New York
|
13-3119827
|
(State
or Other Jurisdiction of
Incorporation
or Organization)
|
(I.R.S.
Employer Identification No.)
|
111 West 57th Street, New York, New York
|
10019
|
(Address
of Principal Executive Offices)
|
(Zip
Code)
|
Large
accelerated filer ¨
|
Accelerated
filer x
|
Non-accelerated
filer ¨
|
Smaller
reporting company ¨
|
Class
|
Outstanding at November 6,
2009
|
|
Common
Stock, $0.01 par value per share
|
30,854,258
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
|
Historical
Investment Track Record
|
34
|
Age
of Current Portfolio and Investment Pace
|
34
|
Commercialization
of Nanotechnology by Our Portfolio Companies
|
36
|
Maturity
of Current Venture Capital Portfolio
|
37
|
Current
Business Environment
|
38
|
Valuation
of Investments
|
40
|
Investment
Objective
|
42
|
Results
of Operations
|
42
|
Financial
Condition
|
49
|
Liquidity
|
51
|
Capital
Resources
|
52
|
Critical
Accounting Policies
|
52
|
Recent
Developments – Portfolio Companies
|
55
|
Recent
Developments – Other
|
55
|
Forward-Looking
Statements
|
56
|
Item
3. Quantitative and Qualitative Disclosures About Market
Risk
|
56
|
Item
4. Controls and Procedures
|
57
|
PART
II. OTHER INFORMATION
|
|
Item
1A. Risk Factors
|
59
|
Item
6. Exhibits
|
61
|
Signatures
|
62
|
Exhibit
Index
|
63
|
HARRIS
& HARRIS GROUP, INC.
CONSOLIDATED
STATEMENTS OF ASSETS AND
LIABILITIES
|
September
30, 2009
|
December
31, 2008
|
|||||||
(Unaudited)
|
||||||||
Investments,
in portfolio securities at value:
|
||||||||
Unaffiliated
companies (cost: $26,648,390 and
$24,208,281, respectively) |
$ | 16,892,041 | $ | 12,086,503 | ||||
Non-controlled
affiliated companies (cost: $60,109,424
and $60,796,720, respectively) |
48,920,403 | 39,650,187 | ||||||
Controlled
affiliated companies (cost: $6,996,458
and $6,085,000, respectively) |
4,063,766 | 5,228,463 | ||||||
Publicly
traded securities (cost: $199,432 and $0, respectively)
|
173,405 | 0 | ||||||
Total,
investments in private portfolio companies and
public securities at value |
||||||||
(cost:
$93,953,704 and $91,090,001, respectively)
|
$ | 70,049,615 | $ | 56,965,153 | ||||
Investments,
in U.S. Treasury obligations at value
|
||||||||
(cost:
$66,960,793 and $52,956,288, respectively)
|
66,971,440 | 52,983,940 | ||||||
Cash
and cash equivalents
|
1,495,970 | 692,309 | ||||||
Restricted
funds
|
1,985 | 191,955 | ||||||
Interest
receivable
|
6,517 | 56 | ||||||
Prepaid
expenses
|
148,653 | 484,567 | ||||||
Other
assets
|
462,253 | 309,621 | ||||||
Total
assets
|
$ | 139,136,433 | $ | 111,627,601 |
Payable
for investments purchased
|
$ | 25,720,198 | $ | 0 | ||||
Accounts
payable and accrued liabilities
|
1,880,616 | 2,088,348 | ||||||
Deferred
rent
|
3,413 | 8,140 | ||||||
Total
liabilities
|
27,604,227 | 2,096,488 | ||||||
Net
assets
|
$ | 111,532,206 | $ | 109,531,113 | ||||
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
9/30/09 and 12/31/08; 27,795,498 issued at 9/30/09 and 27,688,313 issued at 12/31/08 |
277,956 | 276,884 | ||||||
Additional
paid in capital (Note 8)
|
184,077,904 | 181,251,507 | ||||||
Accumulated
net operating and realized loss
|
(45,524,681 | ) | (34,494,551 | ) | ||||
Accumulated
unrealized depreciation of investments
|
(23,893,442 | ) | (34,097,196 | ) | ||||
Treasury
stock, at cost (1,828,740 shares at 9/30/09 and 12/31/08)
|
(3,405,531 | ) | (3,405,531 | ) | ||||
Net
assets
|
$ | 111,532,206 | $ | 109,531,113 | ||||
Shares
outstanding
|
25,966,758 | 25,859,573 | ||||||
Net
asset value per outstanding share
|
$ | 4.30 | $ | 4.24 |
HARRIS
& HARRIS GROUP, INC.
CONSOLIDATED
STATEMENTS OF OPERATIONS
(Unaudited)
|
Three Months Ended Sept. 30
|
Nine Months Ended Sept. 30
|
|||||||||||||||
2009
|
2008
|
2009
|
2008
|
|||||||||||||
Investment
income:
|
||||||||||||||||
Interest
from:
|
||||||||||||||||
Fixed-income
securities and bridge notes
|
$ | 99,677 | $ | 585,418 | $ | 138,862 | $ | 1,626,176 | ||||||||
Miscellaneous
income
|
6,000 | 2,500 | 27,088 | 5,669 | ||||||||||||
Total
investment income
|
105,677 | 587,918 | 165,950 | 1,631,845 | ||||||||||||
Expenses:
|
||||||||||||||||
Salaries,
benefits and stock-based compensation (Note 6)
|
1,727,743 | 2,205,980 | 4,621,680 | 7,101,077 | ||||||||||||
Administration
and operations
|
225,044 | 252,884 | 746,640 | 838,100 | ||||||||||||
Professional
fees
|
190,942 | 138,461 | 558,483 | 478,559 | ||||||||||||
Rent
|
79,617 | 80,358 | 236,678 | 197,960 | ||||||||||||
Directors’
fees and expenses
|
79,136 | 79,318 | 252,745 | 263,633 | ||||||||||||
Depreciation
|
12,633 | 13,447 | 38,370 | 41,251 | ||||||||||||
Custodian
fees
|
33,515 | 14,209 | 51,457 | 26,905 | ||||||||||||
Total
expenses
|
2,348,630 | 2,784,657 | 6,506,053 | 8,947,485 | ||||||||||||
Net
operating loss
|
(2,242,953 | ) | (2,196,739 | ) | (6,340,103 | ) | (7,315,640 | ) | ||||||||
Net
realized (loss) gain from investments:
|
||||||||||||||||
Realized
(loss) gain from:
|
||||||||||||||||
Unaffiliated
companies
|
0 | 0 | (1,514,330 | ) | 3,420 | |||||||||||
Non-Controlled
affiliated companies
|
(3,176,125 | ) | (1,478,500 | ) | (3,176,125 | ) | (6,493,153 | ) | ||||||||
Controlled
affiliated companies
|
0 | (2,893,487 | ) | 0 | (2,893,487 | ) | ||||||||||
U.S.
