Unassociated Document

As of September 30, 2011, we owned an aggregate of 2,304,149 shares of Solazyme. This position was valued at $20,806,465 as of September 30, 2011. The key inputs to our valuation of Solazyme were the share price as of the close of trading on September 30, 2011, which was $9.61, less a liquidity discount owing to the lock-up restrictions placed on the shares through an agreement with the underwriters of the IPO. As of November 4, 2011, Solazyme’s closing price was $9.91 per share.

As of September 30, 2011, we owned an aggregate of 450,907 shares of Neophotonics. This position was valued at $3,102,240 as of September 30, 2011. The key input to our valuation of Neophotonics was the share price as of the close of trading on September 30, 2011, which was $6.88. As of November 4, 2011, Neophotonics’ closing price was $4.05 per share.

HARRIS & HARRIS GROUP, INC.

FINANCIAL HIGHLIGHTS

(Unaudited)

	Three Months Ended Sept. 30						Nine Months Ended Sept. 30
	2011			2010			2011			2010

Per Share Operating Performance

Net asset value per share, beginning of period	$	5.43		$	4.51		$	4.76		$	4.35

Net operating (loss)*		(0.07	)		(0.05	)		(0.18	)		(0.19	)
Net realized (loss) gain on investments*(1)		(0.08	)		(0.10	)		0.08			(0.11	)
Net decrease in unrealized depreciation as a result of sales*(1)		0.09			0.10			(0.07	)		0.11
Net (increase) decrease in unrealized depreciation on investments held*		(1.00	)		0.04			(0.25	)		0.30
Total from investment operations*		4.37			(0.01	)		4.34			0.11

Net increase as a result of stock-based compensation expense*		0.01			0.01			0.04			0.05
Net increase as a result of proceeds from exercise of options		0.00			0.00			0.00			0.00
Total increase from capital stock transactions		0.01			0.01			0.04			0.05

Net asset value per share, end of period	$	4.38		$	4.51		$	4.38		$	4.51
Stock price per share, end of period	$	3.55		$	4.27		$	3.55		$	4.27
Total return based on stock price (2)		(30.80	)%		4.40	%		(18.95	)%		(6.56	)%

Supplemental Data:

Net assets, end of period	$	135,783,746		$	139,280,510		$	135,783,746		$	139,280,510

Ratio of expenses to average net assets (2)		1.5	%		1.4	%		4.2	%		4.5	%

Ratio of net operating loss to average net assets (2)		(1.4	)%		(1.3	)%		(3.9	)%		(4.3	)%

Average debt outstanding	$	2,126,087		$	0.00		$	1,289,194		$	0.00

Average debt per share	$	0.07		$	0.00		$	0.04		$	0.00

Number of shares outstanding, end of period		31,000,601			30,870,205			31,000,601			30,870,205

*Based on Average Shares Outstanding

(1) Net realized and unrealized gains (losses) include rounding adjustments to reconcile change in net asset value per share.

(2) Not annualized

The accompanying notes are an integral part of this schedule.

Item 2.

Management's Discussion and Analysis of Financial Condition and Results of Operations

The information contained in this section should be read in conjunction with the Company's unaudited September 30, 2011, Consolidated Financial Statements and the Company's audited 2010 Consolidated Financial Statements and notes thereto.

Background

We incorporated under the laws of the state of New York in August 1981. In 1983, we completed an initial public offering ("IPO"). In 1984, we divested all of our assets except Otisville BioTech, Inc., and became a financial services company with the investment in Otisville as the initial focus of our business activity.

In 1992, we registered as an investment company under the 1940 Act, commencing operations as a closed-end, non-diversified investment company. In 1995, we elected to become a BDC subject to the provisions of Sections 55 through 65 of the 1940 Act.

Overview

We believe we provide five core benefits to our shareholders. First, we are an established firm with a positive track record of investing in venture capital-backed companies. Second, we provide shareholders with access to emerging nanotechnology-enabled companies that would otherwise be difficult to access or inaccessible for most current and potential shareholders. Third, we have an existing portfolio of companies at varying stages of maturity that provide for a potential pipeline of investment returns over time. Fourth, we are able to invest opportunistically in a range of types of securities to take advantage of market inefficiencies. Fifth, we provide access to venture capital investments in a vehicle that, unlike private venture capital firms, is both transparent and liquid.

We invest in companies enabled by nanotechnology and microsystems. We believe companies that leverage breakthroughs at the nanoscale are emerging as leaders in their respective industries. These companies primarily impact the clean technology, healthcare and electronics sectors. We focused the Company on making venture capital investments in companies that commercialize and integrate products enabled by nanotechnology in 2002. We believe this was the period of time when nanotechnology was beginning to emerge from its gestational phase to its commercial phase. We believe the coming decades will be the period of time when the commercial impact of nanotechnology will become widespread. We believe that as this occurs, our portfolio companies are well positioned to profit and that we will see investment returns as a result.

We define venture capital investments as the money and resources made available to privately held start-up firms and privately held and publicly traded small businesses with exceptional growth potential. We believe that we are the only U.S.-based, publicly traded venture capital company making investments exclusively in nanotechnology and microsystems. We believe we have invested in more nanotechnology-enabled companies than any other venture capital firm.

Nanotechnology is the study of structures measured in nanometers, which are units of measurement in billionths of a meter. Microsystems are measured in micrometers, which are units of measurement in millionths of a meter. We sometimes use "tiny technology" to describe both of these disciplines.

We consider a company to fit our investment thesis if the company employs or intends to employ technology that we consider to be at the microscale or smaller, and if the employment of that technology is material to its business plan. By making these investments, we seek to provide our shareholders with a specific focus on nanotechnology and microsystems through a portfolio of venture capital investments that address a variety of industries, markets and products.

We believe nanotechnology can be classified as a transformative technology. An innovation qualifies as a transformative technology if it has the potential for pervasive use in a wide range of sectors in ways that change the competitive dynamics in those sectors. Transformative technologies often take decades to fully diffuse through respective sectors. We believe the period of 2001 through 2010 was the first decade in the commercial development of nanotechnology products. According to the National Science Foundation and the National Nanotechnology Initiative, this decade witnessed average growth rates of nanotechnology-related research and development funding, peer-reviewed publications and patent applications of 23 percent to 35 percent. According to the same institutions, nanotechnology-enabled companies created over 300,000 jobs worldwide and introduced over $200 billion worth of products. Each of these criteria grew at an average annual growth rate of 25 percent from 2000 to 2008. Our portfolio companies experienced similar growth during this period of time with aggregate revenues increasing 24 percent from 2007 to 2010, and 42 percent from 2009 to 2010.

We are currently in the second decade in the commercial development of nanotechnology products. We believe it will be this second decade and beyond where large portions of industry come to rely on nanotechnology as a fundamental enabler of advanced products.

Investment Objective and Strategy

Our principal investment objective is to achieve long-term capital appreciation by making equity-focused venture capital investments. Therefore, a significant portion of our current venture capital investment portfolio provides little or no income in the form of dividends or interest. Current income is a secondary investment objective. We seek to reach the point where future growth is financed through reinvestment of our capital gains from our venture capital investments and where current income offsets portions of our annual expenses during periods of time between realizations of capital gains on our investments.

We have discretion in the investment of our capital to achieve our objectives. We seek long-term capital appreciation through venture capital investments in equity-focused securities that we believe have exceptional growth potential. These businesses can range in stage from pre-revenue to generating positive cash flow. These businesses tend to be thinly capitalized, unproven, small companies that lack management depth, have little or no history of operations and are developing unproven technologies. These businesses may be privately held or publicly traded. We historically have invested in equity securities of these companies that are generally illiquid due to restrictions on resale and to the lack of an established trading market. We refer to our portfolio of investments in equity and equity-related securities in later sections of the Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") as our "equity-focused" portfolio of investments. We may take advantage of opportunities to generate near-term cash flow by investing in non-convertible debt securities of businesses. These businesses tend to be generating cash or have near-term visibility to reaching positive cash flow. We refer to our portfolio of investments in non-convertible debt in later sections of the MD&A as our "venture debt" portfolio of investments.

We are long-term investors. We seek to identify investment opportunities in industries and markets that will be growth opportunities three to seven years from the date of our initial investment. We expect to invest capital in these companies at multiple points in time subsequent to our initial investment. We refer to such investments as "follow-on" investments. Our efforts to identify and predict future growth industries and markets rely on patient and deep due diligence in nanotechnology-enabled innovations developed at universities and corporate and government research laboratories, and the examination of macroeconomic and microeconomic trends and industry dynamics. We believe it is the early identification of and investments in these growth opportunities that will lead to investment returns for our shareholders, growth of our net assets, and capital for us to invest in tomorrow’s growth opportunities.

