UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D. C. 20549



Form 10-Q



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



For the quarterly period ended March 31, 2016



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



For the transition period from ____________ to _____________



Commission file number: 0-11576



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



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



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



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



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

Yes     x    No      ̈



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

Yes      ̈    No      ̈



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



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



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

Yes      ̈    No     x



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



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











Harris & Harris Group, Inc.

Form 10-Q, March 31, 2016



|                                                                                                | Page Number                                                
|----------------------------------------------------------------------------------------------- | -----------------------------------------------------------
|                                                                                                |                                                            
|PART I. FINANCIAL INFORMATION                                                                   |                                                            
|                                                                                                |                                                            
|Item 1. Consolidated Financial Statements                                                       | 1                                                          
|Consolidated Statements of Assets and Liabilities                                               | 2                                                          
|Consolidated Statements of Operations                                                           | 3                                                          
|Consolidated Statements of Comprehensive Loss                                                   | 4                                                          
|Consolidated Statements of Cash Flows                                                           | 5                                                          
|Consolidated Statements of Changes in Net Assets                                                | 6                                                          
|Consolidated Schedule of Investments                                                            | 7                                                          
|Notes to Consolidated Financial Statements                                                      | 40                                                         
|Financial Highlights                                                                            | 66                                                         
|                                                                                                |                                                            
|Item 2.  Management's Discussion and Analysis of Financial Condition  and Results of Operations | 67                                                         
|                                                                                                |                                                            
|Cautionary Statement Regarding Forward-Looking Statements                                       | 67                                                         
|Background                                                                                      | 68                                                         
|Overview                                                                                        | 68                                                         
|Current Business Environment                                                                    | 76                                                         
|Valuation of Investments                                                                        | 77                                                         
|Results of Operations                                                                           | 82                                                         
|Financial Condition                                                                             | 87                                                         
|Cash Flow                                                                                       | 88                                                         
|Liquidity and Capital Resources                                                                 | 88                                                         
|Borrowings                                                                                      | 90                                                         
|Contractual Obligations                                                                         | 90                                                         
|Critical Accounting Policies                                                                    | 91                                                         
|Recent Developments – Portfolio Companies                                                       | 94                                                         
|                                                                                                |                                                            
|Item 3.  Quantitative and Qualitative Disclosures About Market Risk                             | 94                                                         
|                                                                                                |                                                            
|Item 4.  Controls and Procedures                                                                | 96                                                         
|                                                                                                |                                                            
|PART II.  OTHER INFORMATION                                                                     | 98                                                         
|                                                                                                |                                                            
|Item 1A.                                                                                        | Risk Factors                                               
|                                                                                                |                                                            
|Item 2.                                                                                         | Unregistered Sales of Equity Securities and Use of Proceeds
|                                                                                                |                                                            
|Sales of Unregistered Equity Securities                                                         | 98                                                         
|                                                                                                |                                                            
|Issuer Purchases of Equity Securities                                                           | 99                                                         
|                                                                                                |                                                            
|Item 3.                                                                                         | Defaults Upon Senior Securities                            
|                                                                                                |                                                            
|Item 4.                                                                                         | Mine Safety Disclosures                                    
|                                                                                                |                                                            
|Item 5.                                                                                         | Other Information                                          
|                                                                                                |                                                            
|Item 6.                                                                                         | Exhibits                                                   
|                                                                                                |                                                            
|Signatures                                                                                      | 101                                                        
|                                                                                                |                                                            
|Exhibit Index                                                                                   | 102                                                        
|                                                                                                |                                                            
|Financial Statements Schedule 12-14                                                             | i-v                                                        











PART I. FINANCIAL INFORMATION



Item 1. Consolidated Financial Statements



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



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



1







|HARRIS & HARRIS GROUP, INC.
        CONSOLIDATED STATEMENTS OF ASSETS AND LIABILITIES
        (Unaudited)
|---------------------------------------------------------------------------------------------------------



|                                                                                                                                                                     |  | March 31, 2016 |             |   | December 31, 2015 |  
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -------------- | ----------- | - | ----------------- | -
|                                                                                                                                                                     |  |                |             |   |                   |  
|ASSETS                                                                                                                                                               |  |               
|Investments, in portfolio securities at value:                                                                                                                       |  |                |             |   |                   |  
|Unaffiliated privately held companies  (cost: $15,441,503 and $18,857,235, respectively)                                                                             |  | $              | 4,852,520   |   |                   | $
|Unaffiliated rights to milestone payments  (adjusted cost basis: $781,863 and $781,863, respectively)                                                                |  |                | 2,959,769   |   |                   |  
|Unaffiliated publicly traded securities  (cost: $1,623,029 and $1,623,029, respectively)                                                                             |  |                | 944,423     |   |                   |  
|Non-controlled affiliated privately held companies  (cost: $49,534,373 and $49,262,921, respectively)                                                                |  |                | 45,290,665  |   |                   |  
|Non-controlled affiliated publicly traded companies  (cost: $23,165,788 and $23,165,788, respectively)                                                               |  |                | 13,361,800  |   |                   |  
|Controlled affiliated privately held companies  (cost: $23,092,672 and $23,205,336, respectively)                                                                    |  |                | 5,884,419   |   |                   |  
|Equity method privately held company  (adjusted cost basis: $228,133 and $165,936, respectively)                                                                     |  |                | 228,133     |   |                   |  
|Total, investments in private portfolio companies, rights to 
milestone payments and public securities at value  (cost: $113,867,361 and $117,062,108, respectively) |  |                | 73,521,729  |   |                   |  
|Cash                                                                                                                                                                 |  |                | 14,311,324  |   |                   |  
|Funds held in escrow from sales of investments at value (Note 3)                                                                                                     |  |                | 633,921     |   |                   |  
|Receivable from portfolio company                                                                                                                                    |  |                | 170,541     |   |                   |  
|Interest receivable                                                                                                                                                  |  |                | 13,433      |   |                   |  
|Prepaid expenses                                                                                                                                                     |  |                | 469,754     |   |                   |  
|Other assets                                                                                                                                                         |  |                | 412,668     |   |                   |  
|Total assets                                                                                                                                                         |  | $              | 89,533,370  |   |                   | $
|                                                                                                                                                                     |  |                |             |   |                   |  
|LIABILITIES & NET ASSETS                                                                                                                                             |  |               
|                                                                                                                                                                     |  |                |             |   |                   |  
|Term loan credit facility (Note 5)                                                                                                                                   |  | $              | 5,000,000   |   |                   | $
|Post retirement plan liabilities (Note 8)                                                                                                                            |  |                | 1,212,433   |   |                   |  
|Accounts payable and accrued liabilities                                                                                                                             |  |                | 550,999     |   |                   |  
|Deferred rent                                                                                                                                                        |  |                | 264,693     |   |                   |  
|Total liabilities                                                                                                                                                    |  | $              | 7,028,125   |   |                   | $
|                                                                                                                                                                     |  |                |             |   |                   |  
|Commitments and contingencies (Note 11)                                                                                                                              |  |                |             |   |                   |  
|                                                                                                                                                                     |  |                |             |   |                   |  
|Net assets                                                                                                                                                           |  | $              | 82,505,245  |   |                   | $
|                                                                                                                                                                     |  |                |             |   |                   |  
|Net assets are comprised of:                                                                                                                                         |  |                |             |   |                   |  
|Preferred stock, $0.10 par value,
 2,000,000 shares authorized; none issued                                                                                          |  | $              | 0           |   |                   | $
|Common stock, $0.01 par value, 45,000,000 shares authorized at 
3/31/16 and 12/31/15; 33,183,576 issued at 3/31/16 
and 12/31/15, respectively                       |  |                | 331,836     |   |                   |  
|Additional paid in capital (Note 9)                                                                                                                                  |  |                | 215,658,407 |   |                   |  
|Accumulated net operating and realized loss                                                                                                                          |  |                | (88,990,815 | ) |                   |  
|Accumulated unrealized depreciation of investments                                                                                                                   |  |                | (40,345,632 | ) |                   |  
|Accumulated other comprehensive income (Note 8)                                                                                                                      |  |                | 456,974     |   |                   |  
|Treasury stock, at cost
    (2,337,822 shares at 3/31/16 and 12/31/15 (Note 12)                                                                                      |  |                | (4,605,525  | ) |                   |  
|                                                                                                                                                                     |  |                |             |   |                   |  
|Net assets                                                                                                                                                           |  | $              | 82,505,245  |   |                   | $
|Shares outstanding                                                                                                                                                   |  |                | 30,845,754  |   |                   |  
|Net asset value per outstanding share                                                                                                                                |  | $              | 2.67        |   |                   | $



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



2







|HARRIS & HARRIS GROUP, INC.
        CONSOLIDATED STATEMENTS OF OPERATIONS
        (Unaudited)
|---------------------------------------------------------------------------------------------



|                                                                    |  | Three Months Ended |            |   | Three Months Ended |  
|------------------------------------------------------------------- |  | ------------------ | ---------- | - | ------------------ | -
|                                                                    |  | March 31, 2016     |            |   | March 31, 2015     |  
|Investment income:                                                  |  |                    |            |   |                    |  
|Interest from:                                                      |  |                    |            |   |                    |  
|Unaffiliated companies                                              |  | $                  | 2,618      |   |                    | $
|Non-controlled affiliated companies                                 |  |                    | 56,066     |   |                    |  
|Controlled affiliated companies                                     |  |                    | 90,424     |   |                    |  
|Cash and U.S. Treasury securities and other                         |  |                    | 1,432      |   |                    |  
|Fees for providing managerial assistance to portfolio companies     |  |                    | 146,877    |   |                    |  
|Yield-enhancing fees on debt securities                             |  |                    | 4,625      |   |                    |  
|Total investment income                                             |  |                    | 302,042    |   |                    |  
|                                                                    |  |                    |            |   |                    |  
|Expenses:                                                           |  |                    |            |   |                    |  
|Salaries, benefits and stock-based
 compensation (Note 9)           |  |                    | 603,908    |   |                    |  
|Administration and operations                                       |  |                    | 142,292    |   |                    |  
|Professional fees                                                   |  |                    | 298,822    |   |                    |  
|Rent (Note 3)                                                       |  |                    | 57,220     |   |                    |  
|Insurance expense                                                   |  |                    | 59,575     |   |                    |  
|Directors' fees and expenses                                        |  |                    | 70,609     |   |                    |  
|Interest and other debt expense                                     |  |                    | 208,026    |   |                    |  
|Custody fees                                                        |  |                    | 12,061     |   |                    |  
|Depreciation                                                        |  |                    | 11,455     |   |                    |  
|Total expenses                                                      |  |                    | 1,463,968  |   |                    |  
|                                                                    |  |                    |            |   |                    |  
|Net operating loss                                                  |  |                    | (1,161,926 | ) |                    |  
|                                                                    |  |                    |            |   |                    |  
|Net realized (loss) gain:                                           |  |                    |            |   |                    |  
|Realized (loss) gain from investments:                              |  |                    |            |   |                    |  
|Unaffiliated companies                                              |  |                    | (3,158,993 | ) |                    |  
|Non-controlled affiliated companies                                 |  |                    | (1,244,955 | ) |                    |  
|Realized loss from investments                                      |  |                    | (4,403,948 | ) |                    |  
|                                                                    |  |                    |            |   |                    |  
|Income tax expense (Note 10)                                        |  |                    | 5,830      |   |                    |  
|Net realized loss from investments                                  |  |                    | (4,409,778 | ) |                    |  
|                                                                    |  |                    |            |   |                    |  
|Net (increase) decrease in unrealized 
depreciation on investments: |  |                    |            |   |                    |  
|Unaffiliated companies                                              |  |                    | 2,891,779  |   |                    |  
|Controlled affiliated companies                                     |  |                    | (1,013,450 | ) |                    |  
|Unaffiliated rights to milestone payments                           |  |                    | (402,282   | ) |                    |  
|Non-controlled affiliated companies                                 |  |                    | 3,109,951  |   |                    |  
|Publicly traded non-controlled affiliated companies                 |  |                    | (5,009,305 | ) |                    |  
|Publicly traded unaffiliated companies                              |  |                    | (13,121    | ) |                    |  
|Net increase in unrealized 
depreciation on investments             |  |                    | (436,428   | ) |                    |  
|                                                                    |  |                    |            |   |                    |  
|Net realized and unrealized loss on investments                     |  |                    | (4,846,206 | ) |                    |  
|                                                                    |  |                    |            |   |                    |  
|Share of loss on equity method investment                           |  |                    | (41,482    | ) |                    |  
|                                                                    |  |                    |            |   |                    |  
|Net decrease in net assets resulting from operations:               |  |                    |            |   |                    |  
|                                                                    |  |                    |            |   |                    |  
|Total                                                               |  | $                  | (6,049,614 | ) |                    | $
|                                                                    |  |                    |            |   |                    |  
|Per average basic and diluted outstanding share                     |  | $                  | (0.20      | ) |                    | $
|                                                                    |  |                    |            |   |                    |  
|Average outstanding shares - basic and diluted                      |  |                    | 30,845,754 |   |                    |  



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



3







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



|                                                     |  | Three Months Ended |            |   | Three Months Ended |  
|---------------------------------------------------- |  | ------------------ | ---------- | - | ------------------ | -
|                                                     |  | March 31, 2016     |            |   | March 31, 2015     |  
|                                                     |  |                    |            |   |                    |  
|Net decrease in net assets resulting from operations |  | $                  | (6,049,614 | ) |                    | $
|                                                     |  |                    |            |   |                    |  
|Other comprehensive loss:                            |  |                    |            |   |                    |  
|                                                     |  |                    |            |   |                    |  
|Amortization of prior service cost                   |  |                    | (52,246    | ) |                    |  
|                                                     |  |                    |            |   |                    |  
|Other comprehensive loss                             |  |                    | (52,246    | ) |                    |  
|                                                     |  |                    |            |   |                    |  
|Comprehensive loss                                   |  | $                  | (6,101,860 | ) |                    | $



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



4







|HARRIS & HARRIS GROUP, INC.
        CONSOLIDATED STATEMENTS OF CASH FLOWS
        (Unaudited)
|---------------------------------------------------------------------------------------------



|                                                                                                                          |  | Three Months Ended |            |   | Three Months Ended |  
|------------------------------------------------------------------------------------------------------------------------- |  | ------------------ | ---------- | - | ------------------ | -
|                                                                                                                          |  | March 31, 2016     |            |   | March 31, 2015     |  
|                                                                                                                          |  |                    |            |   |                    |  
|Cash flows used in operating activities:                                                                                  |  |                    |            |   |                    |  
|Net decrease in net assets resulting from operations                                                                      |  | $                  | (6,049,614 | ) |                    | $
|Adjustments to reconcile net decrease in net assets
 resulting from operations to net cash used in 
operating activities: |  |                    |            |   |                    |  
|Net realized loss and change in unrealized                                                                                |  |                    |            |   |                    |  
|depreciation on investments                                                                                               |  |                    | 4,840,376  |   |                    |  
|Depreciation of fixed assets, amortization of prepaid                                                                     |  |                    |            |   |                    |  
|assets and accretion of bridge note interest                                                                              |  |                    | (108,842   | ) |                    |  
|Share of loss on equity method investment                                                                                 |  |                    | 41,482     |   |                    |  
|Stock-based compensation (benefit) expense                                                                                |  |                    | (104,566   | ) |                    |  
|Amortization of prior service cost                                                                                        |  |                    | (52,246    | ) |                    |  
|Funding of operating commitment to equity method investment                                                               |  |                    | (103,680   | ) |                    |  
|Purchase of affiliated portfolio companies                                                                                |  |                    | (2,150,012 | ) |                    |  
|Purchase of unaffiliated portfolio companies                                                                              |  |                    | 0          |   |                    |  
|Payments received on debt investments                                                                                     |  |                    | 0          |   |                    |  
|Proceeds from sale of investments and repayment of bridge notes                                                           |  |                    | 863,950    |   |                    |  
|                                                                                                                          |  |                    |            |   |                    |  
|Changes in assets and liabilities:                                                                                        |  |                    |            |   |                    |  
|Receivable from portfolio companies                                                                                       |  |                    | (157,509   | ) |                    |  
|Interest receivable                                                                                                       |  |                    | (3,100     | ) |                    |  
|Prepaid expenses                                                                                                          |  |                    | 93,945     |   |                    |  
|Other assets                                                                                                              |  |                    | 0          |   |                    |  
|Post retirement plan liabilities                                                                                          |  |                    | 10,285     |   |                    |  
|Accounts payable and accrued liabilities                                                                                  |  |                    | (717,356   | ) |                    |  
|Deferred rent                                                                                                             |  |                    | (14,419    | ) |                    |  
|Net cash used in operating activities                                                                                     |  |                    | (3,611,306 | ) |                    |  
|                                                                                                                          |  |                    |            |   |                    |  
|Cash flows from investing activities:                                                                                     |  |                    |            |   |                    |  
|Purchase of fixed assets                                                                                                  |  |                    | 0          |   |                    |  
|Net cash used in investing activities                                                                                     |  |                    | 0          |   |                    |  
|                                                                                                                          |  |                    |            |   |                    |  
|Cash flows from financing activities:                                                                                     |  |                    |            |   |                    |  
|Proceeds from drawdown of loan facility                                                                                   |  |                    | 0          |   |                    |  
|Net cash provided by financing activities                                                                                 |  |                    | 0          |   |                    |  
|                                                                                                                          |  |                    |            |   |                    |  
|Net (decrease) increase in cash                                                                                           |  | $                  | (3,611,306 | ) |                    | $
|                                                                                                                          |  |                    |            |   |                    |  
|Cash at beginning of the period                                                                                           |  |                    | 17,922,630 |   |                    |  
|Cash at end of the period                                                                                                 |  | $                  | 14,311,324 |   |                    | $
|                                                                                                                          |  |                    |            |   |                    |  
|Supplemental disclosures of cash flow information:                                                                        |  |                    |            |   |                    |  
|Income taxes paid                                                                                                         |  | $                  | 5,830      |   |                    | $
|Interest paid                                                                                                             |  | $                  | 126,389    |   |                    | $



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



5







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



|                                                                                         |  | Three Months Ended |            |   | Year Ended        |  
|---------------------------------------------------------------------------------------- |  | ------------------ | ---------- | - | ----------------- | -
|                                                                                         |  | March 31, 2016     |            |   | December 31, 2015 |  
|                                                                                         |  |                    |            |   |                   |  
|Changes in net assets from operations:                                                   |  |                    |            |   |                   |  
|                                                                                         |  |                    |            |   |                   |  
|Net operating loss                                                                       |  | $                  | (1,161,926 | ) |                   | $
|Net realized (loss) gain on investments                                                  |  |                    | (4,409,778 | ) |                   |  
|Net increase in unrealized depreciation 
on investments                                  |  |                    | (436,428   | ) |                   |  
|Share of loss on equity method investment                                                |  |                    | (41,482    | ) |                   |  
|Net decrease in net assets 
resulting from operations                                    |  |                    | (6,049,614 | ) |                   |  
|                                                                                         |  |                    |            |   |                   |  
|Changes in net assets from
 capital stock transactions:                                  |  |                    |            |   |                   |  
|                                                                                         |  |                    |            |   |                   |  
|Purchase of treasury stock                                                               |  |                    | 0          |   |                   |  
|Acquisition of vested restricted stock 
awards to pay required employee 
withholding tax |  |                    | 0          |   |                   |  
|Stock-based compensation (benefit) expense                                               |  |                    | (104,566   | ) |                   |  
|Net decrease in net assets resulting
from capital stock transactions                     |  |                    | (104,566   | ) |                   |  
|                                                                                         |  |                    |            |   |                   |  
|Changes in net assets from accumulated 
other comprehensive loss:                        |  |                    |            |   |                   |  
|                                                                                         |  |                    |            |   |                   |  
|Other comprehensive loss                                                                 |  |                    | (52,246    | ) |                   |  
|                                                                                         |  |                    |            |   |                   |  
|Net decrease in net assets resultingfrom accumulated other 
comprehensive loss           |  |                    | (52,246    | ) |                   |  
|                                                                                         |  |                    |            |   |                   |  
|Net decrease in net assets                                                               |  |                    | (6,206,426 | ) |                   |  
|                                                                                         |  |                    |            |   |                   |  
|Net Assets:                                                                              |  |                    |            |   |                   |  
|                                                                                         |  |                    |            |   |                   |  
|Beginning of the period                                                                  |  |                    | 88,711,671 |   |                   |  
|                                                                                         |  |                    |            |   |                   |  
|End of the period                                                                        |  | $                  | 82,505,245 |   |                   | $



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



6







|HARRIS & HARRIS GROUP,
        INC.
        CONSOLIDATED
        SCHEDULE OF INVESTMENTS AS OF MARCH 31, 2016
        (Unaudited)
|---------------------------------------------------------------------------------------------------------------------------------



|                                                                                |  | Method of     |  | Primary       |  |      |           |  | Shares/   |  |           |       | 
|------------------------------------------------------------------------------- |  | ------------- |  | ------------- |  | ---- | --------- |  | --------- |  | --------- | ----- | 
|                                                                                |  | Valuation (1) |  | Industry (2)  |  | Cost |           |  | Principal |  |           | Value | 
|                                                                                |  |               |  |               |  |      |           |  |           |  |           |       | 
|Investments in Unaffiliated Companies (3) –
10.6% of net assets at value        |  |               |  |               |  |      |           |  |           |  |           |       | 
|                                                                                |  |               |  |               |  |      |           |  |           |  |           |       | 
|Private Placement Portfolio (Illiquid) (4) –
5.9% of net assets at value        |  |               |  |               |  |      |           |  |           |  |           |       | 
|                                                                                |  |               |  |               |  |      |           |  |           |  |           |       | 
|Bridgelux, Inc. (5)(8)(9)(10)                                                   |  |               |  | Energy        |  |      |           |  |           |  |           |       | 
|Manufacturing high-power light emitting diodes (LEDs) and arrays                |  |               |  |               |  |      |           |  |           |  |           |       | 
|Series B Convertible Preferred Stock (acquired 11/29/07)                        |  | (M)           |  |               |  | $    | 1,000,000 |  |           |  | 1,861,504 |       | 
|Series C Convertible Preferred Stock (acquired 7/27/07)                         |  | (M)           |  |               |  |      | 1,352,196 |  |           |  | 2,130,699 |       | 
|Series D Convertible Preferred Stock (acquired (2/25/08-3/10/10)                |  | (M)           |  |               |  |      | 1,371,622 |  |           |  | 999,999   |       | 
|Series E Convertible Preferred Stock (acquired 6/1/11)                          |  | (M)           |  |               |  |      | 672,599   |  |           |  | 440,334   |       | 
|Series E-1 Convertible Preferred Stock (acquired 3/16/12)                       |  | (M)           |  |               |  |      | 386,073   |  |           |  | 399,579   |       | 
|Warrants for Series E Convertible Preferred                                     |  |               |  |               |  |      |           |  |           |  |           |       | 
|Stock expiring 12/31/17 (acquired 1/27/11)                                      |  | (M)           |  |               |  |      | 93,969    |  |           |  | 170,823   |       | 
|Warrants for Common Stock expiring 6/1/16 (acquired 6/1/11)                     |  | (M)           |  |               |  |      | 72,668    |  |           |  | 132,100   |       | 
|Warrants for Common Stock expiring 8/9/18 (acquired 8/9/13)                     |  | (M)           |  |               |  |      | 148,409   |  |           |  | 171,183   |       | 
|Warrants for Common Stock expiring 10/21/18 (acquired 10/21/11)                 |  | (M)           |  |               |  |      | 18,816    |  |           |  | 84,846    |       | 
|                                                                                |  |               |  |               |  |      | 5,116,352 |  |           |  |           |       | 
|                                                                                |  |               |  |               |  |      |           |  |           |  |           |       | 
|Magic Leap, Inc. (8)(9)(11)                                                     |  |               |  | Electronics   |  |      |           |  |           |  |           |       | 
|Developing novel human computing
interfaces and software                        |  |               |  |               |  |      |           |  |           |  |           |       | 
|Series B Convertible Preferred Stock (acquired 5/1/15)                          |  | (M)           |  |               |  |      | 338,604   |  |           |  | 29,291    |       | 
|                                                                                |  |               |  |               |  |      |           |  |           |  |           |       | 
|Mersana Therapeutics, Inc. (5)(8)(9)                                            |  |               |  | Life Sciences |  |      |           |  |           |  |           |       | 
|Developing antibody drug conjugates
 for cancer therapy                         |  |               |  |               |  |      |           |  |           |  |           |       | 
|Series A-1 Convertible Preferred Stock (acquired 7/27/12-4/2/14)                |  | (H)           |  |               |  |      | 683,538   |  |           |  | 635,081   |       | 
|Series B-1 Convertible Preferred Stock (acquired 2/20/15)                       |  | (H)           |  |               |  |      | 104,521   |  |           |  | 97,111    |       | 
|Common Stock (acquired 7/27/12)                                                 |  | (H)           |  |               |  |      | 3,875,395 |  |           |  | 350,539   |       | 
|                                                                                |  |               |  |               |  |      | 4,663,454 |  |           |  |           |       | 
|                                                                                |  |               |  |               |  |      |           |  |           |  |           |       | 
|Nanosys, Inc. (5)(8)(9)                                                         |  |               |  | Energy        |  |      |           |  |           |  |           |       | 
|Developing inorganic nanowires and
 quantum dots for use in LED-backlit devices |  |               |  |               |  |      |           |  |           |  |           |       | 
|Series C Convertible Preferred Stock (acquired 4/10/03)                         |  | (M)           |  |               |  |      | 1,500,000 |  |           |  | 803,428   |       | 
|Series D Convertible Preferred Stock (acquired 11/7/05)                         |  | (M)           |  |               |  |      | 3,000,003 |  |           |  | 1,016,950 |       | 
|Series E Convertible Preferred Stock (acquired 8/13/10)                         |  | (M)           |  |               |  |      | 496,573   |  |           |  | 433,688   |       | 
|                                                                                |  |               |  |               |  |      | 4,996,576 |  |           |  |           |       | 



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



7







|HARRIS & HARRIS GROUP,
        INC.
        CONSOLIDATED
        SCHEDULE OF INVESTMENTS AS OF MARCH 31, 2016
        (Unaudited)
|---------------------------------------------------------------------------------------------------------------------------------



|                                                                                                               |  | Method of     |  | Primary       |  |      |         |  | Shares/   |   |         |       |          
|-------------------------------------------------------------------------------------------------------------- |  | ------------- |  | ------------- |  | ---- | ------- |  | --------- | - | ------- | ----- | ---------
|                                                                                                               |  | Valuation (1) |  | Industry (2)  |  | Cost |         |  | Principal |   |         | Value |          
|                                                                                                               |  |               |  |               |  |      |         |  |           |   |         |       |          
|Investments in Unaffiliated Companies (3) –
 10.6% of net assets at value (Cont.)                              |  |               |  |               |  |      |         |  |           |   |         |       |          
|                                                                                                               |  |               |  |               |  |      |         |  |           |   |         |       |          
|Private Placement Portfolio (Illiquid) (4) –
 5.9% of net assets at value (Cont.)                              |  |               |  |               |  |      |         |  |           |   |         |       |          
|                                                                                                               |  |               |  |               |  |      |         |  |           |   |         |       |          
|Nano Terra, Inc. (5)(8)                                                                                        |  |               |  | Energy        |  |      |         |  |           |   |         |       |          
|Developing surface chemistry and nano-
 manufacturing solutions                                                |  |               |  |               |  |      |         |  |           |   |         |       |          
|Warrants for Common Stock expiring on 2/22/21 (acquired 2/22/11)                                               |  | (M)           |  |               |  | $    | 69,168  |  |           |   | 4,462   |       |          
|Warrants for Series A-3 Preferred Stock
 expiring on 11/15/22 (acquired 11/15/12)                              |  | (M)           |  |               |  |      | 35,403  |  |           |   | 47,508  |       |          
|                                                                                                               |  |               |  |               |  |      | 104,571 |  |           |   |         |       |          
|                                                                                                               |  |               |  |               |  |      |         |  |           |   |         |       |          
|Phylagen, Inc. (5)(8)                                                                                          |  |               |  | Life Sciences |  |      |         |  |           |   |         |       |          
|Developing technology to improve human                                                                         |  |               |  |               |  |      |         |  |           |   |         |       |          
|health and business productivity                                                                               |  |               |  |               |  |      |         |  |           |   |         |       |          
|Secured Convertible Bridge Note, 5%, (acquired 2/5/15)                                                         |  | (M)           |  |               |  |      | 211,534 |  |           | $ | 200,000 |       |          
|Secured Convertible Bridge Note, 5%, (acquired 6/5/15)                                                         |  | (M)           |  |               |  |      | 10,412  |  |           | $ | 10,000  |       |          
|                                                                                                               |  |               |  |               |  |      | 221,946 |  |           |   |         |       |          
|                                                                                                               |  |               |  |               |  |      |         |  |           |   |         |       |          
|Total Unaffiliated Private Placement Portfolio (cost: $15,441,503)                                             |  |               |  |               |  |      |         |  |           |   |         | $     | 4,852,520
|                                                                                                               |  |               |  |               |  |      |         |  |           |   |         |       |          
|Rights to Milestone Payments (Illiquid) (6) –
 3.6% of net assets at value                                     |  |               |  |               |  |      |         |  |           |   |         |       |          
|                                                                                                               |  |               |  |               |  |      |         |  |           |   |         |       |          
|Amgen, Inc. (8)(9)                                                                                             |  |               |  | Life Sciences |  |      |         |  |           |   |         |       |          
|Rights to Milestone Payments from
 Acquisition of BioVex Group, Inc. (acquired 3/4/11)                         |  | ( I )         |  |               |  | $    | 548,998 |  |           | $ | 548,998 |       |          
|                                                                                                               |  |               |  |               |  |      |         |  |           |   |         |       |          
|Laird Technologies, Inc. (8)(9)                                                                                |  |               |  | Energy        |  |      |         |  |           |   |         |       |          
|Rights to Milestone Payments from Merger &
 Acquisition of Nextreme Thermal Solutions, Inc. (acquired 2/13/13) |  | ( I )         |  |               |  |      | 0       |  |           | $ | 0       |       |          
|                                                                                                               |  |               |  |               |  |      |         |  |           |   |         |       |          
|Canon, Inc. (8)(9)                                                                                             |  |               |  | Electronics   |  |      |         |  |           |   |         |       |          
|Rights to Milestone Payments from
 Acquisition of Molecular Imprints, Inc. (acquired 4/18/14)                  |  | ( I )         |  |               |  |      | 232,865 |  |           | $ | 232,865 |       |          
|                                                                                                               |  |               |  |               |  |      |         |  |           |   |         |       |          
|Total Unaffiliated Rights to Milestone Payments (cost: $781,863)                                               |  |               |  |               |  |      |         |  |           |   |         | $     | 2,959,769



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



8







|HARRIS & HARRIS GROUP,
        INC.
        CONSOLIDATED
        SCHEDULE OF INVESTMENTS AS OF MARCH 31, 2016
        (Unaudited)
|---------------------------------------------------------------------------------------------------------------------------------



|                                                                                                                                                         |  | Method of     |  | Primary       |  |      |           |  | Shares/   |   |           |       |          
|-------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------- |  | ------------- |  | ---- | --------- |  | --------- | - | --------- | ----- | ---------
|                                                                                                                                                         |  | Valuation (1) |  | Industry (2)  |  | Cost |           |  | Principal |   |           | Value |          
|                                                                                                                                                         |  |               |  |               |  |      |           |  |           |   |           |       |          
|Publicly Traded Portfolio (7) –                                                                                                                          |  |               |  |               |  |      |           |  |           |   |           |       |          
|1.1% of net assets at value                                                                                                                              |  |               |  |               |  |      |           |  |           |   |           |       |          
|                                                                                                                                                         |  |               |  |               |  |      |           |  |           |   |           |       |          
|Champions Oncology, Inc. (5)(9)                                                                                                                          |  |               |  | Life Sciences |  |      |           |  |           |   |           |       |          
|Developing its TumorGraftTM platform for
 personalized medicine and drug development 
Common Stock (acquired 3/24/11-3/11/15)                            |  | (M)           |  |               |  | $    | 1,622,629 |  |           |   | 243,540   |       |          
|Warrants for Common Stock 
expiring 1/28/19 (acquired 1/28/13)                                                                                           |  | ( I )         |  |               |  |      | 400       |  |           |   | 5,500     |       |          
|                                                                                                                                                         |  |               |  |               |  |      | 1,623,029 |  |           |   |           |       |          
|                                                                                                                                                         |  |               |  |               |  |      |           |  |           |   |           |       |          
|Total Unaffiliated Publicly Traded Portfolio (cost: $1,623,029)                                                                                          |  |               |  |               |  |      |           |  |           |   |           | $     | 944,423  
|                                                                                                                                                         |  |               |  |               |  |      |           |  |           |   |           |       |          
|Total Investments in Unaffiliated Companies (cost: $17,846,395)                                                                                          |  |               |  |               |  |      |           |  |           |   |           | $     | 8,756,712
|                                                                                                                                                         |  |               |  |               |  |      |           |  |           |   |           |       |          
|Investments in Non-Controlled 
Affiliated Companies (3) – 
71.1% of net assets at value                                                                  |  |               |  |               |  |      |           |  |           |   |           |       |          
|                                                                                                                                                         |  |               |  |               |  |      |           |  |           |   |           |       |          
|Private Placement Portfolio (Illiquid) (13) –
 54.9% of net assets at value                                                                              |  |               |  |               |  |      |           |  |           |   |           |       |          
|                                                                                                                                                         |  |               |  |               |  |      |           |  |           |   |           |       |          
|ABSMaterials, Inc. (5)(8)(9)                                                                                                                             |  |               |  | Energy        |  |      |           |  |           |   |           |       |          
|Developing nano-structured absorbent materials  for water remediation and
    consumer applications                                                      |  |               |  |               |  |      |           |  |           |   |           |       |          
|Series A Convertible Preferred Stock (acquired 2/17/10-10/24/11)                                                                                         |  | ( I )         |  |               |  | $    | 435,000   |  |           |   | 390,000   |       |          
|Series B Convertible Preferred Stock (acquired 11/8/13-6/25/14)                                                                                          |  | ( I )         |  |               |  |      | 1,217,644 |  |           |   | 1,037,751 |       |          
|Secured Convertible Bridge Note, 8%, (acquired 1/20/16)                                                                                                  |  | (M)           |  |               |  |      | 101,578   |  |           | $ | 100,000   |       |          
|                                                                                                                                                         |  |               |  |               |  |      | 1,754,222 |  |           |   |           |       |          
|                                                                                                                                                         |  |               |  |               |  |      |           |  |           |   |           |       |          
|AgBiome, LLC (5)(8)(9)                                                                                                                                   |  |               |  | Life Sciences |  |      |           |  |           |   |           |       |          
|Providing early-stage research and discovery for
 agriculture and utilizing the crop microbiome to 
identify products that reduce risk and improve yield |  |               |  |               |  |      |           |  |           |   |           |       |          
|Series A-1 Convertible Preferred Stock (acquired 1/30/13)                                                                                                |  | ( I )         |  |               |  |      | 2,000,000 |  |           |   | 2,000,000 |       |          
|Series A-2 Convertible Preferred Stock (acquired 4/9/13-10/15/13)                                                                                        |  | ( I )         |  |               |  |      | 521,740   |  |           |   | 417,392   |       |          
|Series B Convertible Preferred Stock (acquired 8/7/15)                                                                                                   |  | ( I )         |  |               |  |      | 500,006   |  |           |   | 160,526   |       |          
|                                                                                                                                                         |  |               |  |               |  |      | 3,021,746 |  |           |   |           |       |          



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



9







|HARRIS & HARRIS GROUP,
        INC.
        CONSOLIDATED
        SCHEDULE OF INVESTMENTS AS OF MARCH 31, 2016
        (Unaudited)
|---------------------------------------------------------------------------------------------------------------------------------



|                                                                                                     |  | Method of     |  | Primary       |  |      |           |  | Shares/   |  |           |       | 
|---------------------------------------------------------------------------------------------------- |  | ------------- |  | ------------- |  | ---- | --------- |  | --------- |  | --------- | ----- | 
|                                                                                                     |  | Valuation (1) |  | Industry (2)  |  | Cost |           |  | Principal |  |           | Value | 
|                                                                                                     |  |               |  |               |  |      |           |  |           |  |           |       | 
|Investments in Non-Controlled 
Affiliated Companies (3) – 
71.1% of net assets at value (Cont.)      |  |               |  |               |  |      |           |  |           |  |           |       | 
|                                                                                                     |  |               |  |               |  |      |           |  |           |  |           |       | 
|Private Placement Portfolio (Illiquid) (13) – 
54.9% of net assets at value (Cont.)                  |  |               |  |               |  |      |           |  |           |  |           |       | 
|                                                                                                     |  |               |  |               |  |      |           |  |           |  |           |       | 
|D-Wave Systems, Inc. (5)(8)(9)(14)                                                                   |  |               |  | Electronics   |  |      |           |  |           |  |           |       | 
|Developing high-performance                                                                          |  |               |  |               |  |      |           |  |           |  |           |       | 
|quantum computing systems                                                                            |  |               |  |               |  |      |           |  |           |  |           |       | 
|Series 1 Class B Convertible Preferred Stock (acquired 9/30/08)                                      |  | (H)           |  |               |  | $    | 1,002,074 |  |           |  | 1,144,869 |       | 
|Series 1 Class C Convertible Preferred Stock (acquired 9/30/08)                                      |  | (H)           |  |               |  |      | 487,804   |  |           |  | 450,450   |       | 
|Series 1 Class D Convertible Preferred Stock (acquired 9/30/08)                                      |  | (H)           |  |               |  |      | 748,473   |  |           |  | 855,131   |       | 
|Series 1 Class E Convertible Preferred Stock (acquired 11/24/10)                                     |  | (H)           |  |               |  |      | 248,049   |  |           |  | 269,280   |       | 
|Series 1 Class F Convertible Preferred Stock (acquired 11/24/10)                                     |  | (H)           |  |               |  |      | 238,323   |  |           |  | 258,721   |       | 
|Series 1 Class H Convertible Preferred Stock (acquired 6/27/14)                                      |  | (H)           |  |               |  |      | 909,088   |  |           |  | 460,866   |       | 
|Series 2 Class D Convertible Preferred Stock (acquired 9/30/08)                                      |  | (H)           |  |               |  |      | 736,019   |  |           |  | 678,264   |       | 
|Series 2 Class E Convertible Preferred Stock (acquired 6/1/12-3/22/13)                               |  | (H)           |  |               |  |      | 659,493   |  |           |  | 513,900   |       | 
|Series 2 Class F Convertible Preferred Stock (acquired 6/1/12-3/22/13)                               |  | (H)           |  |               |  |      | 633,631   |  |           |  | 493,747   |       | 
|Warrants for Common Stock expiring 5/12/19 (acquired 5/12/14)                                        |  | ( I )         |  |               |  |      | 26,357    |  |           |  | 20,415    |       | 
|                                                                                                     |  |               |  |               |  |      | 5,689,311 |  |           |  |           |       | 
|                                                                                                     |  |               |  |               |  |      |           |  |           |  |           |       | 
|EchoPixel, Inc. (5)(8)                                                                               |  |               |  | Life Sciences |  |      |           |  |           |  |           |       | 
|Developing virtual reality 3-D
visualization software for life sciences and health care applications |  |               |  |               |  |      |           |  |           |  |           |       | 
|Series Seed Convertible Preferred Stock (acquired 6/21/13-6/30/14)                                   |  | ( I )         |  |               |  |      | 1,250,000 |  |           |  | 4,194,630 |       | 
|Series Seed-2 Convertible Preferred Stock (acquired 1/22/16)                                         |  | ( I )         |  |               |  |      | 500,000   |  |           |  | 1,476,668 |       | 
|                                                                                                     |  |               |  |               |  |      | 1,750,000 |  |           |  |           |       | 
|                                                                                                     |  |               |  |               |  |      |           |  |           |  |           |       | 
|Ensemble Therapeutics Corporation (5)(8)(9)                                                          |  |               |  | Life Sciences |  |      |           |  |           |  |           |       | 
|Developing DNA-Programmed
    ChemistryTM for the discovery of new classes of therapeutics           |  |               |  |               |  |      |           |  |           |  |           |       | 
|Series B Convertible Preferred Stock (acquired 6/6/07)                                               |  | ( I )         |  |               |  |      | 2,000,000 |  |           |  | 1,449,275 |       | 
|Series B-1 Convertible Preferred Stock (acquired 4/21/14)                                            |  | ( I )         |  |               |  |      | 679,754   |  |           |  | 492,575   |       | 
|                                                                                                     |  |               |  |               |  |      | 2,679,754 |  |           |  |           |       | 
|                                                                                                     |  |               |  |               |  |      |           |  |           |  |           |       | 
|HZO, Inc. (5)(8)(9)                                                                                  |  |               |  | Electronics   |  |      |           |  |           |  |           |       | 
|Developing novel industrial coatings that 
protect electronics against damage from liquids           |  |               |  |               |  |      |           |  |           |  |           |       | 
|Common Stock (acquired 6/23/14)                                                                      |  | ( I )         |  |               |  |      | 666,667   |  |           |  | 405,729   |       | 
|Series I Convertible Preferred Stock (acquired 6/23/14)                                              |  | ( I )         |  |               |  |      | 5,709,835 |  |           |  | 2,266,894 |       | 
|Series II Convertible Preferred Stock (acquired 6/23/14-8/3/15)                                      |  | ( I )         |  |               |  |      | 2,500,006 |  |           |  | 674,638   |       | 
|                                                                                                     |  |               |  |               |  |      | 8,876,508 |  |           |  |           |       | 