Treasury obligations/other
|
0 | (1,137 | ) | (325 | ) | (862 | ) | |||||||||
Realized
loss from investments
|
(3,176,125 | ) | (4,373,124 | ) | (4,690,780 | ) | (9,384,082 | ) | ||||||||
Income
tax (benefit) expense (Note 7)
|
(2,862 | ) | 2,102 | (753 | ) | 48,968 | ||||||||||
Net
realized loss from investments
|
(3,173,263 | ) | (4,375,226 | ) | (4,690,027 | ) | (9,433,050 | ) | ||||||||
Net
decrease (increase) in unrealized depreciation on
investments:
|
||||||||||||||||
Change
as a result of investment sales
|
3,180,240 | 4,278,500 | 4,691,282 | 9,293,153 | ||||||||||||
Change
on investments held
|
1,939,657 | (31,739,282 | ) | 5,512,472 | (28,511,536 | ) | ||||||||||
Net
decrease (increase) in unrealized depreciation on
investments
|
5,119,897 | (27,460,782 | ) | 10,203,754 | (19,218,383 | ) | ||||||||||
Net
decrease in net assets resulting from operations
|
$ | (296,319 | ) | $ | (34,032,747 | ) | $ | (826,376 | ) | $ | (35,967,073 | ) | ||||
Per
average basic and diluted outstanding share
|
$ | (0.01 | ) | $ | (1.32 | ) | $ | (0.03 | ) | $ | (1.48 | ) | ||||
Average
outstanding shares
|
25,866,983 | 25,859,573 | 25,862,070 | 24,271,270 |
Nine
Months Ended
September
30, 2009
|
Nine
Months Ended
September
30, 2008
|
|||||||
Cash
flows used in operating activities:
|
||||||||
Net
decrease in net assets resulting from operations
|
$ | (826,376 | ) | $ | (35,967,073 | ) | ||
Adjustments
to reconcile net decrease in net assets resulting
from operations to net cash used in operating activities: |
||||||||
Net
realized and unrealized (gain) loss on investments
|
(5,512,974 | ) | 28,602,465 | |||||
Depreciation
of fixed assets, amortization of premium or
discount on U.S. government securities, and bridge note interest |
39,784 | (160,283 | ) | |||||
Stock-based
compensation expense
|
2,425,525 | 4,333,892 | ||||||
Changes
in assets and liabilities:
|
||||||||
Restricted
funds
|
189,970 | 2,542,356 | ||||||
Receivable
from portfolio company
|
0 | 524 | ||||||
Other
receivables
|
(217 | ) | 0 | |||||
Interest
receivable
|
2,044 | 213,520 | ||||||
Income
tax receivable
|
(3,353 | ) | 0 | |||||
Prepaid
expenses
|
335,914 | 340,152 | ||||||
Other
assets
|
(186,116 | ) | 1,619 | |||||
Accounts
payable and accrued liabilities
|
(207,732 | ) | (2,562,338 | ) | ||||
Deferred
rent
|
(4,727 | ) | (4,810 | ) | ||||
Net
cash used in operating activities
|
(3,748,258 | ) | (2,659,976 | ) | ||||
Cash
flows from investing activities:
|
||||||||
Purchase
of U.S. government securities
|
(112,308,457 | ) | (75,932,334 | ) | ||||
Sale
of U.S. government securities
|
123,988,254 | 79,326,692 | ||||||
Investment
in private placements and notes
|
(7,535,874 | ) | (14,635,185 | ) | ||||
Proceeds
from sale of investments
|
7,365 | 140,257 | ||||||
Purchase
of fixed assets
|
(1,313 | ) | (15,046 | ) | ||||
Net
cash provided by (used in) investing activities
|
4,149,975 | (11,115,616 | ) | |||||
Cash
flows from financing activities:
|
||||||||
Proceeds
from stock option exercises (Note 6)
|
401,944 | 0 | ||||||
Proceeds
from stock offering (Note 8)
|
0 | 14,383,497 | ||||||
Net
cash provided by financing activities
|
401,944 | 14,383,497 | ||||||
Net
increase in cash and cash equivalents:
|
||||||||
Cash
and cash equivalents at beginning of the period
|
692,309 | 330,009 | ||||||
Cash
and cash equivalents at end of the period
|
1,495,970 | 937,914 | ||||||
Net
increase in cash and cash equivalents
|
$ | 803,661 | $ | 607,905 | ||||
Supplemental
disclosures of cash flow information:
|
||||||||
Income
taxes paid
|
$ | 2,179 | $ | 48,427 |
HARRIS
& HARRIS GROUP, INC.
CONSOLIDATED
STATEMENTS OF CHANGES IN NET ASSETS
|
Nine
Months Ended
|
Year
Ended
|
|||||||
September
30, 2009
|
December
31, 2008
|
|||||||
(Unaudited)
|
||||||||
Changes
in net assets from operations:
|
||||||||
Net
operating loss
|
$ | (6,340,103 | ) | $ | (10,687,151 | ) | ||
Net
realized loss on investments
|
(4,690,027 | ) | (8,323,634 | ) | ||||
Net
decrease in unrealized depreciation
on investments as a result of sales |
4,691,282 | 8,292,072 | ||||||
Net
decrease (increase) in unrealized
depreciation on investments held |
5,512,472 | (38,462,784 | ) | |||||
Net
decrease in net assets resulting
from operations |
(826,376 | ) | (49,181,497 | ) | ||||
Changes
in net assets from capital
stock transactions: |
||||||||
Issuance
of common stock
|
1,072 | 25,450 | ||||||
Additional
paid-in capital on common
stock issued |
400,872 | 14,358,047 | ||||||
Stock-based
compensation expense
|
2,425,525 | 5,965,769 | ||||||
Net
increase in net assets resulting from
capital stock transactions |
2,827,469 | 20,349,266 | ||||||
Net
increase (decrease) in net assets
|
2,001,093 | (28,832,231 | ) | |||||
Net
assets:
|
||||||||
Beginning
of the period
|
109,531,113 | 138,363,344 | ||||||
End
of the period
|
$ | 111,532,206 | $ | 109,531,113 |
HARRIS & HARRIS GROUP,
INC.