Involvement with Portfolio Companies

The 1940 Act requires that BDCs offer to "make available significant managerial assistance" to portfolio companies. We are actively involved with our portfolio companies through membership on boards of directors, as observers to the boards of directors and/or through frequent communication with management. As of September 30, 2011, we held at least one board seat or observer rights on 24 of our 29 equity-focused portfolio companies (83 percent).

We may hold two or more board seats in early-stage portfolio companies or those in which we have significant ownership. As of September 30, 2011, we held two board seats in Ancora Pharmaceuticals Inc. We may transition off of the board of directors to an observer role as our portfolio companies raise additional capital from new investors, as they mature or as they are able to attract independent members who have relevant industry experience and contacts. We also typically step off the board of directors upon the completion of an IPO. Our observer rights at board of directors meetings cease when companies complete an IPO. We held observer rights in NeoPhotonics Corporation and Solazyme, Inc., until the completion of each company’s IPO.

We may be actively involved in the formation and development of business strategies of our earliest stage portfolio companies. This involvement may include hiring management, licensing intellectual property, securing space and raising additional capital. We also provide managerial assistance to late-stage companies looking for potential exit opportunities by leveraging our relationships with the banking and investment community and our knowledge and experience in running a micro-capitalization publicly traded business.

Historical Investments and Current Investment Pace

Since our investment in Otisville in 1983 through September 30, 2011, we have made a total of 93 equity-focused venture capital investments. We have exited 64 of these 93 investments, realizing total gross proceeds of $157,129,776 on our cumulative invested capital of $89,893,382. The gross proceeds received include our upfront payment from the sale of BioVex Group, Inc., to Amgen, Inc., in the first quarter of 2011, but do not include the potential milestone payments that could occur as part of this transaction at points in time in the future or the portion of the upfront payment held in escrow as of September 30, 2011. The gross proceeds received include our upfront payment from the sale of Innovalight, Inc., to E.I. du Pont de Nemours and Company ("DuPont") in the third quarter of 2011, but do not include the portion of the upfront payment held in escrow as of September 30, 2011. Both the gross proceeds and the cumulative invested capital do not reflect the cost or value of our ownership of NeoPhotonics or Solazyme which completed IPOs on February 2, 2011, and May 27, 2011, respectively, as we have not yet sold these investments.

From August 2001 through September 30, 2011, all 51 of our initial equity-focused investments have been in companies commercializing or integrating products enabled by nanotechnology or microsystems. From August 2001 through September 30, 2011, we have invested a total (before any subsequent write-ups, write-downs or dispositions) of $141,608,601 in these companies. We currently have 29 equity-focused companies in our portfolio. At September 30, 2011, from first dollar in, the average and median holding periods for these 29 investments were 4.7 years and 4.8 years, respectively. Historically, as measured from first dollar in to last dollar out, the average and median holding periods for the 64 investments we have exited were 4.1 years and 3.3 years, respectively.

The following is a summary of our initial and follow-on equity-focused investments in nanotechnology companies from January 1, 2007, to September 30, 2011. We consider a "round led" to be a round where we were the new investor or the leader of a set of investors in an investee company. Typically, but not always, the lead investor negotiates the price and terms of the deal with the investee company.

Investments in Our Equity-Focused Portfolio of Investments

in Privately Held and Publicly Traded Companies

	2007		2008		2009		2010		Nine Months Ended September 30, 2011

Total Incremental Investments	$	20,595,161	$	17,779,462	$	12,334,051	$	9,560,721	$	15,299,118
No. of New Investments		7		4		2		3		4
No. of Follow-On Investment Rounds		20		25		29		27		20
No. of Rounds Led		3		4		5		5		3
Average Dollar Amount – Initial	$	1,086,441	$	683,625	$	174,812	$	117,069	$	1,339,744
Average Dollar Amount – Follow-On	$	649,504	$	601,799	$	413,256	$	341,093	$	497,007

During the nine months ended September 30, 2011, we made two venture debt investments. The following is a summary of our investments in venture debt to date.

Investments in Our Venture Debt Portfolio of Investments

In Privately Held and Publicly Traded Companies

	2007		2008		2009		2010		Nine Months Ended September 30, 2011

No. of Investments		0		0		0		1		2
Total Dollar Amount	$	0	$	0	$	0	$	500,000	$	900,000

Importance of Availability of Liquid Capital

As a publicly traded, internally managed venture capital company, our cash used to make investments and pay expenses is held by us and not called from external sources when needed. We do not use leverage or debt to supplement our cash in investments in equity and convertible debt securities. We may use leverage or debt to help fund our venture debt investments. These non-convertible debt securities have defined periods of time for return on investment. We believe that for these reasons, and for additional reasons discussed in detail in our Annual Report on Form 10-K for the year ended December 31, 2010, it is crucial that we operate the Company with a substantial balance of liquid capital.

Our Sources of Liquid Capital

The sources of liquidity that we use to make our investments are classified as primary and secondary liquidity. We do not include our credit facility as primary or secondary liquidity. Primary liquidity is comprised of cash and U.S. Treasury securities. As of September 30, 2011, we held $12,599,799 in U.S. government obligations, and we had an additional $24,302,804 in cash, of which $15,519,280 was held in non-interest-bearing, fully FDIC insured bank accounts. During the first quarter of 2011, we received the upfront payment of $7.7 million from the acquisition of BioVex. During the third quarter of 2011, we added approximately $4.5 million to our primary liquidity from proceeds received from the acquisition of Innovalight. These payments immediately added to our primary liquidity. Payments upon achieving milestones of the BioVex acquisition or expiration of the escrow periods for the BioVex and Innovalight acquisitions would also add to our primary liquidity in future quarters if these milestones are achieved successfully. The probability-adjusted value of the future milestone payments for the BioVex acquisition, as determined at the end of each fiscal quarter, is included as an asset on our Consolidated Statements of Assets and Liabilities and will be included in primary liquidity only when payment is received for achievement of the milestones.

Our secondary liquidity is comprised of the stock of publicly traded companies. NeoPhotonics and Solazyme account for $23,908,705 of this amount based on the closing price of each company as of September 30, 2011, less a discount to reflect that the shares of Solazyme are subject to lock-up restrictions. Champions Oncology accounts for $1,946,667 of the total amount of secondary liquidity. Following the expiration of the lock-up restrictions on our shares of Solazyme, the shares will be freely tradable at the discretion of management. Our shares of Champions Oncology became freely tradable under Rule 144 on October 1, 2011. Our shares of NeoPhotonics became freely tradable on August 23, 2011. A decision to sell our shares would result in the cash received from the sale of these assets being included in primary liquidity. Until that time, we will continue to include the value of our shares of our publicly traded portfolio companies in secondary liquidity unless the average trading volume of each company reaches sufficient levels for us to monetize our stock in such companies over a short period of time.

Should additional portfolio companies successfully complete IPOs or should we make additional investments in publicly traded companies, our source of secondary liquidity could materially increase. We believe these developments make it important, therefore, to examine both our primary and secondary liquidity when assessing the strength of our balance sheet and our future investment capabilities.

Recent and Pending Potential Liquidity Events from Our Portfolio as of September 30, 2011

During the first nine months of 2011, we had four liquidity events in the portfolio.

On July 21, 2011, DuPont completed its acquisition of Innovalight. On July 21, 2011, we received repayment of our outstanding bridge notes of Innovalight plus accrued but unpaid interest of $458,569. On August 5, 2011, we received our payment for our shares of Innovalight of $4,088,820, which did not include $927,713 held in escrow.

On May 27, 2011, Solazyme completed an IPO by selling 10,975,000 shares of common stock at $18 per share. The common stock of Solazyme trades on the Nasdaq Global Select Market under the symbol "SZYM." As of September 30, 2011, we owned an aggregate of 2,304,149 shares of Solazyme. This position was valued at $20,806,465 as of September 30, 2011. The key inputs to our valuation of Solazyme were the share price as of the close of trading on September 30, 2011, which was $9.61, less a liquidity discount owing to the lock-up restrictions placed on the shares through an agreement with the underwriters of the IPO. During the lock-up period, we are not permitted to offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to purchase, grant any option, right or warrant to purchase, lend or otherwise transfer or dispose of, directly or indirectly, any shares of our shares of Solazyme. As of November 4, 2011, Solazyme’s closing price was $9.91 per share.

