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

Form 10-Q

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

For the quarterly period ended June 30, 2009

¨    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
  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)

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

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
 
Yes   x
No   ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
 
Yes   x
No   ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.  (Check one):

 
Large accelerated filer  ¨
Accelerated filer   x
 
Non-accelerated filer   ¨
Smaller reporting company ¨
 (Do not check if a smaller reporting company)

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

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

Class
   
Outstanding at August 6, 2009
Common Stock, $0.01 par value per share
  
25,859,573 shares

 
 
 
 
Harris & Harris Group, Inc.
Form 10-Q, June 30, 2009

   
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
     33  
         
Item 2.  Management's Discussion and Analysis of Financial Condition and Results of Operations
     34  
         
Background and Overview
     34  
Historical Investment Track Record
     35  
Commercialization of Nanotechnology by Our Portfolio Companies
     36  
Current Venture Capital Portfolio
     38  
Current Business Environment
     40  
Results of Operations
     42  
Financial Condition
     48  
Liquidity
     49  
Capital Resources
     50  
Critical Accounting Policies
     50  
Recent Developments – Portfolio Companies
     53  
Recent Developments – Other
     53  
Forward-Looking Statements
     53  
         
Item 3.  Quantitative and Qualitative Disclosures About Market Risk
     54  
         
Item 4.  Controls and Procedures
     55  
         
PART II.  OTHER INFORMATION
        
         
Item 1A.  Risk Factors
     56  
         
Item 4. Submission of Matters to a Vote of Security Holders
     58  
         
Item 6. Exhibits
     58  
         
Signatures
     59  
         
Exhibit Index
     60  
 
 
 
 

PART I.  FINANCIAL INFORMATION

Item 1. Consolidated Financial Statements

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

Harris & Harris Group, Inc.® (the "Company," "us," "our" and "we"), is an internally managed venture capital company that has elected to operate as a business development company under the Investment Company Act of 1940 (the "1940 Act").  Certain information and disclosures normally included in the consolidated financial statements in accordance with Generally Accepted Accounting Principles have been condensed or omitted as permitted by Regulation S-X and Regulation S-K.  The accompanying consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto for the year ended December 31, 2008, contained in our Annual Report on Form 10-K for the year ended December 31, 2008.

In September 1997, our Board of Directors approved a proposal to seek qualification as a regulated investment company ("RIC") under Subchapter M of the Internal Revenue Code (the "Code").  At that time, we were taxable under Subchapter C of the Code (a "C Corporation").  We filed for the 1999 tax year to elect treatment as a RIC.  In order to qualify as a RIC, we must, in general, (1) annually, derive at least 90 percent of our gross income from dividends, interest, gains from the sale of securities and similar sources; (2) quarterly, meet certain investment diversification requirements; and (3) annually, distribute at least 90 percent of our investment company taxable income as a dividend.  In addition to the requirement that we must annually distribute at least 90 percent of our investment company taxable income, we may either distribute or retain our net capital gain from investments, but any net capital gain not distributed will be subject to corporate income tax and the excise tax described below.  We will be subject to a four percent excise tax to the extent we fail to distribute at least 98 percent of our annual net ordinary income and 98 percent of our capital gain net income and would be subject to income tax to the extent we fail to distribute 100 percent of our investment company taxable income.

Because of the specialized nature of our investment portfolio, we generally can satisfy the diversification requirements under Subchapter M of the Code if we receive a certification from the Securities and Exchange Commission (“SEC”) that we are "principally engaged in the furnishing of capital to other corporations which are principally engaged in the development or exploitation of inventions, technological improvements, new processes, or products not previously generally available."

On June 9, 2009, we received SEC certification for 2008, permitting us to qualify for RIC treatment for 2008 (as we had for the years 1999 through 2007) pursuant to Section 851(e) of the Code.  Although the SEC certification for 2008 was issued, there can be no assurance that we will qualify for or receive such certification for subsequent years (to the extent we need additional certification as a result of changes in our portfolio) or that we will actually qualify for Subchapter M treatment in subsequent years.  In 2008, we qualified for RIC treatment even without certification.  In addition, under certain circumstances, even if we qualified for Subchapter M treatment in a given year, we might take action in a subsequent year to ensure that we would be taxed in that subsequent year as a C Corporation, rather than as a RIC.  Because Subchapter M does not permit deduction of operating expenses against net capital gain, it is not clear that the Company and its shareholders have paid less in taxes since 1999 than they would have paid had the Company remained a C Corporation.