CONSOLIDATED
SCHEDULE OF INVESTMENTS AS OF SEPTEMBER 30, 2009
(Unaudited)
|
Method
of
|
Shares/
|
||||||||
Valuation (1)
|
Principal
|
Value
|
|||||||
Investments
in Unaffiliated Companies (2)(3)(4)– 15.3% of net assets at
value
|
|||||||||
Private
Placement Portfolio (Illiquid) – 15.1% of net assets at
value
|
|||||||||
BioVex
Group, Inc. (5)(6)(7)(8) -- Developing novel biologics
for treatment of cancer and infectious disease |
|||||||||
Series
E Convertible Preferred Stock
|
(M)
|
2,799,552 | $ | 470,325 | |||||
Series
F Convertible Preferred Stock
|
(M)
|
2,011,110 | 388,669 | ||||||
Warrants
at $0.241576 expiring 11/13/15
|
( I
)
|
248,120 | 18,838 | ||||||
877,832 | |||||||||
Cobalt
Technologies, Inc. (5)(6)(7)(9) -- Developing processes for
making biobutanol through biomass fermentation |
|||||||||
Series
C Convertible Preferred Stock
|
(M)
|
352,112 | 375,000 | ||||||
D-Wave
Systems, Inc. (5)(6)(7)(10) -- Developing high-
performance quantum computing systems |
|||||||||
Series
B Convertible Preferred Stock
|
(M)
|
1,144,869 | 1,184,568 | ||||||
Series
C Convertible Preferred Stock
|
(M)
|
450,450 | 466,070 | ||||||
Series
D Convertible Preferred Stock
|
(M)
|
1,533,395 | 1,586,566 | ||||||
3,237,204 | |||||||||
Molecular
Imprints, Inc. (5)(6) -- Manufacturing nanoimprint
lithography capital equipment |
|||||||||
Series
B Convertible Preferred Stock
|
(M)
|
1,333,333 | 1,625,000 | ||||||
Series
C Convertible Preferred Stock
|
(M)
|
1,250,000 | 1,523,438 | ||||||
Warrants
at $2.00 expiring 12/31/11
|
( I
)
|
125,000 | 48,750 | ||||||
3,197,188 | |||||||||
Nanosys,
Inc. (5)(6) -- Developing zero and one-dimensional
inorganic nanometer-scale materials and devices |
|||||||||
Series
C Convertible Preferred Stock
|
(M)
|
803,428 | 1,185,056 | ||||||
Series
D Convertible Preferred Stock
|
(M)
|
1,016,950 | 1,500,001 | ||||||
2,685,057 |
HARRIS & HARRIS GROUP,
INC.
CONSOLIDATED SCHEDULE OF
INVESTMENTS AS OF SEPTEMBER 30,
2009
(Unaudited)
|
Method
of
|
Shares/
|
||||||||
Valuation (1)
|
Principal
|
Value
|
|||||||
Investments
in Unaffiliated Companies (2)(3)(4)– 15.3% of net assets at value
(Cont.)
|
|||||||||
Private
Placement Portfolio (Illiquid) – 15.1% of net assets at value
(Cont.)
|
|||||||||
Nantero,
Inc. (5)(6)(7) -- 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 | |||||||||
NeoPhotonics
Corporation (5)(6) -- Developing and manufacturing
optical devices and components Common
Stock
|
(M)
|
716,195 | 413,244 | ||||||
Series
1 Convertible Preferred Stock
|
(M)
|
1,831,256 | 1,056,634 | ||||||
Series
2 Convertible Preferred Stock
|
(M)
|
741,898 | 428,075 | ||||||
Series
3 Convertible Preferred Stock
|
(M)
|
2,750,000 | 1,586,750 | ||||||
Series
X Convertible Preferred Stock
|
(M)
|
2,000 | 230,800 | ||||||
Warrants
at $0.15 expiring 01/26/10
|
( I
)
|
16,364 | 7,004 | ||||||
Warrants
at $0.15 expiring 12/05/10
|
( I
)
|
14,063 | 6,272 | ||||||
3,728,779 | |||||||||
Polatis,
Inc. (5)(6)(7) -- 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. (5)(6)(7) -- Developing a robotic
manufacturing platform for wound treatment patches |
|||||||||
Series
B-1 Convertible Preferred Stock
|
(M)
|
287,647 | 93,866 | ||||||
Series
B-2 Convertible Preferred Stock
|
(M)
|
676,147 | 121,706 | ||||||
215,572 |
HARRIS & HARRIS GROUP,
INC.
CONSOLIDATED SCHEDULE OF
INVESTMENTS AS OF SEPTEMBER 30,
2009
(Unaudited)
|
Method
of
|
Shares/
|
||||||||
Valuation (1)
|
Principal
|
Value
|
|||||||
Investments
in Unaffiliated Companies (2)(3)(4)– 15.3% of net assets at value
(Cont.)
|
|||||||||
Private
Placement Portfolio (Illiquid) – 15.1% of net assets at value
(Cont.)
|
|||||||||
Siluria
Technologies, Inc. (5)(6)(7) -- Developing next-generation
nanomaterials |
|||||||||
Series
S-2 Convertible Preferred Stock
|
(M)
|
612,061 | $ | 204,000 | |||||
Starfire
Systems, Inc. (5)(6)(11) -- Producing ceramic-forming polymers
Common Stock |
(M)
|
375,000 | 0 | ||||||
Series
A-1 Convertible Preferred Stock
|
(M)
|
600,000 | 0 | ||||||
0 | |||||||||
TetraVitae
Bioscience, Inc. (5)(6)(7)(12) -- Developing methods of
producing alternative chemicals and fuels through biomass fermentation |
|||||||||
Series
B Convertible Preferred Stock
|
(M)
|
118,804 | 125,000 | ||||||
Total
Unaffiliated Private Placement Portfolio (cost:
$26,648,390)
|
$ | 16,892,041 | |||||||
Publicly
Traded Portfolio (Liquid) – 0.2% of net assets at value
|
|||||||||
Orthovita,
Inc. (6)(13) -- Developing
materials and devices
for orthopedic medical implant applications Common
Stock
|
(M)
|
39,500 | 173,405 | ||||||
Total
Unaffiliated Publicly Traded Portfolio (cost: $199,432)
|
$ | 173,405 | |||||||
Total
Investments in Unaffiliated Companies (cost: $26,847,822)
|
$ | 17,065,446 |
|
The
accompanying notes are an integral part of these consolidated financial
statements.
|
HARRIS & HARRIS GROUP,
INC.
