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, 2015

¨ 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 11, 2015
Common Stock, $0.01 par value per share	31,280,843 shares

Harris & Harris Group, Inc.

Form 10-Q, March 31, 2015

	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 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	39

Financial Highlights	60

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations	61

Cautionary Statement Regarding Forward-Looking Statements	61

Background	62

Overview	62

Realize	63

Invest	68

Partner	71

Return	71

Current Business Environment	72

Valuation of Investments	73

Results of Operations	76

Financial Condition	81

Cash Flow	82

Liquidity and Capital Resources	83

Borrowings	84

Contractual Obligations	84

Critical Accounting Policies	85

Recent Developments – Portfolio Companies	88

Item 3. Quantitative and Qualitative Disclosures About Market Risk	89

Item 4. Controls and Procedures	91

PART II. OTHER INFORMATION

Item 1A. Risk Factors	92

Item 6. Exhibits	92

Signatures	93

Exhibit Index	94

Financial Statements Schedule 12-14	i-v

PART I. FINANCIAL INFORMATION

Item 1. Consolidated Financial Statements

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

Harris & Harris Group, Inc.^® (the "Company," "us," "our" and "we"), is an internally managed, non-diversified management investment company that has elected to operate as a business development company ("BDC") under the Investment Company Act of 1940 (the "1940 Act"). Certain information and disclosures normally included in the consolidated financial statements in accordance with accounting principles generally accepted in the United States of America ("GAAP") have been condensed or omitted as permitted by Regulation S-X and Regulation S-K. Accordingly, they do not include all information and disclosures necessary for a fair presentation of our financial position, results of operations and cash flows in conformity with GAAP. The results of operations for any interim period are not necessarily indicative of the results for the full year. The accompanying consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto contained in our Annual Report on Form 10-K for the year ended December 31, 2014.

HARRIS & HARRIS GROUP, INC.

CONSOLIDATED STATEMENTS OF ASSETS AND LIABILITIES

(Unaudited)

	March 31, 2015			December 31, 2014
ASSETS
Investments, in portfolio securities at value:
Unaffiliated privately held companies (cost: $22,698,583 and $22,304,047, respectively)	$	13,625,608		$	13,854,906
Unaffiliated rights to milestone payments (adjusted cost basis: $2,387,278 and $2,387,278, respectively)		3,194,781			3,193,865
Unaffiliated publicly traded securities (cost: $1,741,128 and $1,741,128, respectively)		2,222,799			1,398,085
Non-controlled affiliated privately held companies (cost: $69,112,614 and $67,236,533, respectively)		60,303,275			58,470,864
Non-controlled affiliated publicly traded companies (cost: $5,591,299 and $5,591,299, respectively)		6,604,774			8,384,641
Controlled affiliated privately held companies (cost: $12,656,241 and $13,111,030, respectively)		4,158,650			4,462,479
Equity method privately held companies (adjusted cost basis: $346,721 and $0, respectively)		346,721			0
Total, investments in private portfolio companies, rights to milestone payments, public securities at value (cost: $114,533,864 and $112,371,315, respectively)	$	90,456,608		$	89,764,840
Cash		21,051,443			20,748,314
Funds held in escrow from sales of investments at value (Note 3)		308,345			306,802
Receivable from portfolio company		170,810			160,877
Interest receivable		48,534			62,482
Prepaid expenses		694,332			754,856
Other assets		290,096			296,690
Total assets	$	113,020,168		$	112,094,861

LIABILITIES & NET ASSETS

Term loan credit facility (Note 5)	$	5,000,000		$	0
Post retirement plan liabilities (Note 8)		1,280,986		$	1,267,615
Accounts payable and accrued liabilities		528,216			841,915
Deferred rent		318,232			330,904
Total liabilities	$	7,127,434		$	2,440,434

Commitments and contingencies (Note 12)

Net assets	$	105,892,734		$	109,654,427

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 3/31/15 and 12/31/14; 33,109,583 issued at 3/31/15 and 12/31/14		331,096			331,096
Additional paid in capital (Note 9)		215,264,253			215,051,662
Accumulated net operating and realized loss		(82,885,785	)		(80,434,528	)
Accumulated unrealized depreciation of investments		(24,077,256	)		(22,606,475	)
Accumulated other comprehensive income (Note 8)		665,957			718,203
Treasury stock, at cost (1,828,740 shares at 3/31/15 and 12/31/14)		(3,405,531	)		(3,405,531	)

Net assets	$	105,892,734		$	109,654,427
Shares outstanding		31,280,843			31,280,843
Net asset value per outstanding share	$	3.39		$	3.51

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, 2015			March 31, 2014
Investment income:
Interest from:
Unaffiliated companies	$	11,243		$	50,235
Non-controlled affiliated companies		52,426			42,276
Controlled affiliated companies		44,426			34,726
Cash and U.S. Treasury securities and other		1,430			3,549
Fees for providing managerial assistance to portfolio companies		7,000			0
Yield-enhancing fees on debt securities		26,307			15,505
Total investment income		142,832			146,291

Expenses:
Salaries, benefits and stock-based compensation (Note 9)		1,078,489			1,412,360
Administration and operations		101,234			130,480
Professional fees		572,234			211,871
Rent		67,706			68,026
Insurance expense		67,611			83,933
Directors' fees and expenses		119,624			93,277
Interest and other debt expense		143,720			93,720
Custody fees		15,912			14,791
Depreciation		12,647			13,205
Total expenses		2,179,177			2,121,663

Net operating loss		(2,036,345	)		(1,975,372	)

Net realized (loss) gain:
Realized (loss) gain from investments:
Unaffiliated companies		10,485			0
Non-controlled affiliated companies		(293,786	)		(7,299,284	)
Publicly traded companies		0			372,615
Written call options		0			(110,656	)
Realized loss from investments		(283,301	)		(7,037,325	)

Income tax expense (Note 10)		105			15,986
Net realized loss from investments		(283,406	)		(7,053,311	)

Net (increase) decrease in unrealized depreciation on investments:
Investments		(1,470,781	)		2,386,653
Written call options		0			166,353
Net (increase) decrease in unrealized depreciation on investments		(1,470,781	)		2,553,006

Net realized and unrealized loss on investments		(1,754,187	)		(4,500,305	)

Share of loss on equity method investment		(131,506	)		0

Net decrease in net assets resulting from operations:

Total	$	(3,922,038	)	$	(6,475,677	)

Per average basic and diluted outstanding share	$	(0.13	)	$	(0.21	)

Average outstanding shares		31,280,843			31,197,438

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

HARRIS & HARRIS GROUP, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(Unaudited)

	Three Months Ended			Three Months Ended
	March 31, 2015			March 31, 2014

Net decrease in net assets resulting from operations	$	(3,922,038	)	$	(6,475,677	)

Other comprehensive loss:

Amortization of prior service cost		(52,246	)		(52,246	)

Other comprehensive loss		(52,246	)		(52,246	)

Comprehensive loss	$	(3,974,284	)	$	(6,527,923	)

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, 2015			March 31, 2014

Cash flows used in operating activities:
Net decrease in net assets resulting from operations	$	(3,922,038	)	$	(6,475,677	)
Adjustments to reconcile net decrease in net assets resulting from operations to net cash used in operating activities:
Net realized loss and change in unrealized depreciation on investments		1,754,082			4,484,319
Depreciation of fixed assets, amortization of prepaid assets and accretion of bridge note interest		(66,312	)		(75,321	)
Share of loss on equity method investment		131,506			0
Stock-based compensation expense		212,591			309,147
Amortization of prior service cost		(52,246	)		(52,246	)
Purchase of U.S. government securities		0			(19,999,044	)
Sale of U.S. government securities		0			18,999,008
Purchase of equity method investment		(262,215	)		0
Purchase of affiliated portfolio companies		(1,853,262	)		(2,386,980	)
Purchase of unaffiliated portfolio companies		(499,824	)		0
Payments received on debt investments		91,736			97,990
Proceeds from sale of investments and conversion of bridge notes		24,000			2,070,534
Proceeds from call option premiums		0			338,229
Payments for put and call option purchases		0			(218,532	)

Changes in assets and liabilities:
Receivable from sales of investments		(9,933	)		448,886
Interest receivable		13,948			(20,526	)
Prepaid expenses		60,524			87,978
Other assets		378			(379	)
Post retirement plan liabilities		13,371			16,043
Accounts payable and accrued liabilities		(313,699	)		(249,022	)
Deferred rent		(12,672	)		(10,967	)

Net cash used in operating activities		(4,690,065	)		(2,636,560	)

Cash flows from investing activities:
Purchase of fixed assets		(6,806	)		(754	)
Net cash used in investing activities		(6,806	)		(754	)

Cash flows from financing activities:
Proceeds from drawdown of loan facility		5,000,000			0
Net cash provided by financing activities		5,000,000			0

Net increase (decrease) in cash	$	303,129		$	(2,637,314	)

Cash at beginning of the period		20,748,314			8,538,548
Cash at end of the period	$	21,051,443		$	5,901,234

Supplemental disclosures of cash flow information:
Income taxes paid	$	105		$	15,986
Interest paid	$	0		$	0

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, 2015			December 31, 2014

Changes in net assets from operations:

Net operating loss	$	(2,036,345	)	$	(7,901,727	)
Net realized (loss) on investments		(283,406	)		(5,083,625	)
Net (increase) in unrealized depreciation on investments		(1,470,781	)		(576,186	)
Net (decrease) in unrealized appreciation on written call options		0			(8,882	)
Share of loss on equity method investment		(131,506	)		0

