UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549

Form 10-Q

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

For the quarterly period ended September 30, 2016

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

For the transition period from ____________ to _____________

Commission file number: 0-11576

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

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

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

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

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes     x    No     ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes     ¨    No     ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer  ¨
 
Accelerated filer  x
Non-accelerated filer  ¨
 
Smaller reporting company  ¨
(Do not check if a smaller reporting company)
 
 

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

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

Class
Shares outstanding at November 8, 2016
  Common Stock, $0.01 par value per share
30,880,829 shares



Harris & Harris Group, Inc.
Form 10-Q, September 30, 2016

 
Page Number
 
 
 
 
 
i-v



PART I. FINANCIAL INFORMATION

Item 1. Consolidated Financial Statements

In the opinion of management, these financial statements reflect all adjustments, consisting of valuation adjustments and normal recurring accruals, necessary for a fair statement of our financial position, results of operations and cash flows for such periods.

Harris & Harris Group, Inc.® (the "Company," "us," "our" and "we"), is an internally managed, non-diversified management investment company that has elected to operate as a business development company ("BDC") under the Investment Company Act of 1940 (the "1940 Act"). Certain information and disclosures normally included in the consolidated financial statements in accordance with accounting principles generally accepted in the United States of America ("GAAP") have been condensed or omitted as permitted by Regulation S-X and Regulation S-K. Accordingly, they do not include all information and disclosures necessary for a fair presentation of our financial position, results of operations and cash flows in conformity with GAAP. The results of operations for any interim period are not necessarily indicative of the results for the full year. The accompanying consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto contained in our Annual Report on Form 10-K for the year ended December 31, 2015.


1


HARRIS & HARRIS GROUP, INC.
CONSOLIDATED STATEMENTS OF ASSETS AND LIABILITIES
(Unaudited)
 
September 30, 2016
 
December 31, 2015
ASSETS
 
 
Investments, in portfolio securities at value:
 
 
 
Unaffiliated privately held companies
(cost: $10,878,510 and $18,857,235, respectively)
$
4,715,016

 
$
5,376,472

Unaffiliated rights to milestone payments
(adjusted cost basis: $781,863 and $781,863, respectively)
3,442,745

 
3,362,051

Unaffiliated publicly traded securities
(cost: $2,664,644 and $1,623,029, respectively)
922,605

 
957,544

Non-controlled affiliated privately held companies
(cost: $51,750,473 and $49,262,921, respectively)
45,985,741

 
41,909,262

Non-controlled affiliated publicly traded companies
(cost: $17,073,716 and $23,165,788, respectively)
5,431,815

 
18,371,105

Controlled affiliated privately held companies
(cost: $24,382,537 and $23,205,336, respectively)
7,247,421

 
7,010,534

Equity method privately held companies
(adjusted cost basis: $251,244 and $165,936, respectively)
251,244

 
165,936

Total, investments in private portfolio companies, rights to
milestone payments and public securities at value
(cost: $107,782,987 and $117,062,108, respectively)
67,996,587

 
77,152,904

Cash
13,384,820

 
17,922,630

Funds held in escrow from sales of investments at value (Note 3)
116,872

 
374,565

Receivable from portfolio companies
26,081

 
13,032

Receivable from sale of investments (Note 3)
53,162

 
0

Interest receivable
189,512

 
10,333

Prepaid expenses
274,586

 
563,699

Other assets
381,054

 
424,123

Total assets
$
82,422,674

 
$
96,461,286

LIABILITIES & NET ASSETS
 
 
Term loan credit facility (Note 5)
$
5,000,000

 
$
5,000,000

Post retirement plan liabilities (Note 8)
1,231,910

 
1,202,148

Accounts payable and accrued liabilities
632,715

 
1,268,355

Deferred rent
235,100

 
279,112

Total liabilities
$
7,099,725

 
$
7,749,615

Commitments and contingencies (Note 11)
 
 
 
Net assets
$
75,322,949

 
$
88,711,671

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 9/30/16 and 12/31/15; 33,218,651 and 33,183,576 issued at 9/30/16 and 12/31/15, respectively
332,186

 
331,836

Additional paid in capital (Note 9)
215,787,335

 
215,762,973

Accumulated net operating and realized loss
(96,757,129
)
 
(83,377,629
)
Accumulated unrealized depreciation of investments
(39,786,400
)
 
(39,909,204
)
Accumulated other comprehensive income (Note 8)
352,482

 
509,220

Treasury stock, at cost (2,337,822 shares at 9/30/16 and 12/31/15) (Note 12)
(4,605,525
)
 
(4,605,525
)
Net assets
$
75,322,949

 
$
88,711,671

Shares outstanding
30,880,829

 
30,845,754

Net asset value per outstanding share
$
2.44

 
$
2.88


The accompanying unaudited notes are an integral part of these consolidated financial statements.
2


HARRIS & HARRIS GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
 
Three Months Ended
 
Nine Months Ended
 
September 30, 2016
 
September 30, 2015
 
September 30, 2016
 
September 30, 2015
Investment income:
 
 
 
 
 
 
 
Interest from:
 
 
 
 
 
 
 