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



10







|HARRIS & HARRIS GROUP,
        INC.
        CONSOLIDATED
        SCHEDULE OF INVESTMENTS AS OF MARCH 31, 2016
        (Unaudited)
|---------------------------------------------------------------------------------------------------------------------------------



|                                                                                                                       |  | Method of     |  | Primary       |  |      |           |  | Shares/   |   |            |       | 
|---------------------------------------------------------------------------------------------------------------------- |  | ------------- |  | ------------- |  | ---- | --------- |  | --------- | - | ---------- | ----- | 
|                                                                                                                       |  | Valuation (1) |  | Industry (2)  |  | Cost |           |  | Principal |   |            | Value | 
|                                                                                                                       |  |               |  |               |  |      |           |  |           |   |            |       | 
|Investments in Non-Controlled 
Affiliated Companies (3) –
 71.1% of net assets at value (Cont.)                        |  |               |  |               |  |      |           |  |           |   |            |       | 
|                                                                                                                       |  |               |  |               |  |      |           |  |           |   |            |       | 
|Private Placement Portfolio (Illiquid) (13) – 
54.9% of net assets at value (Cont.)                                    |  |               |  |               |  |      |           |  |           |   |            |       | 
|                                                                                                                       |  |               |  |               |  |      |           |  |           |   |            |       | 
|Laser Light Engines, Inc. (8)(9)                                                                                       |  |               |  | Energy        |  |      |           |  |           |   |            |       | 
|Manufactured solid-state light sources for 
digital cinema and large-venue projection displays                         |  |               |  |               |  |      |           |  |           |   |            |       | 
|Series A Convertible Preferred Stock (acquired 5/6/08)                                                                 |  | (M)           |  |               |  | $    | 2,000,000 |  |           |   | 7,499,062  |       | 
|Series B Convertible Preferred Stock (acquired 9/17/10)                                                                |  | (M)           |  |               |  |      | 3,095,802 |  |           |   | 13,571,848 |       | 
|Secured Convertible Bridge Note, 12%, (acquired 10/7/11)                                                               |  | (M)           |  |               |  |      | 200,000   |  |           | $ | 200,000    |       | 
|Secured Convertible Bridge Note, 12%, (acquired 11/17/11)                                                              |  | (M)           |  |               |  |      | 95,652    |  |           | $ | 95,652     |       | 
|Secured Convertible Bridge Note, 12%, (acquired 12/21/11)                                                              |  | (M)           |  |               |  |      | 82,609    |  |           | $ | 82,609     |       | 
|Secured Convertible Bridge Note, 12%, (acquired 3/5/12)                                                                |  | (M)           |  |               |  |      | 434,784   |  |           | $ | 434,784    |       | 
|Secured Convertible Bridge Note, 12%, (acquired 7/26/12)                                                               |  | (M)           |  |               |  |      | 186,955   |  |           | $ | 186,955    |       | 
|Secured Convertible Bridge Note, 20%, (acquired 4/29/13)                                                               |  | (M)           |  |               |  |      | 166,667   |  |           | $ | 166,667    |       | 
|Secured Convertible Bridge Note, 20%, (acquired 7/22/13)                                                               |  | (M)           |  |               |  |      | 166,667   |  |           | $ | 166,667    |       | 
|Secured Convertible Bridge Note, 10%, (acquired 10/30/13)                                                              |  | (M)           |  |               |  |      | 80,669    |  |           | $ | 80,669     |       | 
|Secured Convertible Bridge Note, 10%, (acquired 2/5/14)                                                                |  | (M)           |  |               |  |      | 19,331    |  |           | $ | 19,331     |       | 
|Secured Convertible Bridge Note, 10%, (acquired 6/24/14)                                                               |  | (M)           |  |               |  |      | 13,745    |  |           | $ | 13,745     |       | 
|                                                                                                                       |  |               |  |               |  |      | 6,542,881 |  |           |   |            |       | 
|                                                                                                                       |  |               |  |               |  |      |           |  |           |   |            |       | 
|Lodo Therapeutics Corporation (5)(8)(9)                                                                                |  |               |  | Life Sciences |  |      |           |  |           |   |            |       | 
|Developing and commercializing novel therapeutics derivedfrom a
    metagenome-based Natural ProductDiscovery Platform |  |               |  |               |  |      |           |  |           |   |            |       | 
|Series A Convertible Preferred Stock (acquired 12/21/15)                                                               |  | ( I )         |  |               |  |      | 107,900   |  |           |   | 107,900    |       | 
|                                                                                                                       |  |               |  |               |  |      |           |  |           |   |            |       | 
|Metabolon, Inc. (5)(8)(9)                                                                                              |  |               |  | Life Sciences |  |      |           |  |           |   |            |       | 
|Developing a biochemical profiling platform for precision medicine                                                     |  |               |  |               |  |      |           |  |           |   |            |       | 
|Series B Convertible Preferred Stock (acquired 6/29/09)                                                                |  | (M)           |  |               |  |      | 2,500,000 |  |           |   | 371,739    |       | 
|Series B-1 Convertible Preferred Stock (acquired 6/29/09)                                                              |  | (M)           |  |               |  |      | 706,214   |  |           |   | 148,696    |       | 
|Series C Convertible Preferred Stock (acquired 4/30/09)                                                                |  | (M)           |  |               |  |      | 1,000,000 |  |           |   | 1,000,000  |       | 
|Series D Convertible Preferred Stock (acquired 8/25/11)                                                                |  | (M)           |  |               |  |      | 1,499,999 |  |           |   | 835,882    |       | 
|Series E-1 Convertible Preferred Stock (acquired 3/2/15)                                                               |  | (M)           |  |               |  |      | 1,225,000 |  |           |   | 444,404    |       | 
|Series E-2 Convertible Preferred Stock (acquired 3/2/15)                                                               |  | (M)           |  |               |  |      | 299,999   |  |           |   | 103,277    |       | 
|                                                                                                                       |  |               |  |               |  |      | 7,231,212 |  |           |   |            |       | 
|                                                                                                                       |  |               |  |               |  |      |           |  |           |   |            |       | 
|ORIG3N, Inc. (5)(8)(9)                                                                                                 |  |               |  | Life Sciences |  |      |           |  |           |   |            |       | 
|Developing precision medicine applications 
for induced pluripotent stems cells                                        |  |               |  |               |  |      |           |  |           |   |            |       | 
|Series 1 Convertible Preferred Stock (acquired 2/5/15-8/5/15)                                                          |  | ( I )         |  |               |  |      | 500,000   |  |           |   | 1,195,315  |       | 
|Series A Convertible Preferred Stock (acquired 11/25/15)                                                               |  | ( I )         |  |               |  |      | 750,000   |  |           |   | 682,333    |       | 
|                                                                                                                       |  |               |  |               |  |      | 1,250,000 |  |           |   |            |       | 



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



11







|HARRIS & HARRIS GROUP,
        INC.
        CONSOLIDATED
        SCHEDULE OF INVESTMENTS AS OF MARCH 31, 2016
        (Unaudited)
|---------------------------------------------------------------------------------------------------------------------------------



|                                                                                                                                                   |  | Method of     |  | Primary       |  |      |           |  | Shares/   |   |           |       |           
|-------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------- |  | ------------- |  | ---- | --------- |  | --------- | - | --------- | ----- | ----------
|                                                                                                                                                   |  | Valuation (1) |  | Industry (2)  |  | Cost |           |  | Principal |   |           | Value |           
|                                                                                                                                                   |  |               |  |               |  |      |           |  |           |   |           |       |           
|Investments in Non-Controlled 
Affiliated Companies (3) – 
71.1% of net assets at value (Cont.)                                                    |  |               |  |               |  |      |           |  |           |   |           |       |           
|                                                                                                                                                   |  |               |  |               |  |      |           |  |           |   |           |       |           
|Private Placement Portfolio (Illiquid) (13) –
  54.9% of net assets at value (Cont.)                                                               |  |               |  |               |  |      |           |  |           |   |           |       |           
|                                                                                                                                                   |  |               |  |               |  |      |           |  |           |   |           |       |           
|Petra Pharma Corporation (5)(8)(9)                                                                                                                 |  |               |  | Life Sciences |  |      |           |  |           |   |           |       |           
|Developing small molecule inhibitors for
 treatment of cancer and metabolic diseases                                                               |  |               |  |               |  |      |           |  |           |   |           |       |           
|Series A Convertible Preferred Stock (acquired 12/23/15)                                                                                           |  | ( I )         |  |               |  | $    | 1,025,050 |  |           |   | 1,025,050 |       |           
|                                                                                                                                                   |  |               |  |               |  |      |           |  |           |   |           |       |           
|Produced Water Absorbents, Inc. (5)(8)(15)                                                                                                         |  |               |  | Energy        |  |      |           |  |           |   |           |       |           
|Providing integrated process separation solutions 
to the global oil and gas industries, enabling onsite
 treatment of produced and flowback water |  |               |  |               |  |      |           |  |           |   |           |       |           
|Series A Convertible Preferred Stock (acquired 6/21/11)                                                                                            |  | (M)           |  |               |  |      | 1,000,000 |  |           |   | 1,000,000 |       |           
|Series B Convertible Preferred Stock (acquired 6/20/13-3/31/14)                                                                                    |  | (M)           |  |               |  |      | 1,496,865 |  |           |   | 5,987,460 |       |           
|Series B-2 Convertible Preferred Stock (acquired 5/12/14)                                                                                          |  | (M)           |  |               |  |      | 1,015,427 |  |           |   | 4,322,709 |       |           
|Series B-3 Convertible Preferred Stock (acquired 11/14/13)                                                                                         |  | (M)           |  |               |  |      | 978,641   |  |           |   | 3,914,564 |       |           
|Series C Convertible Preferred Stock (acquired 5/26/14)                                                                                            |  | (M)           |  |               |  |      | 1,000,268 |  |           |   | 2,667,380 |       |           
|Series D Convertible Preferred Stock (acquired 2/17/15)                                                                                            |  | (M)           |  |               |  |      | 986,066   |  |           |   | 2,629,510 |       |           
|Subordinated Secured Debt, 12%, maturing                                                                                                           |  |               |  |               |  |      |           |  |           |   |           |       |           
|on 6/30/16 (acquired 10/7/14)                                                                                                                      |  | (M)           |  |               |  |      | 995,259   |  |           | $ | 1,000,000 |       |           
|Subordinated Convertible Bridge Note, 12%, (acquired 6/3/15)                                                                                       |  | (M)           |  |               |  |      | 273,096   |  |           | $ | 250,000   |       |           
|Subordinated Convertible Bridge Note, 12%, (acquired 7/15/15)                                                                                      |  | (M)           |  |               |  |      | 269,644   |  |           | $ | 250,000   |       |           
|Subordinated Convertible Bridge Note, 12%, (acquired 9/28/15)                                                                                      |  | (M)           |  |               |  |      | 263,479   |  |           | $ | 250,000   |       |           
|Subordinated Convertible Bridge Note, 12%, (acquired 10/30/15)                                                                                     |  | (M)           |  |               |  |      | 260,849   |  |           | $ | 250,000   |       |           
|Subordinated Convertible Bridge Note, 12%, (acquired 2/16/16)                                                                                      |  | (M)           |  |               |  |      | 125,945   |  |           | $ | 125,000   |       |           
|Warrants for Series B-2 Preferred Stock expiring 
upon liquidation event (acquired 5/12/14)                                                        |  | ( I )         |  |               |  |      | 65,250    |  |           |   | 300,000   |       |           
|Senior Secured Debt, 15% commencing on 4/1/16, 
maturing on 12/31/19 (acquired 3/9/16)                                                             |  | (M)           |  |               |  |      | 875,000   |  |           | $ | 875,000   |       |           
|                                                                                                                                                   |  |               |  |               |  |      | 9,605,789 |  |           |   |           |       |           
|                                                                                                                                                   |  |               |  |               |  |      |           |  |           |   |           |       |           
|Total Non-Controlled Private Placement Portfolio (cost: $49,534,373)                                                                               |  |               |  |               |  |      |           |  |           |   |           | $     | 45,290,665



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



12







|HARRIS & HARRIS GROUP,
        INC.
        CONSOLIDATED
        SCHEDULE OF INVESTMENTS AS OF MARCH 31, 2016
        (Unaudited)
|---------------------------------------------------------------------------------------------------------------------------------



|                                                                                     |  | Method of     |  | Primary       |  |      |            |  | Shares/   |  |           |       |           
|------------------------------------------------------------------------------------ |  | ------------- |  | ------------- |  | ---- | ---------- |  | --------- |  | --------- | ----- | ----------
|                                                                                     |  | Valuation (1) |  | Industry (2)  |  | Cost |            |  | Principal |  |           | Value |           
|                                                                                     |  |               |  |               |  |      |            |  |           |  |           |       |           
|Publicly Traded Portfolio (16) –                                                     |  |               |  |               |  |      |            |  |           |  |           |       |           
|16.2% of net assets at value                                                         |  |               |  |               |  |      |            |  |           |  |           |       |           
|                                                                                     |  |               |  |               |  |      |            |  |           |  |           |       |           
|Adesto Technologies Corporation (5)(8)(9)(17)                                        |  |               |  | Electronics   |  |      |            |  |           |  |           |       |           
|Developing low-power, high-performance                                               |  |               |  |               |  |      |            |  |           |  |           |       |           
|memory devices                                                                       |  |               |  |               |  |      |            |  |           |  |           |       |           
|Common Stock (acquired 10/27/15)                                                     |  | (M)           |  |               |  | $    | 11,482,417 |  |           |  | 1,769,868 |       |           
|                                                                                     |  |               |  |               |  |      |            |  |           |  |           |       |           
|Enumeral Biomedical Holdings, Inc. (5)(9)(18)                                        |  |               |  | Life Sciences |  |      |            |  |           |  |           |       |           
|Developing therapeutics and diagnostics
 through functional assaying of single cells |  |               |  |               |  |      |            |  |           |  |           |       |           
|Common Stock (acquired 7/31/14)                                                      |  | (M)           |  |               |  |      | 4,993,357  |  |           |  | 7,966,368 |       |           
|Warrants for Common Stock expiring 7/30/19 (acquired 7/31/14)                        |  | ( I )         |  |               |  |      | 540,375    |  |           |  | 1,500,000 |       |           
|Warrants for Common Stock expiring 2/2/24 (acquired 7/31/14)                         |  | ( I )         |  |               |  |      | 57,567     |  |           |  | 255,120   |       |           
|Options to Purchase Common Stock at $1.00 expiring 7/30/16 (acquired 8/4/14)         |  | ( I )         |  |               |  |      | 0          |  |           |  | 80,000    |       |           
|                                                                                     |  |               |  |               |  |      | 5,591,299  |  |           |  |           |       |           
|                                                                                     |  |               |  |               |  |      |            |  |           |  |           |       |           
|OpGen, Inc. (5)(9)(19)                                                               |  |               |  | Life Sciences |  |      |            |  |           |  |           |       |           
|Developing tools for genomic sequence
 assembly and analysis                         |  |               |  |               |  |      |            |  |           |  |           |       |           
|Common Stock (acquired 5/5/15)                                                       |  | (M)           |  |               |  |      | 5,665,708  |  |           |  | 1,409,796 |       |           
|Warrants for Common Stock expiring 5/8/20 (acquired 5/5/15)                          |  | (M)           |  |               |  |      | 425,579    |  |           |  | 300,833   |       |           
|Warrants for Common Stock expiring 2/17/25 (acquired 5/5/15)                         |  | ( I )         |  |               |  |      | 785        |  |           |  | 31,206    |       |           
|                                                                                     |  |               |  |               |  |      | 6,092,072  |  |           |  |           |       |           
|                                                                                     |  |               |  |               |  |      |            |  |           |  |           |       |           
|Total Non-Controlled Affiliated Publicly Traded Portfolio (cost: $23,165,788)        |  |               |  |               |  |      |            |  |           |  |           | $     | 13,361,800
|                                                                                     |  |               |  |               |  |      |            |  |           |  |           |       |           
|Total Investments in Non-Controlled Affiliated Companies (cost: $72,700,161)         |  |               |  |               |  |      |            |  |           |  |           | $     | 58,652,465



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





13







|HARRIS & HARRIS GROUP,
        INC.
        CONSOLIDATED
        SCHEDULE OF INVESTMENTS AS OF MARCH 31, 2016
        (Unaudited)
|---------------------------------------------------------------------------------------------------------------------------------



|                                                                                               |  | Method of     |  | Primary       |  |      |           |  | Shares/   |   |           |       | 
|---------------------------------------------------------------------------------------------- |  | ------------- |  | ------------- |  | ---- | --------- |  | --------- | - | --------- | ----- | 
|                                                                                               |  | Valuation (1) |  | Industry (2)  |  | Cost |           |  | Principal |   |           | Value | 
|                                                                                               |  |               |  |               |  |      |           |  |           |   |           |       | 
|Investments in Controlled                                                                      |  |               |  |               |  |      |           |  |           |   |           |       | 
|Affiliated Companies (3) –                                                                     |  |               |  |               |  |      |           |  |           |   |           |       | 
|7.1% of net assets at value                                                                    |  |               |  |               |  |      |           |  |           |   |           |       | 
|                                                                                               |  |               |  |               |  |      |           |  |           |   |           |       | 
|Private Placement Portfolio (Illiquid) (20) –                                                  |  |               |  |               |  |      |           |  |           |   |           |       | 
|7.1% of net assets at value                                                                    |  |               |  |               |  |      |           |  |           |   |           |       | 
|                                                                                               |  |               |  |               |  |      |           |  |           |   |           |       | 
|Black Silicon Holdings, Inc. (5)(8)(21)                                                        |  |               |  | Electronics   |  |      |           |  |           |   |           |       | 
|Holding company for interest in a company that 
develops silicon-based optoelectronic products |  |               |  |               |  |      |           |  |           |   |           |       | 
|Series A Convertible Preferred Stock (acquired 8/4/15)                                         |  | ( I )         |  |               |  | $    | 750,000   |  |           |   | 233,499   |       | 
|Series A-1 Convertible Preferred Stock (acquired 8/4/15)                                       |  | ( I )         |  |               |  |      | 890,000   |  |           |   | 2,966,667 |       | 
|Series A-2 Convertible Preferred Stock (acquired 8/4/15)                                       |  | ( I )         |  |               |  |      | 2,445,000 |  |           |   | 4,207,537 |       | 
|Series B-1 Convertible Preferred Stock (acquired 8/4/15)                                       |  | ( I )         |  |               |  |      | 1,169,561 |  |           |   | 1,892,836 |       | 
|Series C Convertible Preferred Stock (acquired 8/4/15)                                         |  | ( I )         |  |               |  |      | 1,171,316 |  |           |   | 1,674,030 |       | 
|Secured Convertible Bridge Note, 8%, (acquired 8/4/15)                                         |  | ( I )         |  |               |  |      | 1,346,922 |  |           | $ | 1,278,454 |       | 
|                                                                                               |  |               |  |               |  |      | 7,772,799 |  |           |   |           |       | 
|                                                                                               |  |               |  |               |  |      |           |  |           |   |           |       | 
|Interome, Inc. (5)(8)(12)                                                                      |  |               |  | Life Sciences |  |      |           |  |           |   |           |       | 
|Developing human tissue models for toxicology 
and drug discovery applications                 |  |               |  |               |  |      |           |  |           |   |           |       | 
|Common Stock (acquired 3/1/16)                                                                 |  | (M)           |  |               |  |      | 10        |  |           |   | 1,000,000 |       | 
|Secured Convertible Bridge Note, 12%, (acquired 3/1/16)                                        |  | (M)           |  |               |  |      | 300,000   |  |           | $ | 300,000   |       | 
|                                                                                               |  |               |  |               |  |      | 300,010   |  |           |   |           |       | 
|                                                                                               |  |               |  |               |  |      |           |  |           |   |           |       | 
|NGX Bio, Inc. (5)(8)(9)(22)                                                                    |  |               |  | Life Sciences |  |      |           |  |           |   |           |       | 
|Developing translational genomics solutions                                                    |  |               |  |               |  |      |           |  |           |   |           |       | 
|Series Seed Convertible Preferred Stock (acquired 6/6/14-1/10/16)                              |  | ( I )         |  |               |  |      | 500,002   |  |           |   | 666,667   |       | 
|Series A Convertible Preferred Stock (acquired 8/20/15-9/30/15)                                |  | ( I )         |  |               |  |      | 499,999   |  |           |   | 329,989   |       | 
|                                                                                               |  |               |  |               |  |      | 1,000,001 |  |           |   |           |       | 
|                                                                                               |  |               |  |               |  |      |           |  |           |   |           |       | 
|ProMuc, Inc. (5)(8)                                                                            |  |               |  | Life Sciences |  |      |           |  |           |   |           |       | 
|Developing synthetic mucins for the                                                            |  |               |  |               |  |      |           |  |           |   |           |       | 
|nutritional, food and health care markets                                                      |  |               |  |               |  |      |           |  |           |   |           |       | 
|Common Stock (acquired 12/18/13)                                                               |  | (M)           |  |               |  |      | 1         |  |           |   | 1,000     |       | 
|Secured Convertible Bridge Note, 8%, (acquired 12/18/13)                                       |  | (M)           |  |               |  |      | 414,055   |  |           | $ | 350,000   |       | 
|Secured Convertible Bridge Note, 8%, (acquired 8/13/14)                                        |  | (M)           |  |               |  |      | 113,085   |  |           | $ | 100,000   |       | 
|Secured Convertible Bridge Note, 8%, (acquired 8/5/15)                                         |  | (M)           |  |               |  |      | 78,945    |  |           | $ | 75,000    |       | 
|Secured Convertible Bridge Note, 8%, (acquired 12/7/15)                                        |  | (M)           |  |               |  |      | 56,398    |  |           | $ | 55,000    |       | 
|                                                                                               |  |               |  |               |  |      | 662,484   |  |           |   |           |       | 



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



14







|HARRIS & HARRIS GROUP,
        INC.
        CONSOLIDATED
        SCHEDULE OF INVESTMENTS AS OF MARCH 31, 2016
        (Unaudited)
|---------------------------------------------------------------------------------------------------------------------------------



|                                                                                           |  | Method of     |  | Primary       |  |      |           |  | Shares/   |   |           |       |           
|------------------------------------------------------------------------------------------ |  | ------------- |  | ------------- |  | ---- | --------- |  | --------- | - | --------- | ----- | ----------
|                                                                                           |  | Valuation (1) |  | Industry (2)  |  | Cost |           |  | Principal |   |           | Value |           
|                                                                                           |  |               |  |               |  |      |           |  |           |   |           |       |           
|Investments in Controlled 
Affiliated Companies (3) – 
7.1% of net assets at value (Cont.) |  |               |  |               |  |      |           |  |           |   |           |       |           
|                                                                                           |  |               |  |               |  |      |           |  |           |   |           |       |           
|Private Placement Portfolio (Illiquid) (20) –
 7.1% of net assets at value (Cont.)         |  |               |  |               |  |      |           |  |           |   |           |       |           
|                                                                                           |  |               |  |               |  |      |           |  |           |   |           |       |           
|Senova Systems, Inc. (5)(8)(9)                                                             |  |               |  | Life Sciences |  |      |           |  |           |   |           |       |           
|Developing next-generation sensors to measure pH                                           |  |               |  |               |  |      |           |  |           |   |           |       |           
|Series B Convertible Preferred Stock (acquired 9/9/11-7/18/12)                             |  | ( I )         |  |               |  | $    | 1,218,462 |  |           |   | 1,350,000 |       |           
|Series B-1 Convertible Preferred Stock (acquired 8/1/13-1/15/14)                           |  | ( I )         |  |               |  |      | 1,083,960 |  |           |   | 2,759,902 |       |           
|Series C Convertible Preferred Stock (acquired 10/24/14-4/1/15)                            |  | ( I )         |  |               |  |      | 1,208,287 |  |           |   | 1,611,049 |       |           
|Secured Convertible Bridge Note, 10%, (acquired 1/15/16)                                   |  | ( I )         |  |               |  |      | 255,274   |  |           | $ | 250,000   |       |           
|Warrants for Series B Preferred Stock                                                      |  |               |  |               |  |      |           |  |           |   |           |       |           
|expiring 10/15/17 (acquired 10/15/12)                                                      |  | ( I )         |  |               |  |      | 131,538   |  |           |   | 164,423   |       |           
|Warrants for Series B Preferred Stock                                                      |  |               |  |               |  |      |           |  |           |   |           |       |           
|expiring 4/24/18 (acquired 4/24/13)                                                        |  | ( I )         |  |               |  |      | 20,000    |  |           |   | 25,000    |       |           
|                                                                                           |  |               |  |               |  |      | 3,917,521 |  |           |   |           |       |           
|                                                                                           |  |               |  |               |  |      |           |  |           |   |           |       |           
|SynGlyco, Inc.(5)(8)                                                                       |  |               |  | Life Sciences |  |      |           |  |           |   |           |       |           
|Developed synthetic carbohydrates for
 pharmaceutical applications                         |  |               |  |               |  |      |           |  |           |   |           |       |           
|Common Stock (acquired 12/13/11)                                                           |  | ( I )         |  |               |  |      | 2,729,817 |  |           |   | 57,463    |       |           
|Series A' Convertible Preferred Stock (acquired 12/13/11-6/7/12)                           |  | ( I )         |  |               |  |      | 4,855,627 |  |           |   | 4,855,627 |       |           
|Secured Convertible Bridge Note, 8%, (acquired 1/23/13)                                    |  | ( I )         |  |               |  |      | 68,344    |  |           | $ | 67,823    |       |           
|                                                                                           |  |               |  |               |  |      | 7,653,788 |  |           |   |           |       |           
|                                                                                           |  |               |  |               |  |      |           |  |           |   |           |       |           
|TARA Biosystems, Inc. (5)(8)                                                               |  |               |  | Life Sciences |  |      |           |  |           |   |           |       |           
|Developing human tissue models for toxicology
 and drug discovery applications             |  |               |  |               |  |      |           |  |           |   |           |       |           
|Common Stock (acquired 8/20/14)                                                            |  | (M)           |  |               |  |      | 20        |  |           |   | 2,000,000 |       |           
|Secured Convertible Bridge Note, 8%, (acquired 8/20/14)                                    |  | (M)           |  |               |  |      | 339,978   |  |           | $ | 300,000   |       |           
|Secured Convertible Bridge Note, 8%, (acquired 5/18/15)                                    |  | (M)           |  |               |  |      | 213,983   |  |           | $ | 200,000   |       |           
|Secured Convertible Bridge Note, 8%, acquired 12/1/15                                      |  | (M)           |  |               |  |      | 1,232,088 |  |           | $ | 1,200,000 |       |           
|                                                                                           |  |               |  |               |  |      | 1,786,069 |  |           |   |           |       |           
|                                                                                           |  |               |  |               |  |      |           |  |           |   |           |       |           
|Total Controlled Private Placement Portfolio (cost: $23,092,672)                           |  |               |  |               |  |      |           |  |           |   |           | $     | 5,884,419 
|                                                                                           |  |               |  |               |  |      |           |  |           |   |           |       |           
|Total Investments in Controlled Affiliated Companies (cost: $23,092,672)                   |  |               |  |               |  |      |           |  |           |   |           | $     | 5,884,419 
|                                                                                           |  |               |  |               |  |      |           |  |           |   |           |       |           
|Total Private Placement and Publicly Traded Portfolio (cost: $113,639,228)                 |  |               |  |               |  |      |           |  |           |   |           | $     | 73,293,596



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



15







|HARRIS & HARRIS GROUP,
        INC.
        CONSOLIDATED
        SCHEDULE OF INVESTMENTS AS OF MARCH 31, 2016
        (Unaudited)
|---------------------------------------------------------------------------------------------------------------------------------



|                                                 |  | Method of     |  | Primary       |  |      |         |  | Shares/   |  |         |       | 
|------------------------------------------------ |  | ------------- |  | ------------- |  | ---- | ------- |  | --------- |  | ------- | ----- | 
|                                                 |  | Valuation (1) |  | Industry (2)  |  | Cost |         |  | Principal |  |         | Value | 
|                                                 |  |               |  |               |  |      |         |  |           |  |         |       | 
|Equity Method Investments (23) –                 |  |               |  |               |  |      |         |  |           |  |         |       | 
|0.3% of net assets at value                      |  |               |  |               |  |      |         |  |           |  |         |       | 
|                                                 |  |               |  |               |  |      |         |  |           |  |         |       | 
|Private Placement Portfolio (Illiquid) (23) –    |  |               |  |               |  |      |         |  |           |  |         |       | 
|0.3% of net assets at value                      |  |               |  |               |  |      |         |  |           |  |         |       | 
|                                                 |  |               |  |               |  |      |         |  |           |  |         |       | 
|Accelerator IV-New York Corporation (8)(9)(24)   |  |               |  | Life Sciences |  |      |         |  |           |  |         |       | 
|Identifying and managing emerging                |  |               |  |               |  |      |         |  |           |  |         |       | 
|biotechnology companies                          |  |               |  |               |  |      |         |  |           |  |         |       | 
|Series A Common Stock (acquired 7/21/14-1/29/16) |  | (E)           |  |               |  | $    | 228,133 |  |           |  | 581,907 |       | 
|                                                 |  |               |  |               |  |      |         |  |           |  |         |       | 
|Total Equity Method Investments (cost: $228,133) |  |               |  |               |  |      |         |  |           |  |         |       | 
|                                                 |  |               |  |               |  |      |         |  |           |  |         |       | 
|Total Investments (cost: $113,867,361)           |  |               |  |               |  |      |         |  |           |  |         |       | 



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



16







|HARRIS & HARRIS GROUP,
        INC.
        CONSOLIDATED
        SCHEDULE OF INVESTMENTS AS OFMARCH 31, 2016
        (Unaudited)
|--------------------------------------------------------------------------------------------------------------------------------





Notes to Consolidated Schedule of Investments



| | (1) | See "Footnote to Consolidated Schedule of Investments" on page 34 for a description of
the "Valuation Procedures."
| | --- | ------------------------------------------------------------------------------------------------------------------



| | (2) | We classify "Energy" companies as those that seek to improve performance, productivity
or efficiency, and to reduce environmental impact, waste, cost, energy consumption or raw materials. We classify "Electronics"
companies as those that address problems in electronics-related industries, including semiconductors and computing. We classify
"Life Sciences" companies as those that address problems in life sciences-related industries, including precision health
and precision medicine, biotechnology, agriculture, advanced materials and chemicals, health care, bioprocessing, water, industrial
biotechnology, food, nutrition and energy.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (3) | Investments in unaffiliated companies consist of investments in which we own less than five percent
of the voting shares of the portfolio company. Investments in non-controlled affiliated companies consist of investments in which
we own five percent or more, but less than 25 percent, of the voting shares of the portfolio company, or where we hold one or more
seats on the portfolio company’s board of directors but do not control the company. Investments in controlled affiliated
companies consist of investments in which we own 25 percent or more of the voting shares of the portfolio company or otherwise
control the company, including control of a majority of the seats on the board of directors, or more than 25 percent of the seats
on the board of directors, with no other entity or person in control of more director seats than us. Among our controlled affiliated
companies, ProMuc, Inc., and Interome, Inc., were 100 percent owned by us at March 31, 2016.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (4) | The aggregate cost for federal income tax purposes of investments in unaffiliated privately held
companies is $15,441,503. The gross unrealized appreciation based on the tax cost for these securities is $374,234. The gross unrealized
depreciation based on the tax cost for these securities is $10,963,217.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (5) | All or a portion of the investments or instruments are pledged as collateral under our Loan Facility
with Orix Corporate Capital, Inc.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------



| | (6) | The aggregate cost for federal income tax purposes of investments in unaffiliated rights to milestone
payments is $781,863. The gross unrealized appreciation based on the tax cost for these securities is $2,177,906. The gross unrealized
depreciation based on the tax cost for these securities is $0.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (7) | The aggregate cost for federal income tax purposes of investments in unaffiliated publicly traded
companies is $1,623,029. The gross unrealized appreciation based on the tax cost for these securities is $0. The gross unrealized
depreciation based on the tax cost for these securities is $678,606.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (8) | We are subject to legal restrictions on the sale of our investment(s) in this company.
| | --- | --------------------------------------------------------------------------------------



| | (9) | Represents a non-income producing security. Investments that have not paid dividends or interest
within the last 12 months are considered to be non-income producing.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (10) | On July 21, 2015, Bridgelux, Inc., signed a definitive agreement to be acquired by an investment
group led by China Electronics Corporation and ChongQing Linkong Development Investment Company. The close of this transaction
remains pending as of March 31, 2016.
| | ---- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



17







|HARRIS & HARRIS GROUP,
        INC.
        CONSOLIDATED
        SCHEDULE OF INVESTMENTS AS OFMARCH 31, 2016
        (Unaudited)
|--------------------------------------------------------------------------------------------------------------------------------



| | (11) | We received our shares of Magic Leap, Inc., as part of the consideration paid for one of our portfolio
companies in an acquisition during the second quarter of 2015. A total of 4,394 shares of our 29,291 shares of Magic Leap are held
in escrow to satisfy indemnity claims through May 1, 2016.
| | ---- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (12) | Initial investment was made in 2016.
| | ---- | ------------------------------------



| | (13) | The aggregate cost for federal income tax purposes of investments in non-controlled affiliated
privately held companies is $49,534,373. The gross unrealized appreciation based on the tax cost for these securities is $12,745,089.
The gross unrealized depreciation based on the tax cost for these securities is $16,988,797.
| | ---- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (14) | D-Wave Systems, Inc., is located and is doing business primarily in Canada. We invested in D-Wave
through Parallel Universes, Inc., a Delaware company. Our investment is denominated in Canadian dollars and is subject to foreign
currency translation. See "Note 3. Summary of Significant Accounting Policies." D-Wave is not a qualifying asset under
Section 55(a) of the 1940 Act. Under the 1940 Act, we may not acquire non-qualifying assets unless, at the time the acquisition
is made, qualifying assets are at least 70 percent of our total assets.
| | ---- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (15) | Produced Water Absorbents, Inc., also does business as ProSep, Inc. On April 1, 2016, the Company's
Subordinated Secured Note was reissued as a Senior Secured Note with the same terms as the Senior Secured Note purchased in the
first quarter of 2016.
| | ---- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (16) | The aggregate cost for federal income tax purposes of investments in non-controlled affiliated
publicly traded companies is $23,165,788. The gross unrealized appreciation based on the tax cost for these securities is $0. The
gross unrealized depreciation based on the tax cost for these securities is $9,803,988.
| | ---- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (17) | As of March 31, 2016, the Company's shares of Adesto Technologies Corporation were subject to a
lock-up agreement that restricted our ability to trade these securities. The lock-up agreement expired on April 25, 2016. A total
of 200,000 shares are not qualifying assets under Section 55(a) of the 1940 Act. Under the 1940 Act, we may not acquire non-qualifying
assets unless, at the time the acquisition is made, qualifying assets are at least 70 percent of our total assets.
| | ---- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (18) | As of December 31, 2015, a portion of the Company's shares and warrants of Enumeral Biomedical
Holdings, Inc., were subject to a lock-up agreement that restricts our ability to trade these securities. The lock-up period on
our securities of Enumeral Biomedical Holdings expired on January 31, 2016.
| | ---- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (19) | A total of 300,833 shares and 300,833 warrants are not qualifying assets under Section 55(a) of
the 1940 Act. Under the 1940 Act, we may not acquire non-qualifying assets unless, at the time the acquisition is made, qualifying
assets are at least 70 percent of our total assets.
| | ---- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (20) | The aggregate cost for federal income tax purposes of investments in controlled affiliated companies
is $23,092,672. The gross unrealized appreciation based on the tax cost for these securities is $276,981. The gross unrealized
depreciation based on the tax cost for these securities is $17,485,234.
| | ---- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (21) | On August 4, 2015, SiOnyx, Inc., reorganized its corporate structure to become a subsidiary of
a new company, Black Silicon Holdings, Inc.  Our security holdings of SiOnyx converted into securities of Black Silicon
Holdings.  SiOnyx was then acquired by an undisclosed buyer.  Black Silicon Holdings owns a profit interest in the undisclosed
buyer.
| | ---- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



18







|HARRIS & HARRIS GROUP,
        INC.
        CONSOLIDATED
        SCHEDULE OF INVESTMENTS AS OFMARCH 31, 2016
        (Unaudited)
|--------------------------------------------------------------------------------------------------------------------------------



| | (22) | On August 19, 2015, UberSeq, Inc., changed its name to NGX Bio, Inc.
| | ---- | --------------------------------------------------------------------



| | (23) | The aggregate cost for federal income tax purposes of investments in privately held equity method
investments is $228,133. Under the equity method, investments are carried at cost, plus or minus the Company's equity in the increases
and decreases in the investee's net assets after the date of acquisition and certain other adjustments.
| | ---- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (24) | As part of our initial investment in Accelerator IV-New York Corporation, the Company made an additional
operating and investment commitment. See "Note 11. Commitments and Contingencies."
| | ---- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



19











|HARRIS & HARRIS GROUP,
        INC.
        CONSOLIDATED
        SCHEDULE OF INVESTMENTS AS OF DECEMBER 31, 2015
|----------------------------------------------------------------------------------------------------------------



|                                                                 |  | Method of     |  | Primary       |  |      |           |  | Shares/   |  |           |       | 
|---------------------------------------------------------------- |  | ------------- |  | ------------- |  | ---- | --------- |  | --------- |  | --------- | ----- | 
|                                                                 |  | Valuation (1) |  | Industry (2)  |  | Cost |           |  | Principal |  |           | Value | 
|                                                                 |  |               |  |               |  |      |           |  |           |  |           |       | 
|Investments in Unaffiliated Companies (3) –                      |  |               |  |               |  |      |           |  |           |  |           |       | 
|11.0% of net assets at value                                     |  |               |  |               |  |      |           |  |           |  |           |       | 
|                                                                 |  |               |  |               |  |      |           |  |           |  |           |       | 
|Private Placement Portfolio (Illiquid) (4) –                     |  |               |  |               |  |      |           |  |           |  |           |       | 
|6.1% of net assets at value                                      |  |               |  |               |  |      |           |  |           |  |           |       | 
|                                                                 |  |               |  |               |  |      |           |  |           |  |           |       | 
|Bridgelux, Inc. (5)(8)(9)(10)                                    |  |               |  | Energy        |  |      |           |  |           |  |           |       | 
|Manufacturing high-power light emitting                          |  |               |  |               |  |      |           |  |           |  |           |       | 
|diodes (LEDs) and arrays                                         |  |               |  |               |  |      |           |  |           |  |           |       | 
|Series B Convertible Preferred Stock (acquired 11/29/07)         |  | (M)           |  |               |  | $    | 1,000,000 |  |           |  | 1,861,504 |       | 
|Series C Convertible Preferred Stock (acquired 7/27/07)          |  | (M)           |  |               |  |      | 1,352,196 |  |           |  | 2,130,699 |       | 
|Series D Convertible Preferred Stock (acquired (2/25/08-3/10/10) |  | (M)           |  |               |  |      | 1,371,622 |  |           |  | 999,999   |       | 
|Series E Convertible Preferred Stock (acquired 6/1/11)           |  | (M)           |  |               |  |      | 672,599   |  |           |  | 440,334   |       | 
|Series E-1 Convertible Preferred Stock (acquired 3/16/12)        |  | (M)           |  |               |  |      | 386,073   |  |           |  | 399,579   |       | 
|Warrants for Series E Convertible Preferred                      |  |               |  |               |  |      |           |  |           |  |           |       | 
|Stock expiring 12/31/17 (acquired 1/27/11)                       |  | (M)           |  |               |  |      | 93,969    |  |           |  | 170,823   |       | 
|Warrants for Common Stock expiring 6/1/16 (acquired 6/1/11)      |  | (M)           |  |               |  |      | 72,668    |  |           |  | 132,100   |       | 
|Warrants for Common Stock expiring 8/9/18 (acquired 8/9/13)      |  | (M)           |  |               |  |      | 148,409   |  |           |  | 171,183   |       | 
|Warrants for Common Stock expiring 10/21/18 (acquired 10/21/11)  |  | (M)           |  |               |  |      | 18,816    |  |           |  | 84,846    |       | 
|                                                                 |  |               |  |               |  |      | 5,116,352 |  |           |  |           |       | 
|                                                                 |  |               |  |               |  |      |           |  |           |  |           |       | 
|Cambrios Technologies Corporation (5)(8)(9)(11)                  |  |               |  | Electronics   |  |      |           |  |           |  |           |       | 
|Developed nanowire-enabled electronic                            |  |               |  |               |  |      |           |  |           |  |           |       | 
|materials for the display industry                               |  |               |  |               |  |      |           |  |           |  |           |       | 
|Series B Convertible Preferred Stock (acquired 11/9/04-2/16/05)  |  | (M)           |  |               |  |      | 1,294,025 |  |           |  | 1,294,025 |       | 
|Series C Convertible Preferred Stock (acquired 3/21/07)          |  | (M)           |  |               |  |      | 1,300,000 |  |           |  | 1,300,000 |       | 
|Series D Convertible Preferred Stock (acquired 8/7/09)           |  | (M)           |  |               |  |      | 515,756   |  |           |  | 515,756   |       | 
|Series D-2 Convertible Preferred Stock (acquired 5/31/11)        |  | (M)           |  |               |  |      | 92,400    |  |           |  | 92,400    |       | 
|Series D-4 Convertible Preferred Stock (acquired 7/12/12)        |  | (M)           |  |               |  |      | 216,168   |  |           |  | 216,168   |       | 
|                                                                 |  |               |  |               |  |      | 3,418,349 |  |           |  |           |       | 
|                                                                 |  |               |  |               |  |      |           |  |           |  |           |       | 
|Magic Leap, Inc. (8)(9)(12)                                      |  |               |  | Electronics   |  |      |           |  |           |  |           |       | 
|Developing novel human computing                                 |  |               |  |               |  |      |           |  |           |  |           |       | 
|interfaces and software                                          |  |               |  |               |  |      |           |  |           |  |           |       | 
|Series B Convertible Preferred Stock (acquired 5/1/15)           |  | ( I )         |  |               |  |      | 338,604   |  |           |  | 29,291    |       | 
|                                                                 |  |               |  |               |  |      |           |  |           |  |           |       | 
|Mersana Therapeutics, Inc. (5)(8)(9)                             |  |               |  | Life Sciences |  |      |           |  |           |  |           |       | 
|Developing antibody drug conjugates                              |  |               |  |               |  |      |           |  |           |  |           |       | 
|for cancer therapy                                               |  |               |  |               |  |      |           |  |           |  |           |       | 
|Series A-1 Convertible Preferred Stock (acquired 7/27/12-4/2/14) |  | (H)           |  |               |  |      | 683,538   |  |           |  | 635,081   |       | 
|Series B-1 Convertible Preferred Stock (acquired 2/20/15)        |  | (H)           |  |               |  |      | 104,521   |  |           |  | 97,111    |       | 
|Common Stock (acquired 7/27/12)                                  |  | (H)           |  |               |  |      | 3,875,395 |  |           |  | 350,539   |       | 
|                                                                 |  |               |  |               |  |      | 4,663,454 |  |           |  |           |       | 



