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, 2016

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

For the transition period from ____________ to _____________

Commission file number: 0-11576

HARRIS & HARRIS GROUP, INC.

(Exact Name of Registrant as Specified in Its Charter)

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

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

(212) 582-0900

(Registrant's Telephone Number, Including Area Code)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes ¨ No ¨

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

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ¨ No x

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

Class	Outstanding at May 9, 2016
Common Stock, $0.01 par value per share	30,845,754 shares

Harris & Harris Group, Inc.

Form 10-Q, March 31, 2016

		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		40
Financial Highlights		66

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations		67

Cautionary Statement Regarding Forward-Looking Statements		67
Background		68
Overview		68
Current Business Environment		76
Valuation of Investments		77
Results of Operations		82
Financial Condition		87
Cash Flow		88
Liquidity and Capital Resources		88
Borrowings		90
Contractual Obligations		90
Critical Accounting Policies		91
Recent Developments – Portfolio Companies		94

Item 3. Quantitative and Qualitative Disclosures About Market Risk		94

Item 4. Controls and Procedures		96

PART II. OTHER INFORMATION		98

Item 1A.	Risk Factors	98

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	98

Sales of Unregistered Equity Securities		98

Issuer Purchases of Equity Securities		99

Item 3.	Defaults Upon Senior Securities	99

Item 4.	Mine Safety Disclosures	99

Item 5.	Other Information	100

Item 6.	Exhibits	100

Signatures		101

Exhibit Index		102

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, 2015.

HARRIS & HARRIS GROUP, INC.

CONSOLIDATED STATEMENTS OF ASSETS AND LIABILITIES

(Unaudited)

	March 31, 2016			December 31, 2015

ASSETS
Investments, in portfolio securities at value:
Unaffiliated privately held companies (cost: $15,441,503 and $18,857,235, respectively)	$	4,852,520		$	5,376,472
Unaffiliated rights to milestone payments (adjusted cost basis: $781,863 and $781,863, respectively)		2,959,769			3,362,051
Unaffiliated publicly traded securities (cost: $1,623,029 and $1,623,029, respectively)		944,423			957,544
Non-controlled affiliated privately held companies (cost: $49,534,373 and $49,262,921, respectively)		45,290,665			41,909,262
Non-controlled affiliated publicly traded companies (cost: $23,165,788 and $23,165,788, respectively)		13,361,800			18,371,105
Controlled affiliated privately held companies (cost: $23,092,672 and $23,205,336, respectively)		5,884,419			7,010,534
Equity method privately held company (adjusted cost basis: $228,133 and $165,936, respectively)		228,133			165,936
Total, investments in private portfolio companies, rights to milestone payments and public securities at value (cost: $113,867,361 and $117,062,108, respectively)		73,521,729			77,152,904
Cash		14,311,324			17,922,630
Funds held in escrow from sales of investments at value (Note 3)		633,921			374,565
Receivable from portfolio company		170,541			13,032
Interest receivable		13,433			10,333
Prepaid expenses		469,754			563,699
Other assets		412,668			424,123
Total assets	$	89,533,370		$	96,461,286

LIABILITIES & NET ASSETS

Term loan credit facility (Note 5)	$	5,000,000		$	5,000,000
Post retirement plan liabilities (Note 8)		1,212,433			1,202,148
Accounts payable and accrued liabilities		550,999			1,268,355
Deferred rent		264,693			279,112
Total liabilities	$	7,028,125		$	7,749,615

Commitments and contingencies (Note 11)

Net assets	$	82,505,245		$	88,711,671

Net assets are comprised of:
Preferred stock, $0.10 par value, 2,000,000 shares authorized; none issued	$	0		$	0
Common stock, $0.01 par value, 45,000,000 shares authorized at 3/31/16 and 12/31/15; 33,183,576 issued at 3/31/16 and 12/31/15, respectively		331,836			331,836
Additional paid in capital (Note 9)		215,658,407			215,762,973
Accumulated net operating and realized loss		(88,990,815	)		(83,377,629	)
Accumulated unrealized depreciation of investments		(40,345,632	)		(39,909,204	)
Accumulated other comprehensive income (Note 8)		456,974			509,220
Treasury stock, at cost (2,337,822 shares at 3/31/16 and 12/31/15 (Note 12)		(4,605,525	)		(4,605,525	)

Net assets	$	82,505,245		$	88,711,671
Shares outstanding		30,845,754			30,845,754
Net asset value per outstanding share	$	2.67		$	2.88

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, 2016			March 31, 2015
Investment income:
Interest from:
Unaffiliated companies	$	2,618		$	11,243
Non-controlled affiliated companies		56,066			52,426
Controlled affiliated companies		90,424			44,426
Cash and U.S. Treasury securities and other		1,432			1,430
Fees for providing managerial assistance to portfolio companies		146,877			7,000
Yield-enhancing fees on debt securities		4,625			26,307
Total investment income		302,042			142,832

Expenses:
Salaries, benefits and stock-based compensation (Note 9)		603,908			1,078,489
Administration and operations		142,292			101,234
Professional fees		298,822			572,234
Rent (Note 3)		57,220			67,706
Insurance expense		59,575			67,611
Directors' fees and expenses		70,609			119,624
Interest and other debt expense		208,026			143,720
Custody fees		12,061			15,912
Depreciation		11,455			12,647
Total expenses		1,463,968			2,179,177

Net operating loss		(1,161,926	)		(2,036,345	)

Net realized (loss) gain:
Realized (loss) gain from investments:
Unaffiliated companies		(3,158,993	)		10,485
Non-controlled affiliated companies		(1,244,955	)		(293,786	)
Realized loss from investments		(4,403,948	)		(283,301	)

Income tax expense (Note 10)		5,830			105
Net realized loss from investments		(4,409,778	)		(283,406	)

Net (increase) decrease in unrealized depreciation on investments:
Unaffiliated companies		2,891,779			(615,964	)
Controlled affiliated companies		(1,013,450	)		157,117
Unaffiliated rights to milestone payments		(402,282	)		916
Non-controlled affiliated companies		3,109,951			(1,837,564	)
Publicly traded non-controlled affiliated companies		(5,009,305	)		0
Publicly traded unaffiliated companies		(13,121	)		824,714
Net increase in unrealized depreciation on investments		(436,428	)		(1,470,781	)

Net realized and unrealized loss on investments		(4,846,206	)		(1,754,187	)

Share of loss on equity method investment		(41,482	)		(131,506	)

Net decrease in net assets resulting from operations:

Total	$	(6,049,614	)	$	(3,922,038	)

Per average basic and diluted outstanding share	$	(0.20	)	$	(0.13	)

Average outstanding shares - basic and diluted		30,845,754			31,280,843

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, 2016			March 31, 2015

Net decrease in net assets resulting from operations	$	(6,049,614	)	$	(3,922,038	)

Other comprehensive loss:

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

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

Comprehensive loss	$	(6,101,860	)	$	(3,974,284	)

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, 2016			March 31, 2015

Cash flows used in operating activities:
Net decrease in net assets resulting from operations	$	(6,049,614	)	$	(3,922,038	)
Adjustments to reconcile net decrease in net assets resulting from operations to net cash used in operating activities:
Net realized loss and change in unrealized
depreciation on investments		4,840,376			1,754,082
Depreciation of fixed assets, amortization of prepaid
assets and accretion of bridge note interest		(108,842	)		(66,312	)
Share of loss on equity method investment		41,482			131,506
Stock-based compensation (benefit) expense		(104,566	)		212,591
Amortization of prior service cost		(52,246	)		(52,246	)
Funding of operating commitment to equity method investment		(103,680	)		(262,215	)
Purchase of affiliated portfolio companies		(2,150,012	)		(1,853,262	)
Purchase of unaffiliated portfolio companies		0			(499,824	)
Payments received on debt investments		0			91,736
Proceeds from sale of investments and repayment of bridge notes		863,950			24,000

Changes in assets and liabilities:
Receivable from portfolio companies		(157,509	)		(9,933	)
Interest receivable		(3,100	)		13,948
Prepaid expenses		93,945			60,524
Other assets		0			378
Post retirement plan liabilities		10,285			13,371
Accounts payable and accrued liabilities		(717,356	)		(313,699	)
Deferred rent		(14,419	)		(12,672	)
Net cash used in operating activities		(3,611,306	)		(4,690,065	)

Cash flows from investing activities:
Purchase of fixed assets		0			(6,806	)
Net cash used in investing activities		0			(6,806	)

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

Net (decrease) increase in cash	$	(3,611,306	)	$	303,129

Cash at beginning of the period		17,922,630			20,748,314
Cash at end of the period	$	14,311,324		$	21,051,443

Supplemental disclosures of cash flow information:
Income taxes paid	$	5,830		$	105
Interest paid	$	126,389		$	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, 2016			December 31, 2015

Changes in net assets from operations:

Net operating loss	$	(1,161,926	)	$	(7,162,510	)
Net realized (loss) gain on investments		(4,409,778	)		4,531,700
Net increase in unrealized depreciation on investments		(436,428	)		(17,302,729	)
Share of loss on equity method investment		(41,482	)		(312,291	)
Net decrease in net assets resulting from operations		(6,049,614	)		(20,245,830	)

Changes in net assets from capital stock transactions:

Purchase of treasury stock		0			(1,199,994	)
Acquisition of vested restricted stock awards to pay required employee withholding tax		0			(86,914	)
Stock-based compensation (benefit) expense		(104,566	)		798,965
Net decrease in net assets resulting from capital stock transactions		(104,566	)		(487,943	)

Changes in net assets from accumulated other comprehensive loss:

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

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

Net decrease in net assets		(6,206,426	)		(20,942,756	)

Net Assets:

Beginning of the period		88,711,671			109,654,427

End of the period	$	82,505,245		$	88,711,671

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, 2016

(Unaudited)

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

Investments in Unaffiliated Companies (3) – 10.6% of net assets at value

Private Placement Portfolio (Illiquid) (4) – 5.9% of net assets at value

Bridgelux, Inc. (5)(8)(9)(10)		Energy
Manufacturing high-power light emitting diodes (LEDs) and arrays
Series B Convertible Preferred Stock (acquired 11/29/07)	(M)		$	1,000,000		1,861,504	$	185,847
Series C Convertible Preferred Stock (acquired 7/27/07)	(M)			1,352,196		2,130,699		383,598
Series D Convertible Preferred Stock (acquired (2/25/08-3/10/10)	(M)			1,371,622		999,999		528,700
Series E Convertible Preferred Stock (acquired 6/1/11)	(M)			672,599		440,334		435,848
Series E-1 Convertible Preferred Stock (acquired 3/16/12)	(M)			386,073		399,579		287,397
Warrants for Series E Convertible Preferred
Stock expiring 12/31/17 (acquired 1/27/11)	(M)			93,969		170,823		0
Warrants for Common Stock expiring 6/1/16 (acquired 6/1/11)	(M)			72,668		132,100		0
Warrants for Common Stock expiring 8/9/18 (acquired 8/9/13)	(M)			148,409		171,183		0
Warrants for Common Stock expiring 10/21/18 (acquired 10/21/11)	(M)			18,816		84,846		0
				5,116,352				1,821,390

Magic Leap, Inc. (8)(9)(11)		Electronics
Developing novel human computing interfaces and software
Series B Convertible Preferred Stock (acquired 5/1/15)	(M)			338,604		29,291		624,059

Mersana Therapeutics, Inc. (5)(8)(9)		Life Sciences
Developing antibody drug conjugates for cancer therapy
Series A-1 Convertible Preferred Stock (acquired 7/27/12-4/2/14)	(H)			683,538		635,081		614,748
Series B-1 Convertible Preferred Stock (acquired 2/20/15)	(H)			104,521		97,111		105,035
Common Stock (acquired 7/27/12)	(H)			3,875,395		350,539		308,007
				4,663,454				1,027,790

Nanosys, Inc. (5)(8)(9)		Energy
Developing inorganic nanowires and quantum dots for use in LED-backlit devices
Series C Convertible Preferred Stock (acquired 4/10/03)	(M)			1,500,000		803,428		91,833
Series D Convertible Preferred Stock (acquired 11/7/05)	(M)			3,000,003		1,016,950		483,682
Series E Convertible Preferred Stock (acquired 8/13/10)	(M)			496,573		433,688		424,364
				4,996,576				999,879

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, 2016

(Unaudited)

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

Investments in Unaffiliated Companies (3) – 10.6% of net assets at value (Cont.)

Private Placement Portfolio (Illiquid) (4) – 5.9% of net assets at value (Cont.)

Nano Terra, Inc. (5)(8)		Energy
Developing surface chemistry and nano- manufacturing solutions
Warrants for Common Stock expiring on 2/22/21 (acquired 2/22/11)	(M)		$	69,168		4,462	$	1,218
Warrants for Series A-3 Preferred Stock expiring on 11/15/22 (acquired 11/15/12)	(M)			35,403		47,508		67,459
				104,571				68,677

Phylagen, Inc. (5)(8)		Life Sciences
Developing technology to improve human
health and business productivity
Secured Convertible Bridge Note, 5%, (acquired 2/5/15)	(M)			211,534	$	200,000		296,148
Secured Convertible Bridge Note, 5%, (acquired 6/5/15)	(M)			10,412	$	10,000		14,577
				221,946				310,725

Total Unaffiliated Private Placement Portfolio (cost: $15,441,503)							$	4,852,520

Rights to Milestone Payments (Illiquid) (6) – 3.6% of net assets at value

Amgen, Inc. (8)(9)		Life Sciences
Rights to Milestone Payments from Acquisition of BioVex Group, Inc. (acquired 3/4/11)	( I )		$	548,998	$	548,998	$	2,495,696

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

Canon, Inc. (8)(9)		Electronics
Rights to Milestone Payments from Acquisition of Molecular Imprints, Inc. (acquired 4/18/14)	( I )			232,865	$	232,865		464,073

Total Unaffiliated Rights to Milestone Payments (cost: $781,863)							$	2,959,769

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, 2016

(Unaudited)

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

Publicly Traded Portfolio (7) –
1.1% of net assets at value

Champions Oncology, Inc. (5)(9)		Life Sciences
Developing its TumorGraft^TM platform for personalized medicine and drug development Common Stock (acquired 3/24/11-3/11/15)	(M)		$	1,622,629		243,540	$	933,232
Warrants for Common Stock expiring 1/28/19 (acquired 1/28/13)	( I )			400		5,500		11,191
				1,623,029				944,423

Total Unaffiliated Publicly Traded Portfolio (cost: $1,623,029)							$	944,423

Total Investments in Unaffiliated Companies (cost: $17,846,395)							$	8,756,712

Investments in Non-Controlled Affiliated Companies (3) – 71.1% of net assets at value

Private Placement Portfolio (Illiquid) (13) – 54.9% of net assets at value

ABSMaterials, Inc. (5)(8)(9)		Energy
Developing nano-structured absorbent materials for water remediation and consumer applications
Series A Convertible Preferred Stock (acquired 2/17/10-10/24/11)	( I )		$	435,000		390,000	$	180,984
Series B Convertible Preferred Stock (acquired 11/8/13-6/25/14)	( I )			1,217,644		1,037,751		822,698
Secured Convertible Bridge Note, 8%, (acquired 1/20/16)	(M)			101,578	$	100,000		101,578
				1,754,222				1,105,260

AgBiome, LLC (5)(8)(9)		Life Sciences
Providing early-stage research and discovery for agriculture and utilizing the crop microbiome to identify products that reduce risk and improve yield
Series A-1 Convertible Preferred Stock (acquired 1/30/13)	( I )			2,000,000		2,000,000		4,147,607
Series A-2 Convertible Preferred Stock (acquired 4/9/13-10/15/13)	( I )			521,740		417,392		921,590
Series B Convertible Preferred Stock (acquired 8/7/15)	( I )			500,006		160,526		586,320
				3,021,746				5,655,517

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, 2016

(Unaudited)

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

Investments in Non-Controlled Affiliated Companies (3) – 71.1% of net assets at value (Cont.)

Private Placement Portfolio (Illiquid) (13) – 54.9% of net assets at value (Cont.)

D-Wave Systems, Inc. (5)(8)(9)(14)		Electronics
Developing high-performance
quantum computing systems
Series 1 Class B Convertible Preferred Stock (acquired 9/30/08)	(H)		$	1,002,074		1,144,869	$	2,518,309
Series 1 Class C Convertible Preferred Stock (acquired 9/30/08)	(H)			487,804		450,450		996,826
Series 1 Class D Convertible Preferred Stock (acquired 9/30/08)	(H)			748,473		855,131		1,892,367
Series 1 Class E Convertible Preferred Stock (acquired 11/24/10)	(H)			248,049		269,280		608,102
Series 1 Class F Convertible Preferred Stock (acquired 11/24/10)	(H)			238,323		258,721		584,257
Series 1 Class H Convertible Preferred Stock (acquired 6/27/14)	(H)			909,088		460,866		1,141,620
Series 2 Class D Convertible Preferred Stock (acquired 9/30/08)	(H)			736,019		678,264		1,500,968
Series 2 Class E Convertible Preferred Stock (acquired 6/1/12-3/22/13)	(H)			659,493		513,900		1,170,770
Series 2 Class F Convertible Preferred Stock (acquired 6/1/12-3/22/13)	(H)			633,631		493,747		1,124,857
Warrants for Common Stock expiring 5/12/19 (acquired 5/12/14)	( I )			26,357		20,415		1,071
				5,689,311				11,539,147

EchoPixel, Inc. (5)(8)		Life Sciences
Developing virtual reality 3-D visualization software for life sciences and health care applications
Series Seed Convertible Preferred Stock (acquired 6/21/13-6/30/14)	( I )			1,250,000		4,194,630		1,335,447
Series Seed-2 Convertible Preferred Stock (acquired 1/22/16)	( I )			500,000		1,476,668		503,612
				1,750,000				1,839,059

Ensemble Therapeutics Corporation (5)(8)(9)		Life Sciences
Developing DNA-Programmed Chemistry^TM for the discovery of new classes of therapeutics
Series B Convertible Preferred Stock (acquired 6/6/07)	( I )			2,000,000		1,449,275		704,660
Series B-1 Convertible Preferred Stock (acquired 4/21/14)	( I )			679,754		492,575		1,440,730
				2,679,754				2,145,390

HZO, Inc. (5)(8)(9)		Electronics
Developing novel industrial coatings that protect electronics against damage from liquids
Common Stock (acquired 6/23/14)	( I )			666,667		405,729		359,994
Series I Convertible Preferred Stock (acquired 6/23/14)	( I )			5,709,835		2,266,894		4,486,681
Series II Convertible Preferred Stock (acquired 6/23/14-8/3/15)	( I )			2,500,006		674,638		2,571,646
				8,876,508				7,418,321

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, 2016

(Unaudited)

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

Investments in Non-Controlled Affiliated Companies (3) – 71.1% of net assets at value (Cont.)

