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 March 31, 2014

¨ 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	Outstanding at May 8, 2014
Common Stock, $0.01 par value per share	31,201,440 shares

Harris & Harris Group, Inc.

Form 10-Q, March 31, 2014

	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 Comprehensive Income (Loss)	4

Consolidated Statements of Cash Flows	5

Consolidated Statements of Changes in Net Assets	6

Consolidated Schedule of Investments	7

Notes to Consolidated Financial Statements	36

Financial Highlights	56

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations	57

Background	57

Overview	57

Realize	58

Invest	63

Partner	66

Return	66

Current Business Environment	67

Valuation of Investments	67

Results of Operations	71

Financial Condition	76

Cash Flow	77

Liquidity	77

Borrowings	79

Critical Accounting Policies	79

Recent Developments – Portfolio Companies	83

Cautionary Statement Regarding Forward-Looking Statements	83

Item 3. Quantitative and Qualitative Disclosures About Market Risk	84

Item 4. Controls and Procedures	86

PART II. OTHER INFORMATION

Item 1A. Risk Factors	88

Item 6. Exhibits	88

Signatures	89

Exhibit Index	90

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 venture capital company that has elected to operate as a business development company ("BDC") under the Investment Company Act of 1940 (the "1940 Act"). Certain information and disclosures normally included in the consolidated financial statements in accordance with accounting principles generally accepted in the United States of America ("GAAP") have been condensed or omitted as permitted by Regulation S-X and Regulation S-K. Accordingly, they do not include all information and disclosures necessary for a 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, 2013.

HARRIS & HARRIS GROUP, INC.

CONSOLIDATED STATEMENTS OF ASSETS AND LIABILITIES

(Unaudited)

	March 31, 2014			December 31, 2013
ASSETS
Investments, in portfolio securities at value:
Unaffiliated privately held companies (cost: $29,191,275 and $29,277,213, respectively)	$	28,700,814		$	29,199,564
Unaffiliated rights to milestone payments (adjusted cost basis: $3,291,750 and $3,291,750, respectively)		3,491,600			3,489,433
Unaffiliated publicly traded securities (cost: $1,989,451 and $2,451,410, respectively)		4,270,450			5,570,796
Non-controlled affiliated privately held companies (cost: $66,973,172 and $71,843,448, respectively)		53,080,562			54,287,040
Controlled affiliated privately held companies (cost: $9,099,877 and $9,065,972, respectively)		1,358,342			1,352,626
Total, investments in private portfolio companies, rights to milestone payments and public securities at value (cost: $110,545,525 and $115,929,793, respectively)	$	90,901,768		$	93,899,459
Investments, in U.S. Treasury securities at value (cost: $19,999,479 and $18,999,765, respectively)		19,999,600			18,999,810
Cash		5,901,234			8,538,548
Receivable from sales of investments (Note 3)		0			448,886
Funds held in escrow from sales of investments at value (Note 3)		551,294			1,786,390
Receivable from portfolio company		54,160			54,160
Interest receivable		43,330			22,804
Prepaid expenses (Note 3)		903,431			991,409
Other assets		310,407			322,480
Total assets	$	118,665,224		$	125,063,946

LIABILITIES & NET ASSETS

Post retirement plan liabilities (Note 8)	$	1,136,305		$	1,120,262
Accounts payable and accrued liabilities		536,586			785,608
Deferred rent		342,034			353,001
Written call options payable (premiums received: $342,735 and $112,382, respectively) (Note 7)		167,500			103,500
Total liabilities		2,182,425			2,362,371

Net assets	$	116,482,799		$	122,701,575

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 3/31/14 and 12/31/13; 33,026,178 issued at 3/31/14 and 12/31/13		330,262			330,262
Additional paid in capital (Note 9)		214,629,388			214,320,241
Accumulated net operating and realized loss		(76,477,859	)		(67,449,176	)
Accumulated unrealized depreciation of investments		(19,468,401	)		(22,021,407	)
Accumulated other comprehensive income (Note 8)		874,940			927,186
Treasury stock, at cost (1,828,740 shares at 3/31/14 and 12/31/13)		(3,405,531	)		(3,405,531	)

Net assets	$	116,482,799		$	122,701,575

Shares outstanding		31,197,438			31,197,438

Net asset value per outstanding share	$	3.73		$	3.93

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

HARRIS & HARRIS GROUP, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

	Three Months Ended			Three Months Ended
	March 31, 2014			March 31, 2013
Investment income:
Interest from:
Unaffiliated companies	$	50,235		$	74,995
Non-controlled affiliated companies		42,276			15,305
Controlled affiliated companies		34,726			46,804
Cash and U.S. Treasury securities and other		3,549			5,659
Miscellaneous income		15,505			42,327
Total investment income		146,291			185,090

Expenses:
Salaries, benefits and stock-based
compensation (Note 9)		1,412,360			1,317,685
Administration and operations		130,480			134,092
Professional fees		211,871			385,730
Interest and other debt expense		93,720			5,831
Directors' fees and expenses		93,277			72,470
Rent		68,026			101,215
Amortization of prepaid insurance premiums		83,933			76,123
Custody fees		14,791			13,793
Depreciation		13,205			13,724
Total expenses		2,121,663			2,120,663

Net operating loss		(1,975,372	)		(1,935,573	)

Net realized (loss) gain:
Realized (loss) gain from investments:
Unaffiliated companies		0			0
Non-controlled affiliated companies		(7,299,284	)		(4,236,033	)
Publicly traded companies		372,615			893,004
Written call options		(110,656	)		23,948
Purchased put options		0			(57,082	)
Realized loss from investments		(7,037,325	)		(3,376,163	)

Income tax expense (Note 10)		15,986			22,010
Net realized loss from investments		(7,053,311	)		(3,398,173	)

Net decrease in unrealized depreciation on investments:
Investments		2,386,653			3,148,194
Written call options		166,353			125,360
Net decrease in unrealized
depreciation on investments		2,553,006			3,273,554

Net realized and unrealized loss on investments		(4,500,305	)		(124,619	)

Net decrease in net assets resulting from operations:

Total	$	(6,475,677	)	$	(2,060,192	)

Per average basic and diluted outstanding share	$	(0.21	)	$	(0.07	)

Average outstanding shares		31,197,438			31,116,881

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

HARRIS & HARRIS GROUP, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Unaudited)

	Three Months Ended			Three Months Ended
	March 31, 2014			March 31, 2013

Net decrease resulting from operations	$	(6,475,677	)	$	(2,060,192	)

Other comprehensive income (loss):

Prior service cost (Note 8)		0			1,101,338
Amortization of prior service cost		(52,246	)		(43,538	)

Other comprehensive (loss) income		(52,246	)		1,057,800

Comprehensive (loss) income	$	(6,527,923	)	$	(1,002,392	)

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

HARRIS & HARRIS GROUP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

	Three Months Ended			Three Months Ended
	March 31, 2014			March 31, 2013
Cash flows (used in) provided by operating activities:
Net decrease in net assets resulting from operations	$	(6,475,677	)	$	(2,060,192	)
Adjustments to reconcile net decrease in net assets resulting from operations to net cash provided by (used in) operating activities:
Net realized loss and unrealized appreciation on investments		4,484,319			102,609
Depreciation of fixed assets, amortization of premium or
discount on U.S. government securities and prepaid assets
and accretion of bridge note interest		(75,321	)		(58,495	)
Stock-based compensation expense		309,147			314,721
Amortization of prior service cost		(52,246	)		(43,538	)
Purchase of U.S. government securities		(19,999,044	)		(13,999,456	)
Sale of U.S. government securities		18,999,008			14,000,000
Purchase of affiliated portfolio companies		(2,386,980	)		(2,063,170	)
Purchase of unaffiliated portfolio companies		0			(452,540	)
Payments received on debt investments		97,990			76,751
Proceeds from sale of investments and conversion of bridge notes		2,070,534			3,077,920
Proceeds from call option premiums		338,229			352,809
Payments for put and call option purchases		(218,532	)		64,578

Changes in assets and liabilities:
Receivable from sales of investments		448,886			(148,729	)
Restricted funds		0			(5	)
Receivable from portfolio company		0			2,770
Interest receivable		(20,526	)		22,108
Prepaid expenses		87,978			(313,750	)
Other assets		(379	)		(9,418	)
Post retirement plan liabilities		16,043			25,830
Accounts payable and accrued liabilities		(249,022	)		(199,438	)
Deferred rent		(10,967	)		(9,304	)
Other liabilities		0			400
Net cash used in operating activities		(2,636,560	)		(1,317,539	)

Cash flows from investing activities:
Purchase of fixed assets		(754	)		(1,472	)
Net cash used in investing activities		(754	)		(1,472	)

Net decrease in cash	$	(2,637,314	)	$	(1,319,011	)

Cash at beginning of the period		8,538,548			8,379,111
Cash at end of the period	$	5,901,234		$	7,060,100

Supplemental disclosures of cash flow information:
Income taxes paid	$	15,986		$	22,010
Interest paid	$	0		$	0

Supplemental schedule of non-cash activities:
Impact of plan amendment on post-retirement plan liabilities	$	(52,246	)	$	1,057,800

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

HARRIS & HARRIS GROUP, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS

(Unaudited)

	Three Months Ended			Year Ended
	March 31, 2014			December 31, 2013

Changes in net assets from operations:

Net operating loss	$	(1,975,372	)	$	(8,022,206	)
Net realized (loss) gain on investments		(7,053,311	)		18,516,268
Net decrease (increase) in unrealized depreciation on investments		2,386,653			(18,284,402	)
Net increase in unrealized appreciation on written call options		166,353			1,382

Net decrease in net assets resulting from operations		(6,475,677	)		(7,788,958	)

Changes in net assets from capital stock transactions:

Acquisition of vested restricted stock awards to pay required employee withholding tax		0			(123,183	)
Stock-based compensation expense		309,147			1,249,756

Net increase in net assets resulting from capital stock transactions		309,147			1,126,573

Changes in net assets from accumulated other comprehensive income:

Other comprehensive (loss) income		(52,246	)		927,186

Net (decrease) increase in net assets resulting from accumulated other comprehensive income		(52,246	)		927,186

Net decrease in net assets		(6,218,776	)		(5,735,199	)

Net Assets:

Beginning of the period		122,701,575			128,436,774

End of the period	$	116,482,799		$	122,701,575

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

HARRIS & HARRIS GROUP, INC.

CONSOLIDATED SCHEDULE OF INVESTMENTS AS OF MARCH 31, 2014

(Unaudited)

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

Investments in Unaffiliated Companies (3) – 31.3% of net assets at value

Private Placement Portfolio (Illiquid) (4) – 24.6% of net assets at value

Bridgelux, Inc. (5)(8)(10)		Energy
Manufacturing high-power light emitting diodes (LEDs) and arrays
Series B Convertible Preferred Stock	(M)		$	1,000,000		1,861,504	$	342,876
Series C Convertible Preferred Stock	(M)			1,352,196		2,130,699		392,460
Series D Convertible Preferred Stock	(M)			1,371,622		999,999		1,241,477
Series E Convertible Preferred Stock	(M)			672,599		440,334		710,432
Series E-1 Convertible Preferred Stock	(M)			386,073		399,579		473,753
Warrants for Series C Convertible Preferred Stock expiring 12/31/14	( I )			168,270		163,900		1,607
Warrants for Series D Convertible Preferred Stock expiring 8/26/14	( I )			88,531		124,999		30,620
Warrants for Series D Convertible Preferred Stock expiring 3/10/15	( I )			40,012		41,666		17,257
Warrants for Series E Convertible Preferred Stock expiring 12/31/17	( I )			93,969		170,823		187,838
Warrants for Common Stock expiring 6/1/16	( I )			72,668		132,100		1,277
Warrants for Common Stock expiring 8/9/18	( I )			148,409		171,183		13,149
Warrants for Common Stock expiring 10/21/18	( I )			18,816		84,846		3,415
				5,413,165				3,416,161

Cambrios Technologies Corporation (5)(8)(10)		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
Series D-4 Convertible Preferred Stock	(M)			216,168		216,168		216,168
				3,418,349				3,418,349

Cobalt Technologies, Inc. (5)(8)(9)(10)(11)		Energy
Developing processes for making bio- butanol through biomass fermentation
Series C-1 Convertible Preferred Stock	(M)			749,998		352,112		469,577
Series D-1 Convertible Preferred Stock	(M)			122,070		48,828		70,771
Series E-1 Convertible Preferred Stock	(M)			114,938		46,089		56,424
Warrants for Series E-1 Pref. Stock expiring on 10/9/22	( I )			2,781		1,407		1,455
Warrants for Series E-1 Pref. Stock expiring on 3/11/23	( I )			5,355		2,707		2,841
				995,142				601,068

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

HARRIS & HARRIS GROUP, INC.

