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, 2010

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

For the transition period from ____________ to _____________

Commission file number: 0-11576

HARRIS & HARRIS GROUP, INC.

(Exact Name of Registrant as Specified in Its Charter)

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

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

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

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

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

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

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

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

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

Class
 
Outstanding at November 8, 2010
Common Stock, $0.01 par value per share
 
30,872,858  shares

 
 

 

Harris & Harris Group, Inc.
Form 10-Q, September 30, 2010

 
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
32
Financial Highlights
43
   
Item 2.  Management's Discussion and Analysis of Financial Condition
 
and Results of Operations
44
Background and Overview
44
Investment Strategy
45
Historical Investments
45
Investment Pace
46
Importance of Availability of Liquid Capital
46
Involvement with Portfolio Companies
48
Commercialization of Nanotechnology by Our Portfolio Companies
48
Maturity of Current Venture Capital Portfolio
51
Current Business Environment
54
Valuation of Investments
55
Investment Objective
59
Results of Operations
60
Financial Condition
68
Liquidity
70
Capital Resources
71
Critical Accounting Policies
71
Recent Developments – Portfolio Companies
74
Forward-Looking Statements
74
   
Item 3.  Quantitative and Qualitative Disclosures About Market Risk
75
   
Item 4.  Controls and Procedures
77
   
PART II.  OTHER INFORMATION
 
Item 1A.  Risk Factors
78
   
Item 5.  Exhibits
79
   
Signatures
80
   
Exhibit Index
81


 
 

 

PART I.  FINANCIAL INFORMATION

Item 1. Consolidated Financial Statements

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

Harris & Harris Group, Inc.® (the "Company," "us," "our" and "we"), is an internally managed venture capital company that has elected to operate as a business development company ("BDC") under the Investment Company Act of 1940 (the "1940 Act").  Certain information and disclosures normally included in the consolidated financial statements in accordance with accounting principles generally accepted in the United States of America ("GAAP") have been condensed or omitted as permitted by Regulation S-X and Regulation S-K.  Accordingly, they do not include all information and disclosures necessary for a 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, 2009.

 
1

 


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

ASSETS
 
             
   
September 30, 2010
   
December 31, 2009
 
   
(Unaudited)
       
Investments, in portfolio securities at value:
           
      Unaffiliated privately held companies
           
      (cost: $37,470,081 and $26,977,200, respectively)
  $ 47,369,210     $ 21,656,436  
      Unaffiliated publicly traded securities
               
      (cost: $0 and $298,827, respectively)
    0       226,395  
      Non-controlled affiliated privately held companies
               
      (cost: $51,536,674 and $54,864,948, respectively)
    40,978,655       50,297,220  
      Controlled affiliated privately held companies
               
      (cost: $9,380,567 and $10,248,932, respectively)
    8,431,564       5,843,430  
Total, investments in privately held and publicly
               
      traded securities at value
               
      (cost: $98,387,322 and $92,389,907, respectively)
  $ 96,779,429     $ 78,023,481  
Investments, in U.S. Treasury obligations at value
               
      (cost: $43,861,592 and $55,960,024, respectively)
    43,860,344       55,947,581  
Cash
    256,103       1,611,465  
Restricted funds
    2,001       2,000  
Receivable from portfolio company
    10,000       28,247  
Interest receivable
    2,104       25,832  
Prepaid expenses
    97,996       94,129  
Other assets
    622,244       376,366  
Total assets
  $ 141,630,221     $ 136,109,101  
                 
                 
LIABILITIES & NET ASSETS
 
                 
Post retirement plan liabilities
  $ 1,471,159     $ 1,369,843  
Accounts payable and accrued liabilities
    532,717       579,162  
Deferred rent
    345,835       1,838  
Total liabilities
    2,349,711       1,950,843  
                 