Private Placement Portfolio (Illiquid) (13) – 54.9% 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 (acquired 5/6/08)	(M)		$	2,000,000		7,499,062	$	0
Series B Convertible Preferred Stock (acquired 9/17/10)	(M)			3,095,802		13,571,848		0
Secured Convertible Bridge Note, 12%, (acquired 10/7/11)	(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

Lodo Therapeutics Corporation (5)(8)(9)		Life Sciences
Developing and commercializing novel therapeutics derived from a metagenome-based Natural Product Discovery Platform
Series A Convertible Preferred Stock (acquired 12/21/15)	( I )			107,900		107,900		107,835

Metabolon, Inc. (5)(8)(9)		Life Sciences
Developing a biochemical profiling platform for precision medicine
Series B Convertible Preferred Stock (acquired 6/29/09)	(M)			2,500,000		371,739		2,957,498
Series B-1 Convertible Preferred Stock (acquired 6/29/09)	(M)			706,214		148,696		1,182,998
Series C Convertible Preferred Stock (acquired 4/30/09)	(M)			1,000,000		1,000,000		2,711,294
Series D Convertible Preferred Stock (acquired 8/25/11)	(M)			1,499,999		835,882		2,359,499
Series E-1 Convertible Preferred Stock (acquired 3/2/15)	(M)			1,225,000		444,404		1,534,395
Series E-2 Convertible Preferred Stock (acquired 3/2/15)	(M)			299,999		103,277		332,387
				7,231,212				11,078,071

ORIG3N, Inc. (5)(8)(9)		Life Sciences
Developing precision medicine applications for induced pluripotent stems cells
Series 1 Convertible Preferred Stock (acquired 2/5/15-8/5/15)	( I )			500,000		1,195,315		827,622
Series A Convertible Preferred Stock (acquired 11/25/15)	( I )			750,000		682,333		747,943
				1,250,000				1,575,565

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, 2016

(Unaudited)

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

Investments in Non-Controlled Affiliated Companies (3) – 71.1% of net assets at value (Cont.)

Private Placement Portfolio (Illiquid) (13) – 54.9% of net assets at value (Cont.)

Petra Pharma Corporation (5)(8)(9)		Life Sciences
Developing small molecule inhibitors for treatment of cancer and metabolic diseases
Series A Convertible Preferred Stock (acquired 12/23/15)	( I )		$	1,025,050		1,025,050	$	1,023,535

Produced Water Absorbents, Inc. (5)(8)(15)		Energy
Providing integrated process separation solutions to the global oil and gas industries, enabling onsite treatment of produced and flowback water
Series A Convertible Preferred Stock (acquired 6/21/11)	(M)			1,000,000		1,000,000		23,123
Series B Convertible Preferred Stock (acquired 6/20/13-3/31/14)	(M)			1,496,865		5,987,460		63,900
Series B-2 Convertible Preferred Stock (acquired 5/12/14)	(M)			1,015,427		4,322,709		46,133
Series B-3 Convertible Preferred Stock (acquired 11/14/13)	(M)			978,641		3,914,564		41,777
Series C Convertible Preferred Stock (acquired 5/26/14)	(M)			1,000,268		2,667,380		22,536
Series D Convertible Preferred Stock (acquired 2/17/15)	(M)			986,066		2,629,510		39,756
Subordinated Secured Debt, 12%, maturing
on 6/30/16 (acquired 10/7/14)	(M)			995,259	$	1,000,000		570,491
Subordinated Convertible Bridge Note, 12%, (acquired 6/3/15)	(M)			273,096	$	250,000		27,526
Subordinated Convertible Bridge Note, 12%, (acquired 7/15/15)	(M)			269,644	$	250,000		27,179
Subordinated Convertible Bridge Note, 12%, (acquired 9/28/15)	(M)			263,479	$	250,000		26,557
Subordinated Convertible Bridge Note, 12%, (acquired 10/30/15)	(M)			260,849	$	250,000		26,292
Subordinated Convertible Bridge Note, 12%, (acquired 2/16/16)	(M)			125,945	$	125,000		12,695
Warrants for Series B-2 Preferred Stock expiring upon liquidation event (acquired 5/12/14)	( I )			65,250		300,000		0
Senior Secured Debt, 15% commencing on 4/1/16, maturing on 12/31/19 (acquired 3/9/16)	(M)			875,000	$	875,000		875,000
				9,605,789			$	1,802,965

Total Non-Controlled Private Placement Portfolio (cost: $49,534,373)							$	45,290,665

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, 2016

(Unaudited)

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

Publicly Traded Portfolio (16) –
16.2% of net assets at value

Adesto Technologies Corporation (5)(8)(9)(17)		Electronics
Developing low-power, high-performance
memory devices
Common Stock (acquired 10/27/15)	(M)		$	11,482,417		1,769,868	$	9,946,658

Enumeral Biomedical Holdings, Inc. (5)(9)(18)		Life Sciences
Developing therapeutics and diagnostics through functional assaying of single cells
Common Stock (acquired 7/31/14)	(M)			4,993,357		7,966,368		1,274,619
Warrants for Common Stock expiring 7/30/19 (acquired 7/31/14)	( I )			540,375		1,500,000		22,563
Warrants for Common Stock expiring 2/2/24 (acquired 7/31/14)	( I )			57,567		255,120		29,540
Options to Purchase Common Stock at $1.00 expiring 7/30/16 (acquired 8/4/14)	( I )			0		80,000		0
				5,591,299				1,326,722

OpGen, Inc. (5)(9)(19)		Life Sciences
Developing tools for genomic sequence assembly and analysis
Common Stock (acquired 5/5/15)	(M)			5,665,708		1,409,796		1,987,812
Warrants for Common Stock expiring 5/8/20 (acquired 5/5/15)	(M)			425,579		300,833		73,317
Warrants for Common Stock expiring 2/17/25 (acquired 5/5/15)	( I )			785		31,206		27,291
				6,092,072				2,088,420

Total Non-Controlled Affiliated Publicly Traded Portfolio (cost: $23,165,788)							$	13,361,800

Total Investments in Non-Controlled Affiliated Companies (cost: $72,700,161)							$	58,652,465

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, 2016

(Unaudited)

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

Investments in Controlled
Affiliated Companies (3) –
7.1% of net assets at value

Private Placement Portfolio (Illiquid) (20) –
7.1% of net assets at value

Black Silicon Holdings, Inc. (5)(8)(21)		Electronics
Holding company for interest in a company that develops silicon-based optoelectronic products
Series A Convertible Preferred Stock (acquired 8/4/15)	( I )		$	750,000		233,499	$	0
Series A-1 Convertible Preferred Stock (acquired 8/4/15)	( I )			890,000		2,966,667		0
Series A-2 Convertible Preferred Stock (acquired 8/4/15)	( I )			2,445,000		4,207,537		0
Series B-1 Convertible Preferred Stock (acquired 8/4/15)	( I )			1,169,561		1,892,836		0
Series C Convertible Preferred Stock (acquired 8/4/15)	( I )			1,171,316		1,674,030		0
Secured Convertible Bridge Note, 8%, (acquired 8/4/15)	( I )			1,346,922	$	1,278,454		322,123
				7,772,799				322,123

Interome, Inc. (5)(8)(12)		Life Sciences
Developing human tissue models for toxicology and drug discovery applications
Common Stock (acquired 3/1/16)	(M)			10		1,000,000		10
Secured Convertible Bridge Note, 12%, (acquired 3/1/16)	(M)			300,000	$	300,000		300,000
				300,010				300,010

NGX Bio, Inc. (5)(8)(9)(22)		Life Sciences
Developing translational genomics solutions
Series Seed Convertible Preferred Stock (acquired 6/6/14-1/10/16)	( I )			500,002		666,667		495,818
Series A Convertible Preferred Stock (acquired 8/20/15-9/30/15)	( I )			499,999		329,989		339,761
				1,000,001				835,579

ProMuc, Inc. (5)(8)		Life Sciences
Developing synthetic mucins for the
nutritional, food and health care markets
Common Stock (acquired 12/18/13)	(M)			1		1,000		1
Secured Convertible Bridge Note, 8%, (acquired 12/18/13)	(M)			414,055	$	350,000		414,055
Secured Convertible Bridge Note, 8%, (acquired 8/13/14)	(M)			113,085	$	100,000		113,085
Secured Convertible Bridge Note, 8%, (acquired 8/5/15)	(M)			78,945	$	75,000		78,945
Secured Convertible Bridge Note, 8%, (acquired 12/7/15)	(M)			56,398	$	55,000		56,398
				662,484				662,484

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, 2016

(Unaudited)

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

Investments in Controlled Affiliated Companies (3) – 7.1% of net assets at value (Cont.)

Private Placement Portfolio (Illiquid) (20) – 7.1% of net assets at value (Cont.)