Net decrease in net assets resulting from operations		(3,922,038	)		(13,570,420	)

Changes in net assets from capital stock transactions:

Acquisition of vested restricted stock awards to pay required employee withholding tax		0			(124,751	)
Stock-based compensation expense		212,591			857,006

Net increase in net assets resulting from capital stock transactions		212,591			732,255

Changes in net assets from accumulated other comprehensive (loss) income:

Other comprehensive (loss)		(52,246	)		(208,983	)

Net (decrease) in net assets resulting from accumulated other comprehensive (loss) income		(52,246	)		(208,983	)

Net decrease in net assets		(3,761,693	)		(13,047,148	)

Net Assets:

Beginning of the period		109,654,427			122,701,575

End of the period	$	105,892,734		$	109,654,427

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, 2015

(Unaudited)

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

Investments in Unaffiliated Companies (3) – 18.0% of net assets at value

Private Placement Portfolio (Illiquid) (4) – 12.9% of net assets at value

Bridgelux, Inc. (5)(8)(9)		Energy
Manufacturing high-power light emitting diodes (LEDs) and arrays
Series B Convertible Preferred Stock	(M)		$	1,000,000		1,861,504	$	634,228
Series C Convertible Preferred Stock	(M)			1,352,196		2,130,699		835,101
Series D Convertible Preferred Stock	(M)			1,371,622		999,999		726,389
Series E Convertible Preferred Stock	(M)			672,599		440,334		663,152
Series E-1 Convertible Preferred Stock	(M)			386,073		399,579		462,166
Warrants for Series C Convertible Preferred Stock expiring 8/31/15	( I )			168,270		163,900		37,268
Warrants for Series D Convertible Preferred Stock expiring 8/31/15	( I )			128,543		166,665		39,178
Warrants for Series E Convertible Preferred Stock expiring 12/31/17	( I )			93,969		170,823		40,541
Warrants for Common Stock expiring 6/1/16	( I )			72,668		132,100		10,880
Warrants for Common Stock expiring 8/9/18	( I )			148,409		171,183		36,309
Warrants for Common Stock expiring 10/21/18	( I )			18,816		84,846		6,988
				5,413,165				3,492,200

Cambrios Technologies Corporation (5)(8)(9)		Electronics
Developing nanowire-enabled electronic materials for the display industry
Series B Convertible Preferred Stock	( I )			1,294,025		1,294,025		38,983
Series C Convertible Preferred Stock	( I )			1,300,000		1,300,000		39,162
Series D Convertible Preferred Stock	( I )			515,756		515,756		367,375
Series D-2 Convertible Preferred Stock	( I )			92,400		92,400		33,131
Series D-4 Convertible Preferred Stock	( I )			216,168		216,168		77,508
				3,418,349				556,159

Cobalt Technologies, Inc. (8)(9)(10)		Energy
Developing processes for making bio- butanol through biomass fermentation
Series C-1 Convertible Preferred Stock	(M)			749,998		352,112		0
Series D-1 Convertible Preferred Stock	(M)			122,070		48,828		0
Series E-1 Convertible Preferred Stock	(M)			114,938		46,089		0
Warrants for Series E-1 Pref. Stock expiring on 10/9/22	( I )			2,781		1,407		0
Warrants for Series E-1 Pref. Stock expiring on 3/11/23	( I )			5,355		2,707		0
				995,142				0

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, 2015

(Unaudited)

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

Investments in Unaffiliated Companies (3) – 18.0% of net assets at value (Cont.)

Private Placement Portfolio (Illiquid) (4) – 12.9% of net assets at value (Cont.)

Mersana Therapeutics, Inc. (5)(8)(9)		Life Sciences
Developing antibody drug conjugates for cancer therapy
Series A-1 Convertible Preferred Stock	( I )		$	683,538		635,081	$	444,168
Series B-1 Convertible Preferred Stock	( I )			104,521		97,111		105,385
Common Stock	( I )			3,875,395		350,539		142,490
				4,663,454				692,043

Molecular Imprints, Inc. (5)(8)(9)(11)		Electronics
Manufacturing nanoimprint lithography capital equipment for non-semiconductor manufacturing markets
Series A Convertible Preferred Stock	(M)			928,884		928,884		1,086,793

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		715,280
Series D Convertible Preferred Stock	(M)			3,000,003		1,016,950		2,130,245
Series E Convertible Preferred Stock	(M)			496,573		433,688		753,132
				4,996,576				3,598,657

Nano Terra, Inc. (5)		Energy
Developing surface chemistry and nano- manufacturing solutions
Senior secured debt, 12.0%, maturing on 12/1/15	( I )			258,229	$	293,633		292,425
Warrants for Common Stock expiring on 2/22/21	( I )			69,168		4,462		1,578
Warrants for Series A-3 Pref. Stock expiring on 11/15/22	( I )			35,403		47,508		65,214
				362,800				359,217

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, 2015

(Unaudited)

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

Investments in Unaffiliated Companies (3) – 18.0% of net assets at value (Cont.)

Private Placement Portfolio (Illiquid) (4) – 12.9% of net assets at value (Cont.)

Nantero, Inc. (5)(8)(9)		Electronics
Developing a high-density, nonvolatile, random access memory chip, enabled by carbon nanotubes
Series A Convertible Preferred Stock	( I )		$	489,999		345,070	$	1,443,540
Series B Convertible Preferred Stock	( I )			323,000		207,051		873,482
Series C Convertible Preferred Stock	( I )			571,329		188,315		945,275
Series D Convertible Preferred Stock	( I )			139,075		35,569		180,463
Series E Convertible Preferred Stock	( I )			195,303		32,714		196,272
				1,718,706				3,639,032

Phylagen, Inc. (5)(8)(12)		Life Sciences
Developing technology to improve human health and productivity
Secured Convertible Bridge Note, 5%, acquired 2/5/15	(M)			201,507	$	200,000		201,507


Total Unaffiliated Private Placement Portfolio (cost: $22,698,583)							$	13,625,608

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

Amgen, Inc. (8)(9)		Life Sciences
Rights to Milestone Payments from
Acquisition of BioVex Group, Inc.	( I )		$	1,757,608	$	1,757,608	$	2,564,070

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

Canon, Inc. (8)(9)		Electronics
Rights to Milestone Payments from
Acquisition of Molecular Imprints, Inc.	( I )			629,670	$	629,670		630,711

Total Unaffiliated Rights to Milestone Payments (cost: $2,387,278)							$	3,194,781

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, 2015

(Unaudited)

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

Publicly Traded Portfolio (7) – 2.1% of net assets at value

Solazyme, Inc. (5)(9)		Energy
Developing algal biodiesel, industrial chemicals and specialty ingredients using synthetic biology
Common Stock	(M)		$	118,099		50,000	$	143,000

Champions Oncology, Inc. (5)(9)		Life Sciences
Developing its TumorGraft^TM platform for personalized medicine and drug development
Common Stock	(M)			1,622,629		2,922,492		2,045,744
Warrants for Common Stock expiring 1/29/18	( I )			400		66,000		34,055
				1,623,029				2,079,799

Total Unaffiliated Publicly Traded Portfolio (cost: $1,741,128)							$	2,222,799

Total Investments in Unaffiliated Companies (cost: $26,826,989)							$	19,043,188

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, 2015

(Unaudited)

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

Investments in Non-Controlled Affiliated Companies (3) – 63.2% of net assets at value

Private Placement Portfolio (Illiquid) (13) – 56.9% of net assets at value

ABSMaterials, Inc. (5)(8)(9)		Energy
Developing nano-structured absorbent materials for environmental remediation
Series A Convertible Preferred Stock	( I )		$	435,000		390,000	$	304,735
Series B Convertible Preferred Stock	( I )			1,217,644		1,037,751		1,279,992
				1,652,644				1,584,727

Adesto Technologies Corporation (5)(8)(9)(14)		Electronics
Developing low-power, high-performance memory devices
Series A Convertible Preferred Stock	(H)			2,200,000		6,547,619		1,801,438
Series B Convertible Preferred Stock	(H)			2,200,000		5,952,381		1,666,633
Series C Convertible Preferred Stock	(H)			1,485,531		2,122,187		695,738
Series D Convertible Preferred Stock	(H)			1,393,147		1,466,470		662,252
Series D-1 Convertible Preferred Stock	(H)			703,740		987,706		384,918
Series E Convertible Preferred Stock	(H)			2,499,999		3,508,771		10,965,653
				10,482,417				16,176,632

AgBiome, LLC (5)(8)(9)		Life Sciences
Providing early-stage research and discovery for agriculture and utilizing the crop microbiome to identify products that reduce risk and improve yield
Series A-1 Convertible Preferred Stock	( I )			2,000,000		2,000,000		2,414,838
Series A-2 Convertible Preferred Stock	( I )			521,740		417,392		583,750
				2,521,740				2,998,588

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, 2015

(Unaudited)

	Method of	Primary			Shares/
	Valuation (1)	Industry (2)	Cost		Principal		Value
Investments in Non-Controlled Affiliated Companies (3) – 63.2% of net assets at value (Cont.)

Private Placement Portfolio (Illiquid) (13) – 56.9% of net assets at value (Cont.)

