|
The
financial condition and operating results of the
company;
|
§
|
The
company's progress towards milestones.
|
§
|
The
long-term potential of the business and technology of the
company;
|
§
|
The
values of similar securities issued by companies in similar businesses;
|
§
|
Multiples
to revenue, net income or EBITDA that similar securities issued by
companies in similar businesses receive;
|
§
|
The
proportion of the company's securities we own and the nature of any
rights
to require the company to register restricted securities under applicable
securities laws; and
|
§
|
The
rights and preferences of the class of securities we own as compared
to
other classes of securities the portfolio company has issued.
|
When
the income approach is used to value warrants, the Company uses the
Black-Scholes-Merton formula.
|
·
|
Credit
quality;
|
·
|
Interest
rate analysis;
|
·
|
Quotations
from broker-dealers;
|
·
|
Prices
from independent pricing services that the Board believes are reasonably
reliable; and
|
·
|
Reasonable
price discovery procedures and data from other
sources.
|
D.
|
INVESTMENTS
IN INTELLECTUAL PROPERTY, PATENTS, RESEARCH AND DEVELOPMENT IN TECHNOLOGY
OR PRODUCT DEVELOPMENT
|
·
|
Investments
in the same or substantially similar intellectual property or patents
or
research and development in technology or product development or
offers by
responsible third parties;
|
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
|
Fair
Value Measurement at
Reporting Date Using:
|
|||||||||||||
Description
|
September
30, 2008
|
Quoted
Prices in Active Markets for Identical Assets (Level
1)
|
Significant
Other Observable Inputs (Level
2)
|
Significant
Unobservable Inputs
(Level 3)
|
|||||||||
U.S.
Government Securities
|
$
|
57,032,781
|
$
|
0
|
$
|
57,032,781
|
$
|
0
|
|||||
Portfolio
Companies
|
$
|
63,942,445
|
$
|
0
|
$
|
0
|
$
|
63,942,445
|
|||||
Total
|
$
|
120,975,226
|
$
|
0
|
$
|
57,032,781
|
$
|
63,942,445
|
Fair
Value Measurements Using Significant
Unobservable
Inputs
(Level 3)
|
||||
Portfolio
Companies
|
||||
Beginning
Balance, July 1, 2008
|
$
|
92,335,524
|
||
Total
realized losses included in changes in net assets
|
(4,371,987
|
)
|
||
Total
unrealized losses included in changes in net assets
|
(27,847,181
|
)
|
||
Purchases
and interest on bridge notes
|
3,832,612
|
|||
Disposals
|
(6,523
|
)
|
||
Ending
Balance, September 30, 2008
|
$
|
63,942,445
|
||
The
amount of total losses for the period
|
||||
included
in changes in net assets attributable to the
|
||||
change
in unrealized gains or losses relating to
|
||||
assets
still held at the reporting date
|
$
|
(32,125,681
|
)
|
Fair
Value Measurements Using Significant
UnobservableInputs
(Level 3)
|
||||
Portfolio
Companies
|
||||
Beginning
Balance, January 1, 2008
|
$
|
78,110,384
|
||
Total
realized losses included in changes in net assets
|
(9,386,640
|
)
|
||
Total
unrealized losses included in changes in net assets
|
(19,404,273
|
)
|
||
Purchases
and interest on bridge notes
|
14,756,711
|
|||
Disposals
|
(133,737
|
)
|
||
Ending
Balance, September 30, 2008
|
$
|
63,942,445
|
||
The
amount of total losses for the period
|
||||
included
in changes in net assets attributable to the
|
||||
change
in unrealized gains or losses relating to
|
||||
assets
still held at the reporting date
|
$
|
(28,697,427
|
)
|
Weighted
|
|||||||||||||||||||||||
Average
|