On March 4, 2011, Amgen completed its acquisition of BioVex. The acquisition included an upfront payment of $425 million and milestone payments of up to $575 million. On March 11, 2011, we received our upfront payment of $7,702,470. As of September 30, 2011, our portion of the upfront payment that remains in escrow was $953,211. As of September 30, 2011, we valued potential milestone payments and funds held in escrow from the sale of BioVex at $3,820,979. If all the remaining milestone payments were to be paid by Amgen, and if the full amount held in escrow is released, we would receive $10,479,604. We have not received any milestone payments as of September 30, 2011, and there can be no assurances as to how much of this amount we will ultimately realize in the future, if any.

On February 2, 2011, NeoPhotonics completed an IPO by selling 7,500,000 shares of common stock at $11 per share. The common stock of NeoPhotonics trades on the New York Stock Exchange under the symbol "NPTN." As of September 30, 2011, we owned an aggregate of 450,907 shares of NeoPhotonics. This position was valued at $3,102,240 as of September 30, 2011. The key input to our valuation of NeoPhotonics was the share price as of the close of trading on September 30, 2011, which was $6.88. As of November 4, 2011, NeoPhotonics's closing price was $4.05 per share.

During the second quarter of 2011, we stated that an Electronics company in our portfolio elected not to pursue the offer for acquisition through a non-binding letter of intent, but continued with discussions regarding a potential sale of the company. As of September 30, 2011, these discussions are ongoing, but there can be no assurance that this company will receive an offer in the current market environment that will be acceptable to the company.

Maturity of Current Equity-Focused Venture Capital Portfolio

Our equity-focused venture capital portfolio is comprised of companies at varying maturities facing different types of risks. We have defined these levels of maturity and sources of risk as: 1) Early- Stage/Technology Risk, 2) Mid-Stage/Market Risk and 3) Late-Stage/Execution Risk. We provide detailed descriptions of each of these classifications in our Annual Report on Form 10-K for the year ended December 31, 2010. The charts below show our assessment of the stage of maturity of the 29 companies in our equity-focused portfolio of investments and include the cost and value ascribed to the companies within each of these stages of maturity.

We seek to create a portfolio of companies that enables consistent flows of potential liquidity events in multiple industries in three sectors, cleantech, healthcare and electronics, which can be monetized as these companies mature. We believe a portfolio of companies focused on a diverse set of industries reduces the potential impact of cyclicality of any one industry. Our current portfolio is comprised of companies at varying stages of maturity in a diverse set of industries within three sectors. We also include our positive exits from these portfolios. We consider NanoGram Devices to have been both a Cleantech and Healthcare portfolio company. As our portfolio companies mature, we seek to invest in new early- and mid-stage companies that may mature into mid- and late-stage companies. This continuous progression creates a pipeline of investment maturities that may lead to future sources of positive contributions to net asset value per share as these companies mature and potentially experience liquidity and exit events. This diversity of industries and our pipeline of investment maturities are demonstrated by the distribution of our current early- and mid-stage portfolio companies within each sector shown in the table below.

We expect some of our portfolio companies to transition between stages of maturity over time. This transition may be forward if the company is maturing and is successfully executing its business plan or may be backward if the company is not successfully executing its business plan or decides to change its business plan substantially from its original plan. Transitions backward are commonly accompanied by an increase in non-performance risk, which reduces valuation. We discuss non-performance risk and its implications on value below in the section titled "Valuation of Investments."

During the third quarter of 2011, we transitioned Laser Light Engines to a mid-stage company from an early-stage company, and we transitioned Nanosys from a late-stage company to a mid-stage company. We classified our two new investments from the quarter, Senova Systems, Inc., and HzO, Inc., as early-stage companies.

Current Business Environment

The third quarter of 2011 ended with broad decreases in value in the public markets, in the number of companies completing IPOs and in fundraising by venture capital firms. This downtrend precipitated from general macroeconomic instability and uncertainty, particularly regarding sovereign debt in Europe and political gridlock in the United States. The liquidity markets for venture-backed start-ups tightened in the third quarter, according to Dow Jones VentureSource. Ten U.S.-based venture companies went public in the third quarter, but the pace of IPOs slowed dramatically, from six in July to four in all of August and September. Furthermore, venture capital fundraising was reduced by half after the 2008 recession and has yet to rebound in both the United States and Europe. According to statistics from Dow Jones LP Source, 32 U.S. venture funds raised $2.2 billion during the third quarter, a 24 percent drop from the same period last year when 40 funds raised $2.9 billion. Through the first three quarters of the year, U.S. venture fundraising was up nine percent, but more than half of the $10.6 billion collected for 90 funds was committed during the first quarter. In the United States, limited partners continued to favor multi-stage strategies and shy away from early-stage funds. Early-stage fundraising dropped 41 percent as 52 funds collected $2.1 billion in the first three quarters. Multi-stage fundraising was on par with the same period last year as $5 billion was committed to 28 funds. This trend is in part owing to the closely watched 10-year benchmark for venture capital returns that stood at 1.25 percent as of June 30, 2011, which is the most recent data available for this statistic from Cambridge Associates, LLC.

The current business environment is also complicated by global economic uncertainty and regional unrest. It remains unclear if and how the debt crisis in Europe will spread from Greece, Portugal, Italy, Ireland and Spain, to other countries in the region or beyond. It is unclear if the rising budget deficits in the United States will result in further downgrades in its credit rating from that of the third quarter of 2011, a slowing of worldwide economic growth or even trigger a further global financial crisis. This outcome would be heightened potentially should an alternative to U.S. Treasury securities emerge as the global safe-haven for invested capital or should large holders of these securities, such as China, decide to divest of them in large quantities or in full. It is unclear how regional unrest will affect the global economy should it persist and/or expand beyond northern Africa and the Middle East. All of this uncertainty could lead to a further broad reduction in risk taken by investors and corporations, which could reduce further the capital available to our portfolio companies, could affect the ability of our portfolio companies to build and grow their respective businesses, and could decrease the liquidity options available to our portfolio companies.

Historically, difficult venture environments have resulted in a higher than normal number of companies not receiving financing and being subsequently closed down with a loss to venture investors, and other companies receiving financing but at significantly lower valuations than the preceding financing rounds. This issue is compounded by the fact that many existing venture capital firms have few remaining years of investment and available capital owing to the finite lifetime of the funds managed by these firms. Additionally, even if a firm was able to raise a new fund, commonly venture capital firms are not permitted to invest new funds in existing investments. This limitation of available capital can lead to fractured syndicates of investors. A fractured syndicate can result in a portfolio company being unable to raise additional capital to fund operations. This issue is especially acute in capital-intensive sectors that are enabled by nanotechnology, such as cleantech, healthcare and electronics. The portfolio company may be forced to sell before reaching its full potential or be shut down entirely if the remaining investors cannot financially support the company. As such, improvements in the exit environment for venture-backed companies through IPOs and merger and acquisition transactions may not translate to an increase in the available capital to venture-backed companies, particularly those that have investments from funds that are in the latter stage of life unless the markets improve for some time into the future.

Our overall goal remains unchanged. We want to maintain our leadership position in investing in nanotechnology and microsystems and to increase our net asset value. The current environment for venture capital financings continues to favor those firms that have capital to invest regardless of the stage of the investee company. We continue to finance our new and follow-on equity and convertible debt investments from our cash reserves held in U.S. Treasury obligations and bank accounts. We believe the turmoil of the venture capital industry and the current economic climate provide opportunities to invest this capital at historically low valuations in equity and convertible debt securities and at high yields in non-convertible debt securities of new and existing privately held and publicly traded companies of varying maturities.

Valuation of Investments

We value our privately held venture capital investments each quarter as determined in good faith by our Valuation Committee, a committee of all the independent directors, within guidelines established by our Board of Directors in accordance with the 1940 Act. (See "Footnote to Consolidated Schedule of Investments" contained in "Consolidated Financial Statements.")

The values of privately held, venture capital-backed companies are inherently more difficult than publicly traded companies to assess at any single point in time because securities of these types of companies are not actively traded. We believe, perhaps even more than in the past, that illiquidity, and the perception of illiquidity, can affect value. Management believes further that the long-term effects of the difficult venture capital market and difficult, but improving, exit environments will continue to affect negatively the fundraising ability of weak companies regardless of near-term improvements in the overall global economy and public markets, and that these factors can also affect value.

