As filed with the Securities and Exchange Commission on April 4, 2008

 

 

Registration Statement Under The Securities Act Of 1933:

	Pre-Effective Amendment No.	o
	Post-Effective Amendment No. 3	x

 

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111 West 57^th Street

111 West 57^th Street

 

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Sandra M. Forman, Esq.	Richard T. Prins, Esq.
General Counsel	Skadden, Arps, Slate, Meagher & Flom LLP
Harris & Harris Group, Inc.	Four Times Square
111 West 57th Street, Suite 1100	New York, New York 10036
New York, NY 10019	(212) 735-3000
(212) 582-0900

 

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x when declared effective pursuant to Section 8(c)

Title of Securities Being Registered		Amount Being  Registered			Proposed  Maximum  Offering Price  Per Share(1)			Proposed  Maximum  Aggregate  Offering Price			Amount of  Registration  Fee
Common Stock, $0.01 par value			4,000,000		$	7.35		$	29,400,000		$	1,155.42	(2)

(1)	Estimated solely for the purpose of determining the registration fee pursuant to Rule 457(c) under the Securities Act of 1933 and based on the average of the high and low prices as reported on the Nasdaq Global Market of the registrant’s Common Stock on April 1, 2008.

(2)	$1,186.43 previously paid in connection with this Registration Statement filed on November 27, 2006.

 

 

 

 

 

 

Harris & Harris Group, Inc.^®, is a venture capital company specializing in tiny technology that operates as a business development company under the Investment Company Act of 1940. We may offer, from time to time, shares of our common stock, $0.01 par value per share ("Common Stock"), in one or more delayed offerings. The Common Stock may be offered at prices and on terms to be set forth in one or more supplements to this Prospectus (each a "Prospectus Supplement"). The offering price per share of our Common Stock will not be less than the net asset value per share of our Common Stock at the time we make the offering exclusive of any underwriting commissions or discounts. You should read this Prospectus and the applicable Prospectus Supplement carefully before you invest in our Common Stock.

 

 

An Investment in the Securities Offered in this Prospectus Involves a High Degree of Risk. You Should Consider Investing in Us Only if You Are Capable of Sustaining the Loss of Your Entire Investment. See "Risk Factors" beginning on page 11.

 

 

 

 

 

In this Prospectus, unless otherwise indicated, "Harris & Harris," "Company," "us," "our" and "we" refer to Harris & Harris Group, Inc.^® "Harris & Harris Group, Inc." is a registered service mark. This Prospectus also includes trademarks owned by other persons.

 

		Page
PROSPECTUS SUMMARY			1
TABLE OF FEES AND EXPENSES			7
SELECTED CONDENSED CONSOLIDATED FINANCIAL DATA			8
SELECTED QUARTERLY DATA (UNAUDITED)			9
INCORPORATION BY REFERENCE			10
AVAILABLE INFORMATION			10
RISK FACTORS			11
FORWARD-LOOKING INFORMATION			21
USE OF PROCEEDS			21
PRICE RANGE OF COMMON STOCK			21
BUSINESS			23
GENERAL DESCRIPTION OF OUR PORTFOLIO COMPANIES			30
DETERMINATION OF NET ASSET VALUE			37
INVESTMENT POLICIES			40
MANAGEMENT OF THE COMPANY			45
BOARD OF DIRECTORS AND EXECUTIVE OFFICERS			45
EXECUTIVE COMPENSATION			53
OTHER INFORMATION			70
BROKERAGE			70
DIVIDENDS AND DISTRIBUTIONS			71
TAXATION			71
CERTAIN GOVERNMENT REGULATIONS			74
CAPITALIZATION			76
PLAN OF DISTRIBUTION			76
LEGAL MATTERS			77
EXPERTS			77
FURTHER INFORMATION			77
PRIVACY POLICY			78

 

 

 

 

 

 

 

 

 

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a portfolio consisting of investments that are generally available only to a small, highly specialized group of professional venture capital firms as investors;

 

 

·

a team of professionals, including six full-time members of management, five of whom are designated as Managing Directors: Charles E. Harris, Douglas W. Jamison, Alexei A. Andreev, Michael A. Janse and Daniel B. Wolfe, and a Vice President, Misti Ushio, to evaluate and monitor investments. One of our directors is also a consultant to us, Lori D. Pressman. These seven professionals collectively have expertise in venture capital investing, intellectual property and tiny technology;

 

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the opportunity to benefit from our experience in a new field expected to permeate a variety of industries; and

 

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through the ownership of our publicly traded shares, a measure of liquidity not typically available in underlying venture capital portfolio investments.

 

 

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increase our capital in order to take advantage of these investment opportunities;

 

·

lower our expenses as a percentage of assets and otherwise achieve certain economies and advantages of scale in our operations, as our costs are primarily fixed. As our assets increase by the net proceeds of this offering, our fixed costs will represent a smaller percentage of our assets; and

 

·

pay operating expenses, including due diligence expenses on potential investments.

 

 

·

our involvement in the field of tiny technology;

 

·

research universities that seek to transfer their scientific discoveries to the private sector;

 

·

other venture capital companies seeking co-investors or referring deals to us; and

 

·

direct calls and business plan submissions by companies, business incubators and individuals seeking venture capital.

 

 

 

 

 

 

 

 

 

 

 

 

·

A continuing lack of initial public offering opportunities may cause companies to stay in our portfolio longer, leading to lower returns, write-downs and write-offs.

 

·

Investing in small, private companies involves a high degree of risk and is highly speculative.

 

·

We may invest in companies working with technologies or intellectual property that currently have few or no proven commercial applications.

 

·

Our portfolio companies may not successfully develop, manufacture or market their products.

 

·

Our portfolio companies working with tiny technology may be particularly susceptible to intellectual property litigation.

 

·

Unfavorable general economic conditions, as well as unfavorable conditions specific to the venture capital industry or a segment of portfolio companies, could result in the inability of our portfolio companies to access additional capital, leading to financial losses in our portfolio.

 

 

·

The value of our portfolio could be adversely affected if the technologies utilized by our portfolio companies are found or even rumored or feared, to cause health or environmental risks, or if legislation is passed that limits the commercialization of any of these technologies.

 

·

Our portfolio companies may generate revenues from the sale of non-tiny technology-enabled products.

 

 

·

We invest in illiquid securities and may not be able to dispose of them when it is advantageous to do so, or ever.

 

·

Unfavorable economic conditions and regulatory changes could impair our ability to engage in liquidity events.

 

·

Even if some of our portfolio companies complete initial public offerings, the returns on our investments in those companies would be uncertain.

 

 

·

Because there is generally no established market in which to value our investments, our Valuation Committee’s value determinations may differ materially from the values that a ready market or third party would attribute to these investments.

 

·

Changes in valuations of our privately held, early stage companies tend to be more volatile than changes in prices of publicly traded securities.

 

·

We expect to continue to experience material write-downs of securities of portfolio companies.

 

·

Because we do not choose investments based on a strategy of diversification, the value of our business is subject to greater volatility than the value of companies with more broadly diversified investments.

 

·

We are dependent upon key management personnel for future success and may not be able to retain them.

 

·

We will need to hire additional employees as the size of our portfolio increases.

 

·

The market for venture capital investments, including tiny technology investments, is highly competitive.

 

·

In addition to the difficulty of finding attractive investment opportunities, our status as a regulated business development company may hinder our ability to participate in investment opportunities or to protect the value of existing investments.

 

·

Our failure to make follow-on investments in our portfolio companies could impair the value of our portfolio.

 

·

Bank borrowing or the issuance of debt securities or preferred stock by us, to fund investments in portfolio companies or to fund our operating expenses, would make our total return to common shareholders more volatile. The use of debt would leverage our available common equity capital, magnifying the impact of changes in the value of our investment portfolio on our net asset value. In addition, the cost of debt or preferred stock financing could exceed the return on the assets the proceeds are used to acquire, in which case the use of leverage would have an adverse impact on the holders of our Common Stock.

 

·

We are authorized to issue preferred stock, which would convey special rights and privileges to its owners senior to those of Common Stock shareholders.

 

·

Loss of status as a RIC would reduce our net asset value and distributable income.

 

·

We operate in a heavily regulated environment, and changes to, or non-compliance with, regulations and laws could harm our business.

 

 

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·

Market prices of our Common Stock will continue to be volatile.

 

·

Quarterly results fluctuate and are not indicative of future quarterly performance.

 

·

To the extent that we do not realize income or choose not to retain after-tax realized capital gains, we will have a greater need for additional capital to fund our investments and operating expenses.

 

·

Investment in foreign securities could result in additional risks.

 

 

·

Investing in our stock is highly speculative and an investor could lose some or all of the amount invested.

 

·

We will have discretion over the use of proceeds of this offering.

 

·

Our shares might trade at discounts from net asset value or at premiums that are unsustainable over the long term.

 

·

The Board of Directors intends to grant stock options to our employees pursuant to the Company’s Equity Incentive Plan. When exercised, these options may have a dilutive effect on existing shareholders.

 

·

You have no right to require us to repurchase your shares.

 

 

 

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our annual report on Form 10-K;

 

·

our quarterly reports on Form 10-Q;

 

·

our current reports on Form 8-K; and

 

·

amendments to those reports.

 

 

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The Offering

 

Common Stock offered		We may offer, from time to time, up to a total of 4,000,000 shares of our Common Stock available under this Prospectus on terms to be determined at the time of the offering. Our Common Stock may be offered at prices and on terms to be set forth in one or more Prospectus Supplements. The offering price per share of our Common Stock net of underwriting commissions or discounts will not be less than the net asset value per share of our Common Stock.
Use of proceeds		Although we will make initial investments exclusively in tiny technology, we can make follow-on investments in non-tiny technology companies currently in our portfolio. Further, while considering venture capital investments, we may invest the proceeds in U.S. government and agency securities, which may yield less than our operating expense ratio. We expect to invest or reserve for potential follow-on investment the net proceeds of any sale of shares under this Prospectus within two years from the completion of such sale. We may also use the proceeds of this offering for operating expenses, including due diligence expenses on potential investments. Our portfolio companies rarely pay us dividends or interest, and we do not generate enough income from fixed income investments to meet all of our operating expenses. For this purpose, we do not expect to reserve for follow-on investments in any particular portfolio holding more than the greater of twice the investment to date in that portfolio holding or five times the initial investment in the case of seed-stage investments, though we may invest more than the amount reserved for this purpose in any particular portfolio holding.
Dividends and Distributions		To the extent that we retain any net capital gain, we may make deemed capital gain dividends. If we do make a deemed capital gain dividend, you will not receive a cash distribution, but instead you will receive a tax credit and increase in basis equal to your proportionate share of the tax paid by us on your behalf. We currently intend to retain our net capital gains for investment and pay the associated federal corporate income tax. We may change this policy in the future. See "Taxation."
Nasdaq Global Market symbol		TINY

 

 

 

 

 

Shareholder Transaction Expenses
Sales Load(1) (as a percentage of offering price)			N/A
Offering Expenses (as a percentage of offering price)			0.85	%
Annual Expenses (as a percentage of net assets attributable to Common Stock)
Management Fees(2)			N/A
Other Expenses(3)
Salaries and Benefits(4)			6.90	%
Administration and Operations(5)			1.32	%
Professional Fees			.54	%
Total Annual Expenses(6)			8.76	%

 

 

On the basis of the foregoing, including the non-cash, stock-based compensation expense, you would pay the following expenses on a $10,000 investment, assuming a five percent annual return:^*

 

1 Year		3 Years			5 Years			10 Years
$    938		$	2,549		$	4,041		$	7,305

*

This example includes non-cash, stock-based compensation. Excluding the non-cash, stock-based compensation, you would pay expenses of $475 in 1 year, $1,268 in 3 years, $2,078 in 5 years and $4,181 in 10 years, on a $10,000 investment, assuming a five percent return.

