Mount Logan Capital Inc (MLCI) 2011 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Harris & Harris Group third-quarter shareholder update call. At this time all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instructions will be given at that time. (Operator Instructions) As a reminder, today's conference call is being recorded.

I'd now like to turn the conference over to your host, Ms. Patty Egan, Chief Accounting Officer. Please go ahead.

Thank you. 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.

Thank you. Good morning, this is Doug Jamison, and welcome to our call reporting on the third quarter of 2011. Harris & Harris Group is an early stage, active investor in transformative nanotechnology companies. Nanotechnology has been emerging as a transformative technology over the past decade, and Harris & Harris Group has established itself as a leader, investing in nanotechnology companies. More recently, we have participated in multiple of the early nanotechnology liquidity events. We've a strong pipeline of companies and we expect to witness further liquidity events over the coming years.

We will begin this call with a brief summary of our September 30, 2011 financials by Patty, our Chief Accounting Officer. Patty will be referencing our recently filed quarterly report on Form 10-Q. After Patty, Daniel Wolfe, our President and CFO, and I will provide more details on our venture capital portfolio and on our strategy and directions moving forward, we will then open it up to questions. We expect the call to last approximately 45 minutes. Patty, will you begin with the financials?

Absolutely. At September 30, 2011, we had total assets of $140 million on our balance sheet. Included in our total assets is our venture capital portfolio, which is valued at $101 million versus its cost basis of $102.5 million at September 30, 2011. Our venture capital portfolio was in a depreciated state of $2.4 million at September 30, 2011. We also held $38.2 million in cash, restricted cash and US Treasuries as of September 30. We have debt outstanding of $1.25 million as of September 30. Our net asset value at September 30-- our net assets at September 30 were approximately $135.8 million, and our net asset value per share was $4.38.

Turning to our income statement. For the nine months ended September 30, 2011, we had investment income of $527,000, this compares with approximately $349,000 in investment income during the same period in 2010. Our total expenses were approximately $6.3 million during the first nine months of 2011, compared with approximately $6.2 million during the same period in 2010. These total expense figures include both cash and non-cash based operating expenses such as stock-based compensation. Our total cash-based and accrued operating expenses for the nine months ended September 30, 2011 were approximately or $4.7 million as compared with $4.2 million for the nine months ended September 30, 2010. This yielded a net operating loss of $5.8 million through September 30, 2011, which is comparable to our net loss through September 30, 2010, which was also $5.8 million.

Thank you. Daniel, will you address the details for the decreases in net asset value?

Certainly. As Patty mentioned previously, our net asset value per share decreased by $1.05 from $5.43 as of June 30, 2011 to $4.38 as of September 30, 2011. The largest contributor of this decrease in NAV was the aggregate decrease in the value of our publicly traded portfolio companies of $0.73. Of our shares -- our shares of Solazyme, which completed a successful IPO in the second quarter of 2011, decreased in value by $23 million. This value includes the discount for illiquidity due to the lockup restriction on the shares we own of the Company.

Second, the value of the publicly traded company comparables used as an input to derive the value of one of our mature privately held portfolio companies, Xradia, decreased between June 30 and September 30, 2011. This decrease in the value of Xradia resulted in a $0.04 decrease in NAV between June 30 and September 30, 2011. Xradia continues to grow its revenues, generate positive cash flow and is on pace for another record year of revenue.

Third, we believe economic and market tumult can cause increases in non-performance risk of our own portfolio companies, even if this is not captured by specific events within the portfolio. Our valuations for September 30, 2011 reflect this tumult. As of September 30, 2011, approximately $7 million, or $0.23, of the decrease in NAV is the result of the aggregate increase in nonperformance risk of certain companies within our portfolio. In the future, if and as these companies receive terms for additional financings, we expect the contribution of the discount for nonperformance risk to vary in importance in determining the value of our securities of these companies.

