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

Form 10-Q

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

For the quarterly period ended June 30, 2016

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

For the transition period from ____________ to _____________

Commission file number: 0-11576

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

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

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

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

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

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

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

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



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

 
Page Number
 
 
 
 
 
i-v



PART I. FINANCIAL INFORMATION

Item 1. Consolidated Financial Statements

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

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


1


HARRIS & HARRIS GROUP, INC.
CONSOLIDATED STATEMENTS OF ASSETS AND LIABILITIES
(Unaudited)
 
June 30, 2016
 
December 31, 2015
ASSETS
 
 
Investments, in portfolio securities at value:
 
 
 
Unaffiliated privately held companies
(cost: $15,732,223 and $18,857,235, respectively)
$
6,621,231

 
$
5,376,472

Unaffiliated rights to milestone payments
(adjusted cost basis: $781,863 and $781,863, respectively)
2,993,857

 
3,362,051

Unaffiliated publicly traded securities
(cost: $1,623,029 and $1,623,029, respectively)
552,215

 
957,544

Non-controlled affiliated privately held companies
(cost: $50,377,689 and $49,262,921, respectively)
48,536,764

 
41,909,262

Non-controlled affiliated publicly traded companies
(cost: $23,165,788 and $23,165,788, respectively)
9,688,048

 
18,371,105

Controlled affiliated privately held companies
(cost: $23,679,289 and $23,205,336, respectively)
6,294,427

 
7,010,534

Equity method privately held companies
(adjusted cost basis: $334,216 and $165,936, respectively)
334,216

 
165,936

Total, investments in private portfolio companies, rights to
milestone payments and public securities at value
(cost: $115,694,097 and $117,062,108, respectively)
75,020,758

 
77,152,904

Cash
11,841,767

 
17,922,630

Funds held in escrow from sales of investments at value (Note 3)
116,781

 
374,565

Receivable from portfolio companies
209,477

 
13,032

Receivable from sale of investments (Note 3)
383,581

 
0

Interest receivable
99,815

 
10,333

Prepaid expenses
358,135

 
563,699

Other assets
398,052

 
424,123

Total assets
$
88,428,366

 
$
96,461,286

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

 
$
5,000,000

Post retirement plan liabilities (Note 8)
1,222,360

 
1,202,148

Accounts payable and accrued liabilities
671,828

 
1,268,355

Deferred rent
249,896

 
279,112

Total liabilities
$
7,144,084

 
$
7,749,615

Commitments and contingencies (Note 11)
 
 
 
Net assets
$
81,284,282

 
$
88,711,671

Net assets are comprised of:
 
 
 
Preferred stock, $0.10 par value, 2,000,000 shares authorized; none issued
$
0

 
$
0

Common stock, $0.01 par value, 45,000,000 shares authorized at 6/30/16 and 12/31/15; 33,218,651 and 33,183,576 issued at 6/30/16 and 12/31/15, respectively
332,186

 
331,836

Additional paid in capital (Note 9)
215,674,385

 
215,762,973

Accumulated net operating and realized loss
(89,848,153
)
 
(83,377,629
)
Accumulated unrealized depreciation of investments
(40,673,339
)
 
(39,909,204
)
Accumulated other comprehensive income (Note 8)
404,728

 
509,220

Treasury stock, at cost (2,337,822 shares at 6/30/16 and 12/31/15) (Note 12)
(4,605,525
)
 
(4,605,525
)
Net assets
$
81,284,282

 
$
88,711,671

Shares outstanding
30,880,829

 
30,845,754

Net asset value per outstanding share
$
2.63

 
$
2.88


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


HARRIS & HARRIS GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
 
Three Months Ended
 
Six Months Ended
 
June 30, 2016
 
June 30, 2015
 
June 30, 2016
 
June 30, 2015
Investment income:
 
 
 
 
 
 
 
Interest from:
 
 
 
 
 
 
 
Unaffiliated companies
$
3,692

 
$
9,533

 
$
6,310

 
$
20,776

Non-controlled affiliated companies
96,806

 
201,896

 
152,872

 
254,322

Controlled affiliated companies
95,718

 
47,207

 
186,142

 
91,633

Cash and U.S. Treasury securities and other
917

 
3,318

 
2,349

 
4,748

Fees for providing managerial assistance to portfolio companies (Note 14)
222,976