|||||||||||||||||||||||
Number
|
Expected
|
Expected
|
Expected
|
Risk-free
|
Fair
|
||||||||||||||||||
of
Options
|
Term
|
Volatility
|
Dividend
|
Interest
|
Value
|
||||||||||||||||||
Type
of Award
|
Term
|
Granted
|
in
Yrs
|
Factor
|
Yield
|
Rates
|
Per
Share
|
||||||||||||||||
Non-qualified
stock options
|
9.78
Years
|
348,032
|
6.14
|
57.1%
|
0%
|
2.62%
|
$
|
3.45
|
|||||||||||||||
Total
|
348,032
|
$
|
3.45
|
Weighted
|
|||||||||||||||||||||||
Average
|
|||||||||||||||||||||||
Number
|
Expected
|
Expected
|
Expected
|
Risk-free
|
Fair
|
||||||||||||||||||
of
Options
|
Term
|
Volatility
|
Dividend
|
Interest
|
Value
|
||||||||||||||||||
Type
of Award
|
Term
|
Granted
|
in
Yrs
|
Factor
|
Yield
|
Rates
|
Per
Share
|
||||||||||||||||
Non-qualified
stock options
|
9.38
Years
|
976,685
|
5.94%
|
55.1%
|
|
0%
|
3.40%
|
|
$
|
3.79
|
|||||||||||||
Non-qualified
stock options
|
9.38
Years
|
187,039
|
4.88%
|
50.6%
|
0%
|
3.24%
|
|
$
|
3.25
|
||||||||||||||
|
|||||||||||||||||||||||
Total
|
1,163,724
|
Weighted
|
||||||||||||||||
Weighted
|
Weighted
|
Average
|
||||||||||||||
Average
|
Average
|
Remaining
|
Aggregate
|
|||||||||||||
Exercise
|
Grant
Date
|
Contractual
|
Intrinsic
|
|||||||||||||
Shares
|
Price
|
Fair
Value
|
Term
(Yrs)
|
Value
|
||||||||||||
Options
Outstanding at
January
1, 2008
|
3,967,744
|
$
|
10.54
|
$
|
4.77
|
|||||||||||
Granted
|
1,511,756
|
$
|
6.75
|
$
|
3.64
|
9.25
|
||||||||||
Exercised
|
0
|
$
|
0
|
$
|
0
|
|||||||||||
Forfeited
or Expired
|
(465,087
|
)
|
$
|
10.15
|
$
|
2.70
|
||||||||||
Options
Outstanding at
September
30, 2008
|
5,014,413
|
$
|
9.43
|
$
|
4.62
|
5.82
|
$
|
69,357
|
||||||||
Options
Exercisable at
September
30, 2008
|
1,760,544
|
$
|
10.42
|
$
|
5.34
|
4.89
|
$
|
0
|
||||||||
Options
Exercisable and Expected to be
Exercisable
at September 30, 2008
|
4,943,565
|
$
|
9.42
|
$
|
4.59
|
5.80
|
$
|
69,357
|
For
the Three Months
Ended
September 30
|
For
the Nine Months
Ended
September 30
|
||||||||||||
2008
|
2007
|
2008
|
2007
|
||||||||||
Numerator
for (decrease) increase in net assets per share
|
$
|
(34,032,747
|
)
|
$
|
604,237
|
$
|
(35,967,073
|
)
|
$
|
(9,879,567
|
)
|
||
Denominator
for basic and diluted weighted average shares
|
25,859,573
|
23,235,023
|
24,271,270
|
22,084,893
|
|||||||||
Basic
and diluted net (decrease) increase in net assets per share resulting
from
operations
|
$
|
(1.32
|
)
|
$
|
0.03
|
$
|
(1.48
|
)
|
$
|
(0.45
|
)
|
HARRIS
& HARRIS GROUP, INC.
FINANCIAL
HIGHLIGHTS
(Unaudited)
|
Three
Months Ended Sept. 30
|
Nine
Months Ended Sept. 30
|
||||||||||||
2008
|
2007
|
2008
|
2007
|
||||||||||
Per
Share Operating Performance
|
|||||||||||||
Net
asset value per share, beginning
|
|||||||||||||
of
period
|
$
|
5.95
|
$
|
5.54
|
$
|
5.93
|
$
|
5.42
|
|||||
Net
operating (loss)*
|
(0.09
|
)
|
(0.13
|
)
|
(0.30
|
)
|
(0.39
|
)
|
|||||
Net
realized income (loss)
|
|||||||||||||
on
investments*(1)
|
(0.17
|
)
|
0.00
|
(0.36
|
)
|
(0.01
|
)
|
||||||
Net
(increase) decrease in unrealized
|
|||||||||||||
depreciation
as a result of sales*(1)
|
0.17
|
0.00
|
0.41
|
(0.00
|
)
|
||||||||
Net
decrease (increase) in unrealized
|
|||||||||||||
depreciation
on investments held*
|
(1.23
|
)
|
0.16
|
(1.17
|
)
|
(0.05
|
)
|
||||||
Total
from investment operations*
|
(1.32
|
)
|
0.03
|
(1.42
|
)
|
(0.45
|
)
|
||||||
Net
increase as a result of stock-
|
|||||||||||||
based
compensation*
|
0.05