The successful initial public offerings of NeoPhotonics in the first quarter of 2011 and Solazyme in the second quarter of 2011, substantially increased the amount of our venture capital portfolio that is actively traded in the public markets to levels not-- last seen in 2005. The value of our publicly traded portfolio companies increased from 0% as of December 31, 2010 to 38% of our venture capital portfolio as of June 30, and it accounts for 27% at our venture capital portfolio as of September 30, 2011. As compared to last quarter, our publicly traded portfolio companies decreased in value by 47%, while our privately held portfolio companies decreased in value by 11%. Due to the size of our current positions in publicly traded companies, particularly in Solazyme, we believe that the volatility of the public markets will continue to impart significant volatility on our net asset value per share on a quarterly basis.

Our nanotechnology companies are transformative and exciting growth markets. For example, produced water absorbents, or PWA, allows for environmental remediation, cleaning and recycle of the flow back water and chemicals, an important sector of hydraulic fracturing for natural gas production. Laser Light Engine is a leader developing laser-based light sources that address the growing demand for high brightness and quality in 3-D cinema. Enumeral, Champion and Metabolon are leaders in the burgeoning field of personalized medicine. Ancora is a leader in developing synthetic carbohydrates for the growing interest in pharmaceutical vaccines.

We also continue to take advantage of exciting opportunities to make investments in new companies. Following the investment in two new companies in the second quarter of 2011, we made two more investment in new companies in the third quarter of 2011 in HZO and [Synova Systems]. HZO uses a proprietary nano-scale coating technology to waterproof electronic devices. The nano-scale coating is water repellent and is applied over the entirety of the electronic device, both externally and internally. Coded devices can be exposed to water and retain the ability to function without the need for bulky additional packaging or protective enclosures. Harris & Harris Group led this financing with participation from two other investment firms.

Synova Systems uses technology licensed from Oxford University to make solid state sensors that measure acidity and basicity, also referred to as pH, of liquids. The sensors do not require calibration, are not subject to typical routes of degradation and do not change performance over a wide range of temperatures. Accurate measurement of pH is a critical capability in many significant process related industries, such as food and beverage manufacturing, water and waste treatment, petrochemical refining and pharmaceutical manufacturing. Harris & Harris Group participated alongside another unannounced venture capital firm in this financing.

As we look forward, we see additional opportunities for nanotechnology in exciting and rapidly growing markets. These markets may be early in development, they may not be interesting to the general investment community at this time, but we believe they present interesting opportunities for early stage investors such as ourselves. At their core, our advances in science made it the nano-scale. Slide 9 provide some of these opportunities in markets where we are focusing on that time, currently.

Thank you, Daniel. So let's turn to strategy. It is critical for our business that we accomplish three tasks. First, it is critical we focus our time and resources on venture capital investments that can provide the greatest growth and value for Harris & Harris Group. Second, in addition to organic growth within our existing portfolio, we believe it will be important to increase our assets under management. We believe the best route to increase our assets is to explore alternative means for raising capital, other than selling additional shares of common stock of Harris & Harris Group, or through issuance of debt related securities. Third, we must continue to find ways to reduce net operating loss by increasing our investment income.

I would like to focus on the first task of focusing our time and resources on venture capital investments that can provide the greatest growth and value for Harris & Harris Group. Quite simply, this means focusing on fewer companies in which we have greater ownership. It also means having greater control over the timing and type of liquidity event pursued. Currently, Management is focusing much of its time on 10 core private companies within our equity focused venture capital portfolio. Nine of the 10 initial investments in these companies were made during or after 2006. And three of these investments were made in 2011.

As a Group, we own an average and median of over 20% and 16% respectively, in these 10 companies. In one company, we have an ownership greater than 65%. We are significant shareholders and we expect to maintain this high level of ownership through liquidity. We believe the time and resources dedicated to these 10 companies will be the driver of future growth in NAV. Management is very active with these companies as you can imagine.

We realize that leaves 16 other equity-based companies in our portfolio that we value greater than zero. We view these 16 companies as a potential option on future returns, with Solazyme having the potential to drive returns over the nearer term. three of these companies, Solazyme, NeoPhotonics and Champions Oncology are all publicly traded. Because of their successful IPOs, both Solazyme and NeoPhotonics were able to raise significant amounts of capital and more than enough capital to execute on their long-term business strategies. Four additional companies are late stage companies. We believe the strength of Harris & Harris Group resides in our combination of our focus on our core 10 companies, and the option value of the additional 16 equity focused companies.