Net assets
  $ 139,280,510     $ 134,158,258  
                 
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
               
      09/30/10 and 12/31/09; 32,698,945 issued at 09/30/10
               
      and 32,688,333 issued at 12/31/09
    326,990       326,884  
Additional paid in capital (Note 8)
    207,714,612       205,977,117  
Accumulated net operating and realized loss
    (63,746,420 )     (54,361,343 )
Accumulated unrealized depreciation of investments
    (1,609,141 )     (14,378,869 )
Treasury stock, at cost (1,828,740 shares at 09/30/10 and 12/31/09)
    (3,405,531 )     (3,405,531 )
                 
Net assets
  $ 139,280,510     $ 134,158,258  
Shares outstanding
    30,870,205       30,859,593  
Net asset value per outstanding share
  $ 4.51     $ 4.35  


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 Sept. 30,
   
Nine Months Ended Sept. 30,
 
   
2010
   
2009
   
2010
   
2009
 
                         
Investment income:
                       
      Interest from:
                       
      Fixed-income securities and
                       
            bridge notes (Note 3)
  $ 134,097     $ 99,677     $ 330,378     $ 138,862  
      Miscellaneous income
    6,348       6,000       18,348       27,088  
      Total investment income
    140,445       105,677       348,726       165,950  
                                 
Expenses:
                               
      Salaries, benefits and stock-based
                               
            compensation (Note 6)
    1,327,055       1,727,743       4,181,852       4,621,680  
      Administration and operations
    201,222       225,044       711,990       746,640  
      Professional fees
    136,643       190,942       556,878       558,483  
      Rent (Note 3)
    136,879       79,617       303,239       236,678  
      Directors’ fees and expenses
    70,359       79,136       251,280       252,745  
      Custody fees
    24,000       33,515       72,000       51,457  
      Depreciation
    13,151       12,633       38,940       38,370  
      Lease termination costs (Note 3)
    0       0       68,038       0  
      Total expenses
    1,909,309       2,348,630       6,184,217       6,506,053  
                                 
Net operating loss
    (1,768,864 )     (2,242,953 )     (5,835,491 )     (6,340,103 )
                                 
Net realized gain (loss):
                               
      Realized gain (loss) from investments:
                               
      Unaffiliated companies
    0       0       13,218       (1,514,330 )
      Non-Controlled affiliated companies
    (3,136,552 )     (3,176,125 )     (3,393,559 )     (3,176,125 )
      Publicly traded companies
    0       0       (152,980 )     0  
      U.S. Treasury obligations/other
    (311 )     0       (11,834 )     (325 )
      Realized loss from investments
    (3,136,863 )     (3,176,125 )     (3,545,155 )     (4,690,780 )
                                 
      Income tax expense (benefit) (Note 7)
    1,799       (2,862 )     4,431       (753 )
      Net realized loss
    (3,138,662 )     (3,173,263 )     (3,549,586 )     (4,690,027 )
                                 
Net decrease in unrealized
                               
depreciation on investments:
                               
      Change as a result of investment sales
    3,136,552       3,180,240       3,358,871       4,691,282  
      Change on investments held
    1,316,942       1,939,657       9,410,857       5,512,472  
      Net decrease in unrealized
                               
      depreciation on investments
    4,453,494       5,119,897       12,769,728       10,203,754  
                                 
Net (decrease) increase in net assets
                               
resulting from operations
  $ (454,032 )   $ (296,319 )   $ 3,384,651     $ (826,376 )
                                 
Per average basic outstanding share
  $ (0.01 )   $ (0.01 )   $ 0.11     $ (0.03 )
                                 
Average outstanding shares
    30,866,399       25,866,983       30,863,616       25,862,070  


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

 
3

 


HARRIS & HARRIS GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

   
Nine Months Ended
   
Nine Months Ended
 
   
September 30, 2010
   
September 30, 2009
 
             
Cash flows used in operating activities:
           
Net increase (decrease) in net assets resulting from operations
  $ 3,384,651     $ (826,376 )
Adjustments to reconcile net increase (decrease) in net assets
               
      resulting from operations to net cash used in operating activities:
               