D-Wave Systems, Inc. (8)(15)		Electronics
Developing high-performance quantum computing systems
Series 1 Class B Convertible Preferred Stock	(H)		$	1,002,074		1,144,869	$	1,613,303
Series 1 Class C Convertible Preferred Stock	(H)			487,804		450,450		638,900
Series 1 Class D Convertible Preferred Stock	(H)			748,473		855,131		1,212,884
Series 1 Class E Convertible Preferred Stock	(H)			248,049		269,280		398,954
Series 1 Class F Convertible Preferred Stock	(H)			238,323		258,721		383,310
Series 1 Class H Convertible Preferred Stock	(H)			909,088		460,866		798,191
Series 2 Class D Convertible Preferred Stock	(H)			736,019		678,264		962,023
Series 2 Class E Convertible Preferred Stock	(H)			659,493		513,900		770,284
Series 2 Class F Convertible Preferred Stock	(H)			633,631		493,747		740,076
Warrants for Common Stock expiring 6/30/15	( I )			98,644		153,890		97,967
Warrants for Common Stock expiring 5/12/19	( I )			26,357		20,415		6,893
				5,787,955				7,622,785

EchoPixel, Inc. (5)(8)(9)		Life Sciences
Developing algorithms and software to improve visualization of data for life science and healthcare applications
Series Seed Convertible Preferred Stock	( I )			1,250,000		4,194,630		1,328,595

Ensemble Therapeutics Corporation (5)(8)		Life Sciences
Developing DNA-Programmed Chemistry^TM for the discovery of new classes of therapeutics
Series B Convertible Preferred Stock	( I )			2,000,000		1,449,275		844,843
Series B-1 Convertible Preferred Stock	( I )			679,754		492,575		1,521,042
				2,679,754				2,365,885

HZO, Inc. (5)(8)(9)		Electronics
Developing novel industrial coatings that protect electronics against damage from liquids
Common Stock	( I )			666,667		405,729		331,544
Series I Convertible Preferred Stock	( I )			5,709,835		2,266,894		4,561,780
Series II Convertible Preferred Stock	( I )			2,000,003		539,710		2,139,401
				8,376,505				7,032,725

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, 2015

(Unaudited)

	Method of	Primary			Shares/
	Valuation (1)	Industry (2)	Cost		Principal		Value
Investments in Non-Controlled Affiliated Companies (3) – 63.2% of net assets at value (Cont.)

Private Placement Portfolio (Illiquid) (13) – 56.9% of net assets at value (Cont.)

Laser Light Engines, Inc. (8)(9)		Energy
Manufactured solid-state light sources for digital cinema and large-venue projection displays
Series A Convertible Preferred Stock	(M)		$	2,000,000		7,499,062	$	0
Series B Convertible Preferred Stock	(M)			3,095,802		13,571,848		0
Secured Convertible Bridge Note, 12%, acquired 10/7/11	(M)			200,000	$	200,000		0
Secured Convertible Bridge Note, 12%, acquired 11/17/11	(M)			95,652	$	95,652		0
Secured Convertible Bridge Note, 12%, acquired 12/21/11	(M)			82,609	$	82,609		0
Secured Convertible Bridge Note, 12%, acquired 3/5/12	(M)			434,784	$	434,784		0
Secured Convertible Bridge Note, 12%, acquired 7/26/12	(M)			186,955	$	186,955		0
Secured Convertible Bridge Note, 20%, acquired 4/29/13	(M)			166,667	$	166,667		0
Secured Convertible Bridge Note, 20%, acquired 7/22/13	(M)			166,667	$	166,667		0
Secured Convertible Bridge Note, 10%, acquired 10/30/13	(M)			80,669	$	80,669		0
Secured Convertible Bridge Note, 10%, acquired 2/5/14	(M)			19,331	$	19,331		0
Secured Convertible Bridge Note, 10%, acquired 6/24/14	(M)			13,745	$	13,745		0
				6,542,881				0

Metabolon, Inc. (5)(8)(9)		Life Sciences
Developing service and diagnostic products through the use of a metabolomics, or biochemical, profiling platform
Series B Convertible Preferred Stock	(H)			2,500,000		371,739		2,777,068
Series B-1 Convertible Preferred Stock	(H)			706,214		148,696		1,158,629
Series C Convertible Preferred Stock	(H)			1,000,000		1,000,000		2,531,271
Series D Convertible Preferred Stock	(H)			1,499,999		835,882		2,182,054
Series E-1 Convertible Preferred Stock	(H)			1,225,000		444,404		1,561,146
Series E-2 Convertible Preferred Stock	(H)			299,999		103,277		300,131
				7,231,212				10,510,299

OpGen, Inc. (5)(8)(16)		Life Sciences
Developing tools for genomic sequence assembly and analysis
Series A Convertible Preferred Stock	(M)			610,017		610,017		2,544,172
Common Stock	(M)			3,260,000		29,883		124,632
Secured Convertible Bridge Note, 8%, acquired 7/11/14	(M)			221,115	$	209,020		922,193
Secured Convertible Bridge Note, 8%, acquired 10/16/14	(M)			259,278	$	250,000		246,625
Secured Convertible Bridge Note, 8%, acquired 11/14/14	(M)			206,133	$	200,000		196,074
Secured Convertible Bridge Note, 8%, acquired 12/29/14	(M)			102,067	$	100,000		97,086
Secured Convertible Bridge Note, 8%, acquired 2/17/15	(M)			209,996	$	208,035		1,089,305
				4,868,606				5,220,087

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, 2015

(Unaudited)

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

Investments in Non-Controlled
Affiliated Companies (3) –
63.2% of net assets at value (Cont.)

Private Placement Portfolio (Illiquid) (13) –
56.9% of net assets at value (Cont.)

Orig3n, Inc. (5)(8)(9)(12)		Life Sciences
Developing personalized medicine applications
for induced pluripotent stems cells.
Series 1 Convertible Preferred Stock	( I )		$	250,000		597,658	$	250,893

Produced Water Absorbents, Inc. (5)(8)(17)		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		40,256
Series B Convertible Preferred Stock	(M)			1,496,865		5,987,460		1,045,115
Series B-2 Convertible Preferred Stock	(M)			1,015,427		4,322,709		754,531
Series B-3 Convertible Preferred Stock	(M)			978,641		3,914,564		683,288
Series C Convertible Preferred Stock	(M)			1,000,268		2,667,380		351,248
Series D Convertible Preferred Stock	(M)			986,066		2,629,510		684,422
Subordinated Secured Debt, 12%, maturing on 6/30/15	( I )			989,443	$	1,000,000		981,100
Warrants for Series B-2 Preferred Stock expiring
upon liquidation event	( I )			65,250		300,000		9,333
				7,531,960				4,549,293

SiOnyx, Inc. (5)(8)		Electronics
Developing silicon-based optoelectronic
products enabled by its proprietary Black Silicon
Series A Convertible Preferred Stock	( I )			750,000		233,499		0
Series A-1 Convertible Preferred Stock	( I )			890,000		2,966,667		0
Series A-2 Convertible Preferred Stock	( I )			2,445,000		4,207,537		0
Series B-1 Convertible Preferred Stock	( I )			1,169,561		1,892,836		0
Series C Convertible Preferred Stock	( I )			1,171,316		1,674,030		0
Secured Convertible Bridge Note, 8%, acquired 1/31/14	( I )			1,281,125	$	1,281,125		0
Secured Convertible Bridge Note, 8%, acquired 5/9/14	( I )			76,966	$	93,976		0
Secured Convertible Bridge Note, 10%, acquired 12/12/14	( I )			71,107	$	68,999		65,030
Secured Convertible Bridge Note, 10%, acquired 1/30/15	( I )			105,254	$	103,500		96,257
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
Warrants for Common Stock expiring 5/9/19	( I )			17,010		3,208		0
				8,191,985				161,287

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, 2015

(Unaudited)

	Method of	Primary			Shares/
	Valuation (1)	Industry (2)	Cost		Principal		Value
Investments in Non-Controlled
Affiliated Companies (3) –
63.2% of net assets at value (Cont.)

Private Placement Portfolio (Illiquid) (13 –
56.9% of net assets at value (Cont.)