Unaffiliated companies
$
5,319

 
$
6,785

 
$
11,629

 
$
27,561

Non-controlled affiliated companies
105,572

 
44,886

 
258,444

 
299,208

Controlled affiliated companies
103,558

 
72,759

 
289,700

 
164,392

Cash and U.S. Treasury securities and other
478

 
4,599

 
2,827

 
9,347

Fees for providing managerial assistance to portfolio companies (Note 14)
315,250

 
71,359

 
685,103

 
84,859

Yield-enhancing fees on debt securities
35,975

 
44,014

 
80,533

 
90,062

Total investment income
566,152

 
244,402

 
1,328,236

 
675,429

Expenses:
 
 
 
 
 
 
 
Salaries, benefits and stock-based compensation (Note 9)
618,070

 
955,900

 
1,839,577

 
3,012,078

Administration and operations
65,763

 
105,120

 
318,175

 
341,214

Professional fees
286,930

 
278,654

 
935,495

 
1,165,673

Rent (Note 3)
75,266

 
83,308

 
189,707

 
218,772

Insurance expense
66,184

 
73,768

 
193,297

 
215,103

Directors' fees and expenses
79,519

 
98,218

 
224,279

 
286,743

Interest and other debt expenses
209,831

 
209,831

 
625,882

 
561,577

Custody fees
10,008

 
15,701

 
34,698

 
47,317

Depreciation
11,346

 
11,710

 
34,123

 
36,412

Total expenses
1,422,917

 
1,832,210

 
4,395,233

 
5,884,889

Net operating loss
(856,765
)
 
(1,587,808
)
 
(3,066,997
)
 
(5,209,460
)
Net realized (loss) gain:
 
 
 
 
 
 
 
Realized (loss) gain from investments:
 
 
 
 
 
 
 
Unaffiliated companies
(2,926,711
)
 
(294,797
)
 
(5,852,173
)
 
3,005,039

Controlled affiliated companies
0

 
1,559,235

 
0

 
1,559,235

Non-controlled affiliated companies
0

 
0

 
(1,244,955
)
 
(392,430
)
Publicly traded companies
(3,042,478
)
 
11,158

 
(3,042,463
)
 
52,569

Realized (loss) gain from investments
(5,969,189
)
 
1,275,596

 
(10,139,591
)
 
4,224,413

Income tax expense (Note 10)
50

 
376

 
4,541

 
2,081

Net realized (loss) gain from investments
(5,969,239
)
 
1,275,220

 
(10,144,132
)
 
4,222,332

Net decrease (increase) in unrealized
depreciation on investments:
 
 
 
 
 
 
 
Unaffiliated companies
2,947,500

 
(1,371,570
)
 
7,317,270

 
(5,777,416
)
Controlled affiliated companies
249,748

 
(2,057,974
)
 
(940,313
)
 
951,492

Unaffiliated rights to milestone payments
448,888

 
1,876,900

 
80,694

 
1,864,218

Non-controlled affiliated companies
(3,923,811
)
 
(11,672,922
)
 
1,588,925

 
(14,472,165
)
Publicly traded non-controlled affiliated companies
(2,027,026
)
 
(3,409,275
)
 
(10,710,083
)
 
(4,011,079
)
Publicly traded unaffiliated companies
3,191,640

 
102,816

 
2,786,311

 
325,767

Net decrease (increase) in unrealized depreciation on investments
886,939

 
(16,532,025
)
 
122,804

 
(21,119,183
)
Net realized and unrealized (loss) gain on investments
(5,082,300
)
 
(15,256,805
)
 
(10,021,328
)
 
(16,896,851
)
Share of loss on equity method investments
(82,972
)
 
(60,012
)
 
(168,371
)
 
(249,848
)
Net decrease in net assets resulting from operations:
 
 
 
 
 
 
 
Total
$
(6,022,037
)
 
$
(16,904,625
)
 
$
(13,256,696
)
 
$
(22,356,159
)
Per average basic and diluted outstanding share
$
(0.20
)
 
$
(0.54
)
 
$
(0.43
)
 
$
(0.71
)
Average outstanding shares - basic and diluted
30,880,829

 
31,251,950

 
30,859,267

 
31,272,790


The accompanying unaudited notes are an integral part of these consolidated financial statements.
3


HARRIS & HARRIS GROUP, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(Unaudited)

 
Three Months Ended
September 30, 2016
 
Three Months Ended
September 30, 2015
 
Nine Months Ended
September 30, 2016
 
Nine Months Ended
September 30, 2015
Net decrease in net assets resulting from operations
$
(6,022,037
)
 
$
(16,904,625
)
 
$
(13,256,696
)
 
$
(22,356,159
)
Other comprehensive loss:
 
 
 
 
 
 
 
Amortization of prior service (benefit)
(52,246
)
 
(52,246
)
 
(156,738
)
 
(156,738
)
Other comprehensive loss
(52,246
)
 
(52,246
)
 
(156,738
)
 
(156,738
)
Comprehensive loss
$
(6,074,283
)
 
$
(16,956,871
)
 
$
(13,413,434
)
 
$
(22,512,897
)




The accompanying unaudited notes are an integral part of these consolidated financial statements.
4