Senova Systems, Inc. (5)(8)(9)		Life Sciences
Developing next-generation sensors to measure pH
Series B Convertible Preferred Stock (acquired 9/9/11-7/18/12)	( I )		$	1,218,462		1,350,000	$	110,357
Series B-1 Convertible Preferred Stock (acquired 8/1/13-1/15/14)	( I )			1,083,960		2,759,902		225,611
Series C Convertible Preferred Stock (acquired 10/24/14-4/1/15)	( I )			1,208,287		1,611,049		938,014
Secured Convertible Bridge Note, 10%, (acquired 1/15/16)	( I )			255,274	$	250,000		255,274
Warrants for Series B Preferred Stock
expiring 10/15/17 (acquired 10/15/12)	( I )			131,538		164,423		13,441
Warrants for Series B Preferred Stock
expiring 4/24/18 (acquired 4/24/13)	( I )			20,000		25,000		2,044
				3,917,521				1,544,741

SynGlyco, Inc. (5)(8)		Life Sciences
Developed synthetic carbohydrates for pharmaceutical applications
Common Stock (acquired 12/13/11)	( I )			2,729,817		57,463		0
Series A' Convertible Preferred Stock (acquired 12/13/11-6/7/12)	( I )			4,855,627		4,855,627		88,088
Secured Convertible Bridge Note, 8%, (acquired 1/23/13)	( I )			68,344	$	67,823		68,344
				7,653,788				156,432

TARA Biosystems, Inc. (5)(8)		Life Sciences
Developing human tissue models for toxicology and drug discovery applications
Common Stock (acquired 8/20/14)	(M)			20		2,000,000		20
Secured Convertible Bridge Note, 8%, (acquired 8/20/14)	(M)			339,978	$	300,000		509,967
Secured Convertible Bridge Note, 8%, (acquired 5/18/15)	(M)			213,983	$	200,000		320,975
Secured Convertible Bridge Note, 8%, acquired 12/1/15	(M)			1,232,088	$	1,200,000		1,232,088
				1,786,069				2,063,050

Total Controlled Private Placement Portfolio (cost: $23,092,672)							$	5,884,419

Total Investments in Controlled Affiliated Companies (cost: $23,092,672)							$	5,884,419

Total Private Placement and Publicly Traded Portfolio (cost: $113,639,228)							$	73,293,596

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, 2016

(Unaudited)

Method of

Primary

Shares/

Valuation (1)

Industry (2)

Cost

Principal

Value

Equity Method Investments (23) –

0.3% of net assets at value

Private Placement Portfolio (Illiquid) (23) –

0.3% of net assets at value

Accelerator IV-New York Corporation (8)(9)(24)

Life Sciences

Identifying and managing emerging

biotechnology companies

Series A Common Stock (acquired 7/21/14-1/29/16)

(E)

228,133

581,907

228,133

Total Equity Method Investments (cost: $228,133)

228,133

Total Investments (cost: $113,867,361)

73,521,729

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, 2016

(Unaudited)

Notes to Consolidated Schedule of Investments

(1)

See "Footnote to Consolidated Schedule of Investments" on page 34 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 and computing. We classify "Life Sciences" companies as those that address problems in life sciences-related industries, including precision health and precision medicine, biotechnology, agriculture, advanced materials and chemicals, health care, 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, including control of a majority of the seats on the board of directors, or more than 25 percent of the seats on the board of directors, with no other entity or person in control of more director seats than us. Among our controlled affiliated companies, ProMuc, Inc., and Interome, Inc., were 100 percent owned by us at March 31, 2016.

(4)

The aggregate cost for federal income tax purposes of investments in unaffiliated privately held companies is $15,441,503. The gross unrealized appreciation based on the tax cost for these securities is $374,234. The gross unrealized depreciation based on the tax cost for these securities is $10,963,217.

(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 $781,863. The gross unrealized appreciation based on the tax cost for these securities is $2,177,906. 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 $1,623,029. 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 $678,606.

(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)

On July 21, 2015, Bridgelux, Inc., signed a definitive agreement to be acquired by an investment group led by China Electronics Corporation and ChongQing Linkong Development Investment Company. The close of this transaction remains pending as of March 31, 2016.

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

HARRIS & HARRIS GROUP, INC.

CONSOLIDATED SCHEDULE OF INVESTMENTS AS OF MARCH 31, 2016

(Unaudited)

(11)

We received our shares of Magic Leap, Inc., as part of the consideration paid for one of our portfolio companies in an acquisition during the second quarter of 2015. A total of 4,394 shares of our 29,291 shares of Magic Leap are held in escrow to satisfy indemnity claims through May 1, 2016.

(12)

Initial investment was made in 2016.

(13)

The aggregate cost for federal income tax purposes of investments in non-controlled affiliated privately held companies is $49,534,373. The gross unrealized appreciation based on the tax cost for these securities is $12,745,089. The gross unrealized depreciation based on the tax cost for these securities is $16,988,797.

(14)

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.

(15)

Produced Water Absorbents, Inc., also does business as ProSep, Inc. On April 1, 2016, the Company's Subordinated Secured Note was reissued as a Senior Secured Note with the same terms as the Senior Secured Note purchased in the first quarter of 2016.

(16)

The aggregate cost for federal income tax purposes of investments in non-controlled affiliated publicly traded companies is $23,165,788. 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 $9,803,988.

(17)

As of March 31, 2016, the Company's shares of Adesto Technologies Corporation were subject to a lock-up agreement that restricted our ability to trade these securities. The lock-up agreement expired on April 25, 2016. A total of 200,000 shares are not qualifying assets 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.

(18)

(19)

A total of 300,833 shares and 300,833 warrants are not qualifying assets 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.

(20)

The aggregate cost for federal income tax purposes of investments in controlled affiliated companies is $23,092,672. The gross unrealized appreciation based on the tax cost for these securities is $276,981. The gross unrealized depreciation based on the tax cost for these securities is $17,485,234.

(21)

On August 4, 2015, SiOnyx, Inc., reorganized its corporate structure to become a subsidiary of a new company, Black Silicon Holdings, Inc. Our security holdings of SiOnyx converted into securities of Black Silicon Holdings. SiOnyx was then acquired by an undisclosed buyer. Black Silicon Holdings owns a profit interest in the undisclosed buyer.

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

HARRIS & HARRIS GROUP, INC.

CONSOLIDATED SCHEDULE OF INVESTMENTS AS OF MARCH 31, 2016

(Unaudited)

(22)

On August 19, 2015, UberSeq, Inc., changed its name to NGX Bio, Inc.

(23)

The aggregate cost for federal income tax purposes of investments in privately held equity method investments is $228,133. 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.

(24)

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, 2015

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

Investments in Unaffiliated Companies (3) –
11.0% of net assets at value

Private Placement Portfolio (Illiquid) (4) –
6.1% of net assets at value

Bridgelux, Inc. (5)(8)(9)(10)		Energy
Manufacturing high-power light emitting
diodes (LEDs) and arrays
Series B Convertible Preferred Stock (acquired 11/29/07)	(M)		$	1,000,000		1,861,504	$	258,939
Series C Convertible Preferred Stock (acquired 7/27/07)	(M)			1,352,196		2,130,699		534,737
Series D Convertible Preferred Stock (acquired (2/25/08-3/10/10)	(M)			1,371,622		999,999		737,006
Series E Convertible Preferred Stock (acquired 6/1/11)	(M)			672,599		440,334		607,572
Series E-1 Convertible Preferred Stock (acquired 3/16/12)	(M)			386,073		399,579		400,630
Warrants for Series E Convertible Preferred
Stock expiring 12/31/17 (acquired 1/27/11)	(M)			93,969		170,823		0
Warrants for Common Stock expiring 6/1/16 (acquired 6/1/11)	(M)			72,668		132,100		0
Warrants for Common Stock expiring 8/9/18 (acquired 8/9/13)	(M)			148,409		171,183		0
Warrants for Common Stock expiring 10/21/18 (acquired 10/21/11)	(M)			18,816		84,846		0
				5,116,352				2,538,884

Cambrios Technologies Corporation (5)(8)(9)(11)		Electronics
Developed nanowire-enabled electronic
materials for the display industry
Series B Convertible Preferred Stock (acquired 11/9/04-2/16/05)	(M)			1,294,025		1,294,025		0
Series C Convertible Preferred Stock (acquired 3/21/07)	(M)			1,300,000		1,300,000		0
Series D Convertible Preferred Stock (acquired 8/7/09)	(M)			515,756		515,756		0
Series D-2 Convertible Preferred Stock (acquired 5/31/11)	(M)			92,400		92,400		0
Series D-4 Convertible Preferred Stock (acquired 7/12/12)	(M)			216,168		216,168		0
				3,418,349				0

Magic Leap, Inc. (8)(9)(12)		Electronics
Developing novel human computing
interfaces and software
Series B Convertible Preferred Stock (acquired 5/1/15)	( I )			338,604		29,291		348,994

Mersana Therapeutics, Inc. (5)(8)(9)		Life Sciences
Developing antibody drug conjugates
for cancer therapy
Series A-1 Convertible Preferred Stock (acquired 7/27/12-4/2/14)	(H)			683,538		635,081		613,892
Series B-1 Convertible Preferred Stock (acquired 2/20/15)	(H)			104,521		97,111		104,407
Common Stock (acquired 7/27/12)	(H)			3,875,395		350,539		309,963
				4,663,454				1,028,262

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

HARRIS & HARRIS GROUP, INC.

CONSOLIDATED SCHEDULE OF INVESTMENTS AS OF DECEMBER 31, 2015

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

Investments in Unaffiliated Companies (3) –
11.0% of net assets at value (Cont.)

Private Placement Portfolio (Illiquid) (4) –
6.1% of net assets at value (Cont.)

Nanosys, Inc. (5)(8)(9)		Energy
Developing inorganic nanowires and
quantum dots for use in LED-backlit devices
Series C Convertible Preferred Stock (acquired 4/10/03)	(M)		$	1,500,000		803,428	$	128,853
Series D Convertible Preferred Stock (acquired 11/7/05)	(M)			3,000,003		1,016,950		597,334
Series E Convertible Preferred Stock (acquired 8/13/10)	(M)			496,573		433,688		452,627
				4,996,576				1,178,814

Nano Terra, Inc. (5)(8)		Energy
Developing surface chemistry and nano-
manufacturing solutions
Warrants for Common Stock expiring on 2/22/21 (acquired 2/22/11)	( I )			69,168		4,462		211
Warrants for Series A-3 Preferred Stock
expiring on 11/15/22 (acquired 11/15/12)	( I )			35,403		47,508		61,978
				104,571				62,189

Phylagen, Inc. (5)(8)(13)		Life Sciences
Developing technology to improve human
health and business productivity
Secured Convertible Bridge Note, 5%, (acquired 2/5/15)	(M)			209,041	$	200,000		209,041
Secured Convertible Bridge Note, 5%, (acquired 6/5/15)	(M)			10,288	$	10,000		10,288
				219,329				219,329

Total Unaffiliated Private Placement Portfolio (cost: $18,857,235)							$	5,376,472

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

HARRIS & HARRIS GROUP, INC.