The foregoing table is to assist you in understanding the various costs and expenses that an investor in our Common Stock will bear directly or indirectly. The assumed five percent annual return is not a prediction of, and does not represent, the projected or actual performance of our Common Stock. The above example should not be considered a representation of future expenses, and actual expenses and annual rates of return may be more or less than those assumed for purposes of the example. 

 

(1)	In the event that the shares of Common Stock to which this Prospectus relates are sold to or through underwriters, a corresponding Prospectus Supplement will disclose the sales load.

 

(2)	The Company has no external management fees because it is internally managed.

 

(3)	"Other Expenses" are based on amounts for the fiscal year ended December 31, 2007.

 

(4)

"Salaries and Benefits" includes non-cash stock-based compensation expense of $8,050,807. The Company accounts for stock-based compensation expense pursuant to SFAS No. 123(R) "Share-Based Payment," which requires that we determine the fair value of all share-based payments to employees, including the fair value of grants of employee stock options, and record these amounts as an expense in the Statement of Operations over the vesting period with a corresponding increase to our additional paid-in capital. There is no effect on net asset value from stock-based compensation expense at the time of grant. If options are exercised, net asset value per share will be decreased if the net asset value per share at the time of exercise is higher than the exercise price and net asset value per share will be increased if the net asset value per share at the time of exercise is lower than the exercise price. Excluding the non-cash, stock-based compensation expense, "Salaries and benefits" totals $3,384,522 or 2.04 percent of net assets attributable to Common Stock.

 

 

(5)	"Administration and Operations" includes expenses incurred for administration, operations, rent, directors’ fees and expenses, depreciation and custodian fees.

 

(6)	"Total Annual Expenses" includes non-cash compensation expense of $8,050,807. See Footnote (4) above. Cash-based total annual expenses as a percentage of net assets attributable to Common Stock is 3.91 percent.

 

 

 

 

		2007			2006			2005			2004			2003
Total assets		$	142,893,332		$	118,328,590		$	132,938,120		$	79,361,451		$	44,115,128
Total liabilities		$	4,529,988		$	4,398,287		$	14,950,378		$	4,616,652		$	3,432,390
Net assets		$	138,363,344		$	113,930,303		$	117,987,742		$	74,744,799		$	40,682,738
Net asset value per outstanding share		$	5.93		$	5.42		$	5.68		$	4.33		$	2.95
Cash dividends paid		$	0.00		$	0.00		$	0.00		$	0.00		$	0.00
Cash dividends paid per outstanding share		$	0.00		$	0.00		$	0.00		$	0.00		$	0.00
Shares outstanding, end of year			23,314,573			21,015,017			20,756,345			17,248,845			13,798,845

 

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		2007			2006			2005			2004			2003
Total investment income		$	2,705,636		$	3,028,761		$	1,540,862		$	637,562		$	167,785
Total expenses1		$	14,533,179		$	10,641,696		$	7,006,623		$	4,046,341		$	2,731,527
Net operating (loss) income		$	(11,827,543	)	$	(7,612,935	)	$	(5,465,761	)	$	(3,408,779	)	$	(2,563,742	)
Total tax expense (benefit) 2		$	87,975		$	(227,355	)	$	8,288,778		$	650,617		$	13,761
Net realized income (loss) from investments		$	30,162		$	258,693		$	14,208,789		$	858,503		$	(984,925	)
Net decrease (increase) in unrealized depreciation on investments		$	5,080,936		$	(4,418,870	)	$	(2,026,652	)	$	484,162		$	343,397
Net (decrease) increase in net assets resulting from operations		$	(6,716,445	)	$	(11,773,112	)	$	6,716,376		$	(2,066,114	)	$	(3,205,270	)
(Decrease) Increase in net assets resulting from operations per average outstanding share		$	(0.30	)	$	(0.57	)	$	0.36		$	(0.13	)	$	(0.28	)

¹Included in total expenses are the following profit-sharing expenses: $0 in 2007, $50,875 in 2006; $1,796,264 in 2005; and $311,594 in 2004. Also included in total expenses is non-cash, stock-based compensation expense of $8,050,807 in 2007 and $5,038,956 in 2006. There was no stock-based compensation expense in 2005, 2004, or 2003.

²Included in total tax expense are the following taxes paid by the Company on behalf of shareholders: $0 in each of 2007 and 2006, $8,122,367 in 2005, $0 in each of 2004 and 2003.

		2007
		1st Quarter			2nd Quarter			3rd Quarter			4th Quarter
Total investment income		$	652,498		$	637,701		$	743,414		$	672,023
Net operating loss		$	(2,667,118	)	$	(2,891,667	)	$	(3,117,595	)	$	(3,151,163	)
Net increase (decrease) in net assets resulting from operations		$	(6,390,160	)	$	(4,093,644	)	$	604,237		$	3,163,122
Net (decrease) increase in net assets resulting from operations
Per average outstanding share		$	(0.30	)	$	(0.19	)	$	0.03		$	0.16
		2006
			1st Quarter			2nd Quarter			3rd Quarter			4th Quarter
Total investment income		$	804,862		$	785,265		$	719,619		$	719,015
Net operating loss		$	(767,743	)	$	(693,887	)	$	(2,988,790	)	$	(3,162,515	)
Net increase (decrease) in net assets resulting from operations		$	(1,653,990	)	$	(1,282,997	)	$	(2,588,092	)	$	(6,248,033	)
Net (decrease) increase in net assets resulting from operations
Per average outstanding share		$	(0.08	)	$	(0.06	)	$	(0.12	)	$	(0.31	)

 

 

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		2005
		1st Quarter			2nd Quarter			3rd Quarter			4th Quarter
Total investment income		$	260,108		$	158,717		$	315,374		$	801,662
Net operating loss		$	(745,590	)	$	(3,302,094	)	$	(3,273,797	)	$	1,851,274
Net increase (decrease) in net assets resulting from operations		$	(2,233,447	)	$	7,001,847		$	7,336,923		$	(5,388,947	)
Net (decrease) increase in net assets resulting from operations
Per average outstanding share		$	(0.13	)	$	0.41		$	0.40		$	(0.26	)

 

 

 

We will furnish, without charge, a copy of the financial statements upon request by writing to 111 West 57^th Street, Suite 1100, New York, New York 10019, Attention: Investor Relations, or by calling 1-877-TINY-TECH.

 

We file annual, quarterly and current reports, proxy statements and other information with the SEC under the Securities Exchange Act of 1934. You can inspect any materials we file with the SEC, without charge, at the SEC’s Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549. Please call the SEC at 202-942-8090 for further information on the Public Reference Room. The SEC maintains a web site that contains reports, proxy statements and other information regarding registrants, including us, that file such information electronically with the SEC. The address of the SEC’s web site is www.sec.gov. Information contained on the SEC’s web site about us is not incorporated into this Prospectus and you should not consider information contained on the SEC’s web site to be part of this Prospectus.

 

 

 

 

Our portfolio companies may not successfully develop, manufacture or market their products.

 

Unfavorable general economic conditions, as well as unfavorable conditions specific to the venture capital industry or a segment of portfolio companies, could result in the inability of our portfolio companies to access additional capital, leading to financial losses in our portfolio.

The value of our portfolio could be adversely affected if the technologies utilized by our portfolio companies are found, or even rumored or feared, to cause health or environmental risks, or if legislation is passed that limits the commercialization of any of these technologies.

Nanotechnology has received both positive and negative publicity and is the subject increasingly of public discussion and debate. For example, debate regarding the production of materials that could cause harm to the environment or the health of individuals could raise concerns in the public’s perception of nanotechnology, not all of which might be rational or scientifically based. Tiny technology in general and nanotechnology in particular are currently the subject of health and environmental impact research. If health or environmental concerns about tiny technology or nanotechnology were to arise, whether or not they had any basis in fact, our portfolio companies might incur additional research, legal and regulatory expenses, and might have difficulty raising capital or marketing their products. Government authorities could, for social or other purposes, prohibit or regulate the use of nanotechnology. Legislation could be passed that could circumscribe the commercialization of any of these technologies.

We invest in illiquid securities and may not be able to dispose of them when it is advantageous to do so, or ever. 

Even if some of our portfolio companies complete initial public offerings, the returns on our investments in those companies would be uncertain. 

 

In the venture capital industry, even when a portfolio of early-stage, high-technology venture capital investments proves to be profitable over the portfolio's lifetime, it is common for the portfolio's value to undergo a so-called "J-curve" valuation pattern. This means that when reflected on a graph, the portfolio’s valuation would appear in the shape of the letter "J," declining from the initial valuation prior to increasing in valuation. This J-curve valuation pattern results from write-downs and write-offs of portfolio investments that appear to be unsuccessful, prior to write-ups for portfolio investments that prove to be successful. Because early-stage companies typically have negative cash flow and are by their nature inherently fragile, a valuation process can more readily substantiate a loss of value than an increase in value. Even if our venture capital investments prove to be profitable in the long run, such J-curve valuation patterns could have a significant adverse effect on our net asset value per share and the value of our Common Stock in the interim. Over time, as we continue to make additional tiny technology investments, this J-curve pattern may be less relevant for our portfolio as a whole, because the individual J-curves for each investment, or series of investments, may overlap with previous investments at different stages of their J-curves.

Investments in privately held, early stage companies are inherently more volatile than investments in more mature businesses. Such immature businesses are inherently fragile and easily affected by both internal and external forces. Our investee companies can lose much or all of their value suddenly in response to an internal or external adverse event. Conversely, these immature businesses can gain suddenly in value in response to an internal or external positive development. Moreover, because our ownership interests in such investments are valued only at quarterly intervals by our Valuation Committee, a committee made up of all of our independent members of our Board of Directors, changes in valuations from one valuation point to another tend to be larger than changes in valuations of marketable securities which are revalued in the marketplace much more frequently, in some highly liquid cases, virtually continuously.

Write-downs of securities of our privately held companies have always been a by-product and risk of our business. We expect to continue to experience material write-downs of securities of privately held portfolio companies. Write-downs of such companies occur at all stages of their development. Such write-downs may increase in dollar terms, frequency and as a percentage of our net asset value as our dollar investment activity in privately held companies continues to increase, and the number of such holdings in our portfolio continues to grow. Because the average size of each of our investments in tiny technology has increased from year to year and continues to increase, the average size of our write-downs will probably also increase.

 

 

 

We are subject to substantive SEC regulations as a business development company. Securities and tax laws and regulations governing our activities may change in ways adverse to our and our shareholders’ interests, and interpretations of these laws and regulations may change with unpredictable consequences. Any change in the laws or regulations that govern our business could have an adverse impact on us or on our operations. Changing laws, regulations and standards relating to corporate governance, valuation and public disclosure, including the Sarbanes-Oxley Act of 2002, new SEC regulations, new federal accounting standards and Nasdaq Global Market rules, are creating additional expense and uncertainty for publicly held companies in general, and for business development companies in particular. These new or changed laws, regulations and standards are subject to varying interpretations in many cases because of their lack of specificity, and as a result, their application in practice may evolve over time, which may well result in continuing uncertainty regarding compliance matters and higher costs necessitated by ongoing revisions to disclosure and governance practices.

We are committed to maintaining high standards of corporate governance and public disclosure. As a result, our efforts to comply with evolving laws, regulations and standards have and will continue to result in increased general and administrative expenses and a diversion of management time and attention from revenue-generating activities to compliance activities. In particular, our efforts to comply with Section 404 of the Sarbanes-Oxley Act of 2002 and the related regulations regarding our required assessment of our internal controls over financial reporting and our external auditors' audit of that assessment has required the commitment of significant financial and managerial resources.

Moreover, even though business development companies are not mutual funds, they must comply with several of the regulations applicable to mutual funds, such as the requirement for the implementation of a comprehensive compliance program and the appointment of a Chief Compliance Officer. Further, our Board members, Chief Executive Officer and Chief Financial Officer could face an increased risk of personal liability in connection with the performance of their duties. As a result, we may have difficulty attracting and retaining qualified board members and executive officers, which could harm our business, and we have significantly increased both our coverage under, and the related expense for, directors' and officers' liability insurance. If our efforts to comply with new or changed laws, regulations and standards differ from the activities intended by regulatory or governing bodies, our reputation may be harmed. Also, as business and financial practices continue to evolve, they may render the regulations under which we operate less appropriate and more burdensome than they were when originally imposed. This increased regulatory burden is causing us to incur significant additional expenses and is time consuming for our management, which could have a material adverse effect on our financial performance.