CONSOLIDATED SCHEDULE OF INVESTMENTS AS OF MARCH 31, 2014

(Unaudited)

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

Investments in Unaffiliated Companies (3) – 31.3% of net assets at value (Cont.)

Private Placement Portfolio (Illiquid) (4) – 24.6% of net assets at value (Cont.)

Ensemble Therapeutics Corporation (5)(8)(9)(12)		Life Sciences
Developing DNA-Programmed Chemistry^TMfor the discovery of new classes of therapeutics
Series B Convertible Preferred Stock	(H)		$	2,000,000		1,449,275	$	1,168,858
Secured Convertible Bridge Note, 8%, acquired 9/11/08	(H)			361,503	$	250,211		1,335,791
Secured Convertible Bridge Note, 8%, acquired 12/10/09	(H)			65,731	$	48,868		256,018
Secured Convertible Bridge Note, 8%, acquired 1/25/12	(H)			128,544	$	109,400		554,534
Secured Convertible Bridge Note, 8%, acquired 3/28/13	(H)			79,572	$	73,598		366,153
Secured Convertible Bridge Note, 8%, acquired 6/24/13	(H)			27,353	$	25,759		127,656
Secured Convertible Bridge Note, 8%, acquired 7/8/13	(H)			14,806	$	13,983		69,257
				2,677,509				3,878,267

GEO Semiconductor Inc. (5)		Electronics
Developing programmable, high-performance
video and geometry processing solutions
Participation Agreement with Montage
Capital relating to the following assets:
Warrants for Series A Pref. Stock expiring on 9/17/17	( I )			66,684		100,000		92,775
Warrants for Series A-1 Pref. Stock expiring on 6/30/18	( I )			23,566		34,500		35,691
Loan and Security Agreement with GEO Semiconductor relating to the following assets:
Warrants for Series A Pref. Stock expiring on 3/1/18	( I )			7,512		10,000		8,769
Warrants for Series A-1 Pref. Stock expiring on 6/29/18	( I )			7,546		10,000		9,004
				105,308				146,239

Mersana Therapeutics, Inc. (5)(8)(9)(10)(13)		Life Sciences
Developing antibody drug conjugates for cancer therapy
Series A-1 Convertible Preferred Stock	(M)			443,038		411,630		443,038
Common Stock	(M)			3,875,395		350,539		108,667
				4,318,433				551,705

Molecular Imprints, Inc. (5)(8)(10)(14)		Electronics
Manufacturing nanoimprint lithography capital equipment
Series B Convertible Preferred Stock	( I )			2,000,000		1,333,333		1,878,158
Series C Convertible Preferred Stock	( I )			2,406,595		1,285,071		2,360,990
Non-Convertible Bridge Note	( I )			0	$	0		4,044,415
				4,406,595				8,283,563

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

HARRIS & HARRIS GROUP, INC.

CONSOLIDATED SCHEDULE OF INVESTMENTS AS OF MARCH 31, 2014

(Unaudited)

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

Investments in Unaffiliated Companies (3) – 31.3% of net assets at value (Cont.)

Private Placement Portfolio (Illiquid) (4) – 24.6% of net assets at value (Cont.)

Nanosys, Inc. (5)(8)		Energy
Developing inorganic nanowires and quantum dots for use in LED-backlit devices Series C Convertible Preferred Stock	(M)		$	1,500,000		803,428	$	1,034,596
Series D Convertible Preferred Stock	(M)			3,000,003		1,016,950		2,145,946
Series E Convertible Preferred Stock	(M)			496,573		433,688		689,000
Unsecured Convertible Bridge Note, 4%, acquired 7/16/12	(M)			46,818	$	43,821		125,705
				5,043,394				3,995,247

Nano Terra, Inc. (5)(9)		Energy
Developing surface chemistry and nano- manufacturing solutions
Senior secured debt, 12.0%, maturing on 12/1/15	( I )			608,533	$	643,936		635,600
Warrants for Series A-2 Pref. Stock expiring on 2/22/21	( I )			69,168		446,248		21,503
Warrants for Series C Pref. Stock expiring on 11/15/22	( I )			35,403		241,662		89,601
				713,104				746,704

Nantero, Inc. (5)(8)(9)(10)		Electronics
Developing a high-density, nonvolatile, random access memory chip, enabled by carbon nanotubes
Series A Convertible Preferred Stock	(M)			489,999		345,070		1,349,224
Series B Convertible Preferred Stock	(M)			323,000		207,051		809,569
Series C Convertible Preferred Stock	(M)			571,329		188,315		736,312
Series D Convertible Preferred Stock	(M)			139,075		35,569		139,075
				1,523,403				3,034,180

OHSO Clean, Inc. (5)(15)		Life Sciences
Developing natural, hypoallergenic household cleaning products enabled by nanotechnology- enabled formulations of thyme oil
Participation Agreement with Montage
Capital relating to the following assets:
Senior secured debt, 13.00%, maturing on 3/31/15	( I )			485,131	$	581,440		557,720
Warrants for Series C Pref. Stock expiring on 3/30/22	( I )			91,742		1,109,333		71,611
				576,873				629,331

Total Unaffiliated Private Placement Portfolio (cost: $29,191,275)							$	28,700,814

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

HARRIS & HARRIS GROUP, INC.

CONSOLIDATED SCHEDULE OF INVESTMENTS AS OF MARCH 31, 2014

(Unaudited)

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

Rights to Milestone Payments (Illiquid) (6) – 3.0% of net assets at value

Amgen, Inc. (8)(10)		Life Sciences
Rights to Milestone Payments from Acquisition of BioVex Group, Inc.	( I )		$	3,291,750	$	3,291,750	$	3,491,600

Laird Technologies, Inc. (8)(10)		Energy
Rights to Milestone Payments from Merger &
Acquisition of Nextreme Thermal Solutions, Inc.	( I )			0		0		0

Total Unaffiliated Rights to Milestone Payments (cost: $3,291,750)							$	3,491,600

Publicly Traded Portfolio (7) – 3.7% of net assets at value

Solazyme, Inc. (5)(10)(16)		Energy
Developing algal biodiesel, industrial
chemicals and specialty ingredients using synthetic biology
Common Stock	(M)		$	354,422		150,000	$	1,741,500

Champions Oncology, Inc. (5)(10)		Life Sciences
Developing its TumorGraft^TM platform for personalized medicine and drug development
Common Stock	(M)			1,634,629		2,539,895		2,514,496
Warrants for Common Stock expiring 1/29/18	( I )			400		40,000		14,454
				1,635,029				2,528,950

Total Unaffiliated Publicly Traded Portfolio (cost: $1,989,451)							$	4,270,450

Total Investments in Unaffiliated Companies (cost: $34,472,476)							$	36,462,864

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

HARRIS & HARRIS GROUP, INC.

CONSOLIDATED SCHEDULE OF INVESTMENTS AS OF MARCH 31, 2014

(Unaudited)

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

Investments in Non-Controlled Affiliated Companies (3) – 45.6% of net assets at value

Private Placement Portfolio (Illiquid) (17) – 45.6% of net assets at value

ABSMaterials, Inc. (5)(8)(9)		Energy
Developing nano-structured absorbent materials for environmental remediation
Series A Convertible Preferred Stock	(M)		$	435,000		390,000	$	471,900
Series B Convertible Preferred Stock	(M)			717,644		624,528		755,679
				1,152,644				1,227,579

Adesto Technologies Corporation (5)(8)(18)		Electronics
Developing low-power, high-performance memory devices
Series A Convertible Preferred Stock	(M)			2,200,000		6,547,619		1,388,276
Series B Convertible Preferred Stock	(M)			2,200,000		5,952,381		1,262,070
Series C Convertible Preferred Stock	(M)			1,485,531		2,122,187		479,218
Series D Convertible Preferred Stock	(M)			1,393,147		1,466,470		1,040,812
Series D-1 Convertible Preferred Stock	(M)			703,740		987,706		561,291
Series E Convertible Preferred Stock	(M)			2,499,999		3,508,771		9,969,781
				10,482,417				14,701,448

AgBiome, LLC (formerly AgInnovation, LLC) (5)(8)(9)(10)		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	(M)			2,000,000		2,000,000		2,456,834
Series A-2 Convertible Preferred Stock	(M)			521,740		417,392		564,906
				2,521,740				3,021,740

Contour Energy Systems, Inc. (5)(8)(9)(10)(19)		Energy
Developing batteries using nano-structured materials
Series A Convertible Preferred Stock	(M)			2,009,995		2,565,798		0
Series B Convertible Preferred Stock	(M)			1,300,000		812,500		0
Series C Convertible Preferred Stock	(M)			1,200,000		1,148,325		21,418
				4,509,995				21,418

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

HARRIS & HARRIS GROUP, INC.

CONSOLIDATED SCHEDULE OF INVESTMENTS AS OF MARCH 31, 2014

(Unaudited)

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

Investments in Non-Controlled Affiliated Companies (3) – 45.6% of net assets at value (Cont.)

Private Placement Portfolio (Illiquid) (17) – 45.6% of net assets at value (Cont.)

D-Wave Systems, Inc. (8)(9)(10)(20)		Electronics
Developing high-performance quantum computing systems
Series 1 Class B Convertible Preferred Stock	(M)		$	1,002,074		1,144,869	$	1,347,167
Series 1 Class C Convertible Preferred Stock	(M)			487,804		450,450		530,045
Series 1 Class D Convertible Preferred Stock	(M)			748,473		855,131		1,006,233
Series 1 Class E Convertible Preferred Stock	(M)			248,049		269,280		316,862
Series 1 Class F Convertible Preferred Stock	(M)			238,323		258,721		304,437
Series 2 Class D Convertible Preferred Stock	(M)			736,019		678,264		798,113
Series 2 Class E Convertible Preferred Stock	(M)			659,493		513,900		604,705
Series 2 Class F Convertible Preferred Stock	(M)			633,631		493,747		580,992
Warrants for Common Stock expiring 6/30/15	( I )			98,644		153,890		31,882
				4,852,510				5,520,436

EchoPixel, Inc. (5)(8)(9)(10)		Life Sciences
Developing algorithms and software to improve visualization of data for life science and healthcare applications
Series Seed Convertible Preferred Stock	(M)			750,000		2,516,778		750,000

Enumeral Biomedical Corp. (5)(8)(9)		Life Sciences
Developing therapeutics and diagnostics through functional assaying of single cells
Series A Convertible Preferred Stock	(M)			1,026,832		957,038		1,047,671
Series A-1 Convertible Preferred Stock	(M)			750,000		576,923		618,601
Series A-2 Convertible Preferred Stock	(M)			1,050,001		724,138		799,460
Secured Convertible Bridge Note, 12%, acquired 2/3/14	( I )			197,183	$	250,000		254,750
Warrants for Common Stock expiring 2/2/24	( I )			57,567		231,481		57,408
				3,081,583				2,777,890

HzO, Inc. (5)(8)(9)		Electronics
Developing novel industrial coatings that protect electronics against damage from liquids
Series A Convertible Preferred Stock	(M)			666,667		4,057,294		1,130,362
Series B Convertible Preferred Stock	(M)			5,709,835		22,668,943		6,315,568
				6,376,502				7,445,930

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

HARRIS & HARRIS GROUP, INC.

CONSOLIDATED SCHEDULE OF INVESTMENTS AS OF MARCH 31, 2014

(Unaudited)

	Method of	Primary			Shares/
	Valuation (1)	Industry (2)	Cost		Principal		Value
Investments in Non-Controlled Affiliated Companies (3) – 45.6% of net assets at value (Cont.)

Private Placement Portfolio (Illiquid) (17) – 45.6% of net assets at value (Cont.)

Laser Light Engines, Inc. (5)(8)(9)		Energy
Manufacturing solid-state light sources for digital cinema and large-venue projection displays
Series A Convertible Preferred Stock	( I )			2,000,000		7,499,062	$	0
Series B Convertible Preferred Stock	( I )			3,095,802		13,571,848		0
Secured Convertible Bridge Note, 12%, acquired 10/7/11	( I )			200,000	$	200,000		0
Secured Convertible Bridge Note, 12%, acquired 11/17/11	( I )			95,652	$	95,652		0
Secured Convertible Bridge Note, 12%, acquired 12/21/11	( I )			82,609	$	82,609		0
Secured Convertible Bridge Note, 12%, acquired 3/5/12	( I )			434,784	$	434,784		0
Secured Convertible Bridge Note, 12%, acquired 7/26/12	( I )			186,955	$	186,955		0
Secured Convertible Bridge Note, 20%, acquired 4/29/13	( I )			166,667	$	166,667		0
Secured Convertible Bridge Note, 20%, acquired 7/22/13	( I )			166,667	$	166,667		0
Secured Convertible Bridge Note, 10%, acquired 10/30/13	( I )			80,669	$	80,669		0
Secured Convertible Bridge Note, 10%, acquired 2/5/14	( I )			19,331	$	19,331		0
				6,529,136				0

Metabolon, Inc. (5)(8)(10)		Life Sciences
Developing service and diagnostic products through the use of a metabolomics, or biochemical, profiling platform
Series B Convertible Preferred Stock	(M)			2,500,000		371,739		2,997,991
Series B-1 Convertible Preferred Stock	(M)			706,214		148,696		1,199,196
Series C Convertible Preferred Stock	(M)			1,000,000		1,000,000		2,756,500
Series D Convertible Preferred Stock	(M)			1,499,999		835,882		2,304,109
Series E Convertible Preferred Stock	(M)			1,225,000		444,404		1,225,000
Warrants for Series B-1 Convertible Preferred Stock expiring 3/25/15	( I )			293,786		74,348		172,240
				7,224,999				10,655,036

OpGen, Inc. (8)		Life Sciences
Developing tools for genomic sequence assembly and analysis
Series A Convertible Preferred Stock	(M)			490,017		490,017		490,017
Common Stock	(M)			3,260,000		29,883		0
				3,750,017				490,017

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

HARRIS & HARRIS GROUP, INC.