      Net realized and unrealized gain on investments
    (9,224,573 )     (5,512,974 )
      Depreciation of fixed assets, amortization of premiums or
               
      discounts and bridge note interest
    (260,793 )     39,784  
      Stock-based compensation expense
    1,746,734       2,425,525  
                 
      Changes in assets and liabilities:
               
      Restricted funds
    (1 )     189,970  
      Receivable from portfolio company
    18,247       0  
      Other receivables
    7,187       (217 )
      Return of security deposits on leased properties
    44,376       0  
      Interest receivable
    11,513       2,044  
      Income tax receivable
    0       (3,353 )
      Prepaid expenses
    (3,867 )     335,914  
      Other assets
    (227,512 )     (186,116 )
      Post retirement plan liabilities
    101,316       (60,403 )
      Accounts payable and accrued liabilities
    (46,445 )     (147,329 )
      Deferred rent
    343,997       (4,727 )
                 
      Net cash used in operating activities
    (4,105,170 )     (3,748,258 )
                 
Cash flows from investing activities:
               
      Purchase of U.S. government securities
    (58,644,919 )     (112,308,457 )
      Sale of U.S. government securities
    70,746,244       123,988,254  
      Investments in affiliated portfolio companies
    (7,489,948 )     (6,561,959 )
      Investments in unaffiliated portfolio companies
    (2,177,123 )     (973,915 )
      Proceeds from conversion of bridge note
    1,356       0  
      Proceeds from sale of investments
    407,543       7,365  
      Purchase of fixed assets
    (84,212 )     (1,313 )
                 
      Net cash provided by investing activities
    2,758,941       4,149,975  
                 
Cash flows from financing activities:
               
      Proceeds from stock option exercises
    39,795       401,944  
      Payment of offering costs
    (48,928 )     0  
      Net cash (used in) provided by financing activities
    (9,133 )     401,944  
                 
Net decrease in cash:
               
      Cash at beginning of the period
    1,611,465       692,309  
      Cash at end of the period.
    256,103       1,495,970  
                 
      Net (decrease) increase in cash
  $ (1,355,362 )   $ 803,661  
                 
Supplemental disclosures of cash flow information:
               
      Income taxes paid
  $ 4,431     $ 2,179  

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

 
4

 


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

   
Nine Months Ended
   
Year Ended
 
   
September 30, 2010
   
December 31, 2009
 
   
(Unaudited)
       
Changes in net assets from operations:
           
             
      Net operating loss
  $ (5,835,491 )   $ (8,761,215 )
      Net realized loss on investments
    (3,549,586 )     (11,105,577 )
      Net decrease in unrealized depreciation
               
            on investments as a result of sales
    3,358,871       11,090,579  
      Net decrease in unrealized depreciation
               
            on investments held
    9,410,857       8,627,748  
                 
                 
Net increase (decrease) in net assets resulting
               
      from operations
    3,384,651       (148,465 )
                 
                 
Changes in net assets from capital
               
      stock transactions:
               
                 
      Issuance of common stock upon the
               
            exercise of stock options
    106       1,125  
      Issuance of common stock on offering
    0       48,875  
      Additional paid-in capital on common
               
            stock issued and options exercised
    (9,239 )     21,636,090  
      Stock-based compensation expense
    1,746,734       3,089,520  
                 
                 
Net increase in net assets resulting from
               
      capital stock transactions
    1,737,601       24,775,610  
                 
                 
Net increase in net assets
    5,122,252       24,627,145  
                 
                 
Net assets:
               
                 
      Beginning of the period
    134,158,258       109,531,113  
                 
      End of the period
  $ 139,280,510     $ 134,158,258  


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

 
5

 


HARRIS & HARRIS GROUP, INC.
CONSOLIDATED SCHEDULE OF INVESTMENTS AS OF SEPTEMBER 30, 2010
(Unaudited)

 
Method of
   
Shares/
       
 
Valuation (1)
Industry (2)
 
Principal
   
Value
 
                 
Investments in Unaffiliated Companies (3)(4) – 34.0% of
               
net assets at value
               
                 
Private Placement Portfolio (Illiquid) – 34.0% of net assets
               
at value
               
                 
                 