CONSOLIDATED SCHEDULE OF INVESTMENTS AS OF DECEMBER 31, 2015

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

Rights to Milestone Payments (Illiquid) (6) –
3.8% of net assets at value

Amgen, Inc. (8)(9)		Life Sciences
Rights to Milestone Payments from
Acquisition of BioVex Group, Inc. (acquired 3/4/11)	( I )		$	548,998	$	548,998	$	2,900,232

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

Canon, Inc. (8)(9)		Electronics
Rights to Milestone Payments from
Acquisition of Molecular Imprints, Inc. (acquired 4/18/14)	( I )			232,865	$	232,865		461,819

Total Unaffiliated Rights to Milestone Payments (cost: $781,863)							$	3,362,051

Publicly Traded Portfolio (7) –
1.1% of net assets at value

Champions Oncology, Inc. (5)(9)		Life Sciences
Developing its TumorGraft^TM platform for
personalized medicine and drug development
Common Stock (acquired 3/24/11-3/11/15)	(M)		$	1,622,629		243,540	$	944,819
Warrants for Common Stock
expiring 1/28/19 (acquired 1/28/13)	( I )			400		5,500		12,725
				1,623,029				957,544

Total Unaffiliated Publicly Traded Portfolio (cost: $1,623,029)							$	957,544

Total Investments in Unaffiliated Companies (cost: $21,262,127)							$	9,696,067

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

HARRIS & HARRIS GROUP, INC.

CONSOLIDATED SCHEDULE OF INVESTMENTS AS OF DECEMBER 31, 2015

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

Investments in Non-Controlled
Affiliated Companies (3) –
67.9% of net assets at value

Private Placement Portfolio (Illiquid) (14) –
47.2% of net assets at value

ABSMaterials, Inc. (5)(8)(9)		Energy
Developing nano-structured absorbent materials
for water remediation and consumer applications
Series A Convertible Preferred Stock (acquired 2/17/10-10/24/11)	( I )		$	435,000		390,000	$	160,303
Series B Convertible Preferred Stock (acquired 11/8/13-6/25/14)	( I )			1,217,644		1,037,751		823,319
				1,652,644				983,622

AgBiome, LLC (5)(8)(9)		Life Sciences
Providing early-stage research and discovery for
agriculture and utilizing the crop microbiome to
identify products that reduce risk and improve yield
Series A-1 Convertible Preferred Stock (acquired 1/30/13)	( I )			2,000,000		2,000,000		4,022,722
Series A-2 Convertible Preferred Stock (acquired 4/9/13-10/15/13)	( I )			521,740		417,392		891,588
Series B Convertible Preferred Stock (acquired 8/7/15)	( I )			500,006		160,526		575,979
				3,021,746				5,490,289

D-Wave Systems, Inc. (8)(9)(15)		Electronics
Developing high-performance
quantum computing systems
Series 1 Class B Convertible Preferred Stock (acquired 9/30/08)	(H)			1,002,074		1,144,869		1,485,943
Series 1 Class C Convertible Preferred Stock (acquired 9/30/08)	(H)			487,804		450,450		588,844
Series 1 Class D Convertible Preferred Stock (acquired 9/30/08)	(H)			748,473		855,131		1,117,858
Series 1 Class E Convertible Preferred Stock (acquired 11/24/10)	(H)			248,049		269,280		368,385
Series 1 Class F Convertible Preferred Stock (acquired 11/24/10)	(H)			238,323		258,721		353,940
Series 1 Class H Convertible Preferred Stock (acquired 6/27/14)	(H)			909,088		460,866		732,972
Series 2 Class D Convertible Preferred Stock (acquired 9/30/08)	(H)			736,019		678,264		886,651
Series 2 Class E Convertible Preferred Stock (acquired 6/1/12-3/22/13)	(H)			659,493		513,900		711,876
Series 2 Class F Convertible Preferred Stock (acquired 6/1/12-3/22/13)	(H)			633,631		493,747		683,959
Warrants for Common Stock expiring 5/12/19 (acquired 5/12/14)	( I )			26,357		20,415		710
				5,689,311				6,931,138

EchoPixel, Inc. (5)(8)		Life Sciences
Developing virtual reality 3-D visualization software
for life sciences and health care applications
Series Seed Convertible Preferred Stock (acquired 6/21/13-6/30/14)	( I )			1,250,000		4,194,630		1,327,092
Secured Convertible Bridge Note, 8%, (acquired 11/25/15)	(M)			113,425	$	112,500		113,425
				1,363,425				1,440,517

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

HARRIS & HARRIS GROUP, INC.

CONSOLIDATED SCHEDULE OF INVESTMENTS AS OF DECEMBER 31, 2015

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

Investments in Non-Controlled
Affiliated Companies (3) –
67.9% of net assets at value (Cont.)

Private Placement Portfolio (Illiquid) (14) –
47.2% of net assets at value (Cont.)

Ensemble Therapeutics Corporation (5)(8)(9)		Life Sciences
Developing DNA-Programmed Chemistry^TM
for the discovery of new classes of therapeutics
Series B Convertible Preferred Stock (acquired 6/6/07)	( I )		$	2,000,000		1,449,275	$	662,607
Series B-1 Convertible Preferred Stock (acquired 4/21/14)	( I )			679,754		492,575		1,448,295
				2,679,754				2,110,902

HZO, Inc. (5)(8)(9)		Electronics
Developing novel industrial coatings that
protect electronics against damage from liquids
Common Stock (acquired 6/23/14)	( I )			666,667		405,729		329,802
Series I Convertible Preferred Stock (acquired 6/23/14)	( I )			5,709,835		2,266,894		4,281,820
Series II Convertible Preferred Stock (acquired 6/23/14-8/3/15)	( I )			2,500,006		674,638		2,515,164
				8,876,508				7,126,786

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 (acquired 5/6/08)	(M)			2,000,000		7,499,062		0
Series B Convertible Preferred Stock (acquired 9/17/10)	(M)			3,095,802		13,571,848		0
Secured Convertible Bridge Note, 12%, (acquired 10/7/11)	(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

Lodo Therapeutics Corporation (5)(8)(9)(13)		Life Sciences
Developing and commercializing novel therapeutics
derived from a metagenome-based Natural Product
Discovery Platform
Series A Convertible Preferred Stock (acquired 12/21/15)	( I )			107,900		107,900		107,281

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

HARRIS & HARRIS GROUP, INC.

CONSOLIDATED SCHEDULE OF INVESTMENTS AS OF DECEMBER 31, 2015

	Method of	Primary			Shares/
	Valuation (1)	Industry (2)	Cost		Principal		Value
Investments in Non-Controlled
Affiliated Companies (3) –
67.9% of net assets at value (Cont.)

Private Placement Portfolio (Illiquid) (14) –
47.2% of net assets at value (Cont.)

Metabolon, Inc. (5)(8)(9)		Life Sciences
Developing a biochemical profiling
platform for precision medicine
Series B Convertible Preferred Stock (acquired 6/29/09)	(M)		$	2,500,000		371,739	$	3,699,120
Series B-1 Convertible Preferred Stock (acquired 6/29/09)	(M)			706,214		148,696		1,479,647
Series C Convertible Preferred Stock (acquired 4/30/09)	(M)			1,000,000		1,000,000		3,388,907
Series D Convertible Preferred Stock (acquired 8/25/11)	(M)			1,499,999		835,882		2,887,617
Series E-1 Convertible Preferred Stock (acquired 3/2/15)	(M)			1,225,000		444,404		1,776,987
Series E-2 Convertible Preferred Stock (acquired 3/2/15)	(M)			299,999		103,277		389,566
				7,231,212				13,621,844

ORIG3N, Inc. (5)(8)(9)(13)		Life Sciences
Developing precision medicine applications
for induced pluripotent stems cells
Series 1 Convertible Preferred Stock (acquired 2/5/15-8/5/15)	( I )			500,000		1,195,315		826,563
Series A Convertible Preferred Stock (acquired 11/25/15)	( I )			750,000		682,333		750,338
				1,250,000				1,576,901

Petra Pharma Corporation (5)(8)(9)(13)		Life Sciences
Developing small molecule inhibitors for
treatment of cancer and metabolic diseases
Series A Convertible Preferred Stock (acquired 12/23/15)	( I )			1,025,050		1,025,050		1,019,755

Produced Water Absorbents, Inc. (5)(8)(16)		Energy
Providing integrated process separation solutions
to the global oil and gas industries, enabling onsite
treatment of produced and flowback water
Series A Convertible Preferred Stock (acquired 6/21/11)	(M)			1,000,000		1,000,000		77,549
Series B Convertible Preferred Stock (acquired 6/20/13-3/31/14)	(M)			1,496,865		5,987,460		214,302
Series B-2 Convertible Preferred Stock (acquired 5/12/14)	(M)			1,015,427		4,322,709		154,718
Series B-3 Convertible Preferred Stock (acquired 11/14/13)	(M)			978,641		3,914,564		140,109
Series C Convertible Preferred Stock (acquired 5/26/14)	(M)			1,000,268		2,667,380		75,581
Series D Convertible Preferred Stock (acquired 2/17/15)	(M)			986,066		2,629,510		133,330
Subordinated Secured Debt, 12%, maturing
on 6/30/16 (acquired 10/7/14)	(M)			990,634	$	1,000,000		560,538
Subordinated Convertible Bridge Note, 12%, (acquired 6/3/2015)	(M)			267,425	$	250,000		36,854
Subordinated Convertible Bridge Note, 12%, (acquired 7/15/2015)	(M)			263,973	$	250,000		36,378
Subordinated Convertible Bridge Note, 12%, (acquired 9/28/2015)	(M)			257,808	$	250,000		35,528
Subordinated Convertible Bridge Note, 12%, (acquired 10/30/2015)	(M)			255,178	$	250,000		35,166
Warrants for Series B-2 Preferred Stock expiring
upon liquidation event (acquired 5/12/14)	( I )			65,250		300,000		174
				8,577,535				1,500,227

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

HARRIS & HARRIS GROUP, INC.