CONSOLIDATED SCHEDULE OF INVESTMENTS AS OF MARCH 31, 2014

(Unaudited)

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

Investments in Non-Controlled Affiliated Companies (3) – 45.6% of net assets at value (Cont.)

Private Placement Portfolio (Illiquid) (17) – 45.6% of net assets at value (Cont.)

Produced Water Absorbents, Inc. (5)(8)(9)		Energy
Developing nano-structured absorbent materials for environmental remediation of contaminated water in the oil and gas industries
Series A Convertible Preferred Stock	(M)		$	1,000,000		1,000,000	$	125,000
Series B Convertible Preferred Stock	(M)			2,475,506		9,902,024		2,600,506
Secured Convertible Bridge Note, 0%, acquired 3/7/14	(M)			750,000	$	750,000		750,000
				4,225,506				3,475,506

Senova Systems, Inc. (5)(8)(9)		Life Sciences
Developing next-generation sensors to measure pH
Series B Convertible Preferred Stock	(M)			1,218,462		1,350,000		540,000
Series B-1 Convertible Preferred Stock	(M)			1,083,960		2,759,902		1,103,960
Warrants for Series B Preferred Stock expiring 10/15/17	( I )			131,538		164,423		65,753
Warrants for Series B Preferred Stock expiring 4/24/18	( I )			20,000		25,000		9,997
				2,453,960				1,719,710

SiOnyx, Inc. (5)(8)(9)		Electronics
Developing silicon-based optoelectronic
products enabled by its proprietary Black Silicon
Series A Convertible Preferred Stock	(M)			750,000		233,499		0
Series A-1 Convertible Preferred Stock	(M)			890,000		2,966,667		0
Series A-2 Convertible Preferred Stock	(M)			2,445,000		4,207,537		0
Series B-1 Convertible Preferred Stock	(M)			1,169,561		1,892,836		0
Series C Convertible Preferred Stock	(M)			1,171,316		1,674,030		0
Secured Convertible Bridge Note, 8%, acquired 1/31/14	(M)			1,298,207	$	1,281,125		1,035,461
Warrants for Series B-1 Convertible Preferred Stock expiring 2/23/17	( I )			130,439		247,350		0
Warrants for Common Stock expiring 3/28/17	( I )			84,207		418,507		0
				7,938,730				1,035,461

Ultora, Inc. (5)(8)(9)(10)		Energy
Developing energy-storage devices enabled by carbon nanotubes
Series A Convertible Preferred Stock	(M)			886,830		17,736		1,788
Series B Convertible Preferred Stock	(M)			236,603		2,347,254		236,603
				1,123,433				238,391

Total Non-Controlled Private Placement Portfolio (cost: $66,973,172)							$	53,080,562

Total Investments in Non-Controlled Affiliated Companies (cost: $66,973,172)							$	53,080,562

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

HARRIS & HARRIS GROUP, INC.

CONSOLIDATED SCHEDULE OF INVESTMENTS AS OF MARCH 31, 2014

(Unaudited)

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

Investments in Controlled Affiliated Companies (3) – 1.2% of net assets at value

Private Placement Portfolio (Illiquid) (21) – 1.2% of net assets at value

SynGlyco, Inc. (5)(8)(9)		Life Sciences
Developing synthetic carbohydrates for pharmaceutical applications
Common Stock	( I )		$	2,729,817		57,463	$	0
Series A' Convertible Preferred Stock	( I )			4,855,627		4,855,627		0
Senior Secured Debt, 12.00%, maturing on 12/11/14	( I )			450,816	$	500,000		830,851
Secured Convertible Bridge Note, 8%, acquired 1/23/13	( I )			383,216	$	350,000		91,276
Secured Convertible Bridge Note, 8%, acquired 4/25/13	( I )			322,422	$	300,000		78,236
				8,741,898				1,000,363

ProMuc, Inc. (5)(8)(9)		Life Sciences
Developing synthetic mucins for the nutritional, food and healthcare markets
Common Stock	(M)			1		1,000		1
Secured Convertible Bridge Note, 8%, acquired 12/18/13	(M)			357,978	$	350,000		357,978
				357,979				357,979

Total Controlled Private Placement Portfolio (cost: $9,099,877)							$	1,358,342

Total Investments in Controlled Affiliated Companies (cost: $9,099,877)							$	1,358,342

Total Private Placement and Publicly Traded Portfolio (cost: $110,545,525)							$	90,901,768

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

HARRIS & HARRIS GROUP, INC.

CONSOLIDATED SCHEDULE OF INVESTMENTS AS OF MARCH 31, 2014

(Unaudited)

	Method of			Shares/
	Valuation (1)	Cost		Principal		Value

U.S. Government Securities (22) – 17.2% of net assets at value

U.S. Treasury Bill — due date 04/24/14	(M)	$	19,999,479	$	20,000,000	$	19,999,600

Total Investments in U.S. Government Securities (cost: $19,999,479)						$	19,999,600

Total Investments (cost: $130,545,004)						$	110,901,368

	Method of	Number of
	Valuation (1)	Contracts		Value

Written Call Options (23) – (0.14)% of net assets at value

Solazyme, Inc. — Strike Price $12.50, June 21, 2014	(M)		1,000		(95,000	)

Solazyme, Inc. — Strike Price $12.50, September 20, 2014	(M)		500		(72,500	)

Total Written Call Options (Premiums Received $342,735)				$	(167,500	)

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

HARRIS & HARRIS GROUP, INC.

CONSOLIDATED SCHEDULE OF INVESTMENTS AS OF MARCH 31, 2014

(Unaudited)

Notes to Consolidated Schedule of Investments

(1)

See "Footnote to Consolidated Schedule of Investments" on page 31for a description of the "Valuation Procedures."

(2)

We classify "Energy" companies as those that seek to improve performance, productivity or efficiency, and to reduce environmental impact, waste, cost, energy consumption or raw materials. We classify "Electronics" companies as those that address problems in electronics-related industries, including semiconductors. We classify "Life Sciences" companies as those that address problems in life sciences-related industries, including biotechnology, agriculture, advanced materials and chemicals, healthcare, bioprocessing, water, industrial biotechnology, food, nutrition and energy.

(3)

Investments in unaffiliated companies consist of investments in which we own less than five percent of the voting shares of the portfolio company. Investments in non-controlled affiliated companies consist of investments in which we own five percent or more, but less than 25 percent, of the voting shares of the portfolio company, or where we hold one or more seats on the portfolio company’s Board of Directors but do not control the company. Investments in controlled affiliated companies consist of investments in which we own 25 percent or more of the voting shares of the portfolio company or otherwise control the company.

(4)

The aggregate cost for federal income tax purposes of investments in unaffiliated privately held companies is $29,191,275. The gross unrealized appreciation based on the tax cost for these securities is $6,715,492. The gross unrealized depreciation based on the tax cost for these securities is $7,205,953.

(5)

All or a portion of the investments or instruments are pledged as collateral under our loan facility.

(6)

The aggregate cost for federal income tax purposes of investments in unaffiliated rights to milestone payments is $3,291,750. The gross unrealized appreciation based on the tax cost for these securities is $199,850. The gross unrealized depreciation based on the tax cost for these securities is $0.

(7)

The aggregate cost for federal income tax purposes of investments in unaffiliated publicly traded companies is $1,989,451. The gross unrealized appreciation based on the tax cost for these securities is $2,280,999. The gross unrealized depreciation based on the tax cost for these securities is $0.

(8)

We are subject to legal restrictions on the sale of our investment(s) in this company.

(9)

These investments are development-stage companies. A development-stage company is defined as a company that is devoting substantially all of its efforts to establishing a new business, and either it has not yet commenced its planned principal operations, or it has commenced such operations but has not realized significant revenue from them.

(10)

Represents a non-income producing security. Investments that have not paid dividends or interest within the last 12 months are considered to be non-income producing.

(11)

Cobalt Technologies, Inc., also does business as Cobalt Biofuels.

(12)

With our investments in convertible bridge notes issued by Ensemble Therapeutics Corporation, we received warrants to purchase a number of shares of the class of stock sold in the next financing of Ensemble Therapeutics Corporation equal to $260,989 divided by the price per share of the class of stock sold in the next financing of Ensemble Therapeutics Corporation. The ability to exercise these warrants is, therefore, contingent on Ensemble Therapeutics Corporation completing successfully a subsequent round of financing. These warrants shall expire and no longer be exercisable on dates ranging from September 10, 2015, through July 8, 2020. The cost basis of these warrants is $157.

The accompanying unaudited notes are an integral part of this consolidated schedule.

HARRIS & HARRIS GROUP, INC.

CONSOLIDATED SCHEDULE OF INVESTMENTS AS OF MARCH 31, 2014

(Unaudited)

(13)

With our investment in the Mersana Therapeutics, Inc., Series A-1 financing, we received a warrant to purchase 277,760 shares of Series A-2 Convertible Preferred Stock. The ability to exercise the warrant is contingent upon Mersana's achievement of certain milestones. Mersana has not achieved those milestones as of March 31, 2014, and, therefore, this warrant is a contingent asset as of that date. The warrant will expire on July 27, 2022.

(14)

As part of a loan the Company made to Molecular Imprints, Inc., in the second quarter of 2011, we received a liquidation preference payable upon a sale of the company equal to three times the principal of the loan, or $4,044,450. This preference is senior to the preferences of the outstanding preferred stock. While the loan has since been repaid, this liquidation preference remained outstanding as of March 31, 2014. On April 18, 2014, Canon, Inc., completed its acquisition of Molecular Imprints' semiconductor lithography equipment business. See "Note 12. Subsequent Events."

(15)

OHSO Clean, Inc. also does business as CleanWell Company.

(16)

All of the shares of this security are held in connection with written call option contracts and are, therefore, pledged to brokers.

(17)

The aggregate cost for federal income tax purposes of investments in non-controlled affiliated privately held companies is $66,973,172. The gross unrealized appreciation based on the tax cost for these securities is $9,961,357. The gross unrealized depreciation based on the tax cost for these securities is $23,853,967.

(18)

Adesto Technologies Corporation's Series E shares have certain rights and preferences in a sale or IPO that are not ascribed to the other classes of stock.

(19)

On February 27, 2014, the board of directors of Contour Energy Systems, Inc., adopted a plan of complete liquidation and dissolution.

(20)

D-Wave Systems, Inc., is located and is doing business primarily in Canada. We invested in D-Wave Systems, Inc., through Parallel Universes, Inc., a Delaware company. Our investment is denominated in Canadian dollars and is subject to foreign currency translation. See "Note 2. Summary of Significant Accounting Policies."

(21)

The aggregate cost for federal income tax purposes of investments in controlled affiliated companies is $9,099,877. The gross unrealized appreciation based on the tax cost for these securities is $0. The gross unrealized depreciation based on the tax cost for these securities is $7,741,535.

(22)

The aggregate cost for federal income tax purposes of our U.S. government securities is $19,999,479. The gross unrealized appreciation on the tax cost for these securities is $121. The gross unrealized depreciation on the tax cost of these securities is $0.

(23)

Initial investment was made in 2014.

The accompanying unaudited notes are an integral part of this consolidated schedule.

HARRIS & HARRIS GROUP, INC.