UberSeq, Inc. (5)(8)(9)(18)		Life Sciences
Developing translational genomics solutions
Series Seed Convertible Preferred Stock	( I )		$	500,000		500,000	$	501,479

Ultora, Inc. (5)(8)		Energy
Developing energy-storage devices
enabled by carbon nanotubes
Series A Convertible Preferred Stock	(M)			886,830		17,736		0
Series B Convertible Preferred Stock	(M)			236,603		2,347,254		0
Secured Convertible Bridge Note, 5%, acquired 5/7/14	(M)			86,039	$	86,039		0
Secured Convertible Bridge Note, 5%, acquired 8/20/14	(M)			17,208	$	17,208		0
Secured Convertible Bridge Note, 5%, acquired 10/14/14	(M)			10,750	$	10,750		0
Secured Convertible Bridge Note, 5%, acquired 3/30/15	(M)			7,525	$	7,525		0
				1,244,955				0

Total Non-Controlled Private Placement Portfolio (cost: $69,112,614)							$	60,303,275

Publicly Traded Portfolio (19) –
6.3% of net assets at value

Enumeral Biomedical Holdings, Inc. (5)(20)		Life Sciences
Developing therapeutics and diagnostics
through functional assaying of single cells
Common Stock	(M)		$	4,993,357		7,966,368	$	5,718,235
Warrants for Common Stock expiring 7/30/19	( I )			540,375		1,500,000		670,621
Warrants for Common Stock expiring 2/2/24	( I )			57,567		255,120		166,638
Options to Purchase Common Stock at $1.00
expiring 8/4/24	( I )			0		70,000		49,280
				5,591,299				6,604,774

Total Non-Controlled Publicly Traded Portfolio (cost: $5,591,299)							$	6,604,774

Total Investments in Non-Controlled Affiliated Companies (cost: $74,703,913)							$	66,908,049

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, 2015

(Unaudited)

	Method of	Primary			Shares/
	Valuation (1)	Industry (2)	Cost		Principal		Value
Investments in Controlled
Affiliated Companies (3) –
3.9% of net assets at value

Private Placement Portfolio (Illiquid) (21) –
3.9% of net assets at value

ProMuc, Inc. (5)(8)		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)			385,978	$	350,000		385,978
Secured Convertible Bridge Note, 8%, acquired 8/13/14	(M)			105,063	$	100,000		105,063
				491,042				491,042

Senova Systems, Inc. (5)(8)		Life Sciences
Developing next-generation sensors to measure pH
Series B Convertible Preferred Stock	( I )			1,218,462		1,350,000		466,198
Series B-1 Convertible Preferred Stock	( I )			1,083,960		2,759,902		888,884
Series C Convertible Preferred Stock	( I )			608,287		811,049		608,287
Warrants for Series B Preferred Stock expiring 10/15/17	( I )			131,538		164,423		56,780
Warrants for Series B Preferred Stock expiring 4/24/18	( I )			20,000		25,000		8,633
				3,062,247				2,028,782

SynGlyco, Inc. (5)(8)		Life Sciences
Developed 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 )			440,219	$	500,000		803,381
Secured Convertible Bridge Note, 8%, acquired 1/23/13	( I )			414,324	$	350,000		282,919
Secured Convertible Bridge Note, 8%, acquired 4/25/13	( I )			348,216	$	300,000		237,777
				8,788,203				1,324,077

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, 2015

(Unaudited)

	Method of	Primary			Shares/
	Valuation (1)	Industry (2)	Cost		Principal		Value
Investments in Controlled
Affiliated Companies (3) –
3.9% of net assets at value (Cont.)

Private Placement Portfolio (Illiquid) (21) –
3.9% of net assets at value (Cont.)

TARA Biosystems, Inc. (5)(8)		Life Sciences
Developing human tissue models for toxicology
and drug discovery applications
Common Stock	(M)		$	20		2,000,000	$	20
Secured Convertible Bridge Note, 8%, acquired 8/20/14	(M)			314,729	$	300,000		314,729
				314,749				314,749

Total Controlled Private Placement Portfolio (cost: $12,656,241)							$	4,158,650

Total Investments in Controlled Affiliated Companies (cost: $12,656,241)							$	4,158,650

Total Private Placement and Publicly Traded Portfolio (cost: $114,187,143)							$	90,109,887

Equity Method Investments (22) –
0.3% of net assets at value

Private Placement Portfolio (Illiquid) (22) –
0.3% of net assets at value

Accelerator IV-New York Corporation (5)(8)(9)(23)		Life Sciences
Identifying and managing emerging
biotechnology companies
Series A Common Stock	(E)		$	346,721		478,227	$	346,721

Total Equity Method Investments (cost: $346,721)							$	346,721

Total Investments (cost: $114,533,864)							$	90,456,608

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, 2015

(Unaudited)

Notes to Consolidated Schedule of Investments

(1)

See "Footnote to Consolidated Schedule of Investments" on page 33 for 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 $22,698,583. The gross unrealized appreciation based on the tax cost for these securities is $157,908. The gross unrealized depreciation based on the tax cost for these securities is $9,230,883.

(5)

All or a portion of the investments or instruments are pledged as collateral under our Loan Facility with Orix Corporate Capital, Inc.

(6)

The aggregate cost for federal income tax purposes of investments in unaffiliated rights to milestone payments is $2,387,278. The gross unrealized appreciation based on the tax cost for these securities is $807,503. 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 $1,741,128. The gross unrealized appreciation based on the tax cost for these securities is $481,671. 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)

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.

(10)

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

(11)

On April 8, 2015, the board of directors of Molecular Imprints, Inc., ("MII") approved an Agreement and Plan of Merger with a privately held technology company ("MII Acquirer"). As a result of the merger, MII will become a wholly owned subsidiary of the MII Acquirer. The Merger Agreement provides for both cash consideration and stock consideration in the form of shares of Series B Preferred Stock of the MII Acquirer.

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

HARRIS & HARRIS GROUP, INC.

CONSOLIDATED SCHEDULE OF INVESTMENTS AS OF MARCH 31, 2015

(Unaudited)

(12)

Initial investment was made in 2015.

(13)

The aggregate cost for federal income tax purposes of investments in non-controlled affiliated privately held companies is $69,112,614. The gross unrealized appreciation based on the tax cost for these securities is $11,717,428. The gross unrealized depreciation based on the tax cost for these securities is $20,526,768.

(14)

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

(15)

D-Wave Systems, Inc., is located and is doing business primarily in Canada. We invested in D-Wave through Parallel Universes, Inc., a Delaware company. Our investment is denominated in Canadian dollars and is subject to foreign currency translation. See "Note 3. Summary of Significant Accounting Policies." D-Wave is not a qualifying asset under Section 55(a) of the 1940 Act. Under the 1940 Act, we may not acquire non-qualifying assets unless, at the time the acquisition is made, qualifying assets are at least 70 percent of our total assets.

(16)

On May 5, 2015, OpGen, Inc., completed an IPO. See "Note 13. Subsequent Events."

(17)

Produced Water Absorbents, Inc., also does business as ProSep, Inc.

(18)

UberSeq, Inc., also does business as NGXBio, Inc.

(19)

The aggregate cost for federal income tax purposes of investments in non-controlled affiliated publicly traded companies is $5,591,299. The gross unrealized appreciation based on the tax cost for these securities is $1,013,475. The gross unrealized depreciation based on the tax cost for these securities is $0.

(20)

A portion of the Company's shares and warrants of Enumeral Biomedical Holdings, Inc., are subject to restrictions on transfer, and we are also subject to a lock-up agreement that restricts our ability to trade these shares, exclusive of the general restriction on the transfer of unregistered securities. The lock-up period on our 7,966,368 shares of Enumeral Biomedical Holdings expires on January 31, 2016.

(21)

The aggregate cost for federal income tax purposes of investments in controlled affiliated companies is $12,656,241. 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 $8,497,591.

(22)

The aggregate cost for federal income tax purposes of investments in privately held equity method investments is $346,721. Under the equity method, investments are carried at cost, plus or minus the Company's equity in the increases and decreases in the investee's net assets after the date of acquisition and certain other adjustments.

(23)

As part of our initial investment in Accelerator IV-New York Corporation, the Company made an additional operating and investment commitment. See "Note 11. Commitments and Contingencies."

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

HARRIS & HARRIS GROUP, INC.

CONSOLIDATED SCHEDULE OF INVESTMENTS AS OF DECEMBER 31, 2014

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

Investments in Unaffiliated Companies (3) – 16.8% of net assets at value

Private Placement Portfolio (Illiquid) (4) – 12.6% of net assets at value

Bridgelux, Inc. (5)(8)(9)		Energy
Manufacturing high-power light emitting diodes (LEDs) and arrays
Series B Convertible Preferred Stock	(M)		$	1,000,000		1,861,504	$	607,692
Series C Convertible Preferred Stock	(M)			1,352,196		2,130,699		826,294
Series D Convertible Preferred Stock	(M)			1,371,622		999,999		787,915
Series E Convertible Preferred Stock	(M)			672,599		440,334		724,344
Series E-1 Convertible Preferred Stock	(M)			386,073		399,579		499,686
Warrants for Series C Convertible Preferred Stock expiring 8/31/15	( I )			168,270		163,900		32,815
Warrants for Series D Convertible Preferred Stock expiring 8/31/15	( I )			128,543		166,665		35,139
Warrants for Series E Convertible Preferred Stock expiring 12/31/17	( I )			93,969		170,823		36,448
Warrants for Common Stock expiring 6/1/16	( I )			72,668		132,100		6,562
Warrants for Common Stock expiring 8/9/18	( I )			148,409		171,183		29,966
Warrants for Common Stock expiring 10/21/18	( I )			18,816		84,846		4,215
				5,413,165				3,591,076

Cambrios Technologies Corporation (5)(8)(9)		Electronics
Developing nanowire-enabled electronic materials for the display industry
Series B Convertible Preferred Stock	( I )			1,294,025		1,294,025		41,829
Series C Convertible Preferred Stock	( I )			1,300,000		1,300,000		42,022
Series D Convertible Preferred Stock	( I )			515,756		515,756		358,416
Series D-2 Convertible Preferred Stock	( I )			92,400		92,400		32,361
Series D-4 Convertible Preferred Stock	( I )			216,168		216,168		75,708
				3,418,349				550,336

Cobalt Technologies, Inc. (5)(8)(9)(10)		Energy
Developing processes for making bio-
butanol through biomass fermentation
Series C-1 Convertible Preferred Stock	(M)			749,998		352,112		0
Series D-1 Convertible Preferred Stock	(M)			122,070		48,828		0
Series E-1 Convertible Preferred Stock	(M)			114,938		46,089		0
Warrants for Series E-1 Pref. Stock expiring on 10/9/22	( I )			2,781		1,407		0
Warrants for Series E-1 Pref. Stock expiring on 3/11/23	( I )			5,355		2,707		0
				995,142				0

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

HARRIS & HARRIS GROUP, INC.