 
6,500

 
369,853

 
13,500

Yield-enhancing fees on debt securities
39,933

 
19,741

 
44,558

 
46,048

Total investment income
460,042

 
288,195

 
762,084

 
431,027

Expenses:
 
 
 
 
 
 
 
Salaries, benefits and stock-based
compensation (Note 9)
617,599

 
977,689

 
1,221,507

 
2,056,178

Administration and operations
110,120

 
134,860

 
252,412

 
236,094

Professional fees
349,743

 
314,785

 
648,565

 
887,019

Rent (Note 3)
57,221

 
67,758

 
114,441

 
135,464

Insurance expense
67,538

 
73,724

 
127,113

 
141,335

Directors' fees and expenses
74,151

 
68,901

 
144,760

 
188,525

Interest and other debt expenses
208,025

 
208,026

 
416,051

 
351,746

Custody fees
12,629

 
15,704

 
24,690

 
31,616

Depreciation
11,322

 
12,055

 
22,777

 
24,702

Total expenses
1,508,348

 
1,873,502

 
2,972,316

 
4,052,679

Net operating loss
(1,048,306
)
 
(1,585,307
)
 
(2,210,232
)
 
(3,621,652
)
Net realized gain (loss):
 
 
 
 
 
 
 
Realized gain (loss) from investments:
 
 
 
 
 
 
 
Unaffiliated companies
233,531

 
3,289,351

 
(2,925,462
)
 
3,299,836

Non-controlled affiliated companies
0

 
(98,644
)
 
(1,244,955
)
 
(392,430
)
Publicly traded companies
15

 
41,411

 
15

 
41,411

Realized gain (loss) from investments
233,546

 
3,232,118

 
(4,170,402
)
 
2,948,817

Income tax (benefit) expense (Note 10)
(1,339
)
 
1,600

 
4,491

 
1,705

Net realized gain (loss) from investments
234,885

 
3,230,518

 
(4,174,893
)
 
2,947,112

Net (increase) decrease in unrealized
depreciation on investments:
 
 
 
 
 
 
 
Unaffiliated companies
1,477,991

 
(3,782,012
)
 
4,369,770

 
(4,405,846
)
Controlled affiliated companies
(176,611
)
 
199,923

 
(1,190,061
)
 
357,040

Unaffiliated rights to milestone payments
34,088

 
(13,597
)
 
(368,194
)
 
(12,681
)
Non-controlled affiliated companies
2,402,785

 
3,434,300

 
5,512,736

 
(146,818
)
Publicly traded non-controlled affiliated companies
(3,673,752
)
 
(2,353,228
)
 
(8,683,057
)
 
(601,804
)
Publicly traded unaffiliated companies
(392,208
)
 
(601,763
)
 
(405,329
)
 
222,951

Net increase in unrealized depreciation on investments
(327,707
)
 
(3,116,377
)
 
(764,135
)
 
(4,587,158
)
Net realized and unrealized (loss) gain on investments
(92,822
)
 
114,141

 
(4,939,028
)
 
(1,640,046
)
Share of loss on equity method investments
(43,917
)
 
(58,330
)
 
(85,399
)
 
(189,836
)
Net decrease in net assets resulting from operations:
 
 
 
 
 
 
 
Total
$
(1,185,045
)
 
$
(1,529,496
)
 
$
(7,234,659
)
 
$
(5,451,534
)
Per average basic and diluted outstanding share
$
(0.04
)
 
$
(0.05
)
 
$
(0.24
)
 
$
(0.17
)
Average outstanding shares - basic and diluted
30,850,982

 
31,285,894

 
30,848,368

 
31,283,382


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


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

 
Three Months Ended
June 30, 2016
 
Three Months Ended
June 30, 2015
 
Six Months Ended
June 30, 2016
 
Six Months Ended
June 30, 2015
Net decrease in net assets resulting from operations
$
(1,185,045
)
 
$
(1,529,496
)
 
$
(7,234,659
)
 
$
(5,451,534
)
Other comprehensive loss:
 
 
 
 
 
 
 
Amortization of prior service (benefit)
(52,246
)
 
(52,246
)
 
