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 June 30, 2015



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



For the transition period from ____________ to _____________





Commission file number: 0-11576



HARRIS & HARRIS
GROUP, INC.








(Exact Name of Registrant as Specified in Its
Charter)



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



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



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



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

Yes    x    No     ̈



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

Yes     ̈    No     ̈



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





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







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

Yes     ̈    No    x



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



|Class                                   | Outstanding at August 10, 2015
|--------------------------------------- | ------------------------------
|Common Stock, $0.01 par value per share | 31,321,685 shares             










Harris & Harris Group, Inc.

Form 10-Q, June 30, 2015



|                                                                                                | Page Number
|----------------------------------------------------------------------------------------------- | -----------
|                                                                                                |            
|PART I. FINANCIAL INFORMATION                                                                   |            
|                                                                                                |            
|Item 1. Consolidated Financial Statements                                                       | 1          
|                                                                                                |            
|Consolidated Statements of Assets and Liabilities                                               | 2          
|                                                                                                |            
|Consolidated Statements of Operations                                                           | 3          
|                                                                                                |            
|Consolidated Statements of Comprehensive Loss                                                   | 4          
|                                                                                                |            
|Consolidated Statements of Cash Flows                                                           | 5          
|                                                                                                |            
|Consolidated Statements of Changes in Net Assets                                                | 6          
|                                                                                                |            
|Consolidated Schedule of Investments                                                            | 7          
|                                                                                                |            
|Notes to Consolidated Financial Statements                                                      | 39         
|                                                                                                |            
|Financial Highlights                                                                            | 65         
|                                                                                                |            
|Item 2.  Management's Discussion and Analysis of Financial Condition  and Results of Operations | 66         
|                                                                                                |            
|Cautionary Statement Regarding Forward-Looking Statements                                       | 66         
|                                                                                                |            
|Background                                                                                      | 67         
|                                                                                                |            
|Overview                                                                                        | 67         
|                                                                                                |            
|Realize                                                                                         | 70         
|                                                                                                |            
|Invest                                                                                          | 76         
|                                                                                                |            
|Current Business Environment                                                                    | 79         
|                                                                                                |            
|Valuation of Investments                                                                        | 80         
|                                                                                                |            
|Results of Operations                                                                           | 84         
|                                                                                                |            
|Financial Condition                                                                             | 94         
|                                                                                                |            
|Cash Flow                                                                                       | 95         
|                                                                                                |            
|Liquidity and Capital Resources                                                                 | 96         
|                                                                                                |            
|Borrowings                                                                                      | 97         
|                                                                                                |            
|Contractual Obligations                                                                         | 98         
|                                                                                                |            
|Critical Accounting Policies                                                                    | 98         
|                                                                                                |            
|Recent Developments – Portfolio Companies                                                       | 102        
|                                                                                                |            
|Recent Developments – Other                                                                     | 102        
|                                                                                                |            
|Item 3.  Quantitative and Qualitative Disclosures About Market Risk                             | 103        
|                                                                                                |            
|Item 4.  Controls and Procedures                                                                | 105        
|                                                                                                |            
|PART II.  OTHER INFORMATION                                                                     |            
|                                                                                                |            
|Item 1A.  Risk Factors                                                                          | 106        
|                                                                                                |            
|Item 6. Exhibits                                                                                | 106        
|                                                                                                |            
|Signatures                                                                                      | 107        
|                                                                                                |            
|Exhibit Index                                                                                   | 108        
|                                                                                                |            
|Financial Statements Schedule 12-14                                                             | i-v        










PART I. FINANCIAL INFORMATION



Item 1.  Consolidated Financial
Statements



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



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



1







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







|                                                                                                                                                                 |  | June 30, 2015 |             |   | December 31, 2014 |  
|---------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------- | ----------- | - | ----------------- | -
|ASSETS                                                                                                                                                          
|Investments, in portfolio securities at value:                                                                                                                  
|Unaffiliated privately held companies 
(cost: $20,307,754 and $22,304,047, respectively)                                                                         |  | $             | 7,452,767   |   |                   | $
|Unaffiliated rights to milestone payments
(adjusted cost basis: $2,387,278 and $2,387,278, respectively)                                                         |  |               | 3,181,183   |   |                   |  
|Unaffiliated publicly traded securities
(cost: $1,682,079 and $1,741,128, respectively)                                                                          |  |               | 1,561,988   |   |                   |  
|Non-controlled affiliated privately held companies
(cost: $64,678,768 and $67,236,533, respectively)                                                             |  |               | 58,952,248  |   |                   |  
|Non-controlled affiliated publicly traded companies
(cost: $11,683,371 and $5,591,299, respectively)                                                             |  |               | 10,695,100  |   |                   |  
|Controlled affiliated privately held companies
(cost: $13,505,442 and $13,111,030, respectively)                                                                 |  |               | 5,207,773   |   |                   |  
|Equity method privately held companies
(adjusted cost basis: $288,391 and $0, respectively)                                                                      |  |               | 288,391     |   |                   |  
|Total, investments in private portfolio companies, rights to milestone 
payments, public securities at value
(cost: $114,533,083 and $112,371,315, respectively) |  | $             | 87,339,450  |   |                   | $
|Cash                                                                                                                                                             |  |               | 22,982,089  |   |                   |  
|Funds held in escrow from sales of investments at value (Note 3)                                                                                                 |  |               | 372,835     |   |                   |  
|Receivable from portfolio company                                                                                                                                |  |               | 17,500      |   |                   |  
|Interest receivable                                                                                                                                              |  |               | 72,826      |   |                   |  
|Prepaid expenses                                                                                                                                                 |  |               | 554,767     |   |                   |  
|Other assets                                                                                                                                                     |  |               | 417,265     |   |                   |  
|Total assets                                                                                                                                                     |  | $             | 111,756,732 |   |                   | $
|                                                                                                                                                                 |  |               |             |   |                   |  
|LIABILITIES & NET ASSETS                                                                                                                                        
|                                                                                                                                                                 |  |               |             |   |                   |  
|Term loan credit facility (Note 5)                                                                                                                               |  | $             | 5,000,000   |   |                   | $
|Post retirement plan liabilities (Note 8)                                                                                                                        |  |               | 1,293,962   |   |                   |  
|Accounts payable and accrued liabilities                                                                                                                         |  |               | 674,840     |   |                   |  
|Deferred rent                                                                                                                                                    |  |               | 305,192     |   |                   |  
|Total liabilities                                                                                                                                                |  | $             | 7,273,994   |   |                   | $
|                                                                                                                                                                 |  |               |             |   |                   |  
|Commitments and contingencies (Note 12)                                                                                                                          |  |               |             |   |                   |  
|                                                                                                                                                                 |  |               |             |   |                   |  
|Net assets                                                                                                                                                       |  | $             | 104,482,738 |   |                   | $
|                                                                                                                                                                 |  |               |             |   |                   |  
|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 6/30/15 and 12/31/14; 33,150,425 and
33,109,583 issued at 6/30/15 and 12/31/14, respectively      |  |               | 331,504     |   |                   |  
|Additional paid in capital (Note 9)                                                                                                                              |  |               | 215,435,591 |   |                   |  
|Accumulated net operating and realized loss                                                                                                                      |  |               | (81,298,904 | ) |                   |  
|Accumulated unrealized depreciation of investments                                                                                                               |  |               | (27,193,633 | ) |                   |  
|Accumulated other comprehensive income (Note 8)                                                                                                                  |  |               | 613,711     |   |                   |  
|Treasury stock, at cost (1,828,740 shares at 6/30/15 and 12/31/14)                                                                                               |  |               | (3,405,531  | ) |                   |  
|                                                                                                                                                                 |  |               |             |   |                   |  
|Net assets                                                                                                                                                       |  | $             | 104,482,738 |   |                   | $
|Shares outstanding                                                                                                                                               |  |               | 31,321,685  |   |                   |  
|Net asset value per outstanding share                                                                                                                            |  | $             | 3.34        |   |                   | $





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 June 30, |            |   | Six Months Ended June 30, |  
|------------------------------------------------------------------ |  | --------------------------- | ---------- | - | ------------------------- | -
|                                                                   |  | 2015                        |            |   | 2014                      |  
|Investment income:                                                 |  |                             |            |   |                           |  
|Interest from:                                                     |  |                             |            |   |                           |  
|Unaffiliated companies                                             |  | $                           | 9,533      |   |                           | $
|Non-controlled affiliated companies                                |  |                             | 201,896    |   |                           |  
|Controlled affiliated companies                                    |  |                             | 47,207     |   |                           |  
|Cash and U.S. Treasury securities and other                        |  |                             | 3,318      |   |                           |  
|Fees for providing managerial assistance to
portfolio companies    |  |                             | 6,500      |   |                           |  
|Yield-enhancing fees on debt securities                            |  |                             | 19,741     |   |                           |  
|Total investment income                                            |  |                             | 288,195    |   |                           |  
|                                                                   |  |                             |            |   |                           |  
|Expenses:                                                          |  |                             |            |   |                           |  
|Salaries, benefits and stock-based 
compensation (Note 9)          |  |                             | 977,689    |   |                           |  
|Administration and operations                                      |  |                             | 134,860    |   |                           |  
|Professional fees                                                  |  |                             | 314,785    |   |                           |  
|Rent                                                               |  |                             | 67,758     |   |                           |  
|Insurance expense                                                  |  |                             | 73,724     |   |                           |  
|Directors’ fees and expenses                                       |  |                             | 68,901     |   |                           |  
|Interest and other debt expenses                                   |  |                             | 208,026    |   |                           |  
|Custody fees                                                       |  |                             | 15,704     |   |                           |  
|Depreciation                                                       |  |                             | 12,055     |   |                           |  
|Total expenses                                                     |  |                             | 1,873,502  |   |                           |  
|                                                                   |  |                             |            |   |                           |  
|Net operating loss                                                 |  |                             | (1,585,307 | ) |                           |  
|                                                                   |  |                             |            |   |                           |  
|Net realized gain (loss):                                          |  |                             |            |   |                           |  
|Realized gain (loss) from investments:                             |  |                             |            |   |                           |  
|Unaffiliated companies                                             |  |                             | 3,289,351  |   |                           |  
|Non-Controlled affiliated companies                                |  |                             | (98,644    | ) |                           |  
|Publicly traded companies                                          |  |                             | 41,411     |   |                           |  
|Written call options                                               |  |                             | 0          |   |                           |  
|Realized gain (loss) from investments                              |  |                             | 3,232,118  |   |                           |  
|                                                                   |  |                             |            |   |                           |  
|Income tax expense (Note 10)                                       |  |                             | 1,600      |   |                           |  
|Net realized gain (loss) from investments                          |  |                             | 3,230,518  |   |                           |  
|                                                                   |  |                             |            |   |                           |  
|Net (increase) decrease in unrealized
depreciation on investments: |  |                             |            |   |                           |  
|Investments                                                        |  |                             | (3,116,377 | ) |                           |  
|Written call options                                               |  |                             | 0          |   |                           |  
|Net (increase) decrease in unrealized
depreciation on investments  |  |                             | (3,116,377 | ) |                           |  
|                                                                   |  |                             |            |   |                           |  
|Net realized and unrealized gains
(loss) on investments            |  |                             | 114,141    |   |                           |  
|                                                                   |  |                             |            |   |                           |  
|Share of loss on equity method investment                          |  |                             | (58,330    | ) |                           |  
|                                                                   |  |                             |            |   |                           |  
|Net (decrease) increase in net assets
resulting from operations:   |  |                             |            |   |                           |  
|                                                                   |  |                             |            |   |                           |  
|Total                                                              |  | $                           | (1,529,496 | ) |                           | $
|                                                                   |  |                             |            |   |                           |  
|Per average basic and diluted outstanding share                    |  | $                           | (0.05      | ) |                           | $
|                                                                   |  |                             |            |   |                           |  
|Average outstanding shares                                         |  |                             | 31,285,894 |   |                           |  



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 June 30, |            |   | Six Months Ended June 30, |  
|------------------------------------------------- |  | --------------------------- | ---------- | - | ------------------------- | -
|                                                  |  | 2015                        |            |   | 2014                      |  
|                                                  |  |                             |            |   |                           |  
|Net (decrease) increase resulting from operations |  | $                           | (1,529,496 | ) |                           | $
|                                                  |  |                             |            |   |                           |  
|Other comprehensive (loss) income:                |  |                             |            |   |                           |  
|                                                  |  |                             |            |   |                           |  
|Amortization of prior service cost                |  |                             | (52,246    | ) |                           |  
|                                                  |  |                             |            |   |                           |  
|Other comprehensive loss                          |  |                             | (52,246    | ) |                           |  
|                                                  |  |                             |            |   |                           |  
|Comprehensive (loss) income                       |  | $                           | (1,581,742 | ) |                           | $



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



4









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



|                                                                                                                                        |  | Six Months Ended |            |   | Six Months Ended |  
|--------------------------------------------------------------------------------------------------------------------------------------- |  | ---------------- | ---------- | - | ---------------- | -
|                                                                                                                                        |  | June 30, 2015    |            |   | June 30, 2014    |  
|Cash flows (used in) provided by operating activities:                                                                                  |  |                  |            |   |                  |  
|Net (decrease) in net assets resulting from operations                                                                                  |  | $                | (5,451,534 | ) |                  | $
|Adjustments to reconcile net (decrease) in net assets
resulting from operations to net cash provided by
(used in) operating activities: |  |                  |            |   |                  |  
|Net realized loss (gain) and change in unrealized
depreciation (appreciation) on investments                                            |  |                  | 1,638,341  |   |                  |  
|Depreciation of fixed assets, amortization of prepaid
assets and accretion of bridge note interest                                      |  |                  | (279,990   | ) |                  |  
|Share of loss on equity method investee                                                                                                 |  |                  | 189,836    |   |                  |  
|Stock-based compensation expense                                                                                                        |  |                  | 431,981    |   |                  |  
|Amortization of prior service cost                                                                                                      |  |                  | (104,492   | ) |                  |  
|Purchase of U.S. government securities                                                                                                  |  |                  | 0          |   |                  |  
|Sale of U.S. government securities                                                                                                      |  |                  | 0          |   |                  |  
|Purchase of equity method investment                                                                                                    |  |                  | (262,215   | ) |                  |  
|Purchase of affiliated portfolio companies                                                                                              |  |                  | (4,275,915 | ) |                  |  
|Purchase of unaffiliated portfolio companies                                                                                            |  |                  | (509,824   | ) |                  |  
|Payments received on debt investments                                                                                                   |  |                  | 186,109    |   |                  |  
|Proceeds from sale of investments and conversion of bridge notes                                                                        |  |                  | 5,698,094  |   |                  |  
|Proceeds from call option premiums                                                                                                      |  |                  | 0          |   |                  |  
|Payments for put and call option purchases                                                                                              |  |                  | 0          |   |                  |  
|                                                                                                                                        |  |                  |            |   |                  |  
|Changes in assets and liabilities:                                                                                                      |  |                  |            |   |                  |  
|Receivable from sales of investments                                                                                                    |  |                  | 0          |   |                  |  
|Receivable from portfolio company                                                                                                       |  |                  | 143,377    |   |                  |  
|Interest receivable                                                                                                                     |  |                  | (10,344    | ) |                  |  
|Prepaid expenses                                                                                                                        |  |                  | 200,089    |   |                  |  
|Other assets                                                                                                                            |  |                  | (138,848   | ) |                  |  
|Post retirement plan liabilities                                                                                                        |  |                  | 26,347     |   |                  |  
|Accounts payable and accrued liabilities                                                                                                |  |                  | (167,075   | ) |                  |  
|Deferred rent                                                                                                                           |  |                  | (25,712    | ) |                  |  
|                                                                                                                                        |  |                  |            |   |                  |  
|Net cash (used in) provided by operating activities                                                                                     |  |                  | (2,711,775 | ) |                  |  
|                                                                                                                                        |  |                  |            |   |                  |  
|Cash flows from investing activities:                                                                                                   |  |                  |            |   |                  |  
|Purchase of fixed assets                                                                                                                |  |                  | (6,806     | ) |                  |  
|Net cash used in investing activities                                                                                                   |  |                  | (6,806     | ) |                  |  
|                                                                                                                                        |  |                  |            |   |                  |  
|Cash flows from financing activities:                                                                                                   |  |                  |            |   |                  |  
|Proceeds from drawdown of loan facility                                                                                                 |  |                  | 5,000,000  |   |                  |  
|Payment of withholdings related to net settlement of restricted stock                                                                   |  |                  | (47,644    | ) |                  |  
|Net cash provided by (used in) financing activities                                                                                     |  |                  | 4,952,356  |   |                  |  
|                                                                                                                                        |  |                  |            |   |                  |  
|Net increase in cash                                                                                                                    |  | $                | 2,233,775  |   |                  | $
|                                                                                                                                        |  |                  |            |   |                  |  
|Cash at beginning of the period                                                                                                         |  |                  | 20,748,314 |   |                  |  
|Cash at end of the period                                                                                                               |  | $                | 22,982,089 |   |                  | $
|                                                                                                                                        |  |                  |            |   |                  |  
|Supplemental disclosures of cash flow information:                                                                                      |  |                  |            |   |                  |  
|Income taxes paid                                                                                                                       |  | $                | 1,705      |   |                  | $



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)
|----------------------------------------------------------------------------------------------------------------



|                                                                                         |  | Six Months Ended |             |   | Year Ended        |  
|---------------------------------------------------------------------------------------- |  | ---------------- | ----------- | - | ----------------- | -
|                                                                                         |  | June 30, 2015    |             |   | December 31, 2014 |  
|                                                                                         |  |                  |             |   |                   |  
|Changes in net assets from operations:                                                   |  |                  |             |   |                   |  
|                                                                                         |  |                  |             |   |                   |  
|Net operating loss                                                                       |  | $                | (3,621,652  | ) |                   | $
|Net realized gain (loss) on investments                                                  |  |                  | 2,947,112   |   |                   |  
|Net (increase) in unrealized
depreciation on investments                                 |  |                  | (4,587,158  | ) |                   |  
|Net (decrease) in unrealized
appreciation on written call options                        |  |                  | 0           |   |                   |  
|Share of loss on equity method investment                                                |  |                  | (189,836    | ) |                   |  
|                                                                                         |  |                  |             |   |                   |  
|Net decrease in net assets
resulting from operations                                     |  |                  | (5,451,534  | ) |                   |  
|                                                                                         |  |                  |             |   |                   |  
|Changes in net assets from
capital stock transactions:                                   |  |                  |             |   |                   |  
|                                                                                         |  |                  |             |   |                   |  
|Acquisition of vested restricted stock awards
to pay required employee withholding tax   |  |                  | (47,644     | ) |                   |  
|Stock-based compensation expense                                                         |  |                  | 431,981     |   |                   |  
|                                                                                         |  |                  |             |   |                   |  
|Net increase in net assets resultingfrom capital stock transactions                      |  |                  | 384,337     |   |                   |  
|                                                                                         |  |                  |             |   |                   |  
|Changes in net assets from accumulated
other comprehensive (loss) income:                |  |                  |             |   |                   |  
|                                                                                         |  |                  |             |   |                   |  
|Other comprehensive (loss)                                                               |  |                  | (104,492    | ) |                   |  
|                                                                                         |  |                  |             |   |                   |  
|Net (decrease) in net assets resulting fromaccumulated other comprehensive (loss) income |  |                  | (104,492    | ) |                   |  
|                                                                                         |  |                  |             |   |                   |  
|Net decrease in net assets                                                               |  |                  | (5,171,689  | ) |                   |  
|                                                                                         |  |                  |             |   |                   |  
|Net Assets:                                                                              |  |                  |             |   |                   |  
|                                                                                         |  |                  |             |   |                   |  
|Beginning of the period                                                                  |  |                  | 109,654,427 |   |                   |  
|                                                                                         |  |                  |             |   |                   |  
|End of the period                                                                        |  | $                | 104,482,738 |   |                   | $



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

6







|HARRIS & HARRIS GROUP,
        INC.
        CONSOLIDATED
        SCHEDULE OF INVESTMENTS AS OF JUNE 30, 2015
        (Unaudited)
|--------------------------------------------------------------------------------------------------------------------------------



|                                                                          |  | Method of     |  | Primary      |  |      |           |  | Shares/   |  |           |       | 
|------------------------------------------------------------------------- |  | ------------- |  | ------------ |  | ---- | --------- |  | --------- |  | --------- | ----- | 
|                                                                          |  | Valuation (1) |  | Industry (2) |  | Cost |           |  | Principal |  |           | Value | 
|                                                                          |  |               |  |              |  |      |           |  |           |  |           |       | 
|Investments in Unaffiliated Companies (3) – 
11.7% of net assets at value |  |               |  |              |  |      |           |  |           |  |           |       | 
|                                                                          |  |               |  |              |  |      |           |  |           |  |           |       | 
|Private Placement Portfolio (Illiquid) (4) –
7.1% 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                                      |  | (M)           |  |              |  | $    | 1,000,000 |  |           |  | 1,861,504 |       | 
|Series C Convertible Preferred Stock                                      |  | (M)           |  |              |  |      | 1,352,196 |  |           |  | 2,130,699 |       | 
|Series D Convertible Preferred Stock                                      |  | (M)           |  |              |  |      | 1,371,622 |  |           |  | 999,999   |       | 
|Series E Convertible Preferred Stock                                      |  | (M)           |  |              |  |      | 672,599   |  |           |  | 440,334   |       | 
|Series E-1 Convertible Preferred Stock                                    |  | (M)           |  |              |  |      | 386,073   |  |           |  | 399,579   |       | 
|Warrants for Series C Convertible Preferred
Stock expiring 8/31/15        |  | (M)           |  |              |  |      | 168,270   |  |           |  | 163,900   |       | 
|Warrants for Series D Convertible Preferred
Stock expiring 8/31/15        |  | (M)           |  |              |  |      | 128,543   |  |           |  | 166,665   |       | 
|Warrants for Series E Convertible Preferred
Stock expiring 12/31/17       |  | (M)           |  |              |  |      | 93,969    |  |           |  | 170,823   |       | 
|Warrants for Common Stock expiring 6/1/16                                 |  | (M)           |  |              |  |      | 72,668    |  |           |  | 132,100   |       | 
|Warrants for Common Stock expiring 8/9/18                                 |  | (M)           |  |              |  |      | 148,409   |  |           |  | 171,183   |       | 
|Warrants for Common Stock expiring 10/21/18                               |  | (M)           |  |              |  |      | 18,816    |  |           |  | 84,846    |       | 
|                                                                          |  |               |  |              |  |      | 5,413,165 |  |           |  |           |       | 
|                                                                          |  |               |  |              |  |      |           |  |           |  |           |       | 
|Cambrios Technologies Corporation (5)(8)(9)                               |  |               |  | Electronics  |  |      |           |  |           |  |           |       | 
|Developing nanowire-enabled electronic
materials for the display industry |  |               |  |              |  |      |           |  |           |  |           |       | 
|Series B Convertible Preferred Stock                                      |  | ( I )         |  |              |  |      | 1,294,025 |  |           |  | 1,294,025 |       | 
|Series C Convertible Preferred Stock                                      |  | ( I )         |  |              |  |      | 1,300,000 |  |           |  | 1,300,000 |       | 
|Series D Convertible Preferred Stock                                      |  | ( I )         |  |              |  |      | 515,756   |  |           |  | 515,756   |       | 
|Series D-2 Convertible Preferred Stock                                    |  | ( I )         |  |              |  |      | 92,400    |  |           |  | 92,400    |       | 
|Series D-4 Convertible Preferred Stock                                    |  | ( I )         |  |              |  |      | 216,168   |  |           |  | 216,168   |       | 
|                                                                          |  |               |  |              |  |      | 3,418,349 |  |           |  |           |       | 
|                                                                          |  |               |  |              |  |      |           |  |           |  |           |       | 
|Cobalt Technologies, Inc. (8)(9)(10)(11)                                  |  |               |  | Energy       |  |      |           |  |           |  |           |       | 
|Developed processes for making bio-
butanol through biomass fermentation  |  |               |  |              |  |      |           |  |           |  |           |       | 
|Series C-1 Convertible Preferred Stock                                    |  | (M)           |  |              |  |      | 749,998   |  |           |  | 352,112   |       | 
|Series D-1 Convertible Preferred Stock                                    |  | (M)           |  |              |  |      | 122,070   |  |           |  | 48,828    |       | 
|Series E-1 Convertible Preferred Stock                                    |  | (M)           |  |              |  |      | 114,938   |  |           |  | 46,089    |       | 
|Warrants for Series E-1 Pref. Stock expiring on 10/9/22                   |  | ( I )         |  |              |  |      | 2,781     |  |           |  | 1,407     |       | 
|Warrants for Series E-1 Pref. Stock expiring on 3/11/23                   |  | ( I )         |  |              |  |      | 5,355     |  |           |  | 2,707     |       | 
|                                                                          |  |               |  |              |  |      | 995,142   |  |           |  |           |       | 



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



7







|HARRIS & HARRIS GROUP,
        INC.
        CONSOLIDATED
        SCHEDULE OF INVESTMENTS AS OF JUNE 30, 2015
        (Unaudited)
|--------------------------------------------------------------------------------------------------------------------------------



|                                                                                                                                   |  | Method of     |  | Primary       |  |      |           |  | Shares/   |   |           |       | 
|---------------------------------------------------------------------------------------------------------------------------------- |  | ------------- |  | ------------- |  | ---- | --------- |  | --------- | - | --------- | ----- | 
|                                                                                                                                   |  | Valuation (1) |  | Industry (2)  |  | Cost |           |  | Principal |   |           | Value | 
|                                                                                                                                   |  |               |  |               |  |      |           |  |           |   |           |       | 
|Investments in Unaffiliated Companies (3) –
11.7% of net assets at value (Cont.)                                                   |  |               |  |               |  |      |           |  |           |   |           |       | 
|                                                                                                                                   |  |               |  |               |  |      |           |  |           |   |           |       | 
|Private Placement Portfolio (Illiquid) (4) –
7.1% of net assets at value (Cont.)                                                   |  |               |  |               |  |      |           |  |           |   |           |       | 
|                                                                                                                                   |  |               |  |               |  |      |           |  |           |   |           |       | 
|Magic Leap, Inc. (8)(9)(12)                                                                                                        |  |               |  | Electronics   |  |      |           |  |           |   |           |       | 
|Developing novel human computing
interfaces and software                                                                           |  |               |  |               |  |      |           |  |           |   |           |       | 
|Series B Convertible Preferred Stock                                                                                               |  | ( 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                                                                                             |  | ( I )         |  |               |  |      | 683,538   |  |           |   | 635,081   |       | 
|Series B-1 Convertible Preferred Stock                                                                                             |  | ( I )         |  |               |  |      | 104,521   |  |           |   | 97,111    |       | 
|Common Stock                                                                                                                       |  | ( I )         |  |               |  |      | 3,875,395 |  |           |   | 350,539   |       | 
|                                                                                                                                   |  |               |  |               |  |      | 4,663,454 |  |           |   |           |       | 
|                                                                                                                                   |  |               |  |               |  |      |           |  |           |   |           |       | 
|Nanosys, Inc. (5)(8)                                                                                                               |  |               |  | Energy        |  |      |           |  |           |   |           |       | 
|Developing inorganic nanowires and
                                                    quantum dots for use in LED-backlit devices |  |               |  |               |  |      |           |  |           |   |           |       | 
|Series C Convertible Preferred Stock                                                                                               |  | (M)           |  |               |  |      | 1,500,000 |  |           |   | 803,428   |       | 
|Series D Convertible Preferred Stock                                                                                               |  | (M)           |  |               |  |      | 3,000,003 |  |           |   | 1,016,950 |       | 
|Series E Convertible Preferred Stock                                                                                               |  | (M)           |  |               |  |      | 496,573   |  |           |   | 433,688   |       | 
|                                                                                                                                   |  |               |  |               |  |      | 4,996,576 |  |           |   |           |       | 
|                                                                                                                                   |  |               |  |               |  |      |           |  |           |   |           |       | 
|Nano Terra, Inc. (5)                                                                                                               |  |               |  | Energy        |  |      |           |  |           |   |           |       | 
|Developing surface chemistry and nano-
                                                    manufacturing solutions                 |  |               |  |               |  |      |           |  |           |   |           |       | 
|Senior secured debt, 12.0%, maturing on 12/1/15                                                                                    |  | ( I )         |  |               |  |      | 163,857   |  |           | $ | 199,259   |       | 
|Warrants for Common Stock expiring on 2/22/21                                                                                      |  | ( I )         |  |               |  |      | 69,168    |  |           |   | 4,462     |       | 
|Warrants for Series A-3 Pref. Stock expiring on 11/15/22                                                                           |  | ( I )         |  |               |  |      | 35,403    |  |           |   | 47,508    |       | 
|                                                                                                                                   |  |               |  |               |  |      | 268,428   |  |           |   |           |       | 



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



8







|HARRIS & HARRIS GROUP,
        INC.
        CONSOLIDATED
        SCHEDULE OF INVESTMENTS AS OF JUNE 30, 2015
        (Unaudited)
|--------------------------------------------------------------------------------------------------------------------------------





|                                                                                                                                                                                                                                                      |  | Method of         |  | Primary          |  |      |           |  | Shares/   |   |           |       | 
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------- |  | ---------------- |  | ---- | --------- |  | --------- | - | --------- | ----- | 
|                                                                                                                                                                                                                                                      |  | Valuation
    (1) |  | Industry
    (2) |  | Cost |           |  | Principal |   |           | Value | 
|                                                                                                                                                                                                                                                      |  |                   |  |                  |  |      |           |  |           |   |           |       | 
|Investments
                                         in Unaffiliated Companies (3) –
                                                                11.7%
                                         of net assets at value (Cont.)                    |  |                   |  |                  |  |      |           |  |           |   |           |       | 
|                                                                                                                                                                                                                                                      |  |                   |  |                  |  |      |           |  |           |   |           |       | 
|Private
                                         Placement Portfolio (Illiquid) (4) –
                                                    7.1%
                                         of net assets at value (Cont.)                                |  |                   |  |                  |  |      |           |  |           |   |           |       | 
|                                                                                                                                                                                                                                                      |  |                   |  |                  |  |      |           |  |           |   |           |       | 
|Phylagen, Inc. (5)(8)(13)                                                                                                                                                                                                                             |  |                   |  | Life Sciences    |  |      |           |  |           |   |           |       | 
|Developing
                                         technology to improve human
                                                    health
                                         and productivity                                                  |  |                   |  |                  |  |      |           |  |           |   |           |       | 
|Secured Convertible Bridge Note, 5%, acquired
    2/5/15                                                                                                                                                                                              |  | (M)               |  |                  |  | $    | 204,000   |  |           | $ | 200,000   |       | 
|Secured Convertible Bridge
    Note, 5%, acquired 6/5/15                                                                                                                                                                                              |  | (M)               |  |                  |  |      | 10,036    |  |           | $ | 10,000    |       | 
|                                                                                                                                                                                                                                                      |  |                   |  |                  |  |      | 214,036   |  |           |   |           |       | 
|                                                                                                                                                                                                                                                      |  |                   |  |                  |  |      |           |  |           |   |           |       | 
|Total Unaffiliated Private Placement Portfolio (cost: $20,307,754)                                                                                                                                                                                    |  |                   |  |                  |  |      |           |  |           | $ | 7,452,767 |      
|                                                                                                                                                                                                                                                      |  |                   |  |                  |  |      |           |  |           |   |           |       | 
|Rights to Milestone Payments (Illiquid) (6)
    –                                                                                                                                                                                                     |  |                   |  |                  |  |      |           |  |           |   |           |       | 
|3.1% of net assets at value                                                                                                                                                                                                                           |  |                   |  |                  |  |      |           |  |           |   |           |       | 
|                                                                                                                                                                                                                                                      |  |                   |  |                  |  |      |           |  |           |   |           |       | 
|Amgen, Inc. (8)(9)                                                                                                                                                                                                                                    |  |                   |  | Life Sciences    |  |      |           |  |           |   |           |       | 
|Rights
                                         to Milestone Payments from
                                                                         Acquisition
                                         of BioVex Group, Inc.                        |  | ( I )             |  |                  |  | $    | 1,757,608 |  |           | $ | 1,757,608 |       | 
|                                                                                                                                                                                                                                                      |  |                   |  |                  |  |      |           |  |           |   |           |       | 
|Laird Technologies, Inc. (8)(9)                                                                                                                                                                                                                       |  |                   |  | Energy           |  |      |           |  |           |   |           |       | 
|Rights
                                         to Milestone Payments from Merger &
                                                                         Acquisition
                                         of Nextreme Thermal Solutions, Inc. |  | ( I )             |  |                  |  |      | 0         |  |           | $ | 0         |       | 
|                                                                                                                                                                                                                                                      |  |                   |  |                  |  |      |           |  |           |   |           |       | 
|Canon, Inc. (8)(9)                                                                                                                                                                                                                                    |  |                   |  | Electronics      |  |      |           |  |           |   |           |       | 
|Rights
                                         to Milestone Payments from
                                                                         Acquisition
                                         of Molecular Imprints, Inc.                  |  | ( I )             |  |                  |  |      | 629,670   |  |           | $ | 629,670   |       | 
|                                                                                                                                                                                                                                                      |  |                   |  |                  |  |      |           |  |           |   |           |       | 
|Total Unaffiliated Rights to Milestone Payments (cost: $2,387,278)                                                                                                                                                                                    |  |                   |  |                  |  |      |           |  |           | $ | 3,181,183 |      



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



9







|HARRIS & HARRIS GROUP,
        INC.
        CONSOLIDATED
        SCHEDULE OF INVESTMENTS AS OF JUNE 30, 2015
        (Unaudited)
|--------------------------------------------------------------------------------------------------------------------------------



|                                                                                                                                                                                                           |  | Method of     |  | Primary       |  |      |           |  | Shares/   |   |            |       | 
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------- |  | ------------- |  | ---- | --------- |  | --------- | - | ---------- | ----- | 
|                                                                                                                                                                                                           |  | Valuation (1) |  | Industry (2)  |  | Cost |           |  | Principal |   |            | Value | 
|                                                                                                                                                                                                           |  |               |  |               |  |      |           |  |           |   |            |       | 
|Publicly Traded Portfolio (7) –
                                                    1.5% of net assets at value                                                                                            |  |               |  |               |  |      |           |  |           |   |            |       | 
|                                                                                                                                                                                                           |  |               |  |               |  |      |           |  |           |   |            |       | 
|Solazyme, Inc. (5)(9)                                                                                                                                                                                      |  |               |  | Energy        |  |      |           |  |           |   |            |       | 
|Developing algal biodiesel, industrial
                                                    chemicals and specialty ingredients using
                                                    synthetic biology |  |               |  |               |  |      |           |  |           |   |            |       | 
|Common Stock                                                                                                                                                                                               |  | (M)           |  |               |  | $    | 59,050    |  |           |   | 25,000     |       | 
|                                                                                                                                                                                                           |  |               |  |               |  |      |           |  |           |   |            |       | 
|Champions Oncology, Inc. (5)(9)                                                                                                                                                                            |  |               |  | Life Sciences |  |      |           |  |           |   |            |       | 
|Developing its TumorGraftTM platform for
personalized medicine and drug development                                                                                                                        |  |               |  |               |  |      |           |  |           |   |            |       | 
|Common Stock                                                                                                                                                                                               |  | (M)           |  |               |  |      | 1,622,629 |  |           |   | 2,922,492  |       | 
|Warrants for Common Stock expiring 1/28/19                                                                                                                                                                 |  | ( I )         |  |               |  |      | 400       |  |           |   | 66,000     |       | 
|                                                                                                                                                                                                           |  |               |  |               |  |      | 1,623,029 |  |           |   |            |       | 
|                                                                                                                                                                                                           |  |               |  |               |  |      |           |  |           |   |            |       | 
|Total Unaffiliated Publicly Traded Portfolio (cost: $1,682,079)                                                                                                                                            |  |               |  |               |  |      |           |  |           | $ | 1,561,988  |      
|                                                                                                                                                                                                           |  |               |  |               |  |      |           |  |           |   |            |       | 
|Total Investments in Unaffiliated Companies (cost: $24,377,111)                                                                                                                                            |  |               |  |               |  |      |           |  |           | $ | 12,195,938 |      