CONSOLIDATED SCHEDULE OF INVESTMENTS AS OF DECEMBER 31, 2013

(Unaudited)

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

Investments in Unaffiliated Companies (3) – 31.2% of net assets at value

Private Placement Portfolio (Illiquid) (4) – 23.8% of net assets at value

Bridgelux, Inc. (5)(8)(10)		Energy
Manufacturing high-power light emitting diodes (LEDs) and arrays
Series B Convertible Preferred Stock	(M)		$	1,000,000		1,861,504	$	318,898
Series C Convertible Preferred Stock	(M)			1,352,196		2,130,699		365,014
Series D Convertible Preferred Stock	(M)			1,371,622		999,999		1,070,897
Series E Convertible Preferred Stock	(M)			672,599		440,334		704,760
Series E-1 Convertible Preferred Stock	(M)			386,073		399,579		468,606
Warrants for Series C Convertible Preferred Stock expiring 12/31/14	( I )			168,270		163,900		2,762
Warrants for Series D Convertible Preferred Stock expiring 8/26/14	( I )			88,531		124,999		40,686
Warrants for Series D Convertible Preferred Stock expiring 3/10/15	( I )			40,012		41,666		19,466
Warrants for Series E Convertible Preferred Stock expiring 12/31/17	( I )			93,969		170,823		190,679
Warrants for Common Stock expiring 6/1/16	( I )			72,668		132,100		1,656
Warrants for Common Stock expiring 8/9/18	( I )			148,409		171,183		13,538
Warrants for Common Stock expiring 10/21/18	( I )			18,816		84,846		3,680
				5,413,165				3,200,642

Cambrios Technologies Corporation (5)(8)(10)		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
Series D-4 Convertible Preferred Stock	(M)			216,168		216,168		216,168
				3,418,349				3,418,349

Cobalt Technologies, Inc. (5)(8)(9)(11)		Energy
Developing processes for making bio- butanol through biomass fermentation
Series C-1 Convertible Preferred Stock	(M)			749,998		352,112		704,400
Series D-1 Convertible Preferred Stock	(M)			122,070		48,828		106,152
Series E-1 Convertible Preferred Stock	(M)			114,938		46,089		84,634
Warrants for Series E-1 Pref. Stock expiring on 10/9/22	( I )			2,781		1,407		2,163
Warrants for Series E-1 Pref. Stock expiring on 3/11/23	( I )			5,355		2,707		4,209
				995,142				901,558

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

HARRIS & HARRIS GROUP, INC.

CONSOLIDATED SCHEDULE OF INVESTMENTS AS OF DECEMBER 31, 2013

(Unaudited)

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

Investments in Unaffiliated Companies (3) – 31.2% of net assets at value (Cont.)

Private Placement Portfolio (Illiquid) (4) – 23.8% of net assets at value (Cont.)

Ensemble Therapeutics Corporation (5)(8)(9)(12)		Life Sciences
Developing DNA-Programmed Chemistry^TMfor the discovery of new classes of therapeutics
Series B Convertible Preferred Stock	(H)		$	2,000,000		1,449,275	$	1,419,855
Secured Convertible Bridge Note, 8%, acquired 9/11/08	(H)			356,567	$	250,211		1,321,657
Secured Convertible Bridge Note, 8%, acquired 12/10/09	(H)			64,767	$	48,868		253,257
Secured Convertible Bridge Note, 8%, acquired 1/25/12	(H)			126,386	$	109,400		548,354
Secured Convertible Bridge Note, 8%, acquired 3/28/13	(H)			78,121	$	73,598		361,996
Secured Convertible Bridge Note, 8%, acquired 6/24/13	(H)			26,845	$	25,759		126,201
Secured Convertible Bridge Note, 8%, acquired 7/8/13	(H)			14,530	$	13,983		68,467
				2,667,216				4,099,787

GEO Semiconductor Inc. (5)		Electronics
Developing programmable, high-performance video and geometry processing solutions
Participation Agreement with Montage
Capital relating to the following assets:
Warrants for Series A Pref. Stock expiring on 9/17/17	( I )			66,684		100,000		82,270
Warrants for Series A-1 Pref. Stock expiring on 6/30/18	( I )			23,566		34,500		32,132
Loan and Security Agreement with GEO Semiconductor relating to the following assets:
Warrants for Series A Pref. Stock expiring on 3/1/18	( I )			7,512		10,000		8,007
Warrants for Series A-1 Pref. Stock expiring on 6/29/18	( I )			7,546		10,000		8,478
				105,308				130,887

Mersana Therapeutics, Inc. (5)(8)(9)(10)(13)		Life Sciences
Developing antibody drug conjugates
for cancer therapy
Series A-1 Convertible Preferred Stock	(M)			443,038		411,630		443,038
Common Stock	(M)			3,875,395		350,539		108,667
				4,318,433				551,705

Molecular Imprints, Inc. (5)(8)(10)(14)(15)		Electronics
Manufacturing nanoimprint lithography capital equipment
Series B Convertible Preferred Stock	( I )			2,000,000		1,333,333		1,876,501
Series C Convertible Preferred Stock	( I )			2,406,595		1,285,071		2,359,061
Non-Convertible Bridge Note	( I )			0	$	0		4,043,381
				4,406,595				8,278,943

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

HARRIS & HARRIS GROUP, INC.

CONSOLIDATED SCHEDULE OF INVESTMENTS AS OF DECEMBER 31, 2013

(Unaudited)

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

Investments in Unaffiliated Companies (3) – 31.2% of net assets at value (Cont.)

Private Placement Portfolio (Illiquid) (4) – 23.8% of net assets at value (Cont.)

Nanosys, Inc. (5)(8)		Energy
Developing inorganic nanowires and quantum dots for use in LED-backlit devices
Series C Convertible Preferred Stock	(M)		$	1,500,000		803,428	$	1,098,762
Series D Convertible Preferred Stock	(M)			3,000,003		1,016,950		2,196,781
Series E Convertible Preferred Stock	(M)			496,573		433,688		705,827
Unsecured Convertible Bridge Note, 4%, acquired 7/16/12	(M)			46,385	$	43,821		127,016
				5,042,961				4,128,386

Nano Terra, Inc. (5)(9)		Energy
Developing surface chemistry and nano- manufacturing solutions
Senior secured debt, 12.0%, maturing on 12/1/15	( I )			663,322	$	698,725		680,000
Warrants for Series A-2 Pref. Stock expiring on 2/22/21	( I )			69,168		446,248		21,858
Warrants for Series C Pref. Stock expiring on 11/15/22	( I )			35,403		241,662		90,476
				767,893				792,334

Nantero, Inc. (5)(8)(9)(10)		Electronics
Developing a high-density, nonvolatile, random access memory chip, enabled by carbon nanotubes
Series A Convertible Preferred Stock	(M)			489,999		345,070		1,349,224
Series B Convertible Preferred Stock	(M)			323,000		207,051		809,569
Series C Convertible Preferred Stock	(M)			571,329		188,315		736,312
Series D Convertible Preferred Stock	(M)			139,075		35,569		139,075
				1,523,403				3,034,180

OHSO Clean, Inc. (5)(16)		Life Sciences
Developing natural, hypoallergenic household cleaning products enabled by nanotechnology- enabled formulations of thyme oil
Participation Agreement with Montage
Capital relating to the following assets:
Senior secured debt, 13.00%, maturing on 3/31/15	( I )			527,006	$	624,640		592,100
Warrants for Series C Pref. Stock expiring on 3/30/22	( I )			91,742		1,109,333		70,693
				618,748				662,793

Total Unaffiliated Private Placement Portfolio (cost: $29,277,213)							$	29,199,564

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

HARRIS & HARRIS GROUP, INC.

CONSOLIDATED SCHEDULE OF INVESTMENTS AS OF DECEMBER 31, 2013

(Unaudited)

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

Rights to Milestone Payments (Illiquid) (6) – 2.9% of net assets at value

Amgen, Inc. (8)(10)		Life Sciences
Rights to Milestone Payments from Acquisition of BioVex Group, Inc.	( I )		$	3,291,750	$	3,291,750	$	3,489,433

Laird Technologies, Inc. (8)(10)		Energy
Rights to Milestone Payments from Merger & Acquisition of Nextreme Thermal Solutions, Inc.	( I )			0		0		0

Total Unaffiliated Rights to Milestone Payments (cost: $3,291,750)							$	3,489,433

Publicly Traded Portfolio (7) – 4.5% of net assets at value

Solazyme, Inc. (5)(10)(17)		Energy
Developing algal biodiesel, industrial chemicals and specialty ingredients using synthetic biology
Common Stock	(M)		$	396,564		167,834	$	1,827,712

Champions Oncology, Inc. (5)(10)		Life Sciences
Developing its TumorGraft^TM platform for personalized medicine and drug development
Common Stock	(M)			2,054,446		3,099,651		3,719,582
Warrants for Common Stock expiring 1/29/18	( I )			400		40,000		23,502
				2,054,846				3,743,084

Total Unaffiliated Publicly Traded Portfolio (cost: $2,451,410)							$	5,570,796

Total Investments in Unaffiliated Companies (cost: $35,020,373)							$	38,259,793

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

HARRIS & HARRIS GROUP, INC.

CONSOLIDATED SCHEDULE OF INVESTMENTS AS OF DECEMBER 31, 2013

(Unaudited)

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

Investments in Non-Controlled Affiliated Companies (3) – 44.2% of net assets at value

Private Placement Portfolio (Illiquid) (18) – 44.2% of net assets at value

ABSMaterials, Inc. (5)(8)(9)		Energy
Developing nano-structured absorbent materials for environmental remediation
Series A Convertible Preferred Stock	(M)		$	435,000		390,000	$	471,900
Series B Convertible Preferred Stock	(M)			717,644		624,528		755,679
				1,152,644				1,227,579

Adesto Technologies Corporation (5)(8)(19)		Electronics
Developing low-power, high-performance memory devices
Series A Convertible Preferred Stock	(M)			2,200,000		6,547,619		1,388,276
Series B Convertible Preferred Stock	(M)			2,200,000		5,952,381		1,262,070
Series C Convertible Preferred Stock	(M)			1,485,531		2,122,187		449,963
Series D Convertible Preferred Stock	(M)			1,393,147		1,466,470		1,070,067
Series D-1 Convertible Preferred Stock	(M)			703,740		987,706		561,291
Series E Convertible Preferred Stock	(M)			2,499,999		3,508,771		9,969,781
				10,482,417				14,701,448

AgBiome, LLC (formerly AgInnovation, LLC) (5)(8)(9)(10)(20)		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	(M)			2,000,000		2,000,000		2,456,834
Series A-2 Convertible Preferred Stock	(M)			521,740		417,392		564,906
				2,521,740				3,021,740

Contour Energy Systems, Inc. (5)(8)(9)(10)(21)		Energy
Developing batteries using nano-structured materials
Series A Convertible Preferred Stock	(M)			2,009,995		2,565,798		0
Series B Convertible Preferred Stock	(M)			1,300,000		812,500		0
Series C Convertible Preferred Stock	(M)			1,200,000		1,148,325		90,844
				4,509,995				90,844

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

HARRIS & HARRIS GROUP, INC.

CONSOLIDATED SCHEDULE OF INVESTMENTS AS OF DECEMBER 31, 2013

(Unaudited)

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

Investments in Non-Controlled Affiliated Companies (3) – 44.2% of net assets at value (Cont.)

Private Placement Portfolio (Illiquid) (18) – 44.2% of net assets at value (Cont.)

D-Wave Systems, Inc. (8)(9)(10)(22)		Electronics
Developing high-performance quantum computing systems
Series 1 Class B Convertible Preferred Stock	(M)		$	1,002,074		1,144,869	$	1,399,831
Series 1 Class C Convertible Preferred Stock	(M)			487,804		450,450		550,765
Series 1 Class D Convertible Preferred Stock	(M)			748,473		855,131		1,045,569
Series 1 Class E Convertible Preferred Stock	(M)			248,049		269,280		329,249
Series 1 Class F Convertible Preferred Stock	(M)			238,323		258,721		316,338
Series 2 Class D Convertible Preferred Stock	(M)			736,019		678,264		829,313
Series 2 Class E Convertible Preferred Stock	(M)			659,493		513,900		628,345
Series 2 Class F Convertible Preferred Stock	(M)			633,631		493,747		603,704
Warrants for Common Stock expiring 6/30/15	( I )			98,644		153,890		37,617
				4,852,510				5,740,731

EchoPixel, Inc. (5)(8)(9)(10)(23)		Life Sciences
Developing algorithms and software to improve visualization of data for life science and healthcare applications
Series Seed Convertible Preferred Stock	(M)			750,000		2,516,778		750,000

Enumeral Biomedical Corp. (5)(8)(9)(10)		Life Sciences
Developing therapeutics and diagnostics through functional assaying of single cells
Series A Convertible Preferred Stock	(M)			1,026,832		957,038		690,538
Series A-1 Convertible Preferred Stock	(M)			750,000		576,923		425,939
Series A-2 Convertible Preferred Stock	(M)			1,050,001		724,138		566,027
				2,826,833				1,682,504

HzO, Inc. (5)(8)(9)		Electronics
Developing novel industrial coatings that protect electronics against damage from liquids
Series A Convertible Preferred Stock	(M)			666,667		4,057,294		1,130,362
Series B Convertible Preferred Stock	(M)			5,502,838		21,879,365		6,095,592
				6,169,505				7,225,954

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

HARRIS & HARRIS GROUP, INC.