|
0.10
|
0.18
|
0.26
|
|||||||||
(Decrease)
Increase as a result of stock-
|
|||||||||||||
offering,
net of offering expenses
|
0.00
|
0.00
|
(0.01
|
)
|
0.26
|
||||||||
Net
increase as a result of proceeds
|
|||||||||||||
from
exercise of options
|
0.00
|
0.02
|
0.00
|
0.20
|
|||||||||
Total
increase from capital
|
|||||||||||||
stock transactions
|
0.05
|
0.12
|
0.17
|
0.72
|
|||||||||
Net
asset value per share, end
|
|||||||||||||
of
period
|
$
|
4.68
|
$
|
5.69
|
$
|
4.68
|
$
|
5.69
|
|||||
Stock
price per share, end
|
|||||||||||||
of
period
|
$
|
6.38
|
$
|
10.64
|
$
|
6.38
|
$
|
10.64
|
|||||
Total
return based on stock price (2)
|
6.33
|
%
|
(5.00
|
)%
|
(27.42
|
)%
|
(11.99
|
)%
|
|||||
Supplemental
Data:
|
|||||||||||||
Net
assets, end of period
|
$
|
121,113,660
|
$
|
132,442,597
|
$
|
121,113,660
|
$
|
132,442,597
|
|||||
Ratio
of expenses to average
|
|||||||||||||
net
assets (2)
|
2.0
|
%
|
3.0
|
%
|
6.5
|
%
|
8.8
|
%
|
|||||
Ratio
of net operating income (loss) to
|
|||||||||||||
average
net assets (2)
|
(1.6
|
)%
|
(2.4
|
)%
|
(5.3
|
)%
|
(7.1
|
)%
|
|||||
Cash
dividend paid per share
|
$
|
0.00
|
$
|
0.00
|
$
|
0.00
|
$
|
0.00
|
|||||
Deemed
dividend per share
|
$
|
0.00
|
$
|
0.00
|
$
|
0.00
|
$
|
0.00
|
|||||
Number
of shares outstanding,
|
|||||||||||||
end
of period
|
25,859,573
|
23,271,858
|
25,859,573
|
23,271,858
|
|||||||||
2001
|
2002
|
2003
|
2004
|
2005
|
2006
|
2007
|
YTD
9/30/08
|
||||||||||||||||||
Total
Incremental Investments
|
$
|
489,999
|
$
|
6,240,118
|
$
|
3,812,600
|
$
|
14,837,846
|
$
|
16,251,339
|
$
|
24,408,187
|
$
|
20,595,161
|
$
|
14,635,185
|
|||||||||
No.
of New Investments
|
1
|
7
|
5
|
8
|
4
|
6
|
7
|
2
|
|||||||||||||||||
No.
of Follow-On Investment Rounds
|
0
|
1
|
5
|
21
|
13
|
14
|
20
|
19
|
|||||||||||||||||
No.
of Rounds Led
|
0
|
1
|
0
|
2
|
0
|
7
|
3
|
3
|
|||||||||||||||||
Average
Dollar Amount - Initial
|
$
|
489,999
|
$
|
784,303
|
$
|
437,156
|
$
|
911,625
|
$
|
1,575,000
|
$
|
2,383,424
|
$
|
1,086,441
|
$
|
1,122,250
|
|||||||||
Average
Dollar Amount - Follow-On
|
N/A
|
$
|
750,000
|
$
|
325,364
|
$
|
359,278
|
$
|
765,488
|
$
|
721,974
|
$
|
649,504
|
$
|
652,141
|
2001
|
2002
|
2003
|
2004
|
2005
|
2006
|
2007
|
YTD
9/30/08
|
||||||||||||||||||
Net
Asset Value, BOY
|
$
|
31,833,475
|
$
|
24,334,770
|
$
|
27,256,046
|
$
|
40,682,738
|
$
|
74,744,799
|
$
|
117,987,742
|
$
|
113,930,303
|
$
|
138,363,344
|
|||||||||
Gross
Write-Downs During Year
|
$
|
(2,532,730
|
)
|
$
|
(5,400,005
|
)
|
$
|
(1,256,102
|
)
|
$
|
(5,711,229
|
)
|
$
|
(3,450,236
|
)
|
$
|
(4,211,323
|
)
|
$
|
(7,810,794
|
)
|
$
|
(29,518,963
|
)
|
|
Gross
Write-Ups During Year
|
$
|
1,528,866
|
$
|
285
|
$
|
847,578
|
$
|
6,288,397
|
$
|
23,485,176
|
$
|
279,363
|
$
|
11,694,618
|
$
|
821,365
|
|||||||||
Gross
Write-Downs as a Percentage of Net Asset Value, BOY
|
-7.96
|
%
|
-22.19
|
%
|
-4.61
|
%
|
-14.04
|
%
|
-4.62
|
%
|
-3.57
|
%
|
-6.86
|
%
|
-21.33
|
%
|
|||||||||
Gross
Write-Ups as a Percentage of Net Asset Value, BOY
|
4.80
|
%
|
0.00
|
%
|
3.11
|
%
|
15.46
|
%
|
31.42
|
%
|
0.24
|
%
|
10.26
|
%
|
0.59
|
%
|
|||||||||
Net
Write-Downs/Write-Ups as a Percentage of Net Asset Value,
BOY
|
-3.15
|
%
|
-22.19
|
%
|
-1.49
|
%
|
1.42
|
%
|
26.8
|
%
|
-3.33
|
%
|
3.40
|
%
|
-20.74
|
%
|
Investment
|
Amount
of
Write-Down
|
||
Adesto
Technologies Corporation
|
$1,100,000
|
||
Ancora
Pharmaceuticals, Inc.