CONSOLIDATED SCHEDULE OF
INVESTMENTS AS OF SEPTEMBER 30,
2009
(Unaudited)
|
Method
of
|
Shares/
|
||||||||
Valuation (1)
|
Principal
|
Value
|
|||||||
Investments
in Non-Controlled Affiliated Companies (2)(14) – 43.9% of net assets at
value
|
|||||||||
Private Placement
Portfolio (Illiquid) – 43.9% of net
assets at
value
|
|||||||||
Adesto
Technologies Corporation (5)(6)(7) -- Developing low-power,
high-performance memory devices |
|||||||||
Series
A Convertible Preferred Stock
|
(M)
|
6,547,619 | $ | 2,420,000 | |||||
Series
B Convertible Preferred Stock
|
(M)
|
5,952,381 | 2,200,000 | ||||||
4,620,000 | |||||||||
Ancora
Pharmaceuticals Inc. (5)(6)(7) -- Developing synthetic
carbohydrates for pharmaceutical applications |
|||||||||
Series
B Convertible Preferred Stock
|
(M)
|
1,663,808 | 34,940 | ||||||
Secured
Convertible Bridge Note (including interest)
|
(M)
|
$ | 325,000 | 327,307 | |||||
362,247 | |||||||||
BridgeLux,
Inc. (5)(6) -- Manufacturing high-power light emitting
diodes (LEDs) and arrays |
|||||||||
Series
B Convertible Preferred Stock
|
(M)
|
1,861,504 | 1,804,914 | ||||||
Series
C Convertible Preferred Stock
|
(M)
|
2,130,699 | 2,065,926 | ||||||
Series
D Convertible Preferred Stock
|
(M)
|
833,333 | 807,999 | ||||||
Warrants
at $0.7136 expiring 12/31/14
|
( I
)
|
163,900 | 102,602 | ||||||
Warrants
at $1.50 expiring 8/26/14
|
( I
)
|
124,999 | 59,250 | ||||||
4,840,691 | |||||||||
Cambrios
Technologies Corporation (5)(6)(7) – Developing nanowire-
enabled electronic materials for the display industry |
|||||||||
Series
B Convertible Preferred Stock
|
(M)
|
1,294,025 | 970,519 | ||||||
Series
C Convertible Preferred Stock
|
(M)
|
1,300,000 | 975,000 | ||||||
Series
D Convertible Preferred Stock
|
(M)
|
515,756 | 386,817 | ||||||
2,332,336 | |||||||||
CFX
Battery, Inc. (5)(6)(7)(15) -- Developing batteries using
nanostructured materials |
|||||||||
Series
A Convertible Preferred Stock
|
(M)
|
2,565,798 | 2,822,378 |
HARRIS & HARRIS GROUP,
INC.
CONSOLIDATED SCHEDULE OF
INVESTMENTS AS OF SEPTEMBER 30,
2009
(Unaudited)
|
Method
of
|
Shares/
|
||||||||
Valuation (1)
|
Principal
|
Value
|
|||||||
Investments
in Non-Controlled Affiliated Companies (2)(14) – 43.9% of net assets at
value (cont.)
|
|||||||||
Private Placement
Portfolio (Illiquid) – 43.9% of net
assets at value (cont.)
|
|||||||||
Crystal
IS, Inc. (5)(6) -- Developing single-crystal
aluminum nitride substrates for light-emitting diodes |
|||||||||
Series
A Convertible Preferred Stock
|
(M)
|
391,571 | $ | 0 | |||||
Series
A-1 Convertible Preferred Stock
|
(M)
|
1,300,376 | 0 | ||||||
Unsecured
Convertible Bridge Note (including interest)
|
(M)
|
$ | 408,573 | 0 | |||||
Warrants
at $0.78 expiring 05/05/13
|
( I
)
|
15,231 | 0 | ||||||
Warrants
at $0.78 expiring 05/12/13
|
( I
)
|
2,350 | 0 | ||||||
Warrants
at $0.78 expiring 08/08/13
|
( I
)
|
4,396 | 0 | ||||||
0 | |||||||||
CSwitch
Corporation (5)(6)(7)(16) -- Developed 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)
|
$ | 1,766,673 | 0 | |||||
0 | |||||||||
Ensemble
Discovery Corporation (5)(6)(7)(17) -- Developing DNA-
Programmed ChemistryTM 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)
|
$ | 250,286 | 271,351 | |||||
1,271,351 | |||||||||
Innovalight,
Inc. (5)(6)(7) -- Developing solar power products
enabled by silicon-based nanomaterials |
|||||||||
Series
B Convertible Preferred Stock
|
(M)
|
16,666,666 | 2,969,667 | ||||||
Series
C Convertible Preferred Stock
|
(M)
|
5,810,577 | 1,252,984 | ||||||
4,222,651 |
HARRIS & HARRIS GROUP,
INC.
CONSOLIDATED SCHEDULE OF
INVESTMENTS AS OF SEPTEMBER 30,
2009
(Unaudited)
|
Method
of
|
Shares/
|
||||||||
Valuation (1)
|
Principal
|
Value
|
|||||||
Investments
in Non-Controlled Affiliated Companies (2)(14) – 43.9% of net assets at
value (cont.)
|
|||||||||
Private Placement
Portfolio (Illiquid) – 43.9% of net
assets at value (cont.)
|
|||||||||
Kovio,
Inc. (5)(6)(7) -- Developing semiconductor products
using printed electronics and thin-film technologies Series C Convertible Preferred Stock |
(M)
|
2,500,000 | $ | 1,920,938 | |||||
Series
D Convertible Preferred Stock
|
(M)
|
800,000 | 614,700 | ||||||
Series
E Convertible Preferred Stock
|
(M)
|
1,200,000 | 922,050 | ||||||
Warrants
at $1.25 expiring 12/31/12
|
( I
)
|
355,880 | 160,858 | ||||||
3,618,546 | |||||||||
Mersana
Therapeutics, Inc. (5)(6)(7) -- Developing treatments for
cancer based on novel drug delivery polymers |
|||||||||
Series
A Convertible Preferred Stock
|
(M)
|
68,451 | 68,451 | ||||||
Series
B Convertible Preferred Stock
|
(M)
|
866,500 | 866,500 | ||||||
Unsecured
Convertible Bridge Note (including interest)
|
(M)
|
$ | 650,000 | 691,780 | |||||
Warrants
at $2.00 expiring 10/21/10
|
( I
)
|
91,625 | 21,257 | ||||||
1,647,988 | |||||||||
Metabolon,
Inc. (5)(6) -- Developing service and diagnostic products
through the use of a metabolomics, or biochemical, profiling platform |
|||||||||
Series
B Convertible Preferred Stock
|
(M)
|
371,739 | 1,034,061 | ||||||
Series
B-1 Convertible Preferred Stock
|
(M)
|
148,696 | 413,625 | ||||||
Series
C Convertible Preferred Stock
|
(M)
|
1,000,000 | 1,000,000 | ||||||
Warrants
at $1.15 expiring 3/25/15
|
( I
)
|
74,348 | 115,815 | ||||||
2,563,501 | |||||||||
NanoGram
Corporation (5)(6) -- Developing solar power products
enabled by silicon-based nanomaterials |
|||||||||
Series
I Convertible Preferred Stock
|
(M)
|
63,210 | 0 | ||||||
Series
II Convertible Preferred Stock
|
(M)
|
1,250,904 | 0 | ||||||
Series
III Convertible Preferred Stock
|
(M)
|
1,242,144 | 0 | ||||||
Series
IV Convertible Preferred Stock
|
(M)
|
432,179 | 0 | ||||||
0 |
HARRIS & HARRIS GROUP,
INC.