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



10









|HARRIS & HARRIS GROUP,
        INC.
        CONSOLIDATED
        SCHEDULE OF INVESTMENTS AS OF JUNE 30, 2015
        (Unaudited)
|--------------------------------------------------------------------------------------------------------------------------------



|                                                                                                                                                                                              |  | Method of     |  | Primary       |  |      |            |  | Shares/   |  |           |       | 
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------- |  | ------------- |  | ---- | ---------- |  | --------- |  | --------- | ----- | 
|                                                                                                                                                                                              |  | Valuation (1) |  | Industry (2)  |  | Cost |            |  | Principal |  |           | Value | 
|                                                                                                                                                                                              |  |               |  |               |  |      |            |  |           |  |           |       | 
|Investments in Non-Controlled
                                                    Affiliated Companies (3) –
                                                    66.6% of net assets at value |  |               |  |               |  |      |            |  |           |  |           |       | 
|                                                                                                                                                                                              |  |               |  |               |  |      |            |  |           |  |           |       | 
|Private Placement Portfolio (Illiquid) (14) –
                                                    56.4% 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                                                                                                                                                          |  | ( I )         |  |               |  | $    | 435,000    |  |           |  | 390,000   |       | 
|Series B Convertible Preferred Stock                                                                                                                                                          |  | ( I )         |  |               |  |      | 1,217,644  |  |           |  | 1,037,751 |       | 
|                                                                                                                                                                                              |  |               |  |               |  |      | 1,652,644  |  |           |  |           |       | 
|                                                                                                                                                                                              |  |               |  |               |  |      |            |  |           |  |           |       | 
|Adesto Technologies Corporation (5)(8)(9)(15)                                                                                                                                                 |  |               |  | Electronics   |  |      |            |  |           |  |           |       | 
|Developing low-power, high-performance
                                                    memory devices                                                                                     |  |               |  |               |  |      |            |  |           |  |           |       | 
|Series A Convertible Preferred Stock                                                                                                                                                          |  | (H)           |  |               |  |      | 2,200,000  |  |           |  | 6,547,619 |       | 
|Series B Convertible Preferred Stock                                                                                                                                                          |  | (H)           |  |               |  |      | 2,200,000  |  |           |  | 5,952,381 |       | 
|Series C Convertible Preferred Stock                                                                                                                                                          |  | (H)           |  |               |  |      | 1,485,531  |  |           |  | 2,122,187 |       | 
|Series D Convertible Preferred Stock                                                                                                                                                          |  | (H)           |  |               |  |      | 1,393,147  |  |           |  | 1,466,470 |       | 
|Series D-1 Convertible Preferred Stock                                                                                                                                                        |  | (H)           |  |               |  |      | 703,740    |  |           |  | 987,706   |       | 
|Series E Convertible Preferred Stock                                                                                                                                                          |  | (H)           |  |               |  |      | 2,499,999  |  |           |  | 3,508,771 |       | 
|                                                                                                                                                                                              |  |               |  |               |  |      | 10,482,417 |  |           |  |           |       | 
|                                                                                                                                                                                              |  |               |  |               |  |      |            |  |           |  |           |       | 
|AgBiome, LLC (5)(8)(9)                                                                                                                                                                        |  |               |  | Life Sciences |  |      |            |  |           |  |           |       | 
|Providing early-stage research and discovery for
                                                    agriculture and utilizing the crop microbiome to                                         |  |               |  |               |  |      |            |  |           |  |           |       | 
|identify products that reduce risk and improve yield                                                                                                                                          |  |               |  |               |  |      |            |  |           |  |           |       | 
|Series A-1 Convertible Preferred Stock                                                                                                                                                        |  | ( I )         |  |               |  |      | 2,000,000  |  |           |  | 2,000,000 |       | 
|Series A-2 Convertible Preferred Stock                                                                                                                                                        |  | ( I )         |  |               |  |      | 521,740    |  |           |  | 417,392   |       | 
|                                                                                                                                                                                              |  |               |  |               |  |      | 2,521,740  |  |           |  |           |       | 



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



11







|HARRIS & HARRIS GROUP,
        INC.
        CONSOLIDATED
        SCHEDULE OF INVESTMENTS AS OF JUNE 30, 2015
        (Unaudited)
|--------------------------------------------------------------------------------------------------------------------------------



|                                                                                                                                                                                                                              |  | Method of     |  | Primary       |  |      |           |  | Shares/   |  |           |       | 
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------- |  | ------------- |  | ---- | --------- |  | --------- |  | --------- | ----- | 
|                                                                                                                                                                                                                              |  | Valuation (1) |  | Industry (2)  |  | Cost |           |  | Principal |  |           | Value | 
|Investments in Non-Controlled
                                                                Affiliated Companies (3) –
                                                                66.6% of net assets at value (Cont.) |  |               |  |               |  |      |           |  |           |  |           |       | 
|                                                                                                                                                                                                                              |  |               |  |               |  |      |           |  |           |  |           |       | 
|Private Placement Portfolio (Illiquid) (14) –
                                                    56.4% of net assets at value (Cont.)                                                                                        |  |               |  |               |  |      |           |  |           |  |           |       | 
|                                                                                                                                                                                                                              |  |               |  |               |  |      |           |  |           |  |           |       | 
|D-Wave Systems, Inc. (8)(9)(16)                                                                                                                                                                                               |  |               |  | Electronics   |  |      |           |  |           |  |           |       | 
|Developing high-performance
                                                    quantum computing systems                                                                                                                     |  |               |  |               |  |      |           |  |           |  |           |       | 
|Series 1 Class B Convertible Preferred Stock                                                                                                                                                                                  |  | (H)           |  |               |  | $    | 1,002,074 |  |           |  | 1,144,869 |       | 
|Series 1 Class C Convertible Preferred Stock                                                                                                                                                                                  |  | (H)           |  |               |  |      | 487,804   |  |           |  | 450,450   |       | 
|Series 1 Class D Convertible Preferred Stock                                                                                                                                                                                  |  | (H)           |  |               |  |      | 748,473   |  |           |  | 855,131   |       | 
|Series 1 Class E Convertible Preferred Stock                                                                                                                                                                                  |  | (H)           |  |               |  |      | 248,049   |  |           |  | 269,280   |       | 
|Series 1 Class F Convertible Preferred Stock                                                                                                                                                                                  |  | (H)           |  |               |  |      | 238,323   |  |           |  | 258,721   |       | 
|Series 1 Class H Convertible Preferred Stock                                                                                                                                                                                  |  | (H)           |  |               |  |      | 909,088   |  |           |  | 460,866   |       | 
|Series 2 Class D Convertible Preferred Stock                                                                                                                                                                                  |  | (H)           |  |               |  |      | 736,019   |  |           |  | 678,264   |       | 
|Series 2 Class E Convertible Preferred Stock                                                                                                                                                                                  |  | (H)           |  |               |  |      | 659,493   |  |           |  | 513,900   |       | 
|Series 2 Class F Convertible Preferred Stock                                                                                                                                                                                  |  | (H)           |  |               |  |      | 633,631   |  |           |  | 493,747   |       | 
|Warrants for Common Stock expiring 5/12/19                                                                                                                                                                                    |  | ( I )         |  |               |  |      | 26,357    |  |           |  | 20,415    |       | 
|                                                                                                                                                                                                                              |  |               |  |               |  |      | 5,689,311 |  |           |  |           |       | 
|                                                                                                                                                                                                                              |  |               |  |               |  |      |           |  |           |  |           |       | 
|EchoPixel, Inc. (5)(8)(9)                                                                                                                                                                                                     |  |               |  | Life Sciences |  |      |           |  |           |  |           |       | 
|Developing algorithms and software to improve
                                                    visualization of data for life science and
healthcare applications                                                          |  |               |  |               |  |      |           |  |           |  |           |       | 
|Series Seed Convertible Preferred Stock                                                                                                                                                                                       |  | ( I )         |  |               |  |      | 1,250,000 |  |           |  | 4,194,630 |       | 
|                                                                                                                                                                                                                              |  |               |  |               |  |      |           |  |           |  |           |       | 
|Ensemble Therapeutics Corporation (5)(8)                                                                                                                                                                                      |  |               |  | Life Sciences |  |      |           |  |           |  |           |       | 
|Developing DNA-Programmed ChemistryTM
for the discovery of new classes of therapeutics                                                                                                                                        |  |               |  |               |  |      |           |  |           |  |           |       | 
|Series B Convertible Preferred Stock                                                                                                                                                                                          |  | ( I )         |  |               |  |      | 2,000,000 |  |           |  | 1,449,275 |       | 
|Series B-1 Convertible Preferred Stock                                                                                                                                                                                        |  | ( 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                                                                                                                                                                                                                  |  | ( I )         |  |               |  |      | 666,667   |  |           |  | 405,729   |       | 
|Series I Convertible Preferred Stock                                                                                                                                                                                          |  | ( I )         |  |               |  |      | 5,709,835 |  |           |  | 2,266,894 |       | 
|Series II Convertible Preferred Stock                                                                                                                                                                                         |  | ( I )         |  |               |  |      | 2,000,003 |  |           |  | 539,710   |       | 
|                                                                                                                                                                                                                              |  |               |  |               |  |      | 8,376,505 |  |           |  |           |       | 



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



12







|HARRIS & HARRIS GROUP,
        INC.
        CONSOLIDATED
        SCHEDULE OF INVESTMENTS AS OF JUNE 30, 2015
        (Unaudited)
|--------------------------------------------------------------------------------------------------------------------------------



|                                                                                                                                                  |  | Method of     |  | Primary       |  |      |           |  | Shares/   |   |            |       | 
|------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------- |  | ------------- |  | ---- | --------- |  | --------- | - | ---------- | ----- | 
|                                                                                                                                                  |  | Valuation (1) |  | Industry (2)  |  | Cost |           |  | Principal |   |            | Value | 
|Investments in Non-Controlled
Affiliated Companies (3) –
66.6% of net assets at value (Cont.)                                                     |  |               |  |               |  |      |           |  |           |   |            |       | 
|                                                                                                                                                  |  |               |  |               |  |      |           |  |           |   |            |       | 
|Private Placement Portfolio (Illiquid) (14) –
56.4% of net assets at value (Cont.)                                                                |  |               |  |               |  |      |           |  |           |   |            |       | 
|                                                                                                                                                  |  |               |  |               |  |      |           |  |           |   |            |       | 
|Laser Light Engines, Inc. (8)(9)                                                                                                                  |  |               |  | Energy        |  |      |           |  |           |   |            |       | 
|Manufactured solid-state light sources for
                                                    digital cinema and large-venue projection displays |  |               |  |               |  |      |           |  |           |   |            |       | 
|Series A Convertible Preferred Stock                                                                                                              |  | (M)           |  |               |  | $    | 2,000,000 |  |           |   | 7,499,062  |       | 
|Series B Convertible Preferred Stock                                                                                                              |  | (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 |  |           |   |            |       | 
|                                                                                                                                                  |  |               |  |               |  |      |           |  |           |   |            |       | 
|Metabolon, Inc. (5)(8)(9)                                                                                                                         |  |               |  | Life Sciences |  |      |           |  |           |   |            |       | 
|Developing service and diagnostic products
through the use of a metabolomics, or
biochemical, profiling platform                                  |  |               |  |               |  |      |           |  |           |   |            |       | 
|Series B Convertible Preferred Stock                                                                                                              |  | (H)           |  |               |  |      | 2,500,000 |  |           |   | 371,739    |       | 
|Series B-1 Convertible Preferred Stock                                                                                                            |  | (H)           |  |               |  |      | 706,214   |  |           |   | 148,696    |       | 
|Series C Convertible Preferred Stock                                                                                                              |  | (H)           |  |               |  |      | 1,000,000 |  |           |   | 1,000,000  |       | 
|Series D Convertible Preferred Stock                                                                                                              |  | (H)           |  |               |  |      | 1,499,999 |  |           |   | 835,882    |       | 
|Series E-1 Convertible Preferred Stock                                                                                                            |  | (H)           |  |               |  |      | 1,225,000 |  |           |   | 444,404    |       | 
|Series E-2 Convertible Preferred Stock                                                                                                            |  | (H)           |  |               |  |      | 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                                                                                                              |  | ( I )         |  |               |  |      | 250,000   |  |           |   | 597,658    |       | 



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



13







|HARRIS & HARRIS GROUP,
        INC.
        CONSOLIDATED
        SCHEDULE OF INVESTMENTS AS OF JUNE 30, 2015
        (Unaudited)
|--------------------------------------------------------------------------------------------------------------------------------



|                                                                                                                                     |  | Method of     |  | Primary       |  |      |           |  | Shares/   |   |           |       | 
|------------------------------------------------------------------------------------------------------------------------------------ |  | ------------- |  | ------------- |  | ---- | --------- |  | --------- | - | --------- | ----- | 
|                                                                                                                                     |  | Valuation (1) |  | Industry (2)  |  | Cost |           |  | Principal |   |           | Value | 
|                                                                                                                                     |  |               |  |               |  |      |           |  |           |   |           |       | 
|Investments in Non-Controlled
Affiliated Companies (3) –
66.6% of net assets at value (Cont.)                                        |  |               |  |               |  |      |           |  |           |   |           |       | 
|                                                                                                                                     |  |               |  |               |  |      |           |  |           |   |           |       | 
|Private Placement Portfolio (Illiquid) (14) –
56.4% of net assets at value (Cont.)                                                   |  |               |  |               |  |      |           |  |           |   |           |       | 
|                                                                                                                                     |  |               |  |               |  |      |           |  |           |   |           |       | 
|Produced Water Absorbents, Inc. (5)(8)(17)                                                                                           |  |               |  | Energy        |  |      |           |  |           |   |           |       | 
|Developing nano-structured absorbent materials
for environmental remediation
    of contaminated
water in the oil and gas industries |  |               |  |               |  |      |           |  |           |   |           |       | 
|Series A Convertible Preferred Stock                                                                                                 |  | (M)           |  |               |  | $    | 1,000,000 |  |           |   | 1,000,000 |       | 
|Series B Convertible Preferred Stock                                                                                                 |  | (M)           |  |               |  |      | 1,496,865 |  |           |   | 5,987,460 |       | 
|Series B-2 Convertible Preferred Stock                                                                                               |  | (M)           |  |               |  |      | 1,015,427 |  |           |   | 4,322,709 |       | 
|Series B-3 Convertible Preferred Stock                                                                                               |  | (M)           |  |               |  |      | 978,641   |  |           |   | 3,914,564 |       | 
|Series C Convertible Preferred Stock                                                                                                 |  | (M)           |  |               |  |      | 1,000,268 |  |           |   | 2,667,380 |       | 
|Series D Convertible Preferred Stock                                                                                                 |  | (M)           |  |               |  |      | 986,066   |  |           |   | 2,629,510 |       | 
|Subordinated Secured Debt, 12%, maturing on 9/30/15                                                                                  |  | ( I )         |  |               |  |      | 991,855   |  |           | $ | 1,000,000 |       | 
|Subordinated Convertible Bridge Note, 12%, acquired 6/3/2015                                                                         |  | (M)           |  |               |  |      | 252,301   |  |           | $ | 250,000   |       | 
|Warrants for Series B-2 Preferred Stock expiring
upon
    liquidation event                                                          |  | ( I )         |  |               |  |      | 65,250    |  |           |   | 300,000   |       | 
|                                                                                                                                     |  |               |  |               |  |      | 7,786,673 |  |           |   |           |       | 
|                                                                                                                                     |  |               |  |               |  |      |           |  |           |   |           |       | 
|SiOnyx, Inc. (5)(8)(18)                                                                                                              |  |               |  | Electronics   |  |      |           |  |           |   |           |       | 
|Developing silicon-based optoelectronic
 products enabled by its proprietary Black Silicon                                           |  |               |  |               |  |      |           |  |           |   |           |       | 
|Series A Convertible Preferred Stock                                                                                                 |  | (H)           |  |               |  |      | 750,000   |  |           |   | 233,499   |       | 
|Series A-1 Convertible Preferred Stock                                                                                               |  | (H)           |  |               |  |      | 890,000   |  |           |   | 2,966,667 |       | 
|Series A-2 Convertible Preferred Stock                                                                                               |  | (H)           |  |               |  |      | 2,445,000 |  |           |   | 4,207,537 |       | 
|Series B-1 Convertible Preferred Stock                                                                                               |  | (H)           |  |               |  |      | 1,169,561 |  |           |   | 1,892,836 |       | 
|Series C Convertible Preferred Stock                                                                                                 |  | (H)           |  |               |  |      | 1,171,316 |  |           |   | 1,674,030 |       | 
|Secured Convertible Bridge Note, 8%, acquired 1/31/14                                                                                |  | (H)           |  |               |  |      | 1,428,027 |  |           | $ | 1,281,125 |       | 
|Secured Convertible Bridge Note, 8%, acquired 5/9/14                                                                                 |  | (H)           |  |               |  |      | 85,695    |  |           | $ | 93,976    |       | 
|Secured Convertible Bridge Note, 10%, acquired 12/12/14                                                                              |  | (H)           |  |               |  |      | 72,852    |  |           | $ | 68,999    |       | 
|Secured Convertible Bridge Note, 10%, acquired 1/30/15                                                                               |  | (H)           |  |               |  |      | 107,870   |  |           | $ | 103,500   |       | 
|Secured Convertible Bridge Note, 8%, acquired 5/22/15                                                                                |  | (H)           |  |               |  |      | 118,699   |  |           | $ | 117,653   |       | 
|Warrants for Series B-1 Convertible Preferred                                                                                        |  |               |  |               |  |      |           |  |           |   |           |       | 
|Stock expiring 2/23/17                                                                                                               |  | (H)           |  |               |  |      | 130,439   |  |           |   | 247,350   |       | 
|Warrants for Common Stock expiring 3/28/17                                                                                           |  | (H)           |  |               |  |      | 84,207    |  |           |   | 418,507   |       | 
|Warrants for Common Stock expiring 5/9/19                                                                                            |  | (H)           |  |               |  |      | 17,010    |  |           |   | 3,208     |       | 
|                                                                                                                                     |  |               |  |               |  |      | 8,470,676 |  |           |   |           |       | 
|                                                                                                                                     |  |               |  |               |  |      |           |  |           |   |           |       | 
|UberSeq, Inc. (5)(8)(9)(19)                                                                                                          |  |               |  | Life Sciences |  |      |           |  |           |   |           |       | 
|Developing translational genomics solutions                                                                                          |  |               |  |               |  |      |           |  |           |   |           |       | 
|Series Seed Convertible Preferred Stock                                                                                              |  | ( I )         |  |               |  |      | 375,000   |  |           |   | 500,000   |       | 
|Warrants for Series Seed Preferred Stock expiring 6/6/19                                                                             |  | ( I )         |  |               |  |      | 125,000   |  |           |   | 166,667   |       | 
|                                                                                                                                     |  |               |  |               |  |      | 500,000   |  |           |   |           |       | 



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



14







|HARRIS & HARRIS GROUP,
        INC.
        CONSOLIDATED
        SCHEDULE OF INVESTMENTS AS OF JUNE 30, 2015
        (Unaudited)
|--------------------------------------------------------------------------------------------------------------------------------



|                                                                                                                                                                                                      |  | Method of     |               | Primary      |  |      |            |  | Shares/   |   |            |       | 
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------- | ------------- | ------------ |  | ---- | ---------- |  | --------- | - | ---------- | ----- | 
|                                                                                                                                                                                                      |  | Valuation (1) |               | Industry (2) |  | Cost |            |  | Principal |   |            | Value | 
|                                                                                                                                                                                                      |  |               |               |              |  |      |            |  |           |   |            |       | 
|Investments in Non-Controlled
                                                    Affiliated Companies (3) –
                                                    66.6% of net assets at value (Cont.) |  |               |               |              |  |      |            |  |           |   |            |       | 
|                                                                                                                                                                                                      |  |               |               |              |  |      |            |  |           |   |            |       | 
|Private Placement Portfolio (Illiquid) (14) –
                                                    56.4% of net assets at value (Cont.)                                                                |  |               |               |              |  |      |            |  |           |   |            |       | 
|                                                                                                                                                                                                      |  |               |               |              |  |      |            |  |           |   |            |       | 
|Ultora, Inc. (5)(8)                                                                                                                                                                                   |  |               |               | Energy       |  |      |            |  |           |   |            |       | 
|Developed energy-storage devices
                                                    enabled by carbon nanotubes                                                                                      |  |               |               |              |  |      |            |  |           |   |            |       | 
|Series A Convertible Preferred Stock                                                                                                                                                                  |  | (M)           |               |              |  | $    | 886,830    |  |           |   | 17,736     |       | 
|Series B Convertible Preferred Stock                                                                                                                                                                  |  | (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: $64,678,768)                                                                                                                                  |  |               |               |              |  |      |            |  |           | $ | 58,952,248 |      
|                                                                                                                                                                                                      |  |               |               |              |  |      |            |  |           |   |            |       | 
|Publicly Traded Portfolio (20) –                                                                                                                                                                      |  |               |               |              |  |      |            |  |           |   |            |       | 
|10.2% of net assets at value                                                                                                                                                                          |  |               |               |              |  |      |            |  |           |   |            |       | 
|                                                                                                                                                                                                      |  |               |               |              |  |      |            |  |           |   |            |       | 
|Enumeral Biomedical Holdings, Inc. (5)(21)                                                                                                                                                            |  |               | Life Sciences |              |  |      |            |  |           |   |            |       | 
|Developing therapeutics and diagnostics
                                                    through functional assaying of single cells                                                               |  |               |               |              |  |      |            |  |           |   |            |       | 
|Common Stock                                                                                                                                                                                          |  | (M)           |               |              |  | $    | 4,993,357  |  |           |   | 7,966,368  |       | 
|Warrants for Common Stock expiring 7/30/19                                                                                                                                                            |  | ( I )         |               |              |  |      | 540,375    |  |           |   | 1,500,000  |       | 
|Warrants for Common Stock expiring 2/2/24                                                                                                                                                             |  | ( I )         |               |              |  |      | 57,567     |  |           |   | 255,120    |       | 
|Options to Purchase Common Stock at $1.00                                                                                                                                                             |  |               |               |              |  |      |            |  |           |   |            |       | 
|expiring 8/4/24                                                                                                                                                                                       |  | ( I )         |               |              |  |      | 0          |  |           |   | 75,001     |       | 
|                                                                                                                                                                                                      |  |               |               |              |  |      | 5,591,299  |  |           |   |            |       | 
|                                                                                                                                                                                                      |  |               |               |              |  |      |            |  |           |   |            |       | 
|OpGen, Inc. (5)(8)                                                                                                                                                                                    |  |               | Life Sciences |              |  |      |            |  |           |   |            |       | 
|Developing tools for genomic sequence
assembly and analysis                                                                                                                                           |  |               |               |              |  |      |            |  |           |   |            |       | 
|Common Stock                                                                                                                                                                                          |  | (M)           |               |              |  |      | 5,665,708  |  |           |   | 1,409,796  |       | 
|Warrants for Common Stock expiring 5/8/20                                                                                                                                                             |  | (M)           |               |              |  |      | 425,579    |  |           |   | 300,833    |       | 
|Warrants for Common Stock expiring 2/17/25                                                                                                                                                            |  | ( I )         |               |              |  |      | 785        |  |           |   | 31,206     |       | 
|                                                                                                                                                                                                      |  |               |               |              |  |      | 6,092,072  |  |           |   |            |       | 
|                                                                                                                                                                                                      |  |               |               |              |  |      |            |  |           |   |            |       | 
|Total Non-Controlled Publicly Traded Portfolio (cost: $11,683,371)                                                                                                                                    |  |               |               |              |  |      |            |  |           | $ | 10,695,100 |      
|                                                                                                                                                                                                      |  |               |               |              |  |      |            |  |           |   |            |       | 
|Total Investments in Non-Controlled Affiliated Companies (cost: $76,362,139)                                                                                                                          |  |               |               |              |  | $    | 69,647,348 | 



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



15







|HARRIS & HARRIS GROUP,
        INC.
        CONSOLIDATED
        SCHEDULE OF INVESTMENTS AS OF JUNE 30, 2015
        (Unaudited)
|--------------------------------------------------------------------------------------------------------------------------------



|                                                                                 |  | Method of     |  | Primary       |  |      |           |  | Shares/   |   |           |       | 
|-------------------------------------------------------------------------------- |  | ------------- |  | ------------- |  | ---- | --------- |  | --------- | - | --------- | ----- | 
|                                                                                 |  | Valuation (1) |  | Industry (2)  |  | Cost |           |  | Principal |   |           | Value | 
|                                                                                 |  |               |  |               |  |      |           |  |           |   |           |       | 
|Investments in Controlled
Affiliated Companies (3) –
5.0% of net assets at value |  |               |  |               |  |      |           |  |           |   |           |       | 
|                                                                                 |  |               |  |               |  |      |           |  |           |   |           |       | 
|Private Placement Portfolio (Illiquid) (22) –
5.0% of net assets at value        |  |               |  |               |  |      |           |  |           |   |           |       | 
|                                                                                 |  |               |  |               |  |      |           |  |           |   |           |       | 
|ProMuc, Inc. (5)(8)                                                              |  |               |  | Life Sciences |  |      |           |  |           |   |           |       | 
|Developing synthetic mucins for the
nutritional, food and healthcare markets     |  |               |  |               |  |      |           |  |           |   |           |       | 
|Common Stock                                                                     |  | (M)           |  |               |  | $    | 1         |  |           |   | 1,000     |       | 
|Secured Convertible Bridge Note, 8%, acquired 12/18/13                           |  | (M)           |  |               |  |      | 392,959   |  |           | $ | 350,000   |       | 
|Secured Convertible Bridge Note, 8%, acquired 8/13/14                            |  | (M)           |  |               |  |      | 107,057   |  |           | $ | 100,000   |       | 
|                                                                                 |  |               |  |               |  |      | 500,017   |  |           |   |           |       | 
|                                                                                 |  |               |  |               |  |      |           |  |           |   |           |       | 
|Senova Systems, Inc. (5)(8)                                                      |  |               |  | Life Sciences |  |      |           |  |           |   |           |       | 
|Developing next-generation sensors to measure pH                                 |  |               |  |               |  |      |           |  |           |   |           |       | 
|Series B Convertible Preferred Stock                                             |  | ( I )         |  |               |  |      | 1,218,462 |  |           |   | 1,350,000 |       | 
|Series B-1 Convertible Preferred Stock                                           |  | ( I )         |  |               |  |      | 1,083,960 |  |           |   | 2,759,902 |       | 
|Series C Convertible Preferred Stock                                             |  | ( I )         |  |               |  |      | 1,208,287 |  |           |   | 1,611,049 |       | 
|Warrants for Series B Preferred Stock expiring 10/15/17                          |  | ( I )         |  |               |  |      | 131,538   |  |           |   | 164,423   |       | 
|Warrants for Series B Preferred Stock expiring 4/24/18                           |  | ( I )         |  |               |  |      | 20,000    |  |           |   | 25,000    |       | 
|                                                                                 |  |               |  |               |  |      | 3,662,247 |  |           |   |           |       | 
|                                                                                 |  |               |  |               |  |      |           |  |           |   |           |       | 
|SynGlyco, Inc.(5)(8)(23)                                                         |  |               |  | Life Sciences |  |      |           |  |           |   |           |       | 
|Developed synthetic carbohydrates for
pharmaceutical applications                |  |               |  |               |  |      |           |  |           |   |           |       | 
|Common Stock                                                                     |  | ( I )         |  |               |  |      | 2,729,817 |  |           |   | 57,463    |       | 
|Series A' Convertible Preferred Stock                                            |  | ( I )         |  |               |  |      | 4,855,627 |  |           |   | 4,855,627 |       | 
|Senior Secured Debt, 12.00%, maturing on 12/11/14                                |  | ( I )         |  |               |  |      | 457,548   |  |           | $ | 500,000   |       | 
|Secured Convertible Bridge Note, 8%, acquired 1/23/13                            |  | ( I )         |  |               |  |      | 422,467   |  |           | $ | 350,000   |       | 
|Secured Convertible Bridge Note, 8%, acquired 4/25/13                            |  | ( I )         |  |               |  |      | 355,058   |  |           | $ | 300,000   |       | 
|                                                                                 |  |               |  |               |  |      | 8,820,517 |  |           |   |           |       | 



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



16







|HARRIS & HARRIS GROUP,
        INC.
        CONSOLIDATED
        SCHEDULE OF INVESTMENTS AS OF JUNE 30, 2015
        (Unaudited)
|--------------------------------------------------------------------------------------------------------------------------------



|                                                                                          |  | Method of     |  | Primary       |  |      |         |   | Shares/    |   |           |       | 
|----------------------------------------------------------------------------------------- |  | ------------- |  | ------------- |  | ---- | ------- | - | ---------- | - | --------- | ----- | 
|                                                                                          |  | Valuation (1) |  | Industry (2)  |  | Cost |         |   | Principal  |   |           | Value | 
|                                                                                          |  |               |  |               |  |      |         |   |            |   |           |       | 
|Investments in Controlled
Affiliated Companies (3) –
5.0% of net assets at value  (Cont.) |  |               |  |               |  |      |         |   |            |   |           |       | 
|                                                                                          |  |               |  |               |  |      |         |   |            |   |           |       | 
|Private Placement Portfolio (Illiquid) (22) –
5.0% of net assets at value  (Cont.)        |  |               |  |               |  |      |         |   |            |   |           |       | 
|                                                                                          |  |               |  |               |  |      |         |   |            |   |           |       | 
|TARA Biosystems, Inc. (5)(8)                                                              |  |               |  | Life Sciences |  |      |         |   |            |   |           |       | 
|Developing human tissue models for toxicology
and drug discovery applications             |  |               |  |               |  |      |         |   |            |   |           |       | 
|Common Stock                                                                              |  | (M)           |  |               |  | $    | 20      |   |            |   | 2,000,000 |       | 
|Secured Convertible Bridge Note, 8%, acquired 8/20/14                                     |  | (M)           |  |               |  |      | 320,712 |   |            | $ | 300,000   |       | 
|Secured Convertible Bridge Note, 8%, acquired 5/18/15                                     |  | (M)           |  |               |  |      | 201,929 |   |            | $ | 200,000   |       | 
|                                                                                          |  |               |  |               |  |      | 522,661 |   |            |   |           |       | 
|                                                                                          |  |               |  |               |  |      |         |   |            |   |           |       | 
|Total Controlled Private Placement Portfolio (cost: $13,505,442)                          |  |               |  |               |  |      |         | $ | 5,207,773  |  
|                                                                                          |  |               |  |               |  |      |         |   |            |   |           |       | 
|Total Investments in Controlled Affiliated Companies (cost: $13,505,442)                  |  |               |  |               |  |      |         | $ | 5,207,773  |  
|                                                                                          |  |               |  |               |  |      |         |   |            |   |           |       | 
|Total Private Placement and Publicly Traded Portfolio (cost: $114,244,692)                |  |               |  |               |  |      |         | $ | 87,051,059 |  
|                                                                                          |  |               |  |               |  |      |         |   |            |   |           |       | 
|Equity Method Investments (24) –                                                          |  |               |  |               |  |      |         |   |            |   |           |       | 
|0.3% of net assets at value                                                               |  |               |  |               |  |      |         |   |            |   |           |       | 
|                                                                                          |  |               |  |               |  |      |         |   |            |   |           |       | 
|Private Placement Portfolio (Illiquid) (24) –                                             |  |               |  |               |  |      |         |   |            |   |           |       | 
|0.3% of net assets at value                                                               |  |               |  |               |  |      |         |   |            |   |           |       | 
|                                                                                          |  |               |  |               |  |      |         |   |            |   |           |       | 
|Accelerator IV-New York Corporation (5)(8)(9)(25)                                         |  |               |  | Life Sciences |  |      |         |   |            |   |           |       | 
|Identifying and managing emerging
biotechnology companies                                 |  |               |  |               |  |      |         |   |            |   |           |       | 
|Series A Common Stock                                                                     |  | (E)           |  |               |  | $    | 288,391 |   |            |   | 478,227   |       | 
|                                                                                          |  |               |  |               |  |      |         |   |            |   |           |       | 
|Total Equity Method Investments (cost: $288,391)                                          |  |               |  |               |  |      |         | $ | 288,391    |  
|                                                                                          |  |               |  |               |  |      |         |   |            |   |           |       | 
|Total Investments (cost: $114,533,083)                                                    |  |               |  |               |  |      |         | $ | 87,339,450 |  



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



17







|HARRIS & HARRIS GROUP,
        INC.
        CONSOLIDATED
        SCHEDULE OF INVESTMENTS AS OF JUNE 30, 2015
        (Unaudited)
|--------------------------------------------------------------------------------------------------------------------------------



Notes to Consolidated Schedule of Investments



| | (1) | See "Footnote to Consolidated Schedule of Investments" on page 33 for a description of
the "Valuation Procedures."
| | --- | ------------------------------------------------------------------------------------------------------------------



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



| | (3) | Investments in unaffiliated companies consist of investments in which we own less than five percent
of the voting shares of the portfolio company. Investments in non-controlled affiliated companies consist of investments in which
we own five percent or more, but less than 25 percent, of the voting shares of the portfolio company, or where we hold one or more
seats on the portfolio company’s board of directors but do not control the company. Investments in controlled affiliated
companies consist of investments in which we own 25 percent or more of the voting shares of the portfolio company or otherwise
control the company.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (4) | The aggregate cost for federal income tax purposes of investments in unaffiliated privately held
companies is $20,307,754. 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 $12,854,987.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



| | (6) | The aggregate cost for federal income tax purposes of investments in unaffiliated rights to milestone
payments is $2,387,278. The gross unrealized appreciation based on the tax cost for these securities is $793,905. 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 $1,682,079. The gross unrealized appreciation based on the tax cost for these securities is $19,451. The gross unrealized
depreciation based on the tax cost for these securities is $139,542.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | 
| |  | 

| | (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 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.
| | ---- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (11) | Cobalt Technologies, Inc., also does business as Cobalt
Biofuels.
| | ---- | -----------------------------------------------------------------



| | (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.
| | ---- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