HARRIS & HARRIS GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
 
Nine Months Ended
September 30, 2016
 
Nine Months Ended
September 30, 2015
Cash flows used in operating activities:
 
 
 
Net decrease in net assets resulting from operations
$
(13,256,696
)
 
$
(22,356,159
)
Adjustments to reconcile net decrease in net assets resulting from operations to net cash used in operating activities:
 
 
 
Net realized loss and change in unrealized
depreciation on investments
10,016,787

 
16,894,770

Depreciation of fixed assets, amortization of prepaid
assets and accretion of bridge note interest
(353,331
)
 
(381,204
)
Share of loss on equity method investments
168,371

 
249,848

Stock-based compensation expense
47,027

 
617,972

Amortization of prior service (benefit)
(156,738
)
 
(156,738
)
Funding of operating commitment to equity method investments
(253,680
)
 
(262,215
)
Purchase of affiliated portfolio companies
(5,517,052
)
 
(6,690,532
)
Purchase of unaffiliated portfolio companies
(698,300
)
 
(509,824
)
Payments received on debt investments
0

 
783,418

Proceeds from repayment of bridge notes of affiliated portfolio companies
113,950

 
39,757

Proceeds from repayment of bridge notes of controlled affiliated portfolio companies
869,242

 
0

Proceeds from repayment of bridge notes of non-controlled affiliated portfolio companies
0

 
2,415,188

Proceeds from sale of investments of unaffiliated portfolio companies
3,094,171

 
5,557,846

Proceeds from sale of investments of publicly traded unaffiliated portfolio companies
2,007,980

 
170,662

Changes in assets and liabilities:
 
 
 
Receivable from portfolio companies
(13,049
)
 
160,877

Receivable from sale of investments
(53,162
)
 
0

Interest receivable
(179,179
)
 
51,462

Prepaid expenses
289,113

 
334,202

Other assets
10,379

 
(191,891
)
Post retirement plan liabilities
29,762

 
40,065

Accounts payable and accrued liabilities
(635,640
)
 
(257,935
)
Deferred rent
(44,012
)
 
(38,752
)
Net cash used in operating activities
(4,514,057
)
 
(3,529,183
)
Cash flows from investing activities:
 
 
 
Purchase of fixed assets
(1,438
)
 
(6,806
)
Net cash used in investing activities
(1,438
)
 
(6,806
)
Cash flows from financing activities:
 
 
 
Proceeds from drawdown of loan facility
0

 
5,000,000

Purchase of treasury stock
0

 
(737,662
)
Payment of withholdings related to net settlement of restricted stock
(22,315
)
 
(47,644
)
Net cash (used in) provided by financing activities
(22,315
)
 
4,214,694

Net (decrease) increase in cash
$
(4,537,810
)
 
$
678,705

Cash at beginning of the period
17,922,630

 
20,748,314

Cash at end of the period
$
13,384,820

 
$
21,427,019

Supplemental disclosures of cash flow information:
 
 
 
Income taxes paid
$
4,541

 
$
2,081

Interest paid
$
380,556

 
$
304,167



The accompanying unaudited notes are an integral part of these consolidated financial statements.
5


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

 
Nine Months Ended
September 30, 2016
 
Year Ended
December 31, 2015
Changes in net assets from operations:
 
 
 
Net operating loss
$
(3,066,997
)
 
$
(7,162,510
)
Net realized (loss) gain on investments
(10,144,132
)
 
4,531,700

Net decrease (increase) in unrealized depreciation on investments
122,804

 
(17,302,729
)
Share of loss on equity method investments
(168,371
)
 
(312,291
)
Net decrease in net assets resulting from operations
(13,256,696
)
 
(20,245,830
)
Changes in net assets from capital stock transactions:
 
 
 
Purchase of treasury stock
0

 
(1,199,994
)
Acquisition of vested restricted stock awards to pay required employee withholding tax
(22,315
)
 
(86,914
)
Stock-based compensation expense
47,027

 
798,965

Net increase (decrease) in net assets resulting from capital stock transactions
24,712

 
(487,943
)
Changes in net assets from accumulated other comprehensive loss:
 
 
 
Other comprehensive loss
(156,738
)
 
(208,983
)
Net decrease in net assets resulting from accumulated other comprehensive loss
(156,738
)
 
(208,983
)
Net decrease in net assets:
(13,388,722
)
 
(20,942,756
)
Net Assets:
 
 
 
Beginning of the period
88,711,671

 
109,654,427

End of the period
$
75,322,949

 
$
88,711,671


The accompanying unaudited notes are an integral part of these consolidated financial statements.
6
HARRIS & HARRIS GROUP, INC.
CONSOLIDATED SCHEDULE OF INVESTMENTS AS OF SEPTEMBER 30, 2016
(Unaudited)
 
 
 
 
 
 
 
 
 
 
 
Method of
Valuation (1)
 
Primary
Industry (2)
 
Cost
 
Shares/
Principal
 
Value

Investments in Unaffiliated Companies (3) -
 
 
 
 
 
 
 
 
 
12.1% of net assets at value
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Private Placement Portfolio (Illiquid) (4) -
 
