Patty Egan - CFO & Chief Compliance Officer Doug Jamison - Chairman, CEO & Managing Director Daniel Wolfe - Managing Director, President & Chief Operating Officer

Welcome to the Harris & Harris Group Second Quarter Shareholder Update Call. [Operator Instructions]. I would now like to turn the conference over to Ms. Patty Egan, Chief Financial Officer. Please go ahead, ma'am.

Thank you. I'll begin by reading the Safe Harbor statement. This presentation may contain statements of a forward-looking nature relating to future events. Statements contained in this presentation that are forward-looking statements are intended to be made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are subject to the inherent uncertainties in predicting future results and conditions. These statements reflect the company's current beliefs and a number of important factors could cause actual results to differ materially from those expressed herein. Please see the company's annual report on Form 10-K as well as subsequent filings filed with the Securities and Exchange Commission for a more detailed discussion of the risks and uncertainties associated with the company's business including but not limited to the risks and uncertainties associated with venture capital investing and other significant factors that could affect the company's actual results. Except as otherwise required by federal securities laws Harris & Harris Group, Inc. undertakes no obligation to update or revise these forward-looking statements to reflect new events or uncertainties. I will now turn the call over to Doug Jamison, our CEO.

Thank you, Patty. Thank you all for joining us this morning. Daniel, Patty and I will walk you through a few key events from the first half of the year at Harris & Harris Group, attempting to provide perspective on how we're viewing the future. In conjunction with this call we provided a link on the homepage of our website at www.hhvc.com to a short PowerPoint presentation. You can find it on the homepage of our website under resources on the right-hand side titled Q2 2015 shareholder update call presentation deck. We will be referencing a couple of slides from that presentation today. As we get started and as I hand it over to Daniel to begin, please see slide 3 from this presentation. Daniel?