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



20







|HARRIS & HARRIS GROUP,
        INC.
        CONSOLIDATED
        SCHEDULE OF INVESTMENTS AS OF DECEMBER 31, 2015
|----------------------------------------------------------------------------------------------------------------



|                                                                   |  | Method of     |  | Primary       |  |      |           |           | Shares/   |   |           |       | 
|------------------------------------------------------------------ |  | ------------- |  | ------------- |  | ---- | --------- | --------- | --------- | - | --------- | ----- | 
|                                                                   |  | Valuation (1) |  | Industry (2)  |  | Cost |           |           | Principal |   |           | Value | 
|                                                                   |  |               |  |               |  |      |           |           |           |   |           |       | 
|Investments in Unaffiliated Companies (3) –                        |  |               |  |               |  |      |           |           |           |   |           |       | 
|11.0% of net assets at value (Cont.)                               |  |               |  |               |  |      |           |           |           |   |           |       | 
|                                                                   |  |               |  |               |  |      |           |           |           |   |           |       | 
|Private Placement Portfolio (Illiquid) (4) –                       |  |               |  |               |  |      |           |           |           |   |           |       | 
|6.1% of net assets at value (Cont.)                                |  |               |  |               |  |      |           |           |           |   |           |       | 
|                                                                   |  |               |  |               |  |      |           |           |           |   |           |       | 
|Nanosys, Inc. (5)(8)(9)                                            |  |               |  | Energy        |  |      |           |           |           |   |           |       | 
|Developing inorganic nanowires and                                 |  |               |  |               |  |      |           |           |           |   |           |       | 
|quantum dots for use in LED-backlit devices                        |  |               |  |               |  |      |           |           |           |   |           |       | 
|Series C Convertible Preferred Stock (acquired 4/10/03)            |  | (M)           |  |               |  | $    | 1,500,000 |           |           |   | 803,428   |       | 
|Series D Convertible Preferred Stock (acquired 11/7/05)            |  | (M)           |  |               |  |      | 3,000,003 |           |           |   | 1,016,950 |       | 
|Series E Convertible Preferred Stock (acquired 8/13/10)            |  | (M)           |  |               |  |      | 496,573   |           |           |   | 433,688   |       | 
|                                                                   |  |               |  |               |  |      | 4,996,576 |           |           |   |           |       | 
|                                                                   |  |               |  |               |  |      |           |           |           |   |           |       | 
|Nano Terra, Inc. (5)(8)                                            |  |               |  | Energy        |  |      |           |           |           |   |           |       | 
|Developing surface chemistry and nano-                             |  |               |  |               |  |      |           |           |           |   |           |       | 
|manufacturing solutions                                            |  |               |  |               |  |      |           |           |           |   |           |       | 
|Warrants for Common Stock expiring on 2/22/21 (acquired 2/22/11)   |  | ( I )         |  |               |  |      | 69,168    |           |           |   | 4,462     |       | 
|Warrants for Series A-3 Preferred Stock                            |  |               |  |               |  |      |           |           |           |   |           |       | 
|expiring on 11/15/22(acquired 11/15/12)                            |  | ( I )         |  |               |  |      | 35,403    |           |           |   | 47,508    |       | 
|                                                                   |  |               |  |               |  |      | 104,571   |           |           |   |           |       | 
|                                                                   |  |               |  |               |  |      |           |           |           |   |           |       | 
|Phylagen, Inc. (5)(8)(13)                                          |  |               |  | Life Sciences |  |      |           |           |           |   |           |       | 
|Developing technology to improve human                             |  |               |  |               |  |      |           |           |           |   |           |       | 
|health and business productivity                                   |  |               |  |               |  |      |           |           |           |   |           |       | 
|Secured Convertible Bridge Note, 5%, (acquired 2/5/15)             |  | (M)           |  |               |  |      | 209,041   |           |           | $ | 200,000   |       | 
|Secured Convertible Bridge Note, 5%, (acquired 6/5/15)             |  | (M)           |  |               |  |      | 10,288    |           |           | $ | 10,000    |       | 
|                                                                   |  |               |  |               |  |      | 219,329   |           |           |   |           |       | 
|                                                                   |  |               |  |               |  |      |           |           |           |   |           |       | 
|Total Unaffiliated Private Placement Portfolio (cost: $18,857,235) |  |               |  |               |  |      | $         | 5,376,472 |          



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



21







|HARRIS & HARRIS GROUP,
        INC.
        CONSOLIDATED
        SCHEDULE OF INVESTMENTS AS OF DECEMBER 31, 2015
|----------------------------------------------------------------------------------------------------------------



|                                                                   |  | Method of     |  | Primary       |  |      |           |           | Shares/   |   |         |       | 
|------------------------------------------------------------------ |  | ------------- |  | ------------- |  | ---- | --------- | --------- | --------- | - | ------- | ----- | 
|                                                                   |  | Valuation (1) |  | Industry (2)  |  | Cost |           |           | Principal |   |         | Value | 
|                                                                   |  |               |  |               |  |      |           |           |           |   |         |       | 
|Rights to Milestone Payments (Illiquid) (6) –                      |  |               |  |               |  |      |           |           |           |   |         |       | 
|3.8% of net assets at value                                        |  |               |  |               |  |      |           |           |           |   |         |       | 
|                                                                   |  |               |  |               |  |      |           |           |           |   |         |       | 
|Amgen, Inc. (8)(9)                                                 |  |               |  | Life Sciences |  |      |           |           |           |   |         |       | 
|Rights to Milestone Payments from                                  |  |               |  |               |  |      |           |           |           |   |         |       | 
|Acquisition of BioVex Group, Inc. (acquired 3/4/11)                |  | ( I )         |  |               |  | $    | 548,998   |           |           | $ | 548,998 |       | 
|                                                                   |  |               |  |               |  |      |           |           |           |   |         |       | 
|Laird Technologies, Inc. (8)(9)                                    |  |               |  | Energy        |  |      |           |           |           |   |         |       | 
|Rights to Milestone Payments from Merger &                         |  |               |  |               |  |      |           |           |           |   |         |       | 
|Acquisition of Nextreme Thermal Solutions, Inc. (acquired 2/13/13) |  | ( I )         |  |               |  |      | 0         |           |           | $ | 0       |       | 
|                                                                   |  |               |  |               |  |      |           |           |           |   |         |       | 
|Canon, Inc. (8)(9)                                                 |  |               |  | Electronics   |  |      |           |           |           |   |         |       | 
|Rights to Milestone Payments from                                  |  |               |  |               |  |      |           |           |           |   |         |       | 
|Acquisition of Molecular Imprints, Inc. (acquired 4/18/14)         |  | ( I )         |  |               |  |      | 232,865   |           |           | $ | 232,865 |       | 
|                                                                   |  |               |  |               |  |      |           |           |           |   |         |       | 
|Total Unaffiliated Rights to Milestone Payments (cost: $781,863)   |  |               |  |               |  |      | $         | 3,362,051 |          
|                                                                   |  |               |  |               |  |      |           |           |           |   |         |       | 
|Publicly Traded Portfolio (7) –                                    |  |               |  |               |  |      |           |           |           |   |         |       | 
|1.1% of net assets at value                                        |  |               |  |               |  |      |           |           |           |   |         |       | 
|                                                                   |  |               |  |               |  |      |           |           |           |   |         |       | 
|Champions Oncology, Inc. (5)(9)                                    |  |               |  | Life Sciences |  |      |           |           |           |   |         |       | 
|Developing its TumorGraftTM platform for                           |  |               |  |               |  |      |           |           |           |   |         |       | 
|personalized medicine and drug development                         |  |               |  |               |  |      |           |           |           |   |         |       | 
|Common Stock (acquired 3/24/11-3/11/15)                            |  | (M)           |  |               |  | $    | 1,622,629 |           |           |   | 243,540 |       | 
|Warrants for Common Stock                                          |  |               |  |               |  |      |           |           |           |   |         |       | 
|expiring 1/28/19 (acquired 1/28/13)                                |  | ( I )         |  |               |  |      | 400       |           |           |   | 5,500   |       | 
|                                                                   |  |               |  |               |  |      | 1,623,029 |           |           |   |         |       | 
|                                                                   |  |               |  |               |  |      |           |           |           |   |         |       | 
|Total Unaffiliated Publicly Traded Portfolio (cost: $1,623,029)    |  |               |  |               |  |      | $         | 957,544   |          
|                                                                   |  |               |  |               |  |      |           |           |           |   |         |       | 
|Total Investments in Unaffiliated Companies (cost: $21,262,127)    |  |               |  |               |  |      | $         | 9,696,067 |          



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



22







|HARRIS & HARRIS GROUP,
        INC.
        CONSOLIDATED
        SCHEDULE OF INVESTMENTS AS OF DECEMBER 31, 2015
|----------------------------------------------------------------------------------------------------------------



|                                                                       |  | Method of     |  | Primary       |  |      |           |  | Shares/   |   |           |       | 
|---------------------------------------------------------------------- |  | ------------- |  | ------------- |  | ---- | --------- |  | --------- | - | --------- | ----- | 
|                                                                       |  | Valuation (1) |  | Industry (2)  |  | Cost |           |  | Principal |   |           | Value | 
|                                                                       |  |               |  |               |  |      |           |  |           |   |           |       | 
|Investments in Non-Controlled                                          |  |               |  |               |  |      |           |  |           |   |           |       | 
|Affiliated Companies (3) –                                             |  |               |  |               |  |      |           |  |           |   |           |       | 
|67.9% of net assets at value                                           |  |               |  |               |  |      |           |  |           |   |           |       | 
|                                                                       |  |               |  |               |  |      |           |  |           |   |           |       | 
|Private Placement Portfolio (Illiquid) (14) –                          |  |               |  |               |  |      |           |  |           |   |           |       | 
|47.2% of net assets at value                                           |  |               |  |               |  |      |           |  |           |   |           |       | 
|                                                                       |  |               |  |               |  |      |           |  |           |   |           |       | 
|ABSMaterials, Inc. (5)(8)(9)                                           |  |               |  | Energy        |  |      |           |  |           |   |           |       | 
|Developing nano-structured absorbent materials                         |  |               |  |               |  |      |           |  |           |   |           |       | 
|for water remediation and consumer applications                        |  |               |  |               |  |      |           |  |           |   |           |       | 
|Series A Convertible Preferred Stock (acquired 2/17/10-10/24/11)       |  | ( I )         |  |               |  | $    | 435,000   |  |           |   | 390,000   |       | 
|Series B Convertible Preferred Stock (acquired 11/8/13-6/25/14)        |  | ( I )         |  |               |  |      | 1,217,644 |  |           |   | 1,037,751 |       | 
|                                                                       |  |               |  |               |  |      | 1,652,644 |  |           |   |           |       | 
|                                                                       |  |               |  |               |  |      |           |  |           |   |           |       | 
|AgBiome, LLC (5)(8)(9)                                                 |  |               |  | Life Sciences |  |      |           |  |           |   |           |       | 
|Providing early-stage research and discovery for                       |  |               |  |               |  |      |           |  |           |   |           |       | 
|agriculture and utilizing the crop microbiome to                       |  |               |  |               |  |      |           |  |           |   |           |       | 
|identify products that reduce risk and improve yield                   |  |               |  |               |  |      |           |  |           |   |           |       | 
|Series A-1 Convertible Preferred Stock (acquired 1/30/13)              |  | ( I )         |  |               |  |      | 2,000,000 |  |           |   | 2,000,000 |       | 
|Series A-2 Convertible Preferred Stock (acquired 4/9/13-10/15/13)      |  | ( I )         |  |               |  |      | 521,740   |  |           |   | 417,392   |       | 
|Series B Convertible Preferred Stock (acquired 8/7/15)                 |  | ( I )         |  |               |  |      | 500,006   |  |           |   | 160,526   |       | 
|                                                                       |  |               |  |               |  |      | 3,021,746 |  |           |   |           |       | 
|                                                                       |  |               |  |               |  |      |           |  |           |   |           |       | 
|D-Wave Systems, Inc. (8)(9)(15)                                        |  |               |  | Electronics   |  |      |           |  |           |   |           |       | 
|Developing high-performance                                            |  |               |  |               |  |      |           |  |           |   |           |       | 
|quantum computing systems                                              |  |               |  |               |  |      |           |  |           |   |           |       | 
|Series 1 Class B Convertible Preferred Stock (acquired 9/30/08)        |  | (H)           |  |               |  |      | 1,002,074 |  |           |   | 1,144,869 |       | 
|Series 1 Class C Convertible Preferred Stock (acquired 9/30/08)        |  | (H)           |  |               |  |      | 487,804   |  |           |   | 450,450   |       | 
|Series 1 Class D Convertible Preferred Stock (acquired 9/30/08)        |  | (H)           |  |               |  |      | 748,473   |  |           |   | 855,131   |       | 
|Series 1 Class E Convertible Preferred Stock (acquired 11/24/10)       |  | (H)           |  |               |  |      | 248,049   |  |           |   | 269,280   |       | 
|Series 1 Class F Convertible Preferred Stock (acquired 11/24/10)       |  | (H)           |  |               |  |      | 238,323   |  |           |   | 258,721   |       | 
|Series 1 Class H Convertible Preferred Stock (acquired 6/27/14)        |  | (H)           |  |               |  |      | 909,088   |  |           |   | 460,866   |       | 
|Series 2 Class D Convertible Preferred Stock (acquired 9/30/08)        |  | (H)           |  |               |  |      | 736,019   |  |           |   | 678,264   |       | 
|Series 2 Class E Convertible Preferred Stock (acquired 6/1/12-3/22/13) |  | (H)           |  |               |  |      | 659,493   |  |           |   | 513,900   |       | 
|Series 2 Class F Convertible Preferred Stock (acquired 6/1/12-3/22/13) |  | (H)           |  |               |  |      | 633,631   |  |           |   | 493,747   |       | 
|Warrants for Common Stock expiring 5/12/19 (acquired 5/12/14)          |  | ( I )         |  |               |  |      | 26,357    |  |           |   | 20,415    |       | 
|                                                                       |  |               |  |               |  |      | 5,689,311 |  |           |   |           |       | 
|                                                                       |  |               |  |               |  |      |           |  |           |   |           |       | 
|EchoPixel, Inc. (5)(8)                                                 |  |               |  | Life Sciences |  |      |           |  |           |   |           |       | 
|Developing virtual reality 3-D visualization software                  |  |               |  |               |  |      |           |  |           |   |           |       | 
|for life sciences and health care applications                         |  |               |  |               |  |      |           |  |           |   |           |       | 
|Series Seed Convertible Preferred Stock (acquired 6/21/13-6/30/14)     |  | ( I )         |  |               |  |      | 1,250,000 |  |           |   | 4,194,630 |       | 
|Secured Convertible Bridge Note, 8%, (acquired 11/25/15)               |  | (M)           |  |               |  |      | 113,425   |  |           | $ | 112,500   |       | 
|                                                                       |  |               |  |               |  |      | 1,363,425 |  |           |   |           |       | 



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



23







|HARRIS & HARRIS GROUP,
        INC.
        CONSOLIDATED
        SCHEDULE OF INVESTMENTS AS OF DECEMBER 31, 2015
|----------------------------------------------------------------------------------------------------------------



|                                                                |  | Method of     |  | Primary       |  |      |           |  | Shares/   |   |            |       | 
|--------------------------------------------------------------- |  | ------------- |  | ------------- |  | ---- | --------- |  | --------- | - | ---------- | ----- | 
|                                                                |  | Valuation (1) |  | Industry (2)  |  | Cost |           |  | Principal |   |            | Value | 
|                                                                |  |               |  |               |  |      |           |  |           |   |            |       | 
|Investments in Non-Controlled                                   |  |               |  |               |  |      |           |  |           |   |            |       | 
|Affiliated Companies (3) –                                      |  |               |  |               |  |      |           |  |           |   |            |       | 
|67.9% of net assets at value (Cont.)                            |  |               |  |               |  |      |           |  |           |   |            |       | 
|                                                                |  |               |  |               |  |      |           |  |           |   |            |       | 
|Private Placement Portfolio (Illiquid) (14) –                   |  |               |  |               |  |      |           |  |           |   |            |       | 
|47.2% of net assets at value (Cont.)                            |  |               |  |               |  |      |           |  |           |   |            |       | 
|                                                                |  |               |  |               |  |      |           |  |           |   |            |       | 
|Ensemble Therapeutics Corporation (5)(8)(9)                     |  |               |  | Life Sciences |  |      |           |  |           |   |            |       | 
|Developing DNA-Programmed ChemistryTM                           |  |               |  |               |  |      |           |  |           |   |            |       | 
|for the discovery of new classes of therapeutics                |  |               |  |               |  |      |           |  |           |   |            |       | 
|Series B Convertible Preferred Stock (acquired 6/6/07)          |  | ( I )         |  |               |  | $    | 2,000,000 |  |           |   | 1,449,275  |       | 
|Series B-1 Convertible Preferred Stock (acquired 4/21/14)       |  | ( I )         |  |               |  |      | 679,754   |  |           |   | 492,575    |       | 
|                                                                |  |               |  |               |  |      | 2,679,754 |  |           |   |            |       | 
|                                                                |  |               |  |               |  |      |           |  |           |   |            |       | 
|HZO, Inc. (5)(8)(9)                                             |  |               |  | Electronics   |  |      |           |  |           |   |            |       | 
|Developing novel industrial coatings that                       |  |               |  |               |  |      |           |  |           |   |            |       | 
|protect electronics against damage from liquids                 |  |               |  |               |  |      |           |  |           |   |            |       | 
|Common Stock (acquired 6/23/14)                                 |  | ( I )         |  |               |  |      | 666,667   |  |           |   | 405,729    |       | 
|Series I Convertible Preferred Stock (acquired 6/23/14)         |  | ( I )         |  |               |  |      | 5,709,835 |  |           |   | 2,266,894  |       | 
|Series II Convertible Preferred Stock (acquired 6/23/14-8/3/15) |  | ( I )         |  |               |  |      | 2,500,006 |  |           |   | 674,638    |       | 
|                                                                |  |               |  |               |  |      | 8,876,508 |  |           |   |            |       | 
|                                                                |  |               |  |               |  |      |           |  |           |   |            |       | 
|Laser Light Engines, Inc. (8)(9)                                |  |               |  | Energy        |  |      |           |  |           |   |            |       | 
|Manufactured solid-state light sources for                      |  |               |  |               |  |      |           |  |           |   |            |       | 
|digital cinema and large-venue projection displays              |  |               |  |               |  |      |           |  |           |   |            |       | 
|Series A Convertible Preferred Stock (acquired 5/6/08)          |  | (M)           |  |               |  |      | 2,000,000 |  |           |   | 7,499,062  |       | 
|Series B Convertible Preferred Stock (acquired 9/17/10)         |  | (M)           |  |               |  |      | 3,095,802 |  |           |   | 13,571,848 |       | 
|Secured Convertible Bridge Note, 12%, (acquired 10/7/11)        |  | (M)           |  |               |  |      | 200,000   |  |           | $ | 200,000    |       | 
|Secured Convertible Bridge Note, 12%, (acquired 11/17/11)       |  | (M)           |  |               |  |      | 95,652    |  |           | $ | 95,652     |       | 
|Secured Convertible Bridge Note, 12%, (acquired 12/21/11)       |  | (M)           |  |               |  |      | 82,609    |  |           | $ | 82,609     |       | 
|Secured Convertible Bridge Note, 12%, (acquired 3/5/12)         |  | (M)           |  |               |  |      | 434,784   |  |           | $ | 434,784    |       | 
|Secured Convertible Bridge Note, 12%, (acquired 7/26/12)        |  | (M)           |  |               |  |      | 186,955   |  |           | $ | 186,955    |       | 
|Secured Convertible Bridge Note, 20%, (acquired 4/29/13)        |  | (M)           |  |               |  |      | 166,667   |  |           | $ | 166,667    |       | 
|Secured Convertible Bridge Note, 20%, (acquired 7/22/13)        |  | (M)           |  |               |  |      | 166,667   |  |           | $ | 166,667    |       | 
|Secured Convertible Bridge Note, 10%, (acquired 10/30/13)       |  | (M)           |  |               |  |      | 80,669    |  |           | $ | 80,669     |       | 
|Secured Convertible Bridge Note, 10%, (acquired 2/5/14)         |  | (M)           |  |               |  |      | 19,331    |  |           | $ | 19,331     |       | 
|Secured Convertible Bridge Note, 10%, (acquired 6/24/14)        |  | (M)           |  |               |  |      | 13,745    |  |           | $ | 13,745     |       | 
|                                                                |  |               |  |               |  |      | 6,542,881 |  |           |   |            |       | 
|                                                                |  |               |  |               |  |      |           |  |           |   |            |       | 
|Lodo Therapeutics Corporation (5)(8)(9)(13)                     |  |               |  | Life Sciences |  |      |           |  |           |   |            |       | 
|Developing and commercializing novel therapeutics               |  |               |  |               |  |      |           |  |           |   |            |       | 
|derived from a metagenome-based Natural Product                 |  |               |  |               |  |      |           |  |           |   |            |       | 
|Discovery Platform                                              |  |               |  |               |  |      |           |  |           |   |            |       | 
|Series A Convertible Preferred Stock (acquired 12/21/15)        |  | ( I )         |  |               |  |      | 107,900   |  |           |   | 107,900    |       | 



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



24







|HARRIS & HARRIS GROUP,
        INC.
        CONSOLIDATED
        SCHEDULE OF INVESTMENTS AS OF DECEMBER 31, 2015
|----------------------------------------------------------------------------------------------------------------



|                                                                 |  | Method of     |  | Primary       |  |      |           |  | Shares/   |   |           |       | 
|---------------------------------------------------------------- |  | ------------- |  | ------------- |  | ---- | --------- |  | --------- | - | --------- | ----- | 
|                                                                 |  | Valuation (1) |  | Industry (2)  |  | Cost |           |  | Principal |   |           | Value | 
|Investments in Non-Controlled                                    |  |               |  |               |  |      |           |  |           |   |           |       | 
|Affiliated Companies (3) –                                       |  |               |  |               |  |      |           |  |           |   |           |       | 
|67.9% of net assets at value (Cont.)                             |  |               |  |               |  |      |           |  |           |   |           |       | 
|                                                                 |  |               |  |               |  |      |           |  |           |   |           |       | 
|Private Placement Portfolio (Illiquid) (14) –                    |  |               |  |               |  |      |           |  |           |   |           |       | 
|47.2% of net assets at value (Cont.)                             |  |               |  |               |  |      |           |  |           |   |           |       | 
|                                                                 |  |               |  |               |  |      |           |  |           |   |           |       | 
|Metabolon, Inc. (5)(8)(9)                                        |  |               |  | Life Sciences |  |      |           |  |           |   |           |       | 
|Developing a biochemical profiling                               |  |               |  |               |  |      |           |  |           |   |           |       | 
|platform for precision medicine                                  |  |               |  |               |  |      |           |  |           |   |           |       | 
|Series B Convertible Preferred Stock (acquired 6/29/09)          |  | (M)           |  |               |  | $    | 2,500,000 |  |           |   | 371,739   |       | 
|Series B-1 Convertible Preferred Stock (acquired 6/29/09)        |  | (M)           |  |               |  |      | 706,214   |  |           |   | 148,696   |       | 
|Series C Convertible Preferred Stock (acquired 4/30/09)          |  | (M)           |  |               |  |      | 1,000,000 |  |           |   | 1,000,000 |       | 
|Series D Convertible Preferred Stock (acquired 8/25/11)          |  | (M)           |  |               |  |      | 1,499,999 |  |           |   | 835,882   |       | 
|Series E-1 Convertible Preferred Stock (acquired 3/2/15)         |  | (M)           |  |               |  |      | 1,225,000 |  |           |   | 444,404   |       | 
|Series E-2 Convertible Preferred Stock (acquired 3/2/15)         |  | (M)           |  |               |  |      | 299,999   |  |           |   | 103,277   |       | 
|                                                                 |  |               |  |               |  |      | 7,231,212 |  |           |   |           |       | 
|                                                                 |  |               |  |               |  |      |           |  |           |   |           |       | 
|ORIG3N, Inc. (5)(8)(9)(13)                                       |  |               |  | Life Sciences |  |      |           |  |           |   |           |       | 
|Developing precision medicine applications                       |  |               |  |               |  |      |           |  |           |   |           |       | 
|for induced pluripotent stems cells                              |  |               |  |               |  |      |           |  |           |   |           |       | 
|Series 1 Convertible Preferred Stock (acquired 2/5/15-8/5/15)    |  | ( I )         |  |               |  |      | 500,000   |  |           |   | 1,195,315 |       | 
|Series A Convertible Preferred Stock (acquired 11/25/15)         |  | ( I )         |  |               |  |      | 750,000   |  |           |   | 682,333   |       | 
|                                                                 |  |               |  |               |  |      | 1,250,000 |  |           |   |           |       | 
|                                                                 |  |               |  |               |  |      |           |  |           |   |           |       | 
|Petra Pharma Corporation (5)(8)(9)(13)                           |  |               |  | Life Sciences |  |      |           |  |           |   |           |       | 
|Developing small molecule inhibitors for                         |  |               |  |               |  |      |           |  |           |   |           |       | 
|treatment of cancer and metabolic diseases                       |  |               |  |               |  |      |           |  |           |   |           |       | 
|Series A Convertible Preferred Stock (acquired 12/23/15)         |  | ( I )         |  |               |  |      | 1,025,050 |  |           |   | 1,025,050 |       | 
|                                                                 |  |               |  |               |  |      |           |  |           |   |           |       | 
|Produced Water Absorbents, Inc. (5)(8)(16)                       |  |               |  | Energy        |  |      |           |  |           |   |           |       | 
|Providing integrated process separation solutions                |  |               |  |               |  |      |           |  |           |   |           |       | 
|to the global oil and gas industries, enabling onsite            |  |               |  |               |  |      |           |  |           |   |           |       | 
|treatment of produced and flowback water                         |  |               |  |               |  |      |           |  |           |   |           |       | 
|Series A Convertible Preferred Stock (acquired 6/21/11)          |  | (M)           |  |               |  |      | 1,000,000 |  |           |   | 1,000,000 |       | 
|Series B Convertible Preferred Stock (acquired 6/20/13-3/31/14)  |  | (M)           |  |               |  |      | 1,496,865 |  |           |   | 5,987,460 |       | 
|Series B-2 Convertible Preferred Stock (acquired 5/12/14)        |  | (M)           |  |               |  |      | 1,015,427 |  |           |   | 4,322,709 |       | 
|Series B-3 Convertible Preferred Stock (acquired 11/14/13)       |  | (M)           |  |               |  |      | 978,641   |  |           |   | 3,914,564 |       | 
|Series C Convertible Preferred Stock (acquired 5/26/14)          |  | (M)           |  |               |  |      | 1,000,268 |  |           |   | 2,667,380 |       | 
|Series D Convertible Preferred Stock (acquired 2/17/15)          |  | (M)           |  |               |  |      | 986,066   |  |           |   | 2,629,510 |       | 
|Subordinated Secured Debt, 12%, maturing                         |  |               |  |               |  |      |           |  |           |   |           |       | 
|on 6/30/16 (acquired 10/7/14)                                    |  | (M)           |  |               |  |      | 990,634   |  |           | $ | 1,000,000 |       | 
|Subordinated Convertible Bridge Note, 12%, (acquired 6/3/2015)   |  | (M)           |  |               |  |      | 267,425   |  |           | $ | 250,000   |       | 
|Subordinated Convertible Bridge Note, 12%, (acquired 7/15/2015)  |  | (M)           |  |               |  |      | 263,973   |  |           | $ | 250,000   |       | 
|Subordinated Convertible Bridge Note, 12%, (acquired 9/28/2015)  |  | (M)           |  |               |  |      | 257,808   |  |           | $ | 250,000   |       | 
|Subordinated Convertible Bridge Note, 12%, (acquired 10/30/2015) |  | (M)           |  |               |  |      | 255,178   |  |           | $ | 250,000   |       | 
|Warrants for Series B-2 Preferred Stock expiring                 |  |               |  |               |  |      |           |  |           |   |           |       | 
|upon liquidation event (acquired 5/12/14)                        |  | ( I )         |  |               |  |      | 65,250    |  |           |   | 300,000   |       | 
|                                                                 |  |               |  |               |  |      | 8,577,535 |  |           |   |           |       | 



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



25







|HARRIS & HARRIS GROUP,
        INC.
        CONSOLIDATED
        SCHEDULE OF INVESTMENTS AS OF DECEMBER 31, 2015
|----------------------------------------------------------------------------------------------------------------



|                                                                     |  | Method of     |  | Primary       |  |      |            |            | Shares/   |   |           |       | 
|-------------------------------------------------------------------- |  | ------------- |  | ------------- |  | ---- | ---------- | ---------- | --------- | - | --------- | ----- | 
|                                                                     |  | Valuation (1) |  | Industry (2)  |  | Cost |            |            | Principal |   |           | Value | 
|                                                                     |  |               |  |               |  |      |            |            |           |   |           |       | 
|Investments in Non-Controlled                                        |  |               |  |               |  |      |            |            |           |   |           |       | 
|Affiliated Companies (3) –                                           |  |               |  |               |  |      |            |            |           |   |           |       | 
|67.9% of net assets at value (Cont.)                                 |  |               |  |               |  |      |            |            |           |   |           |       | 
|                                                                     |  |               |  |               |  |      |            |            |           |   |           |       | 
|Private Placement Portfolio (Illiquid) (14) –                        |  |               |  |               |  |      |            |            |           |   |           |       | 
|47.2% of net assets at value (Cont.)                                 |  |               |  |               |  |      |            |            |           |   |           |       | 
|                                                                     |  |               |  |               |  |      |            |            |           |   |           |       | 
|Ultora, Inc. (5)(8)(17)                                              |  |               |  | Energy        |  |      |            |            |           |   |           |       | 
|Developed energy-storage devices                                     |  |               |  |               |  |      |            |            |           |   |           |       | 
|enabled by carbon nanotubes                                          |  |               |  |               |  |      |            |            |           |   |           |       | 
|Series A Convertible Preferred Stock (acquired 12/5/13)              |  | (M)           |  |               |  | $    | 886,830    |            |           |   | 17,736    |       | 
|Series B Convertible Preferred Stock (acquired 12/5/13)              |  | (M)           |  |               |  |      | 236,603    |            |           |   | 2,347,254 |       | 
|Secured Convertible Bridge Note, 5%, (acquired 5/7/14)               |  | (M)           |  |               |  |      | 86,039     |            |           | $ | 86,039    |       | 
|Secured Convertible Bridge Note, 5%, (acquired 8/20/14)              |  | (M)           |  |               |  |      | 17,208     |            |           | $ | 17,208    |       | 
|Secured Convertible Bridge Note, 5%, (acquired 10/14/14)             |  | (M)           |  |               |  |      | 10,750     |            |           | $ | 10,750    |       | 
|Secured Convertible Bridge Note, 5%, (acquired 3/30/15)              |  | (M)           |  |               |  |      | 7,525      |            |           | $ | 7,525     |       | 
|                                                                     |  |               |  |               |  |      | 1,244,955  |            |           |   |           |       | 
|                                                                     |  |               |  |               |  |      |            |            |           |   |           |       | 
|Total Non-Controlled Private Placement Portfolio (cost: $49,262,921) |  |               |  |               |  |      | $          | 41,909,262 |          
|                                                                     |  |               |  |               |  |      |            |            |           |   |           |       | 
|Publicly Traded Portfolio (18) –                                     |  |               |  |               |  |      |            |            |           |   |           |       | 
|20.7% of net assets at value                                         |  |               |  |               |  |      |            |            |           |   |           |       | 
|                                                                     |  |               |  |               |  |      |            |            |           |   |           |       | 
|Adesto Technologies Corporation (5)(8)(9)(19)                        |  |               |  | Electronics   |  |      |            |            |           |   |           |       | 
|Developing low-power, high-performance                               |  |               |  |               |  |      |            |            |           |   |           |       | 
|memory devices                                                       |  |               |  |               |  |      |            |            |           |   |           |       | 
|Common Stock (acquired 10/27/15)                                     |  | (M)           |  |               |  | $    | 11,482,417 |            |           |   | 1,769,868 |       | 
|                                                                     |  |               |  |               |  |      |            |            |           |   |           |       | 
|Enumeral Biomedical Holdings, Inc. (5)(8)(9)(20)                     |  |               |  | Life Sciences |  |      |            |            |           |   |           |       | 
|Developing therapeutics and diagnostics                              |  |               |  |               |  |      |            |            |           |   |           |       | 
|through functional assaying of single cells                          |  |               |  |               |  |      |            |            |           |   |           |       | 
|Common Stock (acquired 7/31/14)                                      |  | (M)           |  |               |  |      | 4,993,357  |            |           |   | 7,966,368 |       | 
|Warrants for Common Stock expiring 7/30/19 (acquired 7/31/14)        |  | ( I )         |  |               |  |      | 540,375    |            |           |   | 1,500,000 |       | 
|Warrants for Common Stock expiring 2/2/24 (acquired 7/31/14)         |  | ( I )         |  |               |  |      | 57,567     |            |           |   | 255,120   |       | 
|Options to Purchase Common Stock at $1.00                            |  |               |  |               |  |      |            |            |           |   |           |       | 
|expiring 7/30/16 (acquired 8/4/14)                                   |  | ( I )         |  |               |  |      | 0          |            |           |   | 80,000    |       | 
|                                                                     |  |               |  |               |  |      | 5,591,299  |            |           |   |           |       | 



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



26







|HARRIS & HARRIS GROUP,
        INC.
        CONSOLIDATED
        SCHEDULE OF INVESTMENTS AS OF DECEMBER 31, 2015
|----------------------------------------------------------------------------------------------------------------



|                                                                              |  | Method of     |  | Primary       |  |      |           |            | Shares/   |   |           |       | 
|----------------------------------------------------------------------------- |  | ------------- |  | ------------- |  | ---- | --------- | ---------- | --------- | - | --------- | ----- | 
|                                                                              |  | Valuation (1) |  | Industry (2)  |  | Cost |           |            | Principal |   |           | Value | 
|                                                                              |  |               |  |               |  |      |           |            |           |   |           |       | 
|Publicly Traded Portfolio (18) –                                              |  |               |  |               |  |      |           |            |           |   |           |       | 
|20.7% of net assets at value (Cont.)                                          |  |               |  |               |  |      |           |            |           |   |           |       | 
|                                                                              |  |               |  |               |  |      |           |            |           |   |           |       | 
|OpGen, Inc. (5)(21)                                                           |  |               |  | Life Sciences |  |      |           |            |           |   |           |       | 
|Developing tools for genomic sequence                                         |  |               |  |               |  |      |           |            |           |   |           |       | 
|assembly and analysis                                                         |  |               |  |               |  |      |           |            |           |   |           |       | 
|Common Stock (acquired 5/5/15)                                                |  | (M)           |  |               |  | $    | 5,665,708 |            |           |   | 1,409,796 |       | 
|Warrants for Common Stock expiring 5/8/20 (acquired 5/5/15)                   |  | (M)           |  |               |  |      | 425,579   |            |           |   | 300,833   |       | 
|Warrants for Common Stock expiring 2/17/25 (acquired 5/5/15)                  |  | ( I )         |  |               |  |      | 785       |            |           |   | 31,206    |       | 
|                                                                              |  |               |  |               |  |      | 6,092,072 |            |           |   |           |       | 
|                                                                              |  |               |  |               |  |      |           |            |           |   |           |       | 
|Total Non-Controlled Affiliated Publicly Traded Portfolio (cost: $23,165,788) |  |               |  |               |  |      | $         | 18,371,105 |          
|                                                                              |  |               |  |               |  |      |           |            |           |   |           |       | 
|Total Investments in Non-Controlled Affiliated Companies (cost: $72,428,709)  |  |               |  |               |  |      | $         | 60,280,367 |          
|                                                                              |  |               |  |               |  |      |           |            |           |   |           |       | 
|Investments in Controlled                                                     |  |               |  |               |  |      |           |            |           |   |           |       | 
|Affiliated Companies (3) –                                                    |  |               |  |               |  |      |           |            |           |   |           |       | 
|7.9% of net assets at value                                                   |  |               |  |               |  |      |           |            |           |   |           |       | 
|                                                                              |  |               |  |               |  |      |           |            |           |   |           |       | 
|Private Placement Portfolio (Illiquid) (22) –                                 |  |               |  |               |  |      |           |            |           |   |           |       | 
|7.9% of net assets at value                                                   |  |               |  |               |  |      |           |            |           |   |           |       | 
|                                                                              |  |               |  |               |  |      |           |            |           |   |           |       | 
|Black Silicon Holdings, Inc. (5)(8)(23)                                       |  |               |  | Electronics   |  |      |           |            |           |   |           |       | 
|Holding company for interest in a company that                                |  |               |  |               |  |      |           |            |           |   |           |       | 
|develops silicon-based optoelectronic products                                |  |               |  |               |  |      |           |            |           |   |           |       | 
|Series A Convertible Preferred Stock (acquired 8/4/15)                        |  | ( I )         |  |               |  | $    | 750,000   |            |           |   | 233,499   |       | 
|Series A-1 Convertible Preferred Stock (acquired 8/4/15)                      |  | ( I )         |  |               |  |      | 890,000   |            |           |   | 2,966,667 |       | 
|Series A-2 Convertible Preferred Stock (acquired 8/4/15)                      |  | ( I )         |  |               |  |      | 2,445,000 |            |           |   | 4,207,537 |       | 
|Series B-1 Convertible Preferred Stock (acquired 8/4/15)                      |  | ( I )         |  |               |  |      | 1,169,561 |            |           |   | 1,892,836 |       | 
|Series C Convertible Preferred Stock (acquired 8/4/15)                        |  | ( I )         |  |               |  |      | 1,171,316 |            |           |   | 1,674,030 |       | 
|Secured Convertible Bridge Note, 8%, (acquired 8/4/15)                        |  | ( I )         |  |               |  |      | 1,321,068 |            |           | $ | 1,278,454 |       | 
|                                                                              |  |               |  |               |  |      | 7,746,945 |            |           |   |           |       | 