CONSOLIDATED
SCHEDULE OF INVESTMENTS AS OF SEPTEMBER 30, 2009
(Unaudited)
|
Method
of
|
Shares/
|
||||||||
Valuation (1)
|
Principal
|
Value
|
|||||||
Investments
in Non-Controlled Affiliated Companies (2)(14) – 43.9% of net assets at
value (cont.)
|
|||||||||
Private Placement
Portfolio (Illiquid) – 43.9% of net
assets at value (cont.)
|
|||||||||
Nextreme
Thermal Solutions, Inc. (5)(6) -- Developing thin-film
thermoelectric devices for cooling and energy conversion |
|||||||||
Series
A Convertible Preferred Stock
|
(M)
|
17,500 | $ | 1,750,000 | |||||
Series
B Convertible Preferred Stock
|
(M)
|
4,870,244 | 2,655,257 | ||||||
4,405,257 | |||||||||
Questech
Corporation (5)(6) -- Manufacturing and marketing
proprietary metal and stone decorative tiles |
|||||||||
Common
Stock
|
(M)
|
655,454 | 340,836 | ||||||
Warrants
at $1.50 expiring 11/19/09
|
( I
)
|
5,000 | 0 | ||||||
340,836 | |||||||||
Solazyme,
Inc. (5)(6)(7) -- Developing algal biodiesel, industrial
chemicals and special ingredients based on synthetic biology |
|||||||||
Series
A Convertible Preferred Stock
|
(M)
|
988,204 | 4,978,157 | ||||||
Series
B Convertible Preferred Stock
|
(M)
|
495,246 | 2,494,841 | ||||||
Series
C Convertible Preferred Stock
|
(M)
|
651,309 | 3,281,021 | ||||||
10,754,019 | |||||||||
Xradia,
Inc. (5)(6) -- Designing, manufacturing and selling ultra-high
resolution 3D x-ray microscopes and fluorescence imaging systems |
|||||||||
Series
D Convertible Preferred Stock
|
(M)
|
3,121,099 | 5,118,602 | ||||||
Total
Non-Controlled Private Placement Portfolio (cost:
$60,109,424)
|
$ | 48,920,403 | |||||||
Total
Investments in Non-Controlled Affiliated Companies (cost:
$60,109,424)
|
$ | 48,920,403 |
HARRIS & HARRIS GROUP,
INC.
CONSOLIDATED SCHEDULE OF
INVESTMENTS AS OF SEPTEMBER 30,
2009
(Unaudited)
|
Method
of
|
Shares/
|
||||||||
Valuation (1)
|
Principal
|
Value
|
|||||||
Investments
in Controlled Affiliated Companies (2)(18) – 3.6% of net assets at
value
|
|||||||||
Private Placement
Portfolio (Illiquid) – 3.6% of
net assets at
value
|
|||||||||
Laser
Light Engines, Inc. (5)(6)(7) -- Manufacturing solid-state light
sources for digital cinema and large-venue projection displays |
|||||||||
Series
A Convertible Preferred Stock
|
(M)
|
7,499,062 | $ | 1,000,000 | |||||
Secured
Convertible Bridge Note (including interest)
|
(M)
|
$ | 890,000 | 911,458 | |||||
1,911,458 | |||||||||
SiOnyx,
Inc. (5)(6)(7) -- Developing silicon-based optoelectronic
products enabled by its proprietary "Black Silicon" |
|||||||||
Series
A Convertible Preferred Stock
|
(M)
|
233,499 | 67,843 | ||||||
Series
A-1 Convertible Preferred Stock
|
(M)
|
2,966,667 | 861,965 | ||||||
Series
A-2 Convertible Preferred Stock
|
(M)
|
4,207,537 | 1,222,500 | ||||||
2,152,308 | |||||||||
Total
Controlled Private Placement Portfolio (cost: $6,996,458)
|
$ | 4,063,766 | |||||||
Total
Investments in Controlled Affiliated Companies (cost:
$6,996,458)
|
$ | 4,063,766 | |||||||
Total
Private Placement and Publicly Traded Portfolio (cost:
$93,953,704)
|
$ | 70,049,615 |
HARRIS & HARRIS GROUP,
INC.
CONSOLIDATED SCHEDULE OF
INVESTMENTS AS OF SEPTEMBER 30,
2009
(Unaudited)
|
Method
of
|
Shares/
|
||||||||
Valuation (1)
|
Principal
|
Value
|
|||||||
U.S.
Government Securities (19) – 60.1% of net assets at value
|
|||||||||
U.S.
Treasury Bill -- due date
10/01/09
|
(M)
|
$ | 25,725,000 | $ | 25,725,000 | ||||
U.S.
Treasury Bill -- due date
12/17/09
|
(M)
|
11,700,000 | 11,697,894 | ||||||
U.S.
Treasury Bill -- due date
12/24/09
|
(M)
|
25,725,000 | 25,720,198 | ||||||
U.S.
Treasury Notes -- due date 02/28/10, coupon
2.000%
|
(M)
|
3,800,000 | 3,828,348 | ||||||
Total
Investments in U.S. Government Securities (cost:
$66,960,793)
|
$ | 66,971,440 | |||||||
Total
Investments (cost: $160,914,497)
|
$ | 137,021,055 | |||||||
HARRIS & HARRIS GROUP,
INC.
CONSOLIDATED SCHEDULE OF
INVESTMENTS AS OF SEPTEMBER 30,
2009
(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 or less than
five percent of the common shares of the publicly traded
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 private companies is $26,648,390. The gross
unrealized appreciation based on the tax cost for these securities is
$1,124,915. The gross unrealized depreciation based on the tax
cost for these securities is
$10,881,264.
|
(4)
|
The
aggregate cost for federal income tax purposes of investments in
unaffiliated publicly traded companies is $199,432. The gross
unrealized appreciation based on the tax cost for these securities is
$0. The gross unrealized depreciation based on the tax cost for
these securities is $26,027.
|
(5)
|
Legal
restrictions on sale of investment.
|
(6)
|
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.
|
(7)
|
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.
|
(8)
|
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.
|
HARRIS & HARRIS GROUP,
INC.