(104,492
)
 
(104,492
)
Other comprehensive loss
(52,246
)
 
(52,246
)
 
(104,492
)
 
(104,492
)
Comprehensive loss
$
(1,237,291
)
 
$
(1,581,742
)
 
$
(7,339,151
)
 
$
(5,556,026
)




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


HARRIS & HARRIS GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
 
Six Months Ended
June 30, 2016
 
Six Months Ended
June 30, 2015
Cash flows used in operating activities:
 
 
 
Net decrease in net assets resulting from operations
$
(7,234,659
)
 
$
(5,451,534
)
Adjustments to reconcile net decrease in net assets resulting from operations to net cash used in operating activities:
 
 
 
Net realized loss and change in unrealized
depreciation on investments
4,934,537

 
1,638,341

Depreciation of fixed assets, amortization of prepaid
assets and accretion of bridge note interest
(230,834
)
 
(279,990
)
Share of loss on equity method investments
85,399

 
189,836

Stock-based compensation (benefit) expense
(65,923
)
 
431,981

Amortization of prior service (benefit)
(104,492
)
 
(104,492
)
Funding of operating commitment to equity method investments
(253,680
)
 
(262,215
)
Purchase of affiliated portfolio companies
(3,450,302
)
 
(4,275,915
)
Purchase of unaffiliated portfolio companies
(698,300
)
 
(509,824
)
Payments received on debt investments
0

 
186,109

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

 
39,757

Proceeds from sale of investments of unaffiliated portfolio companies
1,161,942

 
5,557,846

Proceeds from repayment of bridge notes of controlled affiliated portfolio companies
750,000

 
0

Proceeds from publicly traded unaffiliated companies
0

 
100,491

Changes in assets and liabilities:
 
 
 
Receivable from portfolio companies
(196,445
)
 
143,377

Receivable from sale of investments
(383,581
)
 
0

Interest receivable
(89,482
)
 
(10,344
)
Prepaid expenses
205,564

 
200,089

Other assets
3,289

 
(138,848
)
Post retirement plan liabilities
20,212

 
26,347

Accounts payable and accrued liabilities
(596,527
)
 
(167,075
)
Deferred rent
(29,216
)
 
(25,712
)
Net cash used in operating activities
(6,058,548
)
 
(2,711,775
)
Cash flows from investing activities:
 
 
 
Purchase of fixed assets
0

 
(6,806
)
Net cash used in investing activities
0

 
(6,806
)
Cash flows from financing activities:
 
 
 
Proceeds from drawdown of loan facility
0

 
5,000,000

Payment of withholdings related to net settlement of restricted stock
(22,315
)
 
(47,644
)
Net cash (used in) provided by financing activities
(22,315
)
 
4,952,356

Net (decrease) increase in cash
$
(6,080,863
)
 
$
2,233,775

Cash at beginning of the period
17,922,630

 
20,748,314

Cash at end of the period
$
11,841,767

 
$
22,982,089

Supplemental disclosures of cash flow information:
 
 
 
Income taxes paid
$
4,491

 
$
1,705

Interest paid
$
252,778

 
$
0



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


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

 
Six Months Ended
June 30, 2016
 
Year Ended
December 31, 2015
Changes in net assets from operations:
 
 
 
Net operating loss
$
(2,210,232
)
 
$
(7,162,510
)
Net realized (loss) gain on investments
(4,174,893
)
 
4,531,700

Net increase in unrealized depreciation on investments
(764,135
)
 
(17,302,729
)
Share of loss on equity method investments
(85,399
)
 
(312,291
)
Net decrease in net assets resulting from operations
(7,234,659
)
 
(20,245,830
)
Changes in net assets from capital stock transactions:
 
 
 
Purchase of treasury stock
0

 
(1,199,994
)
Acquisition of vested restricted stock awards to pay required employee withholding tax
(22,315
)
 
(86,914
)
Stock-based compensation (benefit) expense
(65,923
)
 
798,965

Net decrease in net assets resulting from capital stock transactions
(88,238
)
 
(487,943
)
Changes in net assets from accumulated other comprehensive loss:
 
 
 
Other comprehensive loss
(104,492
)
 
(208,983
)
Net decrease in net assets resulting from accumulated other comprehensive loss
(104,492
)
 