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



27







|HARRIS & HARRIS GROUP,
        INC.
        CONSOLIDATED
        SCHEDULE OF INVESTMENTS AS OF DECEMBER 31, 2015
|----------------------------------------------------------------------------------------------------------------



|                                                                 |  | Method of     |  | Primary       |  |      |           |  | Shares/   |   |           |       | 
|---------------------------------------------------------------- |  | ------------- |  | ------------- |  | ---- | --------- |  | --------- | - | --------- | ----- | 
|                                                                 |  | Valuation (1) |  | Industry (2)  |  | Cost |           |  | Principal |   |           | Value | 
|                                                                 |  |               |  |               |  |      |           |  |           |   |           |       | 
|Investments in Controlled                                        |  |               |  |               |  |      |           |  |           |   |           |       | 
|Affiliated Companies (3) –                                       |  |               |  |               |  |      |           |  |           |   |           |       | 
|7.9% of net assets at value (Cont.)                              |  |               |  |               |  |      |           |  |           |   |           |       | 
|                                                                 |  |               |  |               |  |      |           |  |           |   |           |       | 
|Private Placement Portfolio (Illiquid) (22) –                    |  |               |  |               |  |      |           |  |           |   |           |       | 
|7.9% of net assets at value (Cont.)                              |  |               |  |               |  |      |           |  |           |   |           |       | 
|                                                                 |  |               |  |               |  |      |           |  |           |   |           |       | 
|NGX Bio, Inc. (5)(8)(9)(24)                                      |  |               |  | Life Sciences |  |      |           |  |           |   |           |       | 
|Developing translational genomics solutions                      |  |               |  |               |  |      |           |  |           |   |           |       | 
|Series Seed Convertible Preferred Stock (acquired 6/6/14)        |  | ( I )         |  |               |  | $    | 375,000   |  |           |   | 500,000   |       | 
|Series A Convertible Preferred Stock (acquired 8/20/15-9/30/15)  |  | ( I )         |  |               |  |      | 499,999   |  |           |   | 329,989   |       | 
|Warrants for Series Seed Preferred Stock                         |  |               |  |               |  |      |           |  |           |   |           |       | 
|expiring 6/6/19 (acquired 6/6/15)                                |  | ( I )         |  |               |  |      | 125,000   |  |           |   | 166,667   |       | 
|                                                                 |  |               |  |               |  |      | 999,999   |  |           |   |           |       | 
|                                                                 |  |               |  |               |  |      |           |  |           |   |           |       | 
|ProMuc, Inc. (5)(8)                                              |  |               |  | Life Sciences |  |      |           |  |           |   |           |       | 
|Developing synthetic mucins for the                              |  |               |  |               |  |      |           |  |           |   |           |       | 
|nutritional, food and health care markets                        |  |               |  |               |  |      |           |  |           |   |           |       | 
|Common Stock (acquired 12/18/13)                                 |  | (M)           |  |               |  |      | 1         |  |           |   | 1,000     |       | 
|Secured Convertible Bridge Note, 8%, (acquired 12/18/13)         |  | (M)           |  |               |  |      | 407,074   |  |           | $ | 350,000   |       | 
|Secured Convertible Bridge Note, 8%, (acquired 8/13/14)          |  | (M)           |  |               |  |      | 111,091   |  |           | $ | 100,000   |       | 
|Secured Convertible Bridge Note, 8%, (acquired 8/5/15)           |  | (M)           |  |               |  |      | 77,449    |  |           | $ | 75,000    |       | 
|Secured Convertible Bridge Note, 8%, (acquired 12/7/15)          |  | (M)           |  |               |  |      | 55,301    |  |           | $ | 55,000    |       | 
|                                                                 |  |               |  |               |  |      | 650,916   |  |           |   |           |       | 
|                                                                 |  |               |  |               |  |      |           |  |           |   |           |       | 
|Senova Systems, Inc. (5)(8)(9)                                   |  |               |  | Life Sciences |  |      |           |  |           |   |           |       | 
|Developing next-generation sensors to measure pH                 |  |               |  |               |  |      |           |  |           |   |           |       | 
|Series B Convertible Preferred Stock (acquired 9/9/11-7/18/12)   |  | ( I )         |  |               |  |      | 1,218,462 |  |           |   | 1,350,000 |       | 
|Series B-1 Convertible Preferred Stock (acquired 8/1/13-1/15/14) |  | ( I )         |  |               |  |      | 1,083,960 |  |           |   | 2,759,902 |       | 
|Series C Convertible Preferred Stock (acquired 10/24/14-4/1/15)  |  | ( I )         |  |               |  |      | 1,208,287 |  |           |   | 1,611,049 |       | 
|Warrants for Series B Preferred Stock                            |  |               |  |               |  |      |           |  |           |   |           |       | 
|expiring 10/15/17 (acquired 10/15/12)                            |  | ( I )         |  |               |  |      | 131,538   |  |           |   | 164,423   |       | 
|Warrants for Series B Preferred Stock                            |  |               |  |               |  |      |           |  |           |   |           |       | 
|expiring 4/24/18 (acquired 4/24/13)                              |  | ( I )         |  |               |  |      | 20,000    |  |           |   | 25,000    |       | 
|                                                                 |  |               |  |               |  |      | 3,662,247 |  |           |   |           |       | 
|                                                                 |  |               |  |               |  |      |           |  |           |   |           |       | 
|SynGlyco, Inc.(5)(8)                                             |  |               |  | Life Sciences |  |      |           |  |           |   |           |       | 
|Developed synthetic carbohydrates for                            |  |               |  |               |  |      |           |  |           |   |           |       | 
|pharmaceutical applications                                      |  |               |  |               |  |      |           |  |           |   |           |       | 
|Common Stock (acquired 12/13/11)                                 |  | ( I )         |  |               |  | $    | 2,729,817 |  |           |   | 57,463    |       | 
|Series A' Convertible Preferred Stock (acquired 12/13/11-6/7/12) |  | ( I )         |  |               |  |      | 4,855,627 |  |           |   | 4,855,627 |       | 
|Secured Convertible Bridge Note, 8%, (acquired 1/23/13)          |  | ( I )         |  |               |  |      | 438,931   |  |           | $ | 350,000   |       | 
|Secured Convertible Bridge Note, 8%, (acquired 4/25/13)          |  | ( I )         |  |               |  |      | 369,170   |  |           | $ | 300,000   |       | 
|                                                                 |  |               |  |               |  |      | 8,393,545 |  |           |   |           |       | 



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



28







|HARRIS & HARRIS GROUP,
        INC.
        CONSOLIDATED
        SCHEDULE OF INVESTMENTS AS OF DECEMBER 31, 2015
|----------------------------------------------------------------------------------------------------------------



|                                                                           |  | Method of     |  | Primary       |  |      |           |            | Shares/   |   |           |       | 
|-------------------------------------------------------------------------- |  | ------------- |  | ------------- |  | ---- | --------- | ---------- | --------- | - | --------- | ----- | 
|                                                                           |  | Valuation (1) |  | Industry (2)  |  | Cost |           |            | Principal |   |           | Value | 
|                                                                           |  |               |  |               |  |      |           |            |           |   |           |       | 
|Investments in Controlled                                                  |  |               |  |               |  |      |           |            |           |   |           |       | 
|Affiliated Companies (3) –                                                 |  |               |  |               |  |      |           |            |           |   |           |       | 
|7.9% of net assets at value (Cont.)                                        |  |               |  |               |  |      |           |            |           |   |           |       | 
|                                                                           |  |               |  |               |  |      |           |            |           |   |           |       | 
|Private Placement Portfolio (Illiquid) (22) –                              |  |               |  |               |  |      |           |            |           |   |           |       | 
|7.9% of net assets at value (Cont.)                                        |  |               |  |               |  |      |           |            |           |   |           |       | 
|                                                                           |  |               |  |               |  |      |           |            |           |   |           |       | 
|TARA Biosystems, Inc. (5)(8)                                               |  |               |  | Life Sciences |  |      |           |            |           |   |           |       | 
|Developing human tissue models for toxicology                              |  |               |  |               |  |      |           |            |           |   |           |       | 
|and drug discovery applications                                            |  |               |  |               |  |      |           |            |           |   |           |       | 
|Common Stock (acquired 8/20/14)                                            |  | (M)           |  |               |  | $    | 20        |            |           |   | 2,000,000 |       | 
|Secured Convertible Bridge Note, 8%, (acquired 8/20/14)                    |  | (M)           |  |               |  |      | 333,516   |            |           | $ | 300,000   |       | 
|Secured Convertible Bridge Note, 8%, (acquired 5/18/15)                    |  | (M)           |  |               |  |      | 209,995   |            |           | $ | 200,000   |       | 
|Secured Convertible Bridge Note, 8%, acquired 12/1/15                      |  | (M)           |  |               |  |      | 1,208,153 |            |           | $ | 1,200,000 |       | 
|                                                                           |  |               |  |               |  |      | 1,751,684 |            |           |   |           |       | 
|                                                                           |  |               |  |               |  |      |           |            |           |   |           |       | 
|Total Controlled Private Placement Portfolio (cost: $23,205,336)           |  |               |  |               |  |      | $         | 7,010,534  |          
|                                                                           |  |               |  |               |  |      |           |            |           |   |           |       | 
|Total Investments in Controlled Affiliated Companies (cost: $23,205,336)   |  |               |  |               |  |      | $         | 7,010,534  |          
|                                                                           |  |               |  |               |  |      |           |            |           |   |           |       | 
|Total Private Placement and Publicly Traded Portfolio (cost: $116,896,172) |  |               |  |               |  |      | $         | 76,986,968 |          



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



29







|HARRIS & HARRIS GROUP,
        INC.
        CONSOLIDATED
        SCHEDULE OF INVESTMENTS AS OF DECEMBER 31, 2015
|----------------------------------------------------------------------------------------------------------------



|                                                 |  | Method of     |  | Primary       |  |      |         |            | Shares/   |  |         |       | 
|------------------------------------------------ |  | ------------- |  | ------------- |  | ---- | ------- | ---------- | --------- |  | ------- | ----- | 
|                                                 |  | Valuation (1) |  | Industry (2)  |  | Cost |         |            | Principal |  |         | Value | 
|                                                 |  |               |  |               |  |      |         |            |           |  |         |       | 
|Equity Method Investments (25) –                 |  |               |  |               |  |      |         |            |           |  |         |       | 
|0.2% of net assets at value                      |  |               |  |               |  |      |         |            |           |  |         |       | 
|                                                 |  |               |  |               |  |      |         |            |           |  |         |       | 
|Private Placement Portfolio (Illiquid) (25) –    |  |               |  |               |  |      |         |            |           |  |         |       | 
|0.2% of net assets at value                      |  |               |  |               |  |      |         |            |           |  |         |       | 
|                                                 |  |               |  |               |  |      |         |            |           |  |         |       | 
|Accelerator IV-New York Corporation (8)(9)(26)   |  |               |  | Life Sciences |  |      |         |            |           |  |         |       | 
|Identifying and managing emerging                |  |               |  |               |  |      |         |            |           |  |         |       | 
|biotechnology companies                          |  |               |  |               |  |      |         |            |           |  |         |       | 
|Series A Common Stock (acquired 7/21/14-1/30/15) |  | (E)           |  |               |  | $    | 165,936 |            |           |  | 478,227 |       | 
|                                                 |  |               |  |               |  |      |         |            |           |  |         |       | 
|Total Equity Method Investments (cost: $165,936) |  |               |  |               |  |      | $       | 165,936    |          
|                                                 |  |               |  |               |  |      |         |            |           |  |         |       | 
|Total Investments (cost: $117,062,108)           |  |               |  |               |  |      | $       | 77,152,904 |          



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





30









|HARRIS & HARRIS GROUP,
        INC.
        CONSOLIDATED
        SCHEDULE OF INVESTMENTS AS OFDECEMBER 31, 2015
|---------------------------------------------------------------------------------------------------------------



Notes to Consolidated Schedule of Investments



| | (1) | See "Footnote to Consolidated Schedule of Investments" on page 34 for a description of
the "Valuation Procedures."
| | --- | ------------------------------------------------------------------------------------------------------------------



| | (2) | We classify "Energy" companies as those that seek to improve performance, productivity
or efficiency, and to reduce environmental impact, waste, cost, energy consumption or raw materials. We classify "Electronics"
companies as those that address problems in electronics-related industries, including semiconductors and computing. We classify
"Life Sciences" companies as those that address problems in life sciences-related industries, including precision health
and precision medicine, biotechnology, agriculture, advanced materials and chemicals, health care, bioprocessing, water, industrial
biotechnology, food, nutrition and energy.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (3) | Investments in unaffiliated companies consist of investments in which we own less than five percent
of the voting shares of the portfolio company. Investments in non-controlled affiliated companies consist of investments in which
we own five percent or more, but less than 25 percent, of the voting shares of the portfolio company, or where we hold one or more
seats on the portfolio company’s board of directors but do not control the company. Investments in controlled affiliated
companies consist of investments in which we own 25 percent or more of the voting shares of the portfolio company or otherwise
control the company, including control of a majority of the seats on the board of directors, or more than 25 percent of the seats
on the board of directors, with no other entity or person in control of more director seats than us. Among our controlled affiliated
companies, ProMuc, Inc., was 100 percent owned by us at December 31, 2015.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (4) | The aggregate cost for federal income tax purposes of investments in unaffiliated privately held
companies is $18,857,235. The gross unrealized appreciation based on the tax cost for these securities is $10,390. The gross unrealized
depreciation based on the tax cost for these securities is $13,491,153.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (5) | All or a portion of the investments or instruments are pledged as collateral under our Loan Facility
with Orix Corporate Capital, Inc.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------



| | (6) | The aggregate cost for federal income tax purposes of investments in unaffiliated rights to milestone
payments is $781,863. The gross unrealized appreciation based on the tax cost for these securities is $2,580,188. The gross unrealized
depreciation based on the tax cost for these securities is $0.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (7) | The aggregate cost for federal income tax purposes of investments in unaffiliated publicly traded
companies is $1,623,029. The gross unrealized appreciation based on the tax cost for these securities is $0. The gross unrealized
depreciation based on the tax cost for these securities is $665,485.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | 
| |  | 

| | (8) | We are subject to legal restrictions on the sale of our investment(s) in this company.
| | --- | --------------------------------------------------------------------------------------



| | (9) | Represents a non-income producing security. Investments that have not paid dividends or interest
within the last 12 months are considered to be non-income producing.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (10) | On July 21, 2015, Bridgelux, Inc., signed a definitive agreement to be acquired by an investment
group led by China Electronics Corporation and ChongQing Linkong Development Investment Company. The close of this transaction
is subject to customary regulatory approvals.
| | ---- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



31







|HARRIS & HARRIS GROUP,
        INC.
        CONSOLIDATED
        SCHEDULE OF INVESTMENTS AS OFDECEMBER 31, 2015
|---------------------------------------------------------------------------------------------------------------



| | (11) | In February of 2016, Cambrios Technologies Corporation ceased operations and began liquidation
of its assets through a general assignment for the benefit of creditors.
| | ---- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (12) | We received our shares of Magic Leap, Inc., as part of the consideration paid for one of our portfolio
companies in an acquisition during the second quarter of 2015. A total of 4,394 shares of our 29,291 shares of Magic Leap are held
in escrow to satisfy indemnity claims through May 1, 2016.
| | ---- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (13) | Initial investment was made in 2015.
| | ---- | ------------------------------------



| | (14) | The aggregate cost for federal income tax purposes of investments in non-controlled affiliated
privately held companies is $49,262,921. The gross unrealized appreciation based on the tax cost for these securities is $10,504,995.
The gross unrealized depreciation based on the tax cost for these securities is $17,858,654.
| | ---- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (15) | D-Wave Systems, Inc., is located and is doing business primarily in Canada. We invested in D-Wave
through Parallel Universes, Inc., a Delaware company. Our investment is denominated in Canadian dollars and is subject to foreign
currency translation. See "Note 2. Summary of Significant Accounting Policies." D-Wave is not a qualifying asset under
Section 55(a) of the 1940 Act. Under the 1940 Act, we may not acquire non-qualifying assets unless, at the time the acquisition
is made, qualifying assets are at least 70 percent of our total assets.
| | ---- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (16) | Produced Water Absorbents, Inc., also does business as ProSep, Inc.
| | ---- | -------------------------------------------------------------------



| | (17) | In March of 2015, Ultora, Inc., ceased operations and began liquidation of its assets through a
general assignment for the benefit of creditors.
| | ---- | ------------------------------------------------------------------------------------------------------------------------------------------------



| | (18) | The aggregate cost for federal income tax purposes of investments in non-controlled affiliated
publicly traded companies is $23,165,788. The gross unrealized appreciation based on the tax cost for these securities is $2,163,265.
The gross unrealized depreciation based on the tax cost for these securities is $6,957,948.
| | ---- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (19) | As of December 31, 2015, the Company's shares of Adesto Technologies Corporation were subject to
a lock-up agreement that restricts our ability to trade these securities. A total of 200,000 shares are not qualifying assets under
Section 55(a) of the 1940 Act. Under the 1940 Act, we may not acquire non-qualifying assets unless, at the time the acquisition
is made, qualifying assets are at least 70 percent of our total assets.
| | ---- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (20) | As of December 31, 2015, a portion of the Company's shares and warrants of Enumeral Biomedical
Holdings, Inc., were subject to a lock-up agreement that restricts our ability to trade these securities. The lock-up period on
our securities of Enumeral BiomedicalHoldings expired on January 31, 2016. A portion of our shares were held in escrow
as of the end of 2015. This escrow period expired with no claims against the escrowed shares.
| | ---- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (21) | The Company's shares of OpGen, Inc., became freely tradeable on November 2, 2015. A total of 300,833
shares and 300,833 warrants are not qualifying assets under Section 55(a) of the 1940 Act. Under the 1940 Act, we may not acquire
non-qualifying assets unless, at the time the acquisition is made, qualifying assets are at least 70 percent of our total assets.
| | ---- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (22) | The aggregate cost for federal income tax purposes of investments in controlled affiliated companies
is $23,205,336. The gross unrealized appreciation based on the tax cost for these securities is $271,755. The gross unrealized
depreciation based on the tax cost for these securities is $16,466,557.
| | ---- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



32







|HARRIS & HARRIS GROUP,
        INC.
        CONSOLIDATED
        SCHEDULE OF INVESTMENTS AS OFDECEMBER 31, 2015
|---------------------------------------------------------------------------------------------------------------



| | (23) | On August 4, 2015, SiOnyx, Inc., reorganized its corporate structure to become a subsidiary of
a new company, Black Silicon Holdings, Inc.  Our security holdings of SiOnyx converted into securities of Black Silicon
Holdings.  SiOnyx was then acquired by an undisclosed buyer.  Black Silicon Holdings owns a profit interest in the undisclosed
buyer.
| | ---- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (24) | On August 19, 2015, UberSeq, Inc., changed its name to NGX Bio, Inc.
| | ---- | --------------------------------------------------------------------



| | (25) | The aggregate cost for federal income tax purposes of investments in privately held equity method
investments is $165,936. Under the equity method, investments are carried at cost, plus or minus the Company's equity in the increases
and decreases in the investee's net assets after the date of acquisition and certain other adjustments.
| | ---- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (26) | As part of our initial investment in Accelerator IV-New York Corporation, the Company made an additional
operating and investment commitment. See "Note 11. Commitments and Contingencies."
| | ---- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



33









|HARRIS & HARRIS GROUP, INC.
        FOOTNOTE TO CONSOLIDATED SCHEDULE OF
        INVESTMENTS
|--------------------------------------------------------------------------------------------



VALUATION PROCEDURES



| | I. | Determination of Net Asset Value
| | -- | --------------------------------



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



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



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



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



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



| | II. | Approaches to Determining Fair Value
| | --- | ------------------------------------



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



34







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



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



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



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



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



| | · | Level 1: Unadjusted quoted prices in active markets for identical assets or liabilities;
| | - | ----------------------------------------------------------------------------------------



| | · | Level 2: Inputs other than quoted prices included within Level 1 that are observable for
the asset or liability, either directly or indirectly. These include quoted prices in active markets for similar assets or liabilities,
or quoted prices for identical or similar assets or liabilities in markets that are not active, or inputs other than quoted prices
that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial
instrument. Level 2 inputs are in those markets for which there are few transactions, the prices are not current, little public
information exists or instances where prices vary substantially over time or among brokered market makers; and
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



35







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



| | III. | Investment Categories
| | ---- | ---------------------



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



| | · | Equity-related securities;
| | - | --------------------------



| | · | Long-term fixed-income securities;
| | - | ----------------------------------



| | · | Short-term fixed-income securities;
| | - | -----------------------------------



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



| | · | All other securities.
| | - | ---------------------



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



| | A. | EQUITY-RELATED SECURITIES
| | -- | -------------------------



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



| | § | Readily available public market quotations;
| | - | -------------------------------------------



| | § | The cost of the Company’s investment;
| | - | -------------------------------------



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



| | § | The financial condition and operating results of the company;
| | - | -------------------------------------------------------------



| | § | The company's progress towards milestones;
| | - | ------------------------------------------



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



| | § | The values of similar securities issued by companies in similar businesses;
| | - | ---------------------------------------------------------------------------



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



36







| | § | Estimated time to exit;
| | - | -----------------------



| | § | Volatility of similar securities in similar businesses;
| | - | -------------------------------------------------------



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



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



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



The Company values
one investment using the equity method.



| | · | Equity Method (E): Under the equity method, investments are carried at cost, plus or minus
the Company’s equity in the increases and decreases in the investee’s net assets after the date of acquisition and
certain other adjustments.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | B. | LONG-TERM FIXED-INCOME SECURITIES
| | -- | ---------------------------------



| | 1. | Readily Marketable.Long-term fixed-income securities for which market quotations
are readily available are valued using the most recent bid quotations when available.
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 2. | Not Readily Marketable. Long-term fixed-income securities for which market quotations
are not readily available are fair valued using the income approach. The factors that may be considered when valuing these types
of securities by the income approach include:
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Credit quality;
| | - | ---------------



| | · | Interest rate analysis;
| | - | -----------------------



| | · | Quotations from broker-dealers;
| | - | -------------------------------



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



| | · | Reasonable price discovery procedures and data from other sources.
| | - | ------------------------------------------------------------------



| | C. | SHORT-TERM FIXED-INCOME SECURITIES
| | -- | ----------------------------------



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



37







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



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



| | · | The cost of the Company’s investment;
| | - | -------------------------------------



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



| | · | The results of research and development;
| | - | ----------------------------------------



| | · | Product development and milestone progress;
| | - | -------------------------------------------



| | · | Commercial prospects;
| | - | ---------------------



| | · | Term of patent;
| | - | ---------------



| | · | Projected markets; and
| | - | ----------------------



| | · | Other subjective factors.
| | - | -------------------------



| | E. | ALL OTHER SECURITIES
| | -- | --------------------



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



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



| | IV. | Frequency of Valuation
| | --- | ----------------------



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



38







| | V. | Regular Review
| | -- | --------------



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



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



| | VI. | Other Assets
| | --- | ------------



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



39







|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
        (Unaudited)
|--------------------------------------------------------------



NOTE 1. THE COMPANY



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



H&H Ventures Management,
Inc.SM ("Ventures") is a 100 percent wholly owned subsidiary of the Company. Ventures is taxed under Subchapter
C (a "C Corporation") of the Internal Revenue Code of 1986 (the "Code"). Harris Partners I, L.P, is a limited
partnership and, from time to time, may be used to hold certain interests in portfolio companies. The partners of Harris Partners
I, L.P., are Ventures (sole general partner) and the Company (sole limited partner). Ventures pays taxes on income generated by
its operations as well as on any non-passive investment income generated by Harris Partners I, L.P. For the period ended March
31, 2016, there was no non-passive investment income generated by Harris Partners I, L.P. Ventures, as the sole general partner,
consolidates Harris Partners I, L.P. The Company consolidates its wholly owned subsidiary, Ventures, for financial reporting purposes.



NOTE 2. INTERIM FINANCIAL STATEMENTS



Our interim financial
statements have been prepared in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X and in conformity
with accounting principles generally accepted in the United States of America ("GAAP") applicable to interim financial
information. Accordingly, the information presented on our interim financial statements does not include all information and disclosures
necessary for a fair statement of our financial position, results of operations and cash flows in conformity with GAAP for annual
financial statements. In the opinion of management, these financial statements reflect all adjustments, consisting of valuation
adjustments and normal recurring accruals, necessary for a fair statement of our financial position, results of operations and
cash flows for such periods. The results of operations for any interim period are not necessarily indicative of the results for
the full year. These financial statements should be read in conjunction with the financial statements and notes thereto contained
in ourAnnual Report on Form 10-K for the fiscal year ended December
31, 2015.



NOTE 3. SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES



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



40







Principles of Consolidation.
The consolidated financial statements have been prepared in accordance with GAAP and include the accounts of the Company and its
wholly owned subsidiary. The Company is an investment company following accounting and reporting guidance in Accounting Standards
Codification 946. In accordance with GAAP and Regulation S-X, the Company may only consolidate its interests in investment company
subsidiaries and controlled operating companies whose business consists of providing services to the Company. Our wholly owned
subsidiary, Ventures, is a controlled operating company that provides services to us and is, therefore, consolidated. All significant
inter-company accounts and transactions have been eliminated in consolidation. Certain prior period amounts have been reclassified
to conform to the current period presentation. Amounts reported in "Net increases in unrealized depreciation on investments"
have been reclassified from prior years. Amounts related to portfolio company investments were previously reported as a single
amount and have been reclassified to present unrealized (depreciation) appreciation from unaffiliated companies, controlled affiliated
companies, unaffiliated rights to milestone payments, non-controlled affiliated companies, publicly traded companies and other
investments. There was no impact to the total amounts reported in any period.



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



Portfolio Investment
Valuations. Investments are stated at "value" as defined in the 1940 Act and in the applicable regulations of the
Securities and Exchange Commission ("SEC") and in accordance with GAAP. Value, as defined in Section 2(a)(41) of the
1940 Act, is (i) the market price for those securities for which a market quotation is readily available and (ii) the fair value
as determined in good faith by, or under the direction of, the Board of Directors for all other assets. (See "Valuation Procedures"
in the "Footnote to Consolidated Schedule of Investments.") As of March 31, 2016, our financial statements include investments
fair valued by the Board of Directors at $60,084,507 and one investment valued under the equity method at $228,133. The fair values
and equity method value were determined in good faith by, or under the direction of, the Board of Directors. The fair value amount
includes the values of our privately held investments as well as the securities of Champions Oncology, Inc., certain warrants and
options of Enumeral Biomedical Holdings, Inc., and the warrants of OpGen, Inc., which are publicly traded companies. Our investment
in Accelerator-New York IV is accounted for under the equity method of accounting as it represents a non-controlling interest in
an operating entity that provides investment advisory services to the Company. Under the equity method, investments are carried
at cost, plus or minus the Company’s equity in the increases and decreases in the investee’s net assets after the date
of acquisition and certain other adjustments. The Company’s share of the net income or loss of the investee is included in
“Equity in earnings/(loss) from equity method investees” on the Company’s “Consolidated Statements of Operations.”
Upon sale of investments, the values that are ultimately realized may be different from the fair value presented in the Company's
financial statements. The difference could be material.



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



41







Unaffiliated Rights
to Milestone Payments. At March 31, 2016, and December 31, 2015, the outstanding potential milestone payments from Amgen, Inc.’s
acquisition of BioVex Group, Inc., were valued at $2,495,696 and $2,900,232, respectively. The milestone payments are derivatives
and valued using the probability-adjusted, present value of proceeds from future payments that would be due upon successful completion
of certain regulatory and sales milestones. On November 17, 2014, the Company received a payment of $2,070,955 owing to the achievement
of the first milestone. On November 23, 2015, the Company received a payment of $2,070,955 owing to the achievement of the second
milestone. If all the remaining milestones are met, we would receive $4,141,910. At March 31, 2016, and December 31, 2015, the
outstanding potential milestone payments from Canon, Inc.'s acquisition of Molecular Imprints, Inc., were valued at $464,073 and
$461,819, respectively. On October 1, 2015, the Company received a payment of $795,567 owing to the achievement of the first milestone.
If all the remaining milestones are met, we would receive an additional $938,926. At March 31, 2016, and December 31, 2015, the
outstanding potential milestone payments from Laird Technologies, Inc.’s acquisition of Nextreme Thermal Solutions, Inc.,
were valued at $0. If all the remaining milestones are met, we would receive approximately $400,000. There can be no assurances
as to how much of these amounts we will ultimately realize or when they will be realized, if at all.



Funds Held in Escrow
from Sale of Investment. At March 31, 2016, and December 31, 2015, there were funds held in escrow fair valued at $506,949
and $311,137, respectively, relating to the sale of Molecular Imprints, Inc.'s semiconductor lithography equipment business to
Canon, Inc. On April 20, 2016, the Company received proceeds of $390,492 from the release of a portion of the funds held in escrow
following the transaction. The remaining funds held in escrow are expected to be released in April of 2017, net of settlement of
any indemnity claims and expenses related to the transaction. If the funds held in escrow for this transaction are released in
full, we would receive $625,000 and realize a gain of $118,051. At March 31, 2016, and December 31, 2015, there were funds held
in escrow fair valued at $126,972 and $63,428, respectively, relating to the sale of Molecular Imprints' non-semiconductor business
to Magic Leap, Inc., that are expected to be released in May of 2016, net of settlement of any indemnity claims and expenses related
to the transaction. If the funds held in escrow for this transaction are released in full, we would receive $126,972.



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



Property and Equipment.
Property and equipment are included in "Other assets" and are carried at $168,634 and $180,089 at March 31, 2016, and
December 31, 2015, respectively, representing cost, less accumulated depreciation of $454,587 and $445,476, respectively. Depreciation
is provided using the straight-line method over the estimated useful lives of the property and equipment. We estimate the useful
lives to be five to ten years for furniture and fixtures, three years for computer equipment, and the lesser of ten years or the
remaining life of the lease for leasehold improvements. All of our fixed assets are pledged as collateral under the Company's four-year
$20,000,000 Multi-Draw Term Loan Facility Credit Agreement, by and among the Company, as borrower, Orix Corporate Capital, Inc.,
as administrative agent and lender and the other lenders party thereto from time to time (the "Loan Facility").



42







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



Interest Income
Recognition. Interest income, including amortization of premium and accretion of discount, is recorded on an accrual basis.
When accrued interest is determined not to be recoverable, the Company ceases accruing interest and writes off any previously accrued
interest. Securities are deemed to be non-income producing if, on their last interest or dividend date, no cash was paid or no
cash or in-kind dividends were declared. These write-offs are reversed through interest income. During the three months ended March
31, 2016, and March 31, 2015, the Company earned $34,865 and $82,807, respectively, in interest on subordinated secured debt, non-convertible
promissory notes, senior secured debt and interest-bearing accounts. During the three months ended March 31, 2016, and March 31,
2015, the Company recorded, on a net basis, $115,675 and $53,025, respectively, of bridge note interest.



Yield-Enhancing
Fees on Debt Securities. Yield-enhancing fees received in connection with our venture debt investments are deferred. The unearned
fee income is accreted into income based on the effective interest method over the life of the investment. For the three months
ended March 31, 2016, and March 31, 2015, total yield-enhancing fees accreted into investment income were $4,625, and $26,307,
respectively.



Fees for Providing
Managerial Assistance to Portfolio Companies. For the three months ended March 31, 2016, and March 31, 2015, the Company earned
income of $146,877 and $7,000, respectively, owing to certain of its employees providing managerial assistance to certain portfolio
companies.



Call Options.
The Company writes covered call options on publicly traded securities with the intention of earning option premiums. Option premiums
may increase the Company’s realized gains and, therefore, may help increase distributable income, but may limit the realized
gains on the security. When a company writes (sells) an option, an amount equal to the premium received by the Company is recorded
in the Consolidated Statements of Assets and Liabilities as a liability. The amount of the liability is subsequently marked-to-market
to reflect the current market value of the option written. When an option expires, the Company realizes a gain on the option to
the extent of the premiums received. Premiums received from writing options that are exercised or closed are added to the proceeds
or offset against the amount paid on the transaction to determine the realized gain or loss. Previously recorded unrealized gains
and losses on expired, exercised or closed options are reversed at the time of such transactions. AtMarch 31, 2016, and
December 31, 2015, the Company did not have shares covered by call option contracts.



43







Stock-Based Compensation.
The Company has a stock-based employee compensation plan. The Company accounts for the Amended and Restated Harris & Harris
Group, Inc. 2012 Equity Incentive Plan (the "Stock Plan") by determining the fair value of all share-based payments to
employees, including the fair value of grants of employee stock options and restricted stock awards, and records these amounts
as an expense in the Consolidated Statements of Operations over the vesting period with a corresponding increase to our additional
paid-in capital. For the three months ended March 31, 2016, and March 31, 2015, the increase to our operating expenses was offset
by the increase to our additional paid-in capital, resulting in no net impact to our net asset value. Additionally, the Company
does not record the potential tax benefits associated with the expensing of stock options or restricted stock because the Company
currently intends to qualify as a regulated investment company ("RIC") under Subchapter M of the Code, and the deduction
attributable to such expensing, therefore, is unlikely to provide any additional tax savings. The amount of non-cash, stock-based
compensation expense recognized in the Consolidated Statements of Operations is based on the fair value of the awards the Company
expects to vest, recognized over the vesting period on a straight-line basis for each award, and adjusted for actual awards vested
and pre-vesting forfeitures. The forfeiture rate is estimated at the time of grant and revised, if necessary, in subsequent periods
if the actual forfeiture rate differs from the estimated rate and is accounted for in the current period and prospectively. See
"Note 9. Stock-Based Compensation" for further discussion.



Rent expense.
Our lease at 1450 Broadway, New York, New York, commenced on January 21, 2010. The lease expires on December 31, 2019. The base
rent is $36 per square foot with a 2.5 percent increase per year over the 10 years of the lease, subject to a full abatement of
rent for four months and a rent credit for six months throughout the lease term. We apply these rent abatements, credits, escalations
and landlord payments on a straight-line basis in the determination of rent expense over the lease term. Certain leasehold improvements
were also paid for on our behalf by the landlord, the cost of which is accounted for as property and equipment and "Deferred
rent" in the accompanying Consolidated Statements of Assets and Liabilities. These leasehold improvements are depreciated
over the lease term. We also leased office space in California until December 31, 2015, and in North Carolina until December 31,
2014.



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



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



Foreign Currency
Translation. The accounting records of the Company are maintained in U.S. dollars. All assets and liabilities denominated in
foreign currencies are translated into U.S. dollars based on the rate of exchange of such currencies against U.S. dollars on the
date of valuation. The Company does not isolate the portion of the results of operations that arises from changes in foreign currency
rates on investments held on its Consolidated Statements of Operations.



44







Securities Transactions.
Securities transactions are accounted for on the date the transaction for the purchase or sale of the securities is entered into
by the Company (i.e., trade date). Securities transactions outside conventional channels, such as private transactions, are recorded
as of the date the Company obtains the right to demand the securities purchased or to collect the proceeds from a sale and incurs
the obligation to pay for the securities purchased or to deliver the securities sold.



Concentration of
Credit Risk. The Company places its cash and cash equivalents with financial institutions and, at times, cash held in depository
accounts may exceed the Federal Deposit Insurance Corporation's insured limit and is subject to the credit risk of such institutions
to the extent it exceeds such limit.



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



Recent Accounting
Pronouncements. On April 7, 2015, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update
No. 2015-03, "Simplifying the Presentation of Debt Issuance Costs" ("ASU 2015-03"), which requires that
debt issuance costs be presented in the balance sheet as a direct deduction from the carrying amount of related debt liability,
consistent with debt discounts. Under the former accounting standards, such costs were recorded as an asset. On August 18, 2015,
the FASB clarified that the guidance in ASU 2015-03 does not apply to line of credit arrangements. Accordingly, companies may continue
to present debt issuance costs for line of credit arrangements as an asset and subsequently amortize the deferred debt costs ratably
over the term of the arrangement. The new guidance in ASU 2015-03 was adopted on January 1, 2016, and did not have a material impact
on the Company’s Consolidated Financial Statements.



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



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



45







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



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



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



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



NOTE 4. BUSINESS RISKS AND UNCERTAINTIES



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



46







We do not choose investments
based on a strategy of diversification. We also do not rebalance the portfolio should one of our portfolio companies increase in
value substantially relative to the rest of the portfolio.  Therefore, the value of our portfolio may be more vulnerable to
microeconomic events affecting a single sector, industry or portfolio company and to general macroeconomic events that may be unrelated
to our portfolio companies. These factors may subject the value of our portfolio to greater volatility than a company that follows
a diversification strategy. As of March 31, 2016, and December 31, 2015, our largest 10 investments by value accounted for approximately
79 percent and 79 percent, respectively, of the value of our equity-focused portfolio. Our largest three investments, by value,D-Wave Systems, Inc., Metabolon, Inc., and Adesto Technologies Corporation accounted for approximately 16 percent, 16 percent
and 14 percent, respectively, of our equity-focused portfolio at March 31, 2016. Our largest three investments, by value,Adesto
Technologies Corporation, Metabolon, Inc., and HZO, Inc., accounted for approximately 19 percent, 18 percent and 10 percent, respectively,
of our equity-focused portfolio at December 31, 2015. D-Wave Systems, Metabolon and HZO are privately held portfolio companies.
Adesto Technologies is a publicly traded portfolio company.



Approximately 81 percent
of the portion of our equity-focused portfolio that was fair valued was comprised of securities of 24 privately held companies,
the securities of publicly traded Champions Oncology, Inc., the warrants of OpGen, Inc., and certain warrants and options of Enumeral
Biomedical Holdings, Inc. Approximately 0.3 percent of the portion of our equity-focused portfolio that was valued according to
the equity method was comprised of one privately held company. Because there is typically no public or readily ascertainable market
for our interests in the small privately held companies in which we invest, the valuation of the securities in that portion of
our portfolio is determined in good faith by our Valuation Committee, which is comprised of all of the independent members of our
Board of Directors. The values are determined in accordance with our Valuation Procedures and are subject to significant estimates
and judgments. The fair value of the securities in our portfolio may differ significantly from the values that would be placed
on these securities if a ready market for the securities existed. Any changes in valuation are recorded in our Consolidated Statements
of Operations as "Net decrease (increase) in unrealized depreciation on investments." Changes in valuation of any of
our investments in privately held companies from one period to another may be significant.



NOTE 5. DEBT



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



47







At March 31, 2016,
and December 31, 2015, the Company had outstanding debt of $5,000,000. The weighted average annualized interest rate for each of
the three months ended March 31, 2016, and the year ended December 31, 2015, was 10 percent, exclusive of amortization of closing
fees and other expenses. The weighted average debt outstanding for the three months ended March 31, 2016, and the year ended December
31, 2015, was $5,000,000. The remaining capacity under the Loan Facility was $15,000,000 at March 31, 2016. Unamortized fees and
expenses of $262,320 and $306,040 related to establishing the Loan Facility are included as "Prepaid expenses" in the
Consolidated Statements of Assets and Liabilities as of March 31, 2016, and December 31, 2015, respectively. These amounts are
amortized over the term of the Loan Facility, and $43,720 was amortized in each of the three months ended March 31, 2016, and March
31, 2015. The Company paid $37,917 and $50,000 in non-utilization fees during the three months ended March 31, 2016, and March
31, 2015, respectively. The Company paid $126,389 and $0 in interest expense for the three months ended March 31, 2016, and March
31, 2015, respectively. During the three months ended March 31, 2016, and March 31, 2015, the Company paid $0 and $50,000 in utilization
fees associated with a drawdown of the Loan Facility. At March 31, 2016, the Company was in compliance with all covenants required
by the Loan Facility.