 
1
 
 
HARRIS & HARRIS GROUP, INC.
CONSOLIDATED STATEMENTS OF ASSETS AND LIABILITIES
 
ASSETS

   
June 30, 2009
    
December 31, 2008
  
   
(Unaudited)
        
Investments, in portfolio securities at value:
            
Unaffiliated companies (cost: $26,273,391 and
            
$24,208,281, respectively)
   $ 14,617,481     $ 12,086,503  
Non-controlled affiliated companies (cost: $59,737,665
                
and $60,796,720, respectively)
     44,796,511       39,650,187  
Controlled affiliated companies (cost: $6,978,511
                
and $6,085,000, respectively)
     4,545,819       5,228,463  
Total, investments in private portfolio companies at value
                
(cost: $92,989,567 and $91,090,001, respectively)
   $ 63,959,811     $ 56,965,153  
                 
Investments, in U.S. Treasury obligations at value
                
(cost: $46,379,087 and $52,956,288, respectively)
     46,395,504       52,983,940  
Cash and cash equivalents
     1,271,390       692,309  
Restricted funds (Note 10)
     189,369       191,955  
Interest receivable
     25,774       56  
Prepaid expenses
     232,113       484,567  
Other assets
     281,886       309,621  
Total assets
   $ 112,355,847     $ 111,627,601  

LIABILITIES & NET ASSETS

Accounts payable and accrued liabilities (Note 10)
   $ 1,937,885     $ 2,088,348  
Deferred rent
     4,989       8,140  
Total liabilities
     1,942,874       2,096,488  
                 
Net assets
   $ 110,412,973     $ 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
                
6/30/09 and 12/31/08; 27,688,313 issued at
                
6/30/09 and 12/31/08
     276,884       276,884  
Additional paid in capital (Note 6)
     182,663,424       181,251,507  
Accumulated net operating and realized loss
     (40,108,465 )     (34,494,551 )
Accumulated unrealized depreciation of investments
     (29,013,339 )     (34,097,196 )
Treasury stock, at cost (1,828,740 shares at 6/30/09 and
                
12/31/08)
     (3,405,531 )     (3,405,531 )
                 
Net assets
   $ 110,412,973     $ 109,531,113  
                 
Shares outstanding
     25,859,573       25,859,573  
                 
Net asset value per outstanding share
   $ 4.27     $ 4.24  
 
The accompanying notes are an integral part of these consolidated financial statements.

 
2
 

HARRIS & HARRIS GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
 
   
Three Months Ended June 30,
    
Six Months Ended June 30,
  
   
2009
    
2008
    
2009
    
2008
  
Investment income:
                        
Interest from:
                        
Fixed-income securities and bridge notes (Note 3)
   $ 75,084     $ 464,456     $ 39,185     $ 1,040,758  
Miscellaneous income
     8,750       3,169       21,088       3,169  
Total investment income
     83,834       467,625       60,273       1,043,927  
                                 
Expenses:
                                
Salaries, benefits and stock-based compensation (Note 6)
     1,506,597       2,461,802       2,893,937       4,895,097  
Administration and operations
     231,161       283,361       521,596       585,216  
Professional fees
     152,291       201,866       367,541       340,098  
Rent
     78,998       59,748       157,061       117,602  
Directors’ fees and expenses
     89,100       79,169       173,609       184,315  
Depreciation
     12,878       13,819       25,737       27,804  
Custodian fees
     11,080       6,143       17,942       12,696  
Total expenses
     2,082,105       3,105,908       4,157,423       6,162,828  
                                 
Net operating loss
     (1,998,271 )     (2,638,283 )     (4,097,150 )     (5,118,901 )
                                 
Net realized (loss) gain from investments:
                                
Realized (loss) gain from:
                                
Unaffiliated companies
     (1,511,042 )     3,420       (1,514,330 )     3,420  
Non-Controlled affiliated companies
     0       0       0       (5,014,653 )
U.S. Treasury obligations/other
     0       492       (325 )     275  
Realized (loss) gain from investments
     (1,511,042 )     3,912       (1,514,655 )     (5,010,958 )
                                 
Income tax expense (Note 7)
     1,729       668       2,109       46,866  
Net realized (loss) gain from investments
     (1,512,771 )     3,244       (1,516,764 )     (5,057,824 )
                                 