 

·

stock market and capital markets conditions;

·

internal developments in our Company with respect to our personnel, financial condition and compliance with all applicable regulations;

·

announcements regarding any of our portfolio companies;

·

announcements regarding developments in the nanotechnology field in general;

·

environmental and health concerns regarding nanotechnology, whether real or perceptual;

·

announcements regarding government funding and initiatives related to the  development of nanotechnology;

·

general economic conditions and trends; and/or

·

departures of key personnel.

We will not have control over many of these factors, but expect that our stock price may be influenced by them. As a result, our stock price may be volatile, and you may lose all or part of your investment.

 

 

Our shares might trade at discounts from net asset value or at premiums that are unsustainable over the long term.

The Board of Directors intends to grant stock options to our employees pursuant to the Company’s Equity Incentive Plan. When exercised, these options may have a dilutive effect on existing shareholders.

 

 

 

We expect to invest or reserve for potential follow-on investment the net proceeds of any offering within two years from the completion of such offering. The net proceeds of this offering invested after two years will only be used for follow-on investments. Reserves for follow-on investments in any particular initial investment may be no more than the greater of twice the investment to date or five times the initial investment in the case of seed-stage investments, though we may invest more than the amount reserved for this purpose in any particular portfolio holding. Although we intend to make our initial investments exclusively in companies that we believe are involved significantly in tiny technology, we may also make follow-on investments in existing portfolio companies involved in other technologies. Pending investment in portfolio companies, we intend to invest the net proceeds of any offering of our Common Stock in time deposits and/or income-producing securities that are issued or guaranteed by the federal government or an agency of the federal government or a government-owned corporation, which may well yield less than our operating expense ratio. We may also use the proceeds of this offering for operating expenses, including due diligence expenses on potential investments. Our portfolio companies rarely pay us dividends or interest, and we do not generate enough income from fixed income investments to meet all of our operating expenses. If we pay operating expenses from the proceeds, it will reduce the net proceeds of the offering that we will have available for investment.

 

 

 

		Market Price						Net Asset Value ("NAV") Per Share			Premium or Discount as a % of NAV
Quarter Ended		High			Low			at End of Period			High			Low
March 31, 2006			16.10			12.75			5.60			187.5			127.7
June 30, 2006			14.26			9.57			5.54			157.4			72.7
September 30, 2006			12.99			9.38			5.54			134.5			69.3
December 31, 2006			15.16			11.80			5.42			179.7			117.7
March 31, 2007			13.58			11.00			5.27			157.7			108.7
June 30, 2007			14.32			11.01			5.54			158.5			98.7
September 30, 2007			11.79			9.51			5.69			107.2			67.1
December 31, 2007			11.10			8.00			5.93			87.2			34.9
March 31, 2008			7.25			7.04			—			—			—

 

 

 

 

 

 

 

·

a portfolio consisting of investments that are generally available only to a small, highly specialized group of professional venture capital firms as investors;

 

·

a qualified team of professionals, including six full-time members of management, five of whom are designated as Managing Directors: Charles E. Harris, Douglas W. Jamison, Alexei A. Andreev, Michael A. Janse and Daniel B. Wolfe, and a Vice President, Misti Ushio, to evaluate and monitor investments. One of our directors is also a consultant to us, Lori D. Pressman. These seven professionals collectively have expertise in venture capital, intellectual property and tiny technology to evaluate and monitor investments;

 

·

the opportunity to benefit from our experience in a new field expected to permeate a variety of industries; and

 

·

through the ownership of our publicly traded shares, a measure of liquidity not available in typical underlying venture capital portfolio investments.

 

 

 

·

equity, equity-related securities (including warrants) and debt with equity features from either private or public issuers, whether in corporate, partnership or other form, including development stage or start-up entities;

 

·

debt obligations of all types having varying terms with respect to security or credit support, subordination, purchase price, interest payments and maturity; and

 

·

to a limited extent, intellectual property, including patents, research and development in technology or product development that may lead to patents or other marketable technology.

 

 

 

 

Twenty-six of the 45 investments sold were unprofitable. Twenty-five of these investments were unprofitable non-IPO disposals, and we sold one investment, Princeton Video Image, Inc., that had had an IPO, at a loss. As measured from the first dollar in, the average holding period for the 25 unprofitable non-IPO exits was 3.33 years and the holding period for the unprofitable IPO exit was 7.74 years. Below is a list of holding periods for our eight historical IPOs. As measured from first dollar in to IPO date, the average and median holding periods were 4.56 years and 3.88 years, respectively.

Historical IPOs	Holding Period to IPO (yrs)
Alliance Pharmaceutical Corporation	6.39
Ag Services of America, Inc.	1.39
Molten Metal Technology, Inc.	3.25
Nanophase Technologies Corporation	3.07
Princeton Video Image, Inc. (formerly Princeton Electronic Billboard)	6.63
SciQuest, Inc. (formerly BioSupplyNet)	3.09
Genomica Corporation	4.52
NeuroMetrix, Inc.	8.14
Average	4.56
Median	3.88

At December 31, 2007, the remaining tiny technology venture capital investments in our portfolio, including one we invested in initially in 1994, were valued at $78,110,384, or 56.5 percent of our net assets, including net unrealized depreciation of $4,567,144. At December 31, 2007, we had 30 active tiny technology companies in our portfolio, and from first dollar in, the average and median holding periods for these 30 venture capital investments were 3.01 years and 2.82 years, respectively.

Tiny Technology Companies in Our Active Portfolio as of 12-31-07	Holding Period (yrs)
Adesto Technologies Corporation	0.86
Ancora Pharmaceuticals Inc.	0.66
BioVex Group, Inc.	0.26
BridgeLux, Inc. (formerly eLite Optoelectronics, Inc.)	2.62
Cambrios, Inc.	3.14
Crystal IS, Inc.	3.28
CSwitch, Inc.	3.60
D-Wave Systems, Inc.	1.70
Ensemble Discovery Corporation	0.57
Innovalight, Inc.	1.70
Kereos, Inc.	2.62
Kovio, Inc.	2.15
Lifco, Inc.	0.53
Mersana Therapeutics, Inc. (formerly Nanopharma Corporation)	5.88
Metabolon, Inc.	1.98
Molecular Imprints, Inc.	3.76
NanoGram Corporation	4.67
Nanomix, Inc.	3.03
Nanosys, Inc.	4.74
Nantero, Inc.	6.40
NeoPhotonics Corporation 2004	4.07
Nextreme Thermal Solutions, Inc.	3.07
Phoenix Molecular, Inc.	0.21
Polatis, Inc. (formerly Continuum Photonics, Inc.)	5.52
Questech Corporation (formerly Intaglio, Ltd.)	13.61
Siluria Technologies, Inc.	0.21
SiOnyx, Inc.	1.64
Solazyme, Inc.	3.10
Starfire Systems, Inc.	3.65
Xradia, Inc.	1.00
Average	3.01
Median	2.82

 

 

Tiny Technology Companies in Our Portfolio as of 12-31-07		Products Released / Available for Purchase		Products in Development
Adesto Technologies				Semiconductor products
Ancora Pharmaceuticals Inc.		Custom carbohydrate synthesis projects		Synthetic carbohydrates for Pharmaceutical markets
BioVex Group, Inc.				Novel biologics for treatment of cancer and infectious disease
BridgeLux, Inc. (formerly eLite Optoelectronics, Inc.)		High brightness LEDs		Additional colors and types of HB-LEDs
Cambrios, Inc.				Transparent conductors
Crystal IS, Inc.		Aluminum Nitride Substrates		High-performance UV Devices
CSwitch, Inc.				High-bandwidth Configurable Switches
D-Wave Systems, Inc.				High-speed analog / quantum computing
Ensemble Discovery Corporation				DNA Programmed Chemistry for Discovery of New Therapeutics
Innovalight, Inc.				Thin-film photovaltics modules
Kereos, Inc.				Emulsion-based targeted therapeutics and molecular imaging agents
Kovio, Inc.				Semiconductor products using printed electronics.
Lifco, Inc.				Primary and rechargeable batteries
Mersana Therapeutics, Inc. (formerly Nanopharma Corporation)				Oncology-focused therapeutic products
Metabolon, Inc.		Metabolomics profiling services, Mselect and MProve Clinical		Biomarker discovery and diagnostic tools
Molecular Imprints, Inc.		Tools for nanoimprint lithography		Production scale tools for nanoimprint lithography
NanoGram Corporation		Tools and service business for discovery and production of nanoparticles		Application specific nanoparticles
Nanomix, Inc.		Carbon-nanotube based hydrogen sensors.		Carbon-nanotube based sensors

Tiny Technology Companies in Our Portfolio as of 12-31-07		Products Released / Available for Purchase		Products in Development
Nanosys, Inc.		Nanotechnology-enabled products for optical and life science applications		Flexible electronic devices, non-volatile memory, consumables for life sciences and fuel cells
Nantero, Inc.				Carbon-nanotube based non-volatile memory
NeoPhotonics Corporation		Active and passive optical components for optical networking		Additional products for optical networking
Nextreme Thermal Solutions, Inc.		Embedded thermoelectric cooler (eTEC) and UPF Optocooler and cooling LEDs and laser diodes		Thermoelectric devices for thermal management of integrated circuits and for power generation
Phoenix Molecular, Inc.				Products for the separation of chiral molecules
Polatis, Inc. (formerly Continuum Photonics, Inc.)		Microelectromechanical-enabled optical switches		Additional optical switching products
Questech Corporation (formerly Intaglio, Ltd.)		Decorative tiles made of stone and microscale-metal materials
Siluria Technologies, Inc.				Nanomaterial-enabled products for a diverse set of markets
SiOnyx, Inc.				Optical detectors for detection and imaging of visible and infrared light
Solazyme, Inc.		Algae-produced oil for biodiesel		Algae-produced products including nutraceuticals, industrial chemicals and energy
Starfire Systems, Inc.		Ceramic brake rotors and pads and silicon-carbide polymers		Ceramic-based parts for applications in electronics, aerospace and automotive industries
Xradia, Inc.		3-D x-ray transmission and x-ray fluorescence microscopes and optics		Additional x-ray imaging tools

 

 

 

 

 

 

 

 

 

 

·

Military/Aerospace — telemetry, communications, guidance systems, control circuitry and avionics.

·

Geophysical Exploration — seismic data acquisition and geophysical measurement equipment.

·

Medical Instrumentation — instrument motor controls and diagnostic devices.

·

Satellite Systems — power monitoring and control circuits.

·

Industrial Electronic Systems — measurement and diagnostics on rotating machinery.

·

Opto-Electronics — sub-miniature temperature controls and laser diode drivers for data transmission.

 

 

 

 

 

The following are brief descriptions of each portfolio company in which we were invested as of December 31, 2007. The portfolio companies are presented in three categories: companies where we directly or indirectly own more than 25 percent of the outstanding voting securities of the portfolio company; companies where we directly or indirectly own five percent to 25 percent of the outstanding voting securities of the portfolio company or where we hold one or more seats on the portfolio company’s Board of Directors and, therefore, are deemed to be an affiliated person under the 1940 Act; and companies where we directly or indirectly own less than five percent of the outstanding voting securities of the portfolio company and where we have no other affiliations. The value described below for each portfolio company is its fair value as determined by the Valuation Committee of our Board of Directors. Each portfolio company that we believe is not significantly involved in tiny technology is designated by an asterisk (*).