We believe we have the financial resources to execute on these 3 tasks. We have ended the third quarter of 2011 with approximately $37 million in primary liquidity composed of cash and US Treasury securities. We plan to end the year with over $30 million in primary liquidity. Additionally, we have approximately $26 million in secondary liquidity, comprising our investments in the publicly traded securities of Solazyme, NeoPhotonics and Champions Oncology. After the past few months, these securities are all trading at close to their market nadirs.

As of September 30, 2011, combined, we have approximately $63 million in primary and secondary liquidity, which is an increase from $42 million in primary and secondary liquidity as of December 31, 2010. We also have the potential to receive up to $9.5 million in milestone payments from the acquisition of BioVex, which we currently value at $3.3 million. We do not expect any of these milestone payments currently before 2013. We also have up to $1.9 million in escrow payments, which we value at approximately $939,000. These escrow-- this escrow period ends for each of these acquisitions in March of 2012 and January of 2013, respectively.

Thanks, Daniel. We're an early stage active investor. We take pride in building transformative companies in exciting growth markets. Our model requires optimism, hope and lots of patience. But when our companies succeed, we can realize significant investment returns and we would argue that people's lives are improved. Currently, public market investors appear incapable of focusing beyond a few months. Retail investors have fled the stock market. Participants in the market are dominated by macro economic events and these markets have prioritized rapid trading to the detriment of providing capital to building longer term growth companies. Not only is this humbling to us, we believe it is detrimental to America's competitiveness in the world economy.

However, underneath all the headlines, transformative companies are emerging and many of these companies are excelling, even in the current economic malaise. Our strategy, our current portfolio and our valuation, permits us to generate investment returns even in this market.

I'd like to review some of the events in our own portfolio during the third quarter. things are certainly happening. Metabolon, Adesto and BridgeLux, all raised significant amounts of capital to execute on their businesses. For those of you that listened to Solazyme's third quarter call, you heard that Solazyme signed four upstream agreements to provide feedstock that provides for 90% of the 2015 capacity. Solazyme extended its partnership with Unilever for renewable oils. Algenist sales expanded to Sephora inside JCPenney stores. Solazyme signed development agreement with Dow Electrical and Communications for dielectric fluids. And on Tuesday, the first ever US commercial biofuel flight on Solazyme's Solajet fuel, took off and landed as United flight 1403.

In other Company news, Cobalt partnered with Rhodia for n-Butanol development in Latin America. Cambrios entered into an agreement with Hitachi Chemical. Contour announced the distribution agreement with INEC. Adesto announced a joint development agreement and manufacturing with Altis Semiconductor. Nanosys was awarded $4.8 million from the Department of Energy for automotive applications. SiOnyx was awarded $3 million from the Department of Defense for laser targeting systems. And NeoPhotonics acquired Santur. And accolades continue to fly-- flow around our portfolio companies with BridgeLux, Contour, Nanosys and Solazyme, all recognized as Top 40 clean tech innovators, and Solazyme winning the top spot from Biofuels Digest. ABS Materials was awarded Popular Mechanics 2011 breakthrough award, and HZ0 won the Consumer Electronics Show innovation award. Again, a lot is happening in the portfolio. We are confident in the performance of our portfolio and the future prospects of nanotechnology.

We would now like to address any questions.

(Operator Instructions)

Michael Lew, Needham.

Thanks, good morning, Doug, good morning, Daniel.

Morning.

I just wanted to follow up on the 10 companies, just for clarification purposes would these be comprised totally of late to mid stage only or are there some early stage ones included? And is it weighted towards any of the 3 segments when you include the late stage ones which leaves 6 companies?

Yes, so they are -- they are not all late stage companies.

Okay.

Some of them are early stage, some of them are mid stage as well. They are companies where we have significant ownership in those companies and we believe that if they are successful, they can contribute meaningfully and impactfully to NAV.

With the late stage companies we have, the beauty of the late stage companies we have, I mean you see it, Metabolon, see then Xradia, I mean they are executing on our business plans currently. They don't require a lot of Management's active time with those companies currently. They have fantastic Managements that are operating and that frees us up to spend our time and our energies with, again this core 10 set of companies. They're not all early stage but as I mentioned 3 of them were made in 2011 and so you can assume that those 3 are probably early stage companies.