CONSOLIDATED SCHEDULE OF INVESTMENTS AS OF DECEMBER 31, 2013

(Unaudited)

	Method of	Primary			Shares/
	Valuation (1)	Industry (2)	Cost		Principal		Value
Investments in Non-Controlled Affiliated Companies (3) – 44.2% of net assets at value (Cont.)

Private Placement Portfolio (Illiquid) (18) – 44.2% of net assets at value (Cont.)

Kovio, Inc. (5)(8)(9)(24)		Electronics
Developing semiconductor products using printed electronics and thin-film technologies
Series A' Convertible Preferred Stock	(M)		$	5,242,993		2,160,000	$	0
Series B' Convertible Preferred Stock	(M)			2,006,540		3,015,493		0
Secured Subordinated Convertible Bridge Note, 7%, acquired 6/7/13	(M)			50,000	$	50,000		0
				7,299,533				0

Laser Light Engines, Inc. (5)(8)(9)		Energy
Manufacturing solid-state light sources for digital cinema and large-venue projection displays
Series A Convertible Preferred Stock	( I )			2,000,000		7,499,062		0
Series B Convertible Preferred Stock	( I )			3,095,802		13,571,848		0
Secured Convertible Bridge Note, 12%, acquired 10/7/11	( I )			200,000	$	200,000		0
Secured Convertible Bridge Note, 12%, acquired 11/17/11	( I )			95,652	$	95,652		0
Secured Convertible Bridge Note, 12%, acquired 12/21/11	( I )			82,609	$	82,609		0
Secured Convertible Bridge Note, 12%, acquired 3/5/12	( I )			434,784	$	434,784		0
Secured Convertible Bridge Note, 12%, acquired 7/26/12	( I )			186,955	$	186,955		0
Secured Convertible Bridge Note, 20%, acquired 4/29/13	( I )			166,667	$	166,667		0
Secured Convertible Bridge Note, 20%, acquired 7/22/13	( I )			166,667	$	166,667		0
Secured Convertible Bridge Note, 10%, acquired 10/30/13	( I )			82,061	$	80,669		164,122
				6,511,197				164,122

Metabolon, Inc. (5)(8)(10)		Life Sciences
Developing service and diagnostic products through the use of a metabolomics, or biochemical, profiling platform
Series B Convertible Preferred Stock	(M)			2,500,000		371,739		2,997,991
Series B-1 Convertible Preferred Stock	(M)			706,214		148,696		1,199,196
Series C Convertible Preferred Stock	(M)			1,000,000		1,000,000		2,756,500
Series D Convertible Preferred Stock	(M)			1,499,999		835,882		2,304,109
Series E Convertible Preferred Stock	(M)			1,225,000		444,404		1,225,000
Warrants for Series B-1 Convertible Preferred Stock expiring 3/25/15	( I )			293,786		74,348		216,408
				7,224,999				10,699,204

OpGen, Inc. (8)		Life Sciences
Developing tools for genomic sequence assembly and analysis
Series A Convertible Preferred Stock	(M)			245,000		245,000		245,000
Common Stock	(M)			3,260,000		29,883		0
				3,505,000				245,000

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

HARRIS & HARRIS GROUP, INC.

CONSOLIDATED SCHEDULE OF INVESTMENTS AS OF DECEMBER 31, 2013

(Unaudited)

	Method of	Primary			Shares/
	Valuation (1)	Industry (2)	Cost		Principal		Value
Investments in Non-Controlled Affiliated Companies (3) – 44.2% of net assets at value (Cont.)

Private Placement Portfolio (Illiquid) (18) – 44.2% of net assets at value (Cont.)

Produced Water Absorbents, Inc. (5)(8)(9)		Energy
Developing nano-structured absorbent materials for environmental remediation of contaminated water in the oil and gas industries
Series A Convertible Preferred Stock	(M)		$	1,000,000		1,000,000	$	125,000
Series B Convertible Preferred Stock	(M)			1,626,641		6,506,564		1,751,641
Secured Convertible Bridge Note, 8%, acquired 11/14/13	(M)			832,789	$	824,119		832,789
				3,459,430				2,709,430

Senova Systems, Inc. (5)(8)(9)		Life Sciences
Developing next-generation sensors to measure pH
Series B Convertible Preferred Stock	(M)			1,218,462		1,350,000		540,000
Series B-1 Convertible Preferred Stock	(M)			583,960		1,509,902		603,960
Warrants for Series B Preferred Stock expiring 10/15/17	( I )			131,538		164,423		65,753
Warrants for Series B Preferred Stock expiring 4/24/18	( I )			20,000		25,000		9,997
				1,953,960				1,219,710

SiOnyx, Inc. (5)(8)(9)		Electronics
Developing silicon-based optoelectronic products enabled by its proprietary Black Silicon
Series A Convertible Preferred Stock	(M)			750,000		233,499		43,781
Series A-1 Convertible Preferred Stock	(M)			890,000		2,966,667		556,250
Series A-2 Convertible Preferred Stock	(M)			2,445,000		4,207,537		788,913
Series B-1 Convertible Preferred Stock	(M)			1,169,561		1,892,836		451,903
Series C Convertible Preferred Stock	(M)			1,171,316		1,674,030		970,526
Secured Convertible Bridge Note, 8%, acquired 7/22/13	(M)			433,209	$	418,066		859,729
Secured Convertible Bridge Note, 8%, acquired 10/2/13	(M)			426,520	$	418,066		859,729
Warrants for Series B-1 Convertible Preferred Stock expiring 2/23/17	( I )			130,439		247,350		18,165
Warrants for Common Stock expiring 3/28/17	( I )			84,207		418,507		21,387
				7,500,252				4,570,383

Ultora, Inc. (5)(8)(9)		Energy
Developing energy-storage devices enabled by carbon nanotubes
Series A Convertible Preferred Stock	(M)			886,830		17,736		1,788
Series B Convertible Preferred Stock	(M)			236,603		2,347,254		236,603
				1,123,433				238,391

Total Non-Controlled Private Placement Portfolio (cost: $71,843,448)							$	54,287,040

Total Investments in Non-Controlled Affiliated Companies (cost: $71,843,448)							$	54,287,040

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

HARRIS & HARRIS GROUP, INC.

CONSOLIDATED SCHEDULE OF INVESTMENTS AS OF DECEMBER 31, 2013

(Unaudited)

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

Investments in Controlled Affiliated Companies (3) – 1.1% of net assets at value

Private Placement Portfolio (Illiquid) (25) – 1.1% of net assets at value

SynGlyco, Inc. (5)(8)(9)(26)		Life Sciences
Developing synthetic carbohydrates for pharmaceutical applications
Common Stock	( I )		$	2,729,817		57,463	$	0
Series A' Convertible Preferred Stock	( I )			4,855,627		4,855,627		0
Senior Secured Debt, 12.00%, maturing on 12/11/14	( I )			436,637	$	500,000		831,828
Secured Convertible Bridge Note, 8%, acquired 1/23/13	( I )			376,312	$	350,000		91,389
Secured Convertible Bridge Note, 8%, acquired 4/25/13	( I )			316,504	$	300,000		78,334
				8,714,897				1,001,551

ProMuc, Inc. (5)(8)(9)(22)		Life Sciences
Developing synthetic mucins for the nutritional, food and healthcare markets
Common Stock	(M)			1		1,000		1
Secured Convertible Bridge Note, 8%, acquired 12/18/13	(M)			351,074	$	350,000		351,074
				351,075				351,075

Total Controlled Private Placement Portfolio (cost: $9,065,972)							$	1,352,626

Total Investments in Controlled Affiliated Companies (cost: $9,065,972)							$	1,352,626

Total Private Placement and Publicly Traded Portfolio (cost: $115,929,793)							$	93,899,459

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

HARRIS & HARRIS GROUP, INC.

CONSOLIDATED SCHEDULE OF INVESTMENTS AS OF DECEMBER 31, 2013

(Unaudited)

	Method of			Shares/
	Valuation (1)	Cost		Principal		Value

U.S. Government Securities (27) – 15.5% of net assets at value

U.S. Treasury Bill — due date 01/23/14	(M)	$	18,999,765	$	19,000,000	$	18,999,810

Total Investments in U.S. Government Securities (cost: $18,999,765)						$	18,999,810

Total Investments (cost: $134,929,558)						$	112,899,269

	Method of	Number of
	Valuation (1)	Contracts		Value

Written Call Options (22) – (0.1)% of net assets at value

Solazyme, Inc. — Strike Price $12.50, March 22, 2014	(M)		1,500		103,500

Total Written Call Options (Premiums Received $112,382)				$	(103,500	)

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

HARRIS & HARRIS GROUP, INC.

CONSOLIDATED SCHEDULE OF INVESTMENTS AS OF DECEMBER 31, 2013

(Unaudited)

Notes to Consolidated Schedule of Investments

(1)

See "Footnote to Consolidated Schedule of Investments" on page 31 for a description of the "Valuation Procedures."

(2)

(3)

(4)

The aggregate cost for federal income tax purposes of investments in unaffiliated privately held companies is $29,277,213. The gross unrealized appreciation based on the tax cost for these securities is $6,909,761. The gross unrealized depreciation based on the tax cost for these securities is $6,987,410.

(5)

All or a portion of the investments or instruments are pledged as collateral under our loan facility.

(6)

The aggregate cost for federal income tax purposes of investments in unaffiliated rights to milestone payments is $3,291,750. The gross unrealized appreciation based on the tax cost for these securities is $197,683. The gross unrealized depreciation based on the tax cost for these securities is $0.

(7)

The aggregate cost for federal income tax purposes of investments in unaffiliated publicly traded companies is $2,451,410. The gross unrealized appreciation based on the tax cost for these securities is $3,119,386. The gross unrealized depreciation based on the tax cost for these securities is $0.

(8)

We are subject to legal restrictions on the sale of our investment(s) in this company.

(9)

(10)

Represents a non-income producing security. Investments that have not paid dividends or interest within the last 12 months are considered to be non-income producing.

(11)

Cobalt Technologies, Inc., also does business as Cobalt Biofuels.

(12)

The accompanying unaudited notes are an integral part of this consolidated schedule.

HARRIS & HARRIS GROUP, INC.

CONSOLIDATED SCHEDULE OF INVESTMENTS AS OF DECEMBER 31, 2013

(Unaudited)

(13)

With our investment in the Mersana Therapeutics, Inc., Series A-1 financing, we received a warrant to purchase 277,760 shares of Series A-2 Convertible Preferred Stock. The ability to exercise the warrant is contingent upon Mersana's achievement of certain milestones. Mersana has not achieved those milestones as of December 31, 2013, and, therefore, this warrant is a contingent asset as of that date. The warrant will expire on July 27, 2022.

(14)

As part of a loan the Company made to Molecular Imprints in the second quarter of 2011, we received a liquidation preference payable upon a sale of the company equal to three times the principal of the loan, or $4,044,450. This preference is senior to the preferences of the outstanding preferred stock. While the loan has since been repaid, this liquidation preference remains outstanding as of December 31, 2013.

(15)

On February 13, 2014, Molecular Imprints, Inc., announced that it had signed an agreement to sell its semiconductor lithography equipment business to Canon, Inc. See "Note 13. Subsequent Events."

(16)

OHSO Clean, Inc. also does business as CleanWell Company.

(17)

A portion of this security is held in connection with written call option contracts: 150,000 shares, having a fair value of $1,633,500, have been pledged to brokers.

(18)

The aggregate cost for federal income tax purposes of investments in non-controlled affiliated privately held companies is $71,843,448. The gross unrealized appreciation based on the tax cost for these securities is $10,212,841. The gross unrealized depreciation based on the tax cost for these securities is $27,769,249.

(19)

Adesto Technologies Corporation's Series E shares have certain rights and preferences in a sale or IPO that are not ascribed to the other classes of stock.

(20)

On January 29, 2013, AgInnovation, LLC, changed its name to AgBiome, LLC.

(21)

On February 27, 2014, the board of directors of Contour Energy Systems, Inc., adopted a plan of complete liquidation and dissolution. See "Note 13. Subsequent Events."

(22)

(23)

Initial investment was made in 2013.

(24)

On January 21, 2014, substantially all of Kovio's assets were sold to Thin Film Electronics ASA. See "Note 13. Subsequent Events."

(25)

The aggregate cost for federal income tax purposes of investments in controlled affiliated companies is $9,065,972. The gross unrealized appreciation based on the tax cost for these securities is $0. The gross unrealized depreciation based on the tax cost for these securities is $7,713,346.

(26)

On October 31, 2013, Ancora sold a substantial portion of its assets, including the use of its corporate name, to Corden Pharma International US, Inc. ("Corden"). The remaining assets formed a new company, SynGlyco, Inc., of which we continue to own shares. SynGlyco may receive future royalty payments based upon certain sales targets and other terms of the Corden acquisition.

(27)

The aggregate cost for federal income tax purposes of our U.S. government securities is $18,999,765. The gross unrealized appreciation on the tax cost for these securities is $45. The gross unrealized depreciation on the tax cost of these securities is $0.