 

 

Evolved Nanomaterial Sciences, Inc. (ENS), was located at 675 Massachusetts Avenue, Cambridge, Massachusetts 02139, and was developing a number of nanotechnology-enabled approaches for the resolution of chiral molecules. As of December 31, 2007, we held 5,870,021 shares of Series A Convertible Preferred Stock (representing 52.10 percent of the total shares of Series A Convertible Preferred Stock Outstanding) of ENS. On September 30, 2007, ENS filed for Chapter 7 bankruptcy. As of the date above, our Valuation Committee valued the Series A Convertible Preferred Stock held by us at $0.

 

Phoenix Molecular, Inc., located at 111 West 57^th Street, New York, New York 10019, is developing a number of nanotechnology-enabled approaches for the resolution of chiral molecules. As of December 31, 2007, we held 1,000 shares of Common Stock (representing 100 percent of the total shares of Common Stock outstanding) of Phoenix Molecular and $50,000 in Convertible Bridge Notes (representing 100 percent of the total Convertible Bridge Notes outstanding). As of the date above, our Valuation Committee valued the total amount of securities of Phoenix Molecular held by us at $50,743. Daniel B. Wolfe and Douglas W. Jamison serve as Directors of the company.

 

SiOnyx, Inc., located at 100 Cummings Center, Beverly, Massachusetts 01915, is developing silicon-based optoelectronic products enabled by its proprietary material, "Black Silicon." As of December 31, 2007, we held 233,499 shares of Series A Convertible Preferred Stock (representing 100 percent of the total shares of Series A Convertible Preferred Stock outstanding), 2,966,667 shares of Series A-1 Convertible Preferred Stock (representing 42.38 percent of the total shares of Series A-1 Convertible Preferred Stock outstanding), and 4,207,537 shares of Series A-2 Convertible Preferred Stock (representing 22.23 percent of the total shares of Series A-2 Convertible Preferred Stock) of SiOnyx. As of the date above, our Valuation Committee valued the total amount of shares of SiOnyx held by us at $4,304,616. The Chief Executive Officer of the company is Stephen D. Saylor. Charles E. Harris serves as a Director of the company, and Daniel B. Wolfe serves as an observer to the Board of Directors of the company.

 

 

Adesto Technologies Corporation, located at 1225 Innsbruck Drive, Sunnyvale, California 94089, is a "fables" company that develops semiconductor products. As of December 31, 2007, we held 3,416,149 shares of Series A Convertible Preferred Stock (representing 18.37 percent of the total shares of Series A Convertible Preferred Stock outstanding) of Adesto. As of the above date, our Valuation Committee valued the total amount of shares of Adesto held by us at $1,147,826. The Chief Executive Officer of the company is Narbeh Derhacobian. Michael A. Janse serves as a Director of the company.

 

Ancora Pharmaceuticals Inc., located at 200 Boston Avenue, Medford, Massachusetts 02155, is developing unique carbohydrate-based therapeutics including immunomodulatory drugs such as vaccines and therapeutics to treat cardiovascular and metabolic disease.  Ancora also works with pharmaceutical and industrial partners to provide customized carbohydrate material. As of December 31, 2007, we held 909,091 shares of Series B Convertible Preferred Stock (representing 71.23 percent of the total shares of Series B Convertible Preferred Stock outstanding) of Ancora, as well as warrants to purchase 754,717 shares of Series B Convertible Preferred Stock of the company at $1.06 per share. As of the above date, our Valuation Committee valued the total amount of securities of Ancora held by us at $699,439. The Chief Executive Officer of the company is John Pena. Douglas W. Jamison serves as a Director of the company.

 

BridgeLux, Inc., located at 1170 Sonora Court, Sunnyvale, California 94086, is developing high-power indium gallium nitride light emitting diodes that are used in various solid state lighting, mobile appliance, signage, and automotive applications. As of December 31, 2007, we held 1,861,504 shares of Series B Convertible Preferred Stock (representing 11.70 percent of the total shares of Series B Convertible Preferred Stock outstanding) and 2,130,699 shares of Series C Convertible Preferred Stock (representing 6.61 percent of the total shares of Series C Convertible Preferred Stock outstanding) of BridgeLux , as well as warrants to purchase 163,900 shares of Series C Convertible Preferred Stock of the company at $0.7136 per share. As of the above date, our Valuation Committee valued of the total amount of securities of BridgeLux held by us at $6,219,995. The Chief Executive Officer of the company is Mark Swoboda. Michael A. Janse serves as an observer to the Board of Directors of the company.

 

Cambrios Technology Corporation, located at 2450 Bayshore Parkway, Mountain View, California 94043, is developing methods of synthesizing nanomaterials and assembling them into useful structures for use in applications in electronics, solar energy and solid-state lighting. As of December 31, 2007, we held 1,294,025 shares of Series B Convertible Preferred Stock (representing 10.78 percent of the total shares of Series B Convertible Preferred Stock outstanding) and 1,300,000 shares of Series C Convertible Preferred Stock (representing 6.66 percent of the total shares of Series C Convertible Preferred Stock outstanding) of Cambrios. As of the above date, our Valuation Committee valued the total amount of shares of Cambrios held by us at $2,594,025. The Chief Executive Officer of the company is Michael R. Knapp. Michael A. Janse serves as an observer to the Board of Directors of the company.

 

Chlorogen, Inc., was located at 893 North Warson Road, St. Louis, Missouri 63141, and was developing a chloroplast transformation technology for the production of plant-based proteins. As of December 31, 2007, we held 4,478,038 shares of Series A Convertible Preferred Stock (representing 13.57 percent of the total shares of Series A Convertible Preferred Stock outstanding), 2,077,930 shares of Series B Convertible Preferred Stock (representing 18.21 percent of the total shares of Series B Convertible Preferred Stock outstanding) and $176,811 in Convertible Bridge Notes (representing 14.76 percent of the total Convertible Bridge Notes outstanding) of Chlorogen. On November 30, 2007, Chlorogen filed a Certificate of Dissolution with the state of Delaware. As of the above date, our Valuation Committee valued the total amount of securities of Chlorogen held by us at $0.

 

Crystal IS, Inc., located at 70 Cohoes Avenue, Green Island, New York 12183, is developing methods to produce large, single-crystal substrates of aluminum nitride (AlN) for use in the gallium nitride semiconductor industry. As of December 31, 2007, we held 391,571 shares of Series A Convertible Preferred Stock (representing 5.66 percent of the total shares of Series A Convertible Preferred Stock outstanding) and 1,300,376 shares of Series A-1 Convertible Preferred Stock (representing 9.51 percent of the total shares of Series A-1 Convertible Preferred Stock outstanding) of Crystal IS, as well as warrants to purchase 21,977 shares of Series A-1 Convertible Preferred Stock of the company at $0.78 per share. As of the date above, our Valuation Committee valued the total amount of securities of Crystal IS held by us at $1,333,538. The Chief Executive Officer of the company is Ding Day. Michael A. Janse serves as an observer to the Board of Directors of the company.

 

CSwitch, Inc., located at 3131 Jay Street, Santa Clara, California 95054, is developing the next generation of low-power, efficient, and highly-integrated system-on-a-chip (SOC) solutions for a wide range of communications-based platforms. As of December 31, 2007, we held 6,863,118 shares of Series A-1 Convertible Preferred Stock (representing 9.76 percent of the total shares of Series A-1 Convertible Preferred Stock outstanding) and $529,852 in Convertible Bridge Notes (representing 9.62 percent of the total Convertible Bridge Notes outstanding) of CSwitch. As of the date above, our Valuation Committee valued the total amount of securities of CSwitch held by us at $3,973,140. The Chief Executive Officer of the company is Doug Laird. Alexei A. Andreev serves as a Director of the company.

 

D-Wave Systems, Inc., located at 100-4401 Still Creek Drive, Burnaby, British Columbia, V5C 6G9, Canada, is developing high-performance quantum computing systems for commercial use in logistics, bioinformatics, life and physical sciences, quantitative finance and electronic design automation. As of December 31, 2007, we held 2,000,000 shares of Series B Convertible Preferred Stock (representing 13.55 percent of the total number of shares of Series B Convertible Preferred Stock outstanding) of D-Wave. As of the date above, our Valuation Committee valued the Series B Convertible Preferred Stock of D-Wave Systems held by us at $2,226,488. The Chief Executive Officer of the company is Herb Martin. Alexei A. Andreev serves as a Director of the company. D-Wave Systems, Inc. is not an eligible portfolio company under the 1940 Act, because it operates primarily outside the United States.

 

Ensemble Discovery Corporation, located at 99 Erie Street, Cambridge, Massachusetts 02139, is developing classes of drugs and bioassays based on its proprietary DNA-Programmed Chemistry™ (DPC™) platform. Using DPC, Ensemble has built a product platform that will support the development of novel classes of therapeutics and bioassays for research and diagnostics. As of December 31, 2007, we held 1,449,275 shares of Series B Convertible Preferred Stock (representing 13.33 percent of the total shares of Series B Convertible Preferred Stock outstanding) of Ensemble. As of the date above, our Valuation Committee valued the Series B Convertible Preferred Stock held by us at $2,000,000. The Chief Executive Officer of the company is Michael D. Taylor. Daniel B. Wolfe serves as an observer to the Board of Directors of the company.

 

Innovalight, Inc., located at 965 East Arques, Sunnyvale, California 94085, is developing renewable energy products based on silicon nanotechnology. As of December 31, 2007, we held 16,666,666 shares of Series B Convertible Preferred Stock (representing 33.33 percent of the total shares of Series B Convertible Preferred Stock outstanding) and 5,810,577 shares of Series C Convertible Preferred Stock (representing 7.12 percent of the total shares of Series C Convertible Preferred Stock outstanding) of Innovalight. Innovalight is focused on bringing ultra low-cost solar power modules to the marketplace. The company uses a proprietary silicon-ink process to print thin-film solar power modules. Leveraging the advantages of solvent-based processing, Innovalight aims to accelerate the promise of more affordable solar power solutions for residential and commercial applications. The market for solar-energy solutions is estimated to be $15 billion and expected to grow to $36 billion by 2010. Innovalight is a development company and has yet to generate significant revenues from the commercial sale of products. The company’s main competition in this market include companies such as First Solar, Inc., Konarka, Inc., Miasole, Inc., Nanosolar, Inc., and HelioVolt Corporation as these companies are also focused on the commercialization of thin-film solar power modules. The company is highly dependent on its intellectual property position and its ability to protect this position. Revenue generated by the company may be affected positively or negatively by government regulations that favor one form of energy generation over another. The Chief Executive Officer of the company is Conrad Burke. The Chief Technical Officer and Vice President of Engineering is Homer Antoniadis. The Chairman of the Board of Directors of the company is Alf Bjørseth. As of the date above, our Valuation Committee valued the total amount of shares held by us at $7,711,784. Michael A. Janse serves as a Director of the company.

 

Kereos, Inc., located at 4041 Forest Park Ave., Saint Louis, Missouri 63108, is developing molecular imaging agents and targeted therapeutics for the detection and treatment of cancer and cardiovascular disease based on proprietary ligand-targeted emulsion technologies. As of December 31, 2007, we held 545,456 shares of Series B Convertible Preferred Stock (representing 8.06 percent of the total shares of Series B Convertible Preferred Stock outstanding) of Kereos. As of the date above, our Valuation Committee valued the Series B Convertible Preferred Stock held by us at $159,743. The Chief Executive Officer of the company is Robert A. Beardsley. Daniel B. Wolfe serves as an observer to the Board of Directors of the company.

 

Kovio, Inc., located at 1145 Sonora Court, Sunnyvale, California 94086, is developing semiconductor products using thin film technologies, printed electronics and nanoparticle inks. As of December 31, 2007, we held 2,500,000 shares of Series C Convertible Preferred Stock (representing 20.21 percent of the total shares of Series C Convertible Preferred Stock outstanding) and 800,000 shares of Series D Convertible Preferred Stock (representing 4.40 percent of the total shares of Series D Convertible Preferred Stock outstanding) of Kovio. As of the date above, our Valuation Committee valued the total amount of shares held by us at $4,125,000. The Chief Executive Officer of the company is Amir Mashkoori. Alexei A. Andreev serves as an observer to the Board of Directors of the company.