CONSOLIDATED SCHEDULE OF INVESTMENTS AS OF DECEMBER 31, 2015

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

Investments in Non-Controlled
Affiliated Companies (3) –
67.9% of net assets at value (Cont.)

Private Placement Portfolio (Illiquid) (14) –
47.2% of net assets at value (Cont.)

Ultora, Inc. (5)(8)(17)		Energy
Developed energy-storage devices
enabled by carbon nanotubes
Series A Convertible Preferred Stock (acquired 12/5/13)	(M)		$	886,830		17,736	$	0
Series B Convertible Preferred Stock (acquired 12/5/13)	(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: $49,262,921)							$	41,909,262

Publicly Traded Portfolio (18) –
20.7% of net assets at value

Adesto Technologies Corporation (5)(8)(9)(19)		Electronics
Developing low-power, high-performance
memory devices
Common Stock (acquired 10/27/15)	(M)		$	11,482,417		1,769,868	$	13,645,682

Enumeral Biomedical Holdings, Inc. (5)(8)(9)(20)		Life Sciences
Developing therapeutics and diagnostics
through functional assaying of single cells
Common Stock (acquired 7/31/14)	(M)			4,993,357		7,966,368		1,831,468
Warrants for Common Stock expiring 7/30/19 (acquired 7/31/14)	( I )			540,375		1,500,000		43,326
Warrants for Common Stock expiring 2/2/24 (acquired 7/31/14)	( I )			57,567		255,120		44,160
Options to Purchase Common Stock at $1.00
expiring 7/30/16 (acquired 8/4/14)	( I )			0		80,000		54
				5,591,299				1,919,008

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

HARRIS & HARRIS GROUP, INC.

CONSOLIDATED SCHEDULE OF INVESTMENTS AS OF DECEMBER 31, 2015

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

Publicly Traded Portfolio (18) –
20.7% of net assets at value (Cont.)

OpGen, Inc. (5)(21)		Life Sciences
Developing tools for genomic sequence
assembly and analysis
Common Stock (acquired 5/5/15)	(M)		$	5,665,708		1,409,796	$	2,678,612
Warrants for Common Stock expiring 5/8/20 (acquired 5/5/15)	(M)			425,579		300,833		101,431
Warrants for Common Stock expiring 2/17/25 (acquired 5/5/15)	( I )			785		31,206		26,372
				6,092,072				2,806,415

Total Non-Controlled Affiliated Publicly Traded Portfolio (cost: $23,165,788)							$	18,371,105

Total Investments in Non-Controlled Affiliated Companies (cost: $72,428,709)							$	60,280,367

Investments in Controlled
Affiliated Companies (3) –
7.9% of net assets at value

Private Placement Portfolio (Illiquid) (22) –
7.9% of net assets at value

Black Silicon Holdings, Inc. (5)(8)(23)		Electronics
Holding company for interest in a company that
develops silicon-based optoelectronic products
Series A Convertible Preferred Stock (acquired 8/4/15)	( I )		$	750,000		233,499	$	0
Series A-1 Convertible Preferred Stock (acquired 8/4/15)	( I )			890,000		2,966,667		0
Series A-2 Convertible Preferred Stock (acquired 8/4/15)	( I )			2,445,000		4,207,537		0
Series B-1 Convertible Preferred Stock (acquired 8/4/15)	( I )			1,169,561		1,892,836		0
Series C Convertible Preferred Stock (acquired 8/4/15)	( I )			1,171,316		1,674,030		0
Secured Convertible Bridge Note, 8%, (acquired 8/4/15)	( I )			1,321,068	$	1,278,454		316,613
				7,746,945				316,613

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

HARRIS & HARRIS GROUP, INC.

CONSOLIDATED SCHEDULE OF INVESTMENTS AS OF DECEMBER 31, 2015

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

Investments in Controlled
Affiliated Companies (3) –
7.9% of net assets at value (Cont.)

Private Placement Portfolio (Illiquid) (22) –
7.9% of net assets at value (Cont.)

NGX Bio, Inc. (5)(8)(9)(24)		Life Sciences
Developing translational genomics solutions
Series Seed Convertible Preferred Stock (acquired 6/6/14)	( I )		$	375,000		500,000	$	446,878
Series A Convertible Preferred Stock (acquired 8/20/15-9/30/15)	( I )			499,999		329,989		403,538
Warrants for Series Seed Preferred Stock
expiring 6/6/19 (acquired 6/6/15)	( I )			125,000		166,667		148,958
				999,999				999,374

ProMuc, Inc. (5)(8)		Life Sciences
Developing synthetic mucins for the
nutritional, food and health care markets
Common Stock (acquired 12/18/13)	(M)			1		1,000		1
Secured Convertible Bridge Note, 8%, (acquired 12/18/13)	(M)			407,074	$	350,000		407,074
Secured Convertible Bridge Note, 8%, (acquired 8/13/14)	(M)			111,091	$	100,000		111,091
Secured Convertible Bridge Note, 8%, (acquired 8/5/15)	(M)			77,449	$	75,000		77,449
Secured Convertible Bridge Note, 8%, (acquired 12/7/15)	(M)			55,301	$	55,000		55,301
				650,916				650,916

Senova Systems, Inc. (5)(8)(9)		Life Sciences
Developing next-generation sensors to measure pH
Series B Convertible Preferred Stock (acquired 9/9/11-7/18/12)	( I )			1,218,462		1,350,000		284,938
Series B-1 Convertible Preferred Stock (acquired 8/1/13-1/15/14)	( I )			1,083,960		2,759,902		659,411
Series C Convertible Preferred Stock (acquired 10/24/14-4/1/15)	( I )			1,208,287		1,611,049		1,127,419
Warrants for Series B Preferred Stock
expiring 10/15/17 (acquired 10/15/12)	( I )			131,538		164,423		34,703
Warrants for Series B Preferred Stock
expiring 4/24/18 (acquired 4/24/13)	( I )			20,000		25,000		5,277
				3,662,247				2,111,748

SynGlyco, Inc. (5)(8)		Life Sciences
Developed synthetic carbohydrates for
pharmaceutical applications
Common Stock (acquired 12/13/11)	( I )		$	2,729,817		57,463		0
Series A' Convertible Preferred Stock (acquired 12/13/11-6/7/12)	( I )			4,855,627		4,855,627		100,343
Secured Convertible Bridge Note, 8%, (acquired 1/23/13)	( I )			438,931	$	350,000		438,931
Secured Convertible Bridge Note, 8%, (acquired 4/25/13)	( I )			369,170	$	300,000		369,170
				8,393,545				908,444

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

HARRIS & HARRIS GROUP, INC.

CONSOLIDATED SCHEDULE OF INVESTMENTS AS OF DECEMBER 31, 2015

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

Investments in Controlled
Affiliated Companies (3) –
7.9% of net assets at value (Cont.)

Private Placement Portfolio (Illiquid) (22) –
7.9% 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 (acquired 8/20/14)	(M)		$	20		2,000,000	$	20
Secured Convertible Bridge Note, 8%, (acquired 8/20/14)	(M)			333,516	$	300,000		500,274
Secured Convertible Bridge Note, 8%, (acquired 5/18/15)	(M)			209,995	$	200,000		314,992
Secured Convertible Bridge Note, 8%, acquired 12/1/15	(M)			1,208,153	$	1,200,000		1,208,153
				1,751,684				2,023,439

Total Controlled Private Placement Portfolio (cost: $23,205,336)							$	7,010,534

Total Investments in Controlled Affiliated Companies (cost: $23,205,336)							$	7,010,534

Total Private Placement and Publicly Traded Portfolio (cost: $116,896,172)							$	76,986,968

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

HARRIS & HARRIS GROUP, INC.

CONSOLIDATED SCHEDULE OF INVESTMENTS AS OF DECEMBER 31, 2015

Method of

Primary

Shares/

Valuation (1)

Industry (2)

Cost

Principal

Value

Equity Method Investments (25) –

0.2% of net assets at value

Private Placement Portfolio (Illiquid) (25) –

0.2% of net assets at value

Accelerator IV-New York Corporation (8)(9)(26)

Life Sciences

Identifying and managing emerging

biotechnology companies

Series A Common Stock (acquired 7/21/14-1/30/15)

(E)

165,936

478,227

165,936

Total Equity Method Investments (cost: $165,936)

165,936

Total Investments (cost: $117,062,108)

77,152,904

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

HARRIS & HARRIS GROUP, INC.

CONSOLIDATED SCHEDULE OF INVESTMENTS AS OF DECEMBER 31, 2015

Notes to Consolidated Schedule of Investments

(1)

See "Footnote to Consolidated Schedule of Investments" on page 34 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 $18,857,235. The gross unrealized appreciation based on the tax cost for these securities is $10,390. The gross unrealized depreciation based on the tax cost for these securities is $13,491,153.

(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 $781,863. The gross unrealized appreciation based on the tax cost for these securities is $2,580,188. The gross unrealized depreciation based on the tax cost for these securities is $0.

(7)

(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)

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

HARRIS & HARRIS GROUP, INC.

CONSOLIDATED SCHEDULE OF INVESTMENTS AS OF DECEMBER 31, 2015

(11)

In February of 2016, Cambrios Technologies Corporation ceased operations and began liquidation of its assets through a general assignment for the benefit of creditors.

(12)

(13)

Initial investment was made in 2015.