BioVex Group, Inc. (5)(6)(7)(8) -- Developing novel
 
Healthcare/
           
      biologics for treatment of cancer and infectious disease
 
Biotech
           
      Series E Convertible Preferred Stock
(M)
      2,799,552     $ 1,303,583  
      Series G Convertible Preferred Stock
(M)
      6,964,034       1,462,448  
      Warrants for Series G Convertible Preferred
                   
      Stock expiring 11/5/16
( I )
      285,427       21,407  
                  2,787,438  
                     
                     
Bridgelux, Inc. (5)(6) -- Manufacturing high-power light
 
Cleantech
               
      emitting diodes (LEDs) and arrays
                   
      Series B Convertible Preferred Stock
(M)
      1,861,504       1,759,121  
      Series C Convertible Preferred Stock
(M)
      2,130,699       2,013,511  
      Series D Convertible Preferred Stock
(M)
      999,999       944,998  
      Warrants for Series C Convertible Preferred
                   
      Stock expiring 12/31/14
( I )
      163,900       91,128  
      Warrants for Series D Convertible Preferred
                   
      Stock expiring 8/26/14
( I )
      166,665       64,833  
                  4,873,591  
                     
                     
Cobalt Technologies, Inc. (5)(6)(7)(9) -- Developing processes for
 
Cleantech
               
      making biobutanol through biomass fermentation
                   
      Series C Convertible Preferred Stock
(M)
      352,112       375,000  
                     
                     
Ensemble Therapeutics Corporation (5)(6)(10) -- Developing DNA-
 
Healthcare/
               
      Programmed ChemistryTM for the discovery of new classes of
 
Biotech
               
      therapeutics
                   
      Series B Convertible Preferred Stock
(M)
      1,449,275       2,000,000  
      Unsecured Convertible Bridge Notes (including interest)
(M)
    $ 299,169       343,473  
                  2,343,473  
                     
                     
GEO Semiconductor Inc. (7)(13) -- Developing programmable,
 
Electronics/
               
      high-performance video and geometry processing solutions
 
Semi-
               
      Participation Agreement with Montage Capital relating
 
conductors
               
      to the following assets:
                   
      Senior Secured Debt, 13.75%, maturing on 06/30/12
( I )
    $ 500,000       443,600  
      Warrants for Series A Preferred Stock expiring on 09/17/17
( I )
      100,000       46,800  
                  490,400  

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

 
6

 


HARRIS & HARRIS GROUP, INC.
CONSOLIDATED SCHEDULE OF INVESTMENTS AS OF SEPTEMBER 30, 2010
(Unaudited)

 
Method of
   
Shares/
       
 
Valuation (1)
Industry (2)
 
Principal
   
Value
 
                 
Investments in Unaffiliated Companies (3)(4) – 34.0% of
               
net assets at value (Cont.)
               
                 
Private Placement Portfolio (Illiquid) – 34.0% of net assets
               
at value (Cont.)
               
                 
   
Electronics/
           
Molecular Imprints, Inc. (5)(6) -- Manufacturing nanoimprint
 
Semi-
           
      lithography capital equipment
 
conductors
           
      Series B Convertible Preferred Stock
(M)
      1,333,333     $ 2,000,000  
      Series C Convertible Preferred Stock
(M)
      1,250,000       1,875,000  
      Warrants for Series C Convertible Preferred
                   
      Stock expiring 12/31/11
( I )
      125,000       69,875  
                  3,944,875  
                     
                     
Nanosys, Inc. (5)(6) -- Developing inorganic nanowires and
 
Cleantech
               
      quantum dots for use in batteries and LED-backlit devices
                   
      Series C Convertible Preferred Stock
(M)
      803,428       1,021,835  
      Series D Convertible Preferred Stock
(M)
      1,016,950       1,382,573  
      Series E Convertible Preferred Stock
(M)
      433,688       496,573  
                  2,900,981  
                     