CONSOLIDATED SCHEDULE OF
INVESTMENTS AS OF SEPTEMBER 30,
2009
(Unaudited)
|
(9)
|
Cobalt
Technologies, Inc., does business as Cobalt
Biofuels.
|
(10)
|
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."
|
(11)
|
Starfire
Systems, Inc., filed for Chapter 11 bankruptcy on August 13,
2009.
|
(12)
|
With
our purchase of the Series B Convertible Preferred Stock of TetraVitae
Bioscience, Inc., we received the right to purchase, at a price of
$2.63038528 per share, a number of shares in the Series C financing equal
to the number of shares of Series B Preferred Stock purchased. The
ability to exercise this right is contingent on TetraVitae Bioscience
completing successfully a subsequent round of
financing.
|
(13)
|
Initial
investment was made during 2009.
|
(14)
|
The
aggregate cost for federal income tax purposes of investments in
non-controlled affiliated companies is $60,109,424. The gross
unrealized appreciation based on the tax cost for these securities is
$10,051,394. The gross unrealized depreciation based on the tax
cost for these securities is
$21,240,415.
|
(15)
|
On February 28, 2008, Lifco,
Inc., merged with CFX Battery, Inc. The surviving entity is CFX
Battery, Inc.
|
(16)
|
CSwitch
Corporation ceased operations in June
2009.
|
(17)
|
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.
|
(18)
|
The
aggregate cost for federal income tax purposes of investments in
controlled affiliated companies is $6,996,458. The gross
unrealized appreciation based on the tax cost for these securities is
$0. The gross unrealized depreciation based on the tax cost for
these securities is $2,932,692.
|
(19)
|
The
aggregate cost for federal income tax purposes of our U.S. government
securities is $66,960,793. The gross unrealized appreciation on the tax
cost for these securities is $10,647. The gross unrealized depreciation on
the tax cost of these securities is
$0.
|
HARRIS
& HARRIS GROUP, INC.
FOOTNOTE
TO CONSOLIDATED SCHEDULE OF
INVESTMENTS
|
I.
|
Determination
of Net Asset Value
|
II.
|
Approaches
to Determining Fair Value
|
|
·
|
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.
|
III.
|
Investment
Categories
|
|
·
|
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.
|
|
A.
|
EQUITY-RELATED
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.
|
|
B.
|
LONG-TERM
FIXED-INCOME SECURITIES
|
|
·
|
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.
|
|
C.
|
SHORT-TERM
FIXED-INCOME SECURITIES
|
|
D.
|
INVESTMENTS
IN INTELLECTUAL PROPERTY, PATENTS, RESEARCH AND DEVELOPMENT IN TECHNOLOGY
OR PRODUCT DEVELOPMENT
|
|
·
|
The
cost of the Company’s investment;
|
|
·
|
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;
|
|
·
|
The
results of research and
development;
|
|
·
|
Product
development and milestone progress;
|
|
·
|
Commercial
prospects;
|
|
·
|
Term
of patent;
|
|
·
|
Projected
markets; and
|
|
·
|
Other
subjective factors.
|
|
E.
|
ALL
OTHER SECURITIES
|
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
|
Fair Value Measurement at Reporting Date
Using:
|
||||||||||||||||
Description
|
September 30,
2009
|
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
|
$ | 66,971,440 | $ | 63,143,092 | $ | 3,828,348 | $ | 0 | ||||||||
Private
Portfolio Companies
|
$ | 69,876,210 | $ | 0 | $ | 0 | $ | 69,876,210 | ||||||||
Publicly
Traded Portfolio Companies
|
$ | 173,405 | $ | 173,405 | $ | 0 | $ | 0 | ||||||||
Total
|
$ | 137,021,055 | $ | 63,316,497 | $ | 3,828,348 | $ | 69,876,210 |
Fair
Value Measurements Using Significant
|
|||||
Unobservable
Inputs (Level 3)
|
|||||
Portfolio
Companies
|
|||||
Beginning
Balance, July 1, 2009
|
$ | 63,959,811 | |||
Total
realized losses included in change in net assets
|
(3,176,125 | ) | |||
Total
unrealized gains included in change in net assets
|
5,151,694 | ||||
Investments
in private placements and interest on bridge notes
|
3,944,945 | ||||
Disposals
|
(4,115 | ) | |||
Ending
Balance, September 30, 2009
|
$ | 69,876,210 | |||
The
amount of total gains 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 |
$ | 1,971,454 |
Fair
Value Measurements Using Significant
|
|||||
Unobservable
Inputs (Level 3)
|
|||||
Portfolio
Companies
|
|||||
Beginning
Balance, January 1, 2009
|
$ | 56,965,153 | |||
Total
realized losses included in change in net assets
|
(4,690,455 | ) | |||
Total
unrealized gains included in change in net assets
|
10,246,786 | ||||
Purchases
and interest on bridge notes
|
7,460,429 | ||||
Disposals
and write-offs of bridge note interest
|
(105,703 | ) | |||
Ending
Balance, September 30, 2009
|
$ | 69,876,210 | |||
The
amount of total gains 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 |
$ | 5,581,235 |
Type of Award
|
Term
|
Number
of
Options
Granted
|
Expected
Term
in Yrs
|
Expected
Volatility
Factor
|
Expected
Dividend
Yield
|
Risk-free
Interest
Rates
|
Weighted
Average
Fair
Value
Per Share
|
Non-qualified
stock options
|
2
Years
|
245,770
|
1.5
|
71.7%
|
0%
|
0.71%
|
$1.29
|
|
|
||||||
Total
|
245,770
|
$1.29
|
Type of Award
|
Term
|
Number
of
Options
Granted
|
Expected
Exercise
Behavior
Factor
|
Expected
Volatility
Factor
|
Expected
Dividend
Yield
|
Risk-free
Interest
Rates
|
Weighted
Average
Fair
Value
Per Share
|
Non-qualified
stock options
|
10
Years
|
84,229
|
2
|
73.1%
|
0%
|
2.59%
|
$1.97
|
|
|
||||||
Total
|
84,229
|
$1.97
|
Type of Award
|
Term
|
Number
of
Options
Granted
|
Expected
Term
in Yrs
|
Expected
Volatility
Factor
|
Expected
Dividend
Yield
|
Risk-free
Interest
Rates
|
Weighted
Average
Fair
Value
Per Share
|
Non-qualified
stock options
|
2
Years
|
148,800
|
1.375
|
105.5%
|
0%
|
0.52%
|
$2.08
|
Non-qualified
stock options
|
10
Years
|
51,200
|
6.25
|
60.6%
|
0%
|
2.35%
|
$2.60
|
|
|
||||||
200,000
|
$2.21
|
Shares
|
Weighted
Average
Exercise
Price
|
Weighted
Average
Grant
Date
Fair Value
|
Weighted
Average
Remaining
Contractual
Term (Yrs)
|
Aggregate
Intrinsic
Value
|
|
Options
Outstanding at
January 1, 2009 |
4,638,213
|
$ 9.30
|
$ 4.83
|
6.03
|
$ 0
|
Granted
|
529,999
|
$ 4.02
|
$ 1.75
|
3.57
|
|
Exercised
|
107,185
|
$ 3.75
|
$ 1.29
|
||
Forfeited
or Expired
|
479,460
|
$10.11
|
$ 3.81
|
||
Options
Outstanding at
September 30, 2009 |
4,581,567
|
$ 8.73
|
$ 4.66
|
5.75
|
$ 939,310
|
Options
Exercisable at
September 30, 2009 |
2,626,608
|
$
9.27
|
$ 4.86
|
5.38
|
$ 563,104
|
Options
Exercisable and Expected to be
Exercisable at September 30, 2009 |
4,522,466
|
$ 8.71
|
$
4.63
|
5.74
|
$ 939,310
|
For the Three Months Ended
September 30
|
For the Nine Months Ended
September 30
|
||||
2009
|
2008
|
2009
|
2008
|
||
Numerator
for decrease in net assets per share
|
$(296,319)
|
$(34,032,747)
|
$(826,376)
|
$(35,967,073)
|
|
Denominator
for basic and diluted weighted average shares
|
25,866,983
|
25,859,573
|
25,862,070
|
24,271,270
|
|
Basic
and diluted net decrease in net assets per share resulting from
operations
|
$(0.01)
|
$(1.32)
|
$(0.03)
|
$(1.48)
|
HARRIS
& HARRIS GROUP, INC.