Okay, yes I missed that, I'm sorry.

But also by increasing your focus how much faster, let's in a best case scenario, could you drive a faster maturation or exit? Let's say with the ones that are not-- in the non-early stages ones, well actually let's include them in there, too.

Yes, so I think, again, as we've communicated for the last few quarters, our interest is in owning greater ownership in companies and ownership that we can maintain through the investment. So if you look at it, I mean historically in Solazyme, in BridgeLux, we owned a good amount of ownership far more than we own today. But as those companies went on to raise $40 million rounds of financing, BridgeLux just completed $75 million of financing, we get diluted. So when we look at these group of companies, these are companies that we believe will not need access to that type of capital to execute on their plan which allows us to maintain our ownership.

Also, when we do become diluted and when more and more capital goes into these companies, you need very large outcomes. So you need Solazyme to be able to exit at a north of $700 million or $1 billion that they IPO'd at in order for the later investors and a lot of these large investors to have it be impactful to them. And so we believe that with the current ownership, we'll actually be able to exit in M&As and IPOs, potentially at lesser values and still get the same type of return for Harris & Harris Group shareholders. More importantly, when you control more of the company, you can be impactful in the exit decisions of those companies.

So again, it's not always beneficial, as we've talked previously, when they do a $75 million private financing. If you look 10 years ago, most $75 million financings were done the public market, in fact many $30 million financings were done in the public market. And so we believe that by having more control over the exit we have more control over our own destiny as well.

And also with this change in focus here, how many investments lets say would you be making in the near term versus let's say during the evaluation process a year ago? Are you going to cut down the number of potential investments?

Yes, so great question.

So 2 thoughts. First of all, we've talked about this for a couple of years. I mean, what we're announcing now is not really new. We're not going out and having to make new investments.

If you look at some of our more recent investments and you look at our consolidated schedule of investments, shareholders will see that we have some companies where we have significant ownership. So we've been doing this for the last couple of years. I think you're right that as we look forward, we made 4 new investments this year, made a few new investments last year. I don't think you'll see us making more than 3 or 4 new investments in a year.

We used this year, especially with the impending exits or liquidity events that we had through the M&A and through the IPOs to actually be very aggressive in investing in new companies. And the reason being is that venture capital still in disarray, the valuations are low, it's a very, very good time to be making early stage investments. So we got very aggressive at the end of last year and the beginning of this year. I think as you look to 2012, you'll see us digesting some of these companies this year and making less new investments certainly to start off 2012.

And also on the public market front, has the investment strategy changed there in light of the current market instability? Or are you still looking at the same quantity, just waiting for let's say the right entry point still? Or are you cutting back on that, too?

I'm sorry, can you repeat the first part of the question?

On the public market front, on the public investment front, has that strategy changed there -- investment strategy changed there in light of the current markets?

Yes well we currently looked -- again I mean one might argue that the public markets now many of these micro cap companies are inexpensively priced compared to historically. Yes, we have. I mean again as we look at our competitive advantage, our competitive advantage is in these early stage companies and building the managements, I think we've gone back to focus on what we're really good at. So we've had less emphasis on the public companies, although we continue to look at them.

And again, 1 of this year's new investments was Champions Oncology, which was actually done as a venture capital deal but in a public company. What we didn't do in that deal is, we didn't let any hedge funds in, right? We didn't let any flippers in. We did it with 1 other venture capital firm, and the CEO and the president of that companies. So that we have control over what was happening afterwards and we could take the time we needed to build that company.

So yes, we continue to look, but again, our focus is more on the early stage and building these companies. And the reason being is we have a very nice pipeline of mid stage and maturing companies now that are executing and performing well from Solazyme to Metabolon to Xradia to some of the other companies in the portfolio.

Okay, thank you.

Thank you, Mike.

(Operator Instructions)

Sam Rebotsky of SER Asset Management.

Good morning, Doug and Daniel.

Good morning.

You speak of the $38 million cash at this point and expect to have about $30 million at the end of the year. Could you talk about if any events have happened subsequently that has raised cash currently? And what's your plans for the cash during the rest of the year?