18







|HARRIS & HARRIS GROUP,
        INC.
        CONSOLIDATED
        SCHEDULE OF INVESTMENTS AS OF JUNE 30, 2015
        (Unaudited)
|--------------------------------------------------------------------------------------------------------------------------------





| | (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 $64,678,768. The gross unrealized appreciation based on the tax cost for these securities is $13,268,272.
The gross unrealized depreciation based on the tax cost for these securities is $18,994,792.
| | ---- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (15) | Adesto Technologies Corporation's Series E shares have certain rights and preferences in a sale
or initial public offering ("IPO") that are not ascribed to the other classes of stock.
| | ---- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (16) | 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.
| | ---- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (17) | Produced Water Absorbents, Inc., also does business as ProSep, Inc.
| | ---- | -------------------------------------------------------------------



| | (18) | On August 3, 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.  We received cash and a profit interest in the undisclosed
buyer that is held through our ownership in Black Silicon Holdings.
| | ---- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (19) | UberSeq, Inc., also does business as NGXBio, Inc.
| | ---- | -------------------------------------------------



| | (20) | The aggregate cost for federal income tax purposes of investments in non-controlled affiliated
publicly traded companies is $11,683,371. 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 $988,271.
| | ---- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (21) | A portion of the Company's shares and warrants of Enumeral Biomedical Holdings, Inc., are subject
to restrictions on transfer,and we are also subject to a lock-up agreement that restricts our ability to trade these shares,
exclusive of the general restriction on the transfer of unregistered securities. The lock-up period on our 7,966,368 shares of
Enumeral BiomedicalHoldings expires on January 31, 2016.
| | ---- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (22) | The aggregate cost for federal income tax purposes of investments in controlled affiliated companies
is $13,505,442. The gross unrealized appreciation based on the tax cost for these securities is $0. The gross unrealized depreciation
based on the tax cost for these securities is $8,297,669.
| | ---- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (23) | On July 23, 2015, SynGlyco, Inc., repaid $567,500 in outstanding principal and accrued interest
on its senior secured debt.
| | ---- | ---------------------------------------------------------------------------------------------------------------------------



| | (24) | The aggregate cost for federal income tax purposes of investments in privately held equity method
investments is $288,391. 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.
| | ---- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (25) | 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, 2014
|----------------------------------------------------------------------------------------------------------------



|                                                                          |  | Method of     |  | Primary      |  |      |           |  | Shares/   |  |           |       | 
|------------------------------------------------------------------------- |  | ------------- |  | ------------ |  | ---- | --------- |  | --------- |  | --------- | ----- | 
|                                                                          |  | Valuation (1) |  | Industry (2) |  | Cost |           |  | Principal |  |           | Value | 
|                                                                          |  |               |  |              |  |      |           |  |           |  |           |       | 
|Investments in Unaffiliated Companies (3) –
16.8% of net assets at value  |  |               |  |              |  |      |           |  |           |  |           |       | 
|                                                                          |  |               |  |              |  |      |           |  |           |  |           |       | 
|Private Placement Portfolio (Illiquid) (4) –
12.6% of net assets at value |  |               |  |              |  |      |           |  |           |  |           |       | 
|                                                                          |  |               |  |              |  |      |           |  |           |  |           |       | 
|Bridgelux, Inc. (5)(8)(9)                                                 |  |               |  | Energy       |  |      |           |  |           |  |           |       | 
|Manufacturing high-power light emitting
diodes (LEDs) and arrays          |  |               |  |              |  |      |           |  |           |  |           |       | 
|Series B Convertible Preferred Stock                                      |  | (M)           |  |              |  | $    | 1,000,000 |  |           |  | 1,861,504 |       | 
|Series C Convertible Preferred Stock                                      |  | (M)           |  |              |  |      | 1,352,196 |  |           |  | 2,130,699 |       | 
|Series D Convertible Preferred Stock                                      |  | (M)           |  |              |  |      | 1,371,622 |  |           |  | 999,999   |       | 
|Series E Convertible Preferred Stock                                      |  | (M)           |  |              |  |      | 672,599   |  |           |  | 440,334   |       | 
|Series E-1 Convertible Preferred Stock                                    |  | (M)           |  |              |  |      | 386,073   |  |           |  | 399,579   |       | 
|Warrants for Series C Convertible Preferred
Stock expiring 8/31/15        |  | ( I )         |  |              |  |      | 168,270   |  |           |  | 163,900   |       | 
|Warrants for Series D Convertible Preferred
Stock expiring 8/31/15        |  | ( I )         |  |              |  |      | 128,543   |  |           |  | 166,665   |       | 
|Warrants for Series E Convertible Preferred
Stock expiring 12/31/17       |  | ( I )         |  |              |  |      | 93,969    |  |           |  | 170,823   |       | 
|Warrants for Common Stock expiring 6/1/16                                 |  | ( I )         |  |              |  |      | 72,668    |  |           |  | 132,100   |       | 
|Warrants for Common Stock expiring 8/9/18                                 |  | ( I )         |  |              |  |      | 148,409   |  |           |  | 171,183   |       | 
|Warrants for Common Stock expiring 10/21/18                               |  | ( I )         |  |              |  |      | 18,816    |  |           |  | 84,846    |       | 
|                                                                          |  |               |  |              |  |      | 5,413,165 |  |           |  |           |       | 
|                                                                          |  |               |  |              |  |      |           |  |           |  |           |       | 
|Cambrios Technologies Corporation (5)(8)(9)                               |  |               |  | Electronics  |  |      |           |  |           |  |           |       | 
|Developing nanowire-enabled electronic
materials for the display industry |  |               |  |              |  |      |           |  |           |  |           |       | 
|Series B Convertible Preferred Stock                                      |  | ( I )         |  |              |  |      | 1,294,025 |  |           |  | 1,294,025 |       | 
|Series C Convertible Preferred Stock                                      |  | ( I )         |  |              |  |      | 1,300,000 |  |           |  | 1,300,000 |       | 
|Series D Convertible Preferred Stock                                      |  | ( I )         |  |              |  |      | 515,756   |  |           |  | 515,756   |       | 
|Series D-2 Convertible Preferred Stock                                    |  | ( I )         |  |              |  |      | 92,400    |  |           |  | 92,400    |       | 
|Series D-4 Convertible Preferred Stock                                    |  | ( I )         |  |              |  |      | 216,168   |  |           |  | 216,168   |       | 
|                                                                          |  |               |  |              |  |      | 3,418,349 |  |           |  |           |       | 
|                                                                          |  |               |  |              |  |      |           |  |           |  |           |       | 
|Cobalt Technologies, Inc. (5)(8)(9)(10)                                   |  |               |  | Energy       |  |      |           |  |           |  |           |       | 
|Developing processes for making bio-
butanol through biomass fermentation |  |               |  |              |  |      |           |  |           |  |           |       | 
|Series C-1 Convertible Preferred Stock                                    |  | (M)           |  |              |  |      | 749,998   |  |           |  | 352,112   |       | 
|Series D-1 Convertible Preferred Stock                                    |  | (M)           |  |              |  |      | 122,070   |  |           |  | 48,828    |       | 
|Series E-1 Convertible Preferred Stock                                    |  | (M)           |  |              |  |      | 114,938   |  |           |  | 46,089    |       | 
|Warrants for Series E-1 Pref. Stock expiring on 10/9/22                   |  | ( I )         |  |              |  |      | 2,781     |  |           |  | 1,407     |       | 
|Warrants for Series E-1 Pref. Stock expiring on 3/11/23                   |  | ( I )         |  |              |  |      | 5,355     |  |           |  | 2,707     |       | 
|                                                                          |  |               |  |              |  |      | 995,142   |  |           |  |           |       | 



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, 2014
|--------------------------------------------------------------------------------------------------------



|                                                                                                    |  | Method of     |  | Primary       |  |      |           |  | Shares/   |  |           |       | 
|--------------------------------------------------------------------------------------------------- |  | ------------- |  | ------------- |  | ---- | --------- |  | --------- |  | --------- | ----- | 
|                                                                                                    |  | Valuation (1) |  | Industry (2)  |  | Cost |           |  | Principal |  |           | Value | 
|                                                                                                    |  |               |  |               |  |      |           |  |           |  |           |       | 
|Investments in Unaffiliated Companies (3) –
16.8% of net assets at value (Cont.)                    |  |               |  |               |  |      |           |  |           |  |           |       | 
|                                                                                                    |  |               |  |               |  |      |           |  |           |  |           |       | 
|Private Placement Portfolio (Illiquid) (4) –
12.6% of net assets at value (Cont.)                   |  |               |  |               |  |      |           |  |           |  |           |       | 
|                                                                                                    |  |               |  |               |  |      |           |  |           |  |           |       | 
|GEO Semiconductor Inc. (5)(11)                                                                      |  |               |  | Electronics   |  |      |           |  |           |  |           |       | 
|Developing programmable, high-performance
video and geometry processing solutions                   |  |               |  |               |  |      |           |  |           |  |           |       | 
|Loan and Security Agreement with GEO
Semiconductor relating to the following assets:                |  |               |  |               |  |      |           |  |           |  |           |       | 
|Warrants for Series A Pref. Stock expiring on 3/1/18                                                |  | ( I )         |  |               |  | $    | 7,512     |  |           |  | 10,000    |       | 
|Warrants for Series A-1 Pref. Stock expiring on 6/29/18                                             |  | ( I )         |  |               |  |      | 7,546     |  |           |  | 10,000    |       | 
|                                                                                                    |  |               |  |               |  |      | 15,058    |  |           |  |           |       | 
|                                                                                                    |  |               |  |               |  |      |           |  |           |  |           |       | 
|Mersana Therapeutics, Inc. (5)(8)(9)(12)                                                            |  |               |  | Life Sciences |  |      |           |  |           |  |           |       | 
|Developing antibody drug conjugates
for cancer therapy                                              |  |               |  |               |  |      |           |  |           |  |           |       | 
|Series A-1 Convertible Preferred Stock                                                              |  | ( I )         |  |               |  |      | 683,538   |  |           |  | 635,081   |       | 
|Common Stock                                                                                        |  | ( I )         |  |               |  |      | 3,875,395 |  |           |  | 350,539   |       | 
|                                                                                                    |  |               |  |               |  |      | 4,558,933 |  |           |  |           |       | 
|                                                                                                    |  |               |  |               |  |      |           |  |           |  |           |       | 
|Molecular Imprints, Inc. (5)(8)(9)(13)                                                              |  |               |  | Electronics   |  |      |           |  |           |  |           |       | 
|Manufacturing nanoimprint lithography
capital equipment for non-semiconductor
manufacturing markets |  |               |  |               |  |      |           |  |           |  |           |       | 
|Series A Convertible Preferred Stock                                                                |  | (M)           |  |               |  |      | 928,884   |  |           |  | 928,884   |       | 
|                                                                                                    |  |               |  |               |  |      |           |  |           |  |           |       | 
|Nanosys, Inc. (5)(8)                                                                                |  |               |  | Energy        |  |      |           |  |           |  |           |       | 
|Developing inorganic nanowires and
quantum dots for use in LED-backlit devices                      |  |               |  |               |  |      |           |  |           |  |           |       | 
|Series C Convertible Preferred Stock                                                                |  | (M)           |  |               |  |      | 1,500,000 |  |           |  | 803,428   |       | 
|Series D Convertible Preferred Stock                                                                |  | (M)           |  |               |  |      | 3,000,003 |  |           |  | 1,016,950 |       | 
|Series E Convertible Preferred Stock                                                                |  | (M)           |  |               |  |      | 496,573   |  |           |  | 433,688   |       | 
|                                                                                                    |  |               |  |               |  |      | 4,996,576 |  |           |  |           |       | 



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, 2014
|--------------------------------------------------------------------------------------------------------



|                                                                                               |  | Method of     |  | Primary       |  |      |           |   | Shares/    |   |           |       | 
|---------------------------------------------------------------------------------------------- |  | ------------- |  | ------------- |  | ---- | --------- | - | ---------- | - | --------- | ----- | 
|                                                                                               |  | Valuation (1) |  | Industry (2)  |  | Cost |           |   | Principal  |   |           | Value | 
|                                                                                               |  |               |  |               |  |      |           |   |            |   |           |       | 
|Investments in Unaffiliated Companies (3) –
16.8% of net assets at value (Cont.)               |  |               |  |               |  |      |           |   |            |   |           |       | 
|                                                                                               |  |               |  |               |  |      |           |   |            |   |           |       | 
|Private Placement Portfolio (Illiquid) (4) –
12.6% of net assets at value (Cont.)              |  |               |  |               |  |      |           |   |            |   |           |       | 
|                                                                                               |  |               |  |               |  |      |           |   |            |   |           |       | 
|Nano Terra, Inc. (5)                                                                           |  |               |  | Energy        |  |      |           |   |            |   |           |       | 
|Developing surface chemistry and nano-
manufacturing solutions                                 |  |               |  |               |  |      |           |   |            |   |           |       | 
|Senior secured debt, 12.0%, maturing on 12/1/15                                                |  | ( I )         |  |               |  | $    | 349,966   |   |            | $ | 385,369   |       | 
|Warrants for Series A-2 Pref. Stock expiring on 2/22/21                                        |  | ( I )         |  |               |  |      | 69,168    |   |            |   | 446,248   |       | 
|Warrants for Series C Pref. Stock expiring on 11/15/22                                         |  | ( I )         |  |               |  |      | 35,403    |   |            |   | 241,662   |       | 
|                                                                                               |  |               |  |               |  |      | 454,537   |   |            |   |           |       | 
|                                                                                               |  |               |  |               |  |      |           |   |            |   |           |       | 
|Nantero, Inc. (5)(8)(9)                                                                        |  |               |  | Electronics   |  |      |           |   |            |   |           |       | 
|Developing a high-density, nonvolatile,
random access memory chip, enabled
by carbon nanotubes |  |               |  |               |  |      |           |   |            |   |           |       | 
|Series A Convertible Preferred Stock                                                           |  | ( I )         |  |               |  |      | 489,999   |   |            |   | 345,070   |       | 
|Series B Convertible Preferred Stock                                                           |  | ( I )         |  |               |  |      | 323,000   |   |            |   | 207,051   |       | 
|Series C Convertible Preferred Stock                                                           |  | ( I )         |  |               |  |      | 571,329   |   |            |   | 188,315   |       | 
|Series D Convertible Preferred Stock                                                           |  | ( I )         |  |               |  |      | 139,075   |   |            |   | 35,569    |       | 
|                                                                                               |  |               |  |               |  |      | 1,523,403 |   |            |   |           |       | 
|                                                                                               |  |               |  |               |  |      |           |   |            |   |           |       | 
|Total Unaffiliated Private Placement Portfolio (cost: $22,304,047)                             |  |               |  |               |  |      |           | $ | 13,854,906 |  
|                                                                                               |  |               |  |               |  |      |           |   |            |   |           |       | 
|Rights to Milestone Payments (Illiquid) (6) –
2.9% of net assets at value                      |  |               |  |               |  |      |           |   |            |   |           |       | 
|                                                                                               |  |               |  |               |  |      |           |   |            |   |           |       | 
|Amgen, Inc. (8)(9)                                                                             |  |               |  | Life Sciences |  |      |           |   |            |   |           |       | 
|Rights to Milestone Payments from                                                              |  |               |  |               |  |      |           |   |            |   |           |       | 
|Acquisition of BioVex Group, Inc.                                                              |  | ( I )         |  |               |  | $    | 1,757,608 |   |            | $ | 1,757,608 |       | 
|                                                                                               |  |               |  |               |  |      |           |   |            |   |           |       | 
|Laird Technologies, Inc. (8)(9)                                                                |  |               |  | Energy        |  |      |           |   |            |   |           |       | 
|Rights to Milestone Payments from Merger &                                                     |  |               |  |               |  |      |           |   |            |   |           |       | 
|Acquisition of Nextreme Thermal Solutions, Inc.                                                |  | ( I )         |  |               |  |      | 0         |   |            |   | 0         |       | 
|                                                                                               |  |               |  |               |  |      |           |   |            |   |           |       | 
|Canon, Inc. (8)(9)                                                                             |  |               |  | Electronics   |  |      |           |   |            |   |           |       | 
|Rights to Milestone Payments from                                                              |  |               |  |               |  |      |           |   |            |   |           |       | 
|Acquisition of Molecular Imprints, Inc.                                                        |  | ( I )         |  |               |  |      | 629,670   |   |            | $ | 629,670   |       | 
|                                                                                               |  |               |  |               |  |      |           |   |            |   |           |       | 
|Total Unaffiliated Rights to Milestone Payments (cost: $2,387,278)                             |  |               |  |               |  |      |           | $ | 3,193,865  |  



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



22







|HARRIS & HARRIS GROUP, INC.
        CONSOLIDATED
        SCHEDULE OF INVESTMENTS AS OF DECEMBER 31, 2014
|--------------------------------------------------------------------------------------------------------



|                                                                                                   |  | Method of     |  | Primary       |  |      |           |   | Shares/    |  |           |       | 
|-------------------------------------------------------------------------------------------------- |  | ------------- |  | ------------- |  | ---- | --------- | - | ---------- |  | --------- | ----- | 
|                                                                                                   |  | Valuation (1) |  | Industry (2)  |  | Cost |           |   | Principal  |  |           | Value | 
|                                                                                                   |  |               |  |               |  |      |           |   |            |  |           |       | 
|Publicly Traded Portfolio (7) –                                                                    |  |               |  |               |  |      |           |   |            |  |           |       | 
|1.3% of net assets at value                                                                        |  |               |  |               |  |      |           |   |            |  |           |       | 
|                                                                                                   |  |               |  |               |  |      |           |   |            |  |           |       | 
|Solazyme, Inc. (5)(9)                                                                              |  |               |  | Energy        |  |      |           |   |            |  |           |       | 
|Developing algal biodiesel, industrial
chemicals and specialty ingredients using
synthetic biology |  |               |  |               |  |      |           |   |            |  |           |       | 
|Common Stock                                                                                       |  | (M)           |  |               |  | $    | 118,099   |   |            |  | 50,000    |       | 
|                                                                                                   |  |               |  |               |  |      |           |   |            |  |           |       | 
|Champions Oncology, Inc. (5)(9)                                                                    |  |               |  | Life Sciences |  |      |           |   |            |  |           |       | 
|Developing its TumorGraftTM platform for
personalized medicine and drug development                |  |               |  |               |  |      |           |   |            |  |           |       | 
|Common Stock                                                                                       |  | (M)           |  |               |  |      | 1,622,629 |   |            |  | 2,523,895 |       | 
|Warrants for Common Stock expiring 1/29/18                                                         |  | ( I )         |  |               |  |      | 400       |   |            |  | 40,000    |       | 
|                                                                                                   |  |               |  |               |  |      | 1,623,029 |   |            |  |           |       | 
|                                                                                                   |  |               |  |               |  |      |           |   |            |  |           |       | 
|Total Unaffiliated Publicly Traded Portfolio (cost: $1,741,128)                                    |  |               |  |               |  |      |           | $ | 1,398,085  | 
|                                                                                                   |  |               |  |               |  |      |           |   |            |  |           |       | 
|Total Investments in Unaffiliated Companies (cost: $26,432,453)                                    |  |               |  |               |  |      |           | $ | 18,446,856 | 



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



23







|HARRIS & HARRIS GROUP, INC.
        CONSOLIDATED SCHEDULE OF INVESTMENTS AS
        OF DECEMBER 31, 2014
|--------------------------------------------------------------------------------------------------------







|                                                                                                                                                       |  | Method of     |  | Primary       |  |      |            |  | Shares/   |  |           |       | 
|------------------------------------------------------------------------------------------------------------------------------------------------------ |  | ------------- |  | ------------- |  | ---- | ---------- |  | --------- |  | --------- | ----- | 
|                                                                                                                                                       |  | Valuation (1) |  | Industry (2)  |  | Cost |            |  | Principal |  |           | Value | 
|                                                                                                                                                       |  |               |  |               |  |      |            |  |           |  |           |       | 
|Investments in Non-Controlled
Affiliated Companies (3) –
61.0% of net assets at value                                                                  |  |               |  |               |  |      |            |  |           |  |           |       | 
|                                                                                                                                                       |  |               |  |               |  |      |            |  |           |  |           |       | 
|Private Placement Portfolio (Illiquid) (14) –
53.3% of net assets at value                                                                             |  |               |  |               |  |      |            |  |           |  |           |       | 
|                                                                                                                                                       |  |               |  |               |  |      |            |  |           |  |           |       | 
|ABSMaterials, Inc. (5)(8)(9)                                                                                                                           |  |               |  | Energy        |  |      |            |  |           |  |           |       | 
|Developing nano-structured absorbent                                                                                                                   |  |               |  |               |  |      |            |  |           |  |           |       | 
|materials for environmental remediation                                                                                                                |  |               |  |               |  |      |            |  |           |  |           |       | 
|Series A Convertible Preferred Stock                                                                                                                   |  | ( I )         |  |               |  | $    | 435,000    |  |           |  | 390,000   |       | 
|Series B Convertible Preferred Stock                                                                                                                   |  | ( I )         |  |               |  |      | 1,217,644  |  |           |  | 1,037,751 |       | 
|                                                                                                                                                       |  |               |  |               |  |      | 1,652,644  |  |           |  |           |       | 
|                                                                                                                                                       |  |               |  |               |  |      |            |  |           |  |           |       | 
|Accelerator IV-New York Corporation (8)(9)(15)(16)                                                                                                     |  |               |  | Life Sciences |  |      |            |  |           |  |           |       | 
|Identifying and managing emerging                                                                                                                      |  |               |  |               |  |      |            |  |           |  |           |       | 
|biotechnology companies                                                                                                                                |  |               |  |               |  |      |            |  |           |  |           |       | 
|Series A Common Stock                                                                                                                                  |  | ( I )         |  |               |  |      | 216,012    |  |           |  | 216,012   |       | 
|                                                                                                                                                       |  |               |  |               |  |      |            |  |           |  |           |       | 
|Adesto Technologies Corporation (5)(8)(9)(17)                                                                                                          |  |               |  | Electronics   |  |      |            |  |           |  |           |       | 
|Developing low-power, high-performance
memory devices                                                                                                  |  |               |  |               |  |      |            |  |           |  |           |       | 
|Series A Convertible Preferred Stock                                                                                                                   |  | (H)           |  |               |  |      | 2,200,000  |  |           |  | 6,547,619 |       | 
|Series B Convertible Preferred Stock                                                                                                                   |  | (H)           |  |               |  |      | 2,200,000  |  |           |  | 5,952,381 |       | 
|Series C Convertible Preferred Stock                                                                                                                   |  | (H)           |  |               |  |      | 1,485,531  |  |           |  | 2,122,187 |       | 
|Series D Convertible Preferred Stock                                                                                                                   |  | (H)           |  |               |  |      | 1,393,147  |  |           |  | 1,466,470 |       | 
|Series D-1 Convertible Preferred Stock                                                                                                                 |  | (H)           |  |               |  |      | 703,740    |  |           |  | 987,706   |       | 
|Series E Convertible Preferred Stock                                                                                                                   |  | (H)           |  |               |  |      | 2,499,999  |  |           |  | 3,508,771 |       | 
|                                                                                                                                                       |  |               |  |               |  |      | 10,482,417 |  |           |  |           |       | 
|                                                                                                                                                       |  |               |  |               |  |      |            |  |           |  |           |       | 
|AgBiome, LLC (5)(8)(9)                                                                                                                                 |  |               |  | Life Sciences |  |      |            |  |           |  |           |       | 
|Providing early-stage research and discovery for
agriculture and utilizing the crop microbiome to
identify products that reduce risk and improve yield |  |               |  |               |  |      |            |  |           |  |           |       | 
|Series A-1 Convertible Preferred Stock                                                                                                                 |  | ( I )         |  |               |  |      | 2,000,000  |  |           |  | 2,000,000 |       | 
|Series A-2 Convertible Preferred Stock                                                                                                                 |  | ( I )         |  |               |  |      | 521,740    |  |           |  | 417,392   |       | 
|                                                                                                                                                       |  |               |  |               |  |      | 2,521,740  |  |           |  |           |       | 



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, 2014
|--------------------------------------------------------------------------------------------------------



|                                                                                                                                                                     |  | Method of     |  | Primary       |  |      |           |  | Shares/   |  |           |       | 
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------- |  | ------------- |  | ---- | --------- |  | --------- |  | --------- | ----- | 
|                                                                                                                                                                     |  | Valuation (1) |  | Industry (2)  |  | Cost |           |  | Principal |  |           | Value | 
|                                                                                                                                                                     |  |               |  |               |  |      |           |  |           |  |           |       | 
|Investments in Non-Controlled
Affiliated Companies (3) –
61.0% of net assets at value (Cont.)                                                                        |  |               |  |               |  |      |           |  |           |  |           |       | 
|                                                                                                                                                                     |  |               |  |               |  |      |           |  |           |  |           |       | 
|Private Placement Portfolio (Illiquid) (14) –
53.3% of net assets at value (Cont.)                                                                                   |  |               |  |               |  |      |           |  |           |  |           |       | 
|                                                                                                                                                                     |  |               |  |               |  |      |           |  |           |  |           |       | 
|D-Wave Systems, Inc. (8)(18)                                                                                                                                         |  |               |  | Electronics   |  |      |           |  |           |  |           |       | 
|Developing high-performance
quantum computing systems                                                                                                                |  |               |  |               |  |      |           |  |           |  |           |       | 
|Series 1 Class B Convertible Preferred Stock                                                                                                                         |  | (H)           |  |               |  | $    | 1,002,074 |  |           |  | 1,144,869 |       | 
|Series 1 Class C Convertible Preferred Stock                                                                                                                         |  | (H)           |  |               |  |      | 487,804   |  |           |  | 450,450   |       | 
|Series 1 Class D Convertible Preferred Stock                                                                                                                         |  | (H)           |  |               |  |      | 748,473   |  |           |  | 855,131   |       | 
|Series 1 Class E Convertible Preferred Stock                                                                                                                         |  | (H)           |  |               |  |      | 248,049   |  |           |  | 269,280   |       | 
|Series 1 Class F Convertible Preferred Stock                                                                                                                         |  | (H)           |  |               |  |      | 238,323   |  |           |  | 258,721   |       | 
|Series 1 Class H Convertible Preferred Stock                                                                                                                         |  | (H)           |  |               |  |      | 909,088   |  |           |  | 460,866   |       | 
|Series 2 Class D Convertible Preferred Stock                                                                                                                         |  | (H)           |  |               |  |      | 736,019   |  |           |  | 678,264   |       | 
|Series 2 Class E Convertible Preferred Stock                                                                                                                         |  | (H)           |  |               |  |      | 659,493   |  |           |  | 513,900   |       | 
|Series 2 Class F Convertible Preferred Stock                                                                                                                         |  | (H)           |  |               |  |      | 633,631   |  |           |  | 493,747   |       | 
|Warrants for Common Stock expiring 6/30/15                                                                                                                           |  | ( I )         |  |               |  |      | 98,644    |  |           |  | 153,890   |       | 
|Warrants for Common Stock expiring 5/12/19                                                                                                                           |  | ( I )         |  |               |  |      | 26,357    |  |           |  | 20,415    |       | 
|                                                                                                                                                                     |  |               |  |               |  |      | 5,787,955 |  |           |  |           |       | 
|                                                                                                                                                                     |  |               |  |               |  |      |           |  |           |  |           |       | 
|EchoPixel, Inc. (5)(8)(9)                                                                                                                                            |  |               |  | Life Sciences |  |      |           |  |           |  |           |       | 
|Developing algorithms and software to improve
                                                    visualization of data for life science and
healthcare applications |  |               |  |               |  |      |           |  |           |  |           |       | 
|Series Seed Convertible Preferred Stock                                                                                                                              |  | ( I )         |  |               |  |      | 1,250,000 |  |           |  | 4,194,630 |       | 
|                                                                                                                                                                     |  |               |  |               |  |      |           |  |           |  |           |       | 
|Ensemble Therapeutics Corporation (5)(8)                                                                                                                             |  |               |  | Life Sciences |  |      |           |  |           |  |           |       | 
|Developing DNA-Programmed ChemistryTM
 for the discovery of new classes of therapeutics                                                                               |  |               |  |               |  |      |           |  |           |  |           |       | 
|Series B Convertible Preferred Stock                                                                                                                                 |  | ( I )         |  |               |  |      | 2,000,000 |  |           |  | 1,449,275 |       | 
|Series B-1 Convertible Preferred Stock                                                                                                                               |  | ( 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                                                                                                                                                         |  | ( I )         |  |               |  |      | 666,667   |  |           |  | 405,729   |       | 
|Series I Convertible Preferred Stock                                                                                                                                 |  | ( I )         |  |               |  |      | 5,709,835 |  |           |  | 2,266,894 |       | 
|Series II Convertible Preferred Stock                                                                                                                                |  | ( I )         |  |               |  |      | 2,000,003 |  |           |  | 539,710   |       | 
|                                                                                                                                                                     |  |               |  |               |  |      | 8,376,505 |  |           |  |           |       | 



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, 2014
|--------------------------------------------------------------------------------------------------------





|                                                                                                                                                  |  | Method of     |  | Primary       |  |      |           |  | Shares/   |   |            |       | 
|------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------- |  | ------------- |  | ---- | --------- |  | --------- | - | ---------- | ----- | 
|                                                                                                                                                  |  | Valuation (1) |  | Industry (2)  |  | Cost |           |  | Principal |   |            | Value | 
|Investments in Non-Controlled
Affiliated Companies (3) –
61.0% of net assets at value (Cont.)                                                     |  |               |  |               |  |      |           |  |           |   |            |       | 
|                                                                                                                                                  |  |               |  |               |  |      |           |  |           |   |            |       | 
|Private Placement Portfolio (Illiquid) (14) –
53.3% of net assets at value (Cont.)                                                                |  |               |  |               |  |      |           |  |           |   |            |       | 
|                                                                                                                                                  |  |               |  |               |  |      |           |  |           |   |            |       | 
|Laser Light Engines, Inc. (5)(8)                                                                                                                  |  |               |  | Energy        |  |      |           |  |           |   |            |       | 
|Manufactured solid-state light sources for
                                                    digital cinema and large-venue projection displays |  |               |  |               |  |      |           |  |           |   |            |       | 
|Series A Convertible Preferred Stock                                                                                                              |  | (M)           |  |               |  | $    | 2,000,000 |  |           |   | 7,499,062  |       | 
|Series B Convertible Preferred Stock                                                                                                              |  | (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 |  |           |   |            |       | 
|                                                                                                                                                  |  |               |  |               |  |      |           |  |           |   |            |       | 
|Metabolon, Inc. (5)(8)(9)                                                                                                                         |  |               |  | Life Sciences |  |      |           |  |           |   |            |       | 
|Developing service and diagnostic products
through the use of a metabolomics, or                                                                  |  |               |  |               |  |      |           |  |           |   |            |       | 
|biochemical, profiling platform                                                                                                                   |  |               |  |               |  |      |           |  |           |   |            |       | 
|Series B Convertible Preferred Stock                                                                                                              |  | (H)           |  |               |  |      | 2,500,000 |  |           |   | 371,739    |       | 
|Series B-1 Convertible Preferred Stock                                                                                                            |  | (H)           |  |               |  |      | 706,214   |  |           |   | 148,696    |       | 
|Series C Convertible Preferred Stock                                                                                                              |  | (H)           |  |               |  |      | 1,000,000 |  |           |   | 1,000,000  |       | 
|Series D Convertible Preferred Stock                                                                                                              |  | (H)           |  |               |  |      | 1,499,999 |  |           |   | 835,882    |       | 
|Series E Convertible Preferred Stock                                                                                                              |  | (H)           |  |               |  |      | 1,225,000 |  |           |   | 444,404    |       | 
|Warrants for Series B-1 Convertible Preferred
Stock expiring 3/25/15                                                                              |  | ( I )         |  |               |  |      | 293,786   |  |           |   | 74,348     |       | 
|                                                                                                                                                  |  |               |  |               |  |      | 7,224,999 |  |           |   |            |       | 
|                                                                                                                                                  |  |               |  |               |  |      |           |  |           |   |            |       | 
|OpGen, Inc. (8)(19)                                                                                                                               |  |               |  | Life Sciences |  |      |           |  |           |   |            |       | 
|Developing tools for genomic sequence
assembly and analysis                                                                                       |  |               |  |               |  |      |           |  |           |   |            |       | 
|Series A Convertible Preferred Stock                                                                                                              |  | (H)           |  |               |  |      | 610,017   |  |           |   | 610,017    |       | 
|Common Stock                                                                                                                                      |  | (H)           |  |               |  |      | 3,260,000 |  |           |   | 29,883     |       | 
|Secured Convertible Bridge Note, 8%, acquired 7/11/14                                                                                             |  | (H)           |  |               |  |      | 216,991   |  |           | $ | 209,020    |       | 
|Secured Convertible Bridge Note, 8%, acquired 10/16/14                                                                                            |  | (H)           |  |               |  |      | 254,278   |  |           | $ | 250,000    |       | 
|Secured Convertible Bridge Note, 8%, acquired 11/14/14                                                                                            |  | (H)           |  |               |  |      | 202,133   |  |           | $ | 200,000    |       | 
|Secured Convertible Bridge Note, 8%, acquired 12/29/14                                                                                            |  | (H)           |  |               |  |      | 100,067   |  |           | $ | 100,000    |       | 
|                                                                                                                                                  |  |               |  |               |  |      | 4,643,486 |  |           |   |            |       | 







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, 2014
|--------------------------------------------------------------------------------------------------------



|                                                                                                                                                  |  | Method of     |  | Primary      |  |      |           |  | Shares/   |   |           |       | 
|------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------- |  | ------------ |  | ---- | --------- |  | --------- | - | --------- | ----- | 
|                                                                                                                                                  |  | Valuation (1) |  | Industry (2) |  | Cost |           |  | Principal |   |           | Value | 
|                                                                                                                                                  |  |               |  |              |  |      |           |  |           |   |           |       | 
|Investments in Non-Controlled Affiliated Companies (3) –
                                                    61.0% of net assets at value (Cont.) |  |               |  |              |  |      |           |  |           |   |           |       | 
|                                                                                                                                                  |  |               |  |              |  |      |           |  |           |   |           |       | 
|Private Placement Portfolio (Illiquid) (14) –
53.3% of net assets at value (Cont.)                                                                |  |               |  |              |  |      |           |  |           |   |           |       | 
|                                                                                                                                                  |  |               |  |              |  |      |           |  |           |   |           |       | 
|Produced Water Absorbents, Inc. (5)(8)                                                                                                            |  |               |  | Energy       |  |      |           |  |           |   |           |       | 
|Developing nano-structured absorbent materials
for environmental remediation of contaminated
water in the oil and gas industries                  |  |               |  |              |  |      |           |  |           |   |           |       | 
|Series A Convertible Preferred Stock                                                                                                              |  | (M)           |  |              |  | $    | 1,000,000 |  |           |   | 1,000,000 |       | 
|Series B Convertible Preferred Stock                                                                                                              |  | (M)           |  |              |  |      | 1,496,865 |  |           |   | 5,987,460 |       | 
|Series B-2 Convertible Preferred Stock                                                                                                            |  | (M)           |  |              |  |      | 1,015,427 |  |           |   | 4,322,709 |       | 
|Series B-3 Convertible Preferred Stock                                                                                                            |  | (M)           |  |              |  |      | 978,641   |  |           |   | 3,914,564 |       | 
|Series C Convertible Preferred Stock                                                                                                              |  | (M)           |  |              |  |      | 1,000,268 |  |           |   | 2,667,380 |       | 
|Subordinated Secured Debt, 12%, maturing on 6/30/15                                                                                               |  | (M)           |  |              |  |      | 979,253   |  |           | $ | 1,000,000 |       | 
|Warrants for Series B-2
    Preferred Stock expiring 
upon liquidation event                                                                      |  | ( I )         |  |              |  |      | 65,250    |  |           |   | 300,000   |       | 
|                                                                                                                                                  |  |               |  |              |  |      | 6,535,704 |  |           |   |           |       | 
|                                                                                                                                                  |  |               |  |              |  |      |           |  |           |   |           |       | 
|SiOnyx, Inc. (5)(8)                                                                                                                               |  |               |  | Electronics  |  |      |           |  |           |   |           |       | 
|Developing silicon-based optoelectronic
products enabled by its proprietary Black Silicon                                                         |  |               |  |              |  |      |           |  |           |   |           |       | 
|Series A Convertible Preferred Stock                                                                                                              |  | ( I )         |  |              |  |      | 750,000   |  |           |   | 233,499   |       | 
|Series A-1 Convertible Preferred Stock                                                                                                            |  | ( I )         |  |              |  |      | 890,000   |  |           |   | 2,966,667 |       | 
|Series A-2 Convertible Preferred Stock                                                                                                            |  | ( I )         |  |              |  |      | 2,445,000 |  |           |   | 4,207,537 |       | 
|Series B-1 Convertible Preferred Stock                                                                                                            |  | ( I )         |  |              |  |      | 1,169,561 |  |           |   | 1,892,836 |       | 
|Series C Convertible Preferred Stock                                                                                                              |  | ( I )         |  |              |  |      | 1,171,316 |  |           |   | 1,674,030 |       | 
|Secured Convertible Bridge Note, 8%, acquired 1/31/14                                                                                             |  | ( I )         |  |              |  |      | 1,281,125 |  |           | $ | 1,281,125 |       | 
|Secured Convertible Bridge Note, 8%, acquired 5/9/14                                                                                              |  | ( I )         |  |              |  |      | 76,966    |  |           | $ | 93,976    |       | 
|Secured Convertible Bridge Note, 10%, acquired 12/12/14                                                                                           |  | ( I )         |  |              |  |      | 69,382    |  |           | $ | 68,999    |       | 
|Warrants for Series B-1 Convertible Preferred
Stock expiring 2/23/17                                                                              |  | ( I )         |  |              |  |      | 130,439   |  |           |   | 247,350   |       | 
|Warrants for Common Stock expiring 3/28/17                                                                                                        |  | ( I )         |  |              |  |      | 84,207    |  |           |   | 418,507   |       | 
|Warrants for Common Stock expiring 5/9/19                                                                                                         |  | ( I )         |  |              |  |      | 17,010    |  |           |   | 3,208     |       | 
|                                                                                                                                                  |  |               |  |              |  |      | 8,085,006 |  |           |   |           |       | 