FINANCIAL
HIGHLIGHTS
(Unaudited)
|
Three Months Ended Sept. 30
|
Nine Months Ended
Sept. 30
|
|||||||||||||||
2009
|
2008
|
2009
|
2008
|
|||||||||||||
Per
Share Operating Performance
|
||||||||||||||||
Net
asset value per share, beginning of period
|
$ | 4.27 | $ | 5.95 | $ | 4.24 | $ | 5.93 | ||||||||
Net
operating (loss)*
|
(0.08 | ) | (0.09 | ) | (0.25 | ) | (0.30 | ) | ||||||||
Net
realized (loss) on investments*(1)
|
(0.12 | ) | (0.17 | ) | (0.18 | ) | (0.36 | ) | ||||||||
Net
decrease in unrealized depreciation as a result of sales*(1)
|
0.12 | 0.17 | 0.18 | 0.41 | ||||||||||||
Net
decrease (increase) in unrealized depreciation on investments
held*
|
0.07 | (1.23 | ) | 0.21 | (1.17 | ) | ||||||||||
Total
from investment operations*
|
(0.01 | ) | (1.32 | ) | (0.04 | ) | (1.42 | ) | ||||||||
Net
increase as a result of stock-based compensation expense*
|
0.03 | 0.05 | 0.09 | 0.18 | ||||||||||||
Decrease
as a result of stock-offering, net of offering expenses
|
0.00 | 0.00 | 0.00 | (0.01 | ) | |||||||||||
Net
increase as a result of proceeds from exercise of options
|
0.01 | 0.00 | 0.01 | 0.00 | ||||||||||||
Total
increase from capital stock transactions
|
0.04 | 0.05 | 0.10 | 0.17 | ||||||||||||
Net
asset value per share, end of period
|
$ | 4.30 | $ | 4.68 | $ | 4.30 | $ | 4.68 | ||||||||
Stock
price per share, end of period
|
$ | 6.25 | $ | 6.38 | $ | 6.25 | $ | 6.38 | ||||||||
Total
return based on stock price (2)
|
7.20% | 6.33% | 58.23% | (27.42)% | ||||||||||||
Supplemental
Data:
|
||||||||||||||||
Net
assets, end of period
|
$ | 111,532,206 | $ | 121,113,660 | $ | 111,532,206 | $ | 121,113,660 | ||||||||
Ratio
of expenses to average net assets (2)
|
2.1% | 2.0% | 5.9% | 6.5% | ||||||||||||
Ratio
of net operating loss to average net assets (2)
|
(2.0)% | (1.6)% | (5.8)% | (5.3)% | ||||||||||||
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
|
25,966,758 | 25,859,573 | 25,966,758 | 25,859,573 |
Item
2.
|
Management's
Discussion and Analysis of Financial Condition and Results of
Operations
|
Tiny
Technology Companies in Our Active Portfolio as of September 30,
2009
|
Holding
Period (Years)
|
Adesto
Technologies Corporation
|
2.6
|
Ancora
Pharmaceuticals Inc.
|
2.4
|
BioVex
Group, Inc.
|
2.0
|
BridgeLux,
Inc. (formerly eLite Optoelectronics, Inc.)
|
4.4
|
Cambrios
Technologies Corporation
|
4.9
|
CFX
Battery, Inc. (formerly Lifco, Inc.)
|
2.3
|
Cobalt
Technologies, Inc.
|
1.0
|
Crystal
IS, Inc.
|
5.0
|
D-Wave
Systems, Inc.
|
3.5
|
Ensemble
Discovery Corporation
|
2.3
|
Innovalight,
Inc.
|
3.4
|
Kovio,
Inc.
|
3.9
|
Laser
Light Engines, Inc.
|
1.4
|
Mersana
Therapeutics, Inc. (formerly Nanopharma Corporation)
|
7.6
|
Metabolon,
Inc.
|
3.7
|
Molecular
Imprints, Inc.
|
5.5
|
NanoGram
Corporation
|
6.4
|
Nanosys,
Inc.
|
6.5
|
Nantero,
Inc.
|
8.2
|
NeoPhotonics
Corporation 2004
|
5.8
|
Nextreme
Thermal Solutions, Inc.
|
4.8
|
Orthovita,
Inc.
|
0.1
|
Polatis,
Inc. (formerly Continuum Photonics, Inc.)
|
7.3
|
PolyRemedy,
Inc.
|
1.6
|
Questech
Corporation (formerly Intaglio, Ltd.)
|
15.4
|
Siluria
Technologies, Inc.
|
2.0
|
SiOnyx,
Inc.
|
3.4
|
Solazyme,
Inc.
|
4.9
|
TetraVitae
Bioscience, Inc.
|
1.0
|
Xradia,
Inc.
|
2.8
|
Average
|
4.3
|
Median
|
3.7
|
2005
|
2006
|
2007
|
2008
|
Nine
Months
Ended
Sept. 30, 2009
|
|
Total
Incremental Investments
|
$16,251,339
|
$24,408,187
|
$20,595,161
|
$17,779,462
|
$7,535,874
|
No.
of New Investments
|
4
|
6
|
7
|
4
|
1
|
No.
of Follow-On Investment Rounds
|
13
|
14
|
20
|
25
|
18
|
No.
of Rounds Led
|
0
|
7
|
3
|
4
|
3
|
Average
Dollar Amount – Initial
|
$1,575,000
|
$2,383,424
|
$1,086,441
|
$683,625
|
$99,624
|
Average
Dollar Amount – Follow-On
|
$765,488
|
$721,974
|
$649,504
|
$601,799
|
$413,125
|
Q1
2009
|
Q2
2009
|
Q3
2009
|
52-Week
High as of
9/30/09
|
|
12/31/08
- 3/31/09
|
3/31/09
- 6/30/09
|
6/30/09
– 9/30/09
|
||
Dow
Jones Industrial Avg.