In each of the years in the period 2007 through 2010, and for the nine months ended September 30, 2011, the Company recorded the following gross write-ups in privately held securities as a percentage of net assets at the beginning of the year ("BOY"), gross write-downs in privately held securities as a percentage of net assets at the beginning of the year, and change in value of privately held portfolio securities as a percentage of net assets at the beginning of the year.

Gross Write-Ups and Write-Downs of the Privately Held Portfolio
	2007			2008			2009			2010			Nine Months Ended September 30, 2011

Net Asset Value, BOY	$	113,930,303		$	138,363,344		$	109,531,113		$	134,158,258		$	146,853,912

Gross Write-Downs During Year	$	(7,810,794	)	$	(39,671,588	)	$	(12,845,574	)	$	(11,391,367	)	$	(14,187,495	)

Gross Write-Ups During Year	$	11,694,618		$	820,559		$	21,631,864		$	30,051,847		$	10,417,589

Gross Write-Downs as a Percentage of Net Asset Value, BOY		(6.86	)%		(28.67	)%		(11.7	)%		(8.5	)%		(9.7	)%

Gross Write-Ups as a Percentage of Net Asset Value, BOY		10.26	%		0.59	%		19.7	%		22.4	%		7.1	%

Net Change as a Percentage of Net Asset Value, BOY		3.40	%		(28.08	)%		8.0	%		13.9	%		(2.6	)%

From June 30, 2011, to September 30, 2011, the value of our equity-focused venture capital portfolio, including our rights to potential future milestone payments from the sale of BioVex to Amgen decreased by $31,719,733, from $130,574,270 to $98,854,537. This decrease results primarily from the decrease in value of our shares of publicly traded Solazyme of $23,548,403 and from the sale of Innovalight to DuPont of $5,029,251. The decrease in the value of Solazyme and the sale of Innovalight accounted for 74 percent and 16 percent, respectively, of the total decrease in the value of our equity-focused portfolio from June 30, 2011, to September 30, 2011.

Net of our position in Solazyme and the sale of Innovalight, the remaining equity-focused portfolio companies and rights to milestone payments from companies formerly in our equity-focused portfolio decreased in value from June 30, 2011, to September 30, 2011, by $3,142,079, owing primarily to increases in unrealized depreciation of $7,150,389, the decrease in the value of a set of publicly traded comparable companies used to derive value of one of our equity-focused investments of $1,086,767 and the repayment of a short-term debt investment in one of our equity-focused portfolio companies of $1,348,150, offset in part by new and follow-on investments of $5,541,532, increases in unrealized appreciation of $814,589, and increases in net accrued bridge note interest of $87,106.

We note that our Valuation Committee and ultimately our Board of Directors take into account multiple sources of quantitative and qualitative inputs to determine the value of our privately held portfolio companies and our publicly traded portfolio companies whose values are not derived solely from the closing price on the last day of the quarter.

We also note that our Valuation Committee does not set the value of freely tradable publicly traded portfolio companies. As of September 30, 2011, our shares of one of our publicly traded companies, Solazyme, were not freely tradable owing to lock-up restrictions imposed by the underwriters of the IPO. A discount for illiquidity of $1,336,407 was applied to the value of our shares of Solazyme of $22,142,872 to determine the value of these shares of $20,806,465 as of September 30, 2011.

Non-performance risk is the risk that a portfolio company will be: (a) unable to raise capital, will need to be shut down and will not return our invested capital; or (b) able to raise capital, but at a valuation significantly lower than the implied post-money valuation. Our best estimate of the non-performance risk of our portfolio companies has been quantified and included in the valuation of the companies as of September 30, 2011, and this estimate of $7,064,863 accounts for the primary source of the increase in unrealized depreciation of $7,150,389. In the future, as these companies receive terms for additional financings or if they are unable to receive additional financing and, therefore, proceed with sales or shutdowns of the business, we expect the contribution of the discount for non-performance risk to vary in importance in determining the values of our securities of these companies. As of September 30, 2011, non-performance risk was a significant factor in determining the values of nine of our 29 equity-focused portfolio companies. These nine companies accounted for approximately $23.2 million of the total value of our privately held venture capital portfolio. We increased the non-performance risk, thereby decreasing the value, of five companies. We maintained the same level of non-performance risk for four companies. We removed the discount for non-performance risk as a significant input to value in one company due to the terms of a pending financing event.

We also note that our valuation of our securities of Molecular Imprints, Inc., includes $3,033,338 that is ascribed to a non-convertible bridge note. The principal plus interest of this note was repaid in full in the third quarter of 2011. The remaining value results from a liquidation preference that survived the repayment of the note and, as currently written, would pay the Company $4,044,450 should the company be sold for more than its outstanding debt and a contractual payment to management of Molecular Imprints. This amount assumes that the total non-convertible bridge note preferences are paid in full. Our value of this portion of our securities of Molecular Imprints as of September 30, 2011, reflects a probability-weighted discount applied to the total amount of the preference.

As of September 30, 2011, our top ten investments by value accounted for approximately 72 percent of the value of our equity-focused venture capital portfolio.

Assessment of Venture Capital Investment Portfolio as of September 30, 2011

As a foundational technology, nanotechnology is applicable across a diverse set of sectors, including clean technology, or cleantech, healthcare, and electronics. We have built a portfolio of investments in each of these sectors comprised of companies that address today’s growth markets and what we believe could be tomorrow’s growth opportunities. The value and cost of our equity-focused portfolio is currently distributed among the three sectors as follows:

In the first quarter of 2011, we renamed the sector classification "Electronics/Semiconductors" to "Electronics" and reclassified three companies, NeoPhotonics Corporation, Polatis, Inc., and Xradia, Inc., from a sector classification of "Other" to "Electronics" to reflect a broader definition of electronics to include photonics, metrology, and test and measurement. We also renamed the sector classification "Healthcare/Biotech" to "Healthcare."

The chart below compares the values of our venture capital investments in our Cleantech, Healthcare and Electronics portfolios as of September 30, 2011, and as of June 30, 2011.

We note that the amount in Healthcare does not include our rights to potential future milestone payments from the sale of BioVex to Amgen. These rights were valued at $3,344,472 and $3,316,581 as of September 30, 2011, and June 30, 2011, respectively. We note that the amounts in Healthcare and Cleantech do not include the amounts held in escrow of $953,211 and $927,713 for the acquisitions of BioVex and Innovalight, respectively.

We have and may continue to make investments outside these sectors, and we may not maintain these sectors or the weightings within these sectors in future quarters.

Assessment of Our Cleantech Portfolio as of September 30, 2011

We classify companies in our Cleantech portfolio as those that seek to improve performance, productivity or efficiency, and to reduce environmental impact, waste, cost, energy consumption or raw materials using nanotechnology-enabled solutions. Cleantech is a term used commonly to describe products and processes that solve global problems related to resource constraints. We believe macroeconomic and microeconomic trends, including ongoing growth in consumption of energy and resources, energy security concerns and volatility of commodity prices, create attractive investment opportunities in cleantech. We believe nanotechnology enables innovation in cleantech markets through:

New Approaches to Production: Nanotechnology-enabled methods of production can enable lower energy use at lower cost and operate with better performance than current methods of production.

New Materials: New materials enable the development of new products that overcome inherent limitations of existing technology and processes.

We continue to believe we are positioned well to take advantage of today’s growth markets within cleantech. We have been early investors in many of these markets. Our initial investments in biofuels in 2004 (Solazyme), light-emitting diodes in 2005 (Bridgelux) and batteries in 2007 (Contour Energy), now represent three of our top ten investments by value. These companies achieved record revenue growth in 2010 and continue to make progress in their respective markets. Additionally, we believe the acquisition of Innovalight by Dupont in the third quarter of 2011 provided validation of commercial interest in using nanoscale-enabled inks to enhance the performance of solar cells.

We also believe we have a pipeline of companies that are developing solutions for growth markets that are emerging today or may develop in future years such as ground-water, produced water and other environmental remediation (ABSMaterials and Produced Water Absorbents), renewable chemicals (Cobalt) and alternative sources for high-intensity light (Laser Light Engines). The table below shows the breakdown of our Cleantech portfolio as of September 30, 2011, based on stage of maturity of the investment including the year of our initial investment in each of the companies.

Many of our Cleantech portfolio companies are generating commercial revenues and/or have entered into partnerships and joint development agreements with large corporations. We include some of the commercial developments from these portfolio companies during the third quarter below.