NOTE 6. FAIR VALUE OF INVESTMENTS



At March 31, 2016,
our financial assets valued at fair value were categorized as follows in the fair value hierarchy:



|                                      |  | Fair Value Measurement at Reporting Date Using: |           
|------------------------------------- |  | ----------------------------------------------- | ----------
|Description                           |  | March 31, 2016                                  |           
|                                      |  |                                                 |           
|Privately Held Portfolio Companies:   |  |                                                 |           
|                                      |  |                                                 |           
|Preferred Stock                       |  | $                                               | 49,625,042
|Bridge Notes                          |  |                                                 | 4,203,806 
|Warrants                              |  |                                                 | 249,135   
|Rights to Milestone Payments          |  |                                                 | 2,959,769 
|Common Stock                          |  |                                                 | 668,032   
|Subordinated Secured Debt             |  |                                                 | 570,491   
|Senior Secured Debt                   |  |                                                 | 875,000   
|Options                               |  |                                                 | 0         
|                                      |  |                                                 |           
|Publicly Traded Portfolio 
Companies: |  |                                                 |           
|                                      |  |                                                 |           
|Common Stock                          |  | $                                               | 14,142,321
|                                      |  |                                                 |           
|Total Investments:                    |  | $                                               | 73,293,596
|                                      |  |                                                 |           
|Funds Held in Escrow From             |  |                                                 |           
|Sales of Investments:                 |  | $                                               | 633,921   
|                                      |  |                                                 |           
|Total Financial Assets:               |  | $                                               | 73,927,517



48







Financial Instruments Disclosed, but not Carried, at Fair
Value



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



|Description                   |  | Carrying Value |           |  | Fair Value |   |           | Level 1 |  |   | Level 2 |  |  | Level 3 |  
|----------------------------- |  | -------------- | --------- |  | ---------- | - | --------- | ------- |  | - | ------- |  |  | ------- | -
|                              |  |                |           |  |            |   |           |         |  |   |         |  |  |         |  
|Term Loan Credit  Facility(1) |  | $              | 5,000,000 |  |            | $ | 5,000,000 |         |  | $ | 0       |  |  | $       | 0
|                              |  |                |           |  |            |   |           |         |  |   |         |  |  |         |  
|Total                         |  | $              | 5,000,000 |  |            | $ | 5,000,000 |         |  | $ | 0       |  |  | $       | 0



| | (1) | Fair value of the Term Loan Credit Facility is equal to the carrying amount of this credit facility.
| | --- | ----------------------------------------------------------------------------------------------------



Significant Unobservable Inputs



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



|                |  | Fair Value at March 31, 2016 |            |  | Valuation Technique(s) |                 | Unobservable Input |                                                                                                                          | Range(Weighted Average(a))
|--------------- |  | ---------------------------- | ---------- |  | ---------------------- | --------------- | ------------------ | ------------------------------------------------------------------------------------------------------------------------ | --------------------------
|                |  |                              |            |  |                        |                 |                    |                                                                                                                          |                           
|Preferred Stock |  | $                            | 12,257,859 |  |                        | Hybrid Approach |                    | Private Offering Price Volatility Time to Exit                                                                           |                           
|                |  |                              |            |  |                        |                 |                    |                                                                                                                          |                           
|Preferred Stock |  |                              | 22,606,559 |  |                        | Income Approach |                    | Private Offering Price Non-Performance Risk Volatility Time to Exit                                                      |                           
|                |  |                              |            |  |                        |                 |                    |                                                                                                                          |                           
|Preferred Stock |  |                              | 14,760,624 |  |                        | Market Approach |                    | Private Offering Price Non-Performance Risk Volatility Revenue Multiples Time to Exit Discount for Lack of Marketability |                           
|                |  |                              |            |  |                        |                 |                    |                                                                                                                          |                           
|Bridge Notes    |  |                              | 645,741    |  |                        | Income Approach |                    | Private Offering Price                                                                                                   |                           
|                |  |                              |            |  |                        |                 |                    |                                                                                                                          |                           
|Bridge Notes    |  |                              | 3,558,065  |  |                        | Market Approach |                    | Private Offering Price                                                                                                   |                           



49







|Cont'd                                            |  |                              |            |  |                        |                                            |                    |                                                                                                |                           
|------------------------------------------------- |  | ---------------------------- | ---------- |  | ---------------------- | ------------------------------------------ | ------------------ | ---------------------------------------------------------------------------------------------- | --------------------------
|                                                  |  |                              |            |  |                        |                                            |                    |                                                                                                |                           
|                                                  |  | Fair Value at March 31, 2016 |            |  | Valuation Technique(s) |                                            | Unobservable Input |                                                                                                | Range(Weighted Average(a))
|                                                  |  |                              |            |  |                        |                                            |                    |                                                                                                |                           
|Common Stock                                      |  |                              | 308,007    |  |                        | Hybrid Approach                            |                    | Private Offering Price Volatility Time to Exit                                                 |                           
|                                                  |  |                              |            |  |                        |                                            |                    |                                                                                                |                           
|Common Stock                                      |  |                              | 359,994    |  |                        | Income Approach                            |                    | Private Offering Price Volatility Time to Exit                                                 |                           
|                                                  |  |                              |            |  |                        |                                            |                    |                                                                                                |                           
|Common Stock                                      |  |                              | 31         |  |                        | Market Approach                            |                    | Private Offering Price                                                                         |                           
|                                                  |  |                              |            |  |                        |                                            |                    |                                                                                                |                           
|Warrants                                          |  |                              | 107,141    |  |                        | Income Approach                            |                    | Stock Price Volatility Expected Term                                                           |                           
|                                                  |  |                              |            |  |                        |                                            |                    |                                                                                                |                           
|Warrants                                          |  |                              | 141,994    |  |                        | Market Approach                            |                    | Stock PriceVolatility Expected Term                                                            |                           
|                                                  |  |                              |            |  |                        |                                            |                    |                                                                                                |                           
|Rights to Milestone 
Payments                     |  |                              | 2,959,769  |  |                        | Probability Weighted 
Discounted Cash Flow |                    | Probability of Achieving Independent Milestones 
Probability of Achieving Dependent Milestones |                           
|                                                  |  |                              |            |  |                        |                                            |                    |                                                                                                |                           
|Subordinated Secured Debt                         |  |                              | 570,491    |  |                        | Market Approach                            |                    | Market Price                                                                                   |                           
|                                                  |  |                              |            |  |                        |                                            |                    |                                                                                                |                           
|Senior Secured Debt                               |  |                              | 875,000    |  |                        | Market Approach                            |                    | Effective Yield                                                                                |                           
|                                                  |  |                              |            |  |                        |                                            |                    |                                                                                                |                           
|Funds Held in 
Escrow From Sales  
of Investments |  |                              | 633,921    |  |                        | Market Approach                            |                    | Escrow Discount                                                                                |                           
|                                                  |  |                              |            |  |                        |                                            |                    |                                                                                                |                           
|Options                                           |  |                              | 0          |  |                        | Income Approach                            |                    | Stock Price Volatility Expected Term                                                           |                           
|                                                  |  |                              |            |  |                        |                                            |                    |                                                                                                |                           
|Total                                             |  | $                            | 59,785,196 |  |                        |                                            |                    |                                                                                                |                           



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



50







Valuation Methodologies and Inputs for
Level 3 Assets



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



Preferred Stock, Bridge Notes and
Common Stock



Preferred stock, bridge
notes and common stock are valued by either a market, income or hybrid approach using internal models with inputs, most of which
are not market observable. Common inputs for valuing Level 3 preferred stock, bridge note and private common stock investments
include prices from recently executed private transactions in a company’s securities or unconditional firm offers, revenue
multiples of comparable publicly traded companies, merger and acquisition ("M&A") transactions consummated by comparable
companies, discounts for lack of marketability, rights and preferences of the class of securities we own as compared with other
classes of securities the portfolio company has issued, particularly related to potential liquidity scenarios of an initial public
offering ("IPO") or an acquisition transaction, estimated time to exit, volatilities of comparable publicly traded companies
and management’s best estimate of risk attributable to non-performance risk. Certain securities are valued using the present
value of future cash flows. We define non-performance risk as the risk that the price per share (or implied valuation of a portfolio
company) or the effective yield of a debt security of a portfolio company, as applicable, does not appropriately represent the
risk that a portfolio company with negative cash flow will be: (a) unable to raise capital, will need to be shut down and will
not return our invested capital; or (b) able to raise capital, but at a valuation significantly lower than the implied post-money
valuation of the last round of financing.  We also include discount factors for adjustments to transaction/sale values and
discount ratios for discounted cash flows in our definition of non-performance risk. We assess non-performance risk for each private
portfolio company quarterly. Our assessment of non-performance risk typically includes an evaluation of the financial condition
and operating results of the company, the company's progress towards milestones, and the long-term potential of the business and
technology of the company and how this potential may or may not affect the value of the shares owned by us. An increase to the
non-performance risk or a decrease in the private offering price of a future round of financing from that of the most recent round
would result in a lower fair value measurement and/or a change in the distribution of value among the classes of securities we
own. An increase in the volatility assumption generally increases the enterprise value calculated in an option pricing model. An
increase in the time to exit assumption also generally increases the enterprise value calculated in an option pricing model. Variations
in the expected time to exit or expected volatility assumptions have a significant impact on fair value. We may also consider changes
in market values for sets of comparable companies when recent private transaction information is not available.



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



51







Bridge notes commonly
contain terms that provide for the conversion of the full amount of principal, and sometimes interest, into shares of preferred
stock at a defined price per share and/or the price per share of the next round of financing. The use of a discount for non-performance
risk in the valuation of bridge notes would indicate the potential for conversion of only a portion of the principal, plus interest
when applicable, into shares of preferred stock or the potential that a conversion event will not occur and that the likely outcome
of a liquidation of assets would result in payment of less than the remaining principal outstanding of the note. An increase in
non-performance risk would result in a lower fair value measurement. Conversely, we may acquire or hold notes that are pari passu
with other notes but have different conversion terms. In such cases, we may apply an adjustment factor to reflect the differences
in the terms with respect to values.



Warrants and Options



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



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



Rights to Milestone Payments



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



52







Subordinated Secured Debt and Senior
Secured Debt



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



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



|                                                  |  | BeginningBalance1/1/2016 |            |  | Total Realized(Losses) GainsIncluded inChanges inNet Assets |   |            | Transfers |  |   | Total
    Unrealized(Depreciation)AppreciationIncluded inChanges inNet Assets |    |  | Investmentsin PortfolioCompanies,Interest onBridge Notes,andAmortizationof LoanFees, Net |           |   | DisposalsandSettlements |   |           | EndingBalance3/31/2016 |  |   | Amount of Total(Depreciation)Appreciation for
    thePeriod Included inChanges in NetAssets Attributableto the Change inUnrealized Lossesor Gains Relating
    toAssets Still Held atthe Reporting Date |  
|------------------------------------------------- |  | ------------------------ | ---------- |  | ----------------------------------------------------------- | - | ---------- | --------- |  | - | ----------------------------------------------------------------------------- | -- |  | ---------------------------------------------------------------------------------------- | --------- | - | ----------------------- | - | --------- | ---------------------- |  | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -
|                                                  |  |                          |            |  |                                                             |   |            |           |  |   |                                                                               |    |  |                                                                                          |           |   |                         |   |           |                        |  |   |                                                                                                                                                                                                         |  
|Preferred Stock                                   |  | $                        | 48,568,205 |  |                                                             | $ | (4,541,782 | )1        |  | $ | 148,958                                                                       | 2  |  | $                                                                                        | 4,949,659 |   |                         | $ | 500,002   |                        |  | $ | 0                                                                                                                                                                                                       |  
|                                                  |  |                          |            |  |                                                             |   |            |           |  |   |                                                                               |    |  |                                                                                          |           |   |                         |   |           |                        |  |   |                                                                                                                                                                                                         |  
|Bridge Notes                                      |  |                          | 4,275,728  |  |                                                             |   | (121,522   | )1        |  |   | 0                                                                             |    |  |                                                                                          | 22,876    |   |                         |   | 890,674   |                        |  |   | (863,950                                                                                                                                                                                                | )
|                                                  |  |                          |            |  |                                                             |   |            |           |  |   |                                                                               |    |  |                                                                                          |           |   |                         |   |           |                        |  |   |                                                                                                                                                                                                         |  
|Common Stock                                      |  |                          | 639,786    |  |                                                             |   | 0          |           |  |   | 0                                                                             |    |  |                                                                                          | 28,236    |   |                         |   | 10        |                        |  |   | 0                                                                                                                                                                                                       |  
|                                                  |  |                          |            |  |                                                             |   |            |           |  |   |                                                                               |    |  |                                                                                          |           |   |                         |   |           |                        |  |   |                                                                                                                                                                                                         |  
|Warrants                                          |  |                          | 480,025    |  |                                                             |   | 0          |           |  |   | (148,958                                                                      | )2 |  |                                                                                          | (81,932   | ) |                         |   | 0         |                        |  |   | 0                                                                                                                                                                                                       |  
|                                                  |  |                          |            |  |                                                             |   |            |           |  |   |                                                                               |    |  |                                                                                          |           |   |                         |   |           |                        |  |   |                                                                                                                                                                                                         |  
|Rights to 
Milestone
 Payments                    |  |                          | 3,362,051  |  |                                                             |   | 0          |           |  |   | 0                                                                             |    |  |                                                                                          | (402,282  | ) |                         |   | 0         |                        |  |   | 0                                                                                                                                                                                                       |  
|                                                  |  |                          |            |  |                                                             |   |            |           |  |   |                                                                               |    |  |                                                                                          |           |   |                         |   |           |                        |  |   |                                                                                                                                                                                                         |  
|Subordinated 
Secured Debt                        |  |                          | 560,538    |  |                                                             |   | 0          |           |  |   | 0                                                                             |    |  |                                                                                          | 5,328     |   |                         |   | 4,625     |                        |  |   | 0                                                                                                                                                                                                       |  
|                                                  |  |                          |            |  |                                                             |   |            |           |  |   |                                                                               |    |  |                                                                                          |           |   |                         |   |           |                        |  |   |                                                                                                                                                                                                         |  
|Senior Secured 
Debt                              |  |                          | 0          |  |                                                             |   | 0          |           |  |   | 0                                                                             |    |  |                                                                                          | 0         |   |                         |   | 875,000   |                        |  |   | 0                                                                                                                                                                                                       |  
|                                                  |  |                          |            |  |                                                             |   |            |           |  |   |                                                                               |    |  |                                                                                          |           |   |                         |   |           |                        |  |   |                                                                                                                                                                                                         |  
|Funds Held in 
Escrow From 
Sales of 
Investments |  |                          | 374,565    |  |                                                             |   | 259,356    | 3         |  |   | 0                                                                             |    |  |                                                                                          | 0         |   |                         |   | 0         |                        |  |   | 0                                                                                                                                                                                                       |  
|                                                  |  |                          |            |  |                                                             |   |            |           |  |   |                                                                               |    |  |                                                                                          |           |   |                         |   |           |                        |  |   |                                                                                                                                                                                                         |  
|Options                                           |  |                          | 54         |  |                                                             |   | 0          |           |  |   | 0                                                                             |    |  |                                                                                          | (54       | ) |                         |   | 0         |                        |  |   | 0                                                                                                                                                                                                       |  
|                                                  |  |                          |            |  |                                                             |   |            |           |  |   |                                                                               |    |  |                                                                                          |           |   |                         |   |           |                        |  |   |                                                                                                                                                                                                         |  
|OTC Traded Common Stock                           |  |                          | 29,732     |  |                                                             |   | 0          |           |  |   | (29,732                                                                       | )  |  |                                                                                          | 0         |   |                         |   | 0         |                        |  |   | 0                                                                                                                                                                                                       |  
|                                                  |  |                          |            |  |                                                             |   |            |           |  |   |                                                                               |    |  |                                                                                          |           |   |                         |   |           |                        |  |   |                                                                                                                                                                                                         |  
|Total                                             |  | $                        | 58,290,684 |  |                                                             | $ | (4,403,948 | )         |  | $ | (29,732                                                                       | )  |  | $                                                                                        | 4,521,831 |   |                         | $ | 2,270,311 |                        |  | $ | (863,950                                                                                                                                                                                                | )



1Represents a gross realized loss.

2There was a $148,958 transfer
from "Warrants" into "Preferred Stock" owing to the exercise of an NGX Bio, Inc., warrant.

3 Represents a gross realized gain.



53







For the three months
ended March 31, 2016, there were transfers out of Level 3 investments totaling $29,732. A total of 129,327 of our shares of Enumeral
Biomedical Holdings, Inc., transferred from Level 3 investments to Level 1 investments owing to the use of their unadjusted closing
share price on their respective stock exchanges on March 31, 2016, to derive their value.



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



|                                                 |  | Fair Value Measurement at Reporting Date Using:            |           
|------------------------------------------------ |  | ---------------------------------------------------------- | ----------
|Description                                      |  | December
                                         31, 2015 |           
|                                                 |  |                                                            |           
|Privately Held Portfolio Companies:              |  |                                                            |           
|                                                 |  |                                                            |           
|Preferred Stock                                  |  | $                                                          | 48,568,205
|Bridge Notes                                     |  |                                                            | 4,275,728 
|Warrants                                         |  |                                                            | 480,025   
|Rights to Milestone Payments                     |  |                                                            | 3,362,051 
|Common Stock                                     |  |                                                            | 639,786   
|Subordinated Secured Debt                        |  |                                                            | 560,538   
|Options                                          |  |                                                            | 54        
|                                                 |  |                                                            |           
|Publicly Traded Portfolio 
Companies:            |  |                                                            |           
|                                                 |  |                                                            |           
|Common Stock                                     |  | $                                                          | 19,100,581
|                                                 |  |                                                            |           
|Total Investments:                               |  | $                                                          | 76,986,968
|                                                 |  |                                                            |           
|Funds Held in Escrow From  Sales of Investments: |  | $                                                          | 374,565   
|                                                 |  |                                                            |           
|Total Financial Assets:                          |  | $                                                          | 77,361,533



Financial Instruments Disclosed,
but not Carried, at Fair Value



The following table
presents the carrying value and the fair value of the Company's financial liabilities disclosed, but not carried, at fair value
as of December 31, 2015, and the level of each financial liability within the fair value hierarchy:



|Description                   |  | Carrying Value |           |  | Fair Value |   |           | Level 1 |  |   | Level 2 |  |  | Level 3 |  
|----------------------------- |  | -------------- | --------- |  | ---------- | - | --------- | ------- |  | - | ------- |  |  | ------- | -
|                              |  |                |           |  |            |   |           |         |  |   |         |  |  |         |  
|Term Loan Credit 
Facility(1) |  | $              | 5,000,000 |  |            | $ | 5,000,000 |         |  | $ | 0       |  |  | $       | 0
|                              |  |                |           |  |            |   |           |         |  |   |         |  |  |         |  
|Total                         |  | $              | 5,000,000 |  |            | $ | 5,000,000 |         |  | $ | 0       |  |  | $       | 0



| | (1) | Fair value of the Term Loan Credit Facility is equal to the carrying amount of this credit facility.
| | --- | ----------------------------------------------------------------------------------------------------



54







Significant Unobservable Inputs



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



|                |  | Fair Value at December 31, 2015 |            |  | Valuation Technique(s) |                 | Unobservable Input |                                                                              | Range (WeightedAverage(a))
|--------------- |  | ------------------------------- | ---------- |  | ---------------------- | --------------- | ------------------ | ---------------------------------------------------------------------------- | --------------------------
|                |  |                                 |            |  |                        |                 |                    |                                                                              |                           
|Preferred Stock |  | $                               | 7,648,727  |  |                        | Hybrid Approach |                    | Private Offering Price Volatility Time to Exit                               |                           
|                |  |                                 |            |  |                        |                 |                    |                                                                              |                           
|Preferred Stock |  |                                 | 22,784,347 |  |                        | Income Approach |                    | Private Offering Price Non-Performance Risk Volatility Time to Exit          |                           
|                |  |                                 |            |  |                        |                 |                    |                                                                              |                           
|Preferred Stock |  |                                 | 18,135,131 |  |                        | Market Approach |                    | Volatility Revenue Multiples Time to Exit Discount for Lack of Marketability |                           
|                |  |                                 |            |  |                        |                 |                    |                                                                              |                           
|Bridge Notes    |  |                                 | 1,124,714  |  |                        | Income Approach |                    | Private Offering Price                                                       |                           
|                |  |                                 |            |  |                        |                 |                    |                                                                              |                           
|Bridge Notes    |  |                                 | 3,151,014  |  |                        | Market Approach |                    | Private Offering Price                                                       |                           
|                |  |                                 |            |  |                        |                 |                    |                                                                              |                           
|Common Stock    |  |                                 | 309,963    |  |                        | Hybrid Approach |                    | Private Offering Price Volatility Time to Exit                               |                           
|                |  |                                 |            |  |                        |                 |                    |                                                                              |                           
|Common Stock    |  |                                 | 329,802    |  |                        | Income Approach |                    | Private Offering Price Volatility Time to Exit                               |                           
|                |  |                                 |            |  |                        |                 |                    |                                                                              |                           
|Common Stock    |  |                                 | 21         |  |                        | Market Approach |                    | Private Offering Price                                                       |                           



55







|Cont'd                                          |  |                                 |            |  |                        |                                           |                    |                                                                                                |                           
|----------------------------------------------- |  | ------------------------------- | ---------- |  | ---------------------- | ----------------------------------------- | ------------------ | ---------------------------------------------------------------------------------------------- | --------------------------
|                                                |  |                                 |            |  |                        |                                           |                    |                                                                                                |                           
|                                                |  | Fair Value at December 31, 2015 |            |  | Valuation Technique(s) |                                           | Unobservable Input |                                                                                                | Range (WeightedAverage(a))
|                                                |  |                                 |            |  |                        |                                           |                    |                                                                                                |                           
|Warrants                                        |  |                                 | 101,431    |  |                        | Market Approach                           |                    | Volume Weighted Average Price                                                                  |                           
|                                                |  |                                 |            |  |                        |                                           |                    |                                                                                                |                           
|Warrants                                        |  |                                 | 378,594    |  |                        | Income Approach                           |                    | Stock Price Volatility Expected Term                                                           |                           
|                                                |  |                                 |            |  |                        |                                           |                    |                                                                                                |                           
|Rights to Milestone Payments                    |  |                                 | 3,362,051  |  |                        | Probability Weighted Discounted Cash Flow |                    | Probability of Achieving Independent Milestones 
Probability of Achieving Dependent Milestones |                           
|                                                |  |                                 |            |  |                        |                                           |                    |                                                                                                |                           
|Subordinated Secured Debt                       |  |                                 | 560,538    |  |                        | Market Approach                           |                    | Market Price                                                                                   |                           
|                                                |  |                                 |            |  |                        |                                           |                    |                                                                                                |                           
|Funds Held in Escrow From Sales 
of Investments |  |                                 | 374,565    |  |                        | Market Approach                           |                    | Escrow Discount                                                                                |                           
|                                                |  |                                 |            |  |                        |                                           |                    |                                                                                                |                           
|Options                                         |  |                                 | 54         |  |                        | Income Approach                           |                    | Stock Price Volatility Expected Term                                                           |                           
|                                                |  |                                 |            |  |                        |                                           |                    |                                                                                                |                           
|OTC Traded Common Stock                         |  |                                 | 29,732     |  |                        | Market Approach                           |                    | Stock Price                                                                                    |                           
|                                                |  |                                 |            |  |                        |                                           |                    |                                                                                                |                           
|Total                                           |  | $                               | 58,290,684 |  |                        |                                           |                    |                                                                                                |                           



(a)Weighted
average based on fair value at December 31, 2015.



56







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



|                                                  |  | BeginningBalance1/1/2015 |            |  | Total Realized(Losses) Gains Included inChanges inNet Assets |   |          | Transfers |  |   | Total
    UnrealizedAppreciation(Depreciation)Included inChanges inNet Assets |    |  | Investments
    in
PortfolioCompanies,Interest onBridge Notes,andAmortizationof LoanFees, Net |            |   | DisposalsandSettlements |   |           | EndingBalance3/31/2015 |  |   | Amount of Total(Depreciation)Appreciation for
    thePeriod Included inChanges in NetAssets Attributableto the Change inUnrealized Gains
    orLosses RelatingtoAssets Still Held
    atthe Reporting Date |  
|------------------------------------------------- |  | ------------------------ | ---------- |  | ------------------------------------------------------------ | - | -------- | --------- |  | - | ----------------------------------------------------------------------------- | -- |  | --------------------------------------------------------------------------------------------- | ---------- | - | ----------------------- | - | --------- | ---------------------- |  | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -
|                                                  |  |                          |            |  |                                                              |   |          |           |  |   |                                                                               |    |  |                                                                                               |            |   |                         |   |           |                        |  |   |                                                                                                                                                                                                            |  
|Preferred Stock                                   |  | $                        | 70,969,603 |  |                                                              | $ | 0        |           |  | $ | 501,863                                                                       | 1  |  | $                                                                                             | (2,051,657 | ) |                         | $ | 1,334,026 |                        |  | $ | 0                                                                                                                                                                                                          |  
|                                                  |  |                          |            |  |                                                              |   |          |           |  |   |                                                                               |    |  |                                                                                               |            |   |                         |   |           |                        |  |   |                                                                                                                                                                                                            |  
|Bridge Notes                                      |  |                          | 2,163,916  |  |                                                              |   | 0        |           |  |   | (501,863                                                                      | )1 |  |                                                                                               | 1,506,404  |   |                         |   | 1,072,086 |                        |  |   | 0                                                                                                                                                                                                          |  
|                                                  |  |                          |            |  |                                                              |   |          |           |  |   |                                                                               |    |  |                                                                                               |            |   |                         |   |           |                        |  |   |                                                                                                                                                                                                            |  
|Common Stock                                      |  |                          | 535,280    |  |                                                              |   | 0        |           |  |   | (51,627                                                                       | )  |  |                                                                                               | 115,034    |   |                         |   | 0         |                        |  |   | 0                                                                                                                                                                                                          |  
|                                                  |  |                          |            |  |                                                              |   |          |           |  |   |                                                                               |    |  |                                                                                               |            |   |                         |   |           |                        |  |   |                                                                                                                                                                                                            |  
|Warrants                                          |  |                          | 2,026,864  |  |                                                              |   | (284,844 | )         |  |   | 0                                                                             |    |  |                                                                                               | (429,144   | ) |                         |   | 0         |                        |  |   | (24,000                                                                                                                                                                                                    | )
|                                                  |  |                          |            |  |                                                              |   |          |           |  |   |                                                                               |    |  |                                                                                               |            |   |                         |   |           |                        |  |   |                                                                                                                                                                                                            |  
|Rights to 
Milestone
 Payments                    |  |                          | 3,193,865  |  |                                                              |   | 0        |           |  |   | 0                                                                             |    |  |                                                                                               | 916        |   |                         |   | 0         |                        |  |   | 0                                                                                                                                                                                                          |  
|                                                  |  |                          |            |  |                                                              |   |          |           |  |   |                                                                               |    |  |                                                                                               |            |   |                         |   |           |                        |  |   |                                                                                                                                                                                                            |  
|Senior Secured 
Debt                              |  |                          | 1,203,299  |  |                                                              |   | 0        |           |  |   | 0                                                                             |    |  |                                                                                               | (31,875    | ) |                         |   | 16,118    |                        |  |   | (91,736                                                                                                                                                                                                    | )
|                                                  |  |                          |            |  |                                                              |   |          |           |  |   |                                                                               |    |  |                                                                                               |            |   |                         |   |           |                        |  |   |                                                                                                                                                                                                            |  
|Subordinated 
Secured Debt                        |  |                          | 979,450    |  |                                                              |   | 0        |           |  |   | 0                                                                             |    |  |                                                                                               | (8,539     | ) |                         |   | 10,189    |                        |  |   | 0                                                                                                                                                                                                          |  
|                                                  |  |                          |            |  |                                                              |   |          |           |  |   |                                                                               |    |  |                                                                                               |            |   |                         |   |           |                        |  |   |                                                                                                                                                                                                            |  
|Funds Held in 
Escrow From 
Sales of 
Investments |  |                          | 306,802    |  |                                                              |   | 1,543    |           |  |   | 0                                                                             |    |  |                                                                                               | 0          |   |                         |   | 0         |                        |  |   | 0                                                                                                                                                                                                          |  
|                                                  |  |                          |            |  |                                                              |   |          |           |  |   |                                                                               |    |  |                                                                                               |            |   |                         |   |           |                        |  |   |                                                                                                                                                                                                            |  
|Options                                           |  |                          | 50,690     |  |                                                              |   | 0        |           |  |   | 0                                                                             |    |  |                                                                                               | (1,410     | ) |                         |   | 0         |                        |  |   | 0                                                                                                                                                                                                          |  
|                                                  |  |                          |            |  |                                                              |   |          |           |  |   |                                                                               |    |  |                                                                                               |            |   |                         |   |           |                        |  |   |                                                                                                                                                                                                            |  
|OTC Traded Common Stock                           |  |                          | 7,251,178  |  |                                                              |   | 0        |           |  |   | 0                                                                             |    |  |                                                                                               | (1,532,943 | ) |                         |   | 0         |                        |  |   | 0                                                                                                                                                                                                          |  
|                                                  |  |                          |            |  |                                                              |   |          |           |  |   |                                                                               |    |  |                                                                                               |            |   |                         |   |           |                        |  |   |                                                                                                                                                                                                            |  
|Total                                             |  | $                        | 88,680,947 |  |                                                              | $ | (283,301 | )         |  | $ | (51,627                                                                       | )  |  | $                                                                                             | (2,433,214 | ) |                         | $ | 2,432,419 |                        |  | $ | (115,736                                                                                                                                                                                                   | )



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



We elected to use the
beginning of period values to recognize transfers in and out of Level 2 and Level 3 investments. For the three months ended March
31, 2015, there were transfers out of Level 3 totaling $51,627. Our shares of Accelerator IV-New York Corporation transferred from
a Level 3 investment owing to its qualification as an equity method investment.



NOTE 7. DERIVATIVES



At March 31, 2016,
and December 31, 2015, we had rights to milestone payments from Amgen, Inc.’s acquisition of our former portfolio company,
BioVex Group, Inc. These milestone payments were fair valued at $2,495,696 and $2,900,232 as of March 31, 2016, and December 31,
2015, respectively. At March 31, 2016, and December 31, 2015, we had rights to milestone payments from Laird Technologies, Inc.'s
acquisition of our former portfolio company, Nextreme Thermal Solutions, Inc. These milestone payments were fair valued at $0 as
of March 31, 2016, and December 31, 2015. At March 31, 2016, and December 31, 2015, we had rights to milestone payments from Canon,
Inc.'s acquisition of our former portfolio company, Molecular Imprints, Inc. These milestone payments were fair valued at $464,073
and $461,819 as of March 31, 2016, and December 31, 2015, respectively. These milestone payments are contingent upon certain milestones
being achieved in the future.



57







The following tables
present the value of derivatives held at March 31, 2016, and the effect of derivatives held during the three months ended March
31, 2016, along with the respective location in the financial statements.



|Statements of Assets and Liabilities:
|-------------------------------------



|                                                                                                              |  | Assets      |  | Liabilities |          
|------------------------------------------------------------------------------------------------------------- |  | ----------- |  | ----------- | ---------
|Derivatives                                                                                                   |  | Location    |  | Fair Value  |          
|                                                                                                              |  |             |  |             |          
|Amgen, Inc. Rights to Milestone 
Payments from Acquisition of 
BioVex Group, Inc.                             |  | Investments |  | $           | 2,495,696
|                                                                                                              |  |             |  |             |          
|Laird Technologies, Inc. 
Rights to Milestone Payments 
from Acquisition of Nextreme 
Thermal Solutions, Inc. |  | Investments |  | $           | 0        
|                                                                                                              |  |             |  |             |          
|Canon, Inc. Rights to 
Milestone Payments from 
Acquisition of Molecular 
Imprints, Inc.                      |  | Investments |  | $           | 464,073  



Statements of Operations

for the Year Ended

March 31, 2016:



|Derivatives                                                                                                    |  | Location                                |  | Realized Gain/(Loss) |   |  | Change
                                         in Unrealized Appreciation |  
|-------------------------------------------------------------------------------------------------------------- |  | --------------------------------------- |  | -------------------- | - |  | -------------------------------------------------------------------------- | -
|                                                                                                               |  |                                         |  |                      |   |  |                                                                            |  
|Amgen, Inc. Rights to 
Milestone Payments from 
Acquisition of BioVex Group, 
Inc.                             |  | Net Realized and Unrealized Gain (Loss) |  | $                    | 0 |  |                                                                            | $
|                                                                                                               |  |                                         |  |                      |   |  |                                                                            |  
|Laird Technologies, Inc. 
Rights to Milestone Payments 
from Acquisition of 
Nextreme Thermal Solutions, 
Inc. |  | Net Realized and Unrealized Gain (Loss) |  | $                    | 0 |  |                                                                            | $
|                                                                                                               |  |                                         |  |                      |   |  |                                                                            |  
|Canon, Inc. Rights to 
Milestone Payments from 
Acquisition of Molecular 
Imprints, Inc.                       |  | Net Realized and Unrealized Gain (Loss) |  | $                    | 0 |  |                                                                            | $



58







The following tables
present the value of derivatives held at December 31, 2015, and the effect of derivatives held during the year ended December 31,
2015, along with the respective location in the financial statements.



Statements of Assets and Liabilities:



|                                                                                                              |  | Assets      |  | Liabilities |          
|------------------------------------------------------------------------------------------------------------- |  | ----------- |  | ----------- | ---------
|Derivatives                                                                                                   |  | Location    |  | Fair Value  |          
|                                                                                                              |  |             |  |             |          
|Amgen, Inc. Rights to Milestone 
Payments from Acquisition of 
BioVex Group, Inc.                             |  | Investments |  | $           | 2,900,232
|                                                                                                              |  |             |  |             |          
|Laird Technologies, Inc. 
Rights to Milestone Payments 
from Acquisition of Nextreme 
Thermal Solutions, Inc. |  | Investments |  | $           | 0        
|                                                                                                              |  |             |  |             |          
|Canon, Inc. Rights to 
Milestone Payments from 
Acquisition of Molecular 
Imprints, Inc.                      |  | Investments |  | $           | 461,819  



Statements of Operations

for the Year Ended

December 31, 2015:



|Derivatives                                                                                                    |  | Location                                |  | Realized Gain/(Loss) |         |  | Change
                                         in Unrealized Appreciation |  
|-------------------------------------------------------------------------------------------------------------- |  | --------------------------------------- |  | -------------------- | ------- |  | -------------------------------------------------------------------------- | -
|                                                                                                               |  |                                         |  |                      |         |  |                                                                            |  
|Amgen, Inc. Rights to 
Milestone Payments from 
Acquisition of BioVex Group, 
Inc.                             |  | Net Realized and Unrealized Gain (Loss) |  | $                    | 862,346 |  |                                                                            | $
|                                                                                                               |  |                                         |  |                      |         |  |                                                                            |  
|Laird Technologies, Inc. 
Rights to Milestone Payments 
from Acquisition of
 Nextreme Thermal Solutions,
 Inc. |  | Net Realized and Unrealized Gain (Loss) |  | $                    | 0       |  |                                                                            | $
|                                                                                                               |  |                                         |  |                      |         |  |                                                                            |  
|Canon, Inc. Rights to 
Milestone Payments from 
Acquisition of Molecular 
Imprints, Inc.                       |  | Net Realized and Unrealized Gain (Loss) |  | $                    | 398,762 |  |                                                                            | $



NOTE 8. EMPLOYEE BENEFITS



We administer a plan
to provide medical and dental insurance for retirees and their spouses who, at the time of their retirement, have 10 years of service
with us and have attained 50 years of age or have attained 45 years of age and have 15 years of service with us (the "Medical
Benefit Retirement Plan"). On March 7, 2013, the Board of Directors amended the Medical Benefit Retirement Plan. The amendment
limits the medical benefit to $10,000 per year for a period of ten years. The amendment does not affect benefits accrued by former
employees or one current employee who is grandfathered under the former terms of the plan.



59







Our accumulated postretirement
benefit obligation was re-measured as of the plan amendment date, which resulted in a $1,101,338 decrease in our liability. A deferred
gain of $1,101,338 owing to this amendment was included in "Accumulated other comprehensive income" as of March 31, 2013.
This amount is being amortized over a service period of 5.27 years. During each of the three months ended March 31, 2016, and March
31, 2015, a total of $52,246 was amortized and included as a reduction of "Salaries, benefits and stock-based compensation"
on our Consolidated Statements of Operations. All of the amounts reported in the Consolidated Statements of Comprehensive Income
(Loss) relate to the plan amendment.



NOTE 9. STOCK-BASED COMPENSATION



The Company maintains the Stock Plan, which
provides for the grant of equity-based awards of stock options to our officers and employees and restricted stock to our officers,
employees and non-employee directors subject to compliance with the 1940 Act and an exemptive order granted on April 3, 2012, by
the SEC permitting us to award shares of restricted stock (the "Exemptive Order").



Stock Option Awards



During the three months
ended March 31, 2016, and the year ended December 31, 2015, the Compensation Committee of the Board of Directors of the Company
did not grant any stock options. The Compensation Committee does not plan to grant new stock options to employees.



| |  | The stock options outstanding are fully vested and, therefore, fully expensed.
| |  | ------------------------------------------------------------------------------



No options were exercised
during the three months ended March 31, 2016, and March 31, 2015. Upon exercise, shares would be issued from our previously authorized
but unissued shares.



A summary of the changes
in outstanding stock options for the three months ended March 31, 2016, is as follows:



|                                                       |  |        |           |  |                |   |      | Weighted   |  |   | Weighted Average |  |  |           |     
|------------------------------------------------------ |  | ------ | --------- |  | -------------- | - | ---- | ---------- |  | - | ---------------- |  |  | --------- | ----
|                                                       |  |        |           |  | Weighted       |   |      | Average    |  |   | Remaining        |  |  | Aggregate |     
|                                                       |  |        |           |  | Average        |   |      | Grant Date |  |   | Contractual      |  |  | Intrinsic |     
|                                                       |  | Shares |           |  | Exercise Price |   |      | Fair Value |  |   | Term (Years)     |  |  | Value     |     
|                                                       |  |        |           |  |                |   |      |            |  |   |                  |  |  |           |     
|Options Outstanding at 
January 1, 2016                |  |        | 1,402,912 |  |                | $ | 9.85 |            |  | $ | 6.34             |  |  |           | 0.70
|                                                       |  |        |           |  |                |   |      |            |  |   |                  |  |  |           |     
|Granted                                                |  |        | 0         |  |                |   | 0    |            |  |   | 0                |  |  |           | 0   
|                                                       |  |        |           |  |                |   |      |            |  |   |                  |  |  |           |     
|Exercised                                              |  |        | 0         |  |                |   | 0    |            |  |   | 0                |  |  |           | 0   
|                                                       |  |        |           |  |                |   |      |            |  |   |                  |  |  |           |     
|Forfeited or Expired                                   |  |        | 0         |  |                |   | 0    |            |  |   | 0                |  |  |           | 0   
|                                                       |  |        |           |  |                |   |      |            |  |   |                  |  |  |           |     
|Options Outstanding and Exercisable 
at March 31, 2016 |  |        | 1,402,912 |  |                | $ | 9.85 |            |  | $ | 6.34             |  |  |           | 0.45



60







The aggregate intrinsic
value in the table above with respect to outstanding options is calculated as the difference between the Company's closing stock
price of $1.65 on March 31, 2016, and the exercise price, multiplied by the number of in-the-money options. This amount represents
the total pre-tax intrinsic value that would have been received by the option holders had all option holders exercised their awards
on March 31, 2016.



Restricted Stock



For the three months
ended March 31, 2016, and March 31, 2015, we recognized $(104,566) and $212,591 of compensation expense related to restricted stock
awards. Our compensation (benefit) expense of $(104,566) for the three months ended March 31, 2016, includes $166,226 of compensation
expense, net of a reversal of previously recognized compensation expense of $270,792 owing to pre-vested forfeitures. As of March
31, 2016, there was unrecognized compensation cost of $726,307 related to restricted stock awards. This cost is expected to be
recognized over a remaining weighted average period of approximately eleven months.



Non-vested restricted
stock awards as of March 31, 2016, and changes during the three months ended March 31, 2016, were as follows:



|                                                                     |  | Shares |           |   | Weighted-Average Grant Date  Fair Value Per Share |  
|-------------------------------------------------------------------- |  | ------ | --------- | - | ------------------------------------------------- | -
|                                                                     |  |        |           |   |                                                   |  
|Outstanding at January 1, 2016                                       |  |        | 1,062,329 |   |                                                   | $
|                                                                     |  |        |           |   |                                                   |  
|Granted                                                              |  |        | 0         |   |                                                   |  
|                                                                     |  |        |           |   |                                                   |  
|Vested based on service                                              |  |        | 0         |   |                                                   |  
|                                                                     |  |        |           |   |                                                   |  
|Shares withheld  related to net share settlement of restricted stock |  |        | 0         |   |                                                   |  
|                                                                     |  |        |           |   |                                                   |  
|Forfeited                                                            |  |        | (210,000  | ) |                                                   |  
|                                                                     |  |        |           |   |                                                   |  
|Outstanding at March 31, 2016                                        |  |        | 852,329   |   |                                                   | $



Non-vested restricted
stock awards as of March 31, 2015, and changes during the three months ended March 31, 2015, were as follows:



|                                                                      |  | Shares |           |   | Weighted-Average
    Grant Date
 Fair Value Per Share |  
|--------------------------------------------------------------------- |  | ------ | --------- | - | ----------------------------------------------------- | -
|                                                                      |  |        |           |   |                                                       |  
|Outstanding at January 1, 2015                                        |  |        | 1,165,495 |   |                                                       | $
|                                                                      |  |        |           |   |                                                       |  
|Granted                                                               |  |        | 0         |   |                                                       |  
|                                                                      |  |        |           |   |                                                       |  
|Vested based on service                                               |  |        | 0         |   |                                                       |  
|                                                                      |  |        |           |   |                                                       |  
|Shares withheld  related to net share 
settlement of restricted stock |  |        | 0         |   |                                                       |  
|                                                                      |  |        |           |   |                                                       |  
|Forfeited                                                             |  |        | (3,999    | ) |                                                       |  
|                                                                      |  |        |           |   |                                                       |  
|Outstanding at March 31, 2015                                         |  |        | 1,161,496 |   |                                                       | $



61







Under net settlement
procedures currently applicable to our outstanding restricted stock awards for current employees, upon each settlement date, restricted
stock awards are withheld to cover the required withholding tax, which is based on the value of the restricted stock award on the
settlement date as determined by the closing price of our common stock on the vesting date. The remaining amounts are delivered
to the recipient as shares of our common stock. There were no net settlements during the three months ended March 31, 2016, and
March 31, 2015.



NOTE 10. INCOME TAXES



We have elected to
be treated as a RIC under the Code and operate in a manner so as to qualify for the tax treatment applicable to RICs.



In order to qualify
as a RIC, we must, in general, (1) annually, derive at least 90 percent of our gross income from dividends, interest, gains from
the sale of securities and similar sources; (2) quarterly, meet certain investment diversification requirements; and (3) annually,
distribute at least 90 percent of our investment company taxable income as a dividend. We may either distribute or retain our net
capital gain from investments to the extent they are not offset by capital loss carryforwards, but any net capital gain not distributed
will be subject to corporate income tax and the excise tax described below to the extent not offset by the capital loss carryforward.
We currently intend to consider designating net capital gains for distribution as "cash dividends," "designated
undistributed capital gains" or "deemed dividends" or some combination thereof. We will be subject to a four percent
excise tax to the extent we fail to distribute at least 98 percent of our annual net ordinary income and 98.2 percent of our capital
gain net income and would be subject to income tax to the extent we fail to distribute 100 percent of our investment company taxable
income. As of January 1, 2016, we had capital loss carryforwards of $5,252,546, which we intend to use to offset current year capital
gains, if any. During the three months ended March 31, 2016, we realized net capital losses of $4,403,948.



Because of the specialized
nature of our investment portfolio, we generally can satisfy the diversification requirements under the Code if we receive a certification
from the SEC pursuant to Section 851(e) of the Code that we are "principally engaged in the furnishing of capital to other
corporations which are principally engaged in the development or exploitation of inventions, technological improvements, new processes,
or products not previously generally available."



Although we received
SEC certifications for 1999 to 2014, there can be no assurance that we will receive such certification for subsequent years (to
the extent we need additional certifications as a result of changes in our portfolio). We intend to apply for certification for
2015. If we require, but fail to obtain, the SEC certification for a taxable year, we may fail to qualify as a RIC for such year.
We also will fail to qualify for favorable RIC tax treatment for a taxable year if we do not satisfy the 90 Percent Income Test
or Annual Distribution Requirement for such year. In the event we do not satisfy the 90 Percent Income Test, the Diversification
Tests and the Annual Distribution Requirement for any taxable year, we will be subject to federal tax with respect to all of our
taxable income, whether or not distributed. In addition, all our distributions to shareholders in that situation generally will
be taxable as ordinary dividends.



62







Although we currently
intend to qualify as a RIC for each taxable year, under certain circumstances we may choose to take action with respect to one
or more taxable years to ensure that we would be taxed under Subchapter C of the Code (rather than Subchapter M) for such year
or years. Additionally, income from fees and consulting payments generally does not qualify as good RIC income under the 90 Percent
Income Test. As we generate more income from such payments, it is possible that we may fail to qualify as a RIC for a taxable year
owing to an inability to satisfy the 90 Percent Income Test. We believe this income will be greater in 2016 than in past years,
and there can be no assurances that we will satisfy the 90 Percent Income Test in 2016 or qualify as a RIC for such year. Furthermore,
our ownership percentages in our portfolio have grown over the last several years, which make it more difficult to pass certain
RIC diversification tests when companies in our portfolio are successful and we want to invest more capital in those companies
to increase our investment returns. As long as the aggregate values of our non-qualifying assets remain below 50 percent of total
assets, we will continue to qualify as a RIC. Rather than selling portfolio companies that are performing well in order to pass
our RIC diversification tests, we may opt instead not to qualify as a RIC. We will choose to take such action only if we believe
that the result of the action will benefit us and our shareholders.