So there's been no other events to date since the filing of our financials, since that announcement that have increased our capital position. We will have some follow-on investments as we always earmarked for through the end of the year and we will have our expenses, and as we said we expect to end the year with greater than $30 million. So I think it's just normal course of business through the end of 2011 and also into 2012. I will say we don't envision making any additional new investments before the end of the year as well as of this time.

With the events that happened with Solazyme and NeoPhotonics. Solazyme, you have a significant position and the market has been sort of irrational both on the upside and downside. But NeoPhotonics, which is selling at a discount from the book value and you participated in the public offering, have you considered taking advantage of NeoPhotonics gotten down to rather low price to participate in the open market with an opportunity to strengthen your position?

So, it's a great question. I'm not going to comment on it at this point in time except to say in a broad way that we believe the best investments to make are always the investments that you know management team, you've lived with the companies, you understand them pretty well and at least you take care of the variables that are out of your control where you don't know the individuals.

So we certainly think and agree with you that NeoPhotonics -- if you think about it over the long term, is trading at a very favorable price right now. And we certainly, as we look at investment opportunities, we have at Harris & Harris Group and follow-on investments, will certainly take a look at that as we measure the risk and benefit profiles of our companies.

Well, okay. I think 1 other question, which I think is rather significant. At this point time the stock seems to trade rather wildly relative to your valuations were previously it had traded premiums. And part of it I think, even though the individual may not be in the market or the institutions may be more prone for wanting immediate gratifications.

To what have you thought about telling your story, appearing at conferences? I know it takes time, but it would sort of create a broader understanding of Harris & Harris and a greater opportunity to stabilize the value. And presumably, as you look to get greater, I know you've worked with the Russians in trying to get more money available, you have a plan that would help you get greater interest in the stock. What is your plans relative to telling the story and getting broader interest in the stock?

Certainly. So I mean as we said, in the-- probably the first quarter and the second quarter of this year, we are active out there speaking and telling our story. I think that Daniel and I have probably met with over 100 different investors, many institutional, but also brokers and groups like that as well in 2011 in telling our story. And certainly with some of the more recent liquidity events, that you have validation starting to play out for the story as well.

So we've been very active on that front. We'll continue to speak at conferences as they appear, as well.

The other thing you'll is-- I think you'll see us, we're doing a lot of work right now in addition to getting out there in front of people at conferences and visiting with investors and doing non-deal road show days. We're doing a lot as we look out in what we'll call the social media area as well, which is getting our story out there, allowing people to see the progress, the portfolio, company is doing in a much better way than we've done historically. And I think you'll see that all unfold in 2012.

And again, we don't believe that that works by itself. But we do believe in conjunction with getting out there and telling our story, as people come to our website, as they see us out there, they can really understand what we're doing, what our portfolio companies are doing and hopefully that helps them understand if investment in Harris & Harris Group is valuable to them.

Well good luck. I really -- I believe it is very significant that you spend a little more time in getting the story out because with greater strength in the stock, will give you more opportunities where is the possibility that you may sell at a premium because you're not able to increase the values of the companies until events occur. And other people may not know how to value some of your portfolio companies. So it may require a little more help on your part. Good luck.

We agree with you, thank you.

Larry Deraney of Raymond James.

Hey, Doug, I have just 1 question. When does Solazyme come off the restriction? Thank you.

November 23 of this year, Larry.

Thanks, Doug.

Thank you.

Jerry Tweddell of Tweddel Goldberg.

Can you give us any more information on RUSNANO?

We cannot give you anymore additional information on RUSNANO at this time. So I apologize, as we can we will be able to and we will certainly do that. But at this time I am unable to give you anything more, my apologies.

Greg Greenberg, private investor.

Yes, a few questions. 1, I wondering if you could just discuss Adesto Technologies a little bit since it seems that there was a nice recent up round and it's now $10 million on the balance sheet? That's the first question.

Dan, do you want to tackle Adesto?

Certainly. So Adesto is virtualizing technology out of Arizona State University that is an alternative for nonvolatile memory that -- and it targets the low density market, call it embedded memory. Which is if you-- all of the hard drives that we use in our devices, the solid state drives as well, they all have a small amount of memory that's actually embedded on those components themselves.