Thank you, Doug. During 2011 we began realizing the first exits from the portfolio we began building in 2002. Our exits from this portfolio have generated both gains and losses on invested capital. Over the last year our shareholder letters and blog have been very clear that we will continue to seek to monetize our holdings that are not strategic to our growth or our BIOLOGY+ investment thesis. Through the first half of 2015 we have had success towards this end. In May 2015 the spin-outs or non-semiconductor business of Molecular Imprints, Inc. was acquired by a privately held company. Upon the closing of this transaction we received an initial payment of approximately $700,000 and shares of the acquiring company that are valued at approximately $300,000. The proceeds from the sale are in addition to those we received from the sale of Molecular Imprints' CMOS business to Canon during 2014. In June 2015 we sold our shares of Nantero for $4.8 million to an undisclosed party. We realized the gain of $3.1 million on invested capital of $1.7 million or a 2.8 times return. We have been a part of the founding syndicate of investors in Nantero since the company's inception and we believe Nantero has a promising future. We have also had a number of events occur subsequent to the end of the quarter that support our monetization goal, including in July 2015 Bridgelux, Inc. signed a definitive agreement to be acquired by an investment group led by China Electronics Corporation ChongQing Linkong Development Investment company. The close of this transaction is subject to customary regulatory approvals. We expect to receive cash proceeds from the sale in an amount to be finalized upon closing. In addition to the cash proceeds we will receive equity of Xenio Corporation, a spinoff company focused on commercializing Bridgelux's smart lighting business to address the emerging $135 billion lighting opportunity in the Internet of Things or IoT market. We invested a total of $5.4 million in Bridgelux beginning with our initial investment in 2005 and valued our securities of the company at $2.5 million as of June 30, 2015 with the input of information regarding this transaction included in our evaluation process. In July 2015 SynGlyco, Inc. 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 two license agreements that may provide additional payments in the future. These payments will bring our total cash distributions from this investment to approximately $1.75 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. In August 2015 SiOnyx, Inc. reorganized its corporate structure to become a subsidiary of a new company, Black Silicon Holdings, Inc. Our securities 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. We invested a total of $8.5 million in SiOnyx beginning with our initial investment in 2006 and valued our securities of the company at $2.9 million as of June 30, 2015 with the input of information regarding the transaction included in our evaluation process. We continue to believe we will have additional realized exits in 2015 and 2016 that will provide us with cash and secondary liquidity to manage the company and invest in companies that we believe are strategic for future growth. We've had recent success moving our companies to liquidity events. However, as we have discussed previously in letters to shareholders, most recently in our annual letter to shareholders, we've 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 or NAV to potentially lead to stock price appreciation. 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 from the companies where we have significant capital invested that returns 6 to 10 times our investment to create meaningful growth to NAV. We currently believe we have such potentially impactful companies in our existing portfolio today. Towards that end we have focused our time and resources on a smaller set of companies that we believe have the potential to drive value for Harris & Harris Group shareholders in the future. We include a list of these portfolio companies on slide 4 in the presentation deck. Positive events are happening at D-Wave, at AgBiome, at Metabolon, at HZO and Adesto to name just a few. Specifically some key events through June 30, 2015 and events that have occurred subsequent to the end of the quarter to support this goal include the following. OpGen completed its initial public offering or IPO raising $17.1 million. Its common stock and warrants for the purchase of common stock now trade on NASDAQ under the ticker symbols OPGN and OPGNW respectively. OpGen also received an investment of $6 million from the Merck Global Health Innovation Fund and announced the acquisition of AvanDx, a developer of advanced molecular diagnostic products. D-Wave Systems announced that it has successfully fabricated a 1,000 qubit processor that power its quantum computers. At 1,000 qubits this new processor considers 21,000 possibilities simultaneously, a search space which is substantially larger than the 2,512 possibilities available to the company's currently available 512 qubit D-Wave Two. Look for some more announcements later this summer from D-Wave. AgBiome formed a strategic partnership with Genective, a leading developer of biotech crops to accelerate the discovery of a new generation of insect control traits. HZO completed an oversubscribed extension of its Series II round financing from existing investors at the same price per share as the original close. HZO also announced partnerships with Dell and Motorola. And ORIG3N a new investment completed the commercial milestones for triggering the investment of a second tranche of its Series A round of financing ahead of schedule. So I begin this section on my final point, you may want to see slide 5 from the presentation I referenced earlier. This slide identifies five fields within BIOLOGY+ that we're actively involved with and where we're continuing to look for future investment opportunities. You will note that a defining feature of our interdisciplinary team and our BIOLOGY+ focus is that many of these companies may intersect other areas of our interest as well. A quick refresher, first machine learning is a scientific discipline that explores the construction and study of algorithms that can learn from data. We believe machine learning is beginning to penetrate data-driven businesses in the life sciences. As the life sciences continue to adopt insights that will come from the application of computational statistics for the field this new knowledge will lead to better healthcare outcomes, more personalized medicine and more sensitive and specific diagnostic decision-making. The microbiome is defined as the totality of the microorganisms in a particular environment. Rapidly developing sequencing methods and analytical techniques are enhancing our ability to understand the microbiome, human, plant or the built environment microbiome. By understanding the environment of these systems and how the microorganisms within them interact with the host we can impact human health, plant vitality and the environments we reside in daily. The third area is ag tech. It is predicted that the world population will be over 9 billion by 2050 and that 60% more food will be required. In order to meet these food demands the agriculture industry will need to become much more efficient and productive. Advances in agricultural technology such as crop protection, precision aquaculture, plant-based protein sources, soil sensing, synthetic biology, farm robotics and hydroponics will help achieve these goals. Regenerative medicine is a process of replacing, engineering or regenerating human cells, tissues or organs to restore normal function. Regenerative medicine aims to harness tissue engineering, molecular biology and stem cell science to replace or regenerate human tissues or organs. The promise of regenerative medicine is to be able to fully heal the tissue and organs in patients that cannot otherwise be treated or recover from disease. We know we're involved in some of the most important market areas in the coming decade. From this slide you can see that we believe we're currently building companies in these areas that will drive the value of Harris & Harris Group over the coming years. We have built and we continue to build companies that are leaders in the emerging fields of the Internet of Things or IoT, the microbiome, machine learning, ag tech and regenerative medicine. Looking forward I think you'll see us take much larger positions and be even more actively involved in the building of a smaller subset of companies in these important emerging areas. We believe this will provide greater value for our shareholders in the long term. We do not believe our stock price reflects the current or future value of the companies we're part of building in 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. Last week our Board of Directors authorized the repurchase of up to $2.5 million worth of our shares in the open market at prices that may be above or below the net asset value as reported in our most recently published financial statement. We will fund these repurchases using the cash the company has received from the monetization of some of our portfolio companies in 2015. The manner, timing and amount of any share repurchases will be in accordance with regulatory requirements. Pursuant to the Investment company Act of 1940 as amended we're required to notify shareholders when such a program is initiated or implemented. We began mailing this notice to all shareholders earlier this week. The repurchase program does not require us to acquire any specific number of shares and may be extended, modified or discontinued at any time. We also thought it would continue to be helpful to discuss some of the details of the sources of change in valuations of our portfolio company this quarter. 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, Nextreme, Thermal Solutions and Molecular Imprints decreased by $3 million from $90.1 million to $87.1 million. We now have a number of publicly traded companies in our portfolio. These companies are small and their stock prices are fairly volatile but the prices are easily observable to our shareholders. With the inclusion of OPM or option pricing model in our valuation methodologies we realize it can be difficult for our shareholders to understand how changes in values of our privately held companies translate to the health and potential return potential of this portion of our portfolio. We have written a number of blogs on the topic of valuations that can be accessed on our website and we include a detailed discussion of the sources of change in value in the management's discussion and analysis section of our financial statement filed on Form 10-Q beginning on page 82. We did want to highlight the sources of change in one of our portfolio companies in particular on this call, HZO. The primary contributing factor for the decrease in valuation of HZO 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. The difference between the flat price per share of the new oversubscribed round of financing and the decrease in value of approximately $500,000 is owing to the factors used to deriving value under these option pricing models. Finally, I would like to conclude by informing you that on July 29, 2015 we received notice from the SEC that our application to be registered as an investment advisor under the Investment Advisers Act of 1940 was deemed effective. We filed for this registration to be able to manage and invest capital separate from our own capital. Examples of such opportunities may include raising capital in one or more private funds that we believe would allow us to preserve our ability to invest in future rounds of financing for prospective portfolio investments where our limited available capital may not permit us to do so currently. Although we cannot assure you when or if we will do so, we may also seek to manage private funds that invest in different asset classes than those that are the primary focus of Harris & Harris Group. We would expect these private funds if any to pay fees and a portion of investment returns to Harris & Harris Group. We believe that such funds if successfully formed would provide additional capital for us to manage without diluting our current shareholders through the issuance of additional shares of our common stock. While all of these options are under active consideration and development we cannot assure you that we will ultimately determine to pursue any of these options or if we do that we will be able to successfully implement them in the manner currently contemplated. I will now have the call up to Patty Egan, our CFO, to discuss the financial statements for the quarter ended June 30, 2015.