 
 
 
 
 
 
 
 
6.3% of net assets at value
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Fleet Health Alliance, LLC (5)(8)(9)(10)
 
 
Life Sciences
 
 
 
 
 
 
Developing software for information transfer amongst healthcare providers and consumers
 
 
 
 
 
 
 
 
 
Unsecured Convertible Bridge Note, 0%, (acquired 4/22/16)
(M)
 
 
 
$
225,000

 
$
225,000

 
$
225,000

 
 
 
 
 
 
 
 
 
 
Mersana Therapeutics, Inc. (5)(8)(9)
 
 
Life Sciences
 
 
 
 
 
 
Developing antibody drug conjugates for cancer therapy
 
 
 
 
 
 
 
 
 
Common Stock (acquired 7/27/12)
(H)
 
 
 
3,875,395

 
350,539

 
717,186

Series A-1 Convertible Preferred Stock (acquired 7/27/12-4/2/14)
(H)
 
 
 
683,538

 
635,081

 
1,336,199

Series B-1 Convertible Preferred Stock (acquired 2/20/15-6/14/16)
(H)
 
 
 
365,820

 
339,887

 
731,555

 
 
 
 
 
4,924,753

 
 
 
2,784,940

 
 
 
 
 
 
 
 
 
 
Muses Labs, Inc. (5)(8)(10)
 
 
Life Sciences
 
 
 
 
 
 
Developing a data analytics platform for precision medicine
 
 
 
 
 
 
 
 
 
Unsecured Convertible Bridge Note, 5%, (acquired 5/25/16)
(M)
 
 
 
215,746

 
$
212,000

 
215,746

 
 
 
 
 
 
 
 
 
 
Nanosys, Inc. (5)(8)(9)
 
 
Energy
 
 
 
 
 
 
Developing inorganic nanowires and quantum dots for use in LED-backlit devices
 
 
 
 
 
 
 
 
 
Series C Convertible Preferred Stock (acquired 4/10/03)
(M)
 
 
 
1,500,000

 
803,428

 
128,149

Series D Convertible Preferred Stock (acquired 11/7/05)
(M)
 
 
 
3,000,003

 
1,016,950

 
436,897

Series E Convertible Preferred Stock (acquired 8/13/10)
(M)
 
 
 
496,573

 
433,688

 
323,784

 
 
 
 
 
4,996,576

 
 
 
888,830

 
 
 
 
 
 
 
 
 
 
Nano Terra, Inc. (5)(8)
 
 
Energy
 
 
 
 
 
 
Developing surface chemistry and nano-manufacturing solutions
 
 
 
 
 
 
 
 
 
Warrants for Common Stock expiring on 2/22/21 (acquired 2/22/11)
(I)
 
 
 
69,168

 
4,462

 
407

Warrants for Series A-3 Preferred Stock expiring on 11/15/22 (acquired 11/15/12)
(I)
 
 
 
35,403

 
47,508

 
97,345

 
 
 
 
 
104,571

 
 
 
97,752

 
 
 
 
 
 
 
 
 
 

The accompanying unaudited notes are an integral part of these consolidated financial statements.
7
HARRIS & HARRIS GROUP, INC.
CONSOLIDATED SCHEDULE OF INVESTMENTS AS OF SEPTEMBER 30, 2016
(Unaudited)
 
 
 
 
 
 
 
 
 
 
 
Method of
Valuation (1)
 
Primary
Industry (2)
 
Cost
 
Shares/
Principal
 
Value

Investments in Unaffiliated Companies (3) -
 
 
 
 
 
 
 
 
 
12.1% of net assets at value (Cont.)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Private Placement Portfolio (Illiquid) (4) -
 
 
 
 
 
 
 
 
 
6.3% of net assets at value (Cont.)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Phylagen, Inc. (5)(8)
 
 
Life Sciences
 
 
 
 
 
 
Developing technology to improve human health and business productivity
 
 
 
 
 
 
 
 
 
Secured Convertible Bridge Note, 5%, (acquired 2/5/15)
(M)
 
 
 
$
216,548

 
$
200,000

 
$
303,167

Secured Convertible Bridge Note, 5%, (acquired 6/5/15)
(M)
 
 
 
10,663

 
$
10,000

 
14,928

 
 
 
 
 
227,211

 
 
 
318,095

 
 
 
 
 
 
 
 
 
 
Xenio Corp. (5)(8)(11)
 
 
Electronics
 
 
 
 
 
 
Developing a smart platform for LED lighting that enables local intelligence and communication capabilities
 
 
 
 
 
 
 
 
 
Common Stock (acquired 8/1/16)
(M)
 
 
 
184,653

 
221,938

 
184,653

 
 
 
 
 
 
 
 
 
 
Total Unaffiliated Private Portfolio (cost: $10,878,510)
 
 
 
 
 
 
 
 
$
4,715,016

 
 
 
 
 
 
 
 
 
 
Rights to Milestone Payments (Illiquid) (6) -
 
 
 
 
 
 
 
 
 
4.6% of net assets at value
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Amgen, Inc. (8)(9)
 
 
Life Sciences
 
 
 
 
 