 

LifCo, Inc., located at 3943 Veselich Avenue, Los Angles, California 90039, is developing primary and rechargeable batteries enabled by nanotechnology. As of December 31, 2007, we held 1,208,262 shares of Series A Convertible Preferred Stock (representing 13.17 percent of the total shares of Series A Convertible Preferred Stock outstanding) of LifCo. As of the date above, our Valuation Committee valued the Series A Convertible Preferred Stock held by us at $946,528. The acting President is Rachid Yazami. On February 28, 2008, Lifco merged with CFX Battery, Inc., to form CFX Battery, Inc. Alexei A. Andreev serves as an observer to the Board of Directors of the company.

 

Mersana Therapeutics, Inc., located at 840 Memorial Drive, Cambridge, Massachusetts 02139, is a pharmaceutical company founded to develop advanced drug delivery systems based on proprietary molecular constructs and "biological stealth" materials.  As of December 31, 2007, we held 68,451 shares of Series A Convertible Preferred Stock (representing 87.50 percent of the total shares of Series A Convertible Preferred Stock outstanding) and 866,500 shares of Series B Convertible Preferred Stock (representing 8.22 percent of the total shares of Series B Convertible Preferred Stock outstanding) of Mersana, as well as warrants to purchase 91,625 shares of Series B Convertible Preferred Stock of the company at a price of $2.00 per share.  As of the date above, our Valuation Committee valued the total securities of Mersana held by us at $1,988,282.  The Chief Executive Officer of the company is Julie A. Olson.  Charles E. Harris serves as a Director of the company.

 

Metabolon, Inc., located at 800 Capitola Drive, Durham, North Carolina 27713, is using a proprietary technology platform in metabolomics to map changes in metabolic pathways for the identification of biomarkers and the early diagnosis of disease states. As of December 31, 2007, we held 2,173,913 shares of Series B Convertible Preferred Stock (representing 31.25 percent of the total shares of Series B Preferred Stock outstanding) of Metabolon. As of the date above, our Valuation Committee valued the Series B Convertible Preferred Stock held by us at $2,500,000. The Chief Executive Officer of the company is John Ryals. Douglas W. Jamison serves as an observer to the Board of Directors of the company.

 

NanoGram Corporation, located at 165 Topaz Street, Milpitas, California 95035, is developing a broad suite of intellectual property for use in fields including, nanomaterials-based films, discovery of new nanomaterials compositions, and rapid synthesis of nanopowders and films. As of December 31, 2007 we held 63,210 shares of Series I Convertible Preferred Stock (representing 1.99 percent of the total shares of Series I Convertible Preferred Stock outstanding), 1,250,904 shares of Series II Convertible Preferred Stock (representing 12.47 percent of the total shares of Series II Convertible Preferred Stock outstanding) and 1,242,144 shares of Series III Convertible Preferred Stock (representing 6.74 percent of the total shares of Series III Convertible Preferred Stock outstanding) 432,179 shares of Series IV Convertible Preferred Stock (representing 3.28 percent of the total shares of Series IV Convertible Preferred Stock outstanding) of NanoGram. As of the date above, our Valuation Committee valued the total amount of shares of NanoGram held by us at $5,887,222. The Chief Executive Officer of the company is Kieran F. Drain. Alexei A. Andreev serves as an observer to the Board of Directors of the company.

 

 

 

NanoOpto Corporation, was located at 1600 Cottontail Lane, Somerset, New Jersey 08873, and was developing and manufacturing discrete, integrated optical communications sub-components on a chip by utilizing nano-manufacturing technology. As of December 31, 2007, we held 267,857 shares of Series A-1 Convertible Preferred Stock (representing 10.39 percent of the total shares of Series A-1 Convertible Preferred Stock outstanding), 3,819,935 shares of Series B Convertible Preferred Stock (representing 14.81 percent of the total shares of Series B Convertible Preferred Stock outstanding), 1,932,789 shares of Series C Convertible Preferred Stock (representing 5.80 percent of the total Series C Convertible Preferred Stock outstanding) and 1,397,218 shares of Series D Convertible Preferred Stock (representing 8.19 percent of the total Series shares of Series D Convertible Preferred Stock outstanding) of NanoOpto, as well as warrants to purchase 193,279 shares of Series C Convertible Preferred Stock of the company at a price of $0.4359 per share and $268,654 in Convertible Bridge Notes of NanoOpto. On July 19, 2007, NanoOpto sold its assets to API Nanotronics, Inc. As of the above date, our Valuation Committee valued the total amount of securities of NanoOpto held by us at $105,714.

 

Nextreme Thermal Solutions, Inc., located at 3908 Patriot Drive, Durham, North Carolina, 27703, is developing next-generation thermoelectrics based on its unique, thin-film technology for applications that require high-performance solutions for thermal management solutions. As of December 31, 2007, we held 1,750,000 shares of Series A Convertible Preferred Stock (representing 12.59 percent of the total shares of Series A Convertible Preferred Stock outstanding) of Nextreme. As of the above date, our Valuation Committee valued the Series A Convertible Preferred Stock of Nextreme held by us at $1,750,000. The Chief Executive Officer of the company is Jesko von Windheim. Douglas W. Jamison serves as a Director of the Company.

 

Questech Corporation, located at 92 Park Street, Rutland, Vermont 05701, manufactures and sells tile and trim products, based on its proprietary technology, with revenue generated from stock products. We originally invested in Questech on May 26, 1994. We did not invest in Questech as a tiny technology company, but Questech’s proprietary technology is dependent on micro-scale processes. Thus, Questech may be regarded as a tiny technology holding. As of December 31, 2007, we held 655,454 shares of Common Stock (representing 8.07 percent of the total shares of Common Stock outstanding) of Questech, as well as warrants to purchase 10,000 shares of Common Stock of the company at $1.50 per share. As of the date above, our Valuation Committee valued the Common Stock of Questech held by us at $592,254. The Chief Executive Officer of the company is Barry J. Culkin.

 

Siluria Technologies, Inc., located at 2750 Sand Hill Road, Menlo Park, California 94025, is developing next-generation nanomaterials. As of December 31, 2007, we held 482,218 shares of Series S-2 Convertible Preferred Stock (representing 10.72 percent of the total shares of Series S-2 Convertible Preferred Stock outstanding) of Siluria. As of the above date, our Valuation Committee valued the Series S-2 Convertible Preferred Stock of Siluria held by us at $160,723. The General Manager of the company is Alex Tkachenko. Michael A. Janse serves as an observer to the Board of Directors of the company.

Solazyme, Inc., located at 561 Eccles Avenues, South San Francisco, California 94080, is harnessing the power of the sun through the directed evolution of selected photosynthetic microbes to provide efficient bioproduction solutions to the energy, pharmaceutical, chemical and nutraceutical industries. As of December 31, 2007, we held 988,204 shares of Series A Convertible Preferred Stock (representing 12.76 percent of the total shares of outstanding of Series A Convertible Preferred Stock) and 495,246 shares of Series B Convertible Preferred Stock (representing 5.77 percent of the total shares of outstanding of Series B Convertible Preferred Stock) of Solazyme. As of the date above, our Valuation Committee valued the total amount of shares of Solazyme held by us at $1,497,691. The Chief Executive Officer of the company is Jonathan S. Wolfson. Douglas W. Jamison serves as an observer to the Board of Directors of the company.

 

Xradia, Inc., located at 5052 Commercial Circle, Concord, California 94520, is developing and manufacturing a suite of high-resolution x-ray microscopes and fluorescence imaging systems for non-destructive imaging of embedded internal structures. As of December 31, 2007, we held 3,121,099 shares of Series D Convertible Preferred Stock (representing 57.14 percent of the total shares of Series D Convertible Preferred Stock Outstanding) of Xradia. As of the date above, our Valuation Committee fair valued the Series D Convertible Preferred Stock held by us at $4,000,000. The Chief Executive Officer of the company is Rod Browning. Alexei A. Andreev serves as a Director of the company.

 

Zia Laser, Inc., was located at 801 University Boulevard SE, Albuquerque, New Mexico 87106, and was developing quantum dot-based semiconductor laser technology for application in microprocessors. As of December 31, 2007, we held 1,500,000 shares of Series C Convertible Preferred Shares (representing 17.48 percent of the total shares of Series C Convertible Preferred Shares outstanding) of Zia Laser. On November 30, 2006, the assets of Zia Laser were acquired by Innolume, Inc. As of the above date, our Valuation Committee valued the Series C Convertible Preferred Shares of Zia Laser held by us at $21,329.

 

 

BioVex Group, Inc., located at 34 Commerce Way, Woburn, Massachusetts 01801, is developing biological treatments for cancer and the prevention of infectious disease. As of December 31, 2007, we held 2,799,552 shares of Series E Convertible Preferred Stock (representing 9.92 percent of the total shares of Series E Convertible Preferred Stock outstanding) of BioVex. As of the above date, our Valuation Committee valued the Series E Convertible Preferred Stock of BioVex held by us at $2,500,000. The Chief Executive Officer of the company is Philip Astley-Sparke. Misti Ushio serves as an observer to the Board of Directors of the company.

 

*Exponential Business Development Company, located at 460 Oakridge Common, South Salem, New York 10590, is a venture capital partnership that invests in early stage manufacturing, software development and communication technology industries in the Albany area. As of December 31, 2007, we held one Limited Partnership Unit (representing 0.87 percent of the total Limited Partnership Units outstanding) of the company. As of the date above, our Valuation Committee valued the Limited Partnership Unit held by us at $2,026. The manager of the portfolio of the company is Jeff Rubin, President of NewTek Capital, Inc.

 

Molecular Imprints, Inc., located at 1807 West Braker Lane, Austin, Texas 78758, is developing lithography systems and technology for manufacturing applications in the areas of nanodevices, microstructures, advanced packaging, bio devices, optical components and semiconductor devices. As of December 31, 2007, we held 1,333,333 shares of Series B Convertible Preferred Stock (representing 6.55 percent of the total shares of Series B Preferred Stock outstanding) and 1,250,000 shares of Series C Convertible Preferred Stock (representing 14.75 percent of the total shares of Series C Convertible Preferred Stock outstanding) of Molecular Imprints, as well as warrants to purchase 125,000 shares of Series C Convertible Preferred Stock of the company at a price of $2.00 per share. As of the date above, our Valuation Committee valued the total amount of securities of Molecular Imprints held by us at $4,500,000. The Chief Executive Officer of the company is Mark Melliar-Smith. Alexei A. Andreev serves as an observer to the Board of Directors of the company.

Nanosys, Inc., located at 2625 Hanover Street, Palo Alto, California 94304, is a company with broad-based intellectual property that is initially commercializing applications in macroelectronics, memory, and fuel cells. These applications incorporate zero and one-dimensional, nanometer-scale materials, such as nanowires and nanodots (quantum dots), as their principal active elements. As of December 31, 2007, we held 803,428 shares of Series C Convertible Preferred Stock (representing 4.00 percent of the total shares of Series C Convertible Preferred Stock outstanding) and 1,016,950 shares of Series D Convertible Preferred Stock (representing 6.28 percent of the total shares of Series D Preferred Stock outstanding) of Nanosys. As of the date above, our Valuation Committee valued the total amount of shares of Nanosys held by us at $5,370,116. The Chief Executive Officer of the company is Calvin Chow.

 

Nantero, Inc., located at 25-E Olympia Avenue, Woburn, Massachusetts 01801, is developing non-volatile random access memory based on carbon nanotubes. As of December 31, 2007, we held 345,070 shares of Series A Convertible Preferred Stock (representing 8.17 percent of the total shares of Series A Preferred Stock outstanding), 207,051 shares of Series B Convertible Preferred Stock (representing 3.08 percent of the total shares of Series B Convertible Preferred Stock outstanding) and 188,315 shares of Series C Convertible Preferred Stock (representing 3.75 percent of the total shares of Series C Convertible Preferred Stock outstanding) of Nantero. As of the date above, our Valuation Committee valued the total amount of shares of Nantero held by us at $2,246,409. The Chief Executive Officer of the company is Greg Schmergel.