(208,983
)
Net decrease in net assets:
(7,427,389
)
 
(20,942,756
)
Net Assets:
 
 
 
Beginning of the period
88,711,671

 
109,654,427

End of the period
$
81,284,282

 
$
88,711,671


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

Investments in Unaffiliated Companies (3) -
 
 
 
 
 
 
 
 
 
12.5% of net assets at value
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Private Placement Portfolio (Illiquid) (4) -
 
 
 
 
 
 
 
 
 
8.1% of net assets at value
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Bridgelux, Inc. (5)(8)(9)(10)
 
 
Energy
 
 
 
 
 
 
Manufacturing high-power light emitting diodes (LEDs) and arrays
 
 
 
 
 
 
 
 
 
Series B Convertible Preferred Stock (acquired 11/29/07)
(M)
 
 
 
$
1,000,000

 
1,861,504

 
$
216,402

Series C Convertible Preferred Stock (acquired 7/27/07)
(M)
 
 
 
1,352,196

 
2,130,699

 
446,626

Series D Convertible Preferred Stock (acquired 2/25/08-3/10/10)
(M)
 
 
 
1,371,622

 
999,999

 
615,544

Series E Convertible Preferred Stock (acquired 6/1/11)
(M)
 
 
 
672,599

 
440,334

 
507,418

Series E-1 Convertible Preferred Stock (acquired 3/16/12)
(M)
 
 
 
386,073

 
399,579

 
334,596

Warrants for Series E Convertible Preferred Stock expiring 12/31/17 (acquired 10/21/11)
(M)
 
 
 
93,969

 
170,823

 
—

Warrants for Common Stock expiring 8/9/18 (acquired 1/27/11)
(M)
 
 
 
148,409

 
171,183

 
—

Warrants for Common Stock expiring 10/21/18 (acquired 8/9/13)
(M)
 
 
 
18,816

 
84,846

 
—

 
 
 
 
 
5,043,684

 
 
 
2,120,586

 
 
 
 
 
 
 
 
 
 
Fleet Health Alliance, LLC (5)(8)(9)(11)
 
 
Life Sciences
 
 
 
 
 
 
Developing software for information transfer amongst healthcare providers and consumers
 
 
 
 
 
 
 
 
 
Unsecured Convertible Bridge Note, 0%, (acquired 4/22/16)
(M)
 
 
 
225,000

 
$
225,000

 
225,000

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

 
350,539

 
717,468

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

 
635,081

 
1,333,985

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

 
339,887

 
729,566

 
 
 
 
 
4,924,753

 
 
 
2,781,019

 
 
 
 
 
 
 
 
 
 
Muses Labs, Inc. (5)(8)(11)
 
 
Life Sciences
 
 
 
 
 
 
Developing a data analytics platform for precision medicine
 
 
 
 
 
 
 
 
 
Unsecured Convertible Bridge Note, 5%, (acquired 5/25/16)
(M)
 
 
 
213,075

 
$
212,000

 
213,075

 
 
 
 
 
 
 
 
 
 

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

Investments in Unaffiliated Companies (3) -
 
 
 
 
 
 
 
 
 
12.5% of net assets at value (Cont.)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Private Placement Portfolio (Illiquid) (4) -
 
 
 
 
 
 
 
 
 
8.1% of net assets at value (Cont.)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Nanosys, Inc. (5)(8)(9)
 
 
Energy
 
 
 
 
 
 
Developing inorganic nanowires and quantum dots for use in LED-backlit devices
 
 
 
 
 
 
 
 
 
Series C Convertible Preferred Stock (acquired 4/10/03)
(M)
 
 
 
$
1,500,000

 
803,428

 
$
128,337

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

 
1,016,950

 
433,421

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

 
433,688

 
320,819

 
 
 
 
 
4,996,576

 
 
 
882,577

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

 
4,462

 
356

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

 
47,508

 
84,228

 
 
 
 
 
104,571

 
 
 
84,584

 
 
 
 
 
 
 
 
 
 
Phylagen, Inc. (5)(8)
 
 
Life Sciences
 
 
 
 
 
 
Developing technology to improve human health and business productivity
 
 
 
 
 
 
 
 
 