CONSOLIDATED SCHEDULE OF INVESTMENTS AS OF DECEMBER 31, 2014

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

Investments in Unaffiliated Companies (3) – 16.8% of net assets at value (Cont.)

Private Placement Portfolio (Illiquid) (4) – 12.6% of net assets at value (Cont.)

GEO Semiconductor Inc. (5)(11)		Electronics
Developing programmable, high-performance video and geometry processing solutions
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	$	10,919
Warrants for Series A-1 Pref. Stock expiring on 6/29/18	( I )			7,546		10,000		12,010
				15,058				22,929

Mersana Therapeutics, Inc. (5)(8)(9)(12)		Life Sciences
Developing antibody drug conjugates for cancer therapy
Series A-1 Convertible Preferred Stock	( I )			683,538		635,081		434,387
Common Stock	( I )			3,875,395		350,539		138,048
				4,558,933				572,435

Molecular Imprints, Inc. (5)(8)(9)(13)		Electronics
Manufacturing nanoimprint lithography capital equipment for non-semiconductor
manufacturing markets
Series A Convertible Preferred Stock	(M)			928,884		928,884		928,884

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		932,035
Series D Convertible Preferred Stock	(M)			3,000,003		1,016,950		2,530,003
Series E Convertible Preferred Stock	(M)			496,573		433,688		844,004
				4,996,576				4,306,042

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

HARRIS & HARRIS GROUP, INC.

CONSOLIDATED SCHEDULE OF INVESTMENTS AS OF DECEMBER 31, 2014

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

Investments in Unaffiliated Companies (3) – 16.8% of net assets at value (Cont.)

Private Placement Portfolio (Illiquid) (4) – 12.6% of net assets at value (Cont.)

Nano Terra, Inc. (5)		Energy
Developing surface chemistry and nano- manufacturing solutions
Senior secured debt, 12.0%, maturing on 12/1/15	( I )		$	349,966	$	385,369	$	383,180
Warrants for Series A-2 Pref. Stock expiring on 2/22/21	( I )			69,168		446,248		13
Warrants for Series C Pref. Stock expiring on 11/15/22	( I )			35,403		241,662		66,673
				454,537				449,866

Nantero, Inc. (5)(8)(9)		Electronics
Developing a high-density, nonvolatile, random access memory chip, enabled by carbon nanotubes
Series A Convertible Preferred Stock	( I )			489,999		345,070		1,440,529
Series B Convertible Preferred Stock	( I )			323,000		207,051		871,532
Series C Convertible Preferred Stock	( I )			571,329		188,315		941,639
Series D Convertible Preferred Stock	( I )			139,075		35,569		179,638
				1,523,403				3,433,338

Total Unaffiliated Private Placement Portfolio (cost: $22,304,047)							$	13,854,906

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

Amgen, Inc. (8)(9)		Life Sciences
Rights to Milestone Payments from Acquisition of BioVex Group, Inc.	( I )		$	1,757,608	$	1,757,608	$	2,564,917

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

Canon, Inc. (8)(9)		Electronics
Rights to Milestone Payments from Acquisition of Molecular Imprints, Inc.	( I )			629,670	$	629,670		628,948

Total Unaffiliated Rights to Milestone Payments (cost: $2,387,278)							$	3,193,865

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

HARRIS & HARRIS GROUP, INC.

CONSOLIDATED SCHEDULE OF INVESTMENTS AS OF DECEMBER 31, 2014

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

Publicly Traded Portfolio (7) – 1.3% of net assets at value

Solazyme, Inc. (5)(9)		Energy
Developing algal biodiesel, industrial
chemicals and specialty ingredients using synthetic biology
Common Stock	(M)		$	118,099		50,000	$	129,000

Champions Oncology, Inc. (5)(9)		Life Sciences
Developing its TumorGraft^TM platform for
personalized medicine and drug development
Common Stock	(M)			1,622,629		2,523,895		1,261,695
Warrants for Common Stock expiring 1/29/18	( I )			400		40,000		7,390
				1,623,029				1,269,085

Total Unaffiliated Publicly Traded Portfolio (cost: $1,741,128)							$	1,398,085

Total Investments in Unaffiliated Companies (cost: $26,432,453)							$	18,446,856

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

HARRIS & HARRIS GROUP, INC.

CONSOLIDATED SCHEDULE OF INVESTMENTS AS OF DECEMBER 31, 2014

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

Investments in Non-Controlled Affiliated Companies (3) – 61.0% of net assets at value

Private Placement Portfolio (Illiquid) (14) – 53.3% of net assets at value

ABSMaterials, Inc. (5)(8)(9)		Energy
Developing nano-structured absorbent
materials for environmental remediation Series A Convertible Preferred Stock	( I )		$	435,000		390,000	$	291,875
Series B Convertible Preferred Stock	( I )			1,217,644		1,037,751		1,255,717
				1,652,644				1,547,592

Accelerator IV-New York Corporation (8)(9)(15)(16)		Life Sciences
Identifying and managing emerging biotechnology companies
Series A Common Stock	( I )			216,012		216,012		51,627

Adesto Technologies Corporation (5)(8)(9)(17)		Electronics
Developing low-power, high-performance memory devices
Series A Convertible Preferred Stock	(H)			2,200,000		6,547,619		1,652,609
Series B Convertible Preferred Stock	(H)			2,200,000		5,952,381		1,527,457
Series C Convertible Preferred Stock	(H)			1,485,531		2,122,187		632,526
Series D Convertible Preferred Stock	(H)			1,393,147		1,466,470		612,462
Series D-1 Convertible Preferred Stock	(H)			703,740		987,706		356,159
Series E Convertible Preferred Stock	(H)			2,499,999		3,508,771		10,042,110
				10,482,417				14,823,323

AgBiome, LLC (5)(8)(9)		Life Sciences
Providing early-stage research and discovery for agriculture and utilizing the crop microbiome to
identify products that reduce risk and improve yield
Series A-1 Convertible Preferred Stock	( I )			2,000,000		2,000,000		2,406,210
Series A-2 Convertible Preferred Stock	( I )			521,740		417,392		583,494
				2,521,740				2,989,704

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

HARRIS & HARRIS GROUP, INC.

CONSOLIDATED SCHEDULE OF INVESTMENTS AS OF DECEMBER 31, 2014

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

Investments in Non-Controlled Affiliated Companies (3) – 61.0% of net assets at value (Cont.)

Private Placement Portfolio (Illiquid) (14) – 53.3% of net assets at value (Cont.)

D-Wave Systems, Inc. (8)(18)		Electronics
Developing high-performance quantum computing systems
Series 1 Class B Convertible Preferred Stock	(H)		$	1,002,074		1,144,869	$	1,766,715
Series 1 Class C Convertible Preferred Stock	(H)			487,804		450,450		699,457
Series 1 Class D Convertible Preferred Stock	(H)			748,473		855,131		1,327,843
Series 1 Class E Convertible Preferred Stock	(H)			248,049		269,280		435,260
Series 1 Class F Convertible Preferred Stock	(H)			238,323		258,721		418,193
Series 1 Class H Convertible Preferred Stock	(H)			909,088		460,866		870,998
Series 2 Class D Convertible Preferred Stock	(H)			736,019		678,264		1,053,205
Series 2 Class E Convertible Preferred Stock	(H)			659,493		513,900		839,844
Series 2 Class F Convertible Preferred Stock	(H)			633,631		493,747		806,909
Warrants for Common Stock expiring 6/30/15	( I )			98,644		153,890		108,479
Warrants for Common Stock expiring 5/12/19	( I )			26,357		20,415		8,351
				5,787,955				8,335,254

EchoPixel, Inc. (5)(8)(9)		Life Sciences
Developing algorithms and software to improve visualization of data for life science and
healthcare applications
Series Seed Convertible Preferred Stock	( I )			1,250,000		4,194,630		1,312,425

Ensemble Therapeutics Corporation (5)(8)		Life Sciences
Developing DNA-Programmed Chemistry^TM for the discovery of new classes of therapeutics
Series B Convertible Preferred Stock	( I )			2,000,000		1,449,275		1,060,023
Series B-1 Convertible Preferred Stock	( I )			679,754		492,575		1,833,862
				2,679,754				2,893,885

HZO, Inc. (5)(8)(9)		Electronics
Developing novel industrial coatings that protect electronics against damage from liquids
Common Stock	( I )			666,667		405,729		322,832
Series I Convertible Preferred Stock	( I )			5,709,835		2,266,894		4,482,097
Series II Convertible Preferred Stock	( I )			2,000,003		539,710		2,113,002
				8,376,505				6,917,931

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

HARRIS & HARRIS GROUP, INC.

CONSOLIDATED SCHEDULE OF INVESTMENTS AS OF DECEMBER 31, 2014

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

Investments in Non-Controlled Affiliated Companies (3) – 61.0% of net assets at value (Cont.)

Private Placement Portfolio (Illiquid) (14) – 53.3% of net assets at value (Cont.)