   
Electronics/
               
Nantero, Inc. (5)(6)(7) -- Developing a high-density, nonvolatile,
 
Semi-
               
      random access memory chip, enabled by carbon nanotubes
 
conductors
               
      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
 
Other
               
      optical devices and components
                   
      Common Stock
(M)
      1,130,440       931,483  
      Series 1 Convertible Preferred Stock
(M)
      1,831,256       1,508,955  
      Series 2 Convertible Preferred Stock
(M)
      741,898       611,324  
      Series 3 Convertible Preferred Stock
(M)
      2,750,000       2,266,000  
      Series X Convertible Preferred Stock
(M)
      8,923       1,427,680  
                  6,745,442  
                     
Polatis, Inc. (5)(6)(7) -- Developing MEMS-based optical
 
Other
               
      networking components
                   
      Common Stock
(M)
      16,438       0  
      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  
                  0  

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

 
7

 


HARRIS & HARRIS GROUP, INC.
CONSOLIDATED SCHEDULE OF INVESTMENTS AS OF SEPTEMBER 30, 2010
(Unaudited)

 
Method of
   
Shares/
       
 
Valuation (1)
Industry (2)
 
Principal
   
Value
 
                 
Investments in Unaffiliated Companies (3)(4) – 34.0% of
               
net assets at value (Cont.)
               
                 
Private Placement Portfolio (Illiquid) – 34.0% of net assets
               
at value (Cont.)
               
                 
                 
PolyRemedy, Inc. (5)(6)(7) -- Developing a platform for
 
Healthcare/
           
      producing and tracking the use of wound treatment patches
 
Biotech
           
      Series B-1 Convertible Preferred Stock
(M)
      287,647     $ 23,466  
      Series B-2 Convertible Preferred Stock
(M)
      676,147       30,427  
                  53,893  
                     
                     
Siluria Technologies, Inc. (5)(6)(7) -- Developing nanomaterials
 
Cleantech
               
      for manufacturing of chemicals
                   
      Series S-2 Convertible Preferred Stock
(M)
      612,061       204,000  
                     
                     
Solazyme, Inc. (5)(6)(7) -- Developing algal biodiesel, industrial
 
Cleantech
               
      chemicals and specialty ingredients using synthetic biology
                   
      Series A Convertible Preferred Stock
(M)
      988,204       8,750,744  
      Series B Convertible Preferred Stock
(M)
      495,246       4,385,502  
      Series C Convertible Preferred Stock
(M)
      651,309       5,767,471  
      Series D Convertible Preferred Stock
(M)
      169,390       1,499,991  
                  20,403,708  
                     
                     
TetraVitae Bioscience, Inc. (5)(6)(7)(11) -- Developing methods
 
Cleantech
               
      of producing alternative chemicals and fuels through biomass
                   
      fermentation
                   
      Series B Convertible Preferred Stock
(M)
      118,804       0  
                     
                     
                     
                     
Total Unaffiliated Private Placement Portfolio (cost: $37,470,081)
              $ 47,369,210  
                     
                     
Total Investments in Unaffiliated Companies (cost: $37,470,081)
              $ 47,369,210  



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

 
8

 


HARRIS & HARRIS GROUP, INC.
CONSOLIDATED SCHEDULE OF INVESTMENTS AS OF SEPTEMBER 30, 2010
(Unaudited)

 
Method of
   
Shares/
       
 
Valuation (1)
Industry (2)
 
Principal
   
Value
 
                 
Investments in Non-Controlled Affiliated Companies (3)(12) –
               
29.4% of net assets at value
               
                 
Private Placement Portfolio (Illiquid) – 29.4% of net assets
               
at value
               
                 
                 