Bridgelux

In August 2011, Bridgelux announced a new breakthrough increasing its industry record for lumens per watt using Gallium Nitride on Silicon. Growing Gallium Nitride on Silicon rather than sapphire or silicon carbide for LED lighting could deliver a 75 percent improvement in cost over current approaches.

Also in October 2011, Deloitte’s 2011 Technology Fast 500™ ranked Bridgelux as number 135 on the list of the 500 fastest growing technology, media, telecommunications, life sciences and clean technology companies in North America based on percentage of fiscal year revenue growth from 2006 to 2010. Bridgelux’s revenue grew 792 percent during this period.

In October 2011, Bridgelux announced a $15 million round of financing.

Contour Energy

In September 2011, Contour Energy was named to California’s 2011 Clean Tech Innovation “Top 40.”

In October 2011, Contour Energy announced an investment in the company by SBI Jefferies Asia Fund LP in a second close of its $20 million Series C round of financing.

Cobalt

In October 2011, Cobalt announced a collaboration program with Rhodia to jointly develop a Bagasse-based bio n-butanol market in Latin America.

Nanosys

In August 2011, Nanosys was awarded $4.8 million from the U.S. Department of Energy to refine and scale its SiNANOde materials for the automotive market.

Solazyme

In October 2011, Solazyme announced the continuation and expansion of its relationship with Unilever, the execution of a development agreement with Dow Electrical & Telecommunications for bio-based dielectric insulating fluids, and the launch of Algenist products in JC Penney stores as part of Sephora Inside.

In September and early October 2011, Bridgelux, Contour, Nanosys and Solazyme were all recognized as "Top 40" cleantech innovators by Grow-California.

We believe the macroeconomic and microeconomic dynamics that supported our thesis for historical investments in cleantech and the potential for nanotechnology to impact cleantech-related markets will continue for the foreseeable future. Some of the market opportunities we are currently investigating for investment opportunities include energy efficiency, energy storage and new methods for production, extraction and purification of high-value materials.

Assessment of Healthcare Portfolio as of September 30, 2011

We classify companies in our Healthcare portfolio as those that use nanotechnology to address problems in healthcare-related industries, including biotechnology, pharmaceuticals and medical devices. We believe macroeconomic and microeconomic trends, including an aging population, increasing life expectancy, increasing prosperity that drives efforts to extend life, the increased global reach of disease and the need to address exponential growth of expenses of entitlement programs in some wealthy countries, create attractive investment opportunities in healthcare. We believe nanotechnology enables innovation in healthcare markets through:

Engineering of Biological Systems: The ability to study, optimize, and engineer biological systems at the nanoscale enables the use of biological systems for diagnosis and treatment of disease.

Convergence of Multiple Disciplines: Much of the exciting work in nanotechnology is enabled by the convergence of the knowledge from multiple scientific disciplines. This convergence enables advances in healthcare that could not otherwise occur within one discipline.

New Tools: Complex biological processes include and are often the result of nanoscale phenomena. The ability to study and interpret these processes requires new tools. The information produced by these tools may advance the understanding and facilitate the engineering of biological systems.

We continue to believe we are positioned well to take advantage of today’s growth markets within healthcare having been early investors in many of these markets. We believe our initial investments in drug delivery vehicles in 2002 (Mersana), metabolomics in 2006 (Metabolon), synthetic carbohydrates in 2007 (Ancora), oncolytic viruses in 2007 (BioVex) and therapeutic discovery platforms in 2007 (Ensemble), positioned us well to capture the growth of commercial interest in cancer therapeutics, vaccines and molecular diagnostics. Mersana and BioVex are in clinical trials with their respective treatments for cancer, and Metabolon generated record revenue in 2010 and is on pace for record revenue in 2011. Additionally, we believe the acquisition of BioVex by Amgen on March 4, 2011, provided validation of commercial interest in the promise of oncolytic virus technology.

We also believe we have an emerging pipeline of companies that are developing solutions for growth markets that exist today or may develop in future years such as personalized medicine (Enumeral Biomedical and Champions Oncology). We made a new investment in a solid-state pH meter company, Senova Systems, Inc., in the third quarter of 2011. The table below shows the breakdown of our Healthcare portfolio as of September 30, 2011, based on stage of maturity of the investment, including the year of our initial investment in each of the companies.

Our Healthcare companies demonstrate progress and growth through different mechanisms depending on their respective businesses. Businesses that provide services, such as Metabolon, generate revenues from the commercial sale of these services. Businesses that enter into partnerships for discovery and development of therapeutics, vaccines and diagnostics may generate revenue from upfront fees, milestone payments and royalties on sales of approved products. Businesses that endeavor to advance a therapeutic, diagnostic or vaccine product through clinical trials may not generate revenue until an approved product is on the market, if ever. Progress for these types of companies can be measured by progress through clinical trials. We include some of the developments from these portfolio companies during the third quarter below.

Metabolon

In August 2011, Metabolon successfully raised $13.1 million in a Series D financing led by a new financial investor.

In August 2011, Metabolon published multiple manuscripts validating its biomarker discovery platform. Most notably, Metabolon was part of a publication in the prestigious scientific journal, Nature, where direct functional links between a genetic variant, an intermediate metabolic trait and a disease-relevant endpoint were identified. Inclusion of these genetically determined metabotypes identified by Metabolon could facilitate the identification of disease complications and adverse drug reactions.

We believe the macroeconomic and microeconomic dynamics that supported our thesis for historical investments in healthcare and the potential for nanotechnology to impact healthcare-related markets will continue for the foreseeable future. Some of the market opportunities we are currently investigating for investment opportunities include molecular diagnostics, 3D biology, cellular therapy and tissue engineering.

Assessment of Electronics Portfolio as of September 30, 2011

We classify companies in our Electronics portfolio as those that use nanotechnology to address problems in electronics-related industries, including semiconductors, telecommunications and data communications, metrology and test and measurement. We believe macroeconomic and microeconomic trends, including global connectivity, demand for increasing bandwidth due to pervasiveness of electronics in daily life, the desire to see not just hear, and need for real-time availability of data and demand for more functionality driven by increasing global prosperity, create attractive investment opportunities in electronics. We believe nanotechnology enables innovation in electronics markets through:

New Methods of Production: Nanotechnology enables continuation of Moore’s Law for exponential increases of the number of integrated circuits in semiconductor devices.

New Materials: New materials enable unique capabilities, performance and form-factors in electronic devices.

New Forms of Computation: Nanotechnology enables methods of solving equations and other problems that would be difficult or impossible with standard digital computing techniques.

We continue to believe we are positioned well to take advantage of today’s growth markets within electronics having been early investors in many of these markets. We believe our initial investments in non-volatile memory in 2001 and 2007 (Nantero and Adesto, respectively), transparent conductors in 2004 (Cambrios), image sensors in 2006 (SiOnyx), integrated photonics in 2003 (NeoPhotonics) and metrology in 2006 (Xradia), positioned us well to capture the growth of commercial interest in smartphones and tablet computers with touchscreens, the exponential increase in demand for bandwidth for data and telecommunications and the demand for non-destructive imaging capabilities in a variety of industries.

We also believe we have an emerging pipeline of companies that are developing solutions for growth markets that exist today or may develop in future years such as high-performance computing enabled by quantum mechanics (D-Wave Systems) and radio-frequency identification and near-field communication devices enabled by printed electronics (Kovio). We made a new investment in an electronic water proofing technology company, HzO, Inc., in the third quarter of 2011. The table below shows the breakdown of our Electronics portfolio as of September 30, 2011, based on stage of maturity of the investment, including the year of our initial investment in each of the companies.