 
Rights to Milestone Payments from Acquisition of BioVex Group, Inc. (acquired 3/4/11)
(I)
 
 
 
$
548,998

 
$
548,998

 
$
2,975,353

 
 
 
 
 
 
 
 
 
 
Canon, Inc. (8)(9)
 
 
Electronics
 
 
 
 
 
 
Rights to Milestone Payments from Acquisition of Molecular Imprints, Inc. (acquired 4/18/14)
(I)
 
 
 
232,865

 
$
232,865

 
467,392

 
 
 
 
 
 
 
 
 
 
Laird Technologies, Inc. (8)(9)
 
 
Energy
 
 
 
 
 
 
Rights to Milestone Payments from Merger & Acquisition of Nextreme Thermal Solutions, Inc. (acquired 2/13/13)
(I)
 
 
 
0

 
$
0

 
0

 
 
 
 
 
 
 
 
 
 
Total Unaffiliated Rights to Milestone Payments (cost: $781,863)
 
 
 
 
 
 
 
 
$
3,442,745

 
 
 
 
 
 
 
 
 
 

The accompanying unaudited notes are an integral part of these consolidated financial statements.
8
HARRIS & HARRIS GROUP, INC.
CONSOLIDATED SCHEDULE OF INVESTMENTS AS OF SEPTEMBER 30, 2016
(Unaudited)
 
 
 
 
 
 
 
 
 
 
 
Method of
Valuation (1)
 
Primary
Industry (2)
 
Cost
 
Shares/
Principal
 
Value

Publicly Traded Portfolio (7) -
 
 
 
 
 
 
 
 
 
1.2% of net assets at value
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Champions Oncology, Inc. (5)(9)
 
 
Life Sciences
 
 
 
 
 
 
Developing its TumorGraftTM platform for personalized medicine and drug development
 
 
 
 
 
 
 
 
 
Common Stock (acquired 3/24/11-3/11/15)
(M)
 
 
 
$
966,588

 
145,075

 
$
243,726

Warrants for Common Stock expiring 1/28/19 (acquired 1/28/13)
(I)
 
 
 
400

 
5,500

 
2,281

 
 
 
 
 
966,988

 
 
 
246,007

 
 
 
 
 
 
 
 
 
 
OpGen, Inc. (5)(9)(12)
 
 
Life Sciences
 
 
 
 
 
 
Developing tools for genomic sequence assembly and analysis
 
 
 
 
 
 
 
 
 
Common Stock (acquired 5/5/15)
(M)
 
 
 
1,271,292

 
316,335

 
518,789

Warrants for the Purchase of Common Stock expiring 5/8/20 (acquired 5/5/15)
(M)
 
 
 
425,579

 
300,833

 
118,197

Warrants for the Purchase of Common Stock expiring 2/17/25 (acquired 5/5/15)
(I)
 
 
 
785

 
31,206

 
39,612

 
 
 
 
 
1,697,656

 
 
 
676,598

 
 
 
 
 
 
 
 
 
 
Total Unaffiliated Publicly Traded Portfolio (cost: $2,664,644)
 
 
 
 
 
 
 
 
$
922,605

 
 
 
 
 
 
 
 
 
 
Total Investments in Unaffiliated Companies (cost: $14,325,017)
 
 
 
 
 
 
 
 
$
9,080,366

 
 
 
 
 
 
 
 
 
 
Investments in Non-Controlled Affiliated Companies (3) -
 
 
 
 
 
 
 
 
 
68.3% of net assets at value
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Private Placement Portfolio (Illiquid) (13) -
 
 
 
 
 
 
 
 
 
61.1% of net assets at value
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
ABSMaterials, Inc. (5)(8)
 
 
Energy
 
 
 
 
 
 
Developing nano-structured absorbent materials for water remediation and consumer applications
 
 
 
 
 
 
 
 
 
Series A Convertible Preferred Stock (acquired 2/17/10-10/24/11)
(I)
 
 
 
$
435,000

 
390,000

 
$
240,482

Series B Convertible Preferred Stock (acquired 11/8/13-6/25/14)
(I)
 
 
 
1,217,644

 
1,037,751

 
852,557

Secured Convertible Bridge Note, 8%, (acquired 1/20/16)
(M)
 
 
 
105,589

 
$
100,000

 
105,589

 
 
 
 
 
1,758,233

 
 
 
1,198,628

 
 
 
 
 
 
 
 
 
 

The accompanying unaudited notes are an integral part of these consolidated financial statements.
9
HARRIS & HARRIS GROUP, INC.
CONSOLIDATED SCHEDULE OF INVESTMENTS AS OF SEPTEMBER 30, 2016
(Unaudited)
 
 
 
 
 
 
 
 
 
 
 
Method of
Valuation (1)
 
Primary
Industry (2)
 
Cost
 
Shares/
Principal
 
Value

Investments in Non-Controlled Affiliated Companies (3) -
 
 
 
 
 
 
 
 
 
68.3% of net assets at value (Cont.)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Private Placement Portfolio (Illiquid) (13) -
 
 
 
 
 
 
 
 
 
61.1% of net assets at value (Cont.)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
AgBiome, LLC (5)(8)(9)
 