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, 2014
|--------------------------------------------------------------------------------------------------------





|                                                                                              |  | Method of     |  | Primary       |  |      |            |   | Shares/    |   |           |       | 
|--------------------------------------------------------------------------------------------- |  | ------------- |  | ------------- |  | ---- | ---------- | - | ---------- | - | --------- | ----- | 
|                                                                                              |  | Valuation (1) |  | Industry (2)  |  | Cost |            |   | Principal  |   |           | Value | 
|                                                                                              |  |               |  |               |  |      |            |   |            |   |           |       | 
|Investments in Non-Controlled
Affiliated Companies (3) –
61.0% of net assets at value (Cont.) |  |               |  |               |  |      |            |   |            |   |           |       | 
|                                                                                              |  |               |  |               |  |      |            |   |            |   |           |       | 
|Private Placement Portfolio (Illiquid) (14) –
53.3% of net assets at value (Cont.)            |  |               |  |               |  |      |            |   |            |   |           |       | 
|                                                                                              |  |               |  |               |  |      |            |   |            |   |           |       | 
|Ultora, Inc. (5)(8)                                                                           |  |               |  | Energy        |  |      |            |   |            |   |           |       | 
|Developing energy-storage devices
enabled by carbon nanotubes                                 |  |               |  |               |  |      |            |   |            |   |           |       | 
|Series A Convertible Preferred Stock                                                          |  | ( I )         |  |               |  | $    | 886,830    |   |            |   | 17,736    |       | 
|Series B Convertible Preferred Stock                                                          |  | ( I )         |  |               |  |      | 236,603    |   |            |   | 2,347,254 |       | 
|Secured Convertible Bridge Note, 5%, acquired 5/7/14                                          |  | ( I )         |  |               |  |      | 86,039     |   |            | $ | 86,039    |       | 
|Secured Convertible Bridge Note, 5%, acquired 8/20/14                                         |  | ( I )         |  |               |  |      | 17,208     |   |            | $ | 17,208    |       | 
|Secured Convertible Bridge Note, 5%, acquired 10/14/14                                        |  | ( I )         |  |               |  |      | 10,750     |   |            | $ | 10,750    |       | 
|                                                                                              |  |               |  |               |  |      | 1,237,430  |   |            |   |           |       | 
|                                                                                              |  |               |  |               |  |      |            |   |            |   |           |       | 
|Total Non-Controlled Private Placement Portfolio (cost: $67,236,533)                          |  |               |  |               |  |      |            | $ | 58,470,864 |  
|                                                                                              |  |               |  |               |  |      |            |   |            |   |           |       | 
|Publicly Traded Portfolio (20) –                                                              |  |               |  |               |  |      |            |   |            |   |           |       | 
|7.7% of net assets at value                                                                   |  |               |  |               |  |      |            |   |            |   |           |       | 
|                                                                                              |  |               |  |               |  |      |            |   |            |   |           |       | 
|Enumeral Biomedical Holdings, Inc. (5)(21)                                                    |  |               |  | Life Sciences |  |      |            |   |            |   |           |       | 
|Developing therapeutics and diagnostics
through functional assaying of single cells           |  |               |  |               |  |      |            |   |            |   |           |       | 
|Common Stock                                                                                  |  | (M)           |  |               |  | $    | 4,993,357  |   |            |   | 7,966,368 |       | 
|Warrants for Common Stock expiring 7/30/19                                                    |  | ( I )         |  |               |  |      | 540,375    |   |            |   | 1,500,000 |       | 
|Warrants for Common Stock expiring 2/2/24                                                     |  | ( I )         |  |               |  |      | 57,567     |   |            |   | 255,120   |       | 
|Options to Purchase Common Stock at $1.00
expiring 8/4/24                                     |  | ( I )         |  |               |  |      | 0          |   |            |   | 56,667    |       | 
|                                                                                              |  |               |  |               |  |      | 5,591,299  |   |            |   |           |       | 
|                                                                                              |  |               |  |               |  |      |            |   |            |   |           |       | 
|Total Non-Controlled Publicly Traded Portfolio (cost: $5,591,299)                             |  |               |  |               |  |      |            | $ | 8,384,641  |  
|                                                                                              |  |               |  |               |  |      |            |   |            |   |           |       | 
|Total Investments in Non-Controlled Affiliated Companies (cost: $72,827,832)                  |  |               |  |               |  | $    | 66,855,505 |  



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



28







|HARRIS & HARRIS GROUP, INC.
        CONSOLIDATED SCHEDULE OF INVESTMENTS AS
        OF DECEMBER 31, 2014
|--------------------------------------------------------------------------------------------------------



|                                                                                 |  | Method of     |  | Primary       |  |      |           |  | Shares/   |   |           |       | 
|-------------------------------------------------------------------------------- |  | ------------- |  | ------------- |  | ---- | --------- |  | --------- | - | --------- | ----- | 
|                                                                                 |  | Valuation (1) |  | Industry (2)  |  | Cost |           |  | Principal |   |           | Value | 
|                                                                                 |  |               |  |               |  |      |           |  |           |   |           |       | 
|Investments in Controlled
Affiliated Companies (3) –
4.1% of net assets at value |  |               |  |               |  |      |           |  |           |   |           |       | 
|                                                                                 |  |               |  |               |  |      |           |  |           |   |           |       | 
|Private Placement Portfolio (Illiquid) (22) –
4.1% of net assets at value        |  |               |  |               |  |      |           |  |           |   |           |       | 
|                                                                                 |  |               |  |               |  |      |           |  |           |   |           |       | 
|ProMuc, Inc. (5)(8)                                                              |  |               |  | Life Sciences |  |      |           |  |           |   |           |       | 
|Developing synthetic mucins for the
nutritional, food and healthcare markets     |  |               |  |               |  |      |           |  |           |   |           |       | 
|Common Stock                                                                     |  | (M)           |  |               |  | $    | 1         |  |           |   | 1,000     |       | 
|Secured Convertible Bridge Note, 8%, acquired 12/18/13                           |  | (M)           |  |               |  |      | 379,074   |  |           | $ | 350,000   |       | 
|Secured Convertible Bridge Note, 8%, acquired 8/13/14                            |  | (M)           |  |               |  |      | 103,090   |  |           | $ | 100,000   |       | 
|                                                                                 |  |               |  |               |  |      | 482,165   |  |           |   |           |       | 
|                                                                                 |  |               |  |               |  |      |           |  |           |   |           |       | 
|Senova Systems, Inc. (5)(8)                                                      |  |               |  | Life Sciences |  |      |           |  |           |   |           |       | 
|Developing next-generation sensors to measure pH                                 |  |               |  |               |  |      |           |  |           |   |           |       | 
|Series B Convertible Preferred Stock                                             |  | ( I )         |  |               |  |      | 1,218,462 |  |           |   | 1,350,000 |       | 
|Series B-1 Convertible Preferred Stock                                           |  | ( I )         |  |               |  |      | 1,083,960 |  |           |   | 2,759,902 |       | 
|Series C Convertible Preferred Stock                                             |  | ( I )         |  |               |  |      | 608,287   |  |           |   | 811,049   |       | 
|Warrants for Series B Preferred Stock expiring 10/15/17                          |  | ( I )         |  |               |  |      | 131,538   |  |           |   | 164,423   |       | 
|Warrants for Series B Preferred Stock expiring 4/24/18                           |  | ( I )         |  |               |  |      | 20,000    |  |           |   | 25,000    |       | 
|                                                                                 |  |               |  |               |  |      | 3,062,247 |  |           |   |           |       | 
|                                                                                 |  |               |  |               |  |      |           |  |           |   |           |       | 
|SynGlyco, Inc. (5)(8)                                                            |  |               |  | Life Sciences |  |      |           |  |           |   |           |       | 
|Developed synthetic carbohydrates for
pharmaceutical applications                |  |               |  |               |  |      |           |  |           |   |           |       | 
|Common Stock                                                                     |  | ( I )         |  |               |  |      | 2,729,817 |  |           |   | 57,463    |       | 
|Series A' Convertible Preferred Stock                                            |  | ( I )         |  |               |  |      | 4,855,627 |  |           |   | 4,855,627 |       | 
|Senior Secured Debt, 12.00%, maturing on 12/11/14                                |  | ( I )         |  |               |  |      | 424,101   |  |           | $ | 500,000   |       | 
|Secured Convertible Bridge Note, 8%, acquired 1/23/13                            |  | ( I )         |  |               |  |      | 406,417   |  |           | $ | 350,000   |       | 
|Secured Convertible Bridge Note, 8%, acquired 4/25/13                            |  | ( I )         |  |               |  |      | 341,825   |  |           | $ | 300,000   |       | 
|                                                                                 |  |               |  |               |  |      | 8,757,787 |  |           |   |           |       | 
|                                                                                 |  |               |  |               |  |      |           |  |           |   |           |       | 
|TARA Biosystems, Inc. (5)(8)(15)                                                 |  |               |  | Life Sciences |  |      |           |  |           |   |           |       | 
|Developing human tissue models for toxicology
and drug discovery applications    |  |               |  |               |  |      |           |  |           |   |           |       | 
|Common Stock                                                                     |  | (M)           |  |               |  |      | 20        |  |           |   | 2,000,000 |       | 
|Secured Convertible Bridge Note, 8%, acquired 8/20/14                            |  | (M)           |  |               |  |      | 308,811   |  |           | $ | 300,000   |       | 
|                                                                                 |  |               |  |               |  |      | 308,831   |  |           |   |           |       | 



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, 2014
|--------------------------------------------------------------------------------------------------------







|                                                                                          |  | Method of     |  | Primary       |  |      |            |  | Shares/   |  |         |       | 
|----------------------------------------------------------------------------------------- |  | ------------- |  | ------------- |  | ---- | ---------- |  | --------- |  | ------- | ----- | 
|                                                                                          |  | Valuation (1) |  | Industry (2)  |  | Cost |            |  | Principal |  |         | Value | 
|                                                                                          |  |               |  |               |  |      |            |  |           |  |         |       | 
|Investments in Controlled
Affiliated Companies (3) –
4.1% of net assets at value  (Cont.) |  |               |  |               |  |      |            |  |           |  |         |       | 
|                                                                                          |  |               |  |               |  |      |            |  |           |  |         |       | 
|Private Placement Portfolio (Illiquid) (22) –
4.1% of net assets at value  (Cont.)        |  |               |  |               |  |      |            |  |           |  |         |       | 
|                                                                                          |  |               |  |               |  |      |            |  |           |  |         |       | 
|UberSeq, Inc. (5)(8)(9)(15)                                                               |  |               |  | Life Sciences |  |      |            |  |           |  |         |       | 
|Developing translational genomics solutions                                               |  |               |  |               |  |      |            |  |           |  |         |       | 
|Series Seed Convertible Preferred Stock                                                   |  | ( I )         |  |               |  | $    | 500,000    |  |           |  | 500,000 |       | 
|                                                                                          |  |               |  |               |  |      |            |  |           |  |         |       | 
|Total Controlled Private Placement Portfolio (cost: $13,111,030)                          |  |               |  |               |  | $    | 4,462,479  | 
|                                                                                          |  |               |  |               |  |      |            |  |           |  |         |       | 
|Total Investments in Controlled Affiliated Companies (cost: $13,111,030)                  |  |               |  |               |  | $    | 4,462,479  | 
|                                                                                          |  |               |  |               |  |      |            |  |           |  |         |       | 
|Total Private Placement and Publicly Traded Portfolio (cost: $112,371,315)                |  |               |  |               |  | $    | 89,764,840 | 
|                                                                                          |  |               |  |               |  |      |            |  |           |  |         |       | 
|Total Investments (cost: $112,371,315)                                                    |  |               |  |               |  | $    | 89,764,840 | 





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



30







|HARRIS & HARRIS GROUP, INC.
        CONSOLIDATED SCHEDULE OF INVESTMENTS
        AS OF DECEMBER 31, 2014
|--------------------------------------------------------------------------------------------------------



Notes to Consolidated Schedule of Investments



| | (1) | See "Footnote to Consolidated Schedule of Investments" on page 33 for a description of
the "Valuation Procedures."
| | --- | ------------------------------------------------------------------------------------------------------------------



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



| | (3) | Investments in unaffiliated companies consist of investments in which we own less than five percent
of the voting shares of the portfolio company. Investments in non-controlled affiliated companies consist of investments in which
we own five percent or more, but less than 25 percent, of the voting shares of the portfolio company, or where we hold one or more
seats on the portfolio company’s board of directors but do not control the company. Investments in controlled affiliated
companies consist of investments in which we own 25 percent or more of the voting shares of the portfolio company or otherwise
control the company.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (4) | The aggregate cost for federal income tax purposes of investments in unaffiliated privately held
companies is $22,304,047. The gross unrealized appreciation based on the tax cost for these securities is $7,872. The gross unrealized
depreciation based on the tax cost for these securities is $8,457,013.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



| | (6) | The aggregate cost for federal income tax purposes of investments in unaffiliated rights to milestone
payments is $2,387,278. The gross unrealized appreciation based on the tax cost for these securities is $807,309. The gross unrealized
depreciation based on the tax cost for these securities is $722.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (7) | The aggregate cost for federal income tax purposes of investments in unaffiliated publicly traded
companies is $1,741,128. The gross unrealized appreciation based on the tax cost for these securities is $10,901. The gross unrealized
depreciation based on the tax cost for these securities is $353,944.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



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



| | (10) | Cobalt Technologies, Inc., also does business as Cobalt Biofuels.
| | ---- | -----------------------------------------------------------------



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



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



31







|HARRIS & HARRIS GROUP, INC.
        CONSOLIDATED SCHEDULE OF INVESTMENTS
        AS OF DECEMBER 31, 2014
|--------------------------------------------------------------------------------------------------------



| | (12) | With our investment in the Mersana Therapeutics, Inc., Series A-1 financing, we received a warrant
to purchase 277,760 shares of Series A-2 Convertible Preferred Stock. The ability to exercise the warrant is contingent upon Mersana's
achievement of certain milestones. Mersana has not achieved those milestones as of December 31, 2014, and, therefore, this warrant
is a contingent asset as of that date. In January 2015, the holders of these warrants, including the Company, elected to cancel
them owing to the milestones being impossible to achieve.
| | ---- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (13) | Upon the closing of Canon, Inc.'s acquisition of Molecular Imprints, Inc.'s semiconductor lithography
equipment business, a new spin-out company, which retained the name Molecular Imprints, Inc., was formed. These shares represent
our investment in the new company.
| | ---- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (14) | The aggregate cost for federal income tax purposes of investments in non-controlled affiliated
privately held companies is $67,236,533. The gross unrealized appreciation based on the tax cost for these securities is $11,846,184.
The gross unrealized depreciation based on the tax cost for these securities is $20,611,853.
| | ---- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (15) | Initial investment was made in 2014.
| | ---- | ------------------------------------



| | (16) | As part of our initial investment in Accelerator IV-New York Corporation, the Company made an additional
operating and investment commitment. See "Note 11. Commitments and Contingencies."
| | ---- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (17) | Adesto Technologies Corporation's Series E shares have certain rights and preferences in a sale
or IPO that are not ascribed to the other classes of stock.
| | ---- | -----------------------------------------------------------------------------------------------------------------------------------------------------------



| | (18) | D-Wave Systems, Inc., is located and is doing business primarily in Canada. We invested in D-Wave
through Parallel Universes, Inc., a Delaware company. Our investment is denominated in Canadian dollars and is subject to foreign
currency translation. See "Note 2. Summary of Significant Accounting Policies." D-Wave is not a qualifying asset under
Section 55(a) of the 1940 Act. Under the 1940 Act, we may not acquire non-qualifying assets unless, at the time the acquisition
is made, qualifying assets are at least 70 percent of our total assets.
| | ---- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (19) | On March 3, 2015, OpGen, Inc., filed a registration statement on Form S-1 to seek an IPO. There
can be no assurances if or when such IPO will occur or if it will be successful.
| | ---- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (20) | The aggregate cost for federal income tax purposes of investments in non-controlled affiliated
publicly traded companies is $5,591,299. The gross unrealized appreciation based on the tax cost for these securities is $2,793,342.
The gross unrealized depreciation based on the tax cost for these securities is $0.
| | ---- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (21) | The Company's shares of Enumeral Biomedical Holdings, Inc., are subject to restrictions on transfer,and we are also subject to a lock-up agreement that restricts our ability to trade these shares, exclusive of the general restriction
on the transfer of unregistered securities. The lock-up period on our 7,966,368 shares of Enumeral BiomedicalHoldings expires
on January 31, 2016.
| | ---- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (22) | The aggregate cost for federal income tax purposes of investments in controlled affiliated companies
is $13,111,030. The gross unrealized appreciation based on the tax cost for these securities is $6,159. The gross unrealized depreciation
based on the tax cost for these securities is $8,654,710.
| | ---- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



32







|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.



33







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



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



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



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



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



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



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



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



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



34









| | 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;
| | - | ---------------------------------------------------------------------------



35







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



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



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



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



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



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



| | 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.



36







| | 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.



37







| | 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.



38







|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 June 30,
2015, there was no non-passive investment income generated by Harris Partners I, L.P. Ventures, as the sole general partner, consolidates
Harris Partners I, L.P. The Company consolidates its wholly owned subsidiary, Ventures, for financial reporting purposes.



NOTE 2. INTERIM FINANCIAL STATEMENTS



Our interim financial statements
have been prepared in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X and in conformity with accounting
principles generally accepted in the United States of America ("GAAP") applicable to interim financial information. Accordingly,
the information presented on our interim financial statements does not include all information and disclosures necessary for a
fair presentation of our financial position, results of operations and cash flows in conformity with GAAP for annual financial
statements. In the opinion of management, these financial statements reflect all adjustments, consisting of valuation adjustments
and normal recurring accruals, necessary for a fair statement of our financial position, results of operations and cash flows for
such periods. The results of operations for any interim period are not necessarily indicative of the results for the full year.
These financial statements should be read in conjunction with the financial statements and notes thereto contained in ourAnnual Report on Form 10-K for the fiscal year ended December 31, 2014.



NOTE 3. SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES



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



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



39











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 June 30, 2015, our financial statements include venture
capital investments fair valued by the Board of Directors at $83,230,655 and one venture capital investment valued under the equity
method at $288,391. The fair values and equity method value were determined in good faith by, or under the direction of, the Board
of Directors. The fair value amount includes the values of our privately held investments as well as the warrants of Champions
Oncology, Inc., and certain warrants and restricted securities of Enumeral Biomedical Holdings, Inc., and OpGen, Inc., which are
publicly traded companies. Our investment in Accelerator-New York IV is accounted for under the equity method of accounting as
it represents a non-controlling interest in an operating entity that provides investment advisory services to the Company. Under
the equity method, investments are carried at cost, plus or minus the Company’s equity in the increases and decreases in
the investee’s net assets after the date of acquisition and certain other adjustments. The Company’s share of the net
income or loss of the investee is included in “Equity in earnings/(loss) from equity method investees” on the Company’s
“Consolidated Statements of Operations.” Upon sale of investments, the values that are ultimately realized may be different
from the fair value presented in the Company's financial statements. The difference could be material.



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



Unaffiliated Rights
to Milestone Payments. At June 30, 2015, and December 31, 2014, the outstanding potential milestone payments from Amgen, Inc.’s
acquisition of BioVex Group, Inc., were valued at $2,549,261 and $2,564,917, respectively. The milestone payments are derivatives
and valued using the probability-adjusted, present value of proceeds from future payments that would be due upon successful completion
of certain regulatory and sales milestones. On November 17, 2014, the Company received a payment of $2,070,955 owing to the achievement
of the first milestone. If all the remaining milestones are met, we would receive $7,455,438. There can be no assurance as to how
much of this amount we will ultimately realize or when it will be realized, if at all. At June 30, 2015, and December 31, 2014,
the outstanding potential milestone payments from Canon, Inc.'s acquisition of Molecular Imprints, Inc., were valued at $631,922
and $628,948, respectively. If all the remaining milestones are met, we would receive $1,735,582. There can be no assurance as
to how much of this amount we will ultimately realize or when it will be realized, if at all. At June 30, 2015, and December 31,
2014, the outstanding potential milestone payments from Laird Technologies, Inc.’s acquisition of Nextreme Thermal Solutions,
Inc., were valued at $0. If all the remaining milestones are met, we would receive approximately $400,000. There can be no assurance
as to how much of this amount we will ultimately realize or when it will be realized, if at all.



40









Funds Held in Escrow
from Sale of Investment. At June 30, 2015, and December 31, 2014, there were funds held in escrow fair valued at $309,469 and
$306,802, respectively, relating to the sale of Molecular Imprints, Inc.'s semiconductor lithography equipment business to Canon,
Inc. Funds held in escrow from the Molecular Imprints transaction with Canon are expected to be released in April of 2016 and 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 $315,531. At June 30, 2015, and December 31,
2014, there were funds held in escrow fair valued at $63,366 and $0, respectively, relating to the sale of Molecular Imprints'
non-semiconductor business 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 and
realize a gain of $63,606.



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 $201,458 and $219,729 at June 30, 2015, and
December 31, 2014, respectively, representing cost, less accumulated depreciation of $422,097 and $399,373, respectively. Depreciation
is provided using the straight-line method over the estimated useful lives of the property and equipment. We estimate the useful
lives to be five to ten years for furniture and fixtures, three years for computer equipment, and the lesser of ten years or the
remaining life of the lease for leasehold improvements. All of our fixed assets are pledged as collateral under the Company's four-year
$20,000,000 Multi-Draw Term Loan Facility Credit Agreement, by and among the Company, as borrower, Orix Corporate Capital, Inc.,
as administrative agent and lender and the other lenders party thereto from time to time (the "Loan Facility").



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



41







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 and six months ended June 30, 2015,
the Company earned $75,730 and $158,537, respectively, in interest on senior secured debt, subordinated secured debt, non-convertible
promissory notes and interest-bearing accounts. During the three months and six months ended June 30, 2014, the Company earned
$71,029 and $144,592, respectively, in interest on U.S. government securities, senior secured debt, participation agreements, subordinated
secured debt, non-convertible promissory notes and interest-bearing accounts. During the three months and six months ended June
30, 2015, the Company recorded, on a net basis, $205,965 and $258,990, respectively, of bridge note interest. The total for the
six months ended June 30, 2015, includes a partial write-off of previously accrued bridge note interest of $1,427. During the three
months and six months ended June 30, 2014, the Company recorded, on a net basis, $62,806 and $135,534, respectively, of bridge
note interest. The total for the six months ended June 30, 2014, includes a partial write-off of previously accrued bridge note
interest of $1,392.



Yield-Enhancing Fees
on Debt Securities. Yield-enhancing fees received in connection with our venture debt investments are deferred. The unearned
fee income is accreted into income based on the effective interest method over the life of the investment. For the three months
and six months ended June 30, 2015, total yield-enhancing fees accreted into investment income were $19,741 and $46,048, respectively.
For the three months and six months ended June 30, 2014, total yield-enhancing fees accreted into investment income were $16,757
and $32,262, respectively.



Fees for Providing Managerial
Assistance to Portfolio Companies. For the three months and six months ended June 30, 2015, the Company earned income of $6,500
and $13,500, respectively, owing to one of its employees providing managerial assistance to one of its portfolio companies. For
the three months and six months ended June 30, 2014, the Company did not earn income for providing managerial assistance to any
of its portfolio companies.



Call Options. The
Company writes covered call options on publicly traded securities with the intention of earning option premiums. Option premiums
may increase the Company’s realized gains and, therefore, may help increase distributable income, but may limit the realized
gains on the security. When a company writes (sells) an option, an amount equal to the premium received by the Company is recorded
in the Consolidated Statements of Assets and Liabilities as a liability. The amount of the liability is subsequently marked-to-market
to reflect the current market value of the option written. When an option expires, the Company realizes a gain on the option to
the extent of the premiums received. Premiums received from writing options that are exercised or closed are added to the proceeds
or offset against the amount paid on the transaction to determine the realized gain or loss. Previously recorded unrealized gains
and losses on expired, exercised or closed options are reversed at the time of such transactions. AtJune 30, 2015, and
December 31, 2014, the Company did not have shares covered by call option contracts.



Stock-Based Compensation.
The Company has a stock-based employee compensation plan. The Company accounts for the Amended and Restated Harris & Harris
Group, Inc. 2012 Equity Incentive Plan (the "Stock Plan") by determining the fair value of all share-based payments to
employees, including the fair value of grants of employee stock options and restricted stock awards, and records these amounts
as an expense in the Consolidated Statements of Operations over the vesting period with a corresponding increase
to our additional paid-in capital. For the three months and six months ended June 30, 2015, and June 30, 2014, the increase to
our operating expenses was offset by the increase to our additional paid-in capital, resulting in no net impact to our net asset
value. Additionally, the Company does not record the potential tax benefits associated with the expensing of stock options or
restricted stock because the Company currently intends to qualify as a regulated investment company ("RIC") under Subchapter
M of the Code, and the deduction attributable to such expensing, therefore, is unlikely to provide any additional tax savings.
The amount of non-cash, stock-based compensation expense recognized in the Consolidated Statements of Operations is based on the
fair value of the awards the Company expects to vest, recognized over the vesting period on a straight-line basis for each award,
and adjusted for actual awards vested and pre-vesting forfeitures. The forfeiture rate is estimated at the time of grant and revised,
if necessary, in subsequent periods if the actual forfeiture rate differs from the estimated rate and is accounted for in the
current period and prospectively. See "Note 9. Stock-Based Compensation" for further discussion.



42









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



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



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



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



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



43







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



Recent Accounting Pronouncements.
In April 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update No. 2015-03, “Simplifying
the Presentation of Debt Issuance Costs” (“ASU 2015-03”), which changes the presentation of debt issuance costs
in financial statements. ASU 2015-03 requires an entity to present such costs in the balance sheet as a direct deduction from the
related debt liability rather than as an asset. Amortization of the costs will continue to be reported as interest expense. It
is effective for annual reporting periods beginning after December 15, 2016. Early adoption is permitted. The new guidance will
be applied retrospectively to each prior period presented. The adoption of ASU 2015-03 is not anticipated to have a material impact
on the Company's consolidated financial statements.



NOTE 4. BUSINESS RISKS AND UNCERTAINTIES



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



We do not choose investments
based on a strategy of diversification. We also do not rebalance the portfolio should one of our portfolio companies increase
in value substantially relative to the rest of the portfolio.  Therefore, the value of our portfolio may be more vulnerable
to microeconomic events affecting a single sector, industry or portfolio company and to general macroeconomic events that may
be unrelated to our portfolio companies. These factors may subject the value of our portfolio to greater volatility than a company
that follows a diversification strategy. As of June 30, 2015, and December 31, 2014, our largest 10 investments by value accounted
for approximately 78 percent and 82 percent, respectively, of the value of our equity-focused venture capital portfolio. Our largest
three investments, by value,Adesto Technologies Corporation, Metabolon, Inc., and D-Wave Systems, Inc., accounted for
approximately 19 percent, 13 percent and 9 percent, respectively, of our equity-focused venture capital portfolio at June 30,
2015. Our largest three investments, by value, Adesto Technologies Corporation, Metabolon, Inc., and Enumeral Biomedical Holdings,
Inc., accounted for approximately 17 percent, 12 percent and 10 percent, respectively, of our equity-focused venture capital portfolio
at December 31, 2014. Adesto Technologies, D-Wave Systems and Metabolon are privately held portfolio companies. Enumeral Biomedical
Holdings is a publicly traded portfolio company.



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



44











NOTE 5. DEBT



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



At June 30, 2015, and December
31, 2014, the Company had outstanding debt of $5,000,000 and $0, respectively. The weighted average annualized interest rate for the
three months and six months ended June 30, 2015, was 10 percent, exclusive of amortization of closing
fees and other expenses. The weighted average annual interest rate for the year ended December 31, 2014, was zero percent. The
weighted average debt outstanding for the three months and six months ended June 30, 2015, was $5,000,000 and $2,541,436, respectively.
The remaining capacity under the Loan Facility was $15,000,000 at June 30, 2015. Unamortized fees and expenses of $393,480 and
$480,921 related to establishing the Loan Facility are included as "Prepaid expenses" in the Consolidated Statements
of Assets and Liabilities as of June 30, 2015, and December 31, 2014, respectively. These amounts are amortized over the term of
the Loan Facility, and $87,440 was amortized in the six months ended June 30, 2015, and in the six months ended June 30, 2014.
The Company paid $37,917 and $87,917 in non-utilization fees during the three months and six months ended June 30, 2015, respectively.
The Company paid $50,556 and $100,556 in non-utilization fees during the three months and six months ended June 30, 2014, respectively.
During the six months ended June 30, 2015, the Company paid a $50,000 utilization fee associated with a drawdown of the Loan Facility.
At June 30, 2015, the Company was in compliance with all covenants required by the Loan Facility.



45







NOTE 6. FAIR VALUE OF INVESTMENTS



At June 30, 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                                      |  | June 30, 2015                                   |           
|                                                 |  |                                                 |           
|Privately Held Portfolio Companies:              |  |                                                 |           
|                                                 |  |                                                 |           
|Preferred Stock                                  |  | $                                               | 63,882,805
|Bridge Notes                                     |  |                                                 | 5,194,358 
|Warrants                                         |  |                                                 | 1,224,662 
|Rights to Milestone Payments                     |  |                                                 | 3,181,183 
|Common Stock                                     |  |                                                 | 452,129   
|Senior Secured Debt                              |  |                                                 | 764,253   
|Subordinated Secured Debt                        |  |                                                 | 987,025   
|Options                                          |  |                                                 | 38,536    
|                                                 |  |                                                 |           
|Publicly Traded Portfolio 
Companies:            |  |                                                 |           
|                                                 |  |                                                 |           
|Common Stock                                     |  | $                                               | 11,326,108
|                                                 |  |                                                 |           
|Total Investments:                               |  | $                                               | 87,051,059
|                                                 |  |                                                 |           
|Funds Held in Escrow From
 Sales of Investments: |  | $                                               | 372,835   
|                                                 |  |                                                 |           
|Total Financial Assets:                          |  | $                                               | 87,423,894



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 June
30, 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.
| | --- | ----------------------------------------------------------------------------------------------------



46







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 June 30, 2015 |            |  | Valuation  Technique(s) |                 | Unobservable Input |                                                                                                                   | Range (WeightedAverage(a))
|--------------- |  | --------------------------- | ---------- |  | ----------------------- | --------------- | ------------------ | ----------------------------------------------------------------------------------------------------------------- | --------------------------
|                |  |                             |            |  |                         |                 |                    |                                                                                                                   |                           
|Preferred Stock |  | $                           | 33,865,611 |  |                         | Hybrid Approach |                    | Private Offering Price Volatility Revenue Multiples Time to Exit Discount for Lack of Marketability               |                           
|                |  |                             |            |  |                         |                 |                    |                                                                                                                   |                           
|Preferred Stock |  |                             | 21,745,132 |  |                         | Income Approach |                    | Private Offering Price Non-Performance Risk Volatility Time to Exit                                               |                           
|                |  |                             |            |  |                         |                 |                    |                                                                                                                   |                           
|Preferred Stock |  |                             | 8,272,062  |  |                         | Market Approach |                    | Private Offering Price Volatility Revenue Multiples Time to Exit Discount for Lack of Marketability               |                           
|                |  |                             |            |  |                         |                 |                    |                                                                                                                   |                           
|Bridge Notes    |  |                             | 2,927,840  |  |                         | Hybrid Approach |                    | Discount for Probability of Success Profit Interest Private Offering Price Escrow Discount Average Time to Return |                           
|                |  |                             |            |  |                         |                 |                    |                                                                                                                   |                           
|Bridge Notes    |  |                             | 777,525    |  |                         | Income Approach |                    | Private Offering Price                                                                                            |                           
|                |  |                             |            |  |                         |                 |                    |                                                                                                                   |                           
|Bridge Notes    |  |                             | 1,488,993  |  |                         | Market Approach |                    | Private Offering Price                                                                                            |                           
|                |  |                             |            |  |                         |                 |                    |                                                                                                                   |                           
|Common Stock    |  |                             | 452,108    |  |                         | Income Approach |                    | Private Offering Price Volatility Time to Exit                                                                    |                           
|                |  |                             |            |  |                         |                 |                    |                                                                                                                   |                           
|Common Stock    |  |                             | 21         |  |                         | Market Approach |                    | Private Offering Price                                                                                            |                           



47









|                                                  |  | Fair Value at June 30, 2015 |            |  | Valuation 
Technique(s) |                                           | Unobservable Input |                                                                                               | Range (Weighted 
Average(a))
|------------------------------------------------- |  | --------------------------- | ---------- |  | ----------------------- | ----------------------------------------- | ------------------ | --------------------------------------------------------------------------------------------- | ----------------------------
|                                                  |  |                             |            |  |                         |                                           |                    |                                                                                               |                             
|Warrants                                          |  |                             | 1,023,104  |  |                         | Income Approach                           |                    | Private Offering Price Volatility Expected Term                                               |                             
|                                                  |  |                             |            |  |                         |                                           |                    |                                                                                               |                             
|Rights to Milestone
 Payments                     |  |                             | 3,181,183  |  |                         | Probability Weighted Discounted Cash Flow |                    | Probability of Achieving Independent Milestones Probability of Achieving Dependent Milestones |                             
|                                                  |  |                             |            |  |                         |                                           |                    |                                                                                               |                             
|Subordinated Secured Debt                         |  |                             | 987,025    |  |                         | Income Approach                           |                    | Effective Yield                                                                               |                             
|                                                  |  |                             |            |  |                         |                                           |                    |                                                                                               |                             
|Senior Secured Debt                               |  |                             | 764,253    |  |                         | Income Approach                           |                    | Effective Yield                                                                               |                             
|                                                  |  |                             |            |  |                         |                                           |                    |                                                                                               |                             
|Funds Held in Escrow
 From Sales  of
 Investments |  |                             | 372,835    |  |                         | Market Approach                           |                    | Escrow Discount                                                                               |                             
|                                                  |  |                             |            |  |                         |                                           |                    |                                                                                               |                             
|Options                                           |  |                             | 38,536     |  |                         | Income Approach                           |                    | Stock Price Volatility Expected Term                                                          |                             
|                                                  |  |                             |            |  |                         |                                           |                    |                                                                                               |                             
|OTC Traded Common Stock                           |  |                             | 7,707,262  |  |                         | Market Approach                           |                    | Stock Price Discount for Lack of Marketability                                                |                             
|                                                  |  |                             |            |  |                         |                                           |                    |                                                                                               |                             
|Total                                             |  | $                           | 83,603,490 |  |                         |                                           |                    |                                                                                               |                             



| | (a) | Weighted average based on fair value at June 30, 2015.
| | --- | ------------------------------------------------------



Valuation Methodologies and Inputs for Level
3 Assets



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



48







Preferred Stock, Bridge Notes and Common Stock



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



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



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



49







Warrants and Options



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



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



Rights to Milestone Payments



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



Subordinated Secured Debt and Senior
Secured Debt



We invest in venture debt
investments through subordinated secured debt and senior secured debt. We value these securities using an income approach. The
income approach uses valuation techniques to convert future amounts (for example, cash flows or earnings) to a single present value
amount (discounted). The measurement is based on the value indicated by current market expectations about those future amounts.
Common inputs for valuing Level 3 debt investments include: the effective yield of the debt investment or, in the case where we
have received warrant coverage, the warrant-adjusted effective yield of the security, adjustments for changes in the yields of
comparable publicly traded high-yield debt funds and risk-free interest rates and an assessment of non-performance risk. For venture
debt investments, an increase in yields would result in a lower fair value measurement. Furthermore, yields would decrease, and
value would increase, if the company is exceeding targets and risk has been substantially reduced from the level of risk that existed
at the time of investment. Yields would increase, and values would decrease, if the company is failing to meet its targets and
risk has been increased from the level of risk that existed at the time of investment. Historically, we also invested in venture
debt through participation agreements. As of December 31, 2014, the amounts held in participation agreements consisted solely of
warrants. These warrants are valued using the Black-Scholes-Merton pricing model as discussed in "Warrants and Options."