 

NeoPhotonics Corporation, located at 2911 Zanker Road, San Jose, California 95134, is developing functional optical component arrays to offer integrated optical "systems on a chip" to component vendors. As of December 31, 2007, we held 716,195 shares of Common Stock (representing 1.50 percent of the total shares of Common Stock outstanding), 1,831,256 shares of Series 1 Convertible Preferred Stock (representing 4.05 percent of the total Series 1 Convertible Preferred Stock), 741,898 shares of Series 2 Convertible Preferred Stock (representing 3.46 percent of the total shares of Series 2 Convertible Preferred Stock outstanding) and 2,750,000 shares of Series 3 Convertible Preferred Stock (representing 2.76 percent of the total shares of Series 3 Convertible Preferred Stock outstanding) of NeoPhotonics, as well as warrants to purchase 30,427 shares of Common Stock of the company at $0.15 per share. As of the date above, our Valuation Committee valued the total amount of securities of NeoPhotonics held by us at $5,458,759. The Chief Executive Officer of the company is Timothy S. Jenks. Alexei A. Andreev serves as an observer to the Board of Directors of the company.

 

Polatis, Inc., located at 5 Fortune Drive, Billerica, Massachusetts 01821, is developing a family of MEMS switches for optical network applications, based on Polatis’s proprietary piezoelectric ceramic substrates. As of December 31, 2007, we held 16,775 shares of the Series A-1 Convertible Preferred Stock (representing 6.17 percent of the total shares of Series A-1 Convertible Preferred Stock outstanding), 71,611 shares of Series A-2 Convertible Preferred Stock (representing 4.65 percent of the total Series A-2 Convertible Preferred Stock outstanding), 4,774 shares of Series A-4 Convertible Preferred Stock (representing 4.65 percent of the total shares of Series A-4 Convertible Preferred Stock outstanding) and 16,438 shares of Series A-5 Convertible Preferred Stock (representing 1.79 percent of the total shares of Series A-5 Convertible Preferred Stock outstanding) of Polatis. As of the date above, our Valuation Committee valued the total amount of shares of Polatis held by us at $276,526. The Chief Executive Officer of the company is David Lewis. Lori D. Pressman serves as an observer to the Board of Directors of the company.

 

Starfire Systems, Inc., located at 10 Hermes Road, Malta, New York 12020, offers a family of patented silicon carbide forming polymers for the manufacture of advanced ceramic materials applications. As of December 31, 2007, we held 375,000 shares of Common Stock (representing 4.59 percent of the total shares of Common Stock outstanding) and 600,000 shares of Series A-1 Convertible Preferred Stock (representing 12.87 percent of the total shares of Series A-1 Convertible Preferred Stock outstanding) of Starfire. As of the above date, our Valuation Committee valued the total amount of shares of Starfire held by us at $750,000. The Chief Executive Officer of the company is Richard M. Saburro. Douglas W. Jamison serves as an observer to the Board of Directors of the company.

Although Ancora, BridgeLux, Crystal IS, Metabolon, Molecular Imprints, NanoGram, Nanomix, Nanosys, NeoPhotonics, Nextreme, Polatis, Questech, Solazyme, Starfire Systems and Xradia are all generating revenues ranging from nominal to significant from commercial sales of products and/or services, they are all still relatively early-stage companies with the attendant risks. Additionally, with the exceptions of BridgeLux, Exponential, Molecular Imprints, NeoPhotonics, Questech and Xradia we consider all of the foregoing portfolio companies to be development-stage companies. This term is used to describe a company that devotes substantially all of its efforts to establishing a new business, and either has not yet commenced its planned principal operations, or it has commenced such operations but has not realized significant revenue from them. Any of the private companies may require additional funding that may not be obtainable at all or on the terms of their most recent fundings, which would result in partial or complete write-downs in the value of our investment. In general, private equity is difficult to obtain, especially in the current capital markets environment. Each company is dependent upon a single or small number of customers and/or key operating personnel. All of the foregoing companies rely heavily upon the technology associated with their respective business or, in the case of Exponential, with the companies in which it invests. Therefore, each company places great importance on its relevant patents, trademarks, licenses, algorithms, trade secrets, franchises or concessions. Lastly, each company is particularly vulnerable to general economic, private equity and capital markets conditions and to changes in government regulation, interest rates or technology.

 

As a participant in the venture capital business, we invest primarily in private companies for which there is generally no publicly available information. Because of the private nature of these businesses, there is a need to maintain the confidentiality of the financial and other information that we have for the private companies in our portfolio. We believe that maintaining this confidence is important, as disclosure of such information could disadvantage our portfolio companies and could put us at a disadvantage in attracting new investments. Therefore, we do not intend to disclose financial or other information about our portfolio companies, unless required, because we believe doing so may put them at an economic or competitive disadvantage, regardless of our level of ownership or control.

 

Our investments can be classified into five broad categories for valuation purposes:

 

·

Equity-related securities;

 

·

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

 

·

Long-term fixed-income securities;

 

·

Short-term fixed-income securities; and

 

·

All other securities.

 

 

 

 

 

 

 

 

 

Analytical Method. The analytical method is generally used to value an investment position when there is no established public market in the company’s securities. This valuation method is inherently imprecise and ultimately the result of reconciling the judgments of our Valuation Committee members, based on the data available to them. The resulting valuation, although stated as a precise number, is necessarily within a range of values that vary depending upon the significance attributed to the various factors being considered. Some of the factors considered may include: the cost of our 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 long-term potential of the business and technology of the company, the values of similar securities issued by companies 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 to other classes of securities the portfolio company has issued. When the analytical method is used to value warrants, the Company utilizes the Black-Scholes model.

 

Public Market Method. The public market method is used when there is an established public market for the class of the company’s securities held by us or into which our securities are convertible. We discount market value for securities that are subject to significant legal or contractual transfer restrictions. Securities, for which market quotations are readily available and which are not subject to substantial legal or contractual and transfer restrictions, are carried at market value as of the time of valuation. Market value for securities traded on securities exchanges or on the Nasdaq Global Market is the last reported sales price on the day of valuation. For other securities traded in the over-the-counter market and listed securities for which no sale was reported on that day, market value is the mean of the closing bid price and asked price on that day. This method is the preferred method of valuation when there is an established public market for a company’s securities, as that market provides the most objective basis for valuation. If for any reason, the Valuation Committee determines that market quotations are not reliable, such securities shall be fair valued by the Valuation Committee.

 

 

 

Analytical Method. The analytical method is used to value investments in intellectual property or patents or research and development in technology or product development. This valuation method is inherently imprecise and ultimately the result of reconciling the judgments of our Valuation Committee members. The resulting valuation, although stated as a precise number, is necessarily within a range of values that vary depending upon the significance attributed to the various factors being considered. Some of the factors considered may include: the cost of the 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 progress; commercial prospects; term of patent; projected markets; and other substantive factors.

 

 

 

 

·

Fixed-income securities are valued by independent pricing services that provide market quotations based primarily on quotations from dealers and brokers, market transactions, and other sources.

 

·

Other fixed-income securities that are not readily marketable are valued at fair value by our Valuation Committee.

 

 

 

 

 

 

 

In connection with each offering of our Common Stock, our Board of Directors or a committee thereof is required to make the determination that we are not selling our Common Stock at a price below the then current net asset value of our Common Stock at the time at which the sale is made. Our Board of Directors considers the following factors, among others, in making such determination:

•

the net asset value of our Common Stock disclosed in the most recent periodic report we filed with the SEC;

 

•

our Management’s assessment of whether any material change in the net asset value of our Common Stock has occurred (including through the realization of gains on the sale of our portfolio securities) from the period beginning on the date of the most recently disclosed net asset value of our Common Stock to the period ending two days prior to the date of the sale of our Common Stock; and

 

•

the magnitude of the difference between the net asset value of our Common Stock disclosed in the most recent periodic report we filed with the SEC and our Management’s assessment of any material change in the net asset value of our Common Stock since the date of the most recently disclosed net asset value of our Common Stock, and the offering price of our Common Stock in the proposed offering.

 

 

 

 

 

 

 

We may also invest in publicly traded securities of whatever nature, including relatively small, emerging growth companies that management believes have long-term growth possibilities. Pursuant to a rule adopted by the SEC, our investments in U.S. non-financial public companies whose securities are not listed on a securities exchange will generally be treated as qualifying assets for purposes of maintaining our business development company status if we acquire such investments in private placements or secondary market transactions.

 

 

 

 

 

 

·

recruiting management;

 

·

formulating operating strategies;

 

·

formulating intellectual property strategies;

 

·

assisting in financial planning;

 

·

providing management in the initial start-up stages; and

 

·

establishing corporate goals.

 

 

 

 

 

 

The markets in which lower-rated securities or comparable non-rated securities are traded generally are more limited than those in which higher-rated securities are traded. The existence of limited markets for these securities may restrict our ability to obtain accurate market quotations for the purposes of valuing lower-rated or non-rated securities and calculating net asset value or to sell securities at their fair value. Any economic downturn could adversely affect the ability of issuers’ lower-rated securities to repay principal and pay interest thereon. The market values of lower-rated and non-rated securities also tend to be more sensitive to individual corporate developments and changes in economic conditions than higher-rated securities. In addition, lower-rated securities and comparable non-rated securities generally present a higher degree of credit risk. Issuers of lower-rated securities and comparable non-rated securities are often highly leveraged and may not have more traditional methods of financing available to them, so that their ability to service their debt obligations during an economic downturn or during sustained periods of rising interest rates may be impaired. The risk of loss owing to default by these issuers is significantly greater because lower-rated securities and comparable non-rated securities generally are unsecured and frequently are subordinated to the prior payment of senior indebtedness. We may incur additional expenses to the extent that we are required to seek recovery upon a default in the payment of principal or interest on our portfolio holdings.

The market value of investments in debt securities that carry no equity participation usually reflects yields generally available on securities of similar quality and type at the time purchased. When interest rates decline, the market value of a debt portfolio already invested at higher yields can be expected to rise if the securities are protected against early call. Similarly, when interest rates increase, the market value of a debt portfolio already invested at lower yields can be expected to decline. Deterioration in credit quality also generally causes a decline in market value of the security, while an improvement in credit quality generally leads to increased value.

 

 

 

 

 

 

 

·

funding research and development in the development of a technology;

 

·

obtaining licensing rights to intellectual property or patents;

 

·

acquiring intellectual property or patents; or

 

·

forming and funding companies or joint ventures to further commercialize intellectual property.

 

Income from our investments in intellectual property or its development may take the form of participation in licensing or royalty income, fee income, or some other form of remuneration. Investment in developmental intellectual property rights involves a high degree of risk that can result in the loss of our entire investment as well as additional risks including uncertainties as to the valuation of an investment and potential difficulty in liquidating an investment. Further, investments in intellectual property generally require investor patience as investment return may be realized only after or over a long period. At some point during the commercialization of a technology, our investment may be transformed into ownership of securities of a development stage or start-up company as discussed under "Venture Capital Investments" above.

 

 

 

 

 

 

 

Our repurchases of our common shares would decrease our total assets and would therefore likely have the effect of increasing our expense ratio. Subject to our investment restrictions, we may borrow money to finance the repurchase of our Common Stock in the open market pursuant to any tender offer. Interest on any borrowings to finance share repurchase transactions will reduce our net assets. If, because of market fluctuations or other reasons, the value of our assets falls below the required 1940 Act coverage requirements, we may have to reduce our borrowed debt to the extent necessary to comply with the requirement. To achieve a reduction, it is possible that we may be required to sell portfolio securities at inopportune times when it may be disadvantageous to do so. Since 1998, we have repurchased a total of 1,828,740 shares of our Common Stock at a total cost of $3,405,531, or $1.86 per share. On July 23, 2002, because of our strategic decision to invest in tiny technology, our Board of Directors reaffirmed its commitment not to authorize the repurchase of additional shares of our Common Stock.