 
Life Sciences
 
 
 
 
 
 
Providing early-stage research and discovery for agriculture and utilizing the crop microbiome to identify products that reduce risk and improve yield
 
 
 
 
 
 
 
 
 
Series A-1 Convertible Preferred Stock (acquired 1/30/13)
(I)
 
 
 
$
2,000,000

 
2,000,000

 
$
5,877,743

Series A-2 Convertible Preferred Stock (acquired 4/9/13-10/15/13)
(I)
 
 
 
521,740

 
417,392

 
1,273,672

Series B Convertible Preferred Stock (acquired 8/7/15)
(I)
 
 
 
500,006

 
160,526

 
686,576

 
 
 
 
 
3,021,746

 
 
 
7,837,991

 
 
 
 
 
 
 
 
 
 
D-Wave Systems, Inc. (5)(8)(9)(14)
 
 
Electronics
 
 
 
 
 
 
Developing high-performance quantum computing systems
 
 
 
 
 
 
 
 
 
Series 1 Class B Convertible Preferred Stock (acquired 9/30/08)
(H)
 
 
 
1,002,074

 
1,144,869

 
2,520,573

Series 1 Class C Convertible Preferred Stock (acquired 9/30/08)
(H)
 
 
 
487,804

 
450,450

 
995,955

Series 1 Class D Convertible Preferred Stock (acquired 9/30/08)
(H)
 
 
 
748,473

 
855,131

 
1,890,714

Series 1 Class E Convertible Preferred Stock (acquired 11/24/10)
(H)
 
 
 
248,049

 
269,280

 
603,580

Series 1 Class F Convertible Preferred Stock (acquired 11/24/10)
(H)
 
 
 
238,323

 
258,721

 
579,913

Series 1 Class H Convertible Preferred Stock (acquired 6/27/14)
(H)
 
 
 
909,088

 
460,866

 
1,119,022

Series 2 Class D Convertible Preferred Stock (acquired 9/30/08)
(H)
 
 
 
736,019

 
678,264

 
1,499,657

Series 2 Class E Convertible Preferred Stock (acquired 6/1/12-3/22/13)
(H)
 
 
 
659,493

 
513,900

 
1,159,038

Series 2 Class F Convertible Preferred Stock (acquired 6/1/12-3/22/13)
(H)
 
 
 
633,631

 
493,747

 
1,113,585

Warrants for Common Stock expiring 5/12/19 (acquired 5/12/14)
(I)
 
 
 
26,357

 
20,415

 
16,154

 
 
 
 
 
5,689,311

 
 
 
11,498,191

 
 
 
 
 
 
 
 
 
 

The accompanying unaudited notes are an integral part of these consolidated financial statements.
10
HARRIS & HARRIS GROUP, INC.
CONSOLIDATED SCHEDULE OF INVESTMENTS AS OF SEPTEMBER 30, 2016
(Unaudited)
 
 
 
 
 
 
 
 
 
 
 
Method of
Valuation (1)
 
Primary
Industry (2)
 
Cost
 
Shares/
Principal
 
Value

Investments in Non-Controlled Affiliated Companies (3) -
 
 
 
 
 
 
 
 
 
68.3% of net assets at value (Cont.)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Private Placement Portfolio (Illiquid) (13) -
 
 
 
 
 
 
 
 
 
61.1% of net assets at value (Cont.)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
EchoPixel, Inc. (5)(8)
 
 
Life Sciences
 
 
 
 
 
 
Developing virtual reality 3-D visualization software for life sciences and health care applications
 
 
 
 
 
 
 
 
 
Series Seed Convertible Preferred Stock (acquired 6/21/13-6/30/14)
(I)
 
 
 
$
1,250,000

 
4,194,630

 
$
920,842

Series Seed-2 Convertible Preferred Stock (acquired 1/22/16)
(I)
 
 
 
500,000

 
1,476,668

 
329,089

Unsecured Convertible Bridge Note, 0%, (acquired 7/12/16)
(M)
 
 
 
350,000

 
$
350,000

 
437,500

 
 
 
 
 
2,100,000

 
 
 
1,687,431

 
 
 
 
 
 
 
 
 
 
Ensemble Therapeutics Corporation (5)(8)(9)
 
 
Life Sciences
 
 
 
 
 
 
Developing DNA-Programmed ChemistryTM for the discovery of new classes of therapeutics
 
 
 
 
 
 
 
 
 
Series B Convertible Preferred Stock (acquired 6/6/07)
(I)
 
 
 
2,000,000

 
1,449,275

 
0

Series B-1 Convertible Preferred Stock (acquired 4/21/14)
(I)
 
 
 
679,754

 
492,575

 
1,201,610

 
 
 
 
 
2,679,754

 
 
 
1,201,610

 
 
 
 
 
 
 
 
 
 
Genome Profiling, LLC (5)(8)(10)
 
 
Life Sciences
 
 
 
 
 
 
Developing a platform to analyze and understand the epigenome
 
 
 
 
 
 
 
 
 
Unsecured Convertible Bridge Note, 8%, (acquired 8/4/16)
(M)
 
 
 
230,000

 
$
230,000

 
230,000

 
 