|
-13.3%
|
11.0%
|
15.0%
|
-11.7%
|
Nasdaq
Composite
|
-3.07%
|
20.0%
|
15.7%
|
-1.1%
|
S&P
500 Composite
|
-11.67%
|
15.2%
|
15.0%
|
-10.3%
|
Russell
2000
|
-15.36%
|
20.2%
|
18.9%
|
-12.5%
|
Harris
& Harris Group
|
-6.33%
|
57.6%
|
7.2%
|
-8.0%
|
2005
|
2006
|
2007
|
2008
|
Nine
Months
Ended
Sept. 30, 2009
|
|
Net
Asset Value, BOY
|
$74,744,799
|
$117,987,742
|
$113,930,303
|
$138,363,344
|
$109,531,113
|
Gross
Write-Downs During Year
|
$(3,450,236)
|
$(4,211,323)
|
$(7,810,794)
|
$(39,671,588)
|
$(11,251,660)
|
Gross
Write-Ups During Year
|
$23,485,176
|
$279,363
|
$11,694,618
|
$820,559
|
$16,806,868
|
Gross
Write-Downs as a Percentage of Net Asset Value,
BOY
|
-4.62%
|
-3.57%
|
-6.86%
|
-28.67%
|
-10.2%
|
Gross
Write-Ups as a Percentage of Net Asset Value,
BOY
|
31.42%
|
0.24%
|
10.26%
|
0.59%
|
15.3%
|
Net
Write-Downs/Write-Ups as a Percentage of Net Asset Value,
BOY
|
26.8%
|
-3.33%
|
3.40%
|
-28.08%
|
5.1%
|
Investment
|
Amount of Write-Up
|
|||
Adesto
Technologies Corporation
|
$1,320,000 | |||
BioVex
Group, Inc.
|
350,867 | |||
BridgeLux,
Inc.
|
997,091 | |||
Cambrios
Technologies Corporation
|
519,567 | |||
CFX
Battery, Inc.
|
812,383 | |||
NeoPhotonics
Corporation
|
1,521,999 | |||
Questech
Corporation
|
189,860 | |||
Xradia,
Inc.
|
1,118,602 |
Investment
|
Amount of Write-Down
|
|||
Ancora
Pharmaceuticals Inc.
|
$ 405,969 | |||
Cobalt
Technologies, Inc.
|
187,499 | |||
Crystal
IS, Inc.
|
440,543 | |||
Innovalight,
Inc.
|
1,561,187 | |||
Kovio,
Inc.
|
1,232,466 | |||
Laser
Light Engines, Inc.
|
499,999 | |||
Mersana
Therapeutics, Inc.
|
4,581 | |||
Metabolon,
Inc.
|
4,963 | |||
Molecular
Imprints, Inc.
|
7,000 | |||
NanoGram
Corporation
|
735,902 | |||
Orthovita,
Inc.
|
26,027 |
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-Up
|
|||
Adesto
Technologies Corporation
|
$1,320,000 | |||
BioVex
Group, Inc.
|
331,246 | |||
BridgeLux,
Inc.
|
995,124 | |||
Cambrios
Technologies Corporation
|
519,567 | |||
CFX
Battery, Inc.
|
812,383 | |||
Metabolon,
Inc.
|
200,235 | |||
Molecular
Imprints, Inc.
|
1,062,605 | |||
NeoPhotonics
Corporation
|
2,094,325 | |||
Nextreme
Thermal Solutions, Inc.
|
2,202,628 | |||
Questech
Corporation
|
212,550 | |||
Siluria
Technologies, Inc.
|
160,723 | |||
Solazyme,
Inc.
|
5,376,988 | |||
Xradia,
Inc.
|
1,118,602 |
Investment
|
Amount of Write-Down
|
|||
Ancora
Pharmaceuticals Inc.
|
$1,165,060 | |||
Cobalt
Technologies, Inc.
|
187,499 | |||
Crystal
IS, Inc.
|
772,781 | |||
CSwitch
Corporation
|
20,286 | |||
Innovalight,
Inc.
|
1,561,187 | |||
Kovio,
Inc.
|
1,244,957 | |||
Laser
Light Engines, Inc.
|
999,999 | |||
Mersana
Therapeutics, Inc.
|
12,461 | |||
NanoGram
Corporation
|
1,471,805 | |||
Nanosys,
Inc.
|
2,685,059 | |||
Orthovita,
Inc.
|
26,027 | |||
PolyRemedy,
Inc.
|
28,384 | |||
SiOnyx,
Inc.
|
1,076,155 |
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 |
|
September
30, 2009
|
New Investments
|
Amount of Investment
|
|||
Orthovita,
Inc.
|
$ 99,624 | |||
Follow-On Investments
|
Amount of Investment
|
|||
Adesto
Technologies Corp.
|
$ 550,000 | |||
Adesto
Technologies Corp.
|
1,635,775 | |||
Ancora
Pharmaceuticals Inc.
|
125,000 | |||
Ancora
Pharmaceuticals Inc.
|
200,000 | |||
BioVex
Group, Inc.
|
111,111 | |||
BioVex
Group, Inc.
|
166,667 | |||
BridgeLux,
Inc.
|
250,124 | |||
Cambrios
Technologies Corporation
|
515,756 | |||
CFX
Battery, Inc.
|
3,492 | |||
CFX
Battery, Inc.
|
533,239 | |||
Cobalt
Technologies, Inc.
|
374,999 | |||
Crystal
IS, Inc.
|
408,573 | |||
Laser
Light Engines, Inc.
|
890,000 | |||
Mersana
Therapeutics, Inc.
|
200,000 | |||
Mersana
Therapeutics, Inc.
|
250,000 | |||
Metabolon,
Inc.
|
1,000,000 | |||
Orthovita,
Inc.
|
99,808 | |||
PolyRemedy,
Inc.
|
121,706 | |||
Total
|
$ 7,535,874 |
Sept. 30, 2009
|
December 31, 2008
|
|||||||
Venture
capital investments, at cost
|
$ | 93,953,704 | $ | 91,090,001 | ||||
Net
unrealized depreciation(1)
|
23,904,089 | 34,124,848 | ||||||
Venture
capital investments, at value
|
$ | 70,049,615 | $ | 56,965,153 |
Sept. 30, 2009
|
December 31, 2008
|
|||||||
U.S.
government obligations, at cost
|
$ | 66,960,793 | $ | 52,956,288 | ||||
Net
unrealized appreciation(1)
|
10,647 | 27,652 | ||||||
U.S.
government obligations, at value
|
$ | 66,971,440 | $ | 52,983,940 |
|
·
|
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
|
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.
|
|
10.1
|
Lease
Agreement, dated September 24, 2009, between Rosh 1450 Properties LLC and
Harris & Harris Group, Inc., incorporated by reference as Exhibit 10.1
to the Company’s Form 8-K (File No. 814-00176) filed on September 24,
2009.
|
Exhibit
No.
|
Description
|
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.
|