Net decrease in unrealized depreciation on investments:
                                
Change as a result of investment sales
     1,511,042       0       1,511,042       5,014,653  
Change on investments held
     2,421,367       3,989,748       3,572,815       3,227,746  
Net decrease in unrealized depreciation on investments
     3,932,409       3,989,748       5,083,857       8,242,399  
                                 
Net increase (decrease) in net assets resulting from operations
   $ 421,367     $ 1,354,709     $ (530,057 )   $ (1,934,326 )
                                 
Per average basic and diluted outstanding share
   $ 0.02     $ 0.06     $ (0.02 )   $ (0.08 )
                                 
Average outstanding shares
     25,859,573       23,622,210       25,859,573       23,468,392  

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

 
3
 

HARRIS & HARRIS GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
 
   
Six Months Ended
    
Six Months Ended
  
   
June 30, 2009
    
June 30, 2008
  
             
Cash flows used in operating activities:
            
Net decrease in net assets resulting from operations
   $ (530,057 )   $ (1,934,326 )
Adjustments to reconcile net decrease in net assets resulting
                
from operations to net cash used in operating activities:
                
Net realized and unrealized gain on investments
     (3,569,202 )     (3,231,441 )
Depreciation of fixed assets, amortization of premium
                
or discount on U.S. government securities, and
                
bridge note interest
     73,663       82,877  
Stock-based compensation expense
     1,411,917       2,966,325  
                 
Changes in assets and liabilities:
                
Restricted funds
     2,586       2,613,149  
Receivable from portfolio company
     0       (20,976 )
Interest receivable
     4,317       73,651  
Prepaid expenses
     252,454       225,304  
Other assets
     3,312       3,894  
Accounts payable and accrued liabilities
     (150,463 )     (2,518,610 )
Deferred rent
     (3,151 )     (3,235 )
                 
Net cash used in operating activities
     (2,504,624 )     (1,743,388 )
                 
Cash flows from investing activities:
                
Purchase of U.S. government securities
     (103,318,117 )     (66,940,804 )
Sale of U.S. government securities
     109,851,434       65,395,679  
Investment in private placements and bridge loans
     (3,451,549 )     (10,847,095 )
Proceeds from sale of investments
     3,250       112,234  
Purchase of fixed assets
     (1,313 )     (2,013 )
                 
Net cash provided by (used in) investing activities
     3,083,705       (12,281,999 )
                 
Cash flows from financing activities:
                
Net cash provided by financing activities
     0       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.
     1,271,390       688,119  
                 
Net increase in cash and cash equivalents
   $ 579,081     $ 358,110  
                 
Supplemental disclosures of cash flow information:
                
Income taxes paid
   $ 2,109     $ 46,325  

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

 
4
 

HARRIS & HARRIS GROUP, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS
 
   
Six Months Ended
    
Year Ended
  
   
June 30, 2009
    
December 31, 2008
  
   
(Unaudited)
        
Changes in net assets from operations:
            
             
Net operating loss
   $ (4,097,150 )   $ (10,687,151 )
Net realized loss on investments
     (1,516,764 )     (8,323,634 )
Net decrease in unrealized depreciation on investments as a result of sales
     1,511,042       8,292,072  
Net decrease (increase) in unrealized depreciation on investments held
     3,572,815       (38,462,784 )
                 
Net decrease in net assets resulting from operations
     (530,057 )     (49,181,497 )
                 
Changes in net assets from capital stock transactions:
                
                 
Issuance of common stock on offering
     0       25,450  
Additional paid-in capital on common stock issued
     0       14,358,047  
Stock-based compensation expense
     1,411,917       5,965,769  
                 
Net increase in net assets resulting from capital stock transactions
     1,411,917       20,349,266  
                 
Net increase (decrease) in net assets
     881,860       (28,832,231 )
                 
Net assets:
                
                 
Beginning of the period
     109,531,113       138,363,344  
                 
End of the period
   $ 110,412,973     $ 109,531,113  

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

 
5
 

HARRIS & HARRIS GROUP, INC.
CONSOLIDATED SCHEDULE OF INVESTMENTS AS OF JUNE 30, 2009
(Unaudited)
 
   
Method of
  
Shares/
        
   
Valuation (1)
  