Laser Light Engines, Inc. (5)(8)		Energy
Manufactured solid-state light sources for digital cinema and large-venue projection displays
Series A Convertible Preferred Stock	(M)		$	2,000,000		7,499,062	$	0
Series B Convertible Preferred Stock	(M)			3,095,802		13,571,848		0
Secured Convertible Bridge Note, 12%, acquired 10/7/11	(M)			200,000	$	200,000		0
Secured Convertible Bridge Note, 12%, acquired 11/17/11	(M)			95,652	$	95,652		0
Secured Convertible Bridge Note, 12%, acquired 12/21/11	(M)			82,609	$	82,609		0
Secured Convertible Bridge Note, 12%, acquired 3/5/12	(M)			434,784	$	434,784		0
Secured Convertible Bridge Note, 12%, acquired 7/26/12	(M)			186,955	$	186,955		0
Secured Convertible Bridge Note, 20%, acquired 4/29/13	(M)			166,667	$	166,667		0
Secured Convertible Bridge Note, 20%, acquired 7/22/13	(M)			166,667	$	166,667		0
Secured Convertible Bridge Note, 10%, acquired 10/30/13	(M)			80,669	$	80,669		0
Secured Convertible Bridge Note, 10%, acquired 2/5/14	(M)			19,331	$	19,331		0
Secured Convertible Bridge Note, 10%, acquired 6/24/14	(M)			13,745	$	13,745		0
				6,542,881				0

Metabolon, Inc. (5)(8)(9)		Life Sciences
Developing service and diagnostic products through the use of a metabolomics, or biochemical, profiling platform
Series B Convertible Preferred Stock	(H)			2,500,000		371,739		2,781,374
Series B-1 Convertible Preferred Stock	(H)			706,214		148,696		1,158,654
Series C Convertible Preferred Stock	(H)			1,000,000		1,000,000		2,535,525
Series D Convertible Preferred Stock	(H)			1,499,999		835,882		2,179,624
Series E Convertible Preferred Stock	(H)			1,225,000		444,404		1,556,847

Warrants for Series B-1 Convertible Preferred Stock expiring 3/25/15	( I )			293,786		74,348		484,535
				7,224,999				10,696,559

OpGen, Inc. (8)(19)		Life Sciences
Developing tools for genomic sequence assembly and analysis
Series A Convertible Preferred Stock	(H)			610,017		610,017		606,252
Common Stock	(H)			3,260,000		29,883		22,752
Secured Convertible Bridge Note, 8%, acquired 7/11/14	(H)			216,991	$	209,020		273,908
Secured Convertible Bridge Note, 8%, acquired 10/16/14	(H)			254,278	$	250,000		256,571
Secured Convertible Bridge Note, 8%, acquired 11/14/14	(H)			202,133	$	200,000		203,633
Secured Convertible Bridge Note, 8%, acquired 12/29/14	(H)			100,067	$	100,000		100,561
				4,643,486				1,463,677

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

HARRIS & HARRIS GROUP, INC.

CONSOLIDATED SCHEDULE OF INVESTMENTS AS OF DECEMBER 31, 2014

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

Investments in Non-Controlled Affiliated Companies (3) – 61.0% of net assets at value (Cont.)

Private Placement Portfolio (Illiquid) (14) – 53.3% of net assets at value (Cont.)

Produced Water Absorbents, Inc. (5)(8)		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	$	300,215
Series B Convertible Preferred Stock	(M)			1,496,865		5,987,460		2,188,272
Series B-2 Convertible Preferred Stock	(M)			1,015,427		4,322,709		1,579,844
Series B-3 Convertible Preferred Stock	(M)			978,641		3,914,564		1,430,677
Series C Convertible Preferred Stock	(M)			1,000,268		2,667,380		755,130
Subordinated Secured Debt, 12%, maturing on 6/30/15	(M)			979,253	$	1,000,000		979,450
Warrants for Series B-2 Preferred Stock expiring
upon liquidation event	( I )			65,250		300,000		44,014
				6,535,704				7,277,602

SiOnyx, Inc. (5)(8)		Electronics
Developing silicon-based optoelectronic products enabled by its proprietary Black Silicon
Series A Convertible Preferred Stock	( I )			750,000		233,499		0
Series A-1 Convertible Preferred Stock	( I )			890,000		2,966,667		0
Series A-2 Convertible Preferred Stock	( I )			2,445,000		4,207,537		0
Series B-1 Convertible Preferred Stock	( I )			1,169,561		1,892,836		0
Series C Convertible Preferred Stock	( I )			1,171,316		1,674,030		0
Secured Convertible Bridge Note, 8%, acquired 1/31/14	( I )			1,281,125	$	1,281,125		0
Secured Convertible Bridge Note, 8%, acquired 5/9/14	( I )			76,966	$	93,976		0
Secured Convertible Bridge Note, 10%, acquired 12/12/14	( I )			69,382	$	68,999		161,285
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
Warrants for Common Stock expiring 5/9/19	( I )			17,010		3,208		0
				8,085,006				161,285

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

HARRIS & HARRIS GROUP, INC.

CONSOLIDATED SCHEDULE OF INVESTMENTS AS OF DECEMBER 31, 2014

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

Investments in Non-Controlled Affiliated Companies (3) –
61.0% of net assets at value (Cont.)

Private Placement Portfolio (Illiquid) (14) – 53.3% of net assets at value (Cont.)

Ultora, Inc. (5)(8)		Energy
Developing energy-storage devices enabled by carbon nanotubes
Series A Convertible Preferred Stock	( I )		$	886,830		17,736	$	0
Series B Convertible Preferred Stock	( I )			236,603		2,347,254		0
Secured Convertible Bridge Note, 5%, acquired 5/7/14	( I )			86,039	$	86,039		0
Secured Convertible Bridge Note, 5%, acquired 8/20/14	( I )			17,208	$	17,208		0
Secured Convertible Bridge Note, 5%, acquired 10/14/14	( I )			10,750	$	10,750		0
				1,237,430				0

Total Non-Controlled Private Placement Portfolio (cost: $67,236,533)							$	58,470,864

Publicly Traded Portfolio (20) – 7.7% of net assets at value
Enumeral Biomedical Holdings, Inc. (5)(21)		Life Sciences
Developing therapeutics and diagnostics
through functional assaying of single cells
Common Stock	(M)		$	4,993,357		7,966,368	$	7,251,178
Warrants for Common Stock expiring 7/30/19	( I )			540,375		1,500,000		874,594
Warrants for Common Stock expiring 2/2/24	( I )			57,567		255,120		208,179
Options to Purchase Common Stock at $1.00
expiring 8/4/24	( I )			0		56,667		50,690
				5,591,299				8,384,641

Total Non-Controlled Publicly Traded Portfolio (cost: $5,591,299)							$	8,384,641

Total Investments in Non-Controlled Affiliated Companies (cost: $72,827,832)							$	66,855,505

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

HARRIS & HARRIS GROUP, INC.

CONSOLIDATED SCHEDULE OF INVESTMENTS AS OF DECEMBER 31, 2014

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

Investments in Controlled Affiliated Companies (3) – 4.1% of net assets at value

Private Placement Portfolio (Illiquid) (22) – 4.1% of net assets at value

ProMuc, Inc. (5)(8)		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)			379,074	$	350,000		379,074
Secured Convertible Bridge Note, 8%, acquired 8/13/14	(M)			103,090	$	100,000		103,090
				482,165				482,165

Senova Systems, Inc. (5)(8)		Life Sciences
Developing next-generation sensors to measure pH
Series B Convertible Preferred Stock	( I )			1,218,462		1,350,000		403,123
Series B-1 Convertible Preferred Stock	( I )			1,083,960		2,759,902		899,187
Series C Convertible Preferred Stock	( I )			608,287		811,049		609,349
Warrants for Series B Preferred Stock expiring 10/15/17	( I )			131,538		164,423		49,098
Warrants for Series B Preferred Stock expiring 4/24/18	( I )			20,000		25,000		7,465
				3,062,247				1,968,222

SynGlyco, Inc. (5)(8)		Life Sciences
Developed 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 )			424,101	$	500,000		820,119
Secured Convertible Bridge Note, 8%, acquired 1/23/13	( I )			406,417	$	350,000		204,763
Secured Convertible Bridge Note, 8%, acquired 4/25/13	( I )			341,825	$	300,000		172,220
				8,757,787				1,197,102

TARA Biosystems, Inc. (5)(8)(15)		Life Sciences
Developing human tissue models for toxicology and drug discovery applications
Common Stock	(M)			20		2,000,000		20
Secured Convertible Bridge Note, 8%, acquired 8/20/14	(M)			308,811	$	300,000		308,811
				308,831				308,831

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

HARRIS & HARRIS GROUP, INC.

CONSOLIDATED SCHEDULE OF INVESTMENTS AS OF DECEMBER 31, 2014

Method of

Primary

Shares/

Valuation (1)

Industry (2)

Cost

Principal

Value

Investments in Controlled

Affiliated Companies (3) –

4.1% of net assets at value (Cont.)

Private Placement Portfolio (Illiquid) (22) –

4.1% of net assets at value (Cont.)

UberSeq, Inc. (5)(8)(9)(15)

Life Sciences

Developing translational genomics solutions
Series Seed Convertible Preferred Stock

( I )

500,000

506,159

Total Controlled Private Placement Portfolio (cost: $13,111,030)

4,462,479

Total Investments in Controlled Affiliated Companies (cost: $13,111,030)

4,462,479

Total Private Placement and Publicly Traded Portfolio (cost: $112,371,315)

89,764,840

Total Investments (cost: $112,371,315)

89,764,840

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

HARRIS & HARRIS GROUP, INC.