And it's really important to have a very fast, reliable memory that's included in those devices. Adesto's technology is exactly that. So it's a new way of making embedded memory that has long lifetimes, has high reliability and is extremely fast. And the speed really comes from it's-- the nano-scale conductive bridges that are made and also removed just using applied voltages.

So I'll add -- I mean it's interesting as the portfolio emerges, right? And again we'd all be a lot smarter and probably a lot wealthier if we knew at the beginning which companies were going to execute and perform well.

But, it's also interesting to watch. Not all companies -- some companies struggle but then they sort of catch a second wind, the market picks up and then they go. But there's a few companies in the portfolio that really just right off the bat are able to execute. I mean Solazyme was always like that for us. Right I mean, these guys just continually exceeded expectation from year to year beginning in 2004, I mean they executed beautifully. I would say Tim Jenks in NeoPhotonics were very similar beginning in 2004.

And Adesto in our portfolio I mean you've seen it emerge. It's just been able to execute on its technology in the early years from when we first invested in it, put together some partnership, really bring together a very good and strong syndicate for it, and they're good. They're some of the easier investments to do in the portfolio. Not always, and not always the ones that go on to make the most money, but Adesto has been a very good executing company for us.

I'd also say that if you have questions on it again, Adesto is still fairly in stealth mode but our colleague, Alexei Andreev, if you contact our office, we can certainly put you in contact with him as well. He's an expert in that field and he works directly with them.

Okay. 2 other companies some questions about little bit balance sheet but also just to get an update. So if I look at Laser Light Engines and the series A convertible, we invest $2 million but we show it on the balance sheet as $173,000 approximately. And then the series B we actually put more money in about $3.1 million, but we show that it's worth $3.6 million.

So obviously since the series B round we've increased the valuation but that valuation's up 17% but the original investment at least on the books is down 91%. So kind of help me understand sort of how that works?

Dan, do you want to take that one?

Sure.

And we'll do it more generally because you see this happen across the portfolio rather than anything specific, but go ahead.

Yes, so when we invest in these companies, we invest in preferred-- generally we invest in preferred convertible securities. And those securities hold various rights and preferences that may or may not affect their value as time goes on. And 1 of those preferences is a liquidation preference that in a sale of the company, depending on the scenarios, would ascribe different value to the various classes of preferred securities that are [still] outstanding. That's really a general way of explaining what you're seeing in Laser Light Engines as well.

But I just think to-- I mean to think more broadly as well, a couple of things. 1, as you know we discuss and we discuss in our financials about non-performance risk, right. So when companies need to raise additional capital, sometimes we increased that nonperformance risk discount. So you see that play through the portfolio and I think you see that in Laser Light Engines that you mentioned specifically.

2, again I just want to remind you because of the nature of these preferred securities and because the nature that the VCs, the venture capitals, often control the companies, just because you see value go down doesn't mean that you're going to see us not invest if the company is doing poorly or is not going to ultimately be successful. When there's a lot of demand for that stock like here has been for Solazyme in the private market, you tend to have less control because there are other opportunities.

But often times in a tight syndicate, you have opportunities to pick up value in future rounds of capital and oftentimes we like to do that because it increases our ownership. And so, again as you look at the ups and downs, as we write something to 0 I like to say you can pretty much guess that the company is struggling. But in the ups and downs of individual tranches and series, you may just see us being opportunistic to pick up value in some of these companies where we think there's an opportunity for greater return down the road.

Okay, so on the fundamental on Laser Light I mean any update on sort of how it's going?

They're doing well. They have prototypes out with some customers and they haven't announced who those are put they do have prototypes out. They are continuing to gain more and more traction in the marketplace. And primarily because they have technology for doing really high brightness green light that does not suffer from the problems that other technologies suffer from that have prevented laser-based light sources from really gaining traction in digital cinema.

Yes, so where you I think would want to focus is looking at the potential uptake of lasers in 3-D cinema. And then specifically, as Daniel said, in looking at despeckled green light and the importance of that. That would be the 2 areas if you're doing more research I would focus on.