(14)

The aggregate cost for federal income tax purposes of investments in non-controlled affiliated privately held companies is $49,262,921. The gross unrealized appreciation based on the tax cost for these securities is $10,504,995. The gross unrealized depreciation based on the tax cost for these securities is $17,858,654.

(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 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.

(16)

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

(17)

In March of 2015, Ultora, Inc., ceased operations and began liquidation of its assets through a general assignment for the benefit of creditors.

(18)

The aggregate cost for federal income tax purposes of investments in non-controlled affiliated publicly traded companies is $23,165,788. The gross unrealized appreciation based on the tax cost for these securities is $2,163,265. The gross unrealized depreciation based on the tax cost for these securities is $6,957,948.

(19)

As of December 31, 2015, the Company's shares of Adesto Technologies Corporation were subject to a lock-up agreement that restricts our ability to trade these securities. A total of 200,000 shares are not qualifying assets 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.

(20)

As of December 31, 2015, a portion of the Company's shares and warrants of Enumeral Biomedical Holdings, Inc., were subject to a lock-up agreement that restricts our ability to trade these securities. The lock-up period on our securities of Enumeral Biomedical Holdings expired on January 31, 2016. A portion of our shares were held in escrow as of the end of 2015. This escrow period expired with no claims against the escrowed shares.

(21)

The Company's shares of OpGen, Inc., became freely tradeable on November 2, 2015. A total of 300,833 shares and 300,833 warrants are not qualifying assets 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.

(22)

The aggregate cost for federal income tax purposes of investments in controlled affiliated companies is $23,205,336. The gross unrealized appreciation based on the tax cost for these securities is $271,755. The gross unrealized depreciation based on the tax cost for these securities is $16,466,557.

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

HARRIS & HARRIS GROUP, INC.

CONSOLIDATED SCHEDULE OF INVESTMENTS AS OF DECEMBER 31, 2015

(23)

(24)

On August 19, 2015, UberSeq, Inc., changed its name to NGX Bio, Inc.

(25)

The aggregate cost for federal income tax purposes of investments in privately held equity method investments is $165,936. 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.

(26)

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 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: Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. These include 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.

The Company values one investment using the equity method.

Equity Method (E): 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.

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, 2016, 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 statement 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, 2015.

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. Amounts reported in "Net increases in unrealized depreciation on investments" have been reclassified from prior years. Amounts related to portfolio company investments were previously reported as a single amount and have been reclassified to present unrealized (depreciation) appreciation from unaffiliated companies, controlled affiliated companies, unaffiliated rights to milestone payments, non-controlled affiliated companies, publicly traded companies and other investments. There was no impact to the total amounts reported in any period.

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, 2016, our financial statements include investments fair valued by the Board of Directors at $60,084,507 and one investment valued under the equity method at $228,133. 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 securities of Champions Oncology, Inc., certain warrants and options of Enumeral Biomedical Holdings, Inc., and the warrants of OpGen, 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, 2016, and December 31, 2015, the outstanding potential milestone payments from Amgen, Inc.’s acquisition of BioVex Group, Inc., were valued at $2,495,696 and $2,900,232, 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. On November 23, 2015, the Company received a payment of $2,070,955 owing to the achievement of the second milestone. If all the remaining milestones are met, we would receive $4,141,910. At March 31, 2016, and December 31, 2015, the outstanding potential milestone payments from Canon, Inc.'s acquisition of Molecular Imprints, Inc., were valued at $464,073 and $461,819, respectively. On October 1, 2015, the Company received a payment of $795,567 owing to the achievement of the first milestone. If all the remaining milestones are met, we would receive an additional $938,926. At March 31, 2016, and December 31, 2015, 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 assurances as to how much of these amounts we will ultimately realize or when they will be realized, if at all.

Funds Held in Escrow from Sale of Investment. At March 31, 2016, and December 31, 2015, there were funds held in escrow fair valued at $506,949 and $311,137, respectively, relating to the sale of Molecular Imprints, Inc.'s semiconductor lithography equipment business to Canon, Inc. On April 20, 2016, the Company received proceeds of $390,492 from the release of a portion of the funds held in escrow following the transaction. The remaining funds held in escrow are expected to be released in April of 2017, net of 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 $118,051. At March 31, 2016, and December 31, 2015, there were funds held in escrow fair valued at $126,972 and $63,428, respectively, relating to the sale of Molecular Imprints' non-semiconductor business to Magic Leap, Inc., that are expected to be released in May of 2016, net of 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 $126,972.

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 $168,634 and $180,089 at March 31, 2016, and December 31, 2015, respectively, representing cost, less accumulated depreciation of $454,587 and $445,476, 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 post-retirement benefit cost for the year includes service cost for the year and interest on the accumulated post-retirement 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, 2016, and March 31, 2015, the Company earned $34,865 and $82,807, respectively, in interest on subordinated secured debt, non-convertible promissory notes, senior secured debt and interest-bearing accounts. During the three months ended March 31, 2016, and March 31, 2015, the Company recorded, on a net basis, $115,675 and $53,025, respectively, of bridge note interest.

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. For the three months ended March 31, 2016, and March 31, 2015, total yield-enhancing fees accreted into investment income were $4,625, and $26,307, respectively.

Fees for Providing Managerial Assistance to Portfolio Companies. For the three months ended March 31, 2016, and March 31, 2015, the Company earned income of $146,877 and $7,000, respectively, owing to certain of its employees providing managerial assistance to certain 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. Previously recorded unrealized gains and losses on expired, exercised or closed options are reversed at the time of such transactions. At March 31, 2016, and December 31, 2015, 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 three months ended March 31, 2016, and March 31, 2015, 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 leased office space in California until December 31, 2015, and 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). Securities transactions outside conventional channels, such as private transactions, are recorded as of the date the Company obtains the right to demand the securities purchased or to collect the proceeds from a sale and incurs the obligation to pay for the securities purchased or to deliver the securities sold.

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's insured limit and is subject to the credit risk of such institutions to the extent it exceeds such limit.

Concentration of Investor Risk. As of March 31, 2016, three investors, Ariel Investments, Granahan Investment Management and Susan T. Harris owned approximately 11.4 percent, 6.3 percent and 5.4 percent of our outstanding shares, respectively.

Recent Accounting Pronouncements. On April 7, 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 requires that debt issuance costs be presented in the balance sheet as a direct deduction from the carrying amount of related debt liability, consistent with debt discounts. Under the former accounting standards, such costs were recorded as an asset. On August 18, 2015, the FASB clarified that the guidance in ASU 2015-03 does not apply to line of credit arrangements. Accordingly, companies may continue to present debt issuance costs for line of credit arrangements as an asset and subsequently amortize the deferred debt costs ratably over the term of the arrangement. The new guidance in ASU 2015-03 was adopted on January 1, 2016, and did not have a material impact on the Company’s Consolidated Financial Statements.

On February 18, 2015, the FASB issued ASU 2015-02, "Consolidation (Topic 810): Amendments to the Consolidation Analysis" that amends the current consolidation guidance. The amendments affect both the variable interest entity and voting interest entity consolidation models. The new guidance was adopted on January 1, 2016, and did not have a material impact on the Company’s Consolidated Financial Statements.

On May 28, 2014, the FASB and the International Accounting Standards Board ("IASB") issued their final converged standard on revenue recognition. The standard, issued as ASU 2014-09, "Revenue from Contracts with Customers" by the FASB, provides a single, comprehensive revenue recognition model for all contracts with customers and supersedes current revenue recognition guidance. The revenue standard contains principles that an entity will apply to determine the measurement of revenue and timing of when it is recognized. The underlying principle is that an entity will recognize revenue to depict the transfer of goods or services to customers at an amount that the entity expects to be entitled to in exchange for those goods or services. The new standard also includes enhanced disclosures which are significantly more comprehensive than those in existing revenue standards. ASU 2014-09 was to be effective for the Company beginning January 1, 2017. However, on July 9, 2015, the FASB voted to approve a one-year deferral of the effective date. This new guidance is now expected to be effective for the Company beginning January 1, 2018. The standard allows for either "full retrospective" adoption, meaning the standard is applied to all of the periods presented, or "modified retrospective" adoption, meaning the standard is applied only to the most current period presented in the financial statements. The impact on the Company's Consolidated Financial Statements is currently being evaluated.

On June 19, 2014, the FASB issued ASU No. 2014-12, "Compensation - Stock Compensation (Topic 718): Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could be Achieved After the Requisite Service Period." This ASU provides more explicit guidance for treating share-based payment awards that require a specific performance target that affects vesting and that could be achieved after the requisite service period as a performance condition. The new guidance was adopted on January 1, 2016, and did not have a material impact on the Company’s Consolidated Financial Statements.

On August 27, 2014, the FASB issued ASU No. 2014-15, "Disclosure of Uncertainties About an Entity’s Ability to Continue as a Going Concern." This ASU requires management to perform interim and annual assessments of an entity’s ability to continue as a going concern within one year of the date the financial statements are issued and provides guidance on determining when and how to disclose going concern uncertainties in the financial statements. Certain disclosures will be required if conditions give rise to substantial doubt about an entity’s ability to continue as a going concern. The new guidance applies to all entities and is effective for annual and interim reporting periods ending after December 15, 2016, with early adoption permitted. The impact on the Company's Consolidated Financial Statements is currently being evaluated.

On February 25, 2016, the FASB issued ASU No. 2016-02, "Leases" (Topic 842). This ASU revises the accounting for leases. Under the new guidance, lessees are required to recognize a right-of-use asset and a lease liability for all leases. The new guidance will continue to classify leases as either financing or operating, with classification affecting the pattern of expense recognition. The accounting applied by a lessor under the new guidance will be substantially equivalent to current lease accounting guidance. The new guidance is effective January 1, 2019, with early adoption permitted. The new standard is required to be applied with a modified retrospective approach to each prior reporting period presented and provides for certain practical expedients. The impact on the Company's Consolidated Financial Statements is currently being evaluated.