 
 
 
 
 
 
 
 
HZO, Inc. (5)(8)
 
 
Electronics
 
 
 
 
 
 
Developing novel industrial coatings that protect electronics against damage from liquids
 
 
 
 
 
 
 
 
 
Common Stock (acquired 6/23/14)
(M)
 
 
 
666,667

 
405,729

 
378,952

Series I Convertible Preferred Stock (acquired 6/23/14)
(M)
 
 
 
5,709,835

 
2,266,894

 
3,538,876

Series II Convertible Preferred Stock (acquired 6/23/14-8/3/15)
(M)
 
 
 
2,500,006

 
674,638

 
1,568,988

Series II-A Convertible Preferred Stock (acquired 9/9/16)
(M)
 
 
 
226,070

 
69,053

 
245,009

Warrants for Series II-A Convertible Preferred Stock expiring 7/15/23 (acquired 7/15/16)
(I)
 
 
 
29,820

 
6,577

 
23,274

 
 
 
 
 
9,132,398

 
 
 
5,755,099

 
 
 
 
 
 
 
 
 
 

The accompanying unaudited notes are an integral part of these consolidated financial statements.
11
HARRIS & HARRIS GROUP, INC.
CONSOLIDATED SCHEDULE OF INVESTMENTS AS OF SEPTEMBER 30, 2016
(Unaudited)
 
 
 
 
 
 
 
 
 
 
 
Method of
Valuation (1)
 
Primary
Industry (2)
 
Cost
 
Shares/
Principal
 
Value

Investments in Non-Controlled Affiliated Companies (3) -
 
 
 
 
 
 
 
 
 
68.3% of net assets at value (Cont.)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Private Placement Portfolio (Illiquid) (13) -
 
 
 
 
 
 
 
 
 
61.1% of net assets at value (Cont.)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Laser Light Engines, Inc. (8)(9)(15)
 
 
Energy
 
 
 
 
 
 
Manufactured solid-state light sources for digital cinema and large-venue projection displays
 
 
 
 
 
 
 
 
 
Series A Convertible Preferred Stock (acquired 5/6/08)
(M)
 
 
 
$
2,000,000

 
7,499,062

 
$
0

Series B Convertible Preferred Stock (acquired 9/17/10)
(M)
 
 
 
3,095,802

 
13,571,848

 
0

Secured Convertible Bridge Note, 12%, (acquired 10/7/2011)
(M)
 
 
 
200,000

 
$
200,000

 
0

Secured Convertible Bridge Note, 12%, (acquired 11/17/2011)
(M)
 
 
 
95,652

 
$
95,652

 
0

Secured Convertible Bridge Note, 12%, (acquired 12/21/2011)
(M)
 
 
 
82,609

 
$
82,609

 
0

Secured Convertible Bridge Note, 12%, (acquired 3/5/2012)
(M)
 
 
 
434,784

 
$
434,784

 
0

Secured Convertible Bridge Note, 12%, (acquired 7/26/2012)
(M)
 
 
 
186,955

 
$
186,955

 
0

Secured Convertible Bridge Note, 20%, (acquired 4/29/2013)
(M)
 
 
 
166,667

 
$
166,667

 
0

Secured Convertible Bridge Note, 20%, (acquired 7/22/2013)
(M)
 
 
 
166,667

 
$
166,667

 
0

Secured Convertible Bridge Note, 10%, (acquired 10/30/2013)
(M)
 
 
 
80,669

 
$
80,669

 
0

Secured Convertible Bridge Note, 10%, (acquired 2/5/2014)
(M)
 
 
 
19,331

 
$
19,331

 
0

Secured Convertible Bridge Note, 10%, (acquired 6/24/2014)
(M)
 
 
 
13,745

 
$
13,745

 
0

 
 
 
 
 
6,542,881

 
 
 
0

 
 
 
 
 
 
 
 
 
 
Lodo Therapeutics Corporation (5)(8)(9)
 
 
Life Sciences
 
 
 
 
 
 
Developing and commercializing novel therapeutics derived from a metagenome-based Natural Product Discovery Platform
 
 
 
 
 
 
 
 
 
Series A Convertible Preferred Stock (acquired 12/21/15-4/22/16)
(I)
 
 
 
658,190

 
658,190

 
658,993

 
 
 
 
 
 
 
 
 
 

The accompanying unaudited notes are an integral part of these consolidated financial statements.
12
HARRIS & HARRIS GROUP, INC.
CONSOLIDATED SCHEDULE OF INVESTMENTS AS OF SEPTEMBER 30, 2016
(Unaudited)
 
 
 
 
 
 
 
 
 
 
 
Method of
Valuation (1)
 
Primary
Industry (2)
 
Cost
 
Shares/
Principal
 
Value

Investments in Non-Controlled Affiliated Companies (3) -
 
 
 
 
 
 
 
 
 
68.3% of net assets at value (Cont.)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Private Placement Portfolio (Illiquid) (13) -
 
 
 
 
 
 
 
 
 
61.1% of net assets at value (Cont.)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Metabolon, Inc. (5)(8)(9)
 
 
Life Sciences
 
 
 
 
 