Principal
    
Value
  
                 
Investments in Unaffiliated Companies (2)(3) – 13.2% of net assets at value
                
                 
Private Placement Portfolio (Illiquid) – 13.2% 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     $ 85,995  
Series F Convertible Preferred Stock
  
(M)
     2,011,110       411,641  
Warrants at $0.241576 expiring 11/13/15
  
( I )
     248,120       29,329  
                  526,965  
                     
Cobalt Technologies, Inc. (4)(5)(6)(8) – Developing processes for
                    
making biobutanol through biomass fermentation
                    
Series C Convertible Preferred Stock
  
(M)
     176,056       187,500  
                     
D-Wave Systems, Inc. (4)(5)(6)(9) -- Developing high-
                    
performance quantum computing systems
                    
Series B Convertible Preferred Stock
  
(M)
     1,144,869       1,103,628  
Series C Convertible Preferred Stock
  
(M)
     450,450       434,224  
Series D Convertible Preferred Stock
  
(M)
     1,533,395       1,478,158  
                  3,016,010  
                     
Molecular Imprints, Inc. (4)(5) -- 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       55,750  
                  3,204,188  
                     
Nanosys, Inc. (4)(5) -- 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  

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

 
6
 

HARRIS & HARRIS GROUP, INC.
CONSOLIDATED SCHEDULE OF INVESTMENTS AS OF JUNE 30, 2009
(Unaudited)

   
Method of
  
Shares/
        
   
Valuation (1)
  
Principal
    
Value
  
                 
Investments in Unaffiliated Companies (2)(3) – 13.2% of net assets at value (cont.)
                
                 
Private Placement Portfolio (Illiquid) – 13.2% of net assets at value (cont.)
                
                 
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  
                     
NeoPhotonics Corporation (4)(5) -- Developing and manufacturing
                    
optical devices and components
                    
Common Stock
  
(M)
     716,195       244,702  
Series 1 Convertible Preferred Stock
  
(M)
     1,831,256       625,686  
Series 2 Convertible Preferred Stock
  
(M)
     741,898       253,484  
Series 3 Convertible Preferred Stock
  
(M)
     2,750,000       939,592  
Series X Convertible Preferred Stock
  
(M)
     2,000       136,668  
Warrants at $0.15 expiring 01/26/10
  
( I )
     16,364       3,371  
Warrants at $0.15 expiring 12/05/10
  
( I )
     14,063       3,277  
                  2,206,780  
                     
Polatis, Inc. (4)(5)(6) -- 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) --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  

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

 
7
 

HARRIS & HARRIS GROUP, INC.
CONSOLIDATED SCHEDULE OF INVESTMENTS AS OF JUNE 30, 2009
(Unaudited)
 
   
Method of
  
Shares/
        
   
Valuation (1)
  
Principal
    
Value
  
                 
Investments in Unaffiliated Companies (2)(3) – 13.2% of net assets at value (cont.)
                
                 
Private Placement Portfolio (Illiquid) – 13.2% of net assets at value (cont.)
                
                 
Siluria Technologies, Inc. (4)(5)(6) -- Developing next-generation
                
nanomaterials
                
Series S-2 Convertible Preferred Stock
  
(M)
     612,061     $ 204,000  
                     
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  
                     
TetraVitae Bioscience, Inc. (4)(5)(6)(10) -- 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: $26,273,391)
               $ 14,617,481  
                     
Total Investments in Unaffiliated Companies (cost: $26,273,391)
               $ 14,617,481  

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

 
8
 

HARRIS & HARRIS GROUP, INC.
CONSOLIDATED SCHEDULE OF INVESTMENTS AS OF JUNE 30, 2009
(Unaudited)
 
   
Method of
  
Shares/
        
   
Valuation (1)
  
Principal
    
Value
  
                 
Investments in Non-Controlled Affiliated Companies (2)(11) – 40.6% of net assets at value
                
                 
Private Placement Portfolio (Illiquid) – 40.6% 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  
Unsecured Convertible Bridge Note (including interest)
  
(M)
     $ 550,000       558,077  
                  1,658,077  
                     
Ancora Pharmaceuticals Inc. (4)(5)(6) -- Developing synthetic
                    
carbohydrates for pharmaceutical applications
                    
Series B Convertible Preferred Stock
  
(M)
     1,663,808       440,909  
                     
BridgeLux, Inc. (4)(5) -- Manufacturing high-power light
                    
emitting diodes and arrays
                    
Series B Convertible Preferred Stock
  
(M)
     1,861,504       1,396,128  
Series C Convertible Preferred Stock
  
(M)
     2,130,699       1,598,025  
Series D Convertible Preferred Stock
  
(M)
     666,667       500,000  
Warrants at $0.7136 expiring 12/31/14
  
( I )
     163,900       99,323  
                  3,593,476  
                     
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)(12) -- Developing batteries using
                    
nanostructured materials
                    
Series A Convertible Preferred Stock
  
(M)
     1,885,108       1,476,756  

The accompanying notes are an integral part of these consolidated financial statements.
 