For the three months
ended March 31, 2016, and March 31, 2015, we paid $5,830 and $105, respectively, in federal, state and local taxes. At March 31,
2016, and March 31, 2015, we had $0 accrued for federal, state and local taxes payable by the Company.



We pay federal, state
and local taxes on behalf of Ventures, which is taxed as a C Corporation. For the three months ended March 31, 2016, and March
31, 2015, our income tax expense for Ventures was $800 and $0, respectively.



NOTE 11. COMMITMENTS AND CONTINGENCIES



On July 21, 2014, the
Company made a $216,012 investment in Accelerator IV-New York Corporation ("Accelerator"). This initial investment was
part of an overall $666,667 operating commitment to Accelerator. Accelerator will be identifying emerging biotechnology companies
for the Company to invest in directly. In addition to this operating commitment, the Company has a $3,333,333 investment commitment
to be invested in the identified portfolio companies over a five-year period. If the Company defaults on these commitments, the
other investors may purchase the Company's shares of Accelerator for $0.001 per share. In the event of default, the Company would
still be required to contribute the remaining operating commitment.



The Company's aggregate
operating and investment commitments in Accelerator amounted to $666,667 and $3,333,333, respectively. During the year ended December
31, 2015, $262,215 in capital related to the operating commitment and $1,132,950 in capital related to the investment commitment
was called. During the three months ended March 31, 2016, $103,680 in capital related to the operating commitment was called. As
of March 31, 2016, the Company had remaining unfunded commitments of $84,760 and $2,200,383, or approximately 12.7 percent and
66.0 percent, of the total operating and investment commitments, respectively. The withdrawal of contributed capital is not permitted.
The transfer or assignment of capital is subject to approval by Accelerator.



63









NOTE 12. SHARE REPURCHASE PROGRAM



On August 6, 2015,
our Board of Directors authorized a repurchase of up $2.5 million of the Company’s common stock in the open market within
a six-month period. Under the repurchase program, we may, but we are not obligated to, repurchase our outstanding common stock
in the open market from time to time provided that we comply with the prohibitions under our Insider Trading Policies and Procedures
and the guidelines specified in Rule 10b-18 of the Securities Exchange Act of 1934, as amended, including certain price, market
volume and timing constraints. In addition, any repurchases are conducted in accordance with the 1940 Act. During the year ended
December 31, 2015, we repurchased 509,082 shares at an average price of approximately $2.36 per share, inclusive of commissions.
This represented a discount of approximately 18.1 percent of the net asset value per share at December 31, 2015. The total dollar
amount of shares repurchased in this period was $1,199,994, leaving a maximum of $1,300,006 available for future program purchases
as of December 31, 2015. The six-month period expired on February 6, 2016. On March 3, 2016, our Board of Directors reauthorized
the repurchase of up to $2.5 million of the Company's common stock within a six-month period. As of March 31, 2016, no additional
repurchases have occurred, leaving a maximum of $2.5 million available for future repurchases.



NOTE 13. CHANGE IN NET ASSETS
PER SHARE



The following table
sets forth the computation of basic and diluted per share net increases (decreases) in net assets resulting from operations for
the three months ended March 31, 2016, and March 31, 2015.



|                                                                         |  | For the Three Months Ended March 31, |           
|------------------------------------------------------------------------ |  | ------------------------------------ | ----------
|                                                                         |  | 2016                                 |           
|                                                                         |  |                                      |           
|Numerator for decrease in net assets per share resulting from operations |  | $                                    | (6,049,614
|                                                                         |  |                                      |           
|Denominator for basic weighted average shares                            |  |                                      | 30,845,754
|                                                                         |  |                                      |           
|Basic net decrease in net assets per share
resulting from operations     |  | $                                    | (0.20     
|                                                                         |  |                                      |           
|Denominator for diluted weighted average shares                          |  |                                      | 30,845,754
|                                                                         |  |                                      |           
|Diluted net decrease in net assets per
share resulting from operations   |  | $                                    | (0.20     
|                                                                         |  |                                      |           
|Anti-dilutive shares by type:                                            |  |                                      |           
|Stock Options                                                            |  |                                      | 1,402,912 
|Restricted Stock1                                                        |  |                                      | 139,329   
|                                                                         |  |                                      |           
|Total anti-dilutive shares                                               |  |                                      | 1,542,241 



1A total of 713,000
and 893,000 market-based shares of restricted stock were outstanding during each of the three months ended March 31, 2016, and
March 31, 2015, respectively. These shares vest when the volume-weighted stock price is at or above pre-determined stock price
targets over a 30-day period. These pre-determined stock price targets range from $5.00 per share to $9.00 per share. These shares
were not included in the computation of diluted net asset value per share because as of the end of the reporting period none of
the pre-determined stock price targets were met.



For the three months
ended March 31, 2016, and March 31, 2015, the calculation of net decrease in net assets resulting from operations per diluted share
did not include stock options or shares of restricted stock because such shares were anti-dilutive. Stock options and restricted
stock awards may be dilutive in future periods in which there are both a net increase in net assets resulting from operations and
either significant increases in our average stock price or significant decreases in the amount of unrecognized compensation cost
during the period.



64







NOTE 14. RELATED PARTY TRANSACTIONS



As a BDC, we provide
managerial assistance to our portfolio companies. In certain cases, we earn fees for providing such assistance. During the three
months ended March 31, 2016, and March 31, 2015, we earned fees totaling $146,877 and $7,000, respectively.



NOTE 15. SUBSEQUENT EVENTS



On
April 7, 2016, the Company made a $500,000 follow-on investment in NGX Bio, Inc., a privately held portfolio company.



On
April 13, 2016, the Company made a $550,290 follow-on investment in Lodo Therapeutics Corporation, a privately held portfolio company.



On
April 20, 2016, the Company received proceeds of $390,492 from funds held in escrow relating to the sale of Molecular Imprints,
Inc.'s semiconductor lithography equipment business to Canon, Inc.



On
April 22, 2016, the Company made a $225,000 initial investment in Fleet Health Alliance, LLC, a privately held portfolio company.



On
May 4, 2016, the Company made a $150,000 initial investment in AgTech Accelerator Corporation, a privately held portfolio company.



65







|HARRIS & HARRIS GROUP, INC.
        FINANCIAL HIGHLIGHTS
        (Unaudited)
|----------------------------------------------------------------------------



|                                                                                    |  | Three Months Ended March 31, |           
|----------------------------------------------------------------------------------- |  | ---------------------------- | ----------
|                                                                                    |  | 2016                         |           
|Per Share Operating Performance                                                     |  |                              |           
|                                                                                    |  |                              |           
|Net asset value per share, beginning of period                                      |  | $                            | 2.88      
|                                                                                    |  |                              |           
|Net operating loss*                                                                 |  |                              | (0.04     
|Net realized loss on investments*                                                   |  |                              | (0.15     
|Net increase in unrealized depreciation
on investments and written call options*(1) |  |                              | (0.01     
|Share of loss on equity method investment(2)                                        |  |                              | 0.00      
|Total from investment operations*                                                   |  |                              | (0.20     
|                                                                                    |  |                              |           
|Net (decrease) increase as a result of stock-
based compensation expense*           |  |                              | (0.01     
|                                                                                    |  |                              |           
|Total (decrease) increase from capital
stock transactions                           |  |                              | (0.01     
|                                                                                    |  |                              |           
|Net increase as a result of other
comprehensive income*(2)                          |  |                              | 0.00      
|                                                                                    |  |                              |           
|Net (decrease) in net asset value                                                   |  |                              | (0.21     
|                                                                                    |  |                              |           
|Net asset value per share, end of period                                            |  | $                            | 2.67      
|                                                                                    |  |                              |           
|Stock price per share, end of period                                                |  | $                            | 1.65      
|                                                                                    |  |                              |           
|Total return based on stock price                                                   |  |                              | (25.00    
|                                                                                    |  |                              |           
|Supplemental Data:                                                                  |  |                              |           
|                                                                                    |  |                              |           
|Net assets, end of period                                                           |  | $                            | 82,505,245
|                                                                                    |  |                              |           
|Ratio of expenses, excluding taxes, to average net assets(3)                        |  |                              | 1.71      
|                                                                                    |  |                              |           
|Ratio of expenses, including taxes, to average net assets(3)                        |  |                              | 1.72      
|                                                                                    |  |                              |           
|Ratio of net operating loss to average net assets(3)                                |  |                              | (1.36     
|                                                                                    |  |                              |           
|Average debt outstanding                                                            |  | $                            | 5,000,000 
|                                                                                    |  |                              |           
|Average debt per share                                                              |  | $                            | 0.16      
|                                                                                    |  |                              |           
|Number of shares outstanding, end of period                                         |  |                              | 30,845,754



*Based on average shares outstanding



(1)Net
unrealized gains (losses) includes rounding adjustments to reconcile change in net asset value per share. See "Item 2. Management's
Discussion and Analysis of Financial Condition and Results of Operations" for a description of unrealized losses on investments.

(2)Amounts
listed as zero are amounts calculated as less than $0.005.

(3)Not
annualized.



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



66







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



The information contained
in this section should be read in conjunction with the Company's unaudited March 31, 2016, Consolidated Financial Statements and
the Company's audited 2015 Consolidated Financial Statements and notes thereto.



Cautionary Statement Regarding Forward-Looking Statements



This Quarterly Report
on Form 10-Q contains forward-looking statements that involve substantial risks and uncertainties. These forward-looking statements
are not historical facts, but rather are based on current expectations, estimates and projections about the Company, our current
and prospective portfolio investments, our industry, our beliefs, and our assumptions. Words such as "anticipates," "expects,"
"intends," "plans," "will," "may," "continue," "believes," "seeks,"
"estimates," "would," "could," "should," "targets," "projects," and
variations of these words and similar expressions are intended to identify forward-looking statements. The forward-looking statements
contained in this Quarterly Report involve risks and uncertainties, including statements as to:



| | • | our future operating results;
| | - | -----------------------------



| | • | our business prospects and the prospects of our portfolio companies;
| | - | --------------------------------------------------------------------



| | • | the impact of investments that we expect to make;
| | - | -------------------------------------------------



| | • | our contractual arrangements and relationships with third parties;
| | - | ------------------------------------------------------------------



| | • | the dependence of our future success on the general economy and its impact on the industries in
which we invest;
| | - | ----------------------------------------------------------------------------------------------------------------



| | • | the ability of our portfolio companies to achieve their objectives;
| | - | -------------------------------------------------------------------



| | • | our expected financings and investments;
| | - | ----------------------------------------



| | • | the adequacy of our cash resources and working capital; and
| | - | -----------------------------------------------------------



| | • | the timing of cash flows, if any, from the operations and/or monetization of our positions in our
portfolio companies.
| | - | ----------------------------------------------------------------------------------------------------------------------



These statements are
not guarantees of future performance and are subject to risks, uncertainties, and other factors, some of which are beyond our control
and difficult to predict and could cause actual results to differ materially from those expressed or forecasted in the forward-looking
statements, including without limitation:



| | • | an economic downturn could impair our portfolio companies’ ability to continue to operate,
which could lead to the loss of some or all of our investments in such portfolio companies;
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



67







| | • | a contraction of available credit and/or an inability to access the equity markets could impair
our investment activities;
| | - | --------------------------------------------------------------------------------------------------------------------------



| | • | interest rate volatility could adversely affect our results, particularly if we elect to use leverage
as a material part of our investment strategy;
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------



| | • | currency fluctuations could adversely affect the results of our investments in foreign companies,
particularly to the extent that we receive payments denominated in foreign currency rather than U.S. dollars; and
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | the risks, uncertainties and other factors we identify in "Risk Factors" and elsewhere
in this Quarterly Report on Form 10-Q and in our other filings with the Securities and Exchange Commission ("SEC"), including
our Annual Report on Form 10-K for the year ended December 31, 2015.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Although we believe
that the assumptions on which these forward-looking statements are based are reasonable, any of those assumptions could prove to
be inaccurate, and, as a result, the forward-looking statements based on those assumptions also could be inaccurate. Important
assumptions include our ability to originate new investments, certain margins and levels of profitability and the availability
of additional capital. In light of these and other uncertainties, the inclusion of a projection or forward-looking statement in
this Quarterly Report on Form 10-Q should not be regarded as a representation by us that our plans and objectives will be achieved.
These risks and uncertainties include those described or identified in "Risk Factors" and elsewhere in this Quarterly
Report on Form 10-Q. You should not place undue reliance on these forward-looking statements, which apply only as of the date of
this Quarterly Report on Form 10-Q.



Background



We incorporated under
the laws of the state of New York in August 1981. In 1983, we completed an initial public offering ("IPO"). In 1984,
we divested all of our assets except Otisville BioTech, Inc., and became a financial services company with the investment in Otisville
as the initial focus of our business activity.



In 1992, we registered
as an investment company under the 1940 Act, commencing operations as a closed-end, non-diversified investment company. In 1995,
we elected to become a BDC subject to the provisions of Sections 55 through 65 of the 1940 Act.



Overview



We build transformative
companies enabled by disruptive science by identifying and investing in such companies and then providing strategic, operational
and management resources, and creative financial solutions.



68







We believe we provide
four core benefits to our shareholders. First, we provide shareholders with access to disruptive science-enabled companies, particularly
ones that are targeting opportunities in the precision health and precision medicine markets that would otherwise be difficult
to access or inaccessible for most current and potential shareholders. Second, we have an existing portfolio of companies in exciting
markets at varying stages of maturity that provide for a potential pipeline of investment returns over time. Third, we provide
access for accredited investors to co-invest with us in our portfolio companies through our pre-emptive rights. Fourth, we are
able to invest opportunistically in a range of types of securities to take advantage of market inefficiencies.



We believe our future
growth will be driven by building companies that are targeting the growing market of precision health and precision medicine. We
believe that by operating these precision health and precision medicine companies as controlled partner companies rather than as
traditional venture capital investments, we can provide more meaningful growth for our shareholders. Our team is already actively
engaged in this market and in operating these companies.



Precision Health and Precision Medicine



We define precision
health as a focus on preventative care and well-being at the individual level. It includes medical technologies, digital technologies,
genetic and biochemical technologies, and machine learning technologies that permit individuals to take control of their health
and well-being at all stages of their lives, especially ahead of the period in their lives when chronic disease becomes more prevalent
and even potentially dominant. Our specific expertise is in areas where phenotypic or environmental information is intersecting
with genotypic information.



We believe the best
way to generate value for our shareholders is to operate these companies as majority-owned subsidiaries or controlled portfolio
companies where we are actively involved, influencing development through board representation and management support, in addition
to the influence we exert through our equity ownership. This level of control and influence was difficult for us to maintain and
exert while making traditional venture capital investments owing to our relatively small asset base as compared with other venture
capital investors. We believe our ability to be a long-term, patient partner that can generate returns on invested capital through
dividends, consulting income, fee income and other sources of cash flows in addition to the sale of our securities of our investee
companies is a competitive advantage for us and provides flexibility in how we build and invest in companies.



As of March 31, 2016,
we had nine portfolio companies focused on the precision health and precision medicine market. We had controlling positions in
four of these nine companies.



Review of First Quarter 2016



During the first quarter
of 2016, we continued to take steps to position the Company for potential future growth. We believe a number of accomplishments
by our portfolio companies during the quarter have the potential to contribute to this goal. These accomplishments include:



| | · | We increased our investment income by
111 percent and decreased our net operating loss by 43 percent during the first quarter of 2016 as compared with the first quarter
of 2015;
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | D-Wave Systems, Inc., EchoPixel, Inc.,
and Magic Leap, Inc., raised rounds of capital from new and current investors at higher prices per share than each company’s
prior round of financing;
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



69







| | · | We founded a new company, Interome, Inc.,
that is focused on exciting opportunities in precision health and precision medicine. We currently control and manage Interome,
leveraging existing resources within Harris & Harris Group to help build the company;
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | We launched H&H Co-Investment Partners,
LLC, an entity formed to provide shareholders who are accredited investors and other accredited investors the opportunity to invest
alongside us in our portfolio companies on an individual portfolio company basis;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Mersana Therapeutics, Inc., expanded its
partnership with Takeda Pharmaceutical Company Limited. Mersana will receive an upfront payment of $40 million and an additional
payment of $20 million upon clearance of the IND (Investigational New Drug application) for XMT-1522 by the FDA. Subject to the
success of the XMT-1522 and antibody-drug conjugate programs, Mersana is eligible to receive milestone payments of more than $750
million combined as well as royalties. Takeda will also invest up to $20 million in equity in future rounds of Mersana financing.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Ensemble Therapeutics Corporation announced
that it had achieved a milestone related to its partnership with Alexion; and
| | - | -------------------------------------------------------------------------------------------------------------------------



| | · | Metabolon, Inc., and SYNLAB Group formed
a commercialization collaboration for its Quantose IR diagnostic test.
| | - | ---------------------------------------------------------------------------------------------------------------



We also faced the following challenges
during this quarter:



| | · | Net asset value per share decreased from
$2.88 as of December 31, 2015, to $2.67 as of March 31, 2016;
| | - | ------------------------------------------------------------------------------------------------------



| | · | Our share price decreased from $2.20 as
of December 31, 2015, to $1.65 as of March 31, 2016, and $1.73 as of May 6, 2016;
| | - | -------------------------------------------------------------------------------------------------------------------------



| | · | The values of public equities, particularly
those of microcapitalization companies, are highly volatile. The price per share and market capitalization of Adesto Technologies
Corporation, Champions Oncology, Inc., Enumeral Biomedical Holdings, Inc., and OpGen, Inc., decreased in value during the first
quarter of 2016 as compared with the end of 2015. Additionally, the values of public market comparable companies that are inputs
in determining the values of certain of our portfolio companies also decreased during the quarter. Our own stock price has been
under considerable pressure from these and other headwinds;
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Even though the financings of some of
our portfolio companies may have occurred at increases in price per share from prior rounds of financing, such increases may not
be reflected in full in our values owing to other rights and preferences afforded to investors in those rounds of financing. This
challenge, in part, limited the positive potential contribution to our net asset value per share by companies that completed such
rounds of financing during the first quarter of 2016;
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



70







| | · | Two of our portfolio companies, Cambrios
Technologies Corporation and Ultora, Inc., completed auctions of their respective assets by a trustee appointed to conduct such
liquidations for the benefit of creditors. We did not receive any proceeds from the liquidation of assets of either company; and
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | While Bridgelux, Inc., agreed to be acquired
by a consortium of buyers in July of 2015, the transaction has yet to close, and we are uncertain if and when it will close.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Portfolio Summary



As of March 31, 2016,
we had 21 privately held, equity-focused companies in our portfolio that have yet to complete liquidity events (e.g., public listings
or merger and acquisition ("M&A") transactions and are not in the process of liquidating their assets. These do not
include 1) our publicly traded and unrestricted securities of Champions Oncology, Inc., Enumeral Biomedical Holdings, Inc. and
OpGen, Inc.; 2) our publicly traded securities of Adesto Technologies Corporation, which are subject to restrictions on their sale;
3) our investment in NanoTerra, Inc., which was originally structured as a venture debt investment; 4) our rights to milestone
payments from Amgen, Inc., Laird Technologies, Inc., and Canon, Inc.; 5) our portfolio company, Laser Light Engines, Inc., which
is in the process of liquidating its assets and/or has shut down; 6) our portfolio companies, Black Silicon Holdings, Inc., and
SynGlyco, Inc., that exist to collect payments from the sale of subsidiaries or assets; and 7) our portfolio company, Bridgelux,
Inc., which has entered into an acquisition agreement. As of March 31, 2016, we valued these 21 privately held equity-focused companies
at $53,887,115. Including the companies referenced above, we valued our total portfolio at $73,521,729 as of March 31, 2016.



Summary of Returns



Since our investment
in Otisville in 1983 through March 31, 2016, we have made a total of 108 equity-focused investments. We have completely exited
78 and partially exited two of these 108 investments, recognizing aggregate net realized gains of $84,224,913 on invested capital
of $140,554,886, or 1.6 times invested capital. For the securities of the 25 privately held companies in our equity-focused portfolio
held at March 31, 2016, we have net unrealized depreciation of $32,005,053 on invested capital of $87,963,977. We have aggregate
net realized gains on our exited companies, offset by unrealized depreciation for our 25 currently held equity-focused investments
of $52,219,860 on invested capital of $228,518,863. The above net realized gains do not take into consideration our annual operating
expenses over the period from 1983 to March 31, 2016, which expenses are directly or indirectly borne by our shareholders. At March
31, 2016, from first dollar in, the average and median holding periods for the 25 privately held equity-focused investments were
5.2 years and 4.6 years, respectively. Historically, as measured from first dollar in to last dollar out, the average and median
holding periods for the 78 investments we have fully exited were 4.6 years and 3.6 years, respectively.



The amount of net realizations
includes the following exits in the first quarter of 2016:



| | · | Realized loss of $3,418,349 on our investment
in Cambrios Technologies Corporation.
| | - | -----------------------------------------------------------------------------------

| | · | Realized loss of $1,244,955 on our investment
in Ultora, Inc.
| | - | -------------------------------------------------------------



71







The aggregate net realized
gains and the cumulative invested capital do not reflect the cost or value of our freely tradable shares of Champions Oncology,
Inc., Enumeral Biomedical Holdings, Inc., or OpGen, Inc., that we owned as of March 31, 2016. The aggregate net realized gains
also do not include potential milestone payments that could occur as part of the acquisitions of BioVex Group, Inc., Nextreme Thermal
Solutions, Inc., or Molecular Imprints, Inc., at points in time in the future. If these amounts were included as of March 31, 2016,
our aggregate net realized gains and cumulative invested capital from 1983 through March 31, 2016, would be $80,437,855 and $153,618,443,
respectively, or 1.5 times invested capital. These amounts also do not include our shares of Adesto Technologies Corporation that,
while traded publicly, are restricted. Adesto is considered an affiliated company, and we are subject to a lock-up agreement.



Recent and Potential Liquidity Events From Our Portfolio
as of March 31, 2016



On April 18, 2014,
Canon, Inc., completed its acquisition of Molecular Imprints, Inc.'s semiconductor lithography equipment business. On October 1,
2015, the Company received proceeds of $795,567 upon the achievement of the first milestone associated with this transaction. As
of March 31, 2016, we valued the remaining potential milestone payments from the sale of Molecular Imprints at $464,073. On April
20, 2016, the Company received proceeds of $390,492 from the release of a portion of the funds held in escrow following the transaction.
We could receive an additional $234,000 from amounts held in escrow as well as up to $938,926 upon the achievement of certain additional
milestones. There can be no assurance as to the timing and how much of the remaining amount we will ultimately realize in the future,
if any. With the closing of the transaction, a new spin-out company, which retained the name "Molecular Imprints, Inc.,"
was formed to continue development and commercialization of nanoscale patterning in consumer and biomedical applications, and we
became a shareholder of the new company.



On May 1, 2015, this
new spin-out of Molecular Imprints, Inc.'s non-semiconductor business was acquired. Upon closing of the transaction, we received
our initial payment of $705,794 and 24,897 shares of Series B Preferred Stock of the acquiring company. As of March 31, 2016, additional
proceeds of $126,972 and 4,394 shares of Series B Preferred Stock of the acquiring party are held in an indemnity escrow and $3,386
is held in a stockholder representative funding escrow until May 1, 2016. As of March 31, 2016, we valued the funds and the shares
of stock held in escrow from the sale of Molecular Imprints at $126,972 and $93,616, respectively.



As of March 31, 2016,
we valued the remaining potential milestone payments from the sale of BioVex Group, Inc., at $2,495,696. If all the remaining milestone
payments were to be paid by Amgen, Inc., we would receive an additional $4,141,910. There can be no assurance as to the timing
and how much of this amount we will ultimately realize in the future.



In July 2015, SynGlyco
negotiated the acceleration and settlement of payments due to it from the sale of its synthesis business to Corden Pharmaceuticals.
This acceleration of payments yielded proceeds that paid off in full our senior secured debt investment with a payment to us of
$567,500. We received additional repayments for our outstanding secured convertible bridge notes of approximately $750,000 during
the first quarter of 2016. Additionally, SynGlyco entered into two license agreements that may provide additional payments in the
future. These payments may bring our total cash distributions from this investment to approximately $1.7 million. We invested a
total of $8.8 million in SynGlyco, beginning with our initial investment in 2007 and valued our securities of the company at $156,432
as of March 31, 2016.



72







On July 21, 2015, Bridgelux
signed a definitive agreement to be acquired by an investment group led by China Electronics Corporation and ChongQing Linkong
Development Investment Company. The timing of the close of this transaction remains uncertain.



Our companies often
plan for and/or begin the process of pursuing potential sales and/or IPOs of those companies by hiring bankers and/or advisors
to attempt to pursue such liquidity events. We consider these efforts to be in the ordinary course of business for those companies
until the potential and timing of a transaction become tangible through events such as acceptance of letters of intent to acquire
a company and/or the beginning of a road show to pursue an IPO.



Maturity of Current Equity-Focused Portfolio



Our current portfolio
is comprised of companies at varying stages of maturity in a diverse set of industries. As our portfolio companies mature, we seek
to invest in new early- and mid-stage companies that may mature into mid- and late-stage companies. This continuous progression
creates a pipeline of investment maturities that may lead to future sources of positive contributions to net asset value per share
as these companies mature and potentially experience liquidity and exit events. Our pipeline of investment maturities for the 25
equity-focused companies in our portfolio that are not in the process of being sold or shut down are shown in the figure below
(our "Active Portfolio").







* Indicates publicly traded company as of March 31,
2016.

Note: Equity-focused portfolio
companies and stage classifications as of March 31, 2016, not including 1) our rights to milestone payments associated with the
acquisitions of BioVex Group, Nextreme Thermal Solutions and Molecular Imprints; and 2) portfolio companies currently in the process
of being liquidated or sold, have ceased or are in the process of ceasing operations and/or are seeking a sale of their assets,
including Laser Light Engines, SynGlyco, Bridgelux, and Black Silicon Holdings.



73







We expect some of our portfolio
companies to transition between stages of maturity over time. This transition may be forward if the company is maturing and is
successfully executing its business plan or may be backward if the company is not successfully executing its business plan or decides
to change its business plan substantially from its original plan. Transitions backward may be accompanied by an increase in non-performance
risk, which reduces valuation. We discuss non-performance risk and its implications on value below in the section titled "Valuation
of Investments."



We categorize our new
portfolio company, Interome, Inc., as an early-stage company.



Ownership of Our Portfolio Companies



By studying our portfolio
in greater detail, it is evident to us that potential returns from approximately half of the companies in our portfolio could be
the real drivers of net asset value growth over the coming years. These companies include ones in which we have substantial ownership
and ones where we currently believe the potential value at exit is substantial. The table below provides some additional detail
on our ownership of the 21 privately held, equity-focused companies in our portfolio that have yet to complete liquidity events
(e.g., public listings or M&A transactions) and are not in the process of liquidating their assets. Phylagen, Inc., which we
consider an equity-focused company, is not included in the chart below. Our ownership of Phylagen is solely in a note in a series
seed financing for which we do not have any voting rights.



|Portfolio Company                                                                                                                                         |  | Voting Ownership Range
|--------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------------
|EchoPixel, Inc.
        Interome, Inc.*
        NGXBio, Inc.*
        Produced Water Absorbents, Inc.
        ProMuc, Inc.*
        Senova Systems, Inc.* |  | >20%                  
|                                                                                                                                                          |  |                       
|ABSMaterials, Inc.TARA Biosystems, Inc.*                                                                                                                  |  | 15-20%                
|                                                                                                                                                          |  |                       
|HZO, Inc.ORIG3N, Inc.                                                                                                                                     |  | 10-15%                
|                                                                                                                                                          |  |                       
|Accelerator IV-New York Corporation
        AgBiome, L.L.C.
        Ensemble Therapeutics Corp.
        Metabolon, Inc. 
Petra Pharma Corp.               |  | 5-10%                 
|                                                                                                                                                          |  |                       
|Mersana Therapeutics, Inc.                                                                                                                                |  | 2.5-5%                
|                                                                                                                                                          |  |                       
|D-Wave Systems, Inc.**Lodo Therapeutics Corp.Magic Leap, Inc.Nanosys, Inc.                                                                                |  | 0-2.5%                



*Denotes a controlled
affiliated company.

**We own voting
and non-voting classes of preferred equity of D-Wave Systems, Inc. If the non-voting preferred equity was included in the calculation,
our ownership of D-Wave would be in the 2.5-5% range.



74







Level
of Involvement in Our Portfolio Companies



The 1940 Act generally
requires that BDCs offer to "make available significant managerial assistance" to portfolio companies. We are actively
involved with our portfolio companies through membership on boards of directors, as observers to the boards of directors and/or
through frequent communication with management. As of March 31, 2016, we held at least one board seat or observer rights on 18
of our 21 equity-focused portfolio companies that have yet to complete a liquidity event or public listing and are not in the process
of being shut down or have not agreed to be acquired (86 percent).



Investments and Current Investment Pace



The following is a
summary of our initial and follow-on equity-focused investments from January 1, 2012, to March 31, 2016. We consider a "round
led" to be a round where we were the new investor or the leader of a group of investors in an investee company. Typically,
but not always, the lead investor negotiates the price and terms of the deal with the investee company.



Investments in Our Equity-Focused Portfolio
of Investments

in Privately Held and Publicly Traded
Companies



|                                   |  | 2012 |            |  | 2013 |   |            | 2014 |  |   | 2015       |  |  | Three Months Ended March 31, 2016 |           
|---------------------------------- |  | ---- | ---------- |  | ---- | - | ---------- | ---- |  | - | ---------- |  |  | --------------------------------- | ----------
|Total Incremental Investments      |  | $    | 15,141,941 |  |      | $ | 18,076,288 |      |  | $ | 14,276,808 |  |  | $                                 | 11,963,021
|No. of New Investments             |  |      | 2          |  |      |   | 2          |      |  |   | 3          |  |  |                                   | 4         
|No. of Follow-On Investment Rounds |  |      | 26         |  |      |   | 37         |      |  |   | 33         |  |  |                                   | 31        
|No. of Rounds Led                  |  |      | 3          |  |      |   | 9          |      |  |   | 8          |  |  |                                   | 8         
|Average Dollar Amount – Initial    |  | $    | 1,407,500  |  |      | $ | 550,001    |      |  | $ | 338,677    |  |  | $                                 | 395,738   
|Average Dollar Amount – Follow-On  |  | $    | 474,113    |  |      | $ | 449,359    |      |  | $ | 401,842    |  |  | $                                 | 334,841   



Our Sources of Liquid Capital



The sources of liquidity
that we use to make our investments are classified as primary and secondary liquidity. As of March 31, 2016, and December 31, 2015,
our total primary and secondary liquidity was $28,644,681 and $37,053,638, respectively. We do not include funds available and
undrawn from our credit facility as primary or secondary liquidity. We believe it is important to examine both our primary and
secondary liquidity when assessing the strength of our balance sheet and our future investment capabilities.



Primary liquidity is
comprised of cash and certain receivables. As of March 31, 2016, we held $14,311,324 in cash and $191,036 in certain receivables.
As of December 31, 2015, we held $17,922,630 in cash and $30,427 in certain receivables.



During the three months
ended March 31, 2016, we received proceeds of $750,000 from the repayment of certain bridge notes in SynGlyco, Inc., proceeds of
$113,950 from the repayment of a bridge note in EchoPixel, Inc., and $42,085 in fees for providing managerial assistance to certain
portfolio companies. These proceeds added to our primary liquidity during the three months ended March 31, 2016. Future payments
upon achieving milestones from the sale of BioVex Group, Inc., and the sale of Molecular Imprints, Inc., to Canon, Inc., would
also add to our primary liquidity if these milestones are achieved successfully. The probability-adjusted values of the future
milestone payments for the sales of BioVex and Molecular Imprints, as determined at the end of each fiscal quarter, are included
as an asset on our Consolidated Statements of Assets and Liabilities and will be included in primary liquidity only if and when
payment is received for achievement of the milestones.



75







Our secondary liquidity
is comprised of the stock of both unrestricted and restricted publicly traded companies. Although these companies are publicly
traded, their stock may not trade at high volumes and prices may be volatile, which may restrict our ability to sell our positions
at any given time. As of March 31, 2016, our secondary liquidity was $14,142,321. Champions Oncology, Inc., accounts for $933,232
of the total amount of secondary liquidity based on the volume weighted average price of its common stock during the quarter ended
March 31, 2016. Adesto Technologies Corporation, Enumeral Biomedical Holdings, Inc., and OpGen, Inc., account for $9,946,658, $1,274,619
and $1,987,812, respectively, of the total amount of secondary liquidity based on the closing price of their common stock as of
March 31, 2016. We were subject to lock-up agreements restricting our ability to trade our securities of Enumeral Biomedical Holdings
and Adesto Technologies, exclusive of the general restriction on the transfer of unregistered securities, as of December 31, 2015.
The lock-up period on our 7,966,368 shares and warrants for the purchase of 1,755,120 shares of common stock of Enumeral Biomedical
Holdings expired on January 31, 2016. The lock-up period on our 1,769,868 shares of common stock of Adesto Technologies expired
on April 25, 2016.



As of December 31,
2015, our secondary liquidity was $19,100,581. Champions Oncology, Inc., accounted for $944,819 of the total amount of secondary
liquidity based on the volume weighted average price of its common stock during the quarter ended December 31, 2015. Adesto Technologies
Corporation, Enumeral Biomedical Holdings, Inc., and OpGen, Inc., accounted for $13,645,682, $1,831,468 and $2,678,612, respectively,
of the total amount of secondary liquidity based on the closing price of their common stock as of December 31, 2015.



We also have the $20,000,000
Loan Facility, which we can draw on to increase liquidity. As of March 31, 2016, we had $5,000,000 in debt outstanding relating
to this Loan Facility.



Current Business Environment



The success of our
business is predicated on our ability to build companies that provide returns on our invested capital through increases in value
of our ownership of those companies, through realized returns generated through the sale of our securities of those companies and,
currently to a lesser extent, through short-term income generated from our involvement with those companies. All of these factors
can be affected by the current business environment.



Our ability to increase
the value of our ownership in our investee companies requires that the current business environment be favorable for the companies
to be able to execute on their business and attract additional capital at progressively lower costs over time. These two factors
may not necessarily be linked as, more often than not, the price of capital is determined by new investors, and there may not be
competition that would provide the company with more leverage in negotiations of price and terms. This situation is especially
impactful in private financings and public financings of small capitalization companies where there are limited investors from
which to raise capital. The IPO of our portfolio company, Adesto Technologies Corporation, is an example of this situation where
the values of publicly traded comparable companies were substantially above the value at which Adesto was able to raise capital
in the transaction. We believe this situation will continue for the foreseeable future given the decrease in investors willing
to invest in small capitalization companies. That said, certain companies will continue to raise capital at increasing valuations
and under favorable terms, and for such companies, the current business environment can be supportive of such events.



76







Even if a company raises
additional capital, our participation may be limited owing to our available capital. These situations are occurring more frequently,
particularly as the types of companies in which we invest are raising large rounds of financing from deep-pocketed investors. The
impact to us is dilution, which may affect value and our ultimate returns, and loss of control. The current business environment
is dominated by such large funds, which make it difficult for us to maintain ownership and control in certain companies. This factor
is part of the reason for our shift in focus to build companies that we can finance and control with our available capital and
investments that produce income where our returns are not as impacted by dilution or loss of control.



The most pronounced
issue for certain of our portfolio companies in terms of execution related to the current business environment is the continued
pressure on the price of oil. Our exposure to this market is limited to our investment in Produced Water Absorbents, Inc., which
is valued at approximately two percent of our total assets.



Our ability to generate
realized returns through the sale of the securities of our investee companies is impacted by the values of publicly traded companies,
particularly microcapitalization companies and the global environment for M&A transactions. The valuations of microcapitalization
indices decreased during the first quarter of 2016. According to the National Venture Capital Association, the number of IPOs were
at its lowest since the third quarter of 2011, and M&A transactions decreased by 19 percent compared with the first quarter
of 2015. We believe the current business environment is relatively risk-adverse, which leads to liquid capital being shifted from
risky companies, which are often microcapitalization companies, to less risky companies and results in a decrease in the overall
value of those companies. Given the uncertainty over future interest rates, the U.S. election, the oil and gas markets, and the
global economy, particularly in China, we expect that the values of microcapitalization companies will continue to be volatile
and under pressure, which may affect our ability to monetize our positions in our publicly traded portfolio companies and the value
which is ultimately realized from these investments.



Our short-term income
is generated through interest income from convertible and non-convertible debt investments, yield-enhancing fees on debt investments
and fees for providing managerial assistance to our investee companies. We believe the current business environment is supportive
for us to be able to continue to generate income from these sources as the majority of such income comes from securities or engagements
with companies outside of the oil and gas industries and is associated with companies that we control.



Valuation of Investments



We value our privately
held investments and certain publicly traded investments that are determined to not trade in an active market each quarter as determined
in good faith by our Valuation Committee, a committee of all the independent directors, within guidelines established by our Board
of Directors in accordance with the 1940 Act. See "Footnote to Consolidated Schedule of Investments" contained in "Consolidated
Financial Statements" for additional information.



77







The values of privately
held companies are inherently more difficult to determine than those of publicly traded companies at any single point in time because
securities of these types of companies are not actively traded. We believe, perhaps even more than in the past, that illiquidity,
and the perception of illiquidity, can affect value. Management believes further that the long-term effects of the difficult venture
capital market and difficult exit environments will continue to affect negatively the fundraising ability of weak companies regardless
of near-term improvements in the overall global economy and public markets and that these factors can also affect value.



We note that while
the valuations of our privately held, venture capital-backed companies may decrease, sometimes substantially, such decrease may
facilitate an increase in our ownership of the overall company in conjunction with a follow-on investment in such company. In these
cases, the ultimate return on our overall invested capital could be greater than it would have been without such interim decrease
in valuation.



Option pricing models
use call option theory to derive the value of sets of classes of securities taking into account the financial rights and preferences
of classes of securities such as liquidation preference, redemption rights and dividends. This method treats common and preferred
stock as call options on the company’s enterprise value. It derives breakpoints based on liquidation preferences of the preferred
stock and then calculates the values of those liquidation preferences and the company as a whole using Black-Scholes-Merton equations.
The sum of these values yields the estimated enterprise value of the portfolio company. This method of derivation is often referred
to as “backsolve” as it uses the price per share of the most recent round of financing to backsolve for the values
of the other classes of outstanding securities of the company.



Option pricing models
use the following inputs in their calculations:



| | • | Last Round Price per Share
| | - | --------------------------



| | • | Liquidation Preferences (including dividends and redemptions,
if any)
| | - | ---------------------------------------------------------------------



| | • | Estimated Time to Exit
| | - | ----------------------



| | • | Estimated Volatility
| | - | --------------------



| | • | Risk-Free Interest Rate
| | - | -----------------------



| | • | Outstanding Capitalization of the Company
| | - | -----------------------------------------



Variations in these
inputs and assumptions can have a significant impact on fair value. Companies that are valued using market comparables and/or volatilities
derived from publicly traded securities are subject to the volatilities within those markets.



Given the consideration
of the liquidation preferences, option pricing models more accurately represent scenarios where liquidation preferences are honored,
as they would be in an M&A scenario, but not in public offering scenarios where it is common to have all classes of preferred
stock converted to common stock. Liquidation preferences are business terms that are common in the venture capital industry and
are generally used to provide some downside protection should the company not meet expectations. They can be structured on parity
with prior rounds of financing or senior to prior rounds of financing. They can include multiples on the amounts invested and can
provide for further distributions following the initial preference or be restricted to the amount of invested capital.



78







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



We note that the ultimate
return on any investment may be materially different than the fair value derived as of the date of valuation.



Four of our portfolio
companies trade in public exchanges and are subject to the volatility inherent in the public markets. The following table illustrates
the range of values of these securities.



Public Companies' Trading History

|                                   |  | Price perShare onMay 6, 2016 |      |  | Q1 2016Trading Range |               | H&H Ownership Valuein Q1 2016Trading Range* |                       | January -December 2015Trading Range |               | H&H Ownership Valuein January -December 2015Trading Range*
|---------------------------------- |  | ---------------------------- | ---- |  | -------------------- | ------------- | ------------------------------------------- | --------------------- | ----------------------------------- | ------------- | ----------------------------------------------------------
|                                   |  |                              |      |  |                      |               |                                             |                       |                                     |               |                                                           
|Adesto Technologies
 Corporation   |  | $                            | 3.23 |  |                      | $4.94 - $7.81 |                                             | $8.7 - $13.8 Million  |                                     | $5.00 - $8.50 |                                                           
|                                   |  |                              |      |  |                      |               |                                             |                       |                                     |               |                                                           
|Champions Oncology,
Inc.**         |  | $                            | 4.05 |  |                      | $3.23 - $4.30 |                                             | $0.8 - $1.0 Million   |                                     | $2.40 - $9.00 |                                                           
|                                   |  |                              |      |  |                      |               |                                             |                       |                                     |               |                                                           
|Enumeral Biomedical
Holdings, Inc. |  | $                            | 0.19 |  |                      | $0.16 - $0.29 |                                             | $1.3 - $2.3 Million   |                                     | $0.18 - $1.07 |                                                           
|                                   |  |                              |      |  |                      |               |                                             |                       |                                     |               |                                                           
|OpGen. Inc.                        |  | $                            | 1.14 |  |                      | $1.36 - $1.97 |                                             | $1.9 - $2.8 Million   |                                     | $1.45 - $5.44 |                                                           
|                                   |  |                              |      |  |                      |               |                                             |                       |                                     |               |                                                           
|Total:                             |  |                              |      |  |                      |               |                                             | $12.7 - $19.9 Million |                                     |               |                                                           



*Calculated based on common shares held
as of March 31, 2016.