50







The following chart shows
the components of change in the financial assets categorized as Level 3 for the three months ended June 30, 2015.



|                                                  |  | BeginningBalance4/1/2015 |            |  | Total RealizedGains (Losses)Included inChanges inNet Assets |   |           | Transfers |  |   | Total Unrealized(Depreciation)AppreciationIncluded inChanges inNet Assets |    |  | Investments inPortfolioCompanies,Interest onBridge Notes,andAmortizationof LoanFees, Net |            |   | DisposalsandSettlements |   |           | EndingBalance6/30/2015 |  |   | Amount of Total(Depreciation)Appreciation for thePeriod Included inChanges in NetAssets Attributableto the Change inUnrealized Gains orLosses Relating toAssets Still Held atthe Reporting Date |  
|------------------------------------------------- |  | ------------------------ | ---------- |  | ----------------------------------------------------------- | - | --------- | --------- |  | - | ------------------------------------------------------------------------- | -- |  | ---------------------------------------------------------------------------------------- | ---------- | - | ----------------------- | - | --------- | ---------------------- |  | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -
|                                                  |  |                          |            |  |                                                             |   |           |           |  |   |                                                                           |    |  |                                                                                          |            |   |                         |   |           |                        |  |   |                                                                                                                                                                                                 |  
|Preferred Stock                                   |  | $                        | 70,753,835 |  |                                                             | $ | 3,351,833 |           |  | $ | (733,224                                                                  | )1 |  | $                                                                                        | (4,555,794 | ) |                         | $ | 600,001   |                        |  | $ | (5,533,846                                                                                                                                                                                      | )
|                                                  |  |                          |            |  |                                                             |   |           |           |  |   |                                                                           |    |  |                                                                                          |            |   |                         |   |           |                        |  |   |                                                                                                                                                                                                 |  
|Bridge Notes                                      |  |                          | 4,240,543  |  |                                                             |   | 0         |           |  |   | (1,128,258                                                                | )  |  |                                                                                          | 1,238,073  |   |                         |   | 844,000   |                        |  |   | 0                                                                                                                                                                                               |  
|                                                  |  |                          |            |  |                                                             |   |           |           |  |   |                                                                           |    |  |                                                                                          |            |   |                         |   |           |                        |  |   |                                                                                                                                                                                                 |  
|Common Stock                                      |  |                          | 598,687    |  |                                                             |   | 0         |           |  |   | (22,752                                                                   | )  |  |                                                                                          | (123,806   | ) |                         |   | 0         |                        |  |   | 0                                                                                                                                                                                               |  
|                                                  |  |                          |            |  |                                                             |   |           |           |  |   |                                                                           |    |  |                                                                                          |            |   |                         |   |           |                        |  |   |                                                                                                                                                                                                 |  
|Warrants                                          |  |                          | 1,288,876  |  |                                                             |   | (98,644   | )         |  |   | (201,558                                                                  | )  |  |                                                                                          | (237,919   | ) |                         |   | 272,349   |                        |  |   | 0                                                                                                                                                                                               |  
|                                                  |  |                          |            |  |                                                             |   |           |           |  |   |                                                                           |    |  |                                                                                          |            |   |                         |   |           |                        |  |   |                                                                                                                                                                                                 |  
|Rights to 
Milestone 
Payments                    |  |                          | 3,194,781  |  |                                                             |   | 0         |           |  |   | 0                                                                         |    |  |                                                                                          | (13,598    | ) |                         |   | 0         |                        |  |   | 0                                                                                                                                                                                               |  
|                                                  |  |                          |            |  |                                                             |   |           |           |  |   |                                                                           |    |  |                                                                                          |            |   |                         |   |           |                        |  |   |                                                                                                                                                                                                 |  
|Senior Secured 
Debt                              |  |                          | 1,095,806  |  |                                                             |   | 0         |           |  |   | 0                                                                         |    |  |                                                                                          | (254,508   | ) |                         |   | 17,328    |                        |  |   | (94,373                                                                                                                                                                                         | )
|                                                  |  |                          |            |  |                                                             |   |           |           |  |   |                                                                           |    |  |                                                                                          |            |   |                         |   |           |                        |  |   |                                                                                                                                                                                                 |  
|Subordinated 
Secured Debt                        |  |                          | 981,100    |  |                                                             |   | 0         |           |  |   | 0                                                                         |    |  |                                                                                          | 3,513      |   |                         |   | 2,412     |                        |  |   | 0                                                                                                                                                                                               |  
|                                                  |  |                          |            |  |                                                             |   |           |           |  |   |                                                                           |    |  |                                                                                          |            |   |                         |   |           |                        |  |   |                                                                                                                                                                                                 |  
|Funds Held in 
Escrow From 
Sales of 
Investments |  |                          | 308,345    |  |                                                             |   | (62,482   | )         |  |   | 126,972                                                                   | 1  |  |                                                                                          | 0          |   |                         |   | 0         |                        |  |   | 0                                                                                                                                                                                               |  
|                                                  |  |                          |            |  |                                                             |   |           |           |  |   |                                                                           |    |  |                                                                                          |            |   |                         |   |           |                        |  |   |                                                                                                                                                                                                 |  
|Options                                           |  |                          | 49,280     |  |                                                             |   | 0         |           |  |   | 0                                                                         |    |  |                                                                                          | (10,744    | ) |                         |   | 0         |                        |  |   | 0                                                                                                                                                                                               |  
|                                                  |  |                          |            |  |                                                             |   |           |           |  |   |                                                                           |    |  |                                                                                          |            |   |                         |   |           |                        |  |   |                                                                                                                                                                                                 |  
|OTC Traded 
Common Stock                          |  |                          | 5,718,235  |  |                                                             |   | 0         |           |  |   | (321,837                                                                  | )  |  |                                                                                          | 1,428,212  |   |                         |   | 882,652   |                        |  |   | 0                                                                                                                                                                                               |  
|                                                  |  |                          |            |  |                                                             |   |           |           |  |   |                                                                           |    |  |                                                                                          |            |   |                         |   |           |                        |  |   |                                                                                                                                                                                                 |  
|Total                                             |  | $                        | 88,229,488 |  |                                                             | $ | 3,190,707 |           |  | $ | (2,280,657                                                                | )  |  | $                                                                                        | (2,526,571 | ) |                         | $ | 2,618,742 |                        |  | $ | (5,628,219                                                                                                                                                                                      | )



1There was a $126,972 transfer from "Preferred Stock"
into "Funds Held in Escrow From Sales of Investments" owing to the sale of Molecular Imprints, Inc.



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 June 30, 2015,
there were transfers out of Level 3 investments totaling $2,280,657. Certain of our shares of Enumeral Biomedical Holdings, Inc.,
and OpGen, Inc., transferred from Level 3 investments owing to the use of their unadjusted closing share price on their respective
stock exchanges on June 30, 2015, to derive their value.



51







The following chart shows
the components of change in the financial assets categorized as Level 3 for the six months ended June 30, 2015.



|                                                  |  | BeginningBalance1/1/2015 |            |  | Total RealizedGains (Losses)Included inChanges inNet Assets |   |           | Transfers |  |   | Total Unrealized(Depreciation)AppreciationIncluded inChanges inNet Assets |    |  | Investments
    in 
PortfolioCompanies,Interest onBridge Notes,andAmortizationof LoanFees, Net |            |   | DisposalsandSettlements |   |           | EndingBalance6/30/2015 |  |   | Amount of Total(Depreciation)Appreciation for
    thePeriod Included inChanges in NetAssets
    Attributableto the Change inUnrealized Gains
    orLosses Relating toAssets Still Held
    atthe Reporting Date |  
|------------------------------------------------- |  | ------------------------ | ---------- |  | ----------------------------------------------------------- | - | --------- | --------- |  | - | ------------------------------------------------------------------------- | -- |  | ---------------------------------------------------------------------------------------------- | ---------- | - | ----------------------- | - | --------- | ---------------------- |  | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -
|                                                  |  |                          |            |  |                                                             |   |           |           |  |   |                                                                           |    |  |                                                                                                |            |   |                         |   |           |                        |  |   |                                                                                                                                                                                                                 |  
|Preferred Stock                                   |  | $                        | 70,969,603 |  |                                                             | $ | 3,351,833 |           |  | $ | (231,361                                                                  | )1 |  | $                                                                                              | (6,607,451 | ) |                         | $ | 1,934,027 |                        |  | $ | (5,533,846                                                                                                                                                                                                      | )
|                                                  |  |                          |            |  |                                                             |   |           |           |  |   |                                                                           |    |  |                                                                                                |            |   |                         |   |           |                        |  |   |                                                                                                                                                                                                                 |  
|Bridge Notes                                      |  |                          | 2,163,916  |  |                                                             |   | 0         |           |  |   | (1,630,121                                                                | )  |  |                                                                                                | 2,744,477  |   |                         |   | 1,916,086 |                        |  |   | 0                                                                                                                                                                                                               |  
|                                                  |  |                          |            |  |                                                             |   |           |           |  |   |                                                                           |    |  |                                                                                                |            |   |                         |   |           |                        |  |   |                                                                                                                                                                                                                 |  
|Common Stock                                      |  |                          | 535,280    |  |                                                             |   | 0         |           |  |   | (74,379                                                                   | )  |  |                                                                                                | (8,772     | ) |                         |   | 0         |                        |  |   | 0                                                                                                                                                                                                               |  
|                                                  |  |                          |            |  |                                                             |   |           |           |  |   |                                                                           |    |  |                                                                                                |            |   |                         |   |           |                        |  |   |                                                                                                                                                                                                                 |  
|Warrants                                          |  |                          | 2,026,864  |  |                                                             |   | (383,488  | )         |  |   | (201,558                                                                  | )  |  |                                                                                                | (667,063   | ) |                         |   | 272,349   |                        |  |   | (24,000                                                                                                                                                                                                         | )
|                                                  |  |                          |            |  |                                                             |   |           |           |  |   |                                                                           |    |  |                                                                                                |            |   |                         |   |           |                        |  |   |                                                                                                                                                                                                                 |  
|Rights to 
Milestone 
Payments                    |  |                          | 3,193,865  |  |                                                             |   | 0         |           |  |   | 0                                                                         |    |  |                                                                                                | (12,682    | ) |                         |   | 0         |                        |  |   | 0                                                                                                                                                                                                               |  
|                                                  |  |                          |            |  |                                                             |   |           |           |  |   |                                                                           |    |  |                                                                                                |            |   |                         |   |           |                        |  |   |                                                                                                                                                                                                                 |  
|Senior Secured 
Debt                              |  |                          | 1,203,299  |  |                                                             |   | 0         |           |  |   | 0                                                                         |    |  |                                                                                                | (286,383   | ) |                         |   | 33,446    |                        |  |   | (186,109                                                                                                                                                                                                        | )
|                                                  |  |                          |            |  |                                                             |   |           |           |  |   |                                                                           |    |  |                                                                                                |            |   |                         |   |           |                        |  |   |                                                                                                                                                                                                                 |  
|Subordinated 
Secured Debt                        |  |                          | 979,450    |  |                                                             |   | 0         |           |  |   | 0                                                                         |    |  |                                                                                                | (5,026     | ) |                         |   | 12,601    |                        |  |   | 0                                                                                                                                                                                                               |  
|                                                  |  |                          |            |  |                                                             |   |           |           |  |   |                                                                           |    |  |                                                                                                |            |   |                         |   |           |                        |  |   |                                                                                                                                                                                                                 |  
|Funds Held in 
Escrow From 
Sales of 
Investments |  |                          | 306,802    |  |                                                             |   | (60,939   | )         |  |   | 126,972                                                                   | 1  |  |                                                                                                | 0          |   |                         |   | 0         |                        |  |   | 0                                                                                                                                                                                                               |  
|                                                  |  |                          |            |  |                                                             |   |           |           |  |   |                                                                           |    |  |                                                                                                |            |   |                         |   |           |                        |  |   |                                                                                                                                                                                                                 |  
|Options                                           |  |                          | 50,690     |  |                                                             |   | 0         |           |  |   | 0                                                                         |    |  |                                                                                                | (12,154    | ) |                         |   | 0         |                        |  |   | 0                                                                                                                                                                                                               |  
|                                                  |  |                          |            |  |                                                             |   |           |           |  |   |                                                                           |    |  |                                                                                                |            |   |                         |   |           |                        |  |   |                                                                                                                                                                                                                 |  
|OTC Traded Common Stock                           |  |                          | 7,251,178  |  |                                                             |   | 0         |           |  |   | (321,837                                                                  | )  |  |                                                                                                | (104,731   | ) |                         |   | 882,652   |                        |  |   | 0                                                                                                                                                                                                               |  
|                                                  |  |                          |            |  |                                                             |   |           |           |  |   |                                                                           |    |  |                                                                                                |            |   |                         |   |           |                        |  |   |                                                                                                                                                                                                                 |  
|Total                                             |  | $                        | 88,680,947 |  |                                                             | $ | 2,907,406 |           |  | $ | (2,332,284                                                                | )  |  | $                                                                                              | (4,959,785 | ) |                         | $ | 5,051,161 |                        |  | $ | (5,743,955                                                                                                                                                                                                      | )



1There was a $126,972 transfer from "Preferred Stock"
into "Funds Held in Escrow From Sales of Investments" owing to the sale of Molecular Imprints, Inc.



For the six months ended
June 30, 2015, there were transfers out of Level 3 investments totaling $2,332,284. Our shares of Accelerator IV-New York Corporation
transferred from a Level 3 investment owing to its qualification as an equity method investment. Certain of our shares of Enumeral
Biomedical Holdings, Inc., and OpGen, Inc., transferred from Level 3 investments owing to the use of their unadjusted closing share
price on their respective stock exchanges on June 30, 2015, to derive their value.



52







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





|                                               |  | Fair Value Measurement at Reporting Date Using: |           
|---------------------------------------------- |  | ----------------------------------------------- | ----------
|                                               |  |                                                 |           
|Description                                    |  | December 31, 2014                               |           
|                                               |  |                                                 |           
|Privately Held Portfolio Companies:            |  |                                                 |           
|                                               |  |                                                 |           
|Preferred Stock                                |  | $                                               | 70,969,603
|Bridge Notes                                   |  |                                                 | 2,163,916 
|Warrants                                       |  |                                                 | 2,026,864 
|Rights to Milestone Payments                   |  |                                                 | 3,193,865 
|Common Stock                                   |  |                                                 | 535,280   
|Senior Secured Debt                            |  |                                                 | 1,203,299 
|Subordinated Secured Debt                      |  |                                                 | 979,450   
|Options                                        |  |                                                 | 50,690    
|                                               |  |                                                 |           
|                                               |  |                                                 |           
|Publicly Traded Portfolio Companies:           |  |                                                 |           
|                                               |  |                                                 |           
|Common Stock                                   |  | $                                               | 8,641,873 
|                                               |  |                                                 |           
|Total Investments:                             |  | $                                               | 89,764,840
|                                               |  |                                                 |           
|Funds Held in Escrow FromSales of Investments: |  | $                                               | 306,802   
|                                               |  |                                                 |           
|Total Financial Assets:                        |  | $                                               | 90,071,642





53







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



|                                                  |  | BeginningBalance1/1/2014 |            |  | Total Realized(Losses) GainsIncluded inChanges inNet Assets |   |            | Transfers |  |   | Total UnrealizedAppreciation(Depreciation)Included inChanges inNet Assets |      |  | Investments
    inPortfolioCompanies,Interest onBridge Notes,andAmortizationof LoanFees, Net |            |   | DisposalsandSettlements |   |            | EndingBalance12/31/2014 |  |   | Amount of Total(Depreciation)Appreciation for thePeriod Included inChanges in NetAssets Attributableto the Change inUnrealized Gains orLosses Relating toAssets Still Held atthe Reporting Date |  
|------------------------------------------------- |  | ------------------------ | ---------- |  | ----------------------------------------------------------- | - | ---------- | --------- |  | - | ------------------------------------------------------------------------- | ---- |  | -------------------------------------------------------------------------------------------- | ---------- | - | ----------------------- | - | ---------- | ----------------------- |  | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -
|                                                  |  |                          |            |  |                                                             |   |            |           |  |   |                                                                           |      |  |                                                                                              |            |   |                         |   |            |                         |  |   |                                                                                                                                                                                                 |  
|Preferred Stock                                   |  | $                        | 71,577,059 |  |                                                             | $ | (7,472,760 | )         |  | $ | (371,644                                                                  | )1,2 |  | $                                                                                            | 5,555,721  |   |                         | $ | 8,191,037  |                         |  | $ | (6,509,810                                                                                                                                                                                      | )
|                                                  |  |                          |            |  |                                                             |   |            |           |  |   |                                                                           |      |  |                                                                                              |            |   |                         |   |            |                         |  |   |                                                                                                                                                                                                 |  
|Bridge Notes                                      |  |                          | 6,044,114  |  |                                                             |   | (50,000    | )         |  |   | (4,968,041                                                                | )1   |  |                                                                                              | (2,253,312 | ) |                         |   | 3,434,976  |                         |  |   | (43,821                                                                                                                                                                                         | )
|                                                  |  |                          |            |  |                                                             |   |            |           |  |   |                                                                           |      |  |                                                                                              |            |   |                         |   |            |                         |  |   |                                                                                                                                                                                                 |  
|Common Stock                                      |  |                          | 108,668    |  |                                                             |   | 0          |           |  |   | 1,130,362                                                                 | 1    |  |                                                                                              | (919,782   | ) |                         |   | 216,032    |                         |  |   | 0                                                                                                                                                                                               |  
|                                                  |  |                          |            |  |                                                             |   |            |           |  |   |                                                                           |      |  |                                                                                              |            |   |                         |   |            |                         |  |   |                                                                                                                                                                                                 |  
|Warrants                                          |  |                          | 800,487    |  |                                                             |   | 0          |           |  |   | 65,250                                                                    | 1    |  |                                                                                              | 519,818    |   |                         |   | 641,309    |                         |  |   | 0                                                                                                                                                                                               |  
|                                                  |  |                          |            |  |                                                             |   |            |           |  |   |                                                                           |      |  |                                                                                              |            |   |                         |   |            |                         |  |   |                                                                                                                                                                                                 |  
|Rights to 
Milestone 
Payments                    |  |                          | 3,489,433  |  |                                                             |   | 536,813    |           |  |   | 629,670                                                                   |      |  |                                                                                              | 608,904    |   |                         |   | 0          |                         |  |   | (2,070,955                                                                                                                                                                                      | )
|                                                  |  |                          |            |  |                                                             |   |            |           |  |   |                                                                           |      |  |                                                                                              |            |   |                         |   |            |                         |  |   |                                                                                                                                                                                                 |  
|Participation 
Agreements                         |  |                          | 777,195    |  |                                                             |   | 84,371     |           |  |   | 0                                                                         |      |  |                                                                                              | (68,196    | ) |                         |   | 5,892      |                         |  |   | (799,262                                                                                                                                                                                        | )
|                                                  |  |                          |            |  |                                                             |   |            |           |  |   |                                                                           |      |  |                                                                                              |            |   |                         |   |            |                         |  |   |                                                                                                                                                                                                 |  
|Senior Secured 
Debt                              |  |                          | 1,511,828  |  |                                                             |   | 0          |           |  |   | 0                                                                         |      |  |                                                                                              | 17,364     |   |                         |   | (12,536    | )                       |  |   | (313,357                                                                                                                                                                                        | )
|                                                  |  |                          |            |  |                                                             |   |            |           |  |   |                                                                           |      |  |                                                                                              |            |   |                         |   |            |                         |  |   |                                                                                                                                                                                                 |  
|Subordinated 
Secured Debt                        |  |                          | 0          |  |                                                             |   | 0          |           |  |   | 0                                                                         |      |  |                                                                                              | 197        |   |                         |   | 979,253    |                         |  |   | 0                                                                                                                                                                                               |  
|                                                  |  |                          |            |  |                                                             |   |            |           |  |   |                                                                           |      |  |                                                                                              |            |   |                         |   |            |                         |  |   |                                                                                                                                                                                                 |  
|Funds Held in 
Escrow From 
Sales of 
Investments |  |                          | 1,786,390  |  |                                                             |   | 270,241    |           |  |   | 625,000                                                                   | 2    |  |                                                                                              | 0          |   |                         |   | 0          |                         |  |   | (2,374,829                                                                                                                                                                                      | )
|                                                  |  |                          |            |  |                                                             |   |            |           |  |   |                                                                           |      |  |                                                                                              |            |   |                         |   |            |                         |  |   |                                                                                                                                                                                                 |  
|Options                                           |  |                          | 0          |  |                                                             |   | 0          |           |  |   | 0                                                                         |      |  |                                                                                              | 50,690     |   |                         |   | 0          |                         |  |   | 0                                                                                                                                                                                               |  
|                                                  |  |                          |            |  |                                                             |   |            |           |  |   |                                                                           |      |  |                                                                                              |            |   |                         |   |            |                         |  |   |                                                                                                                                                                                                 |  
|OTC Traded 
Common Stock                          |  |                          | 0          |  |                                                             |   | 0          |           |  |   | 2,889,403                                                                 | 1    |  |                                                                                              | 3,402,150  |   |                         |   | 959,625    |                         |  |   | 0                                                                                                                                                                                               |  
|                                                  |  |                          |            |  |                                                             |   |            |           |  |   |                                                                           |      |  |                                                                                              |            |   |                         |   |            |                         |  |   |                                                                                                                                                                                                 |  
|Total                                             |  | $                        | 86,095,174 |  |                                                             | $ | (6,631,335 | )         |  | $ | 0                                                                         |      |  | $                                                                                            | 6,913,554  |   |                         | $ | 14,415,588 |                         |  | $ | (12,112,034                                                                                                                                                                                     | )



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



2There was a $625,000 transfer from "Preferred
Stock" into "Funds Held in Escrow From Sales of Investments" owing to the sale of Molecular Imprints, Inc.,to
Canon, Inc.



There were no transfers
out of Level 3 investments during the year ended December 31, 2014.



54







The following chart shows
the components of change in the financial assets categorized as Level 3 for the three months ended June 30, 2014.



|                                                  |  | BeginningBalance4/1/2014 |            |  | Total RealizedGains (Losses)Included inChanges inNet Assets |   |           | Transfers |  |   | Total
Unrealized(Depreciation)AppreciationIncluded inChanges inNet Assets |     |  | Investmentsin PortfolioCompanies,Interest onBridge
    Notes,
andAmortization
of LoanFees, Net |           |   | Disposals |   |           | EndingBalance6/30/2014 |  |   | Amount of Total(Depreciation)Appreciation for
    thePeriod Included inChanges in NetAssets
    Attributableto the Change inUnrealized Gains
    orLosses Relating toAssets Still Held
    atthe Reporting Date |  
|------------------------------------------------- |  | ------------------------ | ---------- |  | ----------------------------------------------------------- | - | --------- | --------- |  | - | ------------------------------------------------------------------------- | --- |  | ---------------------------------------------------------------------------------------------- | --------- | - | --------- | - | --------- | ---------------------- |  | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -
|                                                  |  |                          |            |  |                                                             |   |           |           |  |   |                                                                           |     |  |                                                                                                |           |   |           |   |           |                        |  |   |                                                                                                                                                                                                                 |  
|Preferred Stock                                   |  | $                        | 70,633,956 |  |                                                             | $ | 4,263,420 |           |  | $ | 1,897,462                                                                 | 1,2 |  | $                                                                                              | 5,720,997 |   |           | $ | 6,889,016 |                        |  | $ | (6,486,461                                                                                                                                                                                                      | )
|                                                  |  |                          |            |  |                                                             |   |           |           |  |   |                                                                           |     |  |                                                                                                |           |   |           |   |           |                        |  |   |                                                                                                                                                                                                                 |  
|Bridge Notes                                      |  |                          | 5,402,815  |  |                                                             |   | 0         |           |  |   | (3,653,987                                                                | )1  |  |                                                                                                | 68,236    |   |           |   | 697,912   |                        |  |   | 0                                                                                                                                                                                                               |  
|                                                  |  |                          |            |  |                                                             |   |           |           |  |   |                                                                           |     |  |                                                                                                |           |   |           |   |           |                        |  |   |                                                                                                                                                                                                                 |  
|Common Stock                                      |  |                          | 108,668    |  |                                                             |   | 0         |           |  |   | 436,605                                                                   | 1   |  |                                                                                                | 1,494     |   |           |   | 0         |                        |  |   | 0                                                                                                                                                                                                               |  
|                                                  |  |                          |            |  |                                                             |   |           |           |  |   |                                                                           |     |  |                                                                                                |           |   |           |   |           |                        |  |   |                                                                                                                                                                                                                 |  
|Warrants                                          |  |                          | 740,070    |  |                                                             |   | 0         |           |  |   | 65,250                                                                    | 1   |  |                                                                                                | 72,946    |   |           |   | 43,367    |                        |  |   | 0                                                                                                                                                                                                               |  
|                                                  |  |                          |            |  |                                                             |   |           |           |  |   |                                                                           |     |  |                                                                                                |           |   |           |   |           |                        |  |   |                                                                                                                                                                                                                 |  
|Rights to 
Milestone 
Payments                    |  |                          | 3,491,600  |  |                                                             |   | 0         |           |  |   | 629,670                                                                   | 1   |  |                                                                                                | 5,834     |   |           |   | 0         |                        |  |   | 0                                                                                                                                                                                                               |  
|                                                  |  |                          |            |  |                                                             |   |           |           |  |   |                                                                           |     |  |                                                                                                |           |   |           |   |           |                        |  |   |                                                                                                                                                                                                                 |  
|Participation 
Agreements                         |  |                          | 757,797    |  |                                                             |   | 0         |           |  |   | 0                                                                         |     |  |                                                                                                | (40,708   | ) |           |   | 1,276     |                        |  |   | (43,200                                                                                                                                                                                                         | )
|                                                  |  |                          |            |  |                                                             |   |           |           |  |   |                                                                           |     |  |                                                                                                |           |   |           |   |           |                        |  |   |                                                                                                                                                                                                                 |  
|Senior Secured 
Debt                              |  |                          | 1,466,451  |  |                                                             |   | 0         |           |  |   | 0                                                                         |     |  |                                                                                                | (92,510   | ) |           |   | 15,481    |                        |  |   | (83,521                                                                                                                                                                                                         | )
|                                                  |  |                          |            |  |                                                             |   |           |           |  |   |                                                                           |     |  |                                                                                                |           |   |           |   |           |                        |  |   |                                                                                                                                                                                                                 |  
|Funds Held in 
Escrow From 
Sales of 
Investments |  |                          | 551,294    |  |                                                             |   | 271,639   |           |  |   | 625,000                                                                   | 2   |  |                                                                                                | 0         |   |           |   | 0         |                        |  |   | 0                                                                                                                                                                                                               |  
|                                                  |  |                          |            |  |                                                             |   |           |           |  |   |                                                                           |     |  |                                                                                                |           |   |           |   |           |                        |  |   |                                                                                                                                                                                                                 |  
|Total                                             |  | $                        | 83,152,651 |  |                                                             | $ | 4,535,059 |           |  | $ | 0                                                                         |     |  | $                                                                                              | 5,736,289 |   |           | $ | 7,647,052 |                        |  | $ | (6,613,182                                                                                                                                                                                                      | )



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



2There was a $625,000 transfer from "Preferred
Stock" into "Funds Held in Escrow From Sales of Investments" owing to the sale of Molecular Imprints, Inc.,to
Canon, Inc.



We elected to use the beginning
of period values to recognize transfers in and out of Level 3 investments. For the three months ended June 30, 2014, there were
no transfers out of Level 3.



55







The following chart shows
the components of change in the financial assets categorized as Level 3 for the six months ended June 30, 2014.



|                                                  |  | BeginningBalance1/1/2014 |            |  | Total RealizedGains (Losses)Included inChanges inNet Assets |   |            | Transfers |  |   | Total
    Unrealized(Depreciation)AppreciationIncluded inChanges inNet Assets |     |  | Investmentsin PortfolioCompanies,Interest onBridge
    Notes,
andAmortization
of LoanFees, Net |            |   | Disposals |   |            | EndingBalance6/30/2014 |  |   | Amount of Total(Depreciation)Appreciation for
    thePeriod Included inChanges in NetAssets
    Attributableto the Change inUnrealized Gains
    orLosses Relating toAssets Still Held atthe Reporting
    Date |  
|------------------------------------------------- |  | ------------------------ | ---------- |  | ----------------------------------------------------------- | - | ---------- | --------- |  | - | ----------------------------------------------------------------------------- | --- |  | ---------------------------------------------------------------------------------------------- | ---------- | - | --------- | - | ---------- | ---------------------- |  | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -
|                                                  |  |                          |            |  |                                                             |   |            |           |  |   |                                                                               |     |  |                                                                                                |            |   |           |   |            |                        |  |   |                                                                                                                                                                                                                 |  
|Preferred Stock                                   |  | $                        | 71,577,059 |  |                                                             | $ | (2,986,113 | )         |  | $ | 2,746,327                                                                     | 1,2 |  | $                                                                                              | 10,226,545 |   |           | $ | 7,841,033  |                        |  | $ | (6,486,461                                                                                                                                                                                                      | )
|                                                  |  |                          |            |  |                                                             |   |            |           |  |   |                                                                               |     |  |                                                                                                |            |   |           |   |            |                        |  |   |                                                                                                                                                                                                                 |  
|Bridge Notes                                      |  |                          | 6,044,114  |  |                                                             |   | (50,000    | )         |  |   | (4,502,852                                                                    | )1  |  |                                                                                                | (1,124,325 | ) |           |   | 2,148,039  |                        |  |   | 0                                                                                                                                                                                                               |  
|                                                  |  |                          |            |  |                                                             |   |            |           |  |   |                                                                               |     |  |                                                                                                |            |   |           |   |            |                        |  |   |                                                                                                                                                                                                                 |  
|Common Stock                                      |  |                          | 108,668    |  |                                                             |   | 0          |           |  |   | 436,605                                                                       | 1   |  |                                                                                                | 1,494      |   |           |   | 0          |                        |  |   | 0                                                                                                                                                                                                               |  
|                                                  |  |                          |            |  |                                                             |   |            |           |  |   |                                                                               |     |  |                                                                                                |            |   |           |   |            |                        |  |   |                                                                                                                                                                                                                 |  
|Warrants                                          |  |                          | 800,487    |  |                                                             |   | 0          |           |  |   | 65,250                                                                        | 1   |  |                                                                                                | (45,038    | ) |           |   | 100,934    |                        |  |   | 0                                                                                                                                                                                                               |  
|                                                  |  |                          |            |  |                                                             |   |            |           |  |   |                                                                               |     |  |                                                                                                |            |   |           |   |            |                        |  |   |                                                                                                                                                                                                                 |  
|Rights to 
Milestone 
Payments                    |  |                          | 3,489,433  |  |                                                             |   | 0          |           |  |   | 629,670                                                                       | 1   |  |                                                                                                | 8,001      |   |           |   | 0          |                        |  |   | 0                                                                                                                                                                                                               |  
|                                                  |  |                          |            |  |                                                             |   |            |           |  |   |                                                                               |     |  |                                                                                                |            |   |           |   |            |                        |  |   |                                                                                                                                                                                                                 |  
|Participation 
Agreements                         |  |                          | 777,195    |  |                                                             |   | 0          |           |  |   | 0                                                                             |     |  |                                                                                                | (18,231    | ) |           |   | 2,601      |                        |  |   | (86,400                                                                                                                                                                                                         | )
|                                                  |  |                          |            |  |                                                             |   |            |           |  |   |                                                                               |     |  |                                                                                                |            |   |           |   |            |                        |  |   |                                                                                                                                                                                                                 |  
|Senior Secured 
Debt                              |  |                          | 1,511,828  |  |                                                             |   | 0          |           |  |   | 0                                                                             |     |  |                                                                                                | (97,276    | ) |           |   | 29,660     |                        |  |   | (138,311                                                                                                                                                                                                        | )
|                                                  |  |                          |            |  |                                                             |   |            |           |  |   |                                                                               |     |  |                                                                                                |            |   |           |   |            |                        |  |   |                                                                                                                                                                                                                 |  
|Funds Held in 
Escrow From 
Sales of 
Investments |  |                          | 1,786,390  |  |                                                             |   | 271,858    |           |  |   | 625,000                                                                       | 2   |  |                                                                                                | 0          |   |           |   | 0          |                        |  |   | (1,235,315                                                                                                                                                                                                      | )
|                                                  |  |                          |            |  |                                                             |   |            |           |  |   |                                                                               |     |  |                                                                                                |            |   |           |   |            |                        |  |   |                                                                                                                                                                                                                 |  
|Total                                             |  | $                        | 86,095,174 |  |                                                             | $ | (2,764,255 | )         |  | $ | 0                                                                             |     |  | $                                                                                              | 8,951,170  |   |           | $ | 10,122,267 |                        |  | $ | (7,946,487                                                                                                                                                                                                      | )



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



2There was a $625,000 transfer from "Preferred
Stock" into "Funds Held in Escrow From Sales of Investments" owing to the sale of Molecular Imprints, Inc.,to
Canon, Inc.



For the six months ended
June 30, 2014, there were no transfers out of Level 3.



56







NOTE 7. DERIVATIVES



At June 30, 2015, and December
31, 2014, 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 $2,549,261 and $2,564,917 as of June 30, 2015, and December 31, 2014, respectively.
At June 30, 2015, and December 31, 2014, 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 June 30, 2015,
and December 31, 2014. At June 30, 2015, and December 31, 2014, 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 $631,922 and $628,948 as
of June 30, 2015, and December 31, 2014, respectively. These milestone payments are contingent upon certain milestones being achieved
in the future.