9
 
HARRIS & HARRIS GROUP, INC.
CONSOLIDATED SCHEDULE OF INVESTMENTS AS OF JUNE 30, 2009
(Unaudited)

   
Method of
  
Shares/
        
   
Valuation (1)
  
Principal
    
Value
  
                 
Investments in Non-Controlled Affiliated Companies (2)(11) – 40.6% of net assets at value (cont.)
                
                 
Private Placement Portfolio (Illiquid) – 40.6% of net assets at value (cont.)
                
                 
Crystal IS, Inc. (4)(5) -- 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       428,185  
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  
                  428,185  
                     
CSwitch Corporation (4)(5)(6)(13) -- 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 (4)(5)(6)(14) -- 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       266,304  
                  1,266,304  
                     
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  

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

 
10
 
 
HARRIS & HARRIS GROUP, INC.
CONSOLIDATED SCHEDULE OF INVESTMENTS AS OF JUNE 30, 2009
(Unaudited)
 
   
Method of
  
Shares/
        
   
Valuation (1)
  
Principal
    
Value
  
                 
                 
Investments in Non-Controlled Affiliated Companies (2)(11) – 40.6% of net assets at value (cont.)
                
                 
Private Placement Portfolio (Illiquid) – 40.6% of net assets at value (cont.)
                
                 
Kovio, Inc. (4)(5)(6)  --  Developing semiconductor products
                
using printed electronics and thin-film technologies
                
Series C Convertible Preferred Stock
  
(M)
     2,500,000     $ 2,561,354  
Series D Convertible Preferred Stock
  
(M)
     800,000       819,633  
Series E Convertible Preferred Stock
  
(M)
     1,200,000       1,229,450  
Warrants at $1.25 expiring 12/31/12
  
( I )
     355,880       240,575  
                  4,851,012  
                     
Mersana Therapeutics, Inc. (4)(5)(6) -- 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  
Unsecured Convertible Bridge Note (including interest)
  
(M)
     $ 400,000       425,534  
Warrants at $2.00 expiring 10/21/10
  
( I )
     91,625       25,838  
                  1,386,323  
                     
Metabolon, Inc. (4)(5) -- Discovering biomarkers through
                    
the use of metabolomics
                    
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       120,778  
                  2,568,464  
                     
NanoGram Corporation (4)(5) -- Developing solar power products
                    
enabled by silicon-based nanomaterials
                    
Series I Convertible Preferred Stock
  
(M)
     63,210       15,565  
Series II Convertible Preferred Stock
  
(M)
     1,250,904       308,035  
Series III Convertible Preferred Stock
  
(M)
     1,242,144       305,878  
Series IV Convertible Preferred Stock
  
(M)
     432,179       106,424  
                  735,902  

The accompanying notes are an integral part of these consolidated financial statements.
 
11
 
HARRIS & HARRIS GROUP, INC.
CONSOLIDATED SCHEDULE OF INVESTMENTS AS OF JUNE 30, 2009
(Unaudited)
 
   
Method of
  
Shares/
        
   
Valuation (1)
  
Principal
    
Value
  
                 
                 
Investments in Non-Controlled Affiliated Companies (2)(11) – 40.6% of net assets at value (cont.)
                
                 
Private Placement Portfolio (Illiquid) – 40.6% 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     $ 0  
Series D Convertible Preferred Stock
  
(M)
     6,802,397       0  
                  0  
                     
Nextreme Thermal Solutions, Inc. (4)(5) -- 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 (4)(5) -- Manufacturing and marketing
                    
proprietary metal and stone decorative tiles
                    
Common Stock
  
(M)
     655,454       150,976  
Warrants at $1.50 expiring 11/19/09
  
( I )
     5,000       0  
                  150,976