Secured Convertible Bridge Note, 5%, (acquired 2/5/15)
(M)
 
 
 
214,027

 
$
200,000

 
299,638

Secured Convertible Bridge Note, 5%, (acquired 6/5/15)
(M)
 
 
 
10,537

 
$
10,000

 
14,752

 
 
 
 
 
224,564

 
 
 
314,390

 
 
 
 
 
 
 
 
 
 
Total Unaffiliated Private Portfolio (cost: $15,732,223)
 
 
 
 
 
 
 
 
$
6,621,231

 
 
 
 
 
 
 
 
 
 
Rights to Milestone Payments (Illiquid) (6) -
 
 
 
 
 
 
 
 
 
3.7% of net assets at value
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Amgen, Inc. (8)(9)
 
 
Life Sciences
 
 
 
 
 
 
Rights to Milestone Payments from Acquisition of BioVex Group, Inc. (acquired 3/4/11)
(I)
 
 
 
$
548,998

 
$
548,998

 
$
2,527,629

 
 
 
 
 
 
 
 
 
 

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

Rights to Milestone Payments (Illiquid) (6) -
 
 
 
 
 
 
 
 
 
3.7% of net assets at value (Cont.)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Canon, Inc. (8)(9)
 
 
Electronics
 
 
 
 
 
 
Rights to Milestone Payments from Acquisition of Molecular Imprints, Inc. (acquired 4/18/14)
(I)
 
 
 
$
232,865

 
$
232,865

 
$
466,228

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

 
$
0

 
0

 
 
 
 
 
 
 
 
 
 
Total Unaffiliated Rights to Milestone Payments (cost: $781,863)
 
 
 
 
 
 
 
 
$
2,993,857

 
 
 
 
 
 
 
 
 
 
Publicly Traded Portfolio (7) -
 
 
 
 
 
 
 
 
 
0.7% of net assets at value
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Champions Oncology, Inc. (5)(9)
 
 
Life Sciences
 
 
 
 
 
 
Developing its TumorGraftTM platform for personalized medicine and drug development
 
 
 
 
 
 
 
 
 
Common Stock (acquired 3/24/11-3/11/15)
(M)
 
 
 
$
1,622,629

 
243,540

 
$
547,721

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

 
5,500

 
4,494

 
 
 
 
 
$
1,623,029

 
 
 
$
552,215

 
 
 
 
 
 
 
 
 
 
Total Unaffiliated Publicly Traded Portfolio (cost: $1,623,029)
 
 
 
 
 
 
 
 
$
552,215

 
 
 
 
 
 
 
 
 
 
Total Investments in Unaffiliated Companies (cost: $18,137,115)
 
 
 
 
 
 
 
 
$
10,167,303

 
 
 
 
 
 
 
 
 
 

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

Investments in Non-Controlled Affiliated Companies (3) -
 
 
 
 
 
 
 
 
 
71.6% of net assets at value
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Private Placement Portfolio (Illiquid) (12) -
 
 
 
 
 
 
 
 
 
59.7% of net assets at value
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
ABSMaterials, Inc. (5)(8)
 
 
Energy
 
 
 
 
 
 
Developing nano-structured absorbent materials for water remediation and consumer applications
 
 
 
 
 
 
 
 
 
Series A Convertible Preferred Stock (acquired 2/17/10-10/24/11)
(I)
 
 
 
$
435,000

 
390,000

 
$
231,918

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

 
1,037,751

 
978,243

Secured Convertible Bridge Note, 8%, (acquired 1/20/16)
(M)
 
 
 
103,573

 
$
100,000

 
103,573

 
 
 
 
 
1,756,217

 
 
 
1,313,734

 
 
 
 
 
 
 
 
 
 
AgBiome, LLC (5)(8)(9)
 
 
Life Sciences
 
 
 
 
 
 
Providing early-stage research and discovery for agriculture and utilizing the crop microbiome to identify products that reduce risk and improve yield
 
 
 
 
 
 
 
 
 
Series A-1 Convertible Preferred Stock (acquired 1/30/13)
(I)
 
 
 
2,000,000

 
2,000,000

 
4,621,038

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

 
417,392

 
1,005,124

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

 
160,526

 
571,997

 
 
 
 
 
3,021,746

 
 