Okay, and then last company just to ask about, Innovalight was sold recently, so as far as our association or investments in those in the past, any sort of lessons learned from that investment?

Yes, a lot of lessons learned in that, a lot of lessons you see us playing into values. So just back up. Innovalight we sold to DuPont this year. We basically -- our total investment, if we get the escrow back, we'll have lost about $200,000 on a $5 million investment. So close to breakeven on it.

We were very aggressive, pushing for the sale in Innovalight. They were looking for round of capital, we thought it was good to push for a sale, why? The syndicate was weak. So as you've heard us talk about before in venture capital, this was a top-tier venture capital syndicate.

Back in 2003, 2004 you would have seen us talking about how proud we where to invest beside some of these top-tier investors, right. A lot has changed in the venture capital world. These top-tier investors are out of money, their legacy funds, they were struggling to be able to put more money into it.

2, as you know in the solar space, I mean we just looked at the solar space and we said wow it's going to get difficult to raise money and we think there's going to be some graves dug in this space. I think we were luckier than we were really [pressing] because very soon after selling Innovalight, the floor dropped out on solar. I mean you saw it in Solyndra, you've seen it in First Solar, you've seen it in some of the other plays out there as well.

But the third issue was that China is just really, I mean there's a tremendous amount of government dollars and there's a tremendous amount of just effort and that just drives down solar sale prices. Innovalight had great partnerships with all the right players in China. But as a component player, it was very, very difficult to predict when that revenue ramp was going to happen for them. And again, that's something we often face.

So the lessons that we really learned are 1, predictability of revenue is important and if you can't predict it, especially in an environment where you think there's going to be some damage in the short term, we're better off when we have a seller to sell it. Two, you have to be very careful about the venture syndicates that you're working with, so we tend to work -- we're working with less top-tier VCs now. We're working with more groups that are similar to us in size because their incentive is more similar to us in size.

We're also doing a lot with family offices and very wealthy individuals, more so than we have in the recent past since 2002. They tend to be more stable, they tend to be more patient and in fact, because they tend to have gotten their wealth by being very good business people, they tend to actually have far more contacts and are able to put those contacts to use then a lot of the younger VCs in today's world.

But Innovalight, I think-- when I look back at 2011, right, Solazyme was easy, that's a company that's executed beautifully from the beginning. BioVex we got the timing right, we got an area where we invested everybody told us what the heck are you doing, and we stuck to our guns. And as 3 or 4 years evolved, we were in the right place at the right time.

Innovalight, I look back and say this is not an investment win but this is probably one of the smarter things we did. We were a lesser investor, we pushed and forced for the sale, we got the CEO pulled a rabbit out of the hat with the DuPont sale, be able to execute that and rather than having to put more money into it in an uncertain future, be able to recapture that capital to put in a new company that we think could get 4, 5, 6, 7 XR return instead of 1 or 1.5 XR return. So long-winded answer, but I hope that helps.

No, it does. Obviously it's not a failure since a failure is when we write off an investment. So, no I understand.

So kind of following up on that just a little bit, I think at some point in the past, maybe I heard you guys make a statement, maybe it was years ago that you were in the top 5 or 7 venture capital funds in nanotechnology. And maybe I'm wrong, but sort of following up on that where you're saying some of these older syndicates have -- just have no more money. So kind of where do you think of yourself as far as when a company wants to-- when the technology is ready to transfer, are you still in the top 10 people, people go to or deal flow still there?

I've got to be careful my General Counsel is sitting next to me. But I think we'd say-- I think we say we believe we are leader investing in nanotechnology and that hasn't changed. In fact, I think when a company is looking for investors and working on science at the nano-scale, they certainly look to Harris & Harris Group. Our deal flow is as good or better than it has ever been and those companies come to us.

I think we've also shown ourselves to be patient but rational investors as well in these companies. So I think again in the nanotechnology space, we're certainly a leader, we've certainly I think done more companies than anybody else investing in nanotechnology. And especially at the earliest stages, I think that we're 1 of the groups that people come to.