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)

Large accelerated filer ¨	Accelerated filer x
Non-accelerated filer ¨	Smaller reporting company ¨

Class		Outstanding at November 7, 2011
Common Stock, $0.01 par value per share		31,000,601 shares

	September 30, 2011			December 31, 2010
	(Unaudited)

ASSETS
Investments in portfolio securities, at value:
Unaffiliated privately held companies (cost: $23,645,758 and $37,480,266, respectively)	$	18,368,097		$	56,315,330
Unaffiliated rights to milestone payments (adjusted cost basis: $3,291,750 and $0, respectively)		3,344,472			0
Unaffiliated publicly traded securities (cost: $12,743,787 and $0, respectively)		23,908,705			0
Non-controlled affiliated privately held companies (cost: $50,209,343 and $51,451,965, respectively)		45,955,747			42,775,415
Non-controlled affiliated publicly traded companies (cost: $2,000,000 and $0, respectively)		1,946,667			0
Controlled affiliated privately held companies (cost: $10,642,727 and $9,715,153, respectively)		6,609,872			7,059,677
Total investments in private portfolio companies, rights to milestone payments and public securities, at value (cost: $102,533,365 and $98,647,384, respectively)	$	100,133,560		$	106,150,422
Investments in U.S. Treasury obligations, at value (cost: $12,599,589 and $38,273,349, respectively)		12,599,799			38,274,617
Cash		24,302,804			3,756,919
Restricted funds (Note 3)		1,264,776			2,751
Funds held in escrow from sales of investments, at value (Note 3)		939,346			0
Receivable from portfolio company		14,500			10,000
Interest receivable		5,733			5,924
Prepaid expenses		127,312			379,705
Other assets		664,879			708,830
Total assets	$	140,052,709		$	149,289,168

LIABILITIES & NET ASSETS
Post retirement plan liabilities	$	1,596,639		$	1,506,906
Revolving loan (Note 5)		1,250,000			0
Accounts payable and accrued liabilities		1,077,759			589,592
Deferred rent		341,530			338,758
Debt interest and other payable		3,035			0
Total liabilities		4,268,963			2,435,256

Net assets	$	135,783,746		$	146,853,912

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 09/30/11 and 12/31/10; 32,829,341 issued at 09/30/11 and 32,706,904 issued at 12/31/10		328,294			327,070
Additional paid in capital		210,002,890			208,085,735
Accumulated net operating and realized loss		(68,742,312	)		(65,657,668	)
Accumulated unrealized (depreciation) appreciation of investments		(2,399,595	)		7,504,306
Treasury stock, at cost (1,828,740 shares at 09/30/11 and 12/31/10)		(3,405,531	)		(3,405,531	)

Net assets	$	135,783,746		$	146,853,912
Shares outstanding		31,000,601			30,878,164
Net asset value per outstanding share	$	4.38		$	4.76

	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	33

Financial Highlights	46

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations	47

Background	47

Overview	47

Investment Objective and Strategy	48

Involvement with Portfolio Companies	49

Historical Investments and Current Investment Pace	50

Importance of Availability of Liquid Capital	51

Our Sources of Liquid Capital	51

Recent and Pending Potential Liquidity Events from our Portfolio as of September 30, 2011	52

Maturity of Current Equity-Focused Venture Capital Portfolio	53

Current Business Environment	55

Valuation of Investments	56

Assessment of Venture Capital Investment Portfolio as of September 30, 2011	59

Results of Operations	67

Financial Condition	75

Liquidity	77

Borrowings	78

Contractual Obligations	79

Capital Resources	79

Critical Accounting Policies	79

Recent Developments – Portfolio Companies	82

Forward-Looking Statements	83

Item 3. Quantitative and Qualitative Disclosures About Market Risk	83

Item 4. Controls and Procedures	85

PART II. OTHER INFORMATION

Item 1A. Risk Factors	86

Item 6. Exhibits	87

Signatures	88

Exhibit Index	89

	Three Months Ended Sept. 30,						Nine Months Ended Sept. 30,
	2011			2010			2011			2010

Investment income:
Interest from:
Fixed-income securities and bridge notes (Note 3)	$	161,618		$	134,097		$	457,062		$	330,378
Miscellaneous income		40,909			6,348			70,115			18,348
Total investment income		202,527			140,445			527,177			348,726

Expenses:
Salaries, benefits and stock-based compensation (Note 7)		1,490,116			1,327,055			4,073,995			4,181,852
Administration and operations		207,491			201,222			683,292			711,990
Professional fees		413,156			136,643			869,717			556,878
Rent (Note 3)		99,323			136,879			278,323			303,239
Directors’ fees and expenses		80,387			70,359			264,559			251,280
Custody fees		4,380			24,000			52,380			72,000
Depreciation		12,729			13,151			37,895			38,940
Interest and other debt expense		13,103			0			26,870			0
Lease termination costs		0			0			0			68,038
Total expenses		2,320,685			1,909,309			6,287,031			6,184,217

Net operating loss		(2,118,158	)		(1,768,864	)		(5,759,854	)		(5,835,491	)

Net realized (loss) gain:
Realized (loss) gain from investments:
Unaffiliated companies		(2,017,949	)		0			5,310,794			13,218
Non-Controlled affiliated companies		(665,269	)		(3,136,552	)		(2,631,859	)		(3,393,559	)
Publicly traded companies		0			0			0			(152,980	)
U.S. Treasury obligations/other		0			(311	)		(82	)		(11,834	)
Realized (loss) gain from investments		(2,683,218	)		(3,136,863	)		2,678,853			(3,545,155	)

Income tax expense (Note 8)		1,250			1,799			3,643			4,431
Net realized (loss) gain from investments		(2,684,468	)		(3,138,662	)		2,675,210			(3,549,586	)

Net (decrease) increase in unrealized appreciation on investments:
Change as a result of investment sales		2,663,050			3,136,552			(2,015,594	)		3,358,871
Change on investments held		(30,945,031	)		1,316,942			(7,888,307	)		9,410,857
Net (decrease) increase in unrealized appreciation on investments		(28,281,981	)		4,453,494			(9,903,901	)		12,769,728

Net (decrease) increase in net assets resulting from operations	$	(33,084,607	)	$	(454,032	)	$	(12,988,545	)	$	3,384,651

Per average basic outstanding share	$	(1.07	)	$	(0.01	)	$	(0.42	)	$	0.11

Average outstanding shares		31,000,601			30,866,399			30,973,353			30,863,616

	Nine Months Ended			Nine Months Ended
	September 30, 2011			September 30, 2010
Cash flows used in operating activities:
Net (decrease) increase in net assets resulting from operations	$	(12,988,545	)	$	3,384,651
Adjustments to reconcile net increase (decrease) in net assets resulting from operations to net cash used in operating activities:
Net realized and unrealized loss (gain) on investments		7,225,048			(9,224,573	)
Depreciation of fixed assets, amortization of premium or discount on U.S. government securities, and bridge note interest		(238,886	)		(260,793	)
Stock-based compensation expense		1,427,321			1,746,734

Changes in assets and liabilities:
Restricted funds		(1,262,025	)		(1	)
Receivable from portfolio company		(4,500	)		18,247
Other receivables		0			7,187
Return of security deposits on leased properties		0			44,376
Interest receivable		24,402			11,513
Income tax receivable		1,185			0
Prepaid expenses		252,393			(3,867	)
Other assets		8,366			(227,512	)
Post retirement plan liabilities		89,733			101,316
Accounts payable and accrued liabilities		491,235			(46,445	)
Deferred rent		2,772			343,997

Net cash used in operating activities		(4,971,501	)		(4,105,170	)

Cash flows from investing activities:
Purchase of U.S. government securities		(100,032,726	)		(58,644,919	)
Sale of U.S. government securities		125,682,274			70,746,244
Investments in affiliated portfolio companies		(12,465,603	)		(7,489,948	)
Investments in unaffiliated portfolio companies		(3,732,015	)		(2,177,123	)
Proceeds from conversion of bridge note		0			1,356
Principal payments received on debt investments		1,523,736			0
Proceeds from sale of investments		12,804,733			407,543
Purchase of fixed assets		(4,071	)		(84,212	)

Net cash provided by investing activities		23,776,328			2,758,941

Cash flows from financing activities:
Proceeds from stock option exercises		491,058			39,795
Payment of offering costs		0			(48,928	)
Proceeds from drawdown of credit facility		1,250,000			0

Net cash provided by (used in) financing activities		1,741,058			(9,133	)

Net increase (decrease) in cash:
Cash at beginning of the period		3,756,919			1,611,465
Cash at end of the period.		24,302,804			256,103

Net increase (decrease) in cash	$	20,545,885		$	(1,355,362	)

Supplemental disclosures of cash flow information:
Income taxes paid	$	2,458		$	4,431

	Nine Months Ended			Year Ended
	September 30, 2011			December 31, 2010
	(Unaudited)

Changes in net assets from operations:

Net operating loss	$	(5,759,854	)	$	(7,555,807	)
Net realized gain (loss) on investments		2,675,210			(3,740,518	)
Net (decrease) increase in unrealized appreciation on investments as a result of sales		(2,015,594	)		3,608,205
Net (decrease) increase in unrealized appreciation on investments held		(7,888,307	)		18,274,970

Net (decrease) increase in net assets resulting from operations		(12,988,545	)		10,586,850

Changes in net assets from capital stock transactions:

Issuance of common stock upon the exercise of stock options		1,224			186
Additional paid-in capital on common stock issued net of offering expenses		489,834			20,527
Stock-based compensation expense		1,427,321			2,088,091

Net increase in net assets resulting from capital stock transactions		1,918,379			2,108,804

Net (decrease) increase in net assets		(11,070,166	)		12,695,654

Net assets:

Beginning of the period		146,853,912			134,158,258

End of the period	$	135,783,746		$	146,853,912

	Method of				Shares/
	Valuation (1)	Industry (2)	Cost		Principal		Value
Investments in Unaffiliated Companies (3)(4)(5)(6) – 33.6% of net assets at value

Private Placement Portfolio (Illiquid) – 13.5% of net assets at value

Bridgelux, Inc. (7)(8)		Cleantech
Manufacturing high-power light emitting diodes (LEDs) and arrays
Series B Convertible Preferred Stock	(M)		$	1,000,000		1,861,504	$	1,039,092
Series C Convertible Preferred Stock	(M)			1,352,196		2,130,699		1,802,145
Series D Convertible Preferred Stock	(M)			1,371,622		999,999		1,238,998
Series E Convertible Preferred Stock	(M)			730,369		440,334		634,874
Warrants for Series C Convertible Preferred Stock expiring 12/31/14	( I )			168,270		163,900		68,962
Warrants for Series D Convertible Preferred Stock expiring 8/26/14	( I )			128,543		166,665		82,289
Warrants for Series E Convertible Preferred Stock expiring 12/31/17	( I )			108,867		170,823		92,312
				4,859,867				4,958,672

Cambrios Technologies Corporation (7)(9)		Electronics
Developing nanowire-enabled electronic materials for the display industry
Series B Convertible Preferred Stock	(M)			1,294,025		1,294,025		1,165,383
Series C Convertible Preferred Stock	(M)			1,300,000		1,300,000		1,170,764
Series D Convertible Preferred Stock	(M)			515,756		515,756		773,634
Series D-2 Convertible Preferred Stock	(M)			92,400		92,400		92,400
				3,202,181				3,202,181

Cobalt Technologies, Inc. (7)(9)(10)		Cleantech
Developing processes for making bio-butanol through biomass fermentation
Series C-1 Convertible Preferred Stock	(M)			749,998		352,112		435,580
Series D-1 Convertible Preferred Stock	(M)			122,070		48,828		65,596
				872,068				501,176

Ensemble Therapeutics Corporation (7)(9)(11)		Healthcare
Developing DNA- Programmed ChemistryTM for the discovery of new classes of therapeutics
Series B Convertible Preferred Stock	(M)			2,000,000		1,449,275		125,072
Secured Convertible Bridge Notes (including interest)	(M)			367,406	$	299,169		775,997
				2,367,406				901,069

	Method of		Adjusted		Shares/
	Valuation (1)	Industry(2)	Cost		Principal		Value

Rights to Milestone Payments (Illiquid) – 2.5% of net assets at value

Amgen, Inc. (7)(13)		Healthcare
Rights to Milestone Payments from Acquisition of BioVex Group, Inc.	( I )		$	3,291,750	$	3,291,750	$	3,344,472

Total Unaffiliated Rights to Milestone Payments (cost: $3,291,750)							$	3,344,472

Publicly Traded Portfolio – 17.6% of net assets at value

NeoPhotonics Corporation (13)		Electronics
Developing and manufacturing optical devices and components
Common Stock	(M)		$	7,299,590		450,907	$	3,102,240

Solazyme, Inc. (7)(13)(16)		Cleantech
Developing algal biodiesel, industrial chemicals and specialty ingredients using synthetic biology
Common Stock	(M)			5,444,197		2,304,149		20,806,465

Total Unaffiliated Publicly Traded Portfolio (cost: $12,743,787)							$	23,908,705

Total Investments in Unaffiliated Companies (cost: $39,681,295)							$	45,621,274

	Fair Value Measurement at Reporting Date Using:
Description	September 30, 2011		Unadjusted Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)

U.S. Government Securities	$	12,599,799	$	12,599,799	$	0	$	0

Privately Held Portfolio Companies:
Preferred Stock	$	61,117,766	$	0	$	0	$	61,117,766
Bridge Notes	$	4,931,498	$	0	$	0	$	4,931,498
Warrants	$	650,014	$	0	$	0	$	650,014
Rights to Milestone Payments	$	3,344,472	$	0	$	0	$	3,344,472
Senior Secured Debt	$	543,900	$	0	$	0	$	543,900
Participation Agreement	$	534,370	$	0	$	0	$	534,370
Subordinated Secured Debt	$	122,830	$	0	$	0	$	122,830
Non-Convertible Promissory Note	$	3,033,338	$	0	$	0	$	3,033,338

Publicly Traded Portfolio Companies:
Common Stock(a)	$	25,855,372	$	3,102,240	$	0	$	22,753,132

Total	$	112,733,359	$	15,702,039	$	0	$	97,031,320

	Beginning Balance 7/1/2011		Total Realized (Losses) Gains Included in Changes in Net Assets			Transfers			Total Unrealized Appreciation (Depreciation) Included in Changes in Net Assets			Investments in Portfolio Companies, Interest on Bridge Notes, and Amortization of Loan Fees, Net			Disposals			Ending Balance 9/30/2011		Amount of Total Appreciation (Depreciation) for the Period Included in Changes in Net Assets Attributable to the Change in Unrealized Gains or Losses Relating to Assets Still Held at the Reporting Date

Preferred Stock	$	67,766,920	$	(2,546,173	)	$	453,474		$	(5,046,318	)	$	5,041,531		$	(4,551,668	)	$	61,117,766	$	(7,572,901	)

Bridge Notes		5,208,640		34,927			(453,474	)		11,383			588,591			(458,569	)		4,931,498		47,217

Common Stock		0		(135,105	)		0			135,105			0			0			0		0

Warrants		737,400		(37,196	)		0			(50,190	)		0			0			650,014		(87,386	)

Rights to Milestone Payments		3,316,581		0			0			27,891			0			0			3,344,472		27,891

Participation Agreement		519,853		0			0			11,368			3,149			0			534,370		11,368

Subordinated Secured Debt		117,150		0			0			3,988			1,692			0			122,830		3,988

Senior Secured Debt		597,310		0			0			12,413			(65,823	)		0			543,900		12,413

Non-Convertible Promissory Note		4,381,488		0			0			0			0			(1,348,150	)		3,033,338		0

Publicly Traded Common Stock		49,241,940		0			(2,940,405	)		(23,548,403	)		0			0			22,753,132		(23,548,403	)

Total	$	131,887,282	$	(2,683,547	)	$	(2,940,405	)	$	(28,442,763	)	$	5,569,140		$	(6,358,387	)	$	97,031,320	$	(31,105,813	)

	Beginning Balance 1/1/2011		Total Realized Gains (Losses) Included in Changes in Net Assets			Transfers			Total Unrealized (Depreciation) Appreciation Included in Changes in Net Assets			Investments in Portfolio Companies, Interest on Bridge Notes, and Amortization of Loan Fees, Net		Disposals			Ending Balance 9/30/2011		Amount of Total (Depreciation) Appreciation for the Period Included in Changes in Net Assets Attributable to the Change in Unrealized Gains or Losses Relating to Assets Still Held at the Reporting Date

Preferred Stock	$	100,451,746	$	4,613,504		$	(28,611,520	)	$	(10,881,553	)	$	8,467,096	$	(12,921,507	)	$	61,117,766	$	(7,227,275	)

Bridge Notes		3,565,062		34,927			(1,785,265	)		408,592			3,166,751		(458,569	)		4,931,498		408,591

Common Stock		977,414		(2,101,696	)		(479,269	)		1,767,415			0		(163,864	)		0		0

Warrants		684,780		91,536			108,867			(197,117	)		121,422		(159,474	)		650,014		(68,385	)

Rights to Milestone Payments		0		0			3,291,750			52,722			0		0			3,344,472		52,722

Participation Agreement		471,420		0			0			55,502			7,448		0			534,370		55,502

Subordinated Secured Debt		0		0			0			14,669			108,161		0			122,830		14,669

Senior Secured Debt		0		0			0			13,654			530,246		0			543,900		13,654

Non-Convertible Promissory Note		0		0			0			3,033,338			1,348,150		(1,348,150	)		3,033,338		3,033,338

Publicly Traded Common Stock		0		0			22,675,822			(2,472,690	)		2,550,000		0			22,753,132		(2,472,690	)