 
6,198,159

 
 
 
 
 
 
 
 
 
 

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

Investments in Non-Controlled Affiliated Companies (3) -
 
 
 
 
 
 
 
 
 
71.6% of net assets at value (Cont.)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Private Placement Portfolio (Illiquid) (12) -
 
 
 
 
 
 
 
 
 
59.7% of net assets at value (Cont.)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
D-Wave Systems, Inc. (5)(8)(9)(13)
 
 
Electronics
 
 
 
 
 
 
Developing high-performance quantum computing systems
 
 
 
 
 
 
 
 
 
Series 1 Class B Convertible Preferred Stock (acquired 9/30/08)
(H)
 
 
 
$
1,002,074

 
1,144,869

 
$
2,536,278

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

 
450,450

 
1,001,791

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

 
855,131

 
1,901,794

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

 
269,280

 
606,587

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

 
258,721

 
582,801

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

 
460,866

 
1,121,259

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

 
678,264

 
1,508,446

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

 
513,900

 
1,164,235

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

 
493,747

 
1,118,578

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

 
20,415

 
16,457

 
 
 
 
 
5,689,311

 
 
 
11,558,226

 
 
 
 
 
 
 
 
 
 
EchoPixel, Inc. (5)(8)
 
 
Life Sciences
 
 
 
 
 
 
Developing virtual reality 3-D visualization software for life sciences and health care applications
 
 
 
 
 
 
 
 
 
Series Seed Convertible Preferred Stock (acquired 6/21/13-6/30/14)
(I)
 
 
 
1,250,000

 
4,194,630

 
1,365,715

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

 
1,476,668

 
508,330

 
 
 
 
 
1,750,000

 
 
 
1,874,045

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

 
1,449,275

 
0

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

 
492,575

 
1,289,653

 
 
 
 
 
2,679,754

 
 
 
1,289,653

 
 
 
 
 
 
 
 
 
 

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

Investments in Non-Controlled Affiliated Companies (3) -
 
 
 
 
 
 
 
 
 
71.6% of net assets at value (Cont.)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Private Placement Portfolio (Illiquid) (12) -
 
 
 
 
 
 
 
 
 
59.7% of net assets at value (Cont.)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
HZO, Inc. (5)(8)
 
 
Electronics
 
 
 
 
 
 
Developing novel industrial coatings that protect electronics against damage from liquids
 
 
 
 
 
 
 
 
 
Common Stock (acquired 6/23/14)
(H)
 
 
 
$
666,667

 
405,729

 
$
672,553

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

 
2,266,894

 
5,614,379

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

 
674,638

 
2,302,053

Unsecured Convertible Bridge Note, 10%, (acquired 6/15/16)
(H)
 
 
 
251,096

 
$
250,000

 
307,865

 
 
 
 
 
9,127,604

 
 
 
8,896,850

 
 
 
 
 
 
 
 
 
 
Laser Light Engines, Inc. (8)(9)(14)
 
 
Energy
 
 
 
 
 
 
Manufactured solid-state light sources for digital cinema and large-venue projection displays
 
 
 
 
 
 
 
 
 
Series A Convertible Preferred Stock (acquired 5/6/08)
(M)
 
 
 
2,000,000

 
7,499,062

 
0

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

 
13,571,848

 
0

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

 
$
200,000

 
0

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

 
$
95,652

 
0

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

 
$
82,609

 
0

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

 
$
434,784

 
0

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

 
$
186,955

 
0

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

 
$
166,667

 
0

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

 
$
166,667

 
0

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

 
$
80,669

 
0

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

 
$
19,331

 
0

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

 
$
13,745

 
0

 
 
 
 
 
6,542,881

 
 
 
0

 
 
 
 
 
 
 
 
 
 

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

Investments in Non-Controlled Affiliated Companies (3) -
 
 
 
 
 
 
 
 
 
71.6% of net assets at value (Cont.)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Private Placement Portfolio (Illiquid) (12) -
 
 
 
 
 
 
 
 
 
59.7% of net assets at value (Cont.)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Lodo Therapeutics Corporation (5)(8)(9)
 
 
Life Sciences
 
 
 
 
 
 
Developing and commercializing novel therapeutics derived from a metagenome-based Natural Product Discovery Platform
 