CONSOLIDATED SCHEDULE OF INVESTMENTS AS OF DECEMBER 31, 2014

Notes to Consolidated Schedule of Investments

(1)

See "Footnote to Consolidated Schedule of Investments" on page 33 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 $22,304,047. The gross unrealized appreciation based on the tax cost for these securities is $7,872. The gross unrealized depreciation based on the tax cost for these securities is $8,457,013.

(5)

All or a portion of the investments or instruments are pledged as collateral under our Loan Facility with Orix Corporate Capital, Inc.

(6)

The aggregate cost for federal income tax purposes of investments in unaffiliated rights to milestone payments is $2,387,278. The gross unrealized appreciation based on the tax cost for these securities is $807,309. The gross unrealized depreciation based on the tax cost for these securities is $722.

(7)

The aggregate cost for federal income tax purposes of investments in unaffiliated publicly traded companies is $1,741,128. The gross unrealized appreciation based on the tax cost for these securities is $10,901. The gross unrealized depreciation based on the tax cost for these securities is $353,944.

(8)

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

(9)

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.

(10)

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

(11)

On March 11, 2015, we submitted notice to exercise our put option for our remaining warrants of GEO Semiconductor, Inc.

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

HARRIS & HARRIS GROUP, INC.

CONSOLIDATED SCHEDULE OF INVESTMENTS AS OF DECEMBER 31, 2014

(12)

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, 2014, and, therefore, this warrant is a contingent asset as of that date. In January 2015, the holders of these warrants, including the Company, elected to cancel them owing to the milestones being impossible to achieve.

(13)

Upon the closing of Canon, Inc.'s acquisition of Molecular Imprints, Inc.'s semiconductor lithography equipment business, a new spin-out company, which retained the name Molecular Imprints, Inc., was formed. These shares represent our investment in the new company.

(14)

The aggregate cost for federal income tax purposes of investments in non-controlled affiliated privately held companies is $67,236,533. The gross unrealized appreciation based on the tax cost for these securities is $11,846,184. The gross unrealized depreciation based on the tax cost for these securities is $20,611,853.

(15)

Initial investment was made in 2014.

(16)

As part of our initial investment in Accelerator IV-New York Corporation, the Company made an additional operating and investment commitment. See "Note 11. Commitments and Contingencies."

(17)

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.

(18)

D-Wave Systems, Inc., is located and is doing business primarily in Canada. We invested in D-Wave 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." D-Wave is not a qualifying asset under Section 55(a) of the 1940 Act. Under the 1940 Act, we may not acquire non-qualifying assets unless, at the time the acquisition is made, qualifying assets are at least 70 percent of our total assets.

(19)

On March 3, 2015, OpGen, Inc., filed a registration statement on Form S-1 to seek an IPO. There can be no assurances if or when such IPO will occur or if it will be successful.

(20)

The aggregate cost for federal income tax purposes of investments in non-controlled affiliated publicly traded companies is $5,591,299. The gross unrealized appreciation based on the tax cost for these securities is $2,793,342. The gross unrealized depreciation based on the tax cost for these securities is $0.

(21)

The Company's shares of Enumeral Biomedical Holdings, Inc., are subject to restrictions on transfer, and we are also subject to a lock-up agreement that restricts our ability to trade these shares, exclusive of the general restriction on the transfer of unregistered securities. The lock-up period on our 7,966,368 shares of Enumeral Biomedical Holdings expires on January 31, 2016.

(22)

The aggregate cost for federal income tax purposes of investments in controlled affiliated companies is $13,111,030. The gross unrealized appreciation based on the tax cost for these securities is $6,159. The gross unrealized depreciation based on the tax cost for these securities is $8,654,710.

The accompanying 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 privately held securities, restricted publicly traded securities and publicly traded securities without reliable market quotations. 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, the income approach and the hybrid 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, revenue, 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, income or hybrid approaches. The following factors may be considered 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;

Estimated time to exit;

Volatility of similar securities in similar businesses;

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 Chief Operating Officer 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 Chief Operating Officer, the Chief Financial Officer 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 non-diversified management investment 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 disruptive technologies predominantly in the life sciences. 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, 2015, 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, the information presented on our interim financial statements does 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 for annual 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. 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, 2014.

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. The Company is an investment company following accounting and reporting guidance in Accounting Standards Codification 946. 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, 2015, our financial statements include venture capital investments fair valued by the Board of Directors at $87,921,143 and one venture capital investment valued under the equity method at $346,721. The fair values and equity method value were determined in good faith by, or under the direction of, the Board of Directors. The fair value amount includes the values of our privately held investments as well as the warrants of Champions Oncology, Inc., and certain restricted securities of Enumeral Biomedical Holdings, Inc., which are publicly traded companies. Our investment in Accelerator-New York IV is accounted for under the equity method of accounting as it represents a non-controlling interest in an operating entity that provides investment advisory services to the Company. Under the equity method, investments are carried at cost, plus or minus the Company’s equity in the increases and decreases in the investee’s net assets after the date of acquisition and certain other adjustments. The Company’s share of the net income or loss of the investee is included in “Equity in earnings/(loss) from equity method investees” on the Company’s “Consolidated Statements of Operations.” Upon sale of investments, the values that are ultimately realized may be different from the fair value presented in the Company's financial statements. 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, 2015, and December 31, 2014, the outstanding potential milestone payments from Amgen, Inc.’s acquisition of BioVex Group, Inc., were valued at $2,564,070 and $2,564,917, 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. On November 17, 2014, the Company received a payment of $2,070,955 owing to the achievement of the first milestone. If all the remaining milestones are met, we would receive $7,455,438. 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, 2015, and December 31, 2014, the outstanding potential milestone payments from Canon, Inc.'s acquisition of Molecular Imprints, Inc., were valued at $630,711 and $628,948, respectively. If all the remaining milestones are met, we would receive $1,735,582. 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, 2015, and December 31, 2014, the outstanding potential milestone payments from Laird Technologies, Inc.’s acquisition of Nextreme Thermal Solutions, Inc., were valued at $0. If all the remaining milestones are met, we would receive approximately $400,000. 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.

Funds Held in Escrow from Sale of Investment. At March 31, 2015, and December 31, 2014, there were funds held in escrow fair valued at $308,345 and $306,802, respectively, relating to the sale of Molecular Imprints, Inc., to Canon, Inc. Funds held in escrow from the Molecular Imprints transaction are expected to be released in April of 2016 and April of 2017, net of any settlement of any indemnity claims and expenses related to the transaction. If the funds held in escrow for this transaction are released in full, we would receive $625,000 and realize a gain of $316,655.

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 "Insurance expense" 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 $213,518 and $219,729 at March 15, 2015, and December 31, 2014, respectively, representing cost, less accumulated depreciation of $410,042 and $399,373, respectively. Depreciation is provided using the straight-line method over the estimated useful lives of the property 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 includes 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 is amortized over the employee's average service period as a reduction of net periodic benefit cost. Unamortized plan amendments are included in "Accumulated other comprehensive income" in the Consolidated Statements of Assets and Liabilities.

Interest Income Recognition. Interest income, including amortization of premium and accretion of discount, is recorded on an accrual basis. When accrued interest is determined not to 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, 2015, and March 31, 2014, the Company earned $82,807 and $73,563, respectively, in interest on U.S. government securities, senior secured debt, participation agreements, non-convertible promissory notes and interest-bearing accounts. During the three months ended March 31, 2015, and March 31, 2014, the Company recorded, on a net basis, $53,025 and $72,728, respectively, of bridge note interest. The total for the three months ended March 31, 2014, included a partial write-off of previously accrued bridge note interest of $1,392.

Yield-Enhancing Fees on Debt Securities. Yield-enhancing 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 yield-enhancing fees accreted into investment income were $26,307 and $15,504 for the three months ended March 31, 2015, and March 31, 2014, respectively.

Fees for Providing Managerial Assistance to Portfolio Companies. For the three months ended March 31, 2015, and March 31, 2014, the Company earned income of $7,000 and $0, respectively, owing to one of its employees providing managerial assistance to one of its portfolio companies.

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, 2015, and December 31, 2014, the Company did not have shares covered by call option contracts.

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. For the quarters ended March 31, 2015, and March 31, 2014, 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. 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. 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 currently lease office space in California and leased office space in North Carolina until December 31, 2014.

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 currently intend to continue to qualify as a RIC under Subchapter M of the Code and distribute any ordinary income, 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" for further discussion.

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.

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.

Recent Accounting Pronouncements. In April 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update No. 2015-03, “Simplifying the Presentation of Debt Issuance Costs” (“ASU 2015-03”), which changes the presentation of debt issuance costs in financial statements. ASU 2015-03 requires an entity to present such costs in the balance sheet as a direct deduction from the related debt liability rather than as an asset. Amortization of the costs will continue to be reported as interest expense. It is effective for annual reporting periods beginning after December 15, 2016. Early adoption is permitted. The new guidance will be applied retrospectively to each prior period presented. The Company is currently in the process of evaluating the impact of adoption of ASU 2015-03 on its consolidated financial statements.