On March 30, 2016, the FASB issued ASU No. 2016-09, "Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting." This ASU is intended to simplify several aspects of the accounting for share-based payment award transactions. The guidance will be effective for the fiscal year beginning after December 15, 2016, including interim periods within that year. The impact on the Company’s Consolidated Financial Statements is currently being evaluated.

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, which may restrict our ability to sell our positions and prices can be volatile. 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, 2016, and December 31, 2015, our largest 10 investments by value accounted for approximately 79 percent and 79 percent, respectively, of the value of our equity-focused portfolio. Our largest three investments, by value, D-Wave Systems, Inc., Metabolon, Inc., and Adesto Technologies Corporation accounted for approximately 16 percent, 16 percent and 14 percent, respectively, of our equity-focused portfolio at March 31, 2016. Our largest three investments, by value, Adesto Technologies Corporation, Metabolon, Inc., and HZO, Inc., accounted for approximately 19 percent, 18 percent and 10 percent, respectively, of our equity-focused portfolio at December 31, 2015. D-Wave Systems, Metabolon and HZO are privately held portfolio companies. Adesto Technologies is a publicly traded portfolio company.

Approximately 81 percent of the portion of our equity-focused portfolio that was fair valued was comprised of securities of 24 privately held companies, the securities of publicly traded Champions Oncology, Inc., the warrants of OpGen, Inc., and certain warrants and options of Enumeral Biomedical Holdings, Inc. Approximately 0.3 percent of the portion of our equity-focused 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 $20 million 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 pays interest in cash on its outstanding borrowings. 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, 2016, and December 31, 2015, the Company had outstanding debt of $5,000,000. The weighted average annualized interest rate for each of the three months ended March 31, 2016, and the year ended December 31, 2015, was 10 percent, exclusive of amortization of closing fees and other expenses. The weighted average debt outstanding for the three months ended March 31, 2016, and the year ended December 31, 2015, was $5,000,000. The remaining capacity under the Loan Facility was $15,000,000 at March 31, 2016. Unamortized fees and expenses of $262,320 and $306,040 related to establishing the Loan Facility are included as "Prepaid expenses" in the Consolidated Statements of Assets and Liabilities as of March 31, 2016, and December 31, 2015, respectively. These amounts are amortized over the term of the Loan Facility, and $43,720 was amortized in each of the three months ended March 31, 2016, and March 31, 2015. The Company paid $37,917 and $50,000 in non-utilization fees during the three months ended March 31, 2016, and March 31, 2015, respectively. The Company paid $126,389 and $0 in interest expense for the three months ended March 31, 2016, and March 31, 2015, respectively. During the three months ended March 31, 2016, and March 31, 2015, the Company paid $0 and $50,000 in utilization fees associated with a drawdown of the Loan Facility. At March 31, 2016, the Company was in compliance with all covenants required by the Loan Facility.

NOTE 6. FAIR VALUE OF INVESTMENTS

At March 31, 2016, 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, 2016		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	$	49,625,042	$	0	$	0	$	49,625,042
Bridge Notes		4,203,806		0		0		4,203,806
Warrants		249,135		0		0		249,135
Rights to Milestone Payments		2,959,769		0		0		2,959,769
Common Stock		668,032		0		0		668,032
Subordinated Secured Debt		570,491		0		0		570,491
Senior Secured Debt		875,000		0		0		875,000
Options		0		0		0		0

Publicly Traded Portfolio Companies:

Common Stock	$	14,142,321	$	13,209,089	$	933,232	$	0

Total Investments:	$	73,293,596	$	13,209,089	$	933,232	$	59,151,275

Funds Held in Escrow From
Sales of Investments:	$	633,921	$	0	$	0	$	633,921

Total Financial Assets:	$	73,927,517	$	13,209,089	$	933,232	$	59,785,196

Financial Instruments Disclosed, but not Carried, at Fair Value

The following table presents the carrying value and the fair value of the Company's financial liabilities disclosed, but not carried, at fair value as of March 31, 2016, and the level of each financial liability within the fair value hierarchy:

Description	Carrying Value		Fair Value		Level 1		Level 2		Level 3

Term Loan Credit Facility⁽¹⁾	$	5,000,000	$	5,000,000	$	0	$	0	$	5,000,000

Total	$	5,000,000	$	5,000,000	$	0	$	0	$	5,000,000

⁽¹⁾

Fair value of the Term Loan Credit Facility is equal to the carrying amount of this credit facility.

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, 2016		Valuation Technique(s)	Unobservable Input	Range (Weighted Average^(a))

Preferred Stock	$	12,257,859	Hybrid Approach	Private Offering Price Volatility Time to Exit	$1.08 - $2.62 ($2.53) 54.2% - 135.7% (59.0%) 1.0 - 1.5 Years (1.47)

Preferred Stock		22,606,559	Income Approach	Private Offering Price Non-Performance Risk Volatility Time to Exit	$0.34 - $3.71 ($2.18) 0% - 40% (1.8%) 0% - 135.7% (69.2%) 1.0 - 4.8 Years (2.8)

Preferred Stock		14,760,624	Market Approach	Private Offering Price Non-Performance Risk Volatility Revenue Multiples Time to Exit Discount for Lack of Marketability	$21.31 ($21.31) 0% - 25% (3.08%) 0% - 62.1% (50.5%) 0 - 4.40 (3.59) 0.2 - 2 Years (1.1) 0% - 17.3% (14.2%)

Bridge Notes		645,741	Income Approach	Private Offering Price	$1.00 ($1.00)

Bridge Notes		3,558,065	Market Approach	Private Offering Price	$0.57 - $1.00 ($0.99)

Cont'd

	Fair Value at March 31, 2016		Valuation Technique(s)	Unobservable Input	Range (Weighted Average^(a))

Common Stock		308,007	Hybrid Approach	Private Offering Price Volatility Time to Exit	$1.08 ($1.08) 135.7% (135.7%) 1 Year (1)

Common Stock		359,994	Income Approach	Private Offering Price Volatility Time to Exit	$3.71 ($3.71) 53.2% (53.2%) 3 Years (3)

Common Stock		31	Market Approach	Private Offering Price	$0.00001 - $0.0010 ($0.0001)

Warrants		107,141	Income Approach	Stock Price Volatility Expected Term	$0.0071 - $3.83 ($0.88) 0% - 94.7% (72.9%) 1.50 - 8.89 Years (5.66)

Warrants		141,994	Market Approach	Stock Price Volatility Expected Term	$0.24 - $2.58 ($1.37) 0% - 61.9% (29.9%) 0.17 - 6.63 Years (3.19)

Rights to Milestone Payments		2,959,769	Probability Weighted Discounted Cash Flow	Probability of Achieving Independent Milestones Probability of Achieving Dependent Milestones	0% - 100% (54%) 0% - 75% (28%)

Subordinated Secured Debt		570,491	Market Approach	Market Price	0.57 (0.57)

Senior Secured Debt		875,000	Market Approach	Effective Yield	0% (0%)

Funds Held in Escrow From Sales of Investments		633,921	Market Approach	Escrow Discount	0% - 50% (9%)

Options		0	Income Approach	Stock Price Volatility Expected Term	$0.16 ($0.16) 84% (84%) 0.33 Years (0.33)

Total	$	59,785,196

^(a) Weighted average based on fair value at March 31, 2016.

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 also include discount factors for adjustments to transaction/sale values and discount ratios for discounted cash flows in our definition of non-performance risk. 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. We may also consider changes in market values for sets of comparable companies when recent private transaction information is not available.

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. Conversely, we may acquire or hold notes that are pari passu with other notes but have different conversion terms. In such cases, we may apply an adjustment factor to reflect the differences in the terms with respect to values.

Warrants and Options

We use the Black-Scholes-Merton option-pricing model to determine the fair value of warrants and options held in our portfolio unless there is a publicly traded active market for such warrants and options or another indication of value such as a sale of the portfolio company. 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.

The following chart shows the components of change in the financial assets categorized as Level 3 for the three months ended March 31, 2016.

	Beginning Balance 1/1/2016		Total Realized (Losses) Gains Included in Changes in Net Assets			Transfers			Total Unrealized (Depreciation) Appreciation Included in Changes in Net Assets			Investments in Portfolio Companies, Interest on Bridge Notes, and Amortization of Loan Fees, Net		Disposals and Settlements			Ending Balance 3/31/2016		Amount of Total (Depreciation) Appreciation for the Period Included in Changes in Net Assets Attributable to the Change in Unrealized Losses or Gains Relating to Assets Still Held at the Reporting Date

Preferred Stock	$	48,568,205	$	(4,541,782	)¹	$	148,958	²	$	4,949,659		$	500,002	$	0		$	49,625,042	$	407,877

Bridge Notes		4,275,728		(121,522	)¹		0			22,876			890,674		(863,950	)		4,203,806		(98,647	)

Common Stock		639,786		0			0			28,236			10		0			668,032		28,236

Warrants		480,025		0			(148,958	)²		(81,932	)		0		0			249,135		(81,932	)

Rights to Milestone Payments		3,362,051		0			0			(402,282	)		0		0			2,959,769		(402,282	)

Subordinated Secured Debt		560,538		0			0			5,328			4,625		0			570,491		5,328

Senior Secured Debt		0		0			0			0			875,000		0			875,000		0

Funds Held in Escrow From Sales of Investments		374,565		259,356	³		0			0			0		0			633,921		0

Options		54		0			0			(54	)		0		0			0		(54	)

OTC Traded Common Stock		29,732		0			(29,732	)		0			0		0			0		0

Total	$	58,290,684	$	(4,403,948	)	$	(29,732