**On August 12, 2015, Champions Oncology
effected a 12:1 reverse stock split; trading range reported on a split-adjusted basis.



In each of the years
in the period of 2012 through 2015 and for the three months ended March 31, 2016, excluding our rights to milestone payments, we
recorded the following gross write-ups in privately held securities as a percentage of net assets at the beginning of the year
("BOY"), gross write-downs in privately held securities as a percentage of net assets at the beginning of the year, and
change in value of private portfolio securities as a percentage of net assets at the beginning of the year.



79







Gross Write-Ups and Write-Downs of the
Privately Held Portfolio

|                                                           |  | 2012 |             |    | 2013 |   |             | 2014 |  |   | 2015        |    |  | Three
                                         Months
Ended March
                                         31, 2016 |            
|---------------------------------------------------------- |  | ---- | ----------- | -- | ---- | - | ----------- | ---- |  | - | ----------- | -- |  | ------------------------------------------------------------------------------------------------------------------- | -----------
|                                                           |  |      |             |    |      |   |             |      |  |   |             |    |  |                                                                                                                     |            
|Net Asset Value, BOY                                       |  | $    | 145,698,407 |    |      | $ | 128,436,774 |      |  | $ | 122,701,575 |    |  | $                                                                                                                   | 109,654,427
|                                                           |  |      |             |    |      |   |             |      |  |   |             |    |  |                                                                                                                     |            
|Gross Write-Downs During Year                              |  | $    | (19,604,046 | )  |      | $ | (19,089,816 | )    |  | $ | (14,050,501 | )  |  | $                                                                                                                   | (15,710,180
|                                                           |  |      |             |    |      |   |             |      |  |   |             |    |  |                                                                                                                     |            
|Gross Write-Ups During Year                                |  | $    | 14,099,904  |    |      | $ | 10,218,994  |      |  | $ | 4,587,923   |    |  | $                                                                                                                   | 6,628,025  
|                                                           |  |      |             |    |      |   |             |      |  |   |             |    |  |                                                                                                                     |            
|Gross Write-Downs as a Percentage of
 Net Asset Value, BOY |  |      | (13.5       | )% |      |   | (14.9       | )%   |  |   | (11.5       | )% |  |                                                                                                                     | (14.3      
|                                                           |  |      |             |    |      |   |             |      |  |   |             |    |  |                                                                                                                     |            
|Gross Write-Ups as a Percentage of Net
Asset Value, BOY    |  |      | 9.7         | %  |      |   | 8.0         | %    |  |   | 3.8         | %  |  |                                                                                                                     | 6.0        
|                                                           |  |      |             |    |      |   |             |      |  |   |             |    |  |                                                                                                                     |            
|Net Change as a Percentage of Net Asset
Value, BOY         |  |      | (3.8        | )% |      |   | (6.9        | )%   |  |   | (7.7        | )% |  |                                                                                                                     | (8.3       



From December 31, 2015,
to March 31, 2016, the value of our equity-focused portfolio, including our rights to potential future milestone payments from
the sales of BioVex Group, Inc., Nextreme Thermal Solutions, Inc., and Molecular Imprints, Inc., decreased by $3,637,663, from
$77,090,715 to $73,453,052.



Not including our rights
to potential future milestone payments from the sale of BioVex Group, Inc., Nextreme Thermal Solutions, Inc., and Molecular Imprints,
Inc., our equity-focused portfolio companies decreased in value by $3,235,381 from $73,728,664 to $70,493,283.



We note that our Valuation
Committee and ultimately our Board of Directors take into account multiple sources of quantitative and qualitative inputs to determine
the value of our privately held portfolio companies.



We also note that our
Valuation Committee does not set the value of our unrestricted or registered shares of Enumeral Biomedical Holdings, Inc., which
trade on an OTC exchange, or the value of our unrestricted shares of Adesto Technologies Corporation or the unrestricted or registered
shares and a portion of our warrants for the purchase of common stock of OpGen, Inc., which both trade on the NASDAQ Capital Market.
For the fourth quarter of 2015, our Valuation Committee set the value of Champions Oncology, Inc., owing to the determination that
it did not trade in an active market.



Five portfolio companies,
Adesto Technologies Corporation, Metabolon, Inc., Senova Systems, Inc., Produced Water Absorbents, Inc., and OpGen, Inc., accounted
for $8.5 million, or 83 percent, of the gross write-downs of our portfolio companies held as of March 31, 2016.



The change in value
of Adesto Technologies Corporation and OpGen, Inc. was owing to decreases in the price per share of each company’s publicly
traded stock. We note that a portion of our securities of OpGen and all of our shares of Adesto were not fair valued by the Valuation
Committee as of March 31, 2016, because those securities were registered, unrestricted securities that traded in an active market
and were, therefore, valued based on the closing price of the shares on the date of valuation. The primary contributing factor
for the decrease in valuation of OpGen was a decrease in the stock price of the company from $1.90 as of December 31, 2015, to
$1.41 as of March 31, 2016. The primary contributing factor for the decrease in valuation of Adesto was a decrease in the stock
price of the company from $7.71 as of December 31, 2015, to $5.62 as of March 31, 2016.



80







The primary contributing
factor for the decrease in valuation of Metabolon, Inc., was the decrease of multiples of revenues of publicly traded comparable
companies used to derive the value of our securities of the company, offset, in part, by an increase in its revenues on a twelve-month
trailing basis. The primary contributing factor for the decrease in valuation of Produced Water Absorbents, Inc., was the continued
market downturn in the oil and gas industries.



The primary contributing
factor for the decrease in valuation of Senova Systems, Inc., was the shift in the valuation methodology from a value based on
the previous round of financing to a value based on a discounted cash flow analysis.



Three portfolio companies,
D-Wave Systems, Inc., HZO, Inc., and Magic Leap, Inc., accounted for $5.2 million or 94 percent of the gross write-ups of our portfolio
companies held as of March 31, 2016.



The primary contributing
factor for the increase in valuation of D-Wave Systems, Inc., was the terms of the round of financing closed at the end of the
first quarter of 2016.



The primary contributing
factor for the increase in valuation of HZO, Inc., was an increase in the volatility of publicly traded comparable companies and
the effect this increase has on derivation and allocation of value based on option pricing models.



The primary contributing
factor for the increase in valuation of Magic Leap, Inc., was the terms of the sale of the Company’s shares of Magic Leap
to an undisclosed buyer.



As of March 31, 2016,
our top ten investments by value accounted for approximately 79 percent of the value of our equity-focused portfolio.



Top Ten
Equity-Focused Investments by Value



|Portfolio
    Company       |  | Value
    as of 03/31/2016 |            |  | Cumulative
    % of Equity Focused  Venture Capital Portfolio | 
|--------------------------- |  | -------------------------- | ---------- |  | ------------------------------------------------------------- | 
|                            |  |                            |            |  |                                                               | 
|D-Wave Systems, Inc.        |  | $                          | 11,539,147 |  |                                                               | 
|                            |  |                            |            |  |                                                               | 
|Metabolon, Inc.             |  | $                          | 11,078,071 |  |                                                               | 
|                            |  |                            |            |  |                                                               | 
|Adesto Technologies Corp.*  |  | $                          | 9,946,658  |  |                                                               | 
|                            |  |                            |            |  |                                                               | 
|HZO, Inc.                   |  | $                          | 7,418,321  |  |                                                               | 
|                            |  |                            |            |  |                                                               | 
|AgBiome, L.L.C.             |  | $                          | 5,655,517  |  |                                                               | 
|                            |  |                            |            |  |                                                               | 
|Ensemble Therapeutics Corp. |  | $                          | 2,145,390  |  |                                                               | 
|                            |  |                            |            |  |                                                               | 
|OpGen, Inc.*                |  | $                          | 2,088,420  |  |                                                               | 
|                            |  |                            |            |  |                                                               | 
|TARA Biosystems, Inc.       |  | $                          | 2,063,050  |  |                                                               | 
|                            |  |                            |            |  |                                                               | 
|EchoPixel, Inc.             |  | $                          | 1,839,059  |  |                                                               | 
|                            |  |                            |            |  |                                                               | 
|Bridgelux, Inc.             |  | $                          | 1,821,390  |  |                                                               | 



* Adesto Technologies
and OpGen ranks by value include the value of their Level 1 asset shares.



81







Results of Operations



We present the financial
results of our operations utilizing accounting principles generally accepted in the United States of America ("GAAP")
for investment companies. On this basis, the principal measure of our financial performance during any period is the net increase
(decrease) in our net assets resulting from our operating activities, which is the sum of the following three elements:



Net Operating
Income (Loss)- the difference between our income from interest, dividends, and fees and our operating expenses.



Net Realized
Gain (Loss) on Investments - the difference between the net proceeds of sales of portfolio securities and their stated
cost.



Net Increase
(Decrease) in Unrealized Appreciation or Depreciation on Investments - the net unrealized change in the value of our investment
portfolio.



Owing to the structure
and objectives of our business, we generally expect to experience net operating losses and seek to generate increases in our net
assets from operations through the long-term appreciation and monetization of our venture capital investments. We have relied,
and continue to rely, primarily on proceeds from sales of investments, rather than on investment income, to defray a significant
portion of our operating expenses. Because such sales are unpredictable, we attempt to maintain adequate working capital to provide
for fiscal periods when there are no such sales.



The potential for,
or occurrence of, inflation could result in rising interest rates for government-backed debt.  We may also invest in both
short- and long-term U.S. government and agency securities. To the extent that we invest in short- and long-term U.S. government
and agency securities, changes in interest rates result in changes in the value of these obligations that result in an increase
or decrease of our net asset value. The level of interest rate risk exposure at any given point in time depends on the market environment,
the expectations of future price and market movements, and the quantity and duration of long-term U.S. government and agency securities
held by the Company, and it will vary from period to period. During the three months ended March 31, 2016, and March 31, 2015,
we did not hold any U.S. government securities.



Three months
ended March 31, 2016, as compared with the three months ended March 31, 2015



In the three months
ended March 31, 2016, and March 31, 2015, we had net decreases in net assets resulting from operations of $6,049,614 and $3,922,038,
respectively.



Investment Income
and Expenses:



We had net operating
losses of $1,161,926 and $2,036,345 for the three months ended March 31, 2016, and March 31, 2015, respectively. The variation
in these results is primarily owing to the changes in investment income and operating expenses, including non-cash expense, net
of forfeitures, included in salaries, benefits and stock-based compensation of $(104,566) in 2016 primarily associated with the
compensation cost for restricted stock as compared with $212,591 for the same period in 2015. During the three months ended March
31, 2016, and 2015, total investment income was $302,042 and $142,832, respectively. During the three months ended March 31, 2016,
and 2015, total operating expenses were $1,463,968 and $2,179,177, respectively.



82







During the three months
ended March 31, 2016, as compared with the same period in 2015, investment income increased, reflecting increases in fees for providing
managerial assistance to portfolio companies and interest income from convertible bridge notes and non-convertible promissory notes,
offset by decreases in yield-enhancing fees on debt securities. Our fees for providing managerial assistance to portfolio companies
of $146,877 for the three months ended March 31, 2016, include $100,000 earned from Interome, Inc., a newly founded portfolio company
that we currently control and manage, pursuant to a consulting agreement between the Company and Interome executed during the first
quarter and expiring on December 31, 2016. This consulting agreement is expected to provide the Company with $900,000, in aggregate,
in fees for providing managerial assistance to Interome for 2016. During the three months ended March 31, 2016, and March 31, 2015,
we did not hold any U.S. government securities primarily owing to the decrease in yield available over the durations of maturities
in which we were willing to invest.



Operating expenses,
including non-cash, stock-based compensation expense, were $1,463,968 and $2,179,177 for the three months ended March 31, 2016,
and March 31, 2015, respectively. The decrease in operating expenses for the three months ended March 31, 2016, as compared with
the three months ended March 31, 2015, was primarily owing to decreases in salaries, benefits and stock-based compensation expense,
professional fees, rent expense, insurance expense, directors' fees and expenses and custody fees, offset by increases in administration
and operations expense and interest and other debt expense.



Salaries, benefits
and stock-based compensation expense decreased by $474,581, or 44.0 percent, for the three months ended March 31, 2016, as compared
with March 31, 2015, primarily as a result of a decrease in salaries and benefits owing primarily to a decrease in our employee
headcount, a decrease of $60,250 in employee bonus expense and a decrease in compensation cost of $317,157 for restricted stock
awards associated with the Stock Plan. At March 31, 2016, we had seven full-time employees and one part-time employee as compared
with 10 full-time employees and one part-time employee at March 31, 2015. Professional fees decreased by $273,412, or 47.8 percent,
for the three months ended March 31, 2016, as compared with March 31, 2015, primarily as a result of a decrease in certain legal,
consulting and accounting fees. Rent expense decreased by $10,486, or 15.5 percent, for the three months ended March 31, 2016,
as compared with March 31, 2015. Our rent expense of $57,220 for the three months ended March 31, 2016, includes $71,639 of rent
paid in cash, net of $14,419 non-cash rent expense, credits and abatements that we recognize on a straight-line basis over the
lease term. Insurance expense decreased by $8,036, or 11.9 percent, for the three months ended March 31, 2016, as compared with
March 31, 2015. Directors' fees and expenses decreased by $49,015, or 41.0 percent, for the three months ended March 31, 2016,
as compared with March 31, 2015, primarily owing to additional meetings held the Board of Directors during the comparable period
in 2015. Custody fees decreased by $3,851, or 24.2 percent, for the three months ended March 31, 2016, as compared with
March 31, 2015.



Administration and
operations expense increased by $41,058, or 40.6 percent, for the three months ended March 31, 2016, as compared with March 31,
2015, primarily as a result of timing differences related to certain accrued expenses, offset by decreases in managing directors'
travel-related expenses and net decreases in general office and administration expenses. Interest and other debt expense
increased by $64,306, or 44.7 percent, for the three months ended March 31, 2016, as compared with March 31, 2015, primarily as
a result of utilization fees associated with a drawdown of the Loan Facility.



83







Realized Gains and Losses from Investments:



During the three months
ended March 31, 2016, and March 31, 2015, we realized net losses on investments of $4,403,948 and $283,301, respectively.



During the three months
ended March 31, 2016, we realized net losses of $4,403,948 consisting of a realized loss of $3,418,349 on our investment in Cambrios
Technologies Corporation and a realized loss of $1,244,955 on our investment in Ultora, Inc., offset by a realized gain of $195,812
on our escrow payment from the sale of our investment in Molecular Imprints, Inc., to Canon, Inc., and a realized gain of $63,544
on our escrow payment from the sale of our investment in Molecular Imprints, Inc., to Magic Leap, Inc.



During the three months
ended March 31, 2015, we realized net losses of $283,301 consisting primarily of a realized loss of $293,786 on our investment
in Metabolon, Inc., owing to the expiration of certain warrants, offset by a realized gain of $8,942 on the sale of certain warrants
of GEO Semiconductor, Inc., and a realized gain of $1,543 on our escrow payment from the sale of Molecular Imprints, Inc.



Net Unrealized Appreciation
and Depreciation of Portfolio Securities:



During the three months
ended March 31, 2016, net unrealized depreciation on total investments increased by $436,428, or less than one percent, from accumulated
net unrealized depreciation of $39,909,204 at December 31, 2015, to accumulated net unrealized depreciation of $40,345,632 at March
31, 2016. During the three months ended March 31, 2015, net unrealized depreciation on total investments increased by $1,470,781,
or 6.5 percent, from accumulated net unrealized depreciation of $22,606,475 at December 31, 2014, to accumulated net unrealized
depreciation of $24,077,256 at March 31, 2015.



During the three months
ended March 31, 2016, net unrealized depreciation on our venture capital investments increased by $436,428, from net unrealized
depreciation of $39,909,204 at December 31, 2015, to net unrealized depreciation of $40,345,632 at March 31, 2016, owing towrite-downs in the valuations of the following portfolio company investments:



|Investment                      |  | Amount of Write-Down |          
|------------------------------- |  | -------------------- | ---------
|                                |  |                      |          
|Adesto Technologies Corporation |  |                      | 3,699,024
|Metabolon, Inc.                 |  |                      | 2,543,773
|Senova Systems, Inc.            |  |                      | 822,281  
|Produced Water Absorbents, Inc. |  |                      | 725,517  
|OpGen, Inc.                     |  |                      | 717,995  
|Bridgelux, Inc.                 |  |                      | 717,494  
|Enumeral Biomedical Corp.       |  |                      | 592,286  
|Nanosys, Inc.                   |  |                      | 178,935  
|NGX Bio, Inc.                   |  |                      | 163,795  
|Black Silicon Holdings, Inc.    |  |                      | 20,343   
|Champions Oncology, Inc.        |  |                      | 13,121   
|SynGlyco, Inc.                  |  |                      | 12,256   
|ORIG3N, Inc.                    |  |                      | 1,336    
|Mersana Therapeutics, Inc.      |  |                      | 472      



84







The write-downs for
the three months ended March 31, 2016, were partially offset by write-ups in the valuations of the following portfolio company
investments:



|Investment                        |  | Amount of Write-Ups |          
|--------------------------------- |  | ------------------- | ---------
|                                  |  |                     |          
|D-Wave Systems, Inc.              |  |                     | 4,137,420
|HZO, Inc.                         |  |                     | 291,535  
|Magic Leap, Inc.                  |  |                     | 275,065  
|AgBiome, LLC                      |  |                     | 165,226  
|Phylagen, Inc.                    |  |                     | 88,778   
|Ensemble Therapeutics Corporation |  |                     | 34,488   
|ABSMaterials, Inc.                |  |                     | 20,060   
|EchoPixel, Inc.                   |  |                     | 11,967   
|NanoTerra, Inc.                   |  |                     | 6,488    
|TARA Biosystems, Inc.             |  |                     | 5,225    
|Petra Pharma Corporation          |  |                     | 3,780    
|Lodo Therapeutics Corporation     |  |                     | 554      



In addition to the
write-ups listed above, we had a decrease in unrealized depreciation of $3,418,349 on our investment in Cambrios Technologies Corporation
owing to a realized loss on the write-off of its securities.



We had a decrease in
unrealized depreciation of $1,244,955 on our investment in Ultora, Inc., owing to a realized loss on the write-off of its securities.



We had a decrease in
unrealized depreciation of $470,592 on our investment in D-Wave Systems, Inc., owing to foreign currency translation.



We had a decrease in
unrealized depreciation of $2,254 on the rights to milestone payments from Canon, Inc.’s acquisition of Molecular Imprints,
Inc.



We had an increase
in unrealized depreciation of $404,536 on the rights to milestone payments from Amgen, Inc.’s acquisition of BioVex Group,
Inc.



During the three months
ended March 31, 2015, net unrealized depreciation on our venture capital investments increased by $1,470,781, from net unrealized
depreciation of $22,606,475 at December 31, 2014, to net unrealized depreciation of $24,077,256 at March 31, 2015 owing towrite-downs
in the valuations of the following portfolio company investments:



85







|Investment                         |  | Amount of Write-Down |          
|---------------------------------- |  | -------------------- | ---------
|                                   |  |                      |          
|Produced Water Absorbents, Inc.    |  | $                    | 3,724,565
|Enumeral Biomedical Holdings, Inc. |  |                      | 1,779,867
|Nanosys, Inc.                      |  |                      | 707,385  
|Ensemble Therapeutics Corporation  |  |                      | 528,000  
|Metabolon, Inc.                    |  |                      | 192,473  
|SiOnyx, Inc.                       |  |                      | 106,977  
|Bridgelux, Inc.                    |  |                      | 98,876   
|Ultora, Inc.                       |  |                      | 7,525    
|UberSeq, Inc.                      |  |                      | 4,680    



The write-downs for
the three months ended March 31, 2015, were partially offset by write-ups in the valuations of the following portfolio company
investments:



|Investment                            |  | Amount of Write-Ups |          
|------------------------------------- |  | ------------------- | ---------
|                                      |  |                     |          
|OpGen, Inc.                           |  | $                   | 3,531,291
|Adesto Technologies Corporation       |  |                     | 1,353,309
|Champions Oncology, Inc.              |  |                     | 810,714  
|Accelerator IV – New York Corporation |  |                     | 164,385  
|Molecular Imprints, Inc.              |  |                     | 157,909  
|HZO, Inc.                             |  |                     | 114,794  
|SynGlyco, Inc.                        |  |                     | 96,557   
|Senova Systems, Inc.                  |  |                     | 60,560   
|ABSMaterials, Inc.                    |  |                     | 37,135   
|EchoPixel, Inc.                       |  |                     | 16,170   
|Mersana Therapeutics, Inc.            |  |                     | 15,087   
|Solazyme, Inc.                        |  |                     | 14,000   
|Nantero, Inc.                         |  |                     | 10,391   
|AgBiome, LLC                          |  |                     | 8,884    
|Cambrios Technologies Corporation     |  |                     | 5,823    
|D-Wave Systems, Inc.                  |  |                     | 2,004    
|NanoTerra, Inc.                       |  |                     | 1,087    
|Orig3n, Inc.                          |  |                     | 893      



We had an increase
in unrealized depreciation of $714,472 on our investment in D-Wave Systems, Inc., owing to foreign currency translation



We had an increase
in unrealized depreciation of $7,870 on our investment in GEO Semiconductor, Inc., owing to a realized gain on the sale of certain
warrants.



We had an increase
in unrealized depreciation of $847 on the rights to milestone payments from Amgen, Inc.’s acquisition of BioVex Group, Inc.



86







We had a decrease in
unrealized depreciation of $1,763 on the rights to milestone payments from Canon, Inc.’s acquisition of Molecular Imprints,
Inc.



Financial Condition



March
31, 2016



At March 31, 2016,
our total assets and net assets were $89,533,370 and $82,505,245, respectively. At December 31, 2015, our total assets and net
assets were $96,461,286 and $88,711,671, respectively.



At March 31, 2016,
our net asset value per share was $2.67, as compared with $2.88 at December 31, 2015. At March 31, 2016, and December 31, 2015,
our shares outstanding were 30,845,754.



Significant developments
in the three months ended March 31, 2016, included a decrease in the holdings of our venture capital investments of $3,631,175
and a decrease in our cash of $3,611,306. The decrease in our venture capital investments from $77,152,904 at December 31, 2015,
to $73,521,729 at March 31, 2016, resulted primarily from a decrease in the net value of our venture capital investments held of
$5,884,867, offset by new and follow-on investments of $2,253,692. The decrease in our cash from $17,922,630 at December 31, 2015,
to $14,311,324 at March 31, 2016, is primarily owing to new and follow-on venture capital investments totaling $2,253,692 and the
payment of cash for operating expenses of $1,603,353, offset by proceeds of $750,000 from the repayment of certain bridge notes
in SynGlyco, Inc., and proceeds of $113,950 from the repayment of a bridge note in EchoPixel, Inc.



The following table
is a summary of additions to our portfolio of investments made during the three months ended March 31, 2016:



|New Investments |  | Amount of Investment |        
|--------------- |  | -------------------- | -------
|                |  |                      |        
|Interome, Inc.  |  | $                    | 300,010



|Follow-On Investments               |  | Amount of Investment |          
|----------------------------------- |  | -------------------- | ---------
|                                    |  |                      |          
|Produced Water Absorbents, Inc.     |  | $                    | 875,000  
|EchoPixel, Inc.                     |  |                      | 500,000  
|Senova Systems, Inc.                |  |                      | 250,000  
|Produced Water Absorbents, Inc.     |  |                      | 125,000  
|Accelerator IV-New York Corporation |  |                      | 103,680  
|ABSMaterials, Inc.                  |  |                      | 100,000  
|NGX Bio, Inc.                       |  |                      | 2        
|                                    |  |                      |          
|Total                               |  | $                    | 2,253,692



87







The following table
summarizes the value of our portfolio of venture capital investments as compared with its cost at March 31, 2016, and December
31, 2015:



|                                      |  | March 31, 2016 |             |   | December 31, 2015 |  
|------------------------------------- |  | -------------- | ----------- | - | ----------------- | -
|                                      |  |                |             |   |                   |  
|Venture capital investments, at cost  |  | $              | 113,867,361 |   |                   | $
|Net unrealized (depreciation)         |  |                | (40,345,632 | ) |                   |  
|Venture capital investments, at value |  | $              | 73,521,729  |   |                   | $



Cash Flow



Net cash used in operating
activities for the three months ended March 31, 2016, was $3,611,306, primarily reflecting the purchase of venture capital investments
of $2,253,692 and the payment of operating expenses of $1,603,353, offset by proceeds from the sale of investments and repayment
of principal of $863,950.



Net cash used in investing
activities for the three months ended March 31, 2016, was $0.



Net cash provided by
financing activities for the three months ended March 31, 2016, was $0.



Net cash used in operating
activities for the three months ended March 31, 2015, was $4,690,065, primarily reflecting the purchase of venture capital investments
of $2,615,301 and the payment of operating expenses, offset by proceeds from the sale of investments and repayment of principal
of $115,736.



Net cash used in investing
activities for the three months ended March 31, 2015, was $6,806, primarily reflecting the purchase of fixed assets.



Net cash provided by
financing activities for the three months ended March 31, 2015, was $5,000,000, primarily reflecting a partial drawdown from the
Loan Facility.



Liquidity and Capital Resources



Our liquidity
and capital resources are generated and are generally available through our cash holdings, cash flows from payments received on
our venture debt investments, fees received for providing managerial assistance to portfolio companies, proceeds received from
periodic follow-on equity offerings and realized capital gains retained for reinvestment.



We fund our day-to-day
operations using interest earned and proceeds from our cash holdings and interest earned from our venture debt securities. We believe
the increase or decrease in the value of our venture capital investments does not materially affect the day-to-day operations of
the Company or our daily liquidity. As of March 31, 2016, and December 31, 2015, we had no investments in money market mutual funds.



Our Loan Facility may
be used to fund our investments and not for the payment of day-to-day operating expenses. As of March 31, 2016, we had $5,000,000
in debt outstanding. We have not issued any debt securities, and, therefore, are not subject to credit agency downgrades.



88







As a venture capital
company, it is critical that we have capital available to support our best companies until we have an opportunity for liquidity
in our investments. As such, we will continue to maintain a substantial amount of liquid capital on our balance sheet.



Although we cannot
predict future market conditions, we continue to believe that our current cash and our ability to adjust our investment pace will
provide us with adequate liquidity to execute our current business strategy.



At March 31, 2016,
and December 31, 2015, our total primary liquidity was $14,502,360 and $17,953,057, respectively. Our primary liquidity is principally
comprised of our cash and certain receivables. The decrease in our primary liquidity from December 31, 2015, to March 31, 2016,
is primarily owing to new and follow-on venture capital investments totaling $2,253,692 and the payment of cash for operating expenses
of $1,603,353, offset by proceeds of $750,000 from the repayment of certain bridge notes in SynGlyco, Inc., and proceeds of $113,950
from the repayment of a bridge note in EchoPixel, Inc.



At March 31, 2016,
and December 31, 2015, our secondary liquidity was $14,142,321 and $19,100,581, respectively. Our secondary liquidity consists
of our publicly traded securities and does not include the value of warrants we hold in Champions Oncology, Inc., Enumeral Biomedical
Holdings, Inc., and OpGen, Inc. Although these companies are publicly traded, their stock may not trade at high volumes and prices
can be volatile, which may restrict our ability to sell our positions at any given time. We may also be restricted for a period
of time in selling our positions in these companies due to our shares being unregistered. As of March 31, 2016, our publicly traded
securities of Adesto Technologies Corporation, Enumeral Biomedical Holdings and OpGen, Inc., were restricted from sale.



As of March 31, 2016,
we have $5,000,000 in debt outstanding.



We do not include funds
held in escrow from the sale of investments in primary or secondary liquidity. These funds become primary liquidity if and when
they are received at the expiration of the escrow period.



We believe that the
current and future venture capital environment may adversely affect the valuation of investment portfolios, lead to tighter lending
standards and result in reduced access to capital. These conditions may lead to a decline in net asset value and/or decline in
valuations of our portfolio companies in future quarters. Although we cannot predict future market conditions, we continue to believe
that our current cash and our ability to adjust our investment pace will provide us with adequate liquidity to execute our current
business strategy.



Except for a rights
offering, we are generally not able to issue and sell our common stock at a price below our net asset value per share, exclusive
of any distributing commission or discount, without shareholder approval. As of March 31, 2016, our net asset value per share was
$2.67 per share and our closing market price was $1.65 per share. We do not currently have shareholder approval to issue or sell
shares below our net asset value per share.



89







Borrowings



On September 30, 2013,
the Company entered into the Loan Facility that may be used by the Company to fund investments in portfolio companies. The Loan
Facility, among other things, matures on September 30, 2017, and bears interest at 10 percent per annum in cash. The Company has
the option to have interest accrue at a rate of 13.5 percent per annum if the Company decides not to pay interest in cash monthly.
The Company currently plans to pay interest in cash if and when any borrowings are outstanding. The Loan Facility also requires
payment of a draw fee on each borrowing equal to 1.0 percent of such borrowing and an unused commitment fee of 1.0 percent per
annum. Interest and fee payments under the Loan Facility are made quarterly in arrears. The Company may prepay the loans or reduce
the aggregate commitments under the Loan Facility at any time prior to the maturity date, as long as certain conditions are met,
including payment of required prepayment or termination fees. The Loan Facility is secured by all of the assets of the Company
and its wholly owned subsidiaries, subject to certain customary exclusions. The Loan Facility contains certain affirmative and
negative covenants, including without limitation: (a) maintenance of certain minimum liquidity requirements; (b) maintenance of
an eligible asset leverage ratio of not less than 4.0:1.0; (c) limitations on liens; (d) limitations on the incurrence of additional
indebtedness; and (e) limitations on structural changes, mergers and disposition of assets (other than in the normal course of
our business activities). There were no borrowings at closing.



At March 31, 2016,
and December 31, 2015, the Company had $5,000,000 in debt outstanding. The remaining capacity under the Loan Facility was $15,000,000
at March 31, 2016.



Contractual Obligations



A summary of our significant contractual
payment obligations is as follows:



Payments Due by Period



|                            |  | Total |           |  | Less than1 Year |   |         | 1-3 Years |  |   | 3-5 Years |  |  | More Than5 Years |        
|--------------------------- |  | ----- | --------- |  | --------------- | - | ------- | --------- |  | - | --------- |  |  | ---------------- | -------
|Multi-Draw Loan Facility(1) |  | $     | 5,761,111 |  |                 | $ | 506,944 |           |  | $ | 5,254,167 |  |  | $                | 0      
|Operating leases            |  |       | 1,122,998 |  |                 |   | 289,481 |           |  |   | 600,854   |  |  |                  | 232,663
|Total                       |  | $     | 6,884,109 |  |                 | $ | 796,425 |           |  | $ | 5,855,021 |  |  | $                | 232,663



(1)As of March
31, 2016, we had $15,000,000 of unused borrowing capacity under our Loan Facility.

Amounts include interest payable
assuming $5,000,000 remains outstanding through the maturity date in 2017.



On July 21, 2014, the
Company made an investment in Accelerator IV-New York Corporation ("Accelerator") for a 9.6 percent interest in the company.
This investment was diluted to 9.0 percent through follow-on financings by Accelerator in which the Company did not participate.
Accelerator will be identifying emerging biotechnology companies for the Company to invest in directly over a five-year period.
If the Company defaults on these commitments, the other investors may purchase the Company's shares of Accelerator for $0.001 per
share. In the event of default, the Company would still be required to contribute the remaining operating commitment.



90







The Company's aggregate
operating and investment commitments in Accelerator amounted to $666,667 and $3,333,333, respectively. During the year ended December
31, 2015, $262,215 in capital related to the operating commitment and $1,132,950 in capital related to the investment commitment
was called. During the three months ended March 31, 2016, $103,680 in capital related to the operating commitment was called. As
of March 31, 2016, the Company had remaining unfunded commitments of $84,760 and $2,200,383, or approximately 12.7 percent and
66.0 percent, of the total operating and investment commitments, respectively. The withdrawal of contributed capital is not permitted.
The transfer or assignment of capital is subject to approval by Accelerator.



Critical Accounting Policies



The Company's significant
accounting policies are described in Note 3 to the Consolidated Financial Statements and in the Footnote to the Consolidated Schedule
of Investments. Critical accounting policies are those that are both important to the presentation of our financial condition and
results of operations and those that require management’s most difficult, complex or subjective judgments. The Company considers
the following accounting policies and related estimates to be critical:



Valuation of Portfolio Investments



The most significant
estimate inherent in the preparation of our consolidated financial statements is the valuation of investments and the related amounts
of unrealized appreciation and depreciation of investments recorded. As a BDC, we invest in primarily illiquid securities that
generally have no established trading market.



Investments are stated
at "value" as defined in the 1940 Act and in the applicable regulations of the SEC and U.S. GAAP. ASC 820 defines fair
value, establishes a framework for measuring fair value and expands disclosures about assets and liabilities measured at fair value.
ASC 820 provides a consistent definition of fair value that focuses on exit price in the principal, or most advantageous, market
and prioritizes, within a measurement of fair value, the use of market-based inputs over entity-specific inputs. ASC 820 also establishes
the following three-level hierarchy for fair value measurements based upon the transparency of inputs to the valuation of an asset
or liability as of the measurement date.



•   Level
1- inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets;



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



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



Financial assets and
liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement
and are not necessarily an indication of risks associated with the investment. See "Note 6. Fair Value of Investments"
in the accompanying notes to our consolidated financial statements for additional information regarding fair value measurements.



91







Value, as defined in
Section 2(a)(41) of the 1940 Act, is (i) the market price for those securities for which a market quotation is readily available
and (ii) the fair value as determined in good faith by, or under the direction of, the Board of Directors for all other assets.
See "Valuation Procedures" in the "Footnote to Consolidated Schedule of Investments" for additional information.
As of March 31, 2016, our financial statements include investments fair valued at $60,084,507, and equity method valued at $228,133,
the values of which were determined in good faith by, or under the direction of, the Board of Directors. As of March 31, 2016,
approximately 73 percent of our net assets represent investments in portfolio companies valued by the Board of Directors.



Determining fair value
requires that judgment be applied to the specific facts and circumstances of each portfolio investment, although our valuation
policy is intended to provide a consistent basis for determining fair value of the portfolio investments. Factors that may be considered
include, but are not limited to, the cost of the Company’s investment; transactions in the portfolio company’s securities
or unconditional firm offers by responsible parties; 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;
volatilities of similar securities issued by companies in similar businesses; expected time to exit; multiples to revenues, net
income or EBITDA that similar securities issued by companies in similar businesses receive; the proportion of the company’s
securities we own and the nature of any rights to require the company to register restricted securities under the applicable securities
laws; management's assessment of non-performance risk; the achievement of milestones; discounts for restrictions on transfers of
publicly traded securities; and the rights and preferences of the class of securities we own as compared with other classes of
securities the portfolio has issued.



In addition, with respect
to our debt investments for which no readily available market quotations are available, we will generally consider the financial
condition and current and expected future cash flows of the portfolio company; the creditworthiness of the portfolio company and
its ability to meet its current debt obligations; the relative seniority of our debt investment within the portfolio company’s
capital structure; the availability and value of any available collateral; and changes in market interest rates and credit spreads
for similar debt investments.



Historically, difficult
venture capital environments have resulted in companies not receiving financing and being subsequently closed down with a loss
of investment to venture investors, and other companies receiving financing but at significantly lower valuations than the preceding
rounds, leading to very deep dilution for those who do not participate in the new rounds of investment. Our best estimate of this
non-performance risk has been quantified and included in the valuation of our portfolio companies as of March 31, 2016.



All investments recorded
at fair value are categorized based upon the level of judgment associated with the inputs used to measure their fair value. Hierarchical
levels related to the amount of subjectivity associated with the inputs to fair valuation of these assets are as discussed above.



As of March 31, 2016,
approximately 81 percent of our portfolio company investments were classified as Level 3 in the hierarchy, indicating a high level
of judgment required in their valuation.



The values assigned
to our assets are based on available information and do not necessarily represent amounts that might ultimately be realized, as
these amounts depend on future circumstances and cannot be reasonably determined until the individual investments are actually
liquidated or become readily marketable. Upon sale of investments, the values that are ultimately realized may be materially different
from what is presently estimated.



92







Stock-Based Compensation



Determining the appropriate
fair-value model and calculating the fair value of share-based awards on the date of grant requires judgment. Historically, we
have used the Black-Scholes-Merton option pricing model to estimate the fair value of employee stock options.



Management uses the
Black-Scholes-Merton option pricing model in instances where we lack historical data necessary for more complex models and when
the share award terms can be valued within the model. Other models may yield fair values that are significantly different from
those calculated by the Black-Scholes-Merton option pricing model.



Management uses a binomial
lattice option pricing model in instances where it is necessary to include a broader array of assumptions. We used the binomial
lattice model for the 10-year NQSOs granted on March 18, 2009, and for performance-based restricted stock awards. These awards
included accelerated vesting provisions or target stock prices that were based on market conditions.



Option pricing models
require the use of subjective input assumptions, including expected volatility, expected life, expected dividend rate, and expected
risk-free rate of return. Variations in the expected volatility or expected term assumptions have a significant impact on fair
value. As the volatility or expected term assumptions increase, the fair value of the stock option increases. The expected dividend
rate and expected risk-free rate of return are not as significant to the calculation of fair value. A higher assumed dividend rate
yields a lower fair value, whereas higher assumed interest rates yield higher fair values for stock options.



In the Black-Scholes-Merton
model, we used the simplified calculation of expected term as described in the SEC’s Staff Accounting Bulletin 107 because
of the lack of historical information about option exercise patterns. In the binomial lattice model, we use an expected term that
assumes the options will be exercised at two times the strike price because of the lack of option exercise patterns. Future exercise
behavior could be materially different than that which is assumed by the model.



Expected volatility
is based on the historical fluctuations in the Company's stock. The Company's stock has historically been volatile, which increases
the fair value of the underlying share-based awards.



GAAP requires us to
develop an estimate of the number of share-based awards that will be forfeited owing to employee turnover. Quarterly changes in
the estimated forfeiture rate can have a significant effect on reported share-based compensation, as the effect of adjusting the
rate for all expense amortization after the grant date is recognized in the period the forfeiture estimate is changed. If the actual
forfeiture rate proves to be higher than the estimated forfeiture rate, then an adjustment will be made to increase the estimated
forfeiture rate, which would result in a decrease to the expense recognized in the financial statements. If the actual forfeiture
rate proves to be lower than the estimated forfeiture rate, then an adjustment will be made to decrease the estimated forfeiture
rate, which would result in an increase to the expense recognized in the financial statements. Such adjustments would affect our
operating expenses and additional paid-in capital, but would have no effect on our net asset value.



93







Pension and Post-Retirement Benefit
Plan Assumptions



The Company provides
a Retiree Medical Benefit Plan for employees who meet certain eligibility requirements. Until it was terminated on May 5, 2011,
the Company also provided an Executive Mandatory Retirement Benefit Plan for certain individuals employed by us in a bona fide
executive or high policy-making position. Our former President accrued benefits under this plan prior to his retirement, and the
termination of the plan has no impact on his accrued benefits. Several statistical and other factors that attempt to anticipate
future events are used in calculating the expense and liability values related to our post-retirement benefit plans. These factors
include assumptions we make about the discount rate, the rate of increase in health care costs, and mortality, among others.



The discount rate reflects
the current rate at which the post-retirement medical benefit and pension liabilities could be effectively settled considering
the timing of expected payments for plan participants. In estimating this rate, we consider the Citigroup Pension Liability Index
in the determination of the appropriate discount rate assumptions. The weighted average rate we utilized to measure our post-retirement
medical benefit obligation as of December 31, 2015, and to calculate our 2016 expense was 4.15 percent. We used a discount
rate of 3.08 percent to calculate our pension obligation for the Executive Mandatory Retirement Benefit Plan.



Recent Developments - Portfolio Companies



On
April 7, 2016, the Company made a $500,000 follow-on investment in NGX Bio, Inc., a privately held portfolio company.



On
April 13, 2016, the Company made a $550,290 follow-on investment in Lodo Therapeutics, Corporation, a privately held portfolio
company.



On
April 20, 2016, the Company received proceeds of $390,492 from funds held in escrow relating to the sale of Molecular Imprints,
Inc.'s semiconductor lithography equipment business to Canon, Inc.



On
April 22, 2016, the Company made a $225,000 initial investment in Fleet Health Alliance, LLC, a privately held portfolio company.



On
May 4, 2016, the Company made a $150,000 initial investment in AgTech Accelerator Corporation, a privately held portfolio company.



Item 3. Quantitative and Qualitative
Disclosures About Market Risk



Our business activities
contain elements of risk. We consider the principal types of market risk to be valuation risk, interest rate risk and foreign currency
risk. Although we are risk-seeking rather than risk-averse in our investments, we consider the management of risk to be essential
to our business.



94







Valuation Risk



Value, as defined in
Section 2(a)(41) of the 1940 Act, is (i) the market price for those securities for which market quotations are readily available
and (ii) fair value as determined in good faith by, or under the direction of, the Board of Directors for all other assets. (See
the "Valuation Procedures" in the "Footnote to Consolidated Schedule of Investments" contained in "Item
1. Consolidated Financial Statements.")