The following tables present
the value of derivatives held at June 30, 2015, and the effect of derivatives held during the three months ended June 30, 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 |  | $           | 2,549,261
|                                                                                                              |  |             |  |             |          
|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 |  | $           | 631,922  



Statements of Operations:



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



57







The following tables present the value of derivatives
held at December 31, 2014, and the effect of derivatives held during the year ended December 31, 2014, along with the respective
location in the financial statements.



Statements of Assets and Liabilities:



|                                                                                                              |  | Assets      |  | Liabilities |          
|------------------------------------------------------------------------------------------------------------- |  | ----------- |  | ----------- | ---------
|                                                                                                              |  |             |  |             |          
|Derivatives                                                                                                   |  | Location    |  | Fair Value  |          
|                                                                                                              |  |             |  |             |          
|Equity Contracts                                                                                              |  | —           |  |             | —        
|                                                                                                              |  |             |  |             |          
|Amgen, Inc. Rights to Milestone 
Payments from Acquisition of 
BioVex Group, Inc.                             |  | Investments |  | $           | 2,564,917
|                                                                                                              |  |             |  |             |          
|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 |  | $           | 628,948  



Statements of Operations:



|Derivatives                                                                                                   |  | Location                                |  | RealizedGain/(Loss) |         |  | Change in unrealized(Depreciation)/Appreciation |  
|------------------------------------------------------------------------------------------------------------- |  | --------------------------------------- |  | ------------------- | ------- |  | ----------------------------------------------- | -
|                                                                                                              |  |                                         |  |                     |         |  |                                                 |  
|Equity Contracts                                                                                              |  | Net Realized and Unrealized (Loss) Gain |  | $                   | 232,079 |  |                                                 | $
|                                                                                                              |  |                                         |  |                     |         |  |                                                 |  
|Amgen, Inc. Rights to Milestone
 Payments from Acquisition of 
BioVex Group, Inc.                             |  | Net Realized and Unrealized (Loss) Gain |  | $                   | 536,813 |  |                                                 | $
|                                                                                                              |  |                                         |  |                     |         |  |                                                 |  
|Laird Technologies, Inc. Rights 
to Milestone Payments from 
Acquisition of Nextreme 
Thermal Solutions, Inc. |  | Net Realized and Unrealized (Loss) Gain |  | $                   | 0       |  |                                                 | $
|                                                                                                              |  |                                         |  |                     |         |  |                                                 |  
|Canon, Inc. Rights to Milestone
 Payments from Acquisition of 
Molecular Imprints, Inc.                       |  | Net Realized and Unrealized (Loss) Gain |  | $                   | 0       |  |                                                 | $



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.



58







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 the three months and six months ended June 30, 2015,
a total of $52,246 and $104,492, respectively, was amortized and included as a reduction of "Salaries, benefits and stock-based
compensation" on our Consolidated Statements of Operations.



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 six months ended
June 30, 2015, and the year ended December 31, 2014, the Compensation Committee of the Board of Directors of the Company did not
grant any stock options.



The stock options outstanding
are fully vested and have, therefore, been fully expensed.



For the three months and
six months ended June 30, 2014, the Company recognized $45,325 and $92,758, respectively, of compensation expense in the Consolidated
Statements of Operations related to stock options.



For the six months ended
June 30, 2015, and June 30, 2014, no options were exercised.



A summary of the changes
in outstanding stock options for the six months ended June 30, 2015, 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, 2015                |  |        | 1,423,912 |   |                | $ | 9.77 |            |  | $ | 6.28             |  |  |           | 1.68
|                                                       |  |        |           |   |                |   |      |            |  |   |                  |  |  |           |     
|Granted                                                |  |        | 0         |   |                |   | 0    |            |  |   | 0                |  |  |           | 0   
|                                                       |  |        |           |   |                |   |      |            |  |   |                  |  |  |           |     
|Exercised                                              |  |        | 0         |   |                |   | 0    |            |  |   | 0                |  |  |           | 0   
|                                                       |  |        |           |   |                |   |      |            |  |   |                  |  |  |           |     
|Forfeited or Expired                                   |  |        | (21,000   | ) |                |   | 4.80 |            |  |   | 2.21             |  |  |           | 0   
|                                                       |  |        |           |   |                |   |      |            |  |   |                  |  |  |           |     
|Options Outstanding and
 Exercisable
 at June 30, 2015 |  |        | 1,402,912 |   |                | $ | 9.85 |            |  | $ | 6.34             |  |  |           | 1.21



59







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 $2.75 on June 30, 2015, 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 June 30, 2015.



Restricted Stock



For the three months and
six months ended June 30, 2015, we recognized $219,390 and $431,981, respectively, of compensation expense related to restricted
stock awards. As of June 30, 2015, there was unrecognized compensation cost of $1,441,124 related to restricted stock awards. This
cost is expected to be recognized over a remaining weighted average period of approximately 1.2 years.



Non-vested restricted stock
awards as of June 30, 2015, and changes during the six months ended June 30, 2015, were as follows:



|                                                                      |  | Shares |           |   | Weighted-Average Grant DateFair Value Per Share |  
|--------------------------------------------------------------------- |  | ------ | --------- | - | ----------------------------------------------- | -
|                                                                      |  |        |           |   |                                                 |  
|Outstanding at January 1, 2015                                        |  |        | 1,165,495 |   |                                                 | $
|                                                                      |  |        |           |   |                                                 |  
|Granted                                                               |  |        | 10,000    |   |                                                 |  
|                                                                      |  |        |           |   |                                                 |  
|Vested based on service                                               |  |        | (40,842   | ) |                                                 |  
|                                                                      |  |        |           |   |                                                 |  
|Shares withheld  related to net share 
settlement of restricted stock |  |        | (17,325   | ) |                                                 |  
|                                                                      |  |        |           |   |                                                 |  
|Forfeited                                                             |  |        | (3,999    | ) |                                                 |  
|                                                                      |  |        |           |   |                                                 |  
|Outstanding at June 30, 2015                                          |  |        | 1,113,329 |   |                                                 | $



Non-vested restricted stock
awards as of June 30, 2014, and changes during the six months ended June 30, 2014, were as follows:



|                                                                      |  | Shares |           |   | Weighted-Average Grant DateFair Value Per Share |  
|--------------------------------------------------------------------- |  | ------ | --------- | - | ----------------------------------------------- | -
|                                                                      |  |        |           |   |                                                 |  
|Outstanding at January 1, 2014                                        |  |        | 1,504,518 |   |                                                 | $
|                                                                      |  |        |           |   |                                                 |  
|Granted                                                               |  |        | 40,360    |   |                                                 |  
|                                                                      |  |        |           |   |                                                 |  
|Vested based on service                                               |  |        | (48,226   | ) |                                                 |  
|                                                                      |  |        |           |   |                                                 |  
|Shares withheld  related to net share 
settlement of restricted stock |  |        | (21,658   | ) |                                                 |  
|                                                                      |  |        |           |   |                                                 |  
|Forfeited                                                             |  |        | (144,000  | ) |                                                 |  
|                                                                      |  |        |           |   |                                                 |  
|Outstanding at June 30, 2014                                          |  |        | 1,330,994 |   |                                                 | $



60







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. During the six months ended June 30, 2015, 58,167 restricted stock awards vested, of which 49,500
restricted stock awards were net settled by withholding 17,325 shares, which represented the employees' minimum statutory obligation
for each such employee's applicable income and other employment taxes and remitted cash totaling $47,644 to the appropriate tax
authorities. During the six months ended June 30, 2014, 69,884 restricted stock awards vested, of which 61,880 restricted stock
awards were net settled by withholding 21,658 shares, which represented the employees' minimum statutory obligation for each such
employee's applicable income and other employment taxes and remitted cash totaling $68,872 to the appropriate tax authorities.
The amount remitted to the tax authorities for the employees' tax obligation was reflected as a financing activity within our Consolidated
Statements of Cash Flows. The shares withheld by us as a result of the net settlement of restricted stock awards are not considered
issued and outstanding, thereby reducing our shares outstanding used to calculate net asset value per share.



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, 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, 2015, we had capital
loss carryforwards of $9,775,492, which we intend to use to offset current year capital gains, if any. During the six months ended
June 30, 2015, we realized net capital gains of $2,948,817.



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."



We have received SEC certification
since 1999, including for 2013, pursuant to Section 851(e) of the Code. There can be no assurance that we will qualify for or receive
certification for 2014 or subsequent years (to the extent we need additional certification) or that we will actually qualify for
Subchapter M treatment in subsequent years. In addition, under certain circumstances, even if we qualified for Subchapter M treatment
in a given year, we might take action in a subsequent year to ensure that we would be taxed in that subsequent year as a C Corporation,
rather than as a RIC.



61







For the three months ended
June 30, 2015, and June 30, 2014, we paid $1,600 and $0, respectively, in federal, state and local taxes. For the six months ended
June 30, 2015, and June 30, 2014, we paid $1,705 and $15,986, respectively, in federal, state and local taxes. At June 30, 2015,
and June 30, 2014, we had $0 accrued for federal, state and local taxes payable by the Company.



We pay federal, state and
local taxes primarily related to sublease income generated by Ventures, which is taxed as a C Corporation. For the three months
ended June 30, 2015, and 2014, our income tax expense for Ventures was $800 and $0, respectively. For the six months ended June
30, 2015, and 2014, our income tax expense for Ventures was $800 and $15,057, respectively.



NOTE 11. 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 and six months ended June 30, 2015, and June 30, 2014.



|                                                                                     |  | For the Three Months Ended June 30, |            |   | For the Six Months Ended June 30, |  
|------------------------------------------------------------------------------------ |  | ----------------------------------- | ---------- | - | --------------------------------- | -
|                                                                                     |  | 2015                                |            |   | 2014                              |  
|Numerator for (decrease) increase in net assets 
per share resulting from operations |  | $                                   | (1,529,496 | ) |                                   | $
|                                                                                     |  |                                     |            |   |                                   |  
|Denominator for basic weighted average shares                                        |  |                                     | 31,285,894 |   |                                   |  
|                                                                                     |  |                                     |            |   |                                   |  
|Basic net (decrease) increase  in net assets per 
share resulting from operations    |  | $                                   | (0.05      | ) |                                   | $
|                                                                                     |  |                                     |            |   |                                   |  
|Denominator for diluted weighted average shares                                      |  |                                     | 31,285,894 |   |                                   |  
|                                                                                     |  |                                     |            |   |                                   |  
|Diluted net increase (decrease) in net assets per 
share resulting from operations   |  | $                                   | (0.05      | ) |                                   | $
|                                                                                     |  |                                     |            |   |                                   |  
|Anti-dilutive shares by type:                                                        |  |                                     |            |   |                                   |  
|Stock Options                                                                        |  |                                     | 1,402,912  |   |                                   |  
|Restricted Stock1                                                                    |  |                                     | 220,329    |   |                                   |  
|                                                                                     |  |                                     |            |   |                                   |  
|Total anti-dilutive shares                                                           |  |                                     | 1,623,241  |   |                                   |  



1A total of 839,000 and
977,000 performance-based shares of restricted stock were outstanding during the six months ended June 30, 2015, and June 30, 2014,
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 six months ended
June 30, 2015, and June 30, 2014, 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.



62







NOTE 12. COMMITMENTS AND CONTINGENCIES



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.
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.



The Company's aggregate
operating and investment commitments in Accelerator amounted to $666,667 and $3,333,333, respectively. During the six months ended
June 30, 2015, $262,215 in capital was called, all of which related to the operating commitment. As of June 30, 2015, the Company
had remaining unfunded commitments of $188,440 and $3,333,333, or approximately 28.3 percent and 100 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.



NOTE 13. SUBSEQUENT EVENTS



On
July 10, 2015, the Company made an $89,608 follow-on investment in SiOnyx, Inc., a privately held portfolio company.



On
July 15, 2015, the Company made a $250,000 follow-on investment in Produced Water Absorbents, Inc., a privately held portfolio
company.



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 close of this transaction is subject to customary closing conditions, including regulatory
approvals.



On July 23, 2015, SynGlyco,
Inc., repaid $567,500 in outstanding principal and accrued interest on its senior secured debt.



On
July 29, 2015, the Company made a $500,003 follow-on investment in HZO, Inc., a privately held portfolio company.



On July 29, 2015, the SEC
granted our application for registration as an investment adviser under the Investment Advisers Act of 1940.



On August 3, 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.
 We received cash and a profit interest in the undisclosed buyer that is held through our ownership in Black Silicon
Holdings.



On
August 5, 2015, the Company made a $250,000 follow-on investment in ORIG3N, Inc., a privately held portfolio company.



On
August 5, 2015, the Company made a $75,000 follow-on investment in ProMuc, Inc., a privately held portfolio company.



63







On
August 6, 2015, the Board of Directors authorized the repurchase of up to $2.5 million of the Company's common stock in the open
market within a six-month period. The purchases may be at prices above or below the most recently reported net asset value. We
anticipate that the manner, timing, and amount of any share purchases will be determined by our management based upon the evaluation
of market conditions, stock price, and additional factors in accordance with regulatory requirements.



On
August 7, 2015, the Company made a $500,006 follow-on investment in AgBiome, LLC, a privately held portfolio company.



64







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



|                                                                                                            |  | Three Months Ended June 30, |             |    | Six Months Ended June 30, |  
|----------------------------------------------------------------------------------------------------------- |  | --------------------------- | ----------- | -- | ------------------------- | -
|                                                                                                            |  | 2015                        |             |    | 2014                      |  
|Per Share Operating Performance                                                                             |  |                             |             |    |                           |  
|Net asset value per share, beginning 
of period                                                             |  | $                           | 3.39        |    |                           | $
|Net operating loss*                                                                                         |  |                             | (0.05       | )  |                           |  
|Net realized gain (loss) on investments*                                                                    |  |                             | 0.10        |    |                           |  
|Net (increase) decrease in unrealized 
depreciation on investments and 
written call options* (1)           |  |                             | (0.10       | )  |                           |  
|Share of loss on equity method investment                                                                   |  |                             | 0.00        |    |                           |  
|Total from investment operations*                                                                           |  |                             | (0.05       | )  |                           |  
|                                                                                                            |  |                             |             |    |                           |  
|Net increase as a result of stock-
based compensation expense*                                              |  |                             | 0.01        |    |                           |  
|                                                                                                            |  |                             |             |    |                           |  
|Net decrease as a result of acquisition 
of vested restricted stock awards 
related to employee withholding |  |                             | (0.01       | )  |                           |  
|                                                                                                            |  |                             |             |    |                           |  
|Total (decrease) increase from capital 
stock transactions                                                  |  |                             | 0.00        |    |                           |  
|                                                                                                            |  |                             |             |    |                           |  
|Net increase as a result of other 
comprehensive income*                                                    |  |                             | 0.00        |    |                           |  
|                                                                                                            |  |                             |             |    |                           |  
|Net (decrease) increase in net asset value                                                                  |  |                             | (0.05       | )  |                           |  
|                                                                                                            |  |                             |             |    |                           |  
|Net asset value per share, end 
of period                                                                   |  | $                           | 3.34        |    |                           | $
|Stock price per share, end 
of period                                                                       |  | $                           | 2.75        |    |                           | $
|Total return based on stock price                                                                           |  |                             | (10.71      | )% |                           |  
|                                                                                                            |  |                             |             |    |                           |  
|Supplemental Data:                                                                                          |  |                             |             |    |                           |  
|                                                                                                            |  |                             |             |    |                           |  
|Net assets, end of period                                                                                   |  | $                           | 104,482,738 |    |                           | $
|                                                                                                            |  |                             |             |    |                           |  
|Ratio of expenses, excluding taxes, 
to average net assets(2)                                               |  |                             | 1.78        | %  |                           |  
|                                                                                                            |  |                             |             |    |                           |  
|Ratio of expenses, including taxes, 
to average net assets(2)                                               |  |                             | 1.78        | %  |                           |  
|                                                                                                            |  |                             |             |    |                           |  
|Ratio of net operating loss to 
average net assets(2)                                                       |  |                             | (1.51       | )% |                           |  
|                                                                                                            |  |                             |             |    |                           |  
|Average debt outstanding                                                                                    |  | $                           | 5,000,000   |    |                           | $
|                                                                                                            |  |                             |             |    |                           |  
|Average debt per share                                                                                      |  | $                           | 0.16        |    |                           | $
|                                                                                                            |  |                             |             |    |                           |  
|Number of shares outstanding, 
end of period                                                                |  |                             | 31,321,685  |    |                           |  



* 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) | Not annualized.
| | --- | ---------------



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



65









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 June 30, 2015, Consolidated Financial Statements and
the Company's audited 2014 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.
| | - | ----------------------------------------------------------------------------------------------------------------------



66







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;
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | 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").
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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 from disruptive science. We make venture capital investments in companies enabled by multidisciplinary, disruptive science.
We define venture capital investments as the money and resources made available to privately held and publicly traded small businesses
with exceptional growth potential.



67







In 2002, we focused the
company on investing in hard science companies enabled at the nanoscale and microscale. As of December 31, 2001, we had $13.4 million
in net cash on our balance sheet. Over the next 13 years we raised over approximately $140 million in capital in the public markets
and recycled approximately $100 million in realized capital from portfolio investments back into the Company.



Beginning in 2009, because
of the overlap with companies enabled at the nanoscale, many of our new initial investments were in BIOLOGY+ companies. We define
BIOLOGY+ investments as investments in interdisciplinary life science companies where biology is intersecting with innovations
in areas such as electronics, physics, materials science, chemistry, information technology, engineering and mathematics. In 2013,
we announced that all new initial investments would be in BIOLOGY+ companies. We focused our efforts on BIOLOGY+ because in looking
back through our decade of investing in nanotechnology and microtechnology, we observed that our gross returns in the life sciences
significantly outperformed our gross returns in electronics and in energy.



We are leveraging our experience
in the electronic and energy industries, markets and technologies actively as we execute on investments in BIOLOGY+ companies.
These companies merge electronics, software and hardware innovations into life science market segments to address unmet needs and
enable us to participate and take advantage of exciting innovations and trends such as those in big data and machine learning.
We already have companies like D-Wave Systems, Inc., Metabolon, Inc., Echopixel, Inc., Uberseq, Inc., and Phylagen, Inc., operating
within these areas.



During 2011, we
began realizing the first exits from the portfolio we began building in 2002. As one can see below, since 2001, we have
realized multiple exits from this portfolio that have generated both gains and losses on invested capital. However, as we
have discussed previously in letters to shareholders, most recently in our Annual Letter to Shareholders, dated March 16,
2015, we have not yet generated the “home-run” return that we need as an early-stage investor to impact
significantly and positively net asset value per share and potentially lead to stock price appreciation.







68







We believe we need to realize
one or more liquidity events that have the potential to be “impactful” to Harris & Harris Group’s investors
within the next two years. We define “impactful” as the ability to return in excess of $30 million to Harris &
Harris Group. Furthermore, we believe it is important to have at least one impactful event that returns six to ten times our investment
to create meaningful growth to our net asset value. We currently believe we have such potentially “impactful” companies
in our existing portfolio.



We are involved in some
of the most important market areas of the coming decade. This is why we believe we have the opportunity to generate impactful returns
into the future. We have built, and we continue to build companies that are leaders in the emerging fields of the internet of things
(IoT), the microbiome, machine learning, AgTech and regenerative medicine. These companies and markets are now attracting tremendous
attention, and we believe many of our portfolio companies are positioned to be leaders in their respective markets.







We are making fewer initial
investments in new companies, but in the companies we are building, we believe we have the potential to have greater ownership,
impact and control. The number of companies in our portfolio will decrease in size over the coming years, but the potential impact
of each company within our portfolio will become greater. We believe that this is the best way to build companies that can create
the necessary impact for our shareholders.



We do not believe our stock
price reflects the current or future value of the companies we are a part of building at Harris & Harris Group. When there
is such a disconnect in the potential value of our Company and the price reflected in the stock, we believe one of the best investments
we can make is in our own stock. Utilizing the cash the Company has received from the monetization of some of our portfolio companies
in 2015, our Board of Directors has authorized the repurchase of up to $2.5 million of our shares in the open market, including
block purchases, at prices that may be above or below the net asset value as reported in our most recently published financial
statements. We anticipate that the manner, timing, and amount of any share purchases will be determined by our management based
upon the evaluation of market conditions, stock price, and additional factors in accordance with regulatory requirements. Pursuant
to the Investment Company Act of 1940, as amended, we are required to notify shareholders when such a program is initiated or implemented.
The repurchase program does not require us to acquire any specific number of shares and may be extended, modified, or discontinued
at any time.



69









We believe we provide five
core benefits to our shareholders. First, we are an established firm with a positive track record of investing in venture capital-backed
companies as further discussed in "Investments and Current Investment Pace" on page 77. Second, we provide shareholders with access to disruptive science-enabled
companies, particularly ones that are enabled by BIOLOGY+ that would otherwise be difficult to access or inaccessible for most
current and potential shareholders. Third, we have an existing portfolio of companies at varying stages of maturity that provide
for a potential pipeline of investment returns over time. Fourth, we are able to invest opportunistically in a range of types of
securities to take advantage of market inefficiencies. Fifth, we provide access to venture capital investments in a vehicle that,
unlike private venture capital firms, has permanent capital, is transparent and is liquid.



Each quarter we provide
detail on our investment portfolio and trends in venture capital that may impact our shareholders. We organize this detail as follows:
Realizations and potential liquidity in the portfolio, maturity of the portfolio, ownership and investment in the portfolio, investing
trends, current business environment, valuation information, and, finally, results of operations.



Realize



"Realize" refers
to realizing value in our venture capital portfolio. Since our investment in Otisville in 1983 through June 30, 2015, we have made
a total of 104 equity-focused venture capital investments. We have completely exited 74 and partially exited two of these 104 investments,
recognizing aggregate net realized gains of $87,106,262 on invested capital of $132,375,993, or 1.7 times invested capital. For
the securities of the 26 privately held companies in our equity-focused portfolio held at June 30, 2015, we have net unrealized
depreciation of $26,874,359 on invested capital of $98,511,927. We have aggregate net realized gains on our exited companies, offset
by unrealized depreciation for our 26 currently held equity-focused investments of $60,231,903 on invested capital of $230,887,920.



The amount of net realized
gains includes the following exits in 2014 and 2015:



| | · | Realized gains of $3,109,347from the sale of our investment in Nantero, Inc., on invested
capital of $1,718,706;
| | - | ----------------------------------------------------------------------------------------------------------------



| | · | Realized gains of $242,485 from the sale of the non-semiconductor business of Molecular Imprints,
Inc., on invested capital of $928,884;
| | - | ----------------------------------------------------------------------------------------------------------------------------------------



| | · | Realized gains of $3,949,818from the sale of the semiconductor lithography equipment business
of Molecular Imprints, Inc., to Canon, Inc., on invested capital of $2,848,041;
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------



70







| | · | Realized gains of $17,842,733 from the sale of shares of Solazyme, Inc., on invested capital of
$5,385,147. In addition, we generated $1,757,610 in realized gains on our sale and/or purchase of written call option and put option
contracts covered by our shares of Solazyme, Inc.;
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Realized gains of $296,972 from the sale of shares of Champions Oncology, Inc., on invested capital
of $576,971;
| | - | ----------------------------------------------------------------------------------------------------------------



| | · | Realized gains of $536,813 from rights to milestone payments resulting from the achievement during
the third quarter of 2014 of the first milestone associated with Amgen, Inc.'s acquisition of BioVex Group, Inc.;
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Realized loss of $7,299,533 on our investment in Kovio, Inc., on invested capital of $7,299,533.
On January 21, 2014, substantially all of Kovio's assets were sold by Square 1 Bank, Kovio's secured creditor, to Thin Film Electronics
ASA. Our shares were subsequently declared worthless on February 19, 2014; and
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Realized loss of $4,488,576 on our investment in Contour Energy Systems, Inc., on invested capital
of $4,509,995. On August 15, 2014, the stockholders of Contour Energy Systems were given official notice of its liquidation and
dissolution, which was approved by its board of directors following the approval of the majority of the stockholders.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The aggregate net realized
gains and the cumulative invested capital do not reflect the cost or value of our freely tradable shares of Solazyme, Inc., and
Champions Oncology, Inc., that we owned as of June 30, 2015. 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 June 30, 2015, our aggregate net realized gains and
cumulative invested capital from 1983 through June 30, 2015, would be $93,768,071 and $136,444,950, respectively, or 1.7 times
invested capital. These amounts also do not include our shares of Enumeral Biomedical Holdings, Inc., and OpGen, Inc., that, while
traded publicly, are restricted and/or are subject to lock-up agreements.



Recent and Potential Liquidity Events
From Our Portfolio as of June 30, 2015



On June 11, 2015, the Company
and an undisclosed buyer entered into a Share Purchase Agreement for the purchase by such buyer of the Company's shares of preferred
stock of Nantero, Inc. Upon execution of the Agreement, the Company received $4,828,052 in proceeds from the sale.



On April 18, 2014, Canon,
Inc., completed its acquisition of Molecular Imprints, Inc.'s semiconductor lithography equipment business. We could receive an
additional $625,000 from amounts held in escrow as well as up to $1.7 million upon the achievement of certain milestones. As of
June 30, 2015, we valued potential milestone payments from the sale of Molecular Imprints at $631,922. We have not received any
milestone payments as of June 30, 2015, and there can be no assurance as to the timing and how much of this 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.



71







On May 1, 2015, this new
spin-out of Molecular Imprints, Inc.’s non-semiconducter 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 June 30, 2015, 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. There can be no assurance as to how much of these amounts
we will ultimately realize. As of June 30, 2015, we valued the funds and the shares of stock held in escrow from the sale of Molecular
Imprints at $63,366 and $50,795, respectively.



As of June 30, 2015, we
valued the remaining potential milestone payments from the sale of BioVex Group, Inc., at $2,549,261. If all the remaining milestone
payments were to be paid by Amgen, Inc., we would receive an additional $7,455,438. There can be no assurance as to the timing
and how much of this amount we will ultimately realize in the future.



As of June 30, 2015, we
valued potential milestone payments from the sale of Nextreme Thermal Solutions, Inc., to Laird Technologies, Inc., at $0.



Enumeral
Biomedical Holdings is traded publicly on the OTC market under the symbol ENUM. Certain of the Company's shares of Enumeral Biomedical
Holdings are subject to restrictions on transfer, and we are also subject
to a lock-up agreement that restricts our ability to trade all securities of Enumeral owned by us, exclusive of the general restriction
on the transfer of unregistered securities. The lock-up period on our 7,966,368 shares of Enumeral Biomedical Holdings expires
on January 31, 2016. ENUM's stock closed trading on August 7, 2015, at $0.425 per share.



On May 5, 2015, OpGen,
Inc., completed an IPO. As of that date, the company's common stock and warrants trade on the NASDAQ Capital Market under the symbols
OPGN and OPGNW, respectively. With the close of the offering, our preferred stock and certain of our bridge notes were converted
into shares of common stock of OpGen. We invested $1.8 million in the IPO, inclusive of $650,000 in outstanding demand notes. Certain
of our shares and warrants of OpGen are subject to restrictions on transfer and/or lock-up agreements. The lock-up period on these
securities expires on November 1, 2015. OpGen's common stock closed trading on August 7, 2015 at $3.08 per share.



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
approximately $565,000. We expect to receive additional repayments for our outstanding secured convertible bridge notes of approximately
$750,000 from this transaction. Additionally, SynGlyco entered into two license agreements that may provide additional payments
in the future. These payments will 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
$1.5 million as of June 30, 2015.



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 close of this transaction is subject to customary regulatory approvals.



72







In August 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.
 We received cash and a profit interest in the undisclosed buyer that is held through our ownership in Black Silicon
Holdings.



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.



Strategy for Managing Publicly Traded
Positions



We have generated $2,469,676
in net cash premiums on call options sold and put options purchased of Solazyme since the company completed an IPO in May 2011.
We have sold a total of 2,279,149 shares of Solazyme since its IPO for net proceeds, after commission, of $22,500,986 or an average
sale price of $9.87 per share. Including premiums from call and put options, the average sale price for these shares was $10.96
per share. Our average cost basis in Solazyme is $2.36 per share. During the six months ended June 30, 2015, we sold 25,000 shares
of Solazyme.



We have sold 769,295 shares
of our position in Champions Oncology, Inc., in open market transactions for net proceeds, after commission, of $873,944 or an
average sale price of $1.14 per share. Our average cost basis in Champions is $0.67 per share. During the six months ended June
30, 2015, we did not sell any shares of Champions.



Maturity of Current Equity-Focused Venture
Capital Portfolio



There are three main drivers
of our potential growth in value over the next four years. First, we have a larger portfolio of more mature companies than we have
had historically. Second, we believe the quality of our existing portfolio is stronger than it has been historically. Third, we
own larger percentages of the companies in the existing portfolio than we have owned historically.



As of June 30, 2015, we
had 20 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 shares of Solazyme, Inc., and Champions Oncology, Inc.; 2) our publicly traded
shares of Enumeral Biomedical Holdings, Inc., and OpGen, Inc., which are subject to restrictions on their sale; 3) our venture
debt deal with NanoTerra, Inc.; 4) our rights to milestone payments from Amgen, Inc., Laird Technologies, Inc., and Canon, Inc.;
5) our portfolio companies that are in the process of liquidating their assets or have shut down, including Cobalt Technologies,
Inc., Laser Light Engines, Inc., SynGlyco, Inc., and Ultora, Inc.; and 6) our portfolio companies, Bridgelux, Inc., and SiOnyx,
Inc., that have entered into acquisition agreements or have been acquired during July and August of 2015. As of June 30, 2015,
we valued these 20 privately held equity-focused companies at $64,380,751. Including the companies referenced above, we valued
our total venture capital portfolio at $87,339,450 as of June 30, 2015. At June 30, 2015, from first dollar in, the average and
median holding periods for
the 26 privately held equity-focused investments were 5.6 years and 5.5 years, respectively. Historically, as measured from first
dollar in to last dollar out, the average and median holding periods for the 74 investments we have fully exited were 4.4 years
and 3.5 years, respectively.





73











Our current portfolio
is comprised of BIOLOGY+ and other 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 24 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").







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."



During the second quarter
of 2015, we transitioned the stage categorization of AgBiome, LLC, from early-stage to mid-stage. We categorized our three new
portfolio companies in 2015, Orig3n, Inc., Phylagen, Inc., and Magic Leap, Inc., as early-stage companies.



74







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 20 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, excluding Phylagen, Inc., in which we invested a note in a series seed financing and in which we do
not have any voting rights.





|Portfolio Company                                                                                                                                                                                                                                                                                                                               |  | Voting Ownership Range
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------------
|EchoPixel, Inc.
                                                        Produced Water Absorbents, Inc.
                                                        ProMuc, Inc.
                                                        Senova Systems, Inc.
                                                        UberSEQ, Inc.                 |  | >20%                  
|                                                                                                                                                                                                                                                                                                                                                |  |                       
|ABSMaterials, Inc.
                                                        Adesto Technologies Corp.
                                                        HZO, Inc.
                                                        TARA Biosystems, Inc.                                                                                            |  | 15-20%                
|                                                                                                                                                                                                                                                                                                                                                |  |                       
|Accelerator IV-New York Corporation
                                                        AgBiome, LLC
                                                        Ensemble Therapeutics Corporation
                                                        Metabolon, Inc.
                                                        ORIG3N, Inc. |  | 5-10%                 
|                                                                                                                                                                                                                                                                                                                                                |  |                       
|Cambrios Technologies Corporation
                                                        Mersana Therapeutics, Inc.                                                                                                                                                                                                                            |  | 2.5-5%                
|                                                                                                                                                                                                                                                                                                                                                |  |                       
|D-Wave Systems, Inc.* Magic Leap, Inc. Nanosys, Inc.                                                                                                                                                                                                                                                                                            |  | 0-2.5%                



*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.



In previous communications
with shareholders, we have discussed how we are managing our portfolio, feeding the "fat hogs" and starving the "lean
hogs" to maximize our value at exit. Many of the leaner hogs have experienced write-downs in valuation, and we have de-emphasized
them in terms of the time allocation of our team. These steps allow us to focus our time and capital on the companies we believe
will be the drivers of our growth. This increases the risk and potential loss of invested capital in these portfolio companies,
but it also may increase the potential returns if they are successful. We currently believe companies like D-Wave Systems, Inc.,
Metabolon, Inc., Adesto Technologies Corporation, HZO, Inc., Produced Water Absorbents, Inc., AgBiome, LLC, Senova Systems, Inc.,
Enumeral Biomedical Holdings, Inc., OpGen, Inc., EchoPixel, Inc., UberSeq, Inc., ORIG3N, Inc., TARA Biosystems, Inc., and ProMuc,
Inc., may have the potential to be real drivers of growth in our portfolio in the coming years.



75







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 June 30, 2015, we held at least one board seat or observer rights on 17 of
our 20 equity-focused portfolio companies that have yet to complete a liquidity event or an uplisting to a national exchange and
are not in the process of being shut down or have not agreed to be acquired (85 percent).



We may be involved
actively in the formation and development of business strategies of our earliest stage portfolio companies. This involvement may
include hiring management, licensing intellectual property, securing space and raising additional capital. We also provide managerial
assistance to late-stage companies looking for potential exit opportunities by leveraging our relationships with the banking and
investment community and our knowledge and experience in running a micro-capitalization publicly traded business.



Invest



Growth
in Ownership of Portfolio Companies



The chart below depicts
the change in our ownership of our portfolio companies from 2001 through June 30, 2015, as our assets have increased. Our fully
diluted, investment-weighted average ownership has increased from approximately five percent for initial investments made between
2001 and 2004 to approximately 16 percent for initial investments made between 2009 and 2014. This increasing ownership, which
we have noted in previous shareholder communications, gives us more control over these companies to potentially affect outcomes
beneficial to the Company. Over the coming five years, as companies where our initial investment was made between 2005 and the
present continue to mature and exit, we believe our increased levels of ownership have the potential to provide greater returns
than our historical investments.







76







Our goal with our new
investments is to have even greater ownership at the time of the realization of our return than we have had historically for all
of the reasons discussed above.



Investments and Current Investment Pace



The following is a
summary of our initial and follow-on equity-focused investments from January 1, 2011, to June 30, 2015. 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.



|                                   |  | 2011 |            |  | 2012 |   |            | 2013 |  |   | 2014       |  |  | Six Months Ended June 30, 2015 |           
|---------------------------------- |  | ---- | ---------- |  | ---- | - | ---------- | ---- |  | - | ---------- |  |  | ------------------------------ | ----------
|Total Incremental Investments      |  | $    | 17,688,903 |  |      | $ | 15,141,941 |      |  | $ | 18,076,288 |  |  | $                              | 14,276,808
|No. of New Investments             |  |      | 4          |  |      |   | 2          |      |  |   | 2          |  |  |                                | 3         
|No. of Follow-On Investment Rounds |  |      | 31         |  |      |   | 26         |      |  |   | 37         |  |  |                                | 33        
|No. of Rounds Led                  |  |      | 4          |  |      |   | 3          |      |  |   | 9          |  |  |                                | 8         
|Average Dollar Amount – Initial    |  | $    | 1,339,744  |  |      | $ | 1,407,500  |      |  | $ | 550,001    |  |  | $                              | 338,677   
|Average Dollar Amount – Follow-On  |  | $    | 397,740    |  |      | $ | 474,113    |      |  | $ | 449,359    |  |  | $                              | 401,842   



Industry Sectors of Investment



We generally classify
our investments in one of three industry sectors: Life Sciences, Energy and Electronics. The interdisciplinary nature of science-based
inventions enables our portfolio companies to address needs in multiple sectors rather than being confined to addressing needs
in one sector. As such, many of our companies can adjust their business foci to address needs in a secondary sector should opportunities
in the company’s primary sector decrease in number or magnitude.