|
400,000
|
||
BioVex
Group, Inc.
|
1,250,000
|
||
BridgeLux,
Inc.
|
983
|
||
Cambrios
Technologies Corporation
|
1,297,012
|
||
Crystal
IS, Inc.
|
997,401
|
||
CSwitch
Corporation
|
4,519,350
|
||
D-Wave
Systems, Inc.
|
8,397
|
||
Ensemble
Discovery Corporation
|
1,000,000
|
||
Exponential
Business Development Company
|
168
|
||
Innovalight,
Inc.
|
1,927,946
|
||
Kereos,
Inc.
|
90,371
|
||
Mersana
Therapeutics, Inc.
|
1,006,602
|
||
Metabolon,
Inc.
|
1,395,874
|
||
Molecular
Imprints, Inc.
|
2,296,178
|
||
NanoGram
Corporation
|
2,943,611
|
||
Nanomix,
Inc.
|
691,090
|
||
Neophotonics
Corporation
|
2,364,458
|
||
Nextreme
Thermal Solutions, Inc.
|
2,182,233
|
||
Polatis,
Inc.
|
276,526
|
||
PolyRemedy,
Inc.
|
122,250
|
||
Siluria
Technologies, Inc.
|
120,542
|
||
Solazyme,
Inc.
|
5,378,325
|
||
Starfire
Systems, Inc.
|
690,000
|
Investment
|
Amount
of
Write-Down
|
||
Adesto
Technologies Corporation
|
$1,100,000
|
||
Ancora
Pharmaceuticals, Inc.
|
299,439
|
||
BioVex
Group, Inc.
|
1,250,000
|
||
BridgeLux,
Inc.
|
2,721
|
||
Cambrios
Technologies Corporation
|
1,297,012
|
||
Crystal
IS, Inc.
|
997,796
|
||
CSwitch
Corporation
|
4,519,350
|
||
Ensemble
Discovery Corporation
|
1,000,000
|
||
Innovalight,
Inc.
|
1,927,946
|
||
Kereos,
Inc.
|
159,743
|
||
Mersana
Therapeutics, Inc.
|
1,015,673
|
||
Metabolon,
Inc.
|
2,132,386
|
||
Molecular
Imprints, Inc.
|
2,468,095
|
||
NanoGram
Corporation
|
2,943,611
|
||
Nanomix,
Inc.
|
980,418
|
||
Neophotonics
Corporation
|
3,401,952
|
||
Nextreme
Thermal Solutions, Inc.
|
2,182,133
|
||
Polatis,
Inc.
|
276,526
|
||
PolyRemedy,
Inc.
|
122,250
|
||
Questech
Corporation
|
398,283
|
||
Siluria
Technologies, Inc.
|
120,542
|
||
Starfire
Systems, Inc.
|
750,000
|
New
Investment
|
Amount
|
|||
PolyRemedy,
Inc.
|
$
|
244,500
|
||
Laser
Light Engines, Inc.
|
$
|
2,000,000
|
||
Follow-on
Investment
|
||||
Adesto
Technologies Corporation
|
$
|
1,052,174
|
||
Ancora
Pharmaceuticals Inc.
|
$
|
800,000
|
||
BridgeLux,
Inc.
|
$
|
1,000,001
|
||
CSwitch
Corporation
|
$
|
986,821
|
||
D-Wave
Systems, Inc.