 
Developing a biochemical profiling platform for precision medicine
 
 
 
 
 
 
 
 
 
Series B Convertible Preferred Stock (acquired 6/29/09)
(M)
 
 
 
$
2,500,000

 
371,739

 
$
2,924,040

Series B-1 Convertible Preferred Stock (acquired 6/29/09)
(M)
 
 
 
706,214

 
148,696

 
1,169,615

Series C Convertible Preferred Stock (acquired 4/30/09)
(M)
 
 
 
1,000,000

 
1,000,000

 
2,678,510

Series D Convertible Preferred Stock (acquired 8/25/11)
(M)
 
 
 
1,499,999

 
835,882

 
2,272,335

Series E-1 Convertible Preferred Stock (acquired 3/2/15)
(M)
 
 
 
1,225,000

 
444,404

 
1,439,068

Series E-2 Convertible Preferred Stock (acquired 3/2/15)
(M)
 
 
 
299,999

 
103,277

 
312,755

 
 
 
 
 
7,231,212

 
 
 
10,796,323

 
 
 
 
 
 
 
 
 
 
ORIG3N, Inc. (5)(8)(9)
 
 
Life Sciences
 
 
 
 
 
 
Developing precision medicine applications for induced pluripotent stems cells
 
 
 
 
 
 
 
 
 
Series 1 Convertible Preferred Stock (acquired 2/5/15-8/5/15)
(I)
 
 
 
500,000

 
1,195,315

 
1,165,150

Series A Convertible Preferred Stock (acquired 11/25/15-9/7/16)
(I)
 
 
 
1,500,000

 
1,364,666

 
1,504,222

 
 
 
 
 
2,000,000

 
 
 
2,669,372

 
 
 
 
 
 
 
 
 
 
Petra Pharma Corporation (5)(8)(9)
 
 
Life Sciences
 
 
 
 
 
 
Developing small molecule inhibitors for treatment of cancer and metabolic diseases
 
 
 
 
 
 
 
 
 
Series A Convertible Preferred Stock (acquired 12/23/15)
(I)
 
 
 
1,025,050

 
1,025,050

 
1,027,353

 
 
 
 
 
 
 
 
 
 

The accompanying unaudited notes are an integral part of these consolidated financial statements.
13
HARRIS & HARRIS GROUP, INC.
CONSOLIDATED SCHEDULE OF INVESTMENTS AS OF SEPTEMBER 30, 2016
(Unaudited)
 
 
 
 
 
 
 
 
 
 
 
Method of
Valuation (1)
 
Primary
Industry (2)
 
Cost
 
Shares/
Principal
 
Value

Investments in Non-Controlled Affiliated Companies (3) -
 
 
 
 
 
 
 
 
 
68.3% of net assets at value (Cont.)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Private Placement Portfolio (Illiquid) (13) -
 
 
 
 
 
 
 
 
 
61.1% of net assets at value (Cont.)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Produced Water Absorbents, Inc. (5)(8)(16)
 
 
Energy
 
 
 
 
 
 
Providing integrated process separation solutions to the global oil and gas industries, enabling onsite treatment of produced and flowback water
 
 
 
 
 
 
 
 
 
Common Stock (acquired 4/30/16)
(M)
 
 
 
$
7,670,281

 
50,243,350

 
$
0

Warrants for Common Stock expiring upon liquidation event (acquired 4/30/16)
(I)
 
 
 
65,250

 
450,000

 
0

Senior Secured Debt, 15% commencing on 4/1/16, maturing on 12/31/19 (acquired 4/1/16)
(I)
 
 
 
1,946,167

 
$
2,533,766

 
1,424,750

 
 
 
 
 
9,681,698

 
 
 
1,424,750

 
 
 
 
 
 
 
 
 
 
Total Non-Controlled Affiliated Private Portfolio (cost: $51,750,473)
 
 
 
 
 
 
 
 
$
45,985,741

 
 
 
 
 
 
 
 
 
 
Publicly Traded Portfolio (17) -
 
 
 
 
 
 
 
 
 
7.2% of net assets at value
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Adesto Technologies Corporation (5)(9)(18)
 
 
Electronics
 
 
 
 
 
 
Developing low-power, high-performance memory devices
 
 
 
 
 
 
 
 
 
Common Stock (acquired 10/27/15)
(M)
 
 
 
$
11,482,417

 
1,769,868

 
$
3,929,107

 
 
 
 
 
 
 
 
 
 
Enumeral Biomedical Holdings, Inc. (5)(9)
 
 
Life Sciences
 
 
 
 
 
 
Developing therapeutics and diagnostics through functional assaying of single cells
 
 
 
 
 
 
 
 
 
Common Stock (acquired 7/31/14)
(M)
 
 
 
4,993,357

 
7,966,368

 
1,441,913

Warrants to purchase Common Stock expiring 2/2/2024 (acquired 7/31/14)
(I)
 
 
 
57,567

 
255,120

 
34,631

Warrants to purchase Common Stock expiring 7/30/2019 (acquired 7/31/14)
(I)
 
 
 
540,375

 
1,500,000

 
26,164

 
 
 
 
 
5,591,299

 
 
 
1,502,708