We classify companies
in our life sciences portfolio as those that address problems in life sciences-related industries, including biotechnology, agriculture,
advanced materials and chemicals, diagnostics, healthcare, bioprocessing, water, industrial biotechnology, food, nutrition and
energy. We classify companies that address life science-related problems as a primary or secondary sector as BIOLOGY+. With our
focus on investing in BIOLOGY+ companies, we expect that the number of companies addressing life science-related industries as
a primary focus will grow, while those that address electronics and energy-related sectors as a primary focus will decline. That
said, we expect these companies may address electronics and energy-related sectors as a secondary sector given the interdisciplinary
nature of BIOLOGY+ companies.



We classify companies
in our energy portfolio as those that seek to improve performance, productivity or efficiency, and to reduce environmental impact,
waste, cost, energy consumption or raw materials. Energy is a term used commonly to describe products and processes that solve
global problems related to resource constraints. The term "cleantech" is also used commonly in a similar manner.



We classify companies
in our electronics portfolio as those that address problems in electronics-related industries, including semiconductors, telecommunications
and data communications, metrology and test and measurement.



77







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 June 30, 2015 and December 31, 2014,
our total primary and secondary liquidity was $34,405,643 and $29,620,665, 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 June 30, 2015, we held $22,982,089 in cash and $97,445 in certain receivables.
As of December 31, 2014, we held $20,748,314 in cash and $230,478 in certain receivables.



During the six months
ended June 30, 2015, we sold 25,000 shares of our investment in Solazyme, Inc., in open market sales. We received $100,491 in net
proceeds from these transactions. In May of 2015, we received proceeds of $705,794 from the sale of Molecular Imprints, Inc.'s
non-semiconductor business. In June of 2015, we sold our shares of Nantero, Inc., for proceeds of $4,828,052. The proceeds from
these transactions added to our primary liquidity during the second quarter. 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 in future
quarters 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.



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 June 30, 2015, our secondary liquidity was $11,326,108. Solazyme, Inc., and Champions Oncology, Inc.,
account for $78,500 and $1,461,247, respectively, of the total amount of secondary liquidity based on the closing price of their
common stock as of June 30, 2015. Enumeral Biomedical Holdings, Inc., and OpGen, Inc., account for $4,741,615 and $5,044,746, respectively,
of the total amount of secondary liquidity based on the closing price of their common stock as of June 30, 2015, less a liquidity
discount to reflect that a portion of these shares are subject to restrictions on transfer. We are also subject to a lock-up agreement
that restricts our ability to trade our securities of Enumeral Biomedical Holdings and OpGen, exclusive of the general restriction
on the transfer of unregistered securities. 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 expires on January 31, 2016. The lock-up period on our 1,409,796 shares
and warrants for the purchase of 332,039 shares of common stock of OpGen expires on November 1, 2015.



78







As of December 31,
2014, our secondary liquidity was $8,641,873. Solazyme, Inc., accounts for $129,000 of the total amount of secondary liquidity
based on the closing price of its common stock of $2.58 as of December 31, 2014. Champions Oncology accounts for $1,261,695 of
the total amount of secondary liquidity based on the closing price of its common stock of $0.50 as of December 31, 2014. Enumeral
Biomedical Holdings accounts for $7,251,178 of the total amount of secondary liquidity based on the closing price of its common
stock of $1.05 as of December 31, 2014, less a liquidity discount to reflect that these shares are subject to restrictions on transfer.



We also have the $20,000,000
Loan Facility, which we can draw on to increase liquidity. As of June 30, 2015, we had $5,000,000 in debt outstanding relating
to this Loan Facility.



Current Business Environment



The second quarter
of 2015 ended with value in the public market indices relatively flat.  In private company exits, the second quarter of 2015
saw an increase in the number of IPOs and a decrease in M&A transactions, compared with the first quarter of 2015.  Funding
for venture capital firms increased from the first quarter of 2015, marking the strongest three-month period since the fourth quarter
of 2007.



Twenty-seven venture-backed
companies raised $3.4 billion through IPOs in the second quarter of 2015, according to Thomson Reuters and the National Venture
Capital Association ("NVCA").  Twenty-three of the twenty-seven were U.S.-based companies.  Seventy percent
(nineteen) of the IPOs were in life science companies.  For the second quarter of 2015, 70 venture-backed M&A transactions
were reported.  This is a decline from both the first quarter of 2015 (94) and the second quarter of 2014 (119).



Seventy-four U.S. venture
capital funds raised $10.3 billion in the second quarter of 2015, according to Thomson Reuters and the NVCA.  Compared with
the first quarter of 2015, this is a 10 percent increase in the number of funds raised and a 31 percent increase in the amount
of capital raised. Of the 74 funds that were raised, 31 were new funds.



Historically, difficult
venture environments have resulted in a higher than normal number of companies not receiving financing and being subsequently closed
down with a loss to venture investors, and other companies receiving financing but at significantly lower valuations than the preceding
financing rounds.  This issue is compounded by the fact that many existing venture capital firms with which we have co-invested
historically in a number of our current portfolio companies have few remaining years of investment and available capital owing
to the finite lifetime of the funds managed by these firms.  Additionally, even if a firm were able to raise a new fund, commonly
venture capital firms are not permitted to invest new funds in existing investments.  This limitation of available capital
can lead to fractured syndicates of investors.  A fractured syndicate can result in a portfolio company being unable to raise
additional capital to fund operations. This issue is especially acute in capital-intensive sectors that are enabled by science-related
innovations, such as life sciences, energy and electronics, which are generally not in favor among venture capital firms. 
The result of these difficulties is that the portfolio company may be forced to sell before reaching its full potential or be shut
down entirely if the remaining investors cannot financially support the company.  As such, improvements in the exit environment
for venture-backed companies through IPOs and M&A transactions may not translate to an increase in the available
capital to venture-backed companies, particularly those that have investments from funds that are in the latter stage of life unless
the markets improve for some time into the future.



79









Our overall goal remains
unchanged.  We seek to maintain our leadership position in investing in science-enabled and BIOLOGY+ companies and increase
our net asset value per share outstanding.  The current environment for venture capital financings continues to favor those
firms that have capital to invest regardless of the stage of the investee company.  We continue to finance our new and follow-on
equity and convertible debt investments from our cash reserves held in bank accounts.  We may in the future invest borrowed
capital to take advantage of opportunities that we believe will return greater than the cost of such borrowed capital.  We
have historically held, and may in the future again hold, our cash in U.S. Treasury securities.  We believe the current status
of the venture capital industry and the current economic climate provide opportunities to invest this capital in the types of companies
in which we invest at historically low valuations and under favorable terms in equity and convertible debt of new and existing
privately held and publicly traded companies.



Valuation of Investments



We value our privately
held venture capital investments 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.



The values of privately
held, venture capital-backed 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.



80







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.



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.



81









|Public Companies' Trading History 
|----------------------------------
|                                  
|                                  
|Solazyme, Inc.                    
|                                  
|Champions Oncology, Inc.          
|                                  
|Enumeral Biomedical Holdings, Inc.
|                                  
|OpGen. Inc.                       



*Calculated based on common shares held
as of June 30, 2015.



In each of the years
in the period of 2011 through 2014 and for the six months ended June 30, 2015, 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.





|Gross Write-Ups and Write-Downs of the Privately Held Portfolio
|---------------------------------------------------------------
|                                                               
|                                                               
|Net Asset Value, BOY                                           
|                                                               
|Gross Write-Downs During Year                                  
|                                                               
|Gross Write-Ups During Year                                    
|                                                               
|Gross Write-Downs as a Percentage of
Net Asset Value, BOY      
|                                                               
|Gross Write-Ups as a Percentage of Net
 Asset Value, BOY       
|                                                               
|Net Change as a Percentage of Net Asset
Value, BOY             



From March 31, 2015,
to June 30, 2015, the value of our equity-focused venture capital 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 $3,021,552,
from $90,097,391 to $87,075,839.



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 $3,007,954. This decrease was primarily owing to the sale of
our investment in Nantero, Inc., and the sale of our investment in Molecular Imprints, Inc., offset by new and follow-on investments
of $5,047,954 and a net decrease in valuations.



82







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 Solazyme, Inc., our freely tradable publicly traded portfolio company, or the value
of our unrestricted or registered shares of Champions Oncology, Inc., and Enumeral Biomedical Holdings, Inc., which trade on an
OTC exchange, or the value of our unrestricted or registered shares of OpGen, Inc., which trades on the NASDAQ Capital Market.



Six portfolio companies,
Bridgelux, Inc., Enumeral Biomedical Holdings, Inc., OpGen, Inc., Nanosys, Inc., Produced Water Absorbents, Inc., and HZO, Inc.,
of which all or a portion of the securities owned by us were fair valued by our Valuation Committee, accounted for $5.3 million,
or 82 percent, of the gross write-downs of our portfolio companies held as of June 30, 2015.



The change in value
of Bridgelux was primarily owing to the terms of an agreement for the acquisition of the company by a group of investors, including
China Electronics Corporation and ChongQing Linkong Development Investment Company, executed in July of 2015 under terms negotiated
during the second quarter of 2015. This methodology is a shift from the use of a multiple of revenues derived from publicly traded
comparable companies as of December 31, 2014.



We note that a portion
of our securities of Enumeral Biomedical Holdings and OpGen were not fair valued by the Valuation Committee as of June 30, 2015,
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 our
restricted shares and our warrants of Enumeral Biomedical Holdings was a decrease in the stock price of the company from $0.82
as of March 31, 2015, to $0.64 as of June 30, 2015. The primary contributing factor for the decrease in valuation of OpGen was
a decrease in the stock price of the company from $6.00 as of the date of its IPO to $3.72 as of June 30, 2015.



The primary contributing
factor for the decrease in valuation of Nanosys and Produced Water Absorbents were the changes in the revenues and multiples of
revenues of publicly traded comparable companies used to derive the value of our securities of the company.



The primary contributing
factor for the decrease in valuation of HZO, Inc., was the option pricing model-related changes resulting from the company raising
more capital through the sale of additional preferred stock at the same price per share in an extension of its most recent round
of financing.



Two portfolio companies,
AgBiome, LLC, and SiOnyx, Inc., which were fair valued by our Valuation Committee, accounted for $4.3 million, or 79 percent, of
the gross write-ups of our portfolio companies held as of June 30, 2015.



The primary contributing
factor for the increase in value of our securities of AgBiome was the completion of a round of financing on August 7, 2015, under
terms that were negotiated during the second quarter of 2015. The price per share of the new round of financing was approximately
2.5 times greater than the prior round of financing. The difference between the increase in the price per share of the new round
of financing and the increase in value of $1.86 million, or 1.6 times from December 31, 2014, is owing to the factors used in deriving
value under option pricing models.



83







The primary contributing
factor for the increase in value of our securities of SiOnyx was the terms of an acquisition of the company that closed in August
of 2015.



As of June 30, 2015,
our top ten investments by value accounted for approximately 78 percent of the value of our equity-focused venture capital portfolio.



Top Ten
Equity-Focused Investments by Value








|Portfolio Company                   |  | Value as of06/30/2015 |            |  | Cumulative % of Equity FocusedVenture Capital Portfolio | 
|----------------------------------- |  | --------------------- | ---------- |  | ------------------------------------------------------- | 
|Adesto Technologies Corp.           |  | $                     | 15,658,301 |  |                                                         | 
|Metabolon, Inc.                     |  | $                     | 10,538,659 |  |                                                         | 
|D-Wave Systems, Inc.                |  | $                     | 7,669,477  |  |                                                         | 
|HZO, Inc.                           |  | $                     | 6,457,718  |  |                                                         | 
|Enumeral Biomedical Holdings, Inc.* |  | $                     | 5,399,407  |  |                                                         | 
|OpGen, Inc.*                        |  | $                     | 5,295,693  |  |                                                         | 
|AgBiome, L.L.C.                     |  | $                     | 4,845,854  |  |                                                         | 
|Produced Water Absorbents, Inc.     |  | $                     | 4,145,316  |  |                                                         | 
|SiOnyx, Inc.                        |  | $                     | 2,927,840  |  |                                                         | 
|Nanosys, Inc.                       |  | $                     | 2,831,085  |  |                                                         | 



* Enumeral Biomedical Holdings and OpGen include the value of its Level 1 shares



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.



84







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 and six months ended June 30, 2015, we did
not hold any U.S. government securities. During the three months and six months ended June 30, 2014, our average holdings of U.S.
government securities were $4,999,900 and $5,571,344, respectively.



Three months
ended June 30, 2015, as compared with the three months ended June 30, 2014



In the three months
ended June 30, 2015, we had a net decrease in net assets resulting from operations of $1,529,496. In the three months ended June
30, 2014, we had a net increase in net assets resulting from operations of $4,328,055.



Investment Income
and Expenses:



We had net operating
losses of $1,585,307 and $2,084,855 for the three months ended June 30, 2015, and June 30, 2014, respectively. The variation in
these results is primarily owing to the changes in investment income and operating expenses, including non-cash expense included
in salaries, benefits and stock-based compensation of $219,390 in 2015 primarily associated with the compensation cost for restricted
stock as compared with $188,487 for the same period in 2014. During the three months ended June 30, 2015, and June 30, 2014, total
investment income was $288,195 and $133,835, respectively. During the three months ended June 30, 2015, and June 30, 2014, total
operating expenses were $1,873,502 and $2,218,690, respectively.



During the three months
ended June 30, 2015, as compared with the same period in 2014, investment income increased, reflecting an increase in interest
income from convertible bridge notes, non-convertible promissory notes, yield-enhancing fees on debt securities and fees for providing
managerial assistance to portfolio companies, offset by a decrease in interest income from senior secured debt, senior secured
debt through a participation agreement, and a decrease in our average holdings of U.S. government securities. During the three
months ended June 30, 2015, our average holdings of U.S. government securities were $0 as compared
with $4,999,900 during the three months ended June 30, 2014, primarily owing to the decrease in yield available over the durations
of maturities in which we were willing to invest.



85









Operating expenses,
including non-cash, stock-based compensation expenses, were $1,873,502 and $2,218,690 for the three months ended June 30, 2015,
and June 30, 2014, respectively. The decrease in operating expenses for the three months ended June 30, 2015, as compared with
the three months ended June 30, 2014, was primarily owing to decreases in salaries, benefits and stock-based compensation expense,
administration and operations expense, professional fees, rent expense, insurance expense and directors' fees and expenses, offset
by increases in interest and other debt expense and custody fees.



Salaries, benefits
and stock-based compensation expense decreased by $269,737, or 21.6 percent, for the three months ended June 30, 2015, as compared
with June 30, 2014, primarily as a result of a decrease in salaries and benefits owing primarily to a decrease in our employee
headcount and a decrease in employee bonus expense of $117,500, offset by an increase in compensation cost of $30,903 for restricted
stock awards associated with the Stock Plan. At June 30, 2015, we had nine full-time employees and one part-time employee as compared
with 12 full-time employees and one part-time employee at June 30, 2014. While the non-cash, stock-based compensation expense for
the Stock Plan increased our operating expenses by $219,390, this increase was offset by a corresponding increase to our additional
paid-in capital, resulting in no net impact to our net asset value. Administration and operations expense decreased by $72,100,
or 34.8 percent, for the three months ended June 30, 2015, as compared with June 30, 2014, primarily as a result of net decreases
in general office and administration expenses, including decreases in costs associated with a Meet the Portfolio Day held during
the comparable period in 2014. We did not hold a Meet the Portfolio Day during the comparable period in 2015. Professional fees
decreased by $70,567, or 18.3 percent, for the three months ended June 30, 2015, as compared with June 30, 2014, primarily as a
result of a decrease in certain accounting fees and consulting fees. Rent expense decreased by $12,307, or 15.4 percent, for the
three months ended June 30, 2015, as compared with June 30, 2014. Our rent expense of $67,758 for the three months ended June 30,
2015, includes $80,798 of rent paid in cash, net of $13,040 non-cash rent expense, credits and abatements that we recognize on
a straight-line basis over the lease term. Insurance expense decreased by $10,283, or 12.2 percent, for the three months ended
June 30, 2015, as compared with June 30, 2014. Directors' fees and expenses decreased by $24,230, or 26.0 percent, for the three
months ended June 30, 2015, as compared with June 30, 2014, primarily owing to a decrease in fees associated with the resignation
of one member ofthe Board of Directors.



Interest and other
debt expense increased by $113,750, or 120.7 percent, for the three months ended June 30, 2015, as compared with June 30, 2014,
primarily as a result of utilization fees associated with a drawdown of the Loan Facility. Custody fees increased by $1,476, or
10.4 percent, for the three months ended June 30, 2015, as compared with June 30, 2014.



Realized Gains and Losses from Investments:



During the three months
ended June 30, 2015, and June 30, 2014, we realized net gains on investments of $3,232,118 and $5,693,250, respectively.



86







During the three months
ended June 30, 2015, we realized net gains of $3,232,118 consisting primarily of a realized gain of $3,109,347 on the sale of our
investment in Nantero, Inc., a realized gain of $242,485 on the sale of our investment in Molecular Imprints, Inc., a realized
gain of $41,411 on the sale of 25,000 shares of Solazyme, Inc., and a realized gain of $1,125 on our escrow payment from the sale
of Molecular Imprints to Canon, Inc., offset by a realized loss of $98,644 on our investment in D-Wave Systems, Inc., owing to
the expiration of certain warrants, and a realized loss of $63,606 on our escrow payment relating to the sale of our investment
in Molecular Imprints.



During the three months
ended June 30, 2014, we realized net gains of $5,693,250 consisting of a realized gain on the sale of our investment in Molecular
Imprints, Inc., of $3,946,838, a realized gain of $4,570 on the sale of 16,000 shares of Champions Oncology, Inc., a realized gain
of $956,312 on the sale of 100,000 shares of Solazyme, and a realized gain of $197,309 on the repurchase and expiration of certain
Solazyme, Inc., written call option contracts. At June 30, 2014, we still owned 2,523,895 and 50,000 shares of Champions Oncology
and Solazyme, respectively. We also had a realized gain of $588,221 on our escrow payment from the sale of Xradia, Inc.



Net Unrealized Appreciation
and Depreciation of Portfolio Securities:



During the three months
ended June 30, 2015, net unrealized depreciation on total investments increased by $3,116,377, or 12.9 percent, from accumulated
net unrealized depreciation of $24,077,256 at March 31, 2015, to accumulated net unrealized depreciation of $27,193,633 at June
30, 2015. During the three months ended June 30, 2014, net unrealized depreciation on total investments decreased by $719,660,
or 3.7 percent, from accumulated net unrealized depreciation of $19,468,401 at March 31, 2014, to accumulated net unrealized depreciation
of $18,748,741 at June 30, 2014.



During the three months
ended June 30, 2015, net unrealized depreciation on our venture capital investments increased by $3,116,377, from net unrealized
depreciation of $24,077,256 at March 31, 2015, to net unrealized depreciation of $27,193,633 at June 30, 2015, owing towrite-downs
in the valuations of the following portfolio company investments:



|Investment                      |  | Amount of Write-Down |          
|------------------------------- |  | -------------------- | ---------
|                                |  |                      |          
|Enumeral Biomedical Corp.       |  |                      | 1,205,367
|OpGen, Inc.                     |  |                      | 1,147,861
|Bridgelux, Inc.                 |  |                      | 949,658  
|Nanosys, Inc.                   |  |                      | 767,572  
|Produced Water Absorbents, Inc. |  |                      | 658,690  
|Champions Oncology, Inc.        |  |                      | 596,311  
|HZO, Inc.                       |  |                      | 575,007  
|Adesto Technologies Corporation |  |                      | 518,331  
|ABSMaterials, Inc.              |  |                      | 36,059   
|Magic Leap, Inc.                |  |                      | 19,132   
|Solazyme, Inc.                  |  |                      | 5,452    
|NanoTerra, Inc.                 |  |                      | 1,233    



The write-downs for
the three months ended June 30, 2015, were partially offset by write-ups in the valuations of the following portfolio company investments:



87







|Investment                        |  | Amount of Write-Ups |          
|--------------------------------- |  | ------------------- | ---------
|                                  |  |                     |          
|SiOnyx, Inc.                      |  |                     | 2,487,862
|AgBiome, LLC                      |  |                     | 1,847,267
|Ensemble Therapeutics Corporation |  |                     | 428,772  
|UberSeq, Inc.                     |  |                     | 276,221  
|SynGlyco, Inc.                    |  |                     | 141,653  
|Senova Systems, Inc.              |  |                     | 58,270   
|Metabolon, Inc.                   |  |                     | 28,360   
|D-Wave Systems, Inc.              |  |                     | 23,235   
|Cambrios Technologies Corporation |  |                     | 19,197   
|Mersana Therapeutics, Inc.        |  |                     | 14,621   
|EchoPixel, Inc.                   |  |                     | 5,717    
|Orig3n, Inc.                      |  |                     | 2,853    



We had an increase
in unrealized depreciation of $1,920,326 on our investment in Nantero, Inc., owing to a realized gain on the sale of its securities.



We had an increase
in unrealized depreciation of $157,909 on our investment in Molecular Imprints, Inc., owing to a realized gain on the sale of its
securities.



We had a decrease in
unrealized depreciation of $122,101 on our investment in D-Wave Systems, Inc., owing to foreign currency translation.



We had an increase
in unrealized depreciation of $14,809 on the rights to milestone payments from Amgen, Inc.’s acquisition of BioVex Group,
Inc.



We had a decrease in
unrealized depreciation of $1,211 on the rights to milestone payments from Canon, Inc.’s acquisition of Molecular Imprints,
Inc.



During the three months
ended June 30, 2014, net unrealized depreciation on our venture capital investments decreased by $797,090, from net unrealized
depreciation of $19,643,757 at March 31, 2014, to net unrealized depreciation of $18,846,667 at June 30, 2014, owing primarily
to write-ups in the valuations of the following portfolio company investments:



|Investment                      |  | Amount of Write-Up |          
|------------------------------- |  | ------------------ | ---------
|                                |  |                    |          
|D-Wave Systems, Inc.            |  | $                  | 3,840,927
|Produced Water Absorbents, Inc. |  |                    | 1,976,649
|HZO, Inc.                       |  |                    | 1,391,005
|SynGlyco, Inc.                  |  |                    | 371,649  
|Enumeral Biomedical Corp.       |  |                    | 183,577  
|Champions Oncology, Inc.        |  |                    | 30,095   
|GEO Semiconductor, Inc.         |  |                    | 7,774    
|OpGen, Inc.                     |  |                    | 1,494    
|NanoTerra, Inc.                 |  |                    | 1,321    



88







The write-ups for the
three months ended June 30, 2014, were offset by write-downs in the valuations of the following portfolio company investments:



|Investment                        |  | Amount of Write-Down |        
|--------------------------------- |  | -------------------- | -------
|                                  |  |                      |        
|Cambrios Technologies Corporation |  | $                    | 854,586
|SiOnyx, Inc.                      |  |                      | 747,795
|Ultora, Inc.                      |  |                      | 251,094
|Nanosys, Inc.                     |  |                      | 219,526
|Bridgelux, Inc.                   |  |                      | 154,145
|Ensemble Therapeutics Corporation |  |                      | 130,717
|OHSO Clean, Inc.                  |  |                      | 47,567 
|Contour Energy Systems, Inc.      |  |                      | 21,418 
|Cobalt Technologies, Inc.         |  |                      | 43     
|Metabolon, Inc.                   |  |                      | 7      



We had an increase
in unrealized depreciation of $3,876,968 on our investment in Molecular Imprints, Inc., owing to a realized gain on the sale of
its securities.



We had a decrease in
unrealized depreciation of $587 on the rights to milestone payments from Canon, Inc.’s acquisition of Molecular Imprints,
Inc.



We had a decrease in
unrealized depreciation of $5,247 on the rights to milestone payments from Amgen, Inc.’s acquisition of BioVex Group, Inc.



We had a decrease in
unrealized depreciation owing to foreign currency translation of $206,811 on our investment in D-Wave Systems, Inc.



We had an increase
in unrealized depreciation of $916,180 on our investment in Solazyme, Inc., primarily owing to realized gains on the partial sale
of the securities.



Unrealized appreciation
on our U.S. government securities portfolio decreased from unrealized appreciation of $121 at March 31, 2014, to $0 at June 30,
2014. We did not hold any U.S. government securities at June 30, 2014.



Six months ended
June 30, 2015, as compared with the six months ended June 30, 2014



In the six months ended
June 30, 2015, and June 30, 2014, we had net decreases in net assets resulting from operations of $5,451,534 and $2,147,622, respectively.



Investment Income
and Expenses:



We had net operating
losses of $3,621,652 and $4,060,227 for the six months ended June 30, 2015, and June 30, 2014, respectively. The variation in these
results is primarily owing to the changes in investment income and operating expenses, including non-cash expense included in salaries,
benefits and stock-based compensation of $431,981
in 2015 primarily associated with the compensation cost for restricted stock as compared with $497,634 for the same period in 2014.
During the six months ended June 30, 2015, and June 30, 2014, total investment income was $431,027 and $280,126, respectively.
During the six months ended June 30, 2015, and June 30, 2014, total operating expenses were $4,052,679 and $4,340,353, respectively.



89









During the six months
ended June 30, 2015, as compared with the same period in 2014, investment income increased, reflecting increases in interest income
from convertible bridge notes, non-convertible promissory notes, yield-enhancing fees on debt securities and fees for providing
managerial assistance to portfolio companies, offset by decreases in interest income from senior secured debt, senior secured debt
through a participation agreement, and a decrease in our average holdings of U.S. government securities. During the six months
ended June 30, 2015, our average holdings of U.S. government securities were $0 as compared with $5,571,344 during the six months
ended June 30, 2014, 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 expenses, were $4,052,679 and $4,340,353 for the six months ended June 30, 2015, and
June 30, 2014, respectively. The decrease in operating expenses for the six months ended June 30, 2015, as compared with the six
months ended June 30, 2014, was primarily owing to decreases in salaries, benefits and stock-based compensation expense, administration
and operations expense, rent expense and insurance expense, offset by increases in professional fees, directors' fees and expenses,
interest and other debt expense and custody fees.



Salaries, benefits
and stock-based compensation expense decreased by $603,608, or 22.7 percent, for the six months ended June 30, 2015, as compared
with June 30, 2014, primarily as a result of a decrease in salaries and benefits owing primarily to a decrease in our employee
headcount, a decrease in employee bonus expense of $197,500 and a decrease in compensation cost of $65,653 for restricted stock
awards associated with the Stock Plan. At June 30, 2015, we had nine full-time employees and one part-time employee as compared
with 12 full-time employees and one part-time employee at June 30, 2014. While the non-cash, stock-based compensation expense for
the Stock Plan increased our operating expenses by $431,981, this increase was offset by a corresponding increase to our additional
paid-in capital, resulting in no net impact to our net asset value. Administration and operations expense decreased by $101,346,
or 30.0 percent, for the six months ended June 30, 2015, as compared with June 30, 2014, primarily as a result of net decreases
in general office and administration expenses, including decreases in costs associated with a Meet the Portfolio Day held during
the comparable period in 2014. We did not hold a Meet the Portfolio Day during the six months ended June 30, 2015. Rent expense
decreased by $12,627, or 8.5 percent, for the six months ended June 30, 2015, as compared with June 30, 2014. Our rent expense
of $135,464 for the six months ended June 30, 2015, includes $161,175 of rent paid in cash, net of $25,711 non-cash rent expense,
credits and abatements that we recognize on a straight-line basis over the lease term. Insurance expense decreased by $26,605,
or 15.8 percent, for the six months ended June 30, 2015, as compared with June 30, 2014.



Professional fees increased
by $289,796, or 48.5 percent, for the six months ended June 30, 2015, as compared with June 30, 2014, primarily as a result of
an increase in certain legal fees, accounting fees and consulting fees associated with exploration of strategic opportunities.
Directors' fees and expenses increased by $2,117, or 1.1 percent, for the six months ended June 30, 2015, as compared with June
30, 2014, primarily owing to an increase in overall fees and additional meetings held by the Board of Directors, offset by a decrease
owing to the resignation of one member of the Board of Directors on March 3, 2015.Interest and other debt expense increased
by $163,750, or 87.1 percent, for the six months ended June 30, 2015, as compared
with June 30, 2014, primarily as a result of utilization fees associated with a drawdown of the Loan Facility. Custody fees increased
by $2,597, or 8.9 percent, for the six months ended June 30, 2015, as compared with June 30, 2014.



90









Realized Gains and Losses from Investments:



During the six months
ended June 30, 2015, and June 30, 2014, we realized net gains (losses) on investments of $2,948,817 and $(1,344,075), respectively.



During the six months
ended June 30, 2015, we realized net gains of $2,948,817 consisting primarily of a realized gain of $3,109,347 on the sale of our
investment in Nantero, Inc., a realized gain of $242,485 on the sale of our investment in Molecular Imprints, Inc., a realized
gain of $41,411 on the sale of 25,000 shares of Solazyme, Inc., a realized gain of $8,942 on the sale of certain warrants of GEO
Semiconductor, Inc., and a realized gain of $2,668 on our escrow payment from the sale of our investment in Molecular Imprints
to Canon, Inc., offset by a realized loss of $293,786 on our investment in Metabolon, Inc., owing to the expiration of certain
warrants, a realized loss of $98,644 on our investment in D-Wave Systems, Inc., owing to the expiration of certain warrants, and
a realized loss of $63,606 on our escrow payment relating to the sale of our investment in Molecular Imprints.



During the six months
ended June 30, 2014, we realized net losses of $1,344,075, consisting primarily of a realized loss on the value of our investment
in Kovio, Inc., of $7,299,533, offset by a realized gain of $3,946,838 on the sale of our investment in Molecular Imprints, Inc.,
a realized gain of $204,442 on the sale of 575,756 shares of Champions Oncology, Inc., a realized gain of $1,129,054 on the sale
of 117,834 shares of Solazyme, and a realized gain of $86,653 on the repurchase and expiration of certain Solazyme, Inc., written
call option contracts. At June 30, 2014, we still owned 2,523,895 and 50,000 shares of Champions Oncology and Solazyme, respectively.
We also had a realized gain of $588,440 on our escrow payment from the sale of Xradia, Inc.



Net Unrealized Appreciation
and Depreciation of Portfolio Securities:



During the six months
ended June 30, 2015, net unrealized depreciation on total investments increased by $4,587,158, or 20.3 percent, from accumulated
net unrealized depreciation of $22,606,475 at December 31, 2014, to accumulated net unrealized depreciation of $27,193,633 at June
30, 2015. During the six months ended June 30, 2014, net unrealized depreciation on total investments decreased by $3,272,666,
or 14.9 percent, from accumulated net unrealized depreciation of $22,021,407 at December 31, 2013, to accumulated net unrealized
depreciation of $18,748,741 at June 30, 2014.





91







During the six months
ended June 30, 2015, net unrealized depreciation on our venture capital investments increased by $4,587,158, from net unrealized
depreciation of $22,606,475 at December 31, 2014, to net unrealized depreciation of $27,193,633 at June 30, 2015, owing to write-downs
in the valuations of the following portfolio company investments:



|Investment                        |  | Amount of Write-Down |          
|--------------------------------- |  | -------------------- | ---------
|                                  |  |                      |          
|Produced Water Absorbents, Inc.   |  |                      | 4,383,255
|Enumeral Biomedical Corp.         |  |                      | 2,985,234
|Nanosys, Inc.                     |  |                      | 1,474,957
|Bridgelux, Inc.                   |  |                      | 1,048,534
|HZO, Inc.                         |  |                      | 460,213  
|Metabolon, Inc.                   |  |                      | 164,113  
|Ensemble Therapeutics Corporation |  |                      | 99,228   
|Magic Leap, Inc.                  |  |                      | 19,132   
|Ultora, Inc.                      |  |                      | 7,525    
|NanoTerra, Inc.                   |  |                      | 146      



The write-downs for
the six months ended June 30, 2015, were partially offset by write-ups in the valuations of the following portfolio company investments:



|Investment                            |  | Amount of Write-Ups |          
|------------------------------------- |  | ------------------- | ---------
|                                      |  |                     |          
|OpGen, Inc.                           |  |                     | 2,383,430
|SiOnyx, Inc.                          |  |                     | 2,380,885
|AgBiome, LLC                          |  |                     | 1,856,151
|Adesto Technologies Corporation       |  |                     | 834,978  
|UberSeq, Inc.                         |  |                     | 271,541  
|SynGlyco, Inc.                        |  |                     | 238,210  
|Champions Oncology, Inc.              |  |                     | 214,403  
|Accelerator IV – New York Corporation |  |                     | 164,385  
|Senova Systems, Inc.                  |  |                     | 118,830  
|Mersana Therapeutics, Inc.            |  |                     | 29,708   
|D-Wave Systems, Inc.                  |  |                     | 25,239   
|Cambrios Technologies Corporation     |  |                     | 25,020   
|EchoPixel, Inc.                       |  |                     | 21,887   
|Solazyme, Inc.                        |  |                     | 8,548    
|Orig3n, Inc.                          |  |                     | 3,746    
|ABSMaterials, Inc.                    |  |                     | 1,076    



We had an increase
in unrealized depreciation of $1,909,935 on our investment in Nantero, Inc., owing to a realized gain on the sale of its securities.



We had an increase
in unrealized depreciation of $592,371 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 $15,656 on the rights to milestone payments from Amgen, Inc.’s acquisition of BioVex Group,
Inc.



We had a decrease in
unrealized depreciation of $2,974 on the rights to milestone payments from Canon, Inc.’s acquisition of Molecular Imprints,
Inc.



92







During the six months
ended June 30, 2014, net unrealized depreciation on our venture capital investments decreased by $3,183,667, from net unrealized
depreciation of $22,030,334 at December 31, 2013, to net unrealized depreciation of $18,846,667 at June 30, 2014, owing primarily
to a net decrease in unrealized depreciation on our investment in Kovio, Inc., of $7,299,533 resulting in a realized loss on this
investment when such securities were deemed worthless. We also had the following write-ups in the valuations of the following portfolio
company investments:



|Investment                      |  | Amount of Write-Up |          
|------------------------------- |  | ------------------ | ---------
|                                |  |                    |          
|D-Wave Systems, Inc.            |  | $                  | 3,836,607
|Produced Water Absorbents, Inc. |  |                    | 1,976,649
|HZO, Inc.                       |  |                    | 1,403,984
|Enumeral Biomedical Corp.       |  |                    | 1,024,212
|SynGlyco, Inc.                  |  |                    | 343,460  
|Bridgelux, Inc.                 |  |                    | 61,374   
|GEO Semiconductor, Inc.         |  |                    | 23,126   
|NanoTerra, Inc.                 |  |                    | 10,480   
|OpGen, Inc.                     |  |                    | 1,494    



The write-ups for the
six months ended June 30, 2014, were offset by write-downs in the valuations of the following portfolio company investments:



|Investment                        |  | Amount of Write-Down |          
|--------------------------------- |  | -------------------- | ---------
|                                  |  |                      |          
|SiOnyx, Inc.                      |  | $                    | 4,721,194
|Cambrios Technologies Corporation |  |                      | 854,586  
|Champions Oncology, Inc.          |  |                      | 764,222  
|Ensemble Therapeutics Corporation |  |                      | 362,534  
|Nanosys, Inc.                     |  |                      | 353,099  
|Cobalt Technologies, Inc.         |  |                      | 300,533  
|Ultora, Inc.                      |  |                      | 251,094  
|Laser Light Engines, Inc.         |  |                      | 182,061  
|Contour Energy Systems, Inc.      |  |                      | 90,844   
|Metabolon, Inc.                   |  |                      | 44,175   
|OHSO Clean, Inc.                  |  |                      | 39,154   



We had an increase
in unrealized depreciation of $3,872,348 on our investment in Molecular Imprints, Inc., primarily owing to a realized gain on the
sale of its securities.