Because there is typically
no public market for our interests in the privately held small businesses in which we invest, the valuation of the equity interests
in that portion of our portfolio is determined in good faith by our Board of Directors with the assistance of our Valuation Committee,
comprised of the independent members of our Board of Directors, in accordance with our Valuation Procedures. In the absence of
a readily ascertainable market value, the determined value of our portfolio of equity interests may differ significantly from the
values that would be placed on the portfolio if a ready market for the equity interests existed. Determining fair value requires
that judgment be applied to the specific facts and circumstances of each portfolio investment, although our valuation policy is
intended to provide a consistent basis for determining fair value of the portfolio investments. Factors that may be considered
include, but are not limited to, readily available public market quotations; the cost of the Company’s investment; transactions
in the portfolio company’s securities or unconditional firm offers by responsible parties; the financial condition and operating
results of the company; the long-term potential of the business and technology of the company; the estimated time to exit our investment;
the values and volatilities of similar securities issued by companies in similar businesses; multiples to revenues, net income
or EBITDA that similar securities issued by companies in similar businesses receive; the proportion of the company’s securities
we own and the nature of any rights to require the company to register restricted securities under the applicable securities laws;
management's assessment of non-performance risk; the achievement of milestones; and the rights and preferences of the class of
securities we own as compared with other classes of securities the portfolio has issued.



In addition, with respect
to our debt investments for which no readily available market quotations are available, we will generally consider the financial
condition and current and expected future cash flows of the portfolio company; the creditworthiness of the portfolio company and
its ability to meet its current debt obligations; the relative seniority of our debt investment within the portfolio company’s
capital structure; the availability and value of any available collateral; and changes in market interest rates and credit spreads
for similar debt investments. Any changes in valuation are recorded in our Consolidated Statements of Operations as "Net (increase)
decrease in unrealized depreciation on investments." Changes in valuation of any of our investments in privately held companies
from one period to another may be volatile.



Investments in privately
held, immature 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.



95







The values assigned
to our assets are based on available information and do not necessarily represent amounts that might ultimately be realized, as
these amounts depend on future circumstances and cannot be reasonably determined until the individual investments are actually
liquidated or become readily marketable. Upon sale of investments, the values that are ultimately realized may be materially different
from what is presently estimated.



Interest Rate Risk



Interest rate sensitivity
refers to the change in earnings that may result from changes in the level of interest rates. Our borrowings under our Loan Facility
bear interest at a fixed rate of 10 percent per annum, and, therefore, changes in interest rate benchmarks, such as LIBOR, will
not affect our earnings on such investments if we decide to fund them through draws from our Loan Facility.



We may also invest
in both short- and long-term U.S. government and agency securities. To the extent that we invest in short- and long-term U.S. government
and agency securities, changes in interest rates result in changes in the value of these obligations that result in an increase
or decrease of our net asset value. The level of interest rate risk exposure at any given point in time depends on the market environment,
the expectations of future price and market movements, and the quantity and duration of long-term U.S. government and agency securities
held by the Company, and it will vary from period to period.



In addition, market
interest rates for high-yield corporate debt are an input in determining value of our investments in debt securities of privately
held and publicly traded companies. Significant changes in these market rates could affect the value of our debt securities as
of the date of measurement of value. Our investment income could be adversely affected should such debt securities include floating
interest rates. We do not currently have any investments in debt securities with floating interest rates.



Foreign Currency Risk



Most of our investments
are denominated in U.S. dollars. We currently have one investment denominated in Canadian dollars. We are exposed to foreign currency
risk related to potential changes in foreign currency exchange rates. The potential loss in fair value on this investment resulting
from a 10 percent adverse change in quoted foreign currency exchange rates is $474,030 at March 31, 2016.



Item 4.  Controls and Procedures



(a)  Disclosure
Controls and Procedures.As of the end of the period covered by this report, the Company’s management, under the supervision
and with the participation of our chief executive officer and chief financial officer, conducted an evaluation of the effectiveness
of the design and operation of our disclosure controls and procedures (as required by Rules 13a-15 of the 1934 Act). Disclosure
controls and procedures means controls and other procedures of an issuer that are designed to ensure that information required
to be disclosed by the issuer in the reports that it files or submits under the 1934 Act is recorded, processed, summarized and
reported, within time periods specified in the SEC's rules and forms, and that such information is accumulated and communicated
to the issuer's management, as appropriate, to allow timely decisions regarding required disclosures. As of March 31, 2016, based
upon this evaluation of our disclosure controls and procedures, our chief executive officer and chief financial officer concluded
that our disclosure controls and procedures were effective.



96







(b)   Changes
in Internal Control Over Financial Reporting.There have not been any changes in the Company's internal control over financial
reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the 1934 Act) during the first quarter of 2016 to which
this report relates that have materially affected, or are reasonably likely to materially affect, the Company’s internal
control over financial reporting.



97







PART
II.  OTHER INFORMATION



Item 1A.	Risk Factors



Investing in our common
stock involves significant risks relating to our business and investment objective. You should carefully consider the risks and
uncertainties described in our Annual Report on Form 10-K for the year ended December 31, 2015, before you purchase any of our
common stock.



The risks described
in our Annual Report on Form 10-K are not the only risks facing our Company. Unknown additional risks and uncertainties, or ones
that we currently consider immaterial, may also impair our business. If any of these risks or uncertainties materialize, our business,
financial condition or results of operations could be materially adversely affected. In this event, the trading price of our common
stock could decline, and you could lose all or part of your investment.



As of March 31, 2016,
we believe that the following updates should be considered to the risk factors previously disclosed in response to “Item
1A. Risk Factors” of our Annual Report on Form 10-K for the fiscal year ended December 31, 2014.



Approximately 56.7
percent of the net asset value attributable to our equity-focused venture capital investment portfolio, or 48.5 percent of our
net asset value, as of March 31, 2016, is concentrated in D-Wave Systems, Inc., Metabolon, Inc., Adesto Technologies Corporation,
and HZO, Inc.



At March 31, 2016,
we valued our investment in D-Wave, which had a historical cost to us of $5,689,311, at $11,539,147, our investment in Metabolon,
which had a historical cost to us of $7,231,212, at $11,078,071, our investment in Adesto, which had a historical cost to us of
$11,482,417, at $9,946,658, and our investment in HZO, which had a historical cost to us of $8,876,508, at $7,418,321, which collectively
represent 56.7 percent of the net asset value attributable to our equity-focused venture capital investment portfolio, excluding
our rights to potential future milestone payments from the sale of BioVex to Amgen, or 48.5 percent of our net asset value.



Any downturn in the
business outlook and/or substantial changes in the funding requirements of Adesto, Metabolon, D-Wave or HZO could have a significant
effect on the value of our current investments in those companies, and the overall value of our portfolio, and could have a significant
adverse effect on the value of our common stock.



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



Sales of Unregistered Equity Securities



We did not engage
in unregistered sales of equity securities during the three months ended March 31, 2016.



98







Issuer Purchases of Equity Securities



On August 6, 2015,
our Board of Directors authorized a repurchase of up to $2.5 million of the Company’s common stock in the open market within
a six-month period. Under the repurchase program, we may, but we are not obligated to, repurchase our outstanding common stock
in the open market from time to time provided that we comply with the prohibitions under our Insider Trading Policies and Procedures
and the guidelines specified in Rule 10b-18 of the Securities Exchange Act of 1934, as amended, including certain price, market
volume and timing constraints. In addition, any repurchases are conducted in accordance with the 1940 Act. During the year ended
December 31, 2015, we repurchased 509,082 shares at an average price of approximately $2.36 per share, inclusive of commissions.
This represented a discount of approximately 18.1 percent of the net asset value per share at December 31, 2015. The total dollar
amount of shares repurchased in this period was $1,199,994, leaving a maximum of $1,300,006 available for future program purchases
as of December 31, 2015. The six-month period expired on February 6, 2016. On March 3, 2016, our Board of Directors reauthorized
the repurchase of up to $2.5 million of the Company's common stock within a six-month period. As of March 31, 2016, no additional
repurchases have occurred, leaving a maximum of $2.5 million available for future repurchases.



The following table
discloses on a monthly basis the total number of shares repurchased (including the total number of shares repurchased under this
program), the average price paid per share, and the maximum number of shares (or approximate dollar value) of shares that may yet
be repurchased under the program.



|Period               |  | (a) Total Number of Shares Purchased |         |  | (b) Average Price Paid per Share |   |      | (c) Total Number of Shares Purchased as Part of Publicly Announced Program |  |  | (d) Maximum Number (or Approximate Dollar Value) of Shares that May Yet Be Purchased Under the Program | 
|-------------------- |  | ------------------------------------ | ------- |  | -------------------------------- | - | ---- | -------------------------------------------------------------------------- |  |  | ------------------------------------------------------------------------------------------------------ | 
|August 21- 31, 2015  |  |                                      | 88,875  |  |                                  | $ | 2.54 |                                                                            |  |  | 88,875                                                                                                 | 
|September 1-30, 2015 |  |                                      | 209,944 |  |                                  |   | 2.44 |                                                                            |  |  | 298,819                                                                                                | 
|October 1-12, 2015   |  |                                      | 119,365 |  |                                  |   | 2.20 |                                                                            |  |  | 418,184                                                                                                | 
|November 30, 2015    |  |                                      | 11,899  |  |                                  |   | 2.22 |                                                                            |  |  | 430,083                                                                                                | 
|December 1-9, 2015   |  |                                      | 78,999  |  |                                  |   | 2.20 |                                                                            |  |  | 509,082                                                                                                | 



Item 3.  Defaults Upon Senior Securities



None.



Item 4. Mine Safety Disclosures



Not applicable.



99







Item 5.  Other Information



None.



Item 6.  Exhibits



| | 31.01* | Certification of CEO pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002.
| | ------ | -------------------------------------------------------------------------------



| | 31.02* | Certification of CFO pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002.
| | ------ | -------------------------------------------------------------------------------



| | 32* | Certification of CEO and CFO pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------



*filed herewith



100







SIGNATURES



Pursuant to the requirements
of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.



| | Harris & Harris Group, Inc.
| | ---------------------------
| |                            
| | /s/                        
| | By:                        
| |                            



| | /s/ | Patricia N. Egan       
| | --- | -----------------------
| | By: | Patricia N. Egan       
| |     | Chief Financial Officer



Date: May 9, 2016



101







EXHIBIT INDEX



|Exhibit No. |  | Description                                                                                                                           
|----------- |  | --------------------------------------------------------------------------------------------------------------------------------------
|            |  |                                                                                                                                       
|31.01       |  | Certification of CEO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                       
|            |  |                                                                                                                                       
|31.02       |  | Certification of CFO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                       
|            |  |                                                                                                                                       
|32          |  | Certification of CEO and CFO pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.



102







Schedule
12-14



HARRIS & HARRIS GROUP, INC.

INVESTMENTS IN AND ADVANCES TO AFFILIATES



|                                                |  |                                          |  | Amount of         |        |  |              |   |           |                   |  |   |            |  |  |             |         
|----------------------------------------------- |  | ---------------------------------------- |  | ----------------- | ------ |  | ------------ | - | --------- | ----------------- |  | - | ---------- |  |  | ----------- | --------
|                                                |  |                                          |  | Dividends         |        |  |              |   |           |                   |  |   |            |  |  |             |         
|                                                |  |                                          |  | or Interest       |        |  | Value as of  |   |           |                   |  |   | Gross      |  |  | Value as of |         
|                                                |  | Title of Issue or                        |  | Credited          |        |  | December 31, |   |           | Gross             |  |   | Reductions |  |  | March 31,   |         
|Name of Issuer                                  |  | Nature of Indebtedness(A)                |  | to
    Income (B) |        |  | 2015         |   |           | Additions
    (C) |  |   | (D)        |  |  | 2016        |         
|                                                |  |                                          |  |                   |        |  |              |   |           |                   |  |   |            |  |  |             |         
|MAJORITY OWNED CONTROLLED
    INVESTMENTS:      |  |                                          |  |                   |        |  |              |   |           |                   |  |   |            |  |  |             |         
|                                                |  |                                          |  |                   |        |  |              |   |           |                   |  |   |            |  |  |             |         
|Black Silicon Holdings, Inc.                    |  | Series A Convertible Preferred Stock     |  | $                 | 0      |  |              | $ | 0         |                   |  | $ | 0          |  |  | $           | 0       
|                                                |  |                                          |  |                   |        |  |              |   |           |                   |  |   |            |  |  |             |         
|                                                |  | Series A-1 Convertible Preferred Stock   |  |                   | 0      |  |              |   | 0         |                   |  |   | 0          |  |  |             | 0       
|                                                |  |                                          |  |                   |        |  |              |   |           |                   |  |   |            |  |  |             |         
|                                                |  | Series A-2 Convertible Preferred Stock   |  |                   | 0      |  |              |   | 0         |                   |  |   | 0          |  |  |             | 0       
|                                                |  |                                          |  |                   |        |  |              |   |           |                   |  |   |            |  |  |             |         
|                                                |  | Series B-1 Convertible Preferred Stock   |  |                   | 0      |  |              |   | 0         |                   |  |   | 0          |  |  |             | 0       
|                                                |  |                                          |  |                   |        |  |              |   |           |                   |  |   |            |  |  |             |         
|                                                |  | Series C Convertible Preferred Stock     |  |                   | 0      |  |              |   | 0         |                   |  |   | 0          |  |  |             | 0       
|                                                |  |                                          |  |                   |        |  |              |   |           |                   |  |   |            |  |  |             |         
|                                                |  | Secured Convertible Bridge Notes         |  |                   | 25,853 |  |              |   | 316,613   |                   |  |   | 5,510      |  |  |             | 0       
|                                                |  |                                          |  |                   |        |  |              |   |           |                   |  |   |            |  |  |             |         
|Interome, Inc.                                  |  | Common Stock                             |  | $                 | 0      |  |              | $ | 0         |                   |  | $ | 10         |  |  | $           | 0       
|                                                |  |                                          |  |                   |        |  |              |   |           |                   |  |   |            |  |  |             |         
|                                                |  | Secured Convertible Bridge Note          |  |                   | 3,100  |  |              |   | 0         |                   |  |   | 300,000    |  |  |             | 0       
|                                                |  |                                          |  |                   |        |  |              |   |           |                   |  |   |            |  |  |             |         
|NGX Bio, Inc.                                   |  | Series Seed Convertible Preferred Stock  |  | $                 | 0      |  |              | $ | 446,878   |                   |  | $ | 48,940     |  |  | $           | 0       
|                                                |  |                                          |  |                   |        |  |              |   |           |                   |  |   |            |  |  |             |         
|                                                |  | Series A Convertible Preferred Stock     |  |                   | 0      |  |              |   | 403,538   |                   |  |   | 0          |  |  |             | (63,777 
|                                                |  |                                          |  |                   |        |  |              |   |           |                   |  |   |            |  |  |             |         
|                                                |  | Warrants for Series Seed Preferred Stock |  |                   | 0      |  |              |   | 148,958   |                   |  |   | 0          |  |  |             | (148,958
|                                                |  |                                          |  |                   |        |  |              |   |           |                   |  |   |            |  |  |             |         
|ProMuc, Inc.                                    |  | Common Stock                             |  | $                 | 0      |  |              | $ | 1         |                   |  | $ | 0          |  |  | $           | 0       
|                                                |  |                                          |  |                   |        |  |              |   |           |                   |  |   |            |  |  |             |         
|                                                |  | Secured Convertible Bridge Note          |  |                   | 11,568 |  |              |   | 650,915   |                   |  |   | 11,568     |  |  |             | 0       
|                                                |  |                                          |  |                   |        |  |              |   |           |                   |  |   |            |  |  |             |         
|SynGlyco, Inc.                                  |  | Common Stock                             |  | $                 | 0      |  |              | $ | 0         |                   |  | $ | 0          |  |  | $           | 0       
|                                                |  |                                          |  |                   |        |  |              |   |           |                   |  |   |            |  |  |             |         
|                                                |  | Series A' Convertible Preferred Stock    |  |                   | 0      |  |              |   | 100,343   |                   |  |   | 0          |  |  |             | (12,255 
|                                                |  |                                          |  |                   |        |  |              |   |           |                   |  |   |            |  |  |             |         
|                                                |  | Secured Convertible Bridge Notes         |  |                   | 10,243 |  |              |   | 808,101   |                   |  |   | 0          |  |  |             | (739,757
|                                                |  |                                          |  |                   |        |  |              |   |           |                   |  |   |            |  |  |             |         
|TARA Biosystems, Inc.                           |  | Common Stock                             |  | $                 | 0      |  |              | $ | 20        |                   |  | $ | 0          |  |  | $           | 0       
|                                                |  |                                          |  |                   |        |  |              |   |           |                   |  |   |            |  |  |             |         
|                                                |  | Secured Convertible Bridge Notes         |  |                   | 34,386 |  |              |   | 2,023,419 |                   |  |   | 39,611     |  |  |             | 0       
|                                                |  |                                          |  |                   |        |  |              |   |           |                   |  |   |            |  |  |             |         
|Total Majority Owned Controlled
    Investments |  |                                          |  | $                 | 85,150 |  |              | $ | 4,898,786 |                   |  | $ | 405,639    |  |  | $           | (964,747



i







|                                       |  |                                              |  | Amount of         |        |  |              |   |           |                   |  |   |            |  |  |             |           
|-------------------------------------- |  | -------------------------------------------- |  | ----------------- | ------ |  | ------------ | - | --------- | ----------------- |  | - | ---------- |  |  | ----------- | ----------
|                                       |  |                                              |  | Dividends         |        |  |              |   |           |                   |  |   |            |  |  |             |           
|                                       |  |                                              |  | or Interest       |        |  | Value as of  |   |           |                   |  |   | Gross      |  |  | Value as of |           
|                                       |  | Title of Issue or                            |  | Credited          |        |  | December 31, |   |           | Gross             |  |   | Reductions |  |  | March 31,   |           
|Name of Issuer                         |  | Nature of Indebtedness(A)                    |  | to
    Income (B) |        |  | 2015         |   |           | Additions
    (C) |  |   | (D)        |  |  | 2016        |           
|                                       |  |                                              |  |                   |        |  |              |   |           |                   |  |   |            |  |  |             |           
|OTHER CONTROLLED INVESTMENTS:          |  |                                              |  |                   |        |  |              |   |           |                   |  |   |            |  |  |             |           
|                                       |  |                                              |  |                   |        |  |              |   |           |                   |  |   |            |  |  |             |           
|Senova Systems, Inc.                   |  | Series B Convertible Preferred Stock         |  | $                 | 0      |  |              | $ | 284,938   |                   |  | $ | 0          |  |  | $           | (174,581  
|                                       |  |                                              |  |                   |        |  |              |   |           |                   |  |   |            |  |  |             |           
|                                       |  | Series B-1 Convertible Preferred Stock       |  |                   | 0      |  |              |   | 659,411   |                   |  |   | 0          |  |  |             | (433,800  
|                                       |  |                                              |  |                   |        |  |              |   |           |                   |  |   |            |  |  |             |           
|                                       |  | Series C Convertible Preferred Stock         |  |                   | 0      |  |              |   | 1,127,419 |                   |  |   | 0          |  |  |             | (189,405  
|                                       |  |                                              |  |                   |        |  |              |   |           |                   |  |   |            |  |  |             |           
|                                       |  | Warrants for Series B Preferred Stock        |  |                   | 0      |  |              |   | 39,980    |                   |  |   | 0          |  |  |             | (24,495   
|                                       |  |                                              |  |                   |        |  |              |   |           |                   |  |   |            |  |  |             |           
|                                       |  | Secured Convertible Bridge Note              |  |                   | 5,274  |  |              |   | 0         |                   |  |   | 255,274    |  |  |             | 0         
|                                       |  |                                              |  |                   |        |  |              |   |           |                   |  |   |            |  |  |             |           
|Total Other Controlled
    Investments |  |                                              |  | $                 | 5,274  |  |              | $ | 2,111,748 |                   |  | $ | 255,274    |  |  | $           | (822,281  
|                                       |  |                                              |  |                   |        |  |              |   |           |                   |  |   |            |  |  |             |           
|Total Controlled Investments           |  |                                              |  | $                 | 90,424 |  |              | $ | 7,010,534 |                   |  | $ | 660,913    |  |  | $           | (1,787,028
|                                       |  |                                              |  |                   |        |  |              |   |           |                   |  |   |            |  |  |             |           
|AFFILIATED INVESTMENTS:                |  |                                              |  |                   |        |  |              |   |           |                   |  |   |            |  |  |             |           
|                                       |  |                                              |  |                   |        |  |              |   |           |                   |  |   |            |  |  |             |           
|ABSMaterials, Inc.                     |  | Series A Convertible Preferred Stock         |  | $                 | 0      |  |              | $ | 160,303   |                   |  | $ | 20,681     |  |  | $           | 0         
|                                       |  |                                              |  |                   |        |  |              |   |           |                   |  |   |            |  |  |             |           
|                                       |  | Series B Convertible Preferred Stock         |  |                   | 0      |  |              |   | 823,319   |                   |  |   | 0          |  |  |             | (621      
|                                       |  |                                              |  |                   |        |  |              |   |           |                   |  |   |            |  |  |             |           
|                                       |  | Secured Convertible Bridge Note              |  |                   | 1,578  |  |              |   | 0         |                   |  |   | 101,578    |  |  |             | 0         
|                                       |  |                                              |  |                   |        |  |              |   |           |                   |  |   |            |  |  |             |           
|AgBiome, LLC                           |  | Series A-1 Convertible Preferred Stock       |  | $                 | 0      |  |              | $ | 4,022,722 |                   |  | $ | 124,885    |  |  | $           | 0         
|                                       |  |                                              |  |                   |        |  |              |   |           |                   |  |   |            |  |  |             |           
|                                       |  | Series A-2 Convertible Preferred Stock       |  |                   | 0      |  |              |   | 891,588   |                   |  |   | 30,002     |  |  |             | 0         
|                                       |  |                                              |  |                   |        |  |              |   |           |                   |  |   |            |  |  |             |           
|                                       |  | Series B Convertible Preferred Stock         |  |                   | 0      |  |              |   | 575,979   |                   |  |   | 10,341     |  |  |             | 0         
|                                       |  |                                              |  |                   |        |  |              |   |           |                   |  |   |            |  |  |             |           
|D-Wave Systems, Inc.                   |  | Series 1 Class B Convertible Preferred Stock |  | $                 | 0      |  |              | $ | 1,485,943 |                   |  | $ | 1,032,366  |  |  | $           | 0         
|                                       |  |                                              |  |                   |        |  |              |   |           |                   |  |   |            |  |  |             |           
|                                       |  | Series 1 Class C Convertible Preferred Stock |  |                   | 0      |  |              |   | 588,844   |                   |  |   | 407,982    |  |  |             | 0         
|                                       |  |                                              |  |                   |        |  |              |   |           |                   |  |   |            |  |  |             |           
|                                       |  | Series 1 Class D Convertible Preferred Stock |  |                   | 0      |  |              |   | 1,117,858 |                   |  |   | 774,509    |  |  |             | 0         
|                                       |  |                                              |  |                   |        |  |              |   |           |                   |  |   |            |  |  |             |           
|                                       |  | Series 1 Class E Convertible Preferred Stock |  |                   | 0      |  |              |   | 368,385   |                   |  |   | 239,717    |  |  |             | 0         



ii







|                                  |  |                                              |  | Amount of   |     |  |              |   |           |                   |  |   |                    |  |  |             |         
|--------------------------------- |  | -------------------------------------------- |  | ----------- | --- |  | ------------ | - | --------- | ----------------- |  | - | ------------------ |  |  | ----------- | --------
|                                  |  |                                              |  | Dividends   |     |  |              |   |           |                   |  |   |                    |  |  |             |         
|                                  |  |                                              |  | or Interest |     |  |              |   |           |                   |  |   |                    |  |  |             |         
|                                  |  |                                              |  | Credited    |     |  | Value as of  |   |           |                   |  |   |                    |  |  | Value as of |         
|                                  |  | Title of Issue or                            |  | to Income   |     |  | December 31, |   |           | Gross             |  |   | Gross              |  |  | March 31,   |         
|Name of Issuer                    |  | Nature of Indebtedness(A)                    |  | (B)         |     |  | 2015         |   |           | Additions
    (C) |  |   | Reductions
    (D) |  |  | 2016        |         
|                                  |  |                                              |  |             |     |  |              |   |           |                   |  |   |                    |  |  |             |         
|D-Wave Systems, Inc. (Cont'd)     |  | Series 1 Class F Convertible Preferred Stock |  | $           | 0   |  |              | $ | 353,940   |                   |  | $ | 230,317            |  |  | $           | 0       
|                                  |  |                                              |  |             |     |  |              |   |           |                   |  |   |                    |  |  |             |         
|                                  |  | Series 1 Class H Convertible Preferred Stock |  |             | 0   |  |              |   | 732,972   |                   |  |   | 408,648            |  |  |             | 0       
|                                  |  |                                              |  |             |     |  |              |   |           |                   |  |   |                    |  |  |             |         
|                                  |  | Series 2 Class D Convertible Preferred Stock |  |             | 0   |  |              |   | 886,651   |                   |  |   | 614,317            |  |  |             | 0       
|                                  |  |                                              |  |             |     |  |              |   |           |                   |  |   |                    |  |  |             |         
|                                  |  | Series 2 Class E Convertible Preferred Stock |  |             | 0   |  |              |   | 711,876   |                   |  |   | 458,894            |  |  |             | 0       
|                                  |  |                                              |  |             |     |  |              |   |           |                   |  |   |                    |  |  |             |         
|                                  |  | Series 2 Class F Convertible Preferred Stock |  |             | 0   |  |              |   | 683,959   |                   |  |   | 440,898            |  |  |             | 0       
|                                  |  |                                              |  |             |     |  |              |   |           |                   |  |   |                    |  |  |             |         
|                                  |  | Warrants for Common Stock                    |  |             | 0   |  |              |   | 710       |                   |  |   | 361                |  |  |             | 0       
|                                  |  |                                              |  |             |     |  |              |   |           |                   |  |   |                    |  |  |             |         
|EchoPixel, Inc.                   |  | Series Seed Convertible Preferred Stock      |  | $           | 0   |  |              | $ | 1,327,092 |                   |  | $ | 8,355              |  |  | $           | 0       
|                                  |  |                                              |  |             |     |  |              |   |           |                   |  |   |                    |  |  |             |         
|                                  |  | Convertible Bridge Note                      |  |             | 525 |  |              |   | 113,425   |                   |  |   | 0                  |  |  |             | (113,425
|                                  |  |                                              |  |             |     |  |              |   |           |                   |  |   |                    |  |  |             |         
|                                  |  | Series Seed-2 Convertible Preferred Stock    |  |             | 0   |  |              |   | 0         |                   |  |   | 503,612            |  |  |             | 0       
|                                  |  |                                              |  |             |     |  |              |   |           |                   |  |   |                    |  |  |             |         
|Ensemble Therapeutics Corporation |  | Series B Convertible Preferred Stock         |  | $           | 0   |  |              | $ | 662,607   |                   |  | $ | 42,053             |  |  | $           | 0       
|                                  |  |                                              |  |             |     |  |              |   |           |                   |  |   |                    |  |  |             |         
|                                  |  | Series B-1 Convertible Preferred Stock       |  |             | 0   |  |              |   | 1,448,295 |                   |  |   | 0                  |  |  |             | (7,565  
|                                  |  |                                              |  |             |     |  |              |   |           |                   |  |   |                    |  |  |             |         
|HZO, Inc.                         |  | Common Stock                                 |  | $           | 0   |  |              | $ | 329,802   |                   |  | $ | 30,192             |  |  | $           | 0       
|                                  |  |                                              |  |             |     |  |              |   |           |                   |  |   |                    |  |  |             |         
|                                  |  | Series I Convertible Preferred Stock         |  |             | 0   |  |              |   | 4,281,820 |                   |  |   | 204,861            |  |  |             | 0       
|                                  |  |                                              |  |             |     |  |              |   |           |                   |  |   |                    |  |  |             |         
|                                  |  | Series II Convertible Preferred Stock        |  |             | 0   |  |              |   | 2,515,164 |                   |  |   | 56,482             |  |  |             | 0       
|                                  |  |                                              |  |             |     |  |              |   |           |                   |  |   |                    |  |  |             |         
|Laser Light Engines, Inc.         |  | Series A Convertible Preferred Stock         |  | $           | 0   |  |              | $ | 0         |                   |  | $ | 0                  |  |  | $           | 0       
|                                  |  |                                              |  |             |     |  |              |   |           |                   |  |   |                    |  |  |             |         
|                                  |  | Series B Convertible Preferred Stock         |  |             | 0   |  |              |   | 0         |                   |  |   | 0                  |  |  |             | 0       
|                                  |  |                                              |  |             |     |  |              |   |           |                   |  |   |                    |  |  |             |         
|                                  |  | Convertible Bridge Notes(E)                  |  |             | 0   |  |              |   | 0         |                   |  |   | 0                  |  |  |             | 0       
|                                  |  |                                              |  |             |     |  |              |   |           |                   |  |   |                    |  |  |             |         
|Lodo Therapeutics Corporation     |  | Series A Convertible Preferred Stock         |  | $           | 0   |  |              | $ | 107,281   |                   |  | $ | 554                |  |  | $           | 0       
|                                  |  |                                              |  |             |     |  |              |   |           |                   |  |   |                    |  |  |             |         
|Metabolon, Inc.                   |  | Series B Convertible Preferred Stock         |  | $           | 0   |  |              | $ | 3,699,120 |                   |  | $ | 0                  |  |  | $           | (741,622
|                                  |  |                                              |  |             |     |  |              |   |           |                   |  |   |                    |  |  |             |         
|                                  |  | Series B-1 Convertible Preferred Stock       |  |             | 0   |  |              |   | 1,479,647 |                   |  |   | 0                  |  |  |             | (296,649
|                                  |  |                                              |  |             |     |  |              |   |           |                   |  |   |                    |  |  |             |         
|                                  |  | Series C Convertible Preferred Stock         |  |             | 0   |  |              |   | 3,388,907 |                   |  |   | 0                  |  |  |             | (677,613
|                                  |  |                                              |  |             |     |  |              |   |           |                   |  |   |                    |  |  |             |         
|                                  |  | Series D Convertible Preferred Stock         |  |             | 0   |  |              |   | 2,887,617 |                   |  |   | 0                  |  |  |             | (528,118



iii







|                                         |  |                                                     |  | Amount of   |        |  |              |   |            |                   |  |   |                    |  |  |             |           
|---------------------------------------- |  | --------------------------------------------------- |  | ----------- | ------ |  | ------------ | - | ---------- | ----------------- |  | - | ------------------ |  |  | ----------- | ----------
|                                         |  |                                                     |  | Dividends   |        |  |              |   |            |                   |  |   |                    |  |  |             |           
|                                         |  |                                                     |  | or Interest |        |  |              |   |            |                   |  |   |                    |  |  |             |           
|                                         |  |                                                     |  | Credited    |        |  | Value as of  |   |            |                   |  |   |                    |  |  | Value as of |           
|                                         |  | Title of Issue or                                   |  | to Income   |        |  | December 31, |   |            | Gross             |  |   | Gross              |  |  | March 31,   |           
|Name of Issuer                           |  | Nature of Indebtedness(A)                           |  | (B)         |        |  | 2015         |   |            | Additions
    (C) |  |   | Reductions
    (D) |  |  | 2016        |           
|                                         |  |                                                     |  |             |        |  |              |   |            |                   |  |   |                    |  |  |             |           
|Metabolon, Inc. (Cont'd)                 |  | Series E-1 Convertible Preferred Stock              |  | $           | 0      |  |              | $ | 1,776,987  |                   |  | $ | 0                  |  |  | $           | (242,592  
|                                         |  |                                                     |  |             |        |  |              |   |            |                   |  |   |                    |  |  |             |           
|                                         |  | Series E-2 Convertible Preferred Stock              |  |             | 0      |  |              |   | 389,566    |                   |  |   | 0                  |  |  |             | (57,179   
|                                         |  |                                                     |  |             |        |  |              |   |            |                   |  |   |                    |  |  |             |           
|ORIG3N, Inc.                             |  | Series I Convertible Preferred Stock                |  | $           | 0      |  |              | $ | 826,563    |                   |  | $ | 1,059              |  |  | $           | 0         
|                                         |  |                                                     |  |             |        |  |              |   |            |                   |  |   |                    |  |  |             |           
|                                         |  | Series A Convertible Preferred Stock                |  |             | 0      |  |              |   | 750,338    |                   |  |   | 0                  |  |  |             | (2,395    
|                                         |  |                                                     |  |             |        |  |              |   |            |                   |  |   |                    |  |  |             |           
|Petra Pharma Corporation                 |  | Series A Convertible Preferred Stock                |  | $           | 0      |  |              | $ | 1,019,755  |                   |  | $ | 3,780              |  |  | $           | 0         
|                                         |  |                                                     |  |             |        |  |              |   |            |                   |  |   |                    |  |  |             |           
|Produced Water Absorbents, Inc.          |  | Series A Convertible Preferred Stock                |  | $           | 0      |  |              | $ | 77,549     |                   |  | $ | 0                  |  |  | $           | (54,426   
|                                         |  |                                                     |  |             |        |  |              |   |            |                   |  |   |                    |  |  |             |           
|                                         |  | Series B Convertible Preferred Stock                |  |             | 0      |  |              |   | 214,302    |                   |  |   | 0                  |  |  |             | (150,402  
|                                         |  |                                                     |  |             |        |  |              |   |            |                   |  |   |                    |  |  |             |           
|                                         |  | Series B-2 Convertible Preferred Stock              |  |             | 0      |  |              |   | 154,718    |                   |  |   | 0                  |  |  |             | (108,585  
|                                         |  |                                                     |  |             |        |  |              |   |            |                   |  |   |                    |  |  |             |           
|                                         |  | Series B-3 Convertible Preferred Stock              |  |             | 0      |  |              |   | 140,109    |                   |  |   | 0                  |  |  |             | (98,332   
|                                         |  |                                                     |  |             |        |  |              |   |            |                   |  |   |                    |  |  |             |           
|                                         |  | Series C Convertible Preferred Stock                |  |             | 0      |  |              |   | 75,581     |                   |  |   | 0                  |  |  |             | (53,045   
|                                         |  |                                                     |  |             |        |  |              |   |            |                   |  |   |                    |  |  |             |           
|                                         |  | Series D Convertible Preferred Stock                |  |             | 0      |  |              |   | 133,330    |                   |  |   | 0                  |  |  |             | (93,574   
|                                         |  |                                                     |  |             |        |  |              |   |            |                   |  |   |                    |  |  |             |           
|                                         |  | Warrants for Series B-2 Convertible Preferred Stock |  |             | 0      |  |              |   | 174        |                   |  |   | 0                  |  |  |             | (174      
|                                         |  |                                                     |  |             |        |  |              |   |            |                   |  |   |                    |  |  |             |           
|                                         |  | Subordinated Secured Non- Convertible Debt          |  |             | 34,958 |  |              |   | 560,538    |                   |  |   | 9,953              |  |  |             | 0         
|                                         |  |                                                     |  |             |        |  |              |   |            |                   |  |   |                    |  |  |             |           
|                                         |  | Secured Convertible Bridge Note                     |  |             | 23,630 |  |              |   | 143,926    |                   |  |   | 0                  |  |  |             | (23,677   
|                                         |  |                                                     |  |             |        |  |              |   |            |                   |  |   |                    |  |  |             |           
|                                         |  | Senior Secured Debt                                 |  |             | 0      |  |              |   | 0          |                   |  |   | 875,000            |  |  |             | 0         
|                                         |  |                                                     |  |             |        |  |              |   |            |                   |  |   |                    |  |  |             |           
|Total Affiliated Private
    Investments |  |                                                     |  | $           | 60,691 |  |              | $ | 41,909,262 |                   |  | $ | 6,631,397          |  |  | $           | (3,249,994



iv







|                                                        |  |                                  |  | Amount of   |        |  |              |   |            |                   |  |   |                    |  |  |             |           
|------------------------------------------------------- |  | -------------------------------- |  | ----------- | ------ |  | ------------ | - | ---------- | ----------------- |  | - | ------------------ |  |  | ----------- | ----------
|                                                        |  |                                  |  | Dividends   |        |  |              |   |            |                   |  |   |                    |  |  |             |           
|                                                        |  |                                  |  | or Interest |        |  |              |   |            |                   |  |   |                    |  |  |             |           
|                                                        |  |                                  |  | Credited    |        |  | Value as of  |   |            |                   |  |   |                    |  |  | Value as of |           
|                                                        |  | Title of Issue or                |  | to Income   |        |  | December 31, |   |            | Gross             |  |   | Gross              |  |  | March 31,   |           
|Name of Issuer                                          |  | Nature of Indebtedness(A)        |  | (B)         |        |  | 2015         |   |            | Additions
    (C) |  |   | Reductions
    (D) |  |  | 2016        |           
|                                                        |  |                                  |  |             |        |  |              |   |            |                   |  |   |                    |  |  |             |           
|PUBLICLY TRADED AFFILIATED
    INVESTMENTS:             |  |                                  |  |             |        |  |              |   |            |                   |  |   |                    |  |  |             |           
|                                                        |  |                                  |  |             |        |  |              |   |            |                   |  |   |                    |  |  |             |           
|Adesto Technologies Corporation                         |  | Common Stock                     |  | $           | 0      |  |              | $ | 13,645,682 |                   |  | $ | 0                  |  |  | $           | (3,699,024
|                                                        |  |                                  |  |             |        |  |              |   |            |                   |  |   |                    |  |  |             |           
|Enumeral Biomedical Holdings, Inc.                      |  | Common Stock                     |  | $           | 0      |  |              | $ | 1,831,468  |                   |  | $ | 0                  |  |  | $           | (556,849  
|                                                        |  |                                  |  |             |        |  |              |   |            |                   |  |   |                    |  |  |             |           
|                                                        |  | Warrants for Common Stock        |  |             | 0      |  |              |   | 87,486     |                   |  |   | 0                  |  |  |             | (35,383   
|                                                        |  |                                  |  |             |        |  |              |   |            |                   |  |   |                    |  |  |             |           
|                                                        |  | Options to Purchase Common Stock |  |             | 0      |  |              |   | 54         |                   |  |   | 0                  |  |  |             | (54       
|                                                        |  |                                  |  |             |        |  |              |   |            |                   |  |   |                    |  |  |             |           
|OpGen, Inc.                                             |  | Common Stock                     |  | $           | 0      |  |              | $ | 2,678,612  |                   |  | $ | 0                  |  |  | $           | (690,800  
|                                                        |  |                                  |  |             |        |  |              |   |            |                   |  |   |                    |  |  |             |           
|                                                        |  | Warrants for Common Stock        |  |             | 0      |  |              |   | 127,803    |                   |  |   | 0                  |  |  |             | (27,195   
|                                                        |  |                                  |  |             |        |  |              |   |            |                   |  |   |                    |  |  |             |           
|Total Non- Controlled
    Affiliated Public Investments |  |                                  |  | $           | 0      |  |              | $ | 18,371,105 |                   |  | $ | 0                  |  |  | $           | (5,009,305
|                                                        |  |                                  |  |             |        |  |              |   |            |                   |  |   |                    |  |  |             |           
|Total Non- Controlled
    Affiliated Investments        |  |                                  |  | $           | 60,691 |  |              | $ | 60,280,367 |                   |  | $ | 6,631,397          |  |  | $           | (8,259,299
|                                                        |  |                                  |  |             |        |  |              |   |            |                   |  |   |                    |  |  |             |           
|EQUITY METHOD INVESTMENT:                               |  |                                  |  |             |        |  |              |   |            |                   |  |   |                    |  |  |             |           
|                                                        |  |                                  |  |             |        |  |              |   |            |                   |  |   |                    |  |  |             |           
|Accelerator IV-New York
    Corporation                 |  | Series A Common Stock            |  | $           | 0      |  |              | $ | 165,936    |                   |  | $ | 62,197             |  |  | $           | 0         
|                                                        |  |                                  |  |             |        |  |              |   |            |                   |  |   |                    |  |  |             |           
|Total Equity Method Investment                          |  |                                  |  | $           | 0      |  |              | $ | 165,936    |                   |  | $ | 62,197             |  |  | $           | 0         



|(A) | Common stock, warrants, options,
membership units and, in some cases, preferred stock are generally non-income producing and restricted. The principal amount of
debt and the number of shares of common and preferred stock and number of membership units are shown in the accompanying Consolidated
Schedules of Investments as of March 31, 2016, and December 31, 2015.    
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                 
|(B) | Represents the total amount of
interest or dividends and yield-enhancing fees on debt securities credited to income for the portion of the year an investment
was a control or affiliate investment, as appropriate. Amounts credited to preferred or common stock represent accrued bridge
note interest related to conversions that occurred during the first quarter of 2016.
|    |                                                                                                                                                                                                                                                                                                                                                                                 
|(C) | Gross additions include increases
in investments resulting from new portfolio investments, paid-in-kind interest or dividends, the amortization of discounts and
fees. Gross additions also include net increases in unrealized appreciation or decreases in unrealized depreciation.                                                                                           
|    |                                                                                                                                                                                                                                                                                                                                                                                 
|(D) | Gross reductions include decreases in investments resulting from principal collections related to investment repayments or sales, the amortization of premiums and acquisition costs. Gross reductions also include net increases in unrealized depreciation or decreases in unrealized appreciation.                                                                           



**Information related to the amount of
equity in the net profit and loss for the year for the investments listed has not been included in this schedule. This information
is not considered to be meaningful owing to the complex capital structures of the portfolio companies, with different classes of
equity securities outstanding with different preferences in liquidation. These investments are not consolidated, nor are they accounted
for under the equity method of accounting, with the exception of Accelerator IV-New York Corporation, which is accounted for under
the equity method.





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