Thank you, Daniel. I will be referring to slide 6 and 7 in the presentation deck posted on our website during this section of the call. At June 30, 2015 we had total assets of approximately $111.8 million on our balance sheet. Included in our total assets is our venture capital portfolio which was valued at approximately $87.3 million versus its cost basis of $114.5 million at June 30. Therefore at the quarter-end our venture capital portfolio was in a depreciated state of $27.2 million. We also held cash of $22.9 million and had $5 million in debt outstanding. At June 30, 2015 our primary and secondary liquidity was $34.4 million. Our net assets at June 30, 2015 were approximately $104.5 million and our net asset value per share was $3.34. This was a decrease from our net asset value per share of $3.51 at December 31, 2014. Turning to our income statement, for the six months ended June 30, 2015 we had investment income of approximately $431,000 compared to approximately $280,000 in investment income during the same period in 2014. Our total expenses were approximately $4.1 million for the six months compared with approximately $4.3 million during the comparable period in 2014. These total expense figures include both cash and non-cash-based operating expenses such as stock-based compensation. Stock-based compensation expense has no impact to our NAV. Our total cash base and accrued operating expenses for the six months ended June 30, 2015 were approximately $3.7 million which is a decrease compared to last year where the expenses were $3.9 million during the same period. This yielded a net operating loss of $3.6 million for the first six months of 2015 which is a decrease compared to our net operating loss of $4.1 million for the six months ended June 30, 2014. I will now turn the call back over to Doug.

Thank you, Patty. At this time we would like to open up the line to any questions. Thank you for listening.

Thank you. So it doesn't look like there is any questions today. It's a little smaller group than we normally have a call. I would say what I always say to shareholders if you have questions feel free to give us a call. We tend to be on the road and working with our portfolio companies but we try over a day or two to be able to respond back to you with any questions you may have. I think my last closing point as we tried to make on the call today I think that the share buyback and the purchase I think you're seeing two thoughts from management. The first is sort of a philosophical change that we've talked about historically but that is when we make money, when we're realizing gains or monetizing events we believe that our path forward is that we should share in some way with our shareholders. We think buying back shares is a productive way to do that, especially at the price point we're currently. I think the other one going to the price point is as Daniel said on the call the best investment we can make at these prices is in our own stock. And with events that we believe can happen over the coming two years investing in our stock may be one of the smartest things we do. And then lastly as it relates to our portfolio we constantly talk about impactful companies. We constantly talk about those impactful companies driving value for Harris & Harris Group's shareholders into the future. I think you know the names of those companies. We spent most of our time talking about them. They are D-Wave, they are Adesto, they're AgBiome, they are HZO, they are Metabolon probably at the most mature state and then there's a series of companies as you saw today right underneath those. Those companies are doing well. Events that those companies are driving forward, you're seeing some of that show up in the news and we will continue to try to be transparent and communicative with shareholders as it relates to the companies that we believe can drive value. So with that enjoy the remainder of your summer and we look forward to be back on the phone after the third quarter of this year, back with the shareholders. Thank you. Have a good day.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program and you now may disconnect. Everyone have a great day.