We had a decrease in
unrealized depreciation of $7,414 on the rights to milestone payments from Amgen, Inc.’s acquisition of BioVex Group, Inc.



We had a decrease in
unrealized depreciation of $587 on the rights to milestone payments from Canon, Inc.’s acquisition of Molecular Imprints,
Inc.



We had an increase in unrealized
depreciation owing to foreign currency translation of $9,162 on our investment in D-Wave Systems, Inc.



We had an increase in unrealized
depreciation of $960,247 on our investment in Solazyme, Inc., primarily owing to realized gains on the partial sale of the securities.



Unrealized appreciation
on our U.S. government securities portfolio decreased from unrealized appreciation of $45 at December 31, 2013, to $0 at June 30,
2014. We did not hold any U.S. government securities at June 30, 2014.





93











Financial Condition



June
30, 2015



At June 30, 2015, our total
assets and net assets were $111,756,732 and $104,482,738, respectively. At December 31, 2014, our total assets and net assets were
$112,094,861 and $109,654,427, respectively.



At June 30, 2015, our net
asset value per share was $3.34, as compared with $3.51 at December 31, 2014. At June 30, 2015, and December 31, 2014, our shares
outstanding were 31,321,685 and 31,280,843, respectively.



Significant developments
in the six months ended June 30, 2015, included a decrease in the holdings of our venture capital investments of $2,425,390 and
an increase in our cash of $2,233,775. The decrease in our venture capital investments from $89,764,840 at December 31, 2014, to
$87,339,450 at June 30, 2015, resulted primarily from a decrease in value of $3,433,338 owing to the sale of our investment in
Nantero, Inc., a decrease in value of $928,884 owing to the sale of our investment in Molecular Imprints, Inc., and a decrease
in the net value of our venture capital investments held of $3,111,122, offset by new and follow-on investments of $5,047,954.
The increase in our cash from $20,748,314 at December 31, 2014, to $22,982,089 at June 30, 2015, is primarily owing to proceeds
of $4,828,052 on the sale of our investment in Nantero, Inc., proceeds of $705,794 on the sale of our investment in Molecular Imprints,
Inc., proceeds of $103,310 on the sale of certain warrants of GEO Semiconductor, Inc., and a drawdown of $5,000,000 from the Loan
Facility, offset by new and follow-on venture capital investments totaling $5,047,954 and to the payment of cash for operating
expenses of $3,677,385.



The following table is
a summary of additions to our portfolio of venture capital investments made during the six months ended June 30, 2015:



|New Investments |  | Amount of Investment |        
|--------------- |  | -------------------- | -------
|                |  |                      |        
|Orig3n, Inc.    |  | $                    | 250,000
|Phylagen, Inc.  |  |                      | 200,000

|Follow-On Investments               |  |   |          
|----------------------------------- |  | - | ---------
|                                    |  |   |          
|OpGen, Inc.                         |  |   | 1,155,000
|Senova Systems, Inc.                |  |   | 600,000  
|Produced Water Absorbents, Inc.     |  |   | 500,000  
|Produced Water Absorbents, Inc.     |  |   | 484,203  
|Metabolon, Inc.                     |  |   | 299,999  
|Produced Water Absorbents, Inc.     |  |   | 250,000  
|Accelerator IV-New York Corporation |  |   | 262,215  
|OpGen, Inc.                         |  |   | 208,035  
|TARA Biosystems, Inc.               |  |   | 200,000  
|Nantero, Inc.                       |  |   | 195,303  
|SiOnyx, Inc.                        |  |   | 117,653  
|Mersana Therapeutics, Inc.          |  |   | 104,521  
|SiOnyx, Inc.                        |  |   | 103,500  
|OpGen, Inc.                         |  |   | 100,000  
|Phylagen, Inc.                      |  |   | 10,000   
|Ultora, Inc.                        |  |   | 7,525    
|                                    |  |   |          
|Total                               |  | $ | 5,047,954



94







The following table summarizes
the value of our portfolio of venture capital investments as compared with its cost at June 30, 2015, and December 31, 2014:



|                                      |  | June 30, 2015 |             |   | December 31, 2014 |  
|------------------------------------- |  | ------------- | ----------- | - | ----------------- | -
|                                      |  |               |             |   |                   |  
|Venture capital investments, at cost  |  | $             | 114,533,083 |   |                   | $
|Net unrealized (depreciation)         |  |               | (27,193,633 | ) |                   |  
|Venture capital investments, at value |  | $             | 87,339,450  |   |                   | $



Cash Flow



Net cash used in operating
activities for the six months ended June 30, 2015, was $2,711,775, primarily reflecting the purchase of venture capital investments
of $5,047,954 and the payment of operating expenses, offset by proceeds from the sale of investments and repayment of principal
of $5,884,203.



Net cash used in investing
activities for the six months ended June 30, 2015, was $6,806, primarily reflecting the purchase of fixed assets.



Net cash provided by financing
activities for the six months ended June 30, 2015, was $4,952,356, primarily reflecting a partial drawdown from the Loan Facility,
offset by the net settlement of restricted stock.



Net cash provided by operating
activities for the six months ended June 30, 2014, was $16,207,714, primarily reflecting the net sale of U.S. government securities
of $18,999,008 and proceeds from the sale of investments of $9,766,197, offset by the purchase of venture capital investments of
$9,954,799 and the payment of operating expenses.



Net cash used in investing
activities for the six months ended June 30, 2014, was $1,066, primarily reflecting the purchase of fixed assets.



95











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, proceeds 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 June 30, 2015, and December 31, 2014, 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 June 30, 2015, we had $5,000,000 in
debt outstanding. We have not issued any debt securities, and, therefore, are not subject to credit agency downgrades.



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 June 30, 2015, and December
31, 2014, our total primary liquidity was $23,079,535 and $20,978,792, respectively. Our primary liquidity is principally comprised
of our cash and certain receivables. The increase in our primary liquidity from December 31, 2014, to June 30, 2015, is primarily
owing to proceeds of $4,828,052 from the sale of our investment in Nantero, Inc., proceeds of $705,794 from the sale of our investment
in Molecular Imprints, Inc., and a drawdown of $5,000,000 from the Loan Facility, offset by new and follow-on venture capital investments
totaling $5,047,954 and to the payment of cash for operating expenses of $3,677,385.



At June 30, 2015, and December
31, 2014, our secondary liquidity was $11,326,108 and $8,641,873, respectively. Secondary liquidity does not include the value
of warrants or options we hold in Champions Oncology, Inc., Enumeral Biomedical Holdings, Inc., and OpGen, Inc. Our secondary liquidity
consists of our publicly traded securities. 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 June 30, 2015, our publicly
traded securities of Enumeral Biomedical Holdings and OpGen, Inc., were restricted from sale.



96







As of June 30, 2015, 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 June 30, 2015, our net asset value per share was $3.34 per share and
our closing market price was $2.75 per share. We do not currently have shareholder approval to issue or sell shares below our net
asset value per share.



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 June 30, 2015, and December
31, 2014, the Company had $5,000,000 and $0, respectively, in debt outstanding. The remaining capacity under the Loan Facility
was $15,000,000 at June 30, 2015.



97







Contractual Obligations



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



|                            |  | Payments Due by Period |           |  |                 |   |         |           | 
|--------------------------- |  | ---------------------- | --------- |  | --------------- | - | ------- | --------- | 
|                            |  |                        |           |  |                 |   |         |           | 
|                            |  | Total                  |           |  | Less than1 Year |   |         | 1-3 Years | 
|                            |  |                        |           |  |                 |   |         |           | 
|Multi-Draw Loan Facility(1) |  | $                      | 5,000,000 |  |                 | $ | 0       |           | 
|Operating leases            |  |                        | 1,335,158 |  |                 |   | 284,177 |           | 
|Total                       |  | $                      | 6,335,158 |  |                 | $ | 284,177 |           | 



(1)As of June 30, 2015, we had $15,000,000
of unused borrowing capacity under our Loan Facility.



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.
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.



The Company's aggregate
operating and investment commitments in Accelerator amounted to $666,667 and $3,333,333, respectively. During the six months ended
June 30, 2015, $262,215 in capital was called, all of which related to the operating commitment. As of June 30, 2015, the Company
had remaining unfunded commitments of $188,440 and $3,333,333, or approximately 28.3 percent and 100 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.



98









•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.



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 June 30,
2015, our financial statements include venture capital investments fair valued at $83,230,655, and equity method valued at $288,391,
the values of which were determined in good faith by, or under the direction of, the Board of Directors. As of June 30, 2015, approximately
80 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.



99







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 June 30, 2015.



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 June 30, 2015, approximately
95 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.



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.



100









In the Black-Scholes-Merton
model, we use 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.



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 healthcare 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, 2014, and to calculate our 2015 expense was 3.83 percent. We used a discount
rate of 2.95 percent to calculate our pension obligation for the Executive Mandatory Retirement Benefit Plan.



101







Recent Developments - Portfolio Companies



On
July 10, 2015, the Company made an $89,608 follow-on investment in SiOnyx, Inc., a privately held portfolio company.



On
July 15, 2015, the Company made a $250,000 follow-on investment in Produced Water Absorbents, Inc., a privately held portfolio
company.



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 close of this transaction is subject to customary closing conditions, including regulatory
approvals.



On July 23, 2015, SynGlyco,
Inc., repaid $567,500 in outstanding principal and accrued interest on its senior secured debt.



On
July 29, 2015, the Company made a $500,003 follow-on investment in HZO, Inc., a privately held portfolio company.



On August 3, 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.
 We received cash and a profit interest in the undisclosed buyer that is held through our ownership in Black Silicon
Holdings.



On
August 5, 2015, the Company made a $250,000 follow-on investment in ORIG3N, Inc., a privately held portfolio company.



On
August 5, 2015, the Company made a $75,000 follow-on investment in ProMuc, Inc., a privately held portfolio company.



On
August 7, 2015, the Company made a $500,006 follow-on investment in AgBiome, LLC, a privately held portfolio company.



Recent Developments - Other



On July 29, 2015, the SEC
granted our application for registration as an investment adviser under the Investment Advisers Act of 1940.



On August 6, 2015, the
Board of Directors authorized the repurchase of up to $2.5 million of the Company's common stock in the open market within a six-month
period. The purchases may be at prices above or below the most recently reported net asset value. We anticipate that the manner,
timing, and amount of any share purchases will be determined by our management based upon the evaluation of market conditions,
stock price, and additional factors in accordance with regulatory requirements.



102







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.



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 appreciation on investments." Changes in valuation of any of our investments in privately held companies
from one period to another may be volatile.



103







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.



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 $492,715 at June 30, 2015.



104







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 June 30, 2015, 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.



(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 second quarter of 2015 to which
this report relates that have materially affected, or are reasonably likely to materially affect, the Company’s internal
control over financial reporting.



105







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, 2014, 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 June 30, 2015, 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 48.1
percent of the net asset value attributable to our equity-focused venture capital investment portfolio, or 38.6 percent of our
net asset value, as of June 30, 2015, is concentrated in Adesto Technologies Corporation, Metabolon, Inc., D-Wave Systems, Inc.
and HZO, Inc.



At June 30, 2015, we valued
our investment in Adesto, which had a historical cost to us of $10,482,417, at $15,658,301, our investment in Metabolon, which
had a historical cost to us of $7,231,212, at $10,538,659, our investment in D-Wave, which had a historical cost to us of $5,689,311,
at $7,669,477, and our investment in HZO, which had a historical cost to us of $8,376,505, at $6,457,718, which collectively represent
48.1 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 38.6 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 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



106







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/                        
| | By:                        
| |                            



Date: August 10, 2015



107







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.



108







Schedule
12-14



HARRIS & HARRIS GROUP, INC.

INVESTMENTS IN AND ADVANCES TO AFFILIATES



|                                                  |  |                                         |  | Amount of         |         |  |              |   |           |                   |  |   |                    |  |  |             |         
|------------------------------------------------- |  | --------------------------------------- |  | ----------------- | ------- |  | ------------ | - | --------- | ----------------- |  | - | ------------------ |  |  | ----------- | --------
|                                                  |  |                                         |  | Dividends         |         |  |              |   |           |                   |  |   |                    |  |  |             |         
|                                                  |  |                                         |  | or Interest       |         |  | Value as of  |   |           |                   |  |   |                    |  |  | Value as of |         
|                                                  |  | Title of Issue or                       |  | Credited          |         |  | December 31, |   |           | Gross             |  |   | Gross              |  |  | June 30,    |         
|Name of Issuer                                    |  | Nature of Indebtedness(A)               |  | to
    Income (B) |         |  | 2014         |   |           | Additions
    (C) |  |   | Reductions
    (D) |  |  | 2015        |         
|                                                  |  |                                         |  |                   |         |  |              |   |           |                   |  |   |                    |  |  |             |         
|MAJORITY OWNED
 CONTROLLED

    INVESTMENTS:      |  |                                         |  |                   |         |  |              |   |           |                   |  |   |                    |  |  |             |         
|                                                  |  |                                         |  |                   |         |  |              |   |           |                   |  |   |                    |  |  |             |         
|ProMuc, Inc.                                      |  | Common Stock                            |  | $                 | 0       |  |              | $ | 1         |                   |  | $ | 0                  |  |  | $           | 0       
|                                                  |  |                                         |  |                   |         |  |              |   |           |                   |  |   |                    |  |  |             |         
|                                                  |  | Secured Convertible 
Bridge Note        |  |                   | 17,852  |  |              |   | 482,164   |                   |  |   | 17,852             |  |  |             | 0       
|                                                  |  |                                         |  |                   |         |  |              |   |           |                   |  |   |                    |  |  |             |         
|SynGlyco, Inc.                                    |  | Common Stock                            |  | $                 | 0       |  |              | $ | 0         |                   |  | $ | 0                  |  |  | $           | 0       
|                                                  |  |                                         |  |                   |         |  |              |   |           |                   |  |   |                    |  |  |             |         
|                                                  |  | Series A' Convertible
 Preferred Stock  |  |                   | 0       |  |              |   | 0         |                   |  |   | 154,685            |  |  |             | 0       
|                                                  |  |                                         |  |                   |         |  |              |   |           |                   |  |   |                    |  |  |             |         
|                                                  |  | Senior Secured Debt                     |  |                   | 64,113  |  |              |   | 820,119   |                   |  |   | 33,447             |  |  |             | (287,733
|                                                  |  |                                         |  |                   |         |  |              |   |           |                   |  |   |                    |  |  |             |         
|                                                  |  | Secured Convertible 
Bridge Notes       |  |                   | 29,284  |  |              |   | 376,983   |                   |  |   | 400,542            |  |  |             | 0       
|                                                  |  |                                         |  |                   |         |  |              |   |           |                   |  |   |                    |  |  |             |         
|TARA Biosystems, Inc.                             |  | Common Stock                            |  | $                 | 0       |  |              | $ | 20        |                   |  | $ | 0                  |  |  | $           | 0       
|                                                  |  |                                         |  |                   |         |  |              |   |           |                   |  |   |                    |  |  |             |         
|                                                  |  | Secured Convertible 
Bridge Notes       |  |                   | 13,830  |  |              |   | 308,811   |                   |  |   | 213,830            |  |  |             | 0       
|                                                  |  |                                         |  |                   |         |  |              |   |           |                   |  |   |                    |  |  |             |         
|Total Majority 
Owned Controlled

    Investments |  |                                         |  | $                 | 125,079 |  |              | $ | 1,988,098 |                   |  | $ | 820,356            |  |  | $           | (287,733
|                                                  |  |                                         |  |                   |         |  |              |   |           |                   |  |   |                    |  |  |             |         
|OTHER 
CONTROLLED
 INVESTMENTS:                   |  |                                         |  |                   |         |  |              |   |           |                   |  |   |                    |  |  |             |         
|                                                  |  |                                         |  |                   |         |  |              |   |           |                   |  |   |                    |  |  |             |         
|Senova Systems, Inc.                              |  | Series B Convertible 
Preferred Stock   |  | $                 | 0       |  |              | $ | 403,123   |                   |  | $ | 54,582             |  |  | $           | 0       
|                                                  |  |                                         |  |                   |         |  |              |   |           |                   |  |   |                    |  |  |             |         
|                                                  |  | Series B-1 Convertible 
Preferred Stock |  |                   | 0       |  |              |   | 899,187   |                   |  |   | 57,268             |  |  |             | 0       
|                                                  |  |                                         |  |                   |         |  |              |   |           |                   |  |   |                    |  |  |             |         
|                                                  |  | Series C Convertible 
Preferred Stock   |  |                   | 0       |  |              |   | 609,349   |                   |  |   | 600,000            |  |  |             | (678    
|                                                  |  |                                         |  |                   |         |  |              |   |           |                   |  |   |                    |  |  |             |         
|                                                  |  | Warrants for Series B 
Preferred Stock  |  |                   | 0       |  |              |   | 56,563    |                   |  |   | 7,658              |  |  |             | 0       
|                                                  |  |                                         |  |                   |         |  |              |   |           |                   |  |   |                    |  |  |             |         
|Total Other 
Controlled
    
Investments          |  |                                         |  | $                 | 0       |  |              | $ | 1,968,222 |                   |  | $ | 719,508            |  |  | $           | (678    



i







|                                     |  |                                               |  | Amount of         |   |  |              |   |            |                   |  |   |                    |  |  |             |         
|------------------------------------ |  | --------------------------------------------- |  | ----------------- | - |  | ------------ | - | ---------- | ----------------- |  | - | ------------------ |  |  | ----------- | --------
|                                     |  |                                               |  | Dividends         |   |  |              |   |            |                   |  |   |                    |  |  |             |         
|                                     |  |                                               |  | or Interest       |   |  | Value as of  |   |            |                   |  |   |                    |  |  | Value as of |         
|                                     |  | Title of Issue or                             |  | Credited          |   |  | December 31, |   |            | Gross             |  |   | Gross              |  |  | June 30,    |         
|Name of Issuer                       |  | Nature of Indebtedness(A)                     |  | to
    Income (B) |   |  | 2014         |   |            | Additions
    (C) |  |   | Reductions
    (D) |  |  | 2015        |         
|                                     |  |                                               |  |                   |   |  |              |   |            |                   |  |   |                    |  |  |             |         
|AFFILIATE
 INVESTMENTS:              |  |                                               |  |                   |   |  |              |   |            |                   |  |   |                    |  |  |             |         
|                                     |  |                                               |  |                   |   |  |              |   |            |                   |  |   |                    |  |  |             |         
|ABSMaterials, Inc.                   |  | Series A Convertible 
Preferred Stock         |  | $                 | 0 |  |              | $ | 291,875    |                   |  | $ | 8,788              |  |  | $           | 0       
|                                     |  |                                               |  |                   |   |  |              |   |            |                   |  |   |                    |  |  |             |         
|                                     |  | Series B Convertible 
Preferred Stock         |  |                   | 0 |  |              |   | 1,255,717  |                   |  |   | 0                  |  |  |             | (7,712  
|                                     |  |                                               |  |                   |   |  |              |   |            |                   |  |   |                    |  |  |             |         
|Adesto
    Technologies  Corporation |  | Series A Convertible 
Preferred Stock         |  | $                 | 0 |  |              | $ | 1,652,609  |                   |  | $ | 111,216            |  |  | $           | 0       
|                                     |  |                                               |  |                   |   |  |              |   |            |                   |  |   |                    |  |  |             |         
|                                     |  | Series B Convertible 
Preferred Stock         |  |                   | 0 |  |              |   | 1,527,457  |                   |  |   | 102,758            |  |  |             | 0       
|                                     |  |                                               |  |                   |   |  |              |   |            |                   |  |   |                    |  |  |             |         
|                                     |  | Series C Convertible 
Preferred Stock         |  |                   | 0 |  |              |   | 632,526    |                   |  |   | 42,430             |  |  |             | 0       
|                                     |  |                                               |  |                   |   |  |              |   |            |                   |  |   |                    |  |  |             |         
|                                     |  | Series D Convertible 
Preferred Stock         |  |                   | 0 |  |              |   | 612,462    |                   |  |   | 35,605             |  |  |             | 0       
|                                     |  |                                               |  |                   |   |  |              |   |            |                   |  |   |                    |  |  |             |         
|                                     |  | Series D-1 Convertible 
Preferred Stock       |  |                   | 0 |  |              |   | 356,159    |                   |  |   | 21,129             |  |  |             | 0       
|                                     |  |                                               |  |                   |   |  |              |   |            |                   |  |   |                    |  |  |             |         
|                                     |  | Series E Convertible 
Preferred Stock         |  |                   | 0 |  |              |   | 10,042,110 |                   |  |   | 521,840            |  |  |             | 0       
|                                     |  |                                               |  |                   |   |  |              |   |            |                   |  |   |                    |  |  |             |         
|AgBiome, LLC                         |  | Series A-1 Convertible 
Preferred Stock       |  | $                 | 0 |  |              | $ | 2,406,210  |                   |  | $ | 1,556,810          |  |  | $           | 0       
|                                     |  |                                               |  |                   |   |  |              |   |            |                   |  |   |                    |  |  |             |         
|                                     |  | Series A-2 Convertible 
Preferred Stock       |  |                   | 0 |  |              |   | 583,494    |                   |  |   | 299,340            |  |  |             | 0       
|                                     |  |                                               |  |                   |   |  |              |   |            |                   |  |   |                    |  |  |             |         
|D-Wave Systems, Inc.                 |  | Series 1 Class B 
Convertible Preferred Stock |  | $                 | 0 |  |              | $ | 1,766,715  |                   |  | $ | 0                  |  |  | $           | (125,864
|                                     |  |                                               |  |                   |   |  |              |   |            |                   |  |   |                    |  |  |             |         
|                                     |  | Series 1 Class C 
Convertible Preferred Stock |  |                   | 0 |  |              |   | 699,457    |                   |  |   | 0                  |  |  |             | (49,149 
|                                     |  |                                               |  |                   |   |  |              |   |            |                   |  |   |                    |  |  |             |         
|                                     |  | Series 1 Class D 
Convertible Preferred Stock |  |                   | 0 |  |              |   | 1,327,843  |                   |  |   | 0                  |  |  |             | (93,303 
|                                     |  |                                               |  |                   |   |  |              |   |            |                   |  |   |                    |  |  |             |         
|                                     |  | Series 1 Class E 
Convertible Preferred Stock |  |                   | 0 |  |              |   | 435,260    |                   |  |   | 0                  |  |  |             | (26,524 
|                                     |  |                                               |  |                   |   |  |              |   |            |                   |  |   |                    |  |  |             |         
|                                     |  | Series 1 Class F 
Convertible Preferred Stock |  |                   | 0 |  |              |   | 418,193    |                   |  |   | 0                  |  |  |             | (25,485 
|                                     |  |                                               |  |                   |   |  |              |   |            |                   |  |   |                    |  |  |             |         
|                                     |  | Series 1 Class H 
Convertible Preferred Stock |  |                   | 0 |  |              |   | 870,998    |                   |  |   | 0                  |  |  |             | (58,308 
|                                     |  |                                               |  |                   |   |  |              |   |            |                   |  |   |                    |  |  |             |         
|                                     |  | Series 2 Class D 
Convertible Preferred Stock |  |                   | 0 |  |              |   | 1,053,205  |                   |  |   | 0                  |  |  |             | (74,006 
|                                     |  |                                               |  |                   |   |  |              |   |            |                   |  |   |                    |  |  |             |         
|                                     |  | Series 2 Class E 
Convertible Preferred Stock |  |                   | 0 |  |              |   | 839,844    |                   |  |   | 0                  |  |  |             | (49,538 
|                                     |  |                                               |  |                   |   |  |              |   |            |                   |  |   |                    |  |  |             |         
|                                     |  | Series 2 Class F 
Convertible Preferred Stock |  |                   | 0 |  |              |   | 806,909    |                   |  |   | 0                  |  |  |             | (47,596 
|                                     |  |                                               |  |                   |   |  |              |   |            |                   |  |   |                    |  |  |             |         
|                                     |  | Warrants for Common 
Stock                    |  |                   | 0 |  |              |   | 116,830    |                   |  |   | 0                  |  |  |             | (116,004



ii







|                                   |  |                                          |  | Amount of         |   |  |              |   |           |                   |  |   |                    |  |  |             |           
|---------------------------------- |  | ---------------------------------------- |  | ----------------- | - |  | ------------ | - | --------- | ----------------- |  | - | ------------------ |  |  | ----------- | ----------
|                                   |  |                                          |  | Dividends         |   |  |              |   |           |                   |  |   |                    |  |  |             |           
|                                   |  |                                          |  | or Interest       |   |  | Value as of  |   |           |                   |  |   |                    |  |  | Value as of |           
|                                   |  | Title of Issue or                        |  | Credited          |   |  | December 31, |   |           | Gross             |  |   | Gross              |  |  | June 30,    |           
|Name of Issuer                     |  | Nature of Indebtedness(A)                |  | to
    Income (B) |   |  | 2014         |   |           | Additions
    (C) |  |   | Reductions
    (D) |  |  | 2015        |           
|                                   |  |                                          |  |                   |   |  |              |   |           |                   |  |   |                    |  |  |             |           
|EchoPixel, Inc.                    |  | Series Seed Convertible 
Preferred Stock |  | $                 | 0 |  |              | $ | 1,312,425 |                   |  | $ | 21,887             |  |  | $           | 0         
|                                   |  |                                          |  |                   |   |  |              |   |           |                   |  |   |                    |  |  |             |           
|Ensemble Therapeutics
 Corporation |  | Series B Convertible 
Preferred Stock    |  | $                 | 0 |  |              | $ | 1,060,023 |                   |  | $ | 18,707             |  |  | $           | 0         
|                                   |  |                                          |  |                   |   |  |              |   |           |                   |  |   |                    |  |  |             |           
|                                   |  | Series B-1 Convertible 
Preferred Stock  |  |                   | 0 |  |              |   | 1,833,862 |                   |  |   | 0                  |  |  |             | (117,935  
|                                   |  |                                          |  |                   |   |  |              |   |           |                   |  |   |                    |  |  |             |           
|HZO, Inc.                          |  | Common Stock                             |  | $                 | 0 |  |              | $ | 322,832   |                   |  | $ | 0                  |  |  | $           | (14,419   
|                                   |  |                                          |  |                   |   |  |              |   |           |                   |  |   |                    |  |  |             |           
|                                   |  | Series I Convertible 
Preferred Stock    |  |                   | 0 |  |              |   | 4,482,097 |                   |  |   | 0                  |  |  |             | (333,123  
|                                   |  |                                          |  |                   |   |  |              |   |           |                   |  |   |                    |  |  |             |           
|                                   |  | Series II Convertible 
Preferred Stock   |  |                   | 0 |  |              |   | 2,113,002 |                   |  |   | 0                  |  |  |             | (112,671  
|                                   |  |                                          |  |                   |   |  |              |   |           |                   |  |   |                    |  |  |             |           
|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         
|                                   |  |                                          |  |                   |   |  |              |   |           |                   |  |   |                    |  |  |             |           
|Metabolon, Inc.                    |  | Series B Convertible 
Preferred Stock    |  | $                 | 0 |  |              | $ | 2,781,374 |                   |  | $ | 4,864              |  |  | $           | 0         
|                                   |  |                                          |  |                   |   |  |              |   |           |                   |  |   |                    |  |  |             |           
|                                   |  | Series B-1 Convertible 
Preferred Stock  |  |                   | 0 |  |              |   | 1,158,654 |                   |  |   | 4,448              |  |  |             | 0         
|                                   |  |                                          |  |                   |   |  |              |   |           |                   |  |   |                    |  |  |             |           
|                                   |  | Series C Convertible 
Preferred Stock    |  |                   | 0 |  |              |   | 2,535,525 |                   |  |   | 3,388              |  |  |             | 0         
|                                   |  |                                          |  |                   |   |  |              |   |           |                   |  |   |                    |  |  |             |           
|                                   |  | Series D Convertible 
Preferred Stock    |  |                   | 0 |  |              |   | 2,179,624 |                   |  |   | 7,567              |  |  |             | 0         
|                                   |  |                                          |  |                   |   |  |              |   |           |                   |  |   |                    |  |  |             |           
|                                   |  | Series E-1 Convertible 
Preferred Stock  |  |                   | 0 |  |              |   | 1,556,847 |                   |  |   | 5,953              |  |  |             | 0         
|                                   |  |                                          |  |                   |   |  |              |   |           |                   |  |   |                    |  |  |             |           
|                                   |  | Series E-2 Convertible 
Preferred Stock  |  |                   | 0 |  |              |   | 0         |                   |  |   | 300,415            |  |  |             | 0         
|                                   |  |                                          |  |                   |   |  |              |   |           |                   |  |   |                    |  |  |             |           
|                                   |  | Warrants for Series B-1 
Preferred Stock |  |                   | 0 |  |              |   | 484,535   |                   |  |   | 0                  |  |  |             | (484,535  
|                                   |  |                                          |  |                   |   |  |              |   |           |                   |  |   |                    |  |  |             |           
|Orig3n, Inc.                       |  | Series I Convertible 
Preferred Stock    |  | $                 | 0 |  |              | $ | 0         |                   |  | $ | 253,746            |  |  | $           | 0         
|                                   |  |                                          |  |                   |   |  |              |   |           |                   |  |   |                    |  |  |             |           
|Produced Water
 Absorbents, Inc.   |  | Series A Convertible 
Preferred Stock    |  | $                 | 0 |  |              | $ | 300,215   |                   |  | $ | 0                  |  |  | $           | (265,303  
|                                   |  |                                          |  |                   |   |  |              |   |           |                   |  |   |                    |  |  |             |           
|                                   |  | Series B Convertible 
Preferred Stock    |  |                   | 0 |  |              |   | 2,188,272 |                   |  |   | 0                  |  |  |             | (1,337,648
|                                   |  |                                          |  |                   |   |  |              |   |           |                   |  |   |                    |  |  |             |           
|                                   |  | Series B-2 Convertible 
Preferred Stock  |  |                   | 0 |  |              |   | 1,579,844 |                   |  |   | 0                  |  |  |             | (965,728  



iii







|                                               |  |                                                       |  | Amount of         |         |  |              |   |            |                   |  |   |                    |  |  |             |           
|---------------------------------------------- |  | ----------------------------------------------------- |  | ----------------- | ------- |  | ------------ | - | ---------- | ----------------- |  | - | ------------------ |  |  | ----------- | ----------
|                                               |  |                                                       |  | Dividends         |         |  |              |   |            |                   |  |   |                    |  |  |             |           
|                                               |  |                                                       |  | or Interest       |         |  | Value as of  |   |            |                   |  |   |                    |  |  | Value as of |           
|                                               |  | Title of Issue or                                     |  | Credited          |         |  | December 31, |   |            | Gross             |  |   | Gross              |  |  | June 30,    |           
|Name of Issuer                                 |  | Nature of Indebtedness(A)                             |  | to
    Income (B) |         |  | 2014         |   |            | Additions
    (C) |  |   | Reductions
    (D) |  |  | 2015        |           
|                                               |  |                                                       |  |                   |         |  |              |   |            |                   |  |   |                    |  |  |             |           
|Produced Water
 Absorbents,
    Inc.
 (Cont'd) |  | Series B-3 Convertible 
Preferred Stock               |  | $                 | 0       |  |              | $ | 1,430,677  |                   |  | $ | 0                  |  |  | $           | (874,546  
|                                               |  |                                                       |  |                   |         |  |              |   |            |                   |  |   |                    |  |  |             |           
|                                               |  | Series C Convertible 
Preferred Stock                 |  |                   | 0       |  |              |   | 755,130    |                   |  |   | 0                  |  |  |             | (468,956  
|                                               |  |                                                       |  |                   |         |  |              |   |            |                   |  |   |                    |  |  |             |           
|                                               |  | Series D Convertible 
Preferred Stock                 |  |                   | 0       |  |              |   | 0          |                   |  |   | 984,203            |  |  |             | (427,726  
|                                               |  |                                                       |  |                   |         |  |              |   |            |                   |  |   |                    |  |  |             |           
|                                               |  | Warrants for Series B-2 
Convertible Preferred 
Stock |  |                   | 0       |  |              |   | 44,014     |                   |  |   | 0                  |  |  |             | (36,458   
|                                               |  |                                                       |  |                   |         |  |              |   |            |                   |  |   |                    |  |  |             |           
|                                               |  | Subordinated Secured Non-
 Convertible Debt           |  |                   | 75,467  |  |              |   | 979,450    |                   |  |   | 15,134             |  |  |             | (7,559    
|                                               |  |                                                       |  |                   |         |  |              |   |            |                   |  |   |                    |  |  |             |           
|                                               |  | Secured Convertible Bridge 
Note                      |  |                   | 4,164   |  |              |   | 0          |                   |  |   | 252,301            |  |  |             | 0         
|                                               |  |                                                       |  |                   |         |  |              |   |            |                   |  |   |                    |  |  |             |           
|SiOnyx, 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         
|                                               |  |                                                       |  |                   |         |  |              |   |            |                   |  |   |                    |  |  |             |           
|                                               |  | Warrants for Series B-1 
Preferred Stock              |  |                   | 0       |  |              |   | 0          |                   |  |   | 0                  |  |  |             | 0         
|                                               |  |                                                       |  |                   |         |  |              |   |            |                   |  |   |                    |  |  |             |           
|                                               |  | Warrants for Common 
Stock                            |  |                   | 0       |  |              |   | 0          |                   |  |   | 0                  |  |  |             | 0         
|                                               |  |                                                       |  |                   |         |  |              |   |            |                   |  |   |                    |  |  |             |           
|                                               |  | Secured Convertible Bridge 
Notes                     |  |                   | 164,517 |  |              |   | 161,285    |                   |  |   | 2,766,555          |  |  |             | 0         
|                                               |  |                                                       |  |                   |         |  |              |   |            |                   |  |   |                    |  |  |             |           
|UberSeq, Inc.                                  |  | Series Seed Convertible 
Preferred Stock              |  | $                 | 0       |  |              | $ | 506,159    |                   |  | $ | 77,117             |  |  | $           | 0         
|                                               |  |                                                       |  |                   |         |  |              |   |            |                   |  |   |                    |  |  |             |           
|                                               |  | Warrants for Series Seed 
Preferred Stock             |  |                   | 0       |  |              |   | 0          |                   |  |   | 194,424            |  |  |             | 0         
|                                               |  |                                                       |  |                   |         |  |              |   |            |                   |  |   |                    |  |  |             |           
|Ultora, Inc.                                   |  | Series A Convertible 
Preferred Stock                 |  | $                 | 0       |  |              | $ | 0          |                   |  | $ | 0                  |  |  | $           | 0         
|                                               |  |                                                       |  |                   |         |  |              |   |            |                   |  |   |                    |  |  |             |           
|                                               |  | Series B Convertible 
Preferred Stock                 |  |                   | 0       |  |              |   | 0          |                   |  |   | 0                  |  |  |             | 0         
|                                               |  |                                                       |  |                   |         |  |              |   |            |                   |  |   |                    |  |  |             |           
|                                               |  | Unsecured Bridge Notes(E)                             |  |                   | 0       |  |              |   | 0          |                   |  |   | 7,525              |  |  |             | (7,525    
|                                               |  |                                                       |  |                   |         |  |              |   |            |                   |  |   |                    |  |  |             |           
|Total
    AffiliateInvestments                 |  |                                                       |  | $                 | 244,148 |  |              | $ | 57,461,719 |                   |  | $ | 7,618,150          |  |  | $           | (6,127,621



iv







| | (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 June 30, 2015, and December 31, 2014.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (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 2014.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (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.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (E) | Debt security is on non-accrual status and, therefore, is considered non-income producing during the six months ended June
30, 2015.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------



**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.





v