 

 

 

 

 

 

Set forth below are the names, ages, positions and principal occupations during the past five years of our directors and executive officers. We have no advisory board. Our business address and that of our officers and directors is 111 West 57^th Street, Suite 1100, New York, New York 10019.

 

 

 

Charles E. Harris. Mr. Harris, 65, currently serves as our Chairman, Chief Executive Officer and as a Managing Director. He has served as our Chief Executive Officer since July 1984 and as a Managing Director since January 2004. He has been a member of our Board of Directors and served as Chairman of the Board since April 1984. He also served as our Chief Compliance Officer from February 1997 to February 2001. He is Chairman of the Board, Chief Executive Officer and a Director of Harris & Harris Enterprises, a wholly owned subsidiary of the Company. His wife serves as our Corporate Secretary. He is a director of Mersana Therapeutics, Inc., and of SiOnyx, Inc., privately held nanotechnology-enabled companies in which we have investments. He was a member of the Advisory Panel for the Congressional Office of Technology Assessment. Prior to joining us, he was Chairman of Wood, Struthers and Winthrop Management Corporation, the investment advisory subsidiary of Donaldson, Lufkin and Jenrette. He is currently a member of the New York Society of Security Analysts. He was, until 2004, a Trustee and head of the Audit Committee of Cold Spring Harbor Laboratory, a not-for-profit institution that conducts research and education programs in the biological sciences, and he is currently a member of its President’s Council. He also serves as a Trustee and head of the Audit Committee of the Nidus Center, a not-for-profit, life sciences, business incubator in St. Louis, Missouri. He is a life-sustaining fellow of MIT and a shareholder of its Entrepreneurship Center. He is an "interested person" as defined in Section 2(a)(19) of the 1940 Act, as a beneficial owner of more than five percent of our Common Stock, as a control person and as one of our officers. He was graduated from Princeton University (A.B.) and from the Columbia University Graduate School of Business (M.B.A.).

Douglas W. Jamison. Mr. Jamison, 38, has served as President and as Chief Operating Officer since January 1, 2005, as Treasurer since March 2005, as a Managing Director since January 2004, as Chief Financial Officer from January 2005 through December 2007 and as Vice President from September 2002 through December 2004. He has been a member of our Board of Directors since May 2007. Since January 2005, he has been President and a Director of Harris & Harris Enterprises, Inc., a wholly owned subsidiary of Harris & Harris Group, Inc. Upon Mr. Harris's retirement, scheduled for December 31, 2008, the Board of Directors has named Mr. Jamison to succeed Mr. Harris in Mr. Harris's positions as Chairman and Chief Executive Officer. Mr. Jamison is a director of Ancora Pharmaceuticals, Inc., of Nextreme Thermal Solutions, Inc., and of Phoenix Molecular Corporation, privately held nanotechnology-enabled companies in which we have investments. He is Co-Editor-in-Chief of "Nanotechnology Law & Business." He is Co-Chair of the Advisory Board, Converging Technology Bar Association, a member of the University of Pennsylvania Nano-Bio Interface Ethics Advisory Board and a member of the Advisory Board, Massachusetts Technology Collaborative Nanotechnology Venture Forum. His professional societies include the Association of University Technology Managers. From 1997 to 2002, he worked as a senior technology manager at the University of Utah Technology Transfer Office, where he managed intellectual property in physics, chemistry and the engineering sciences. He was graduated from Dartmouth College (B.A.) and the University of Utah (M.S.).

 

Daniel B. Wolfe. Mr. Wolfe, 31, has served as Chief Financial Officer and as a Managing Director since January 2008, as Principal from January 2007 to January 2008, as Senior Associate from January 2006 to January 2007, and as Vice President from July 2004 to January 2008. He is a director of Phoenix Molecular Corporation, a privately held nanotechnology-enabled company in which we have an investment. Prior to joining us, he served as a consultant to Nanosys, Inc. (from 2002 to 2004), to CW Group (from 2001 to 2004) and to Bioscale, Inc. (from January 2004 to June 2004). From February 2000 to January 2002, he was the Co-founder and President of Scientific Venture Assessments, Inc., a provider of scientific analysis of prospective investments for venture capital placements and of scientific expertise to high-technology companies. He was graduated from Rice University (B.A., Chemistry), where his honors included the Zevi and Bertha Salsburg Memorial Award in Chemistry and the Presidential Honor Roll, and from Harvard University (A.M., Ph.D., Chemistry), where he was an NSF Predoctoral Fellow.

 

 

Alexei A. Andreev. Mr. Andreev, 35, has served as an Executive Vice President and as a Managing Director since March 2005. From 2002 to March 2005, he was an Associate with Draper Fisher Jurvetson, a venture capital firm. In 2001, he was a Summer Associate with TLcom Capital Partners, a London-based venture capital fund backed by Morgan Stanley. From 1997 to 2000, he was an Associate at Renaissance Capital Group/Sputnik Funds, a venture capital fund in Moscow, Russia. Previously, he was a researcher at the Centre of Nanotechnology, Isan, in Troitsk, Russia. He is a director of CSwitch, Inc., of D-Wave Systems, Inc., and of Xradia, Inc., privately-held nanotechnology-enabled companies in which we have investments. He is a director of the American Business Association of Russian Expatriates. He was graduated with a B.S. with honors in Engineering/Material Sciences, with a Ph.D. in Solid State Physics from Moscow Steel and Alloys Institute and with an M.B.A. from the Stanford Graduate School of Business.

 

Michael A. Janse. Mr. Janse, 39, has served as an Executive Vice President and as a Managing Director since April 2007. From January 2007 to April 2007 he was a Principal with ARCH Venture Partners and was an Associate from June 2002 to January 2007, following earlier roles as an intern and then consultant.  He concentrated on investment opportunities in advanced semiconductor products, nanotechnology, and novel materials. From 1995 to 2000, Mr. Janse worked in Motorola's Semiconductor Products Sector (now Freescale Semiconductor, Inc.) as a process engineer, and later marketed semiconductor components to manufacturers of personal computers and networking products. He is a director of Adesto Technologies Corp., of Innovalight, Inc., and of Nanomix, Inc., privately-held nanotechnology-enabled companies in which we have investments. He was graduated from Brigham Young University (B.S., Chemical Engineering) and The University of Chicago (M.B.A.).

Sandra Matrick Forman, Esq. Ms. Forman, 42, has served as General Counsel, as Chief Compliance Officer and as Director of Human Resources since August 2004. From 2001 to 2004, she was an Associate at Skadden, Arps, Slate, Meagher & Flom LLP, in the Investment Management Group. From May to August 2000, she was a summer associate with Latham & Watkins LLP in its London office. From August to December 2000, she served as an intern in the office of the General Counsel, United States Department of Defense, Office of the Secretary of Defense. From June to August 1999, she served as an intern for the Honorable Ronald S. Lew, United States Federal District Court, Central District of California. She was graduated from New York University (B.A.), where her honors included National Journalism Honor Society, and from the University of California Los Angeles (J.D.), where her honors included Order of the Coif and membership on the Law Review. She is currently a member of the working group for the National Venture Capital Association model documents.

Misti Ushio. Ms. Ushio, 36, has served as a Vice President and Associate since May 2007. From June 2006 to May 2007, Ms. Ushio was a Technology Licensing Officer at Columbia University. From May 1996 to May 2006, she was employed by Merck & Co., Inc., most recently as a Senior Research Biochemical Engineer with the Bioprocess R&D group. She was graduated from Johns Hopkins University (B.S., Chemical Engineering), Lehigh University (M.S., Chemical Engineering) and University College London (Ph.D., Biochemical Engineering).

 

Patricia N. Egan. Ms. Egan, 33, has served as Chief Accounting Officer, as Vice President and as Senior Controller since June 2005. From June 2005 to December 2005 and since August 2006, she served as an Assistant Secretary. She also serves as Chief Accounting Officer, as Treasurer and as Secretary of Harris & Harris Enterprises, Inc., a wholly owned subsidiary of the Company. From 1996 to 2005, she served as a Manager at PricewaterhouseCoopers LLP in its financial services group. She was graduated from Georgetown University (B.S., Accounting), where her honors included the Othmar F. Winkler Award for Excellence in Community Service. She is a Certified Public Accountant.

 

Mary P. Brady. Ms. Brady, 46, has served as a Vice President, as Controller and as an Assistant Secretary since November 2005. From 2003 through 2005, she served as a senior accountant at Clarendon Insurance Company in its program accounting group. She served from 2000 to 2003 as a senior associate at PricewaterhouseCoopers LLP in its financial services group. She was graduated Summa Cum Laude from Lehman College (B.S., Accounting). She is a Certified Public Accountant.

 

Jennifer M. McGovern. Ms. McGovern, 30, has served as an Assistant Vice President, Counsel and an Assistant Secretary from August 2007. From June 2006 to August 2006, she worked as a law clerk at Luskin, Stern & Eisler LLP. From January 2006 to April 2006, she was an intern in the Office of the General Counsel, New York Stock Exchange. From July 1999 to June 2004, she worked at BlackRock, Inc., first as an Analyst, and then as an Associate, in the Private Client Group. She was graduated from Columbia University (B.A., Art History, Economics), and from Brooklyn Law School (J.D.), cum laude, where she was the Managing Editor of the Brooklyn Journal of International Law and a member of the Moot Court Honor Society.

 

Susan T. Harris. Ms. Harris, 63, has served as our Secretary since July 2001. From July 1999 to July 2003, she was employed by Harris & Harris Enterprises, Inc., our wholly owned subsidiary, working primarily in financial public relations. From July 2001 to July 2003, she served as Secretary and Treasurer of Harris & Harris Enterprises, Inc. Since 1972, she has been an investor relations consultant, operating as a sole proprietor prior to 1999, and again from July 2003 to the present. She was graduated from Wellesley College (B.A., Economics). Ms. Harris’s husband serves as the Chairman, Chief Executive Officer and as a Managing Director of the Company.

 

 

 

 

Charles E. Harris. See biography under "Executive Officers."

 

Douglas W. Jamison. See biography under “Executive Officers.”

 

Kelly S. Kirkpatrick, Ph.D. Dr. Kirkpatrick, 41, has served as a member of our Board of Directors since March 2002. She will not stand for re-election at the 2008 Annual Meeting of Shareholders. She has served as a consultant to us on nanotechnology and in our due diligence work on certain prospective investments. She is an independent business consultant. From 2000 to 2002, she served in the Office of the Executive Vice Provost of Columbia University, as Director of the Columbia University Nanotechnology Initiative and as Director for Research and Technology Initiatives. From 1998 to 2000, she served in the White House Office of Science and Technology Policy, as a Senior Policy Analyst involved in the National Nanotechnology Initiative. From 1997 to 1998, she was a Science Policy Coordinator for Sandia National Laboratories. From 1995 to 1996, she served in the office of Senator Joseph Lieberman as Legislative Assistant, Congressional Science and Engineering Fellow. She was graduated from University of Richmond (B.S., Chemistry with a business option) and Northwestern University (Ph.D., Materials Science and Engineering). She may be considered to be an "interested person" of the Company because of the consulting work she does for us.

 

Lori D. Pressman. Ms. Pressman, 50, has served as a member of our Board of Directors since March 2002. She has served as a consultant to us on tiny technology, intellectual property and in our due diligence work on certain prospective investments. She also acts as an observer for us at Board meetings of certain portfolio companies in the Boston area. She is a business consultant providing advisory services to start-ups and venture capital companies , including certain of our portfolio companies. She consults internationally on technology transfer practices and metrics for non-profit and government organizations. From 1999 to 2001, she was Chair of the Survey Statistics and Metrics Committee of the Association of University Technology Managers. From September 1989 to July 2000, she was employed by MIT in its Technology Licensing Office; she served as a Technology Licensing Officer from 1989 to 1995 and as Assistant Director of the Technology Licensing Office from 1996 to 2000. She was graduated from the Massachusetts Institute of Technology (S.B., Physics) and the Columbia School of Engineering (MSEE). She may be considered to be an "interested person" of the Company because of the consulting work she does for us.