 
 
 
 
 
 
 
 
Series A Convertible Preferred Stock (acquired 12/21/15-4/22/16)
(I)
 
 
 
$
658,190

 
658,190

 
$
670,056

 
 
 
 
 
 
 
 
 
 
Metabolon, Inc. (5)(8)(9)
 
 
Life Sciences
 
 
 
 
 
 
Developing a biochemical profiling platform for precision medicine
 
 
 
 
 
 
 
 
 
Series B Convertible Preferred Stock (acquired 6/29/09)
(H)
 
 
 
2,500,000

 
371,739

 
3,319,486

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

 
148,696

 
1,327,793

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

 
1,000,000

 
3,050,329

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

 
835,882

 
2,569,683

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

 
444,404

 
1,454,456

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

 
103,277

 
331,039

 
 
 
 
 
7,231,212

 
 
 
12,052,786

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

 
1,195,315

 
1,115,811

Series A Convertible Preferred Stock (acquired 11/25/15)
(I)
 
 
 
750,000

 
682,333

 
735,531

 
 
 
 
 
1,250,000

 
 
 
1,851,342

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

 
1,025,050

 
1,052,243

 
 
 
 
 
 
 
 
 
 

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

Investments in Non-Controlled Affiliated Companies (3) -
 
 
 
 
 
 
 
 
 
71.6% of net assets at value (Cont.)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Private Placement Portfolio (Illiquid) (12) -
 
 
 
 
 
 
 
 
 
59.7% of net assets at value (Cont.)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Produced Water Absorbents, Inc. (5)(8)(15)
 
 
Energy
 
 
 
 
 
 
Providing integrated process separation solutions to the global oil and gas industries, enabling onsite treatment of produced and flowback water
 
 
 
 
 
 
 
 
 
Common Stock (acquired 4/30/16)
(M)
 
 
 
$
7,670,281

 
50,243,347

 
$
285,670

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

 
450,000

 
0

Senior Secured Debt, 15% commencing on 4/1/16, maturing on 12/31/19 (acquired 4/1/16)
(I)
 
 
 
1,910,193

 
$
2,533,766

 
1,494,000

 
 
 
 
 
9,645,724

 
 
 
1,779,670

 
 
 
 
 
 
 
 
 
 
Total Non-Controlled Affiliated Private Portfolio (cost: $50,377,689)
 
 
 
 
 
 
 
 
$
48,536,764

 
 
 
 
 
 
 
 
 
 
Publicly Traded Portfolio (16) -
 
 
 
 
 
 
 
 
 
11.9% of net assets at value
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Adesto Technologies Corporation (5)(9)(17)
 
 
Electronics
 
 
 
 
 
 
Developing low-power, high-performance memory devices
 
 
 
 
 
 
 
 
 
Common Stock (acquired 10/27/15)
(M)
 
 
 
$
11,482,417

 
1,769,868

 
$
5,805,167

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

 
7,966,368

 
1,577,341

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

 
255,120

 
38,833

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

 
1,500,000

 
37,500

Options to purchase Common Stock at $1.00 expiring 7/30/2016 (acquired 8/4/14)
(I)
 
 
 
0

 
80,000

 
0

 
 
 
 
 
5,591,299

 
 
 
1,653,674

 
 
 
 
 
 
 
 
 
 

The accompanying unaudited notes are an integral part of these consolidated financial statements.
14
HARRIS & HARRIS GROUP, INC.
CONSOLIDATED SCHEDULE OF INVESTMENTS AS OF JUNE 30, 2016
(Unaudited)
 
 
 
 
 
 
 
 
 
 
 
Method of
Valuation (1)
 
Primary
Industry (2)
 
Cost
 
Shares/
Principal
 
Value

Publicly Traded Portfolio (16) -
 
 
 
 
 
 
 
 
 
11.9% of net assets at value (Cont.)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
OpGen, Inc. (5)(8)(9)(18)
 
 
Life Sciences
 
 
 
 
 
 
Developing tools for genomic sequence assembly and analysis
 
 
 
 
 
 
 
 
 
Common Stock (acquired 5/5/15)
(M)
 
 
 
$
5,665,708

 
1,409,796

 
$
2,142,890

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