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. We may also be subject to restrictions on transfer and/or other lock-up provisions after these companies initially go public. 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, 2015, and December 31, 2014, our largest 10 investments by value accounted for approximately 79 percent and 82 percent, respectively, of the value of our equity-focused venture capital portfolio. Our largest three investments, by value, Adesto Technologies Corporation, Metabolon, Inc., and D-Wave Systems, Inc., accounted for approximately 19 percent, 12 percent and 9 percent, respectively, of our equity-focused venture capital portfolio at March 31, 2015. Our largest three investments, by value, Adesto Technologies Corporation, Metabolon, Inc., and Enumeral Biomedical Holdings, Inc., accounted for approximately 17 percent, 12 percent and 10 percent, respectively, of our equity-focused venture capital portfolio at December 31, 2014. Adesto Technologies, D-Wave Systems and Metabolon are privately held portfolio companies. Enumeral Biomedical Holdings is a publicly traded portfolio company.

Approximately 97 percent of the portion of our equity-focused venture capital portfolio that was fair valued was comprised of securities of 27 privately held companies, the warrants of publicly traded Champions Oncology, Inc., and securities of Enumeral Biomedical Holdings, Inc. Approximately 0.4 percent of the portion of our equity-focused venture capital portfolio that was valued according to the equity method was comprised of one privately held 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 (increase) 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

The Company has a Loan Facility with Orix Corporate Capital, Inc., which may be used to fund investments in portfolio companies. 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, 2015, and December 31, 2014, the Company had outstanding debt of $5,000,000 and $0, respectively. The weighted average annual interest rate for the three months ended March 31, 2015, and the year ended December 31, 2014, was 0.3 percent and zero percent, respectively, exclusive of amortization of closing fees and other expenses. The weighted average debt outstanding for the three months ended March 31, 2015, was $55,556. The remaining capacity under the Loan Facility was $15,000,000 at March 31, 2015. Unamortized fees and expenses of $437,201 and $480,921 related to establishing the Loan Facility are included as "Prepaid expenses" in the Consolidated Statements of Assets and Liabilities as of March 31, 2015, and December 31, 2014, respectively. These amounts are amortized over the term of the Loan Facility, and $43,720 was amortized in the three months ended March 31, 2015, and in the three months ended March 31, 2014. The Company paid $50,000 in non-utilization fees during the three months ended March 31, 2015, and in the three months ended March 31, 2014. During the three months ended March 31, 2015, the Company paid a $50,000 utilization fee associated with a drawdown of the Loan Facility. At March 31, 2015, the Company was in compliance with all covenants required by the Loan Facility.

NOTE 6. FAIR VALUE OF INVESTMENTS

At March 31, 2015, our financial assets valued at fair value were categorized as follows in the fair value hierarchy:

	Fair Value Measurement at Reporting Date Using:

Description	March 31, 2015		Unadjusted Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)

Privately Held Portfolio Companies:

Preferred Stock	$	70,753,835	$	0	$	0	$	70,753,835
Bridge Notes		4,240,543		0		0		4,240,543
Warrants		1,288,876		0		0		1,288,876
Rights to Milestone Payments		3,194,781		0		0		3,194,781
Common Stock		598,687		0		0		598,687
Senior Secured Debt		1,095,806		0		0		1,095,806
Subordinated Secured Debt		981,100		0		0		981,100
Options		49,280						49,280

Publicly Traded Portfolio Companies:

Common Stock	$	7,906,979	$	2,188,744	$	0	$	5,718,235

Total Investments:	$	90,109,887	$	2,188,744	$	0	$	87,921,143

Funds Held in Escrow From Sales of Investments:	$	308,345	$	0	$	0	$	308,345

Total Financial Assets:	$	90,418,232	$	2,188,744	$	0	$	88,229,488

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, 2015		Valuation Technique(s)	Unobservable Input	Range (Weighted Average^(a))

Preferred Stock	$	34,204,856	Hybrid Approach	Private Offering Price Volatility Revenue Multiples Time to Exit Discount for Lack of Marketability	$0.71 - 2.90 ($1.61) 36.8% - 49.6% (43.5%) 0 - 3.4 (1.61) 0.50 - 1.76 Years (0.93) 0% - 7.6% (3.6%)

Preferred Stock		22,439,461	Income Approach	Private Offering Price Non-Performance Risk Volatility Time to Exit	$0 - $5.97 ($2.62) 0% - 50% (1.2%) 50.5% - 120.3% (63%) 1.76 - 5.01 Years (2.82)

Preferred Stock		14,109,518	Market Approach	Private Offering Price Volatility Revenue Multiples Time to Exit Discount for Lack of Marketability	$0 - $4.17 ($1.70) 35.5% - 76.4% (44%) 0 - 6.3 (2.2) 0.09 - 4.25 Years (1.8) 0% - 24% (13.4%)

Bridge Notes		681,983	Income Approach	Private Offering Price	$1.00 ($1.00)

Bridge Notes		3,558,560	Market Approach	Private Offering Price Discount for Lack of Marketability	$1.00 ($1.00) 0% - 4.88% (3.5%)

Common Stock		474,034	Income Approach	Private Offering Price Volatility Time to Exit	$1.08 - $3.71 ($2.92) 52.4% - 97.1% (65.8%) 3 Years (3)

Common Stock		124,653	Market Approach	Private Offering Price Discount for Lack of Marketability	$0.0001 - $4.17 ($4.17) 0% - 9.14% (9.13%)

Warrants		1,288,876	Income Approach	Private Offering Price Volatility Expected Term	$0 - 2.10 ($0.89) 49.6% - 97.4% (83.4%) 0.25 - 8.85 Years (4.1)

Rights to Milestone Payments		3,194,781	Probability Weighted Discounted Cash Flow	Probability of Achieving Independent Milestones Probability of Achieving Dependent Milestones	0% - 80% (45%) 0% - 75% (24%)

Subordinated Secured Debt		981,100	Income Approach	Effective Yield	17.8% (17.8%)

Senior Secured Debt		1,095,806	Income Approach	Effective Yield	0 - 15.8% (4.2%)

Funds Held in Escrow From Sales of Investments		308,345	Market Approach	Escrow Discounts	50% (50%)

	Fair Value at March 31, 2015		Valuation Technique(s)	Unobservable Input	Range (Weighted Average^(a))

Options		49,280	Income Approach	Stock Price Volatility Expected Term	$0.82 ($0.82) 97.4% (97.4%) 9.4 Years (9.4)

OTC Traded Common Stock		5,718,235	Market Approach	Volatility of Public Comparables Discount for Lack of Marketability	97.4% (97.4%) 14.1% (14.1%)

Total	$	88,229,488

^(a)

Weighted average based on fair value at March 31, 2015.

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, merger and acquisition ("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 initial public offering ("IPO") or an acquisition transaction, estimated time to exit, volatilities of comparable publicly traded companies 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. An increase in the volatility assumption generally increases the enterprise value calculated in an option pricing model. An increase in the time to exit assumption also generally increases the enterprise value calculated in an option pricing model. Variations in the expected time to exit or expected volatility assumptions have a significant impact on fair value.

Option pricing models place a high weighting on liquidation preferences, which means that small differences in how the preferences are structured can have a material effect on the fair value of our securities at the time of valuation and also on future valuations should additional rounds of financing occur with senior preferences. As such, valuations calculated by option pricing models may not increase if 1) rounds of financing occur at higher prices per share, 2) liquidation preferences include multiples on investment, 3) the amount of invested capital is small and/or 4) liquidation preferences are senior to prior rounds of financing.

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., and from Canon, Inc.'s acquisition of Molecular Imprints, 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 published interest rates for corporate bonds of the acquiring or comparable companies.

Subordinated Secured Debt and Senior Secured Debt

We invest in venture debt investments through subordinated secured debt 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 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. Historically, we also invested in venture debt through participation agreements. As of December 31, 2014, the amounts held in participation agreements consist solely of warrants. These warrants are valued using the Black-Scholes-Merton pricing model as discussed in "Warrants."

The following chart shows the components of change in the financial assets categorized as Level 3 for the three months ended March 31, 2015.

	Beginning Balance 1/1/2015		Total Realized (Losses) Gains Included in Changes in Net Assets			Transfers			Total Unrealized Appreciation (Depreciation) Included in Changes in Net Assets			Investments in Portfolio Companies, Interest on Bridge Notes, and Amortization of Loan Fees, Net		Disposals and Settlements			Ending Balance 3/31/2015		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	$	70,969,603	$	0		$	501,863	¹	$	(2,051,657	)	$	1,334,026	$	0		$	70,753,835	$	(2,051,657	)

Bridge Notes		2,163,916		0			(501,863	)¹		1,506,404			1,072,086		0			4,240,543		1,506,404

Common Stock		535,280		0			(51,627	)		115,034			0		0			598,687		115,034

Warrants		2,026,864		(284,844	)		0			(429,144	)		0		(24,000	)		1,288,876		(230,524	)

Rights to Milestone Payments		3,193,865		0			0			916			0		0			3,194,781		916

Senior Secured Debt		1,203,299		0			0			(31,875	)		16,118		(91,736	)		1,095,806		(31,875	)

Subordinated Secured Debt		979,450		0			0			(8,539	)		10,189		0			981,100		(8,539	)

Funds Held in Escrow From Sales of Investments		306,802		1,543			0			0			0		0			308,345		0

Options		50,690		0			0			(1,410	)		0		0			49,280		(1,410	)

OTC Traded Common Stock		7,251,178		0			0			(1,532,943	)		0		0			5,718,235		(1,532,943	)