 

 

W. Dillaway Ayres, Jr. Mr. Ayres, 57, has served as a member of our Board of Directors since November 2006. He has served as the Chief Operating Officer of Cold Spring Harbor Laboratory, a research and educational institution in the biological sciences, since November of 2000. Prior to joining Cold Spring Harbor Laboratory in 1998, Mr. Ayres had a 20-year business career during which he worked as a corporate executive, investment banker and entrepreneur. In 1996, he co-founded Business & Trade Network, Inc., a business-to-business, venture capital-backed Internet company. Prior to that he worked for five years as a Managing Director of Veronis, Suhler & Associates, a boutique investment banking firm in New York specializing in the media/ communications industry. At Veronis, Suhler, he focused on investing the firm’s private equity fund. He was graduated from Princeton University (A.B., English) and from the Columbia University Graduate School of Business (M.B.A., Finance).

 

Dr. C. Wayne Bardin. Dr. Bardin, 73, has served as a member of our Board of Directors since December 1994. Since 1996, he has served as the President of Bardin LLC, a consulting firm to pharmaceutical companies. From 1998 to 2003, he served as President of Thyreos Corp., a privately held, start-up pharmaceutical company. From 1978 through 1996, he was Vice President of The Population Council. His professional appointments have included: Professor of Medicine, Chief of the Division of Endocrinology, The Milton S. Hershey Medical Center of Pennsylvania State University and Senior Investigator, Endocrinology Branch, National Cancer Institute. He has also served as a consultant to several pharmaceutical companies. He has been appointed to the editorial boards of 15 journals. He has also served on national and international committees and boards for the National Institutes of Health, World Health Organization, The Ford Foundation and numerous scientific societies. He was graduated from Rice University (B.A.), Baylor University (M.S., M.D.) and he received a Doctor Honoris Causa from the University of Caen, the University of Paris and the University of Helsinki.

Dr. Phillip A. Bauman. Dr. Bauman, 52, has served as a member of our Board of Directors since February 1998. Since 1999, he has been Senior Attending of Orthopedic Surgery at St. Luke’s/Roosevelt Hospital Center in Manhattan and since 2000, he has served as an elected member of the Executive Committee of the Medical Board of St. Luke's/Roosevelt Hospital. Since 2005, he has been on the Board of Managers for the Hudson Crossing Surgery Center. Since 1997, he has been Assistant Professor of Orthopedic Surgery at Columbia University. Since 1994, he has been a Vice President of Orthopedic Associates of New York. He is an active member of the American Academy of Orthopaedic Surgeons, the American Orthopaedic Society for Sports Medicine, the New York State Society of Orthopaedic Surgeons and the American Medical Association. He was graduated from Harvard College (A.B.), Harvard University (A.M., Biology) and the College of Physicians and Surgeons at Columbia University (M.D.).

 

G. Morgan Browne. Mr. Browne, 73, has served as a member of our Board of Directors since June 1992. Since 2004, he has been President and since 2000, a Trustee of Planting Fields Foundation, a supporting institution of Planting Fields Arboretum State Historic Park. He is Chairman of the OSI Pharmaceuticals Foundation which supports cancer and diabetes patient care and science education. From 2001 to 2003, he served as Chief Financial Officer of Cold Spring Harbor Laboratory, a not-for-profit institution that conducts research and education programs in the biological sciences. From 1985 to 2000, he was the Administrative Director of Cold Spring Harbor Laboratory. In prior years, he was active in the management of numerous scientifically based companies as an officer, as an individual consultant and as an associate of Laurent Oppenheim Associates, Industrial Management Consultants. He was a founding director of the New York Biotechnology Association. He was graduated from Yale University (B.A.).

 

Dugald A. Fletcher. Mr. Fletcher, 78, was appointed Lead Independent Director on November 2, 2006. Since 1996, he has served as a member of our Board of Directors. Since 1984, h e has served as President of Fletcher & Company, Inc., a management consulting firm. Until the end of 1997, he was Chairman of Binnings Building Products Company, Inc. His previous business appointments include: adviser to Gabelli/Rosenthal LP, a leveraged buyout fund; Chairman of Keller Industries, building and consumer products; Senior Vice President of Booz-Allen & Hamilton; President of Booz-Allen Acquisition Services; Executive Vice President of Paine Webber Jackson & Curtis and a Director of Paine Webber, Inc.; and President of Baker Weeks and Co., Inc., a New York Stock Exchange member firm. He is currently a Trustee of the Gabelli Growth Fund and a Director of the Gabelli Convertible and Income Securities Fund, Inc. He was graduated from Harvard College (A.B.) and Harvard Business School (M.B.A.).

 

Charles E. Ramsey. Mr. Ramsey, 65, has served as a member of our Board of Directors since October 2002. Since 1997, he has been a consultant. He is a retired founder and principal of Ramsey/Beirne Associates, Inc., an executive search firm that specialized in recruiting top officers for high technology companies, many of which were backed by venture capital. He is Chairman Emeritus of Bridges to Community, a non-governmental organization dedicated to construction projects in Nicaragua. As Chairman Emeritus, he serves on the Executive, Personnel and Administration and Fund Development Committees. He was graduated from Wittenberg University (B.A.).

 

James E. Roberts. Mr. Roberts, 62, has served as a member of our Board of Directors since June 1995. Since January 2006, he has been President of AequiCap Insurance Company and since September 2007, President of AequiCap Program Administrators. Mr. Roberts is also a senior officer of various other AequiCap affiliated entities. From November 2002 to October 2005, he was Executive Vice President and Chief Underwriting Officer of the Reinsurance Division of Alea North America Company and Senior Vice President of Alea North America Insurance Company. From October 1999 to November 2002, he was Chairman and Chief Executive Officer of the Insurance Corporation of New York, Dakota Specialty Insurance Company, and Recor Insurance Company Inc., all members of the Trenwick Group, Ltd. From October 1999 to March 2000, he served as Vice Chairman of Chartwell Reinsurance Company (also a member of Trenwick Group, Ltd.) and from March 2000 to November 2002 he was the company's Chairman and CEO. He was graduated from Cornell University (A.B.).

Richard P. Shanley. Mr. Shanley, 61, joined our Board on March 12, 2007. From February 2001 to December 31, 2006, he was a partner of Deloitte & Touche LLP. From March 1976 to January 2001, he was employed by Eisner LLP and was a partner from 1982 until 2001. During his over 30 years of public accounting experience, he served as lead audit partner on numerous audit engagements for public and private companies and companies making public stock offerings, including those requiring application of Sarbanes-Oxley Section 404. He served as lead audit partner primarily for biotech, pharmaceutical and high-tech companies, including companies enabled by nanotechnology. He has been actively involved on the Biotech Council of New Jersey, the New Jersey Technology Council, the New York Biotechnology Association, the Connecticut Venture Group, the Biotechnology Industry Organization and the NanoBusiness Alliance. He is an active member of the New York State Society of Certified Public Accountants and the American Institute of Certified Public Accountants. He is currently serving his fourth term on the New York State Society of CPA's Professional Ethics Committee. He is a licensed Certified Public Accountant in New Jersey and New York. He was graduated from Fordham University (B.S.) and Long Island University (M.B.A. in Accounting).

 

 

 

 

 

 

The Nominating Committee acts pursuant to a written charter as an advisory committee to the Board by identifying individuals qualified to serve on the Board as directors and on committees of the Board, and recommending nominees to stand for election as directors at the next annual meeting of shareholders. The Nominating Committee met one time and did not act by unanimous written consent in 2007. The members of the Nominating Committee are Dr. Bardin (Chairman) and Messrs. Ayres, Shanley and Dr. Bauman.

 

•    The name of the shareholder and evidence of the person's ownership of shares of the Company, including the number of shares owned and the length of time of ownership;

 

•    The name of the candidate, the candidate's resume or a listing of his or her qualifications to be a Director of the Company and the person's consent to be named as a Director if selected by the Nominating Committee and nominated by the Board and consent to serve if elected; and

 

•    If requested by the Nominating Committee, a completed and signed director's questionnaire.

 

The shareholder recommendation and information described above must be sent to the Company's Corporate Secretary, c/o Harris & Harris Group, Inc., 111 West 57th Street, Suite 1100, New York, New York 10019, and must be received by the Corporate Secretary not less than 90 days nor more than 120 days prior to the anniversary of the date of the Company's immediately preceeding annual meeting of shareholders or, if the meeting has moved by more than 30 days, it must be received by the Corporate Secretary not later than the close of business on the 10^th day following the day on which notice of the date of the annual meeting was mailed or such public disclosure of the date of the annual meeting was made, whichever first occurs.

 

 

 

 

 

The following table sets forth the dollar range of equity securities beneficially owned by each director as of December 31, 2007.

 

Name of Director		Dollar Range of Equity Securities Beneficially Owned (1)(2)(3)
Interested Directors
Charles E. Harris(4)			Over $100,000
Douglas W. Jamison (4)			Over $100,000
Kelly S. Kirkpatrick (5)(6)			$50,001 - $100,000
Lori D. Pressman (5)			$50,001 - $100,000
Independent Directors
W. Dillaway Ayres, Jr.			$10,001 - $50,000
Dr. C. Wayne Bardin			Over $100,000
Dr. Phillip A. Bauman			Over $100,000
G. Morgan Browne			Over $100,000
Dugald A. Fletcher			Over $100,000
Charles E. Ramsey			Over $100,000
James E. Roberts			Over $100,000
Richard P. Shanley			$10,001 - $50,000

(1)	Beneficial ownership has been determined in accordance with Rule 16a-1(a)(2) under the 1934 Act.

 

(2)	The dollar ranges are: none, $1-$10,000, $10,001-$50,000, $50,001-$100,000 and over $100,000.

 

(3)	The dollar ranges are based on the price of the equity securities as of December 31, 2007.

 

(4)	Denotes an individual who is an "interested person" as defined in the 1940 Act.

(5)	Denotes an individual who may be considered an "interested person" because of consulting work performed for us.

(6)	Ms. Kirkpatrick will not be standing for re-election at the 2008 Annual Meeting of Shareholders.

 

Set forth below is information as of March 31, 2008, with respect to the beneficial ownership of our Common Stock by (i) each of our directors and named executive officers (as defined below) and (ii) all of our directors and executive officers as a group. Except as otherwise indicated, to our knowledge, all shares are beneficially owned and investment and voting power is held by the persons named as owners. At this time, we are unaware of any shareholder owning 5 percent or more of the outstanding shares of Common Stock other than the ones noted below. Unless otherwise provided, the address of each holder is c/o Harris & Harris Group, Inc., 111 West 57^th Street, Suite 1100, New York, New York 10019.

Name and Address of Beneficial Owner		Amount and Nature of Beneficial Ownership(1)			Percentage of Outstanding  Common Shares Owned(2)
Independent Directors:
W. Dillaway Ayres, Jr.			6,331(3)			*
Dr. C. Wayne Bardin			29,324			*
Dr. Phillip A. Bauman			31,759(4)			*
G. Morgan Browne			36,191			*
Dugald A. Fletcher			24,621			*
Charles E. Ramsey			41,717			*
James E. Roberts			26,047			*
Richard P. Shanley			5,324			*
Interested Directors:
Charles E. Harris			1,675,666(5)			7.0
Douglas W. Jamison			267,324(6)			1.1
Kelly S. Kirkpatrick			7,851			*
Lori D. Pressman			9,437			*
Named Executive Officers:
Alexei A. Andreev			271,697(7)			1.2
Sandra M. Forman			126,902(8)			*
Michael A. Janse			237,891(9)			1.0
All directors and executive officers as a group (20 persons)			3,003,324(10)			12.0