|
$
|
736,019
|
||
D-Wave
Systems, Inc.
|
$
|
487,804
|
||
Ensemble
Discovery Corporation
|
$
|
250,286
|
||
Mersana
Therapeutics, Inc.
|
$
|
200,000
|
||
Metabolon,
Inc.
|
$
|
1,000,000
|
||
NeoPhotonics
Corporation
|
$
|
200,000
|
||
Nextreme
Thermal Solutions, Inc.
|
$
|
377,580
|
||
Nextreme
Thermal Solutions, Inc.
|
$
|
200,000
|
||
Nextreme
Thermal Solutions, Inc.
|
$
|
200,000
|
||
Nextreme
Thermal Solutions, Inc.
|
$
|
800,000
|
||
Nextreme
Thermal Solutions, Inc.
|
$
|
1,050,000
|
||
Phoenix
Molecular Corporation
|
$
|
25,000
|
||
Phoenix
Molecular Corporation
|
$
|
25,000
|
||
Solazyme,
Inc.
|
$
|
2,000,000
|
||
Solazyme,
Inc.
|
$
|
1,000,000
|
||
Total
|
$
|
14,635,185
|
September
30, 2008
|
December
31, 2007
|
||||||
Venture
capital investments,
|
|||||||
at
cost
|
$
|
87,913,862
|
$
|
82,677,528
|
|||
Net
unrealized depreciation(1)
|
23,971,417
|
4,567,144
|
|||||
Venture
capital investments,
|
|||||||
at
fair value
|
$
|
63,942,445
|
$
|
78,110,384
|
|||
|
September
30, 2008
|
December
31, 2007
|
|||||
U.S.
government
|
|||||||
obligations,
at cost
|
$
|
56,206,231
|
$
|
59,552,933
|
|||
Net
unrealized appreciation(1)
|
826,550
|
640,660
|
|||||
U.S.
government
|
|||||||
obligations,
at value
|
$
|
57,032,781
|
$
|
60,193,593
|
September
30, 2008
|
December
31, 2007
|
||||||
Category
|
|||||||
Tiny
Technology
|
99.9%
|
|
99.9%
|
|
|||
Other
Venture Capital Investments
|
0.1%
|
|
0.1%
|
|
|||
Total
Venture Capital Investments
|
100.0%
|
|
100.0%
|
|
·
|
Level
1:
Unadjusted quoted prices in active markets for identical assets or
liabilities.
|
|
·
|
Level
2:
Quoted prices in active markets for similar assets or liabilities,
or
quoted prices for identical or similar assets or liabilities in markets
that are not active, or inputs other than quoted prices that are
observable for the asset or liability.
|
·
|
Level
3:
Unobservable inputs for the asset or
liability.
|
Item
6.
|
Exhibits
|
|
10.1*
|
Lease
dated July 1, 2008 by and between Jack Rominger, Tommie Plemons and
Dale
Denson as Lessor and Harris & Harris Group, Inc., a New York
corporation, as Lessee.
|
|
10.2
|
Nonsolicitation
and Noncompetition Agreement between the Company and Charles E. Harris,
dated July 31, 2008, incorporated by reference as Exhibit 10 to the
Company’s Form
8-K (File No. 814-00176) filed on August 1, 2008.
|
|
31.01*
|
Certification
of CEO pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.
|
|
31.02*
|
Certification
of CFO pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.
|
|
32*
|
Certification
of CEO and CFO pursuant to 18 U.S.C. Section 1350, as adopted pursuant
to
Section 906 of the Sarbanes-Oxley Act of
2002.
|
Harris
& Harris Group, Inc.
|
||
/s/
|
Daniel
B. Wolfe
|
|
By:
|
Daniel
B. Wolfe
|
|
|
Chief
Financial Officer
|
|
/s/
|
Patricia
N. Egan
|
|
By:
|
Patricia
N. Egan
|
|
Chief
Accounting Officer
|
||
and
Vice President
|
Exhibit
No.
|
Description
|
10.1
|
Lease
dated July 1, 2008 by and between Jack Rominger, Tommie Plemons and
Dale
Denson as Lessor and Harris & Harris Group, Inc., a New York
corporation, as Lessee.
|
31.01
|
Certification
of CEO pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.
|
31.02
|
Certification
of CFO pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.
|
32
|
Certification
of CEO and CFO pursuant to 18 U.S.C. Section 1350, as adopted pursuant
to
Section 906 of the Sarbanes-Oxley Act of
2002.
|