Total	$	106,150,422	$	2,638,271		$	(4,799,615	)	$	(8,205,468	)	$	16,299,274	$	(15,051,564	)	$	97,031,320	$	(6,189,874	)

	Beginning Balance 7/1/2010		Total Realized Losses Included in Changes in Net Assets			Total Unrealized Gains (Losses) Included in Changes in Net Assets			Investments in Private Placements and Interest on Bridge Notes, Net			Disposals		Ending Balance 9/30/2010		Amount of Total Gains for the Period Included in Changes in Net Assets Attributable to the Change in Unrealized Gains or Losses Relating to Assets Still Held at the Reporting Date

Preferred Stock	$	85,717,686	$	(3,136,552	)	$	4,092,902		$	3,915,453		$	0	$	90,589,489	$	956,350

Bridge Notes		4,658,791		0			112,804			(1,055,420	)		0		3,716,175		112,804

Common Stock		1,122,777		0			278,667			0			0		1,401,444		278,667

Warrants		540,743		0			(57,465	)		98,643			0		581,921		(57,465	)

Participation Agreement		0		0			10,052			480,348			0		490,400		10,052

Total	$	92,039,997	$	(3,136,552	)	$	4,436,960		$	3,439,024		$	0	$	96,779,429	$	1,300,408

	Beginning Balance 1/1/2010		Total Realized Losses Included in Changes in Net Assets			Total Unrealized Gains (Losses) Included in Changes in Net Assets			Investments in Private Placements and Interest on Bridge Notes, Net		Disposals		Ending Balance 9/30/2010		Amount of Total Gains for the Period Included in Changes in Net Assets Attributable to the Change in Unrealized Gains or Losses Relating to Assets Still Held at the Reporting Date

Preferred Stock	$	73,134,661	$	(3,136,552	)	$	12,410,293		$	8,181,087	$	0	$	90,589,489	$	9,273,741

Bridge Notes		2,718,225		0			112,804			885,146		0		3,716,175		112,804

Common Stock		1,164,599		0			227,967			8,878		0		1,401,444		227,967

Warrants		779,601		(257,007	)		(75,015	)		134,342		0		581,921		(75,015	)

Participation Agreement		0		0			10,052			480,348		0		490,400		10,052

Total	$	77,797,086	$	(3,393,559	)	$	12,686,101		$	9,689,801	$	0	$	96,779,429	$	9,549,549

				Weighted		Weighted Average		Weighted Average Remaining		Aggregate
				Average		Grant Date		Contractual		Intrinsic
	Shares			Exercise Price		Fair Value		Term (Yrs)		Value

Options Outstanding at January 1, 2011		3,860,748		$	7.81	$	4.76		5.60	$	125,208

Granted		0		$	0	$	0		0

Exercised		(122,437	)	$	4.01	$	1.67		0
Forfeited or Expired		(349,194	)	$	5.98	$	3.12		0

Options Outstanding at September 30, 2011		3,389,117		$	8.13	$	5.04		5.21	$	0

Options Exercisable at September 30, 2011		2,575,906		$	8.54	$	5.32		5.35	$	0

Options Exercisable and Expected to be Exercisable at September 30, 2011		3,367,743		$	8.12	$	5.02		5.22	$	0

	For the Three Months Ended September 30						For the Nine Months Ended September 30
	2011			2010			2011			2010

Numerator for (decrease) increase in net assets per share	$	(33,084,607	)	$	(454,032	)	$	(12,988,545	)	$	3,384,651

Denominator for basic weighted average shares		31,000,601			30,866,399			30,973,353			30,863,616

Basic net (decrease) increase in net assets per share resulting from operations	$	(1.06	)	$	(0.01	)	$	(0.42	)	$	0.11

Denominator for diluted weighted average shares		31,000,601			30,866,399			30,973,353			30,895,197

Diluted net (decrease) increase in net assets per share resulting from operations	$	(1.07	)	$	(0.01	)	$	(0.42	)	$	0.11

Investment	Amount of Write-Down

Solazyme, Inc.	$	23,548,403
Bridgelux, Inc.		3,004,179
Mersana Therapeutics, Inc.		1,402,427
Xradia, Inc.		1,086,767
Ensemble Therapeutics Corporation		866,697
Nanosys, Inc.		725,249
Nantero, Inc.		490,811
Cobalt Technologies, Inc.		250,590
Nextreme Thermal Solutions, Inc.		137,664
Metabolon, Inc.		12,240
D-Wave Systems, Inc.		3,685
SiOnyx, Inc.		2,281

Investment	Amount of Write-Up

HzO, Inc.	$	361,046
ABSMaterials, Inc.		187,500
NeoPhotonics Corporation		161,835
Molecular Imprints, Inc.		76,317
GEO Semiconductor, Inc.		15,264
NanoTerra, Inc.		11,728

Investment	Amount of Write-Up

Laser Light Engines, Inc.	$	1,023,808
NeoPhotonics Corporation		980,947
Xradia, Inc.		312,110
Questech Corporation		106,840
D-Wave Systems, Inc.		73,713
PolyRemedy, Inc.		53,893
Bridgelux, Inc.		10,594
GEO Semiconductor Inc.		10,052

Investment	Amount of Write-Down

Innovalight, Inc.	$	1,241,665
TetraVitae Bioscience, Inc.		62,500
Mersana Therapeutics, Inc.		23,822
Molecular Imprints, Inc.		8,125
Metabolon, Inc.		6,678
BioVex Group, Inc.		3,134
SiOnyx, Inc.		1,731

Investment	Amount of Write-Up

Adesto Technologies Corporation	$	4,130,000
Metabolon, Inc.		2,085,783
CambriosTechnologies Corporation		1,554,890
ABSMaterials, Inc.		1,125,000
Kovio, Inc.		620,397
Molecular Imprints, Inc.		375,517
HzO, Inc.		361,046
Enumeral Biomedical Corp.		83,333
GEO Semiconductor, Inc.		64,997
NanoTerra, Inc.		12,523
Cobalt Technologies, Inc.		4,103

New Investments	Amount of Investment

Champions Oncology, Inc.	$	2,000,000
HzO, Inc.		1,666,667
Produced Water Absorbents, Inc.		1,000,000
NanoTerra, Inc.		750,000
Senova Systems, Inc.		692,308

Follow-On Investments	Amount of Investment

Metabolon, Inc.		1,499,999
Adesto Technologies Corporation		1,032,058
Kovio, Inc.		892,315
Molecular Imprints, Inc.		866,668
Bridgelux, Inc.		813,805
Contour Energy Systems, Inc.		720,000
Enumeral Biomedical Corp.		650,000
NeoPhotonics Corporation		550,000
Ancora Pharmaceuticals Inc.		500,000
Molecular Imprints, Inc.		481,482
Adesto Technologies Corporation		445,659
Mersana Therapeutics, Inc.		298,900
Innovalight, Inc.		272,369
Ancora Pharmaceuticals Inc.		200,000
Innovalight, Inc.		181,579
Ultora, Inc.		150,500
GEO Semiconductor, Inc.		150,000
Cobalt Technologies, Inc.		121,560
Ancora Pharmaceuticals Inc.		100,000
Enumeral Biomedical Corp.		99,999
Ultora, Inc.		63,250

Total	$	16,199,118

	September 30, 2011			December 31, 2010

Venture capital investments, at cost	$	102,533,365		$	98,647,384
Net unrealized (depreciation) appreciation(1)		(2,399,805	)		7,503,038
Venture capital investments, at value	$	100,133,560		$	106,150,422

	September 30, 2011		December 31, 2010

U.S. government obligations, at cost	$	12,599,589	$	38,273,349
Net unrealized appreciation(1)		210		1,268
U.S. government obligations, at value	$	12,599,799	$	38,274,617

	Total		Less than 1 Year		1-3 Years		3-5 Years		More Than 5 Years
Revolving credit facility(1)	$	1,250,000	$	—	$	1,250,000	$	—	$	—

Operating leases	$	2,476,446	$	328,539	$	892,734	$	574,273	$	680,900

	Harris & Harris Group, Inc.

	/s/	Daniel B. Wolfe
	By:	Daniel B. Wolfe
		Chief Financial Officer

	/s/	Patricia N. Egan
	By:	Patricia N. Egan
		Chief Accounting Officer
		and Vice President

Exhibit No.		Description

31.01		Certification of CEO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.02		Certification of CFO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32		Certification of CEO and CFO pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.