The accompanying unaudited notes are an integral part of this consolidated schedule.

HARRIS & HARRIS GROUP, INC.

FOOTNOTE TO CONSOLIDATED SCHEDULE OF INVESTMENTS

VALUATION PROCEDURES

Determination of Net Asset Value

The 1940 Act requires periodic valuation of each investment in the portfolio of the Company to determine its net asset value. Under the 1940 Act, unrestricted securities with readily available market quotations are to be valued at the current market value; all other assets must be valued at "fair value" as determined in good faith by or under the direction of the Board of Directors.

The Board of Directors is also responsible for (1) determining overall valuation guidelines and (2) ensuring that the investments of the Company are valued within the prescribed guidelines.

The Valuation Committee, comprised of all of the independent Board members, is responsible for determining the valuation of the Company’s assets within the guidelines established by the Board of Directors. The Valuation Committee receives information and recommendations from management. An independent valuation firm also reviews select portfolio company valuations. The independent valuation firm does not provide proposed valuations.

The fair values assigned to these investments are based on available information and do not necessarily represent amounts that might ultimately be realized when that investment is sold, as such amounts depend on future circumstances and cannot reasonably be determined until the individual investments are actually liquidated or become readily marketable.

The Deal Team meets at the end of each quarter to discuss portfolio companies and propose fair valuations for all private securities. The Valuation Committee book is prepared with the use of data from primary sources whenever reasonably practicable. Proposed valuations for each portfolio company are communicated to the Valuation Committee in the Valuation Committee book and at the Valuation Committee meeting after the end of each quarter. The Valuation Committee determines the fair value of each private security and publicly traded securities without reliable market quotations. All valuations are then reported to the full Board of Directors along with the Chief Financial Officer’s calculation of net asset value.

II.

Approaches to Determining Fair Value

Accounting Standards Codification Topic 820, "Fair Value Measurements and Disclosures," ("ASC 820") defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). It applies fair value terminology to all valuations whereas the 1940 Act applies market value terminology to readily marketable assets and fair value terminology to other assets.

The main approaches to measuring fair value utilized are the market approach and the income approach.

Market Approach (M): The market approach may use quantitative inputs such as prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities and the values of market multiples derived from a set of comparable companies. The market approach may also use qualitative inputs such as progress toward milestones, the long-term potential of the business, current and future financing requirements and the rights and preferences of certain securities versus those of other securities. The selection of the relevant inputs used to derive value under the market approach requires judgment considering factors specific to the significance and relevance of each input to deriving value.

Income Approach (I): The income approach uses valuation techniques to convert future amounts (for example, cash flows or earnings) to a single present value amount (discounted). The measurement is based on the value indicated by current market expectations about those future amounts. Those valuation techniques include present value techniques; option-pricing models, such as the Black-Scholes-Merton formula (a closed-form model) and a binomial model (a lattice model), which incorporate present value techniques; and the multi-period excess earnings method, which is used to measure the fair value of certain assets.

Hybrid Approach (H): The hybrid approach uses elements of both the market approach and the income approach. The hybrid approach calculates values using the market and income approach, individually. The resulting values are then distributed among the share classes based on probability of exit outcomes.

ASC Topic 820 classifies the inputs used to measure fair value by these approaches into the following hierarchy:

Level 1: Unadjusted quoted prices in active markets for identical assets or liabilities.

Level 2: Quoted prices in active markets for similar assets or liabilities, or quoted prices for identical or similar assets or liabilities in markets that are not active, or inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument. Level 2 inputs are in those markets for which there are few transactions, the prices are not current, little public information exists or instances where prices vary substantially over time or among brokered market makers; and

Level 3: Inputs to the valuation methodology are unobservable and significant to the fair value measurement. Unobservable inputs are those inputs that reflect our own assumptions that market participants would use to price the asset or liability based upon the best available information.

Financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement and are not necessarily an indication of risks associated with the investment.

III.

Investment Categories

The Company’s investments can be classified into five broad categories for valuation purposes:

Equity-related securities;

Long-term fixed-income securities;

Short-term fixed-income securities;

Investments in intellectual property, patents, research and development in technology or product development; and

All other securities.

The Company applies the methods for determining fair value discussed above to the valuation of investments in each of these five broad categories as follows:

EQUITY-RELATED SECURITIES

Equity-related securities, including options or warrants, are fair valued using the market or income approaches. The following factors may be considered when the market approach is used to fair value these types of securities:

Readily available public market quotations;

The cost of the Company’s investment;

Transactions in a company's securities or unconditional firm offers by responsible parties as a factor in determining valuation;

The financial condition and operating results of the company;

The company's progress towards milestones;

The long-term potential of the business and technology of the company;

The values of similar securities issued by companies in similar businesses;

Multiples to revenue, net income or EBITDA that similar securities issued by companies in similar businesses receive;

The proportion of the company's securities we own and the nature of any rights to require the company to register restricted securities under applicable securities laws; and

The rights and preferences of the class of securities we own as compared with other classes of securities the portfolio company has issued.

When the income approach is used to value warrants, the Company uses the Black-Scholes-Merton formula.

LONG-TERM FIXED-INCOME SECURITIES

Readily Marketable. Long-term fixed-income securities for which market quotations are readily available are valued using the most recent bid quotations when available.

Not Readily Marketable. Long-term fixed-income securities for which market quotations are not readily available are fair valued using the income approach. The factors that may be considered when valuing these types of securities by the income approach include:

Credit quality;

Interest rate analysis;

Quotations from broker-dealers;

Prices from independent pricing services that the Board believes are reasonably reliable; and

Reasonable price discovery procedures and data from other sources.

SHORT-TERM FIXED-INCOME SECURITIES

Short-term fixed-income securities are valued in the same manner as long-term fixed-income securities until the remaining maturity is 60 days or less, after which time such securities may be valued at amortized cost if there is no concern over payment at maturity.

D. INVESTMENTS IN INTELLECTUAL PROPERTY, PATENTS, RESEARCH AND DEVELOPMENT IN TECHNOLOGY OR PRODUCT DEVELOPMENT

Such investments are fair valued using the market approach. The Company may consider factors specific to these types of investments when using the market approach including:

The cost of the Company’s investment;

Investments in the same or substantially similar intellectual property or patents or research and development in technology or product development or offers by responsible third parties;

The results of research and development;

Product development and milestone progress;

Commercial prospects;

Term of patent;

Projected markets; and

Other subjective factors.

ALL OTHER SECURITIES

All other securities are reported at fair value as determined in good faith by the Valuation Committee using the approaches for determining valuation as described above.

For all other securities, the reported values shall reflect the Valuation Committee's judgment of fair values as of the valuation date using the outlined basic approaches of valuation discussed in Section II. They do not necessarily represent an amount of money that would be realized if we had to sell such assets in an immediate liquidation. Thus, valuations as of any particular date are not necessarily indicative of amounts that we may ultimately realize as a result of future sales or other dispositions of investments we hold.

IV.

Frequency of Valuation

The Valuation Committee shall value the Company’s investment assets (i) as of the end of each calendar quarter at the time sufficiently far in advance of filing of the Company’s reports on Form 10-Q and Form 10-K to enable preparation thereof, (ii) as of within 48 hours of pricing any common stock of the Company by the Company (exclusive of Sundays and holidays) unless the proposed sale price is at least 200 percent of any reasonable net asset value of such shares, and (iii) as of any other time requested by the Board of Directors.

Regular Review

The General Counsel, President and Chief Financial Officer shall review these Valuation Procedures on an annual basis to determine the continued appropriateness and accuracy of the methodologies used in valuing the Company’s investment assets, and will report any proposed modifications to these Valuation Procedures to the Board of Directors for consideration and approval.

The Chief Executive Officer, the President and the individuals responsible for preparing the Valuation Committee book shall meet quarterly before each Valuation Committee meeting to review the methodologies for the valuation of each security, and will highlight any changes to the Valuation Committee.

VI.

Other Assets

Non-investment assets, such as fixtures and equipment, shall be valued using the cost approach less accumulated depreciation at rates determined by management and reviewed by the Audit Committee. Valuation of such assets is not the responsibility of the Valuation Committee.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 1. THE COMPANY

Harris & Harris Group, Inc.(the "Company," "us," "our" and "we"), is a venture capital company operating as a business development company ("BDC") under the Investment Company Act of 1940 (the "1940 Act") that specializes in making investments in companies commercializing and integrating products enabled by nanotechnology and microsystems. We operate as an internally managed investment company whereby our officers and employees, under the general supervision of our Board of Directors, conduct our operations.

H&H Ventures Management, Inc.^SM ("Ventures") is a 100 percent wholly owned subsidiary of the Company. Ventures is taxed under Subchapter C (a "C Corporation") of the Internal Revenue Code of 1986 (the "Code"). Harris Partners I, L.P, is a limited partnership and, from time to time, may be used to hold certain interests in portfolio companies. The partners of Harris Partners I, L.P., are Ventures (sole general partner) and the Company (sole limited partner). Ventures pays taxes on income generated by its operations as well as on any non-passive investment income generated by Harris Partners I, L.P. For the period ended March 31 2014, there was no non-passive investment income generated by Harris Partners I, L.P. Ventures, as the sole general partner, consolidates Harris Partners I, L.P. The Company consolidates its wholly owned subsidiary, Ventures, for financial reporting purposes.

NOTE 2. INTERIM FINANCIAL STATEMENTS

Our interim financial statements have been prepared in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X and in conformity with accounting principles generally accepted in the United States of America ("GAAP") applicable to interim financial information. Accordingly, they do not include all information and disclosures necessary for a fair statement of our financial position, results of operations and cash flows in conformity with GAAP. 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. The results of operations for any interim period are not necessarily indicative of the results for the full year. These financial statements should be read in conjunction with the financial statements and notes thereto contained in our Annual Report on Form 10-K for the fiscal year ended December 31, 2013.

NOTE 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The following is a summary of significant accounting policies followed in the preparation of the consolidated financial statements:

Principles of Consolidation. The consolidated financial statements have been prepared in accordance with GAAP and include the accounts of the Company and its wholly owned subsidiary. In accordance with GAAP and Regulation S-X, the Company may only consolidate its interests in investment company subsidiaries and controlled operating companies whose business consists of providing services to the Company. Our wholly owned subsidiary, Ventures, is a controlled operating company that provides services to us and is, therefore, consolidated. All significant inter-company accounts and transactions have been eliminated in consolidation. Certain prior period amounts have been reclassified to conform to the current period presentation.

Use of Estimates. The preparation of the consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and contingent assets and liabilities and the reported amounts of revenues and expenses. Actual results could differ from these estimates, and the differences could be material. The most significant estimates relate to the fair valuations of our investments.

Portfolio Investment Valuations. Investments are stated at "value" as defined in the 1940 Act and in the applicable regulations of the Securities and Exchange Commission ("SEC") and in accordance with GAAP. Value, as defined in Section 2(a)(41) of the 1940 Act, is (i) the market price for those securities for which a market quotation is readily available and (ii) the fair value as determined in good faith by, or under the direction of, the Board of Directors for all other assets. (See "Valuation Procedures" in the "Footnote to Consolidated Schedule of Investments.") As of March 31, 2014, our financial statements include privately held investments fair valued at $86,645,772. The fair values of our privately held investments and warrants of Champions Oncology, Inc., a publicly traded company, were determined in good faith by, or under the direction of, the Board of Directors. Upon sale of investments, the values that are ultimately realized may be different from what is presently estimated. The difference could be material.

Cash. Cash includes demand deposits. Cash is carried at cost, which approximates fair value.

Unaffiliated Rights to Milestone Payments. At March 31, 2014, and December 31, 2013, the outstanding potential milestone payments from Amgen, Inc.’s acquisition of Biovex Group, Inc., were valued at $3,491,600 and $3,489,433, respectively. The milestone payments are derivatives and valued using the probability-adjusted, present value of proceeds from future payments that would be due upon successful completion of certain regulatory and sales milestones. If all remaining milestones are met, we would receive $9,526,393. There can be no assurance as to how much of this amount we will ultimately realize or when it will be realized, if at all. At March 31, 2014, and December 31, 2013, the outstanding potential milestone payments from Laird Technologies, Inc.’s acquisition of Nextreme Thermal Solutions, Inc., were valued at $0.

Receivable from Sales of Investments. At March 31, 2014, we had $0 receivables from sales of investments. At December 31, 2013, we had a receivable totaling $448,886 from the sales of 43,073 shares of Solazyme, Inc., which settled on January 2 and January 6, 2014, and 2,075 shares of Champions Oncology, Inc., which settled on January 3, 2014.