But again, venture capital is not done alone, right you do syndicate. Whether you syndicate with family offices, high net worth individuals, angels or other VCs that you've worked with and that you work very well it, you need those partnerships. So certainly 1 of the things we look for is not just for the companies to come to us, but when another venture capital or another investor sees an interesting deal, that they might bring it to us as well and that's great. You saw that-- you've seen that multiple places in the portfolio, even in deals we've done this year.

And is that sort of the Champions Oncology? I mean what-- it is a public company and you've seem to have gotten like you said a nice investment, but it's 5% or 6% of the company, if I'm looking at it correctly, which is a little bit against what you're saying recently that you want to have bigger stakes?

Yes, but it's a public company. But yes, I mean-- I think you'll see us take larger stakes down the road.

But remember, in some of these companies, I mean even-- I'll give you couple of the ABS or the PWA, you have-- you often have preemptive rights or you may have multiple tranches. So what you see at investment today is not actually the top of what we have the capability to put investment in, we sometimes invest in multiple tranches. So we have the right to put that money in, we'll own more but we didn't want to put all of that capital at risk today. Again, 1 of the beauties of preferred, convertible shares in doing that.

But to the specific question, I mean actually Champions is different. Champions we found got really interested in the technology, we didn't have the capital to do by ourselves. And finally, another group, much larger than ourselves, saw the same vision we did and that was wonderful for us in that case.

But again, our mix of investments is either we find them, we introduce it to other investors and we syndicate, or another investor finds it, they realized its nanotechnology, it's work at the nano-scale and they bring it to us. And if we get interested, again you have a natural partner to invest beside you, which we certainly like.

All right, well as always just excited to see what the future brings. Very appreciative of your guys stewardship and your depth of knowledge and your passion. Thanks.

Thank you.

Thank you.

Theodore Cohen, private investor.

Good afternoon or good morning, gentlemen. With respect to Solazyme, you mentioned just recently or earlier that the restriction comes off I think shortly. Can you give us some idea as to what your intentions are to do with the stock that you have considering the price (inaudible) the market conditions are? And secondly, can you discuss as you mentioned earlier about the possibility of raising additional capital? You said you don't want to dilute, and you don't want to go into debt, so if you have any other thoughts in terms of how you're going to increase your capital structure?

Yes, so I'll try to answer both of those. So as I said, Solazyme-- the lockup is expected to come off November 23. We will continue to monitor that going forward from November 23, but what I think I can say confidently now is that we currently don't have plans to sell our position in Solazyme at the current price. We look at Solazyme as a long-term investment.

Biofuels is just at the very beginning of their period of time. Solazyme is executing very well. We know management, we've lived with this company, we were the first institutional investor in the company and backing Jonathan Wolfson and Harrison Dillon, we've grown up with this company. And we believe that if they are able to execute on their strategy, and again if you read their public documents, their strategy is really A, it's going to come online in 2013 and you're going to see it execute its scale. If they're able to do that, it's not a $500 million market cap company, it's not a $1 billion market cap company, it's a multi-billion market cap company. And you don't get that many opportunities to build from scratch a company like that.

We certainly don't want to be in a position where we sell today at a nadir in the market and we miss that opportunity in a company that has executed very very well and continues to execute very well. So I think again we have plenty of cash on the balance sheet, we want to be patient, we want to see them play this strategy out, we believe in the company, we believe in the market that they are working to impact. So again, currently, we'll continue to watch and see what happens but we don't have any plans to sell what we think is a discounted price of Solazyme.

To your second question on raising additional capital, again I really can't say much at this point in time. All I can say is that again people have seen the public announcement on HHROF in managing third-party money. There are other things we can do, again you hear us focusing our efforts on a core set of companies that we really believe can move net assets in NAV for the future. There maybe some opportunities to exit or sell other companies and bring in capital that way, there may be other opportunities to manage capital. But again, as a publicly traded company, I just cannot comment on that at this point in time.

Thank you, gentlemen. Keep up the work.

Thank you.

I'm showing no further questions at this time and I would like turn the conference back over to Mr. Doug Jamison for any closing remarks.

Great, thank you very much. Again, we appreciate your support, we thank you for being our shareholders of Harris & Harris Group. Have a good weekend and goodbye. Thank you.

Ladies and gentlemen, this does conclude today's conference. You may all disconnect and have a wonderful day.