ABS Materials, Inc. (5)(7)(13) -- Developing nano-structured
 
Cleantech
           
      absorbent materials for environmental remediation and for the
               
      petroleum industry
               
      Series A Convertible Preferred Stock
(M)
      375,000     $ 375,000  
                     
   
Electronics/
               
Adesto Technologies Corporation (5)(6)(7) -- Developing low-power,
 
Semi-
               
      high-performance memory devices
 
conductors
               
      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  
   
Electronics/
               
Cambrios Technologies Corporation (5)(6)(7) – Developing
 
Semi-
               
      nanowire-enabled electronic materials for the display industry
 
conductors
               
      Series B Convertible Preferred Stock
(M)
      1,294,025       647,013  
      Series C Convertible Preferred Stock
(M)
      1,300,000       650,000  
      Series D Convertible Preferred Stock
(M)
      515,756       257,878  
                  1,554,891  
                     
Contour Energy Systems, Inc. (5)(6)(7)(14) -- Developing batteries using
 
Cleantech
               
      nanostructured materials
                   
      Series A Convertible Preferred Stock
(M)
      2,565,798       2,822,378  
      Series B Convertible Preferred Stock
(M)
      812,500       1,300,000  
                  4,122,378  
                     
Crystal IS, Inc. (5)(6) -- Developing single-crystal
 
Cleantech
               
      aluminum nitride substrates for light-emitting diodes
                   
      Common Stock
(M)
      3,994,468       0  
      Warrants for Series A-1 Preferred Stock expiring 05/05/13
( I )
      15,231       0  
      Warrants for Series A-1 Preferred Stock expiring 05/12/13
( I )
      2,350       0  
      Warrants for Series A-1 Preferred Stock expiring 08/08/13
( I )
      4,396       0  
                  0  



The accompanying notes are an integral part of these consolidated financial statements.
9


HARRIS & HARRIS GROUP, INC.
CONSOLIDATED SCHEDULE OF INVESTMENTS AS OF SEPTEMBER 30, 2010
(Unaudited)

 
Method of
   
Shares/
       
 
Valuation (1)
Industry (2)
 
Principal
   
Value
 
                 
Investments in Non-Controlled Affiliated Companies (3)(12) –
               
29.4% of net assets at value (Cont.)
               
                 
Private Placement Portfolio (Illiquid) – 29.4% of net assets
               
at value (Cont.)
               
                 
   
Electronics/
           
D-Wave Systems, Inc. (5)(6)(7)(15) -- Developing high-
 
Semi-
           
      performance quantum computing systems
 
conductors
           
      Series B Convertible Preferred Stock
(M)
      1,144,869     $ 1,232,451  
      Series C Convertible Preferred Stock
(M)
      450,450       484,909  
      Series D Convertible Preferred Stock
(M)
      1,533,395       1,650,700  
      Unsecured Convertible Bridge Note (including interest)
(M)
    $ 580,257       612,070  
      Warrants for Common Stock expiring 06/30/15
( I )
      153,890       73,713  
                  4,053,843  
                     
                     
Enumeral Technologies, Inc. (5)(6)(7) -- Developing therapeutics
 
Healthcare/
               
      and diagnostics through functional assaying of single cells
 
Biotech
               
      Unsecured Convertible Bridge Note (including interest)
(M)
    $ 250,000       265,452  
                     
                     
Innovalight, Inc. (5)(6)(7) -- Developing silicon-based
 
Cleantech
               
      nanomaterials for use in the solar energy industry
                   
      Series B Convertible Preferred Stock
(M)
      16,666,666       2,227,333  
      Series C Convertible Preferred Stock
(M)
      5,810,577       957,378  
      Series D Convertible Preferred Stock
(M)
      4,046,974       540,838  
                  3,725,549  
                     
   
Electronics/
               
Kovio, Inc. (5)(6) -- Developing semiconductor products
 
Semi-
               
      using printed electronics and thin-film technologies
 
conductors
               
      Series A' Convertible Preferred Stock
(M)
      2,686,225       1,343,113  
                     
                     
Mersana Therapeutics, Inc. (5)(6)(7)(16) -- Developing treatments for
 
Healthcare/
               
      cancer based on novel drug delivery polymers
 
Biotech
               
      Series A Convertible Preferred Stock
(M)
      68,451       136,902  
      Series B Convertible Preferred Stock
(M)
      866,500       1,733,000  
      Unsecured Convertible Bridge Notes (including interest)