Funds Held in Escrow from Sale of Investment. At March 31, 2014, and December 31, 2013, there were funds held in escrow fair valued at $551,294 and $1,786,390, respectively, relating to the sale of Xradia, Inc., to Carl Zeiss AG. Funds held in escrow are valued using certain discounts applied to the amounts withheld. Funds held in escrow totaling $1,235,312 were released in January of 2014. The remaining funds held in escrow from the Xradia transaction will be released in July of 2014 net of any settlement of any indemnity claims and expenses related to the transaction. If the remaining funds held in escrow for this transaction are released in full, we would receive an additional $1,139,515 and realize a gain of $588,218.

Prepaid Expenses. We include prepaid insurance premiums and deferred financing charges in "Prepaid expenses." Prepaid insurance premiums are recognized over the term of the insurance contract and are included in "Amortization of insurance premiums in the Consolidated Statements of Operations. Deferred financing charges consist of fees and expenses paid in connection with the closing of loan facilities and are capitalized at the time of payment. Deferred financing charges are amortized over the term of the loan facility discussed in "Note 5. Debt." Amortization of the financing charges is included in "Interest and other debt expense" in the Consolidated Statements of Operations.

Property and Equipment. Property and equipment are included in "Other assets" and are carried at $233,687 and $246,138 at March 31, 2014, and December 31, 2013, respectively, representing cost, less accumulated depreciation of $385,909 and $375,600, respectively. Depreciation is provided using the straight-line method over the estimated useful lives of the premises and equipment. We estimate the useful lives to be five to ten years for furniture and fixtures, three years for computer equipment, and the lesser of ten years or the remaining life of the lease for leasehold improvements. All of our fixed assets are pledged as collateral under the Company's four-year $20,000,000 Multi-Draw Term Loan Facility Credit Agreement, by and among the Company, as borrower, Orix Corporate Capital, Inc., as administrative agent and lender and the other lenders party thereto from time to time (the "Loan Facility").

Post Retirement Plan Liabilities. The Company provides a Retiree Medical Benefit Plan for employees who meet certain eligibility requirements. Until it was terminated on May 5, 2011, the Company also provided an Executive Mandatory Retirement Benefit Plan for certain individuals employed by us in a bona fide executive or high policy-making position. The net periodic postretirement benefit cost for the year is determined as the sum of service cost for the year and interest on the accumulated postretirement benefit obligation. Unrecognized actuarial gains and losses are recognized as net periodic benefit cost pursuant to the Company's historical accounting policy. The impact of plan amendments are amortized over the service period as a component of "Accumulated other comprehensive income."

Interest Income Recognition. Interest income, including amortization of premium and accretion of discount, is recorded on an accrual basis. When accrued interest is determined to not be recoverable, the Company ceases accruing interest and writes off any previously accrued interest. Securities are deemed to be non-income producing if, on their last interest or dividend date, no cash was paid or no cash or in-kind dividends were declared. These write-offs are reversed through interest income. During the three months ended March 31, 2014, and March 31, 2013, the Company earned $73,563 and $95,209, respectively, in interest on U.S. government securities, senior secured debt, participation agreements, subordinated secured debt, non-convertible promissory notes and interest-bearing accounts. During the three months ended March 31, 2014, and March 31, 2013, the Company recorded, on a net basis, $72,728 and $59,881, respectively, of bridge note interest. The total for the three months ended March 31, 2014, includes a partial write-off of previously accrued bridge note interest of $1,392.

Loan Fees. Loan fees received in connection with our venture debt investments are deferred. The unearned fee income is accreted into income based on the effective interest method over the life of the investment. Total loan fees accreted into investment income were $15,504 and $12,327 for the three months ended March 31, 2014, and March 31, 2013, respectively.

Call Options. The Company writes covered call options on publicly traded securities with the intention of earning option premiums. Option premiums may increase the Company’s realized gains and, therefore, may help increase distributable income, but may limit the realized gains on the security. When a Company writes (sells) an option, an amount equal to the premium received by the Company is recorded in the Consolidated Statements of Assets and Liabilities as a liability. The amount of the liability is subsequently marked-to-market to reflect the current market value of the option written. When an option expires, the Company realizes a gain on the option to the extent of the premiums received. Premiums received from writing options that are exercised or closed are added to the proceeds or offset against the amount paid on the transaction to determine the realized gain or loss. At March 31, 2014, and December 31, 2013, the Company had 150,000 shares of Solazyme, Inc., covered by call option contracts. In the event these contracts are exercised, the Company would be required to deliver those shares to the counterparty.

Stock-Based Compensation. The Company has a stock-based employee compensation plan. The Company accounts for the Amended and Restated Harris & Harris Group, Inc. 2012 Equity Incentive Plan (the "Stock Plan") by determining the fair value of all share-based payments to employees, including the fair value of grants of employee stock options and restricted stock awards, and records these amounts as an expense in the Consolidated Statements of Operations over the vesting period with a corresponding increase to our additional paid-in capital. At March 31, 2014, and December 31, 2013, the increase to our operating expenses was offset by the increase to our additional paid-in capital, resulting in no net impact to our net asset value. Additionally, the Company does not record the potential tax benefits associated with the expensing of stock options or restricted stock because the Company currently intends to qualify as a regulated investment company ("RIC") under Subchapter M of the Code, and the deduction attributable to such expensing, therefore, is unlikely to provide any additional tax savings. The amount of non-cash, stock-based compensation expense recognized in the Consolidated Statements of Operations is based on the fair value of the awards the Company expects to vest, recognized over the vesting period on a straight-line basis for each award, and adjusted for actual awards vested and pre-vesting forfeitures. The forfeiture rate is estimated at the time of grant and revised, if necessary, in subsequent periods if the actual forfeiture rate differs from the estimated rate and is accounted for in the current period and prospectively. See "Note 9. Stock-Based Compensation" for further discussion.

Rent expense. Our lease at 1450 Broadway, New York, New York, commenced on January 21, 2010. The lease expires on December 31, 2019. The base rent is $36 per square foot with a 2.5 percent increase per year over the 10 years of the lease, subject to a full abatement of rent for four months and a rent credit for six months throughout the lease term. Certain leasehold improvements were also paid for on our behalf by the landlord, the cost of which is accounted for as property and equipment and "Deferred rent" in the accompanying Consolidated Statements of Assets and Liabilities. These leasehold improvements are depreciated over the lease term. We also lease office space in California and North Carolina. We apply these rent abatements, credits, escalations and landlord payments on a straight-line basis in the determination of rent expense over the lease term.

Realized Gain or Loss and Unrealized Appreciation or Depreciation of Portfolio Investments. Realized gain or loss is recognized when an investment is disposed of and is computed as the difference between the Company's cost basis in the investment at the disposition date and the net proceeds received from such disposition. Realized gains and losses on investment transactions are determined by specific identification. Unrealized appreciation or depreciation is computed as the difference between the fair value of the investment and the cost basis of such investment.

Income Taxes. As we intend to qualify as a RIC under Subchapter M of the Code, the Company does not accrue for income taxes. The Company has capital loss carryforwards that can be used to offset net realized capital gains. The Company recognizes interest and penalties in income tax expense. We pay federal, state and local income taxes on behalf of our wholly owned subsidiary, Ventures, which is a C corporation. See "Note 10. Income Taxes."

Foreign Currency Translation. The accounting records of the Company are maintained in U.S. dollars. All assets and liabilities denominated in foreign currencies are translated into U.S. dollars based on the rate of exchange of such currencies against U.S. dollars on the date of valuation. The Company does not isolate the portion of the results of operations that arises from changes in foreign currency rates on investments held on its Consolidated Statements of Operations. For the three months ended March 31, 2014, included in the net decrease in unrealized depreciation on investments was an unrealized loss of $215,973 resulting from foreign currency translation. For the three months ended March 31, 2013, included in the net decrease in unrealized depreciation on investments was an unrealized loss of $113,006 resulting from foreign currency translation.

Securities Transactions. Securities transactions are accounted for on the date the transaction for the purchase or sale of the securities is entered into by the Company (i.e., trade date).

Concentration of Credit Risk. The Company places its cash and cash equivalents with financial institutions and, at times, cash held in depository accounts may exceed the Federal Deposit Insurance Corporation insured limit.

NOTE 4. BUSINESS RISKS AND UNCERTAINTIES

We invest primarily in privately held companies, the securities of which are inherently illiquid. We also have investments in small publicly traded companies. Although these companies are publicly traded, their stock may not trade at high volumes and prices can be volatile, which may restrict our ability to sell our positions. These privately held and publicly traded businesses tend to not have attained profitability, and many of these businesses also lack management depth and have limited or no history of operations. Because of the speculative nature of our investments and the lack of a liquid market for and restrictions on transfers of privately held investments, there is greater risk of loss relative to traditional marketable investment securities.

We do not choose investments based on a strategy of diversification. We also do not rebalance the portfolio should one of our portfolio companies increase in value substantially relative to the rest of the portfolio. Therefore, the value of our portfolio may be more vulnerable to microeconomic events affecting a single sector, industry or portfolio company and to general macroeconomic events that may be unrelated to our portfolio companies. These factors may subject the value of our portfolio to greater volatility than a company that follows a diversification strategy. As of March 31, 2014, and December 31, 2013, our largest 10 investments by value accounted for approximately 75 percent of the value of our equity-focused venture capital portfolio, excluding the rights to milestone payments. Excluding Molecular Imprints, Inc., which was sold in April of 2014, our largest three investments, by value, Adesto Technologies Corporation, Metabolon, Inc., and HzO, Inc., accounted for approximately 17 percent, 12 percent and 9 percent, respectively, of our equity-focused venture capital portfolio at March 31, 2014. Adesto Technologies, Metabolon and HzO are privately held portfolio companies. As of December 31, 2013, our largest three investments, by value, Adesto Technologies Corporation, Metabolon, Inc., and Molecular Imprints, Inc., accounted for approximately 17 percent, 12 percent and 9 percent, respectively, of our equity-focused venture capital portfolio.

Approximately 95 percent of the portion of our equity-focused venture capital portfolio that was fair valued was comprised of securities of 25 privately held companies and warrants of one publicly traded company. Because there is typically no public or readily ascertainable market for our interests in the small privately held companies in which we invest, the valuation of the securities in that portion of our portfolio is determined in good faith by our Valuation Committee, which is comprised of all of the independent members of our Board of Directors. The values are determined in accordance with our Valuation Procedures and are subject to significant estimates and judgments. The fair value of the securities in our portfolio may differ significantly from the values that would be placed on these securities if a ready market for the securities existed. Any changes in valuation are recorded in our Consolidated Statements of Operations as "Net decrease in unrealized depreciation on investments." Changes in valuation of any of our investments in privately held companies from one period to another may be significant.

NOTE 5. DEBT

On September 30, 2013, the Company terminated the $10,000,000 Revolving Loan Agreement by and between the Company and TD Bank, N.A., dated February 24, 2011. At the date of termination, there was no principal outstanding under this credit facility, and no termination fees were incurred in connection with ending this credit facility.

On September 30, 2013, the Company entered into a four-year $20,000,000 Multi-Draw Term Loan Facility Credit Agreement, by and among the Company, as borrower, Orix Corporate Capital, Inc., as administrative agent and lender and the other lenders party thereto from time to time (the "Loan Facility") that may be used by the Company to fund investments in portfolio companies. The Loan Facility replaces the Company’s prior credit facility with TD Bank, NA. The Loan Facility, among other things, matures on September 30, 2017, and bears interest at 10 percent per annum in cash. The Company has the option to have interest accrue at a rate of 13.5 percent per annum if the Company decides not to pay interest in cash monthly. The Company currently plans to pay interest in cash if and when any borrowings are outstanding. The Loan Facility also requires payment of a draw fee on each borrowing equal to 1.0 percent of such borrowing and an unused commitment fee of 1.0 percent per annum. Fee payments under the Loan Facility are made quarterly in arrears. The Company may prepay the loans or reduce the aggregate commitments under the Loan Facility at any time prior to the maturity date, as long as certain conditions are met, including payment of required prepayment or termination fees. The Loan Facility is secured by all of the assets of the Company and its wholly owned subsidiaries, subject to certain customary exclusions. The Loan Facility contains certain affirmative and negative covenants, including without limitation: (a) maintenance of certain minimum liquidity requirements; (b) maintenance of an eligible asset leverage ratio of not less than 4.0:1.0; (c) limitations on liens; (d) limitations on the incurrence of additional indebtedness; and (e) limitations on structural changes, mergers and disposition of assets (other than in the normal course of our business activities).

At March 31, 2014, and December 31, 2013, the Company had no outstanding debt. The weighted average annual interest rate for the three months ended March 31, 2014, was zero percent, exclusive of amortization of closing fees and other expenses. The weighted average debt outstanding for the three months ended March 31, 2014, was $0. The remaining capacity under the Loan Facility was $20,000,000 at March 31, 2014. Fees and expenses of $700,000 related to establishing the Loan Facility have been deferred and included as "Prepaid expenses" as of March 31, 2014. These amounts are amortized over the term of the Loan Facility, and $43,720 was amortized in the three months ended March 31, 2014. At March 31, 2014, the Company was in compliance with all covenants required by the Loan Facility.

NOTE 6. FAIR VALUE OF INVESTMENTS

At March 31, 2014, our financial assets were categorized as follows in the fair value hierarchy:

	Fair Value Measurement at Reporting Date Using:
Description	March 31, 2014		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:	$	19,999,600	$	19,999,600	$	0	$	0

Privately Held Portfolio Companies:
Preferred Stock	$	70,633,956	$	0	$	0	$	70,633,956
Bridge Notes		5,402,815		0		0		5,402,815
Warrants		740,070		0		0		740,070
Rights to Milestone Payments		3,491,600		0		0		3,491,600
Common Stock		108,668		0		0		108,668
Senior Secured Debt		1,466,451		0		0		1,466,451
Participation Agreement		757,797		0		0		757,797
Non-Convertible Promissory Note		4,044,415		0		4,044,415		0

Publicly Traded Portfolio Companies: Common Stock	$	4,255,996	$	4,255,996	$	0	$	0

Total Investments:	$	110,901,368	$	24,255,596	$	4,044,415	$	82,601,357

Funds Held in Escrow From Sales of Investments:	$	551,294	$	0	$	0	$	551,294

Total Financial Assets:	$	111,452,662	$	24,255,596	$	4,044,415	$	83,152,651

Liabilities:
Written Call Options	$	167,500	$	167,500	$	0	$	0

Total Liabilities:	$	167,500	$	167,500	$	0	$	0

Significant Unobservable Inputs

The table below presents the valuation technique and quantitative information about the significant unobservable inputs utilized by the Company in the fair value measurements of Level 3 assets. Unobservable inputs are those inputs for which little or no market data exists and, therefore, require an entity to develop its own assumptions.

	Fair Value at March 31, 2014		Valuation Technique(s)	Unobservable Input	Range (Weighted Average^(a))

Preferred Stock	$	1,168,858	Hybrid Approach	Private Offering Price Probability of Exit Outcomes Probability of Achieving Milestones	$1.38 ($1.38) 25% - 75% (^b) 26% - 80% (^b)
Preferred Stock		4,239,148	Income Approach	Non-Performance Risk Probability of Exit Outcomes Probability of Achieving Milestones	0% - 100% (0%) 0% - 100% (^b) 0% - 100% (^b)
Preferred Stock		65,225,950	Market Approach	Private Offering Price Non-Performance Risk Revenue Multiples Illiquidity Discounts Probability of Exit Outcomes	$0.10 - $3.91 ($1.34) 0% - 88% (3.6%) 1.22 - 10.11 (3.36) 20% - 30% (24.5%) 0% - 100% (^b)

Bridge Notes		2,709,409 424,262 2,269,144	Hybrid Approach Income Approach Market Approach	Private Offering Price Non-Performance Risk	$1.00 ($1.00) 0% (0%)

Common Stock		108,668	Market Approach	Private Offering Price Non-Performance Risk	$0.001 - $47.51 ($11.06) 0% (0%)

Warrants		740,070	Black-Sholes-Merton Model	Stock Price Volatility Expected Term	$0.00 - $2.76 ($1.27) 10.2% - 107% (105%) 0.25 - 9.85 Years (3.8)

Rights to Milestone Payments		3,491,600	Probability Weighted Discounted Cash Flow	Probability of Achieving Independent Milestones Probability of Achieving Dependent Milestones	0% - 80% (^b) 0% - 30% (^b)

Participation Agreements^(c)		757,797	Income Approach	Warrant Adjusted Effective Yield Effective Yield Non-Performance Risk Participation Payment Risk Stock Price Volatility Expected Term	21.5% (21.5%) 21.5% (21.5%) 0% (0%) 0% (0%) $0.09 - $0.50 ($0.35) 107% (107%) 3.47 - 8 Years (5.23)

Senior Secured Debt		1,466,451	Income Approach	Effective Yield Non-Performance Risk	15.8% (15.8%) 0% (0%)

Funds Held in Escrow From Sales of Investments		551,294		Escrow Discounts	50% (50%)

Total	$	83,152,651

^(a) Weighted average based on fair value at March 31, 2014.

^(b) Weighted average has not been disclosed owing to the wide range of possible values.

^(c) In connection with our investments in participation agreements in GEO Semiconductor, Inc., and OHSO Clean, Inc., we received warrants to purchase stock. See "Warrants" for a discussion of the valuation methodology used.

Valuation Methodologies and Inputs for Level 3 Assets

The following sections describe the valuation techniques and significant unobservable inputs used to measure Level 3 assets.

Preferred Stock, Bridge Notes and Common Stock

Preferred stock, bridge notes and common stock are valued by either a market, income or hybrid approach using internal models with inputs, most of which are not market observable. Common inputs for valuing Level 3 preferred stock, bridge note and private common stock investments include: prices from recently executed private transactions in a company’s securities or unconditional firm offers, revenue multiples of comparable publicly traded companies, M&A transactions consummated by comparable companies, discounts for lack of marketability, rights and preferences of the class of securities we own as compared with other classes of securities the portfolio company has issued, particularly related to potential liquidity scenarios of an IPO or an acquisition transaction, and management’s best estimate of risk attributable to non-performance risk. Certain securities are valued using the present value of future cash flows. We define non-performance risk as the risk that the price per share (or implied valuation of a portfolio company) or the effective yield of a debt security of a portfolio company, as applicable, does not appropriately represent the risk that a portfolio company with negative cash flow 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 of the last round of financing. We assess non-performance risk for each private portfolio company quarterly. Our assessment of non-performance risk typically includes an evaluation of the financial condition and operating results of the company, the company's progress towards milestones, and the long-term potential of the business and technology of the company and how this potential may or may not affect the value of the shares owned by us. An increase to the non-performance risk or a decrease in the private offering price of a future round of financing from that of the most recent round would result in a lower fair value measurement and/or a change in the distribution of value among the classes of securities we own.

Bridge notes commonly contain terms that provide for the conversion of the full amount of principal, and sometimes interest, into shares of preferred stock at a defined price per share and/or the price per share of the next round of financing. The use of a discount for non-performance risk in the valuation of bridge notes would indicate the potential for conversion of only a portion of the principal, plus interest when applicable, into shares of preferred stock or the potential that a conversion event will not occur and that the likely outcome of a liquidation of assets would result in payment of less than the remaining principal outstanding of the note. An increase in non-performance risk would result in a lower fair value measurement.

Warrants

We use the Black-Scholes-Merton option-pricing model to determine the fair value of warrants held in our portfolio. Option pricing models, including the Black-Scholes-Merton model, require the use of subjective input assumptions, including expected volatility, expected life, expected dividend rate, and expected risk-free rate of return. In the Black-Scholes-Merton model, variations in the expected volatility or expected term assumptions have a significant impact on fair value. Because certain securities underlying the warrants in our portfolio are not publicly traded, many of the required input assumptions are more difficult to estimate than they would be if a public market for the underlying securities existed.

An input to the Black-Scholes-Merton option-pricing model is the value per share of the type of stock for which the warrant is exercisable as of the date of valuation. This input is derived according to the methodologies discussed in "Preferred Stock, Bridge Notes and Common Stock."

Rights to Milestone Payments

Rights to milestone payments are valued using a probability-weighted discounted cash flow model. As part of Amgen Inc.’s acquisition of our former portfolio company, BioVex Group, Inc., we are entitled to potential future milestone payments based upon the achievement of certain regulatory and sales milestones. We are also entitled to future milestone payments from Laird Technologies Inc.'s acquisition of our former portfolio company, Nextreme Thermal Solutions, Inc. We assign probabilities to the achievements of the various milestones. Milestones identified as independent milestones can be achieved irrespective of the achievement of other contractual milestones. Dependent milestones are those that can only be achieved after another, or series of other, milestones are achieved. The interest rates used in these models are observable inputs from sources such as the Federal Reserve published interest rates.

Participation Agreements and Senior Secured Debt

We invest in venture debt investments through participation agreements and senior secured debt. We value these securities using an income approach. The income approach uses valuation techniques to convert future amounts (for example, cash flows or earnings) to a single present value amount (discounted). The measurement is based on the value indicated by current market expectations about those future amounts. Common inputs for valuing Level 3 debt investments include: the effective yield of the debt investment or, in the case where we have received warrant coverage, the warrant-adjusted effective yield of the security, adjustments for changes in the yields of comparable publicly traded high-yield debt funds and risk-free interest rates and an assessment of non-performance risk. For those debt investments made through participation agreements, we include discounts for the risk of breach of the participation agreements. For venture debt investments, an increase in yields would result in a lower fair value measurement. Furthermore, yields would decrease, and value would increase, if the company is exceeding targets and risk has been substantially reduced from the level of risk that existed at the time of investment. Yields would increase, and values would decrease, if the company is failing to meet its targets and risk has been increased from the level of risk that existed at the time of investment.

The following chart shows the components of change in the financial assets categorized as Level 3 for the three months ended March 31, 2014.

	Beginning Balance 1/1/2014		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 3/31/2014		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	$	71,577,059	$	(7,249,533	)	$	848,865	¹	$	4,505,548		$	952,017	$	0		$	70,633,956	$	(2,743,985	)

Bridge Notes		6,044,114		(50,000	)		(848,865	)¹		(1,192,561	)		1,450,127		0			5,402,815		(1,242,561	)

Common Stock		108,668		0			0			0			0		0			108,668		0

Warrants		800,487		0			0			(117,984	)		57,567		0			740,070		(117,984	)

Rights to Milestone Payments		3,489,433		0			0			2,167			0		0			3,491,600		2,167

Participation Agreements		777,195		0			0			22,477			1,325		(43,200	)		757,797		22,477

Senior Secured Debt		1,511,828		0			0			(4,766	)		14,179		(54,790	)		1,466,451		(4,766	)

Funds Held in Escrow From Sales of Investments		1,786,390		216			0			0			0		(1,235,312	)		551,294		0

Total	$	86,095,174	$	(7,299,317	)	$	0		$	3,214,881		$	2,475,215	$	(1,333,302	)	$	83,152,651	$	(4,084,652	)

¹Transfers among asset classes are owing to conversions at financing events. These do not represent transfers in or out of Level 3.

We elected to use the beginning of period values to recognize transfers in and out of Level 3 investments. For the three months ended March 31, 2014, there were no transfers out of Level 3.

At December 31, 2013, our financial assets were categorized as follows in the fair value hierarchy:

	Fair Value Measurement at Reporting Date Using:
Description		December 31, 2013		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:		$	18,999,810	$	18,999,810	$	0	$	0

Privately Held Portfolio Companies:
Preferred Stock		$	71,577,059	$	0	$	0	$	71,577,059
Bridge Notes			6,044,114		0		0		6,044,114
Warrants			800,487		0		0		800,487
Rights to Milestone Payments			3,489,433		0		0		3,489,433
Common Stock			108,668		0		0		108,668
Senior Secured Debt			1,511,828		0		0		1,511,828
Participation Agreement			777,195		0		0		777,195
Non-Convertible Promissory Note			4,043,381		0		4,043,381		0

Publicly Traded Portfolio Companies:
Common Stock		$	5,547,294	$	5,547,294	$	0	$	0

Total Investments:		$	112,899,269	$	24,547,104	$	4,043,381	$	84,308,784

Funds Held in Escrow From
Sales of Investments:		$	1,786,390	$	0	$	0	$	1,786,390

Total Financial Assets:		$	114,685,659	$	24,547,104	$	4,043,381	$	86,095,174

Liabilities:
Written Call Options		$	103,500	$	103,500	$	0	$	0

Total Liabilities:		$	103,500	$	103,500	$	0	$	0

The following chart shows the components of change in the financial assets categorized as Level 3 for the twelve months ended December 31, 2013.

	Beginning Balance 1/1/2013		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 12/31/2013		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	$	78,615,582	$	10,006,915		$	1,817,476	¹	$	(17,635,033	)	$	12,779,034	$	(14,006,915	)	$	71,577,059	$	(9,331,349	)

Bridge Notes		4,152,634		0			(1,822,831	)¹		(1,078,514	)		4,792,825		0			6,044,114		(1,078,514	)

Common Stock		108,667		(4,384,762	)		0			4,384,762			1		0			108,668		0

Warrants		586,320		0			5,3551			188,412			20,400		0			800,487		188,412

Rights to Milestone Payments		3,400,734		0			0			88,699			0		0			3,489,433		88,699

Participation Agreements		1,138,148		90,255			0			(22,807	)		5,966		(434,367	)		777,195		39,896

Subordinated Secured Debt		120,410		15,058			0			(10,836	)		368		(125,000	)		0		0

Senior Secured Debt		1,075,870		0			0			397,325			339,907		(301,274	)		1,511,828		397,325

Non-Convertible Promissory Note		3,033,338		0			(3,033