180 Degree Capital Corp (TURN) 2010 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Harris & Harris fourth-quarter conference 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 would now like to introduce your host for today's conference, Ms. Harriet Fried of LHA.

Thank you, operator. Thank you, everyone, for joining us this morning for the Harris & Harris Group fourth-quarter 2010 shareholders conference call. On this morning's call Doug Jamison, Chairman and CEO, and Daniel Wolfe, President, Chief Operating Officer, and Chief Financial Officer, as well as Patty Egan, Chief Accounting Officer, will lead a discussion about the Company's business and its fourth-quarter results.

Today's conference call and webcast are being accompanied by a slide presentation. To access the presentation, please go to the Company's website at www.HHVC.com. A link to the presentation can be found on the home page.

Before starting the call, I will read the Safe Harbor statement. The matters being discussed on today's conference call may contain statements of a forward-looking nature relating to future events. 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 in the forward-looking statements.

Please see the Company's annual report on Form 10-K for the year ended December 31, 2010, 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 undertakes no obligation to update or revise these forward-looking statements to reflect new events or uncertainties.

With that introduction, I would now like to turn the call over to Doug Jamison. Go ahead please, Doug.

Thank you, Harriet. Good morning and welcome to our first call in 2011 reporting on year-end 2010. To begin the presentation, I will spend a few minutes discussing our strategy. I will then ask Patty Egan, our Chief Accounting Officer, to briefly provide the highlights of our December 31, 2010, financials. Patty will reference our recently filed annual report on Form 10-K and will refer to page numbers where appropriate.

After Patty, Daniel Wolfe, our President and CFO, will walk you through some additional slides articulating a few of our recent disclosures and directions. We will then open it up to questions, and we expect the call to last approximately 45 minutes.

Harris & Harris Group is a venture capital firm that invests in companies that apply nanotechnology and microsystems to large high-growth markets. We focus on innovation because we believe innovation drives growth and market returns.

In our clean tech, our healthcare, and our electronics and semiconductors portfolios, it is breakthroughs happening at the nanoscale size domain that are providing the technology breakthroughs that are truly impacting these industries. We remain convinced that nanotechnology is an exciting investment focus, and we're beginning to see this realized in the most important place, our own portfolio.

The slide titled Key Nanotechnology Indicators charts the progress of some key growth metrics beginning in 2000. During the first decade in the development of nanotechnology these metrics have been increasing on average 20% to 35% annually. The revenue growth from our own portfolio supports these metrics, and it is important to note that the revenue growth in 2010 was over 40%, with the portfolio producing $380 million in revenue in aggregate.

We are beginning to see liquidity events in our portfolio as we begin 2011. The impact of nanotechnology has transcended any one industry, impacting healthcare, clean tech, and electronics, semiconductors, and tools.

The first liquidity events are also showing no preference for one industry over another. BioVex came from the healthcare portfolio. NeoPhotonics came from our electronics, semiconductors, and other portfolio. Solazyme recently filed a registration statement and is in our clean tech portfolio.

We have two additional companies with Letters of Intent for potential acquisitions, one in our clean tech portfolio, one in our electronics, semiconductors, and other portfolio.

As of December 31, our venture capital portfolio is in an appreciated state. Our clean tech portfolio and our healthcare portfolio are also in an appreciated state. Only our electronics, semiconductors, and other portfolio remains in a depreciated state as of December 31.

Historically we have discussed the venture capital J-curve and the fact that in venture capital values often decrease before we realize the increase in value of the portfolio created by the companies that succeed.

As our portfolio continues to mature, we are progressing on this J-curve. However, I will note that going forward it may take more work to witness this, as a company such as BioVex that has been acquired will come out of our consolidated schedule of investments and show up in our balance sheet for the remainder of the milestone payment periods. Daniel will discuss this in more detail later.

As we stated in our letter to shareholders, we have reignited our investment engine. During 2011, shareholders should expect to see more investment dollars in more new companies, similar to the period of time from 2004 to 2007, as the bar graph in front of you displays.

At Harris & Harris Group, we think in five- to seven-year investment horizons, so the market opportunities we are looking to invest in today are probably three to five years off the investment horizon of public market investors.

The same was true of BioVex and Solazyme when we made our investments in them in 2007 and in 2004, respectively. The slide currently displayed shows some of the areas we believe nanotechnology will have an impact in over the coming years.

Our recent investment in Ultora is a result of our interest in ultracapacitors. This interest stems from the ability of new material systems to impact both higher energy densities and higher power densities simultaneously.

We continue to believe that with ongoing pressure on the healthcare system and depleted pharmaceutical pipelines, that focused diagnostics for specific patient groups and companion diagnostics will be of interest to the pharmaceutical industry. Thus we remain focused on personalized medicine.

Additionally, the rise of genome sequencing is leading to next generation of medical questions, such as the understanding of the role of structural variation and epigenetics in disease.

Agricultural issues -- from pest resistance to drought resistance to cleaner water -- will become more important over the coming years. Nanotechnology work in the labs is demonstrating the ability to solve some of these issues.

Just as printable electronics, solar, biofuels, and LED investments we made five to seven years ago have gained traction in the larger marketplace vernacular today, so we believe the areas we are focusing on currently will be the solutions industry will pay for in the years to come.

Patty, will you please take us through the financials?

Thank you, Doug. At December 31, 2010, we had total assets of $149.3 million on our balance sheet. Included in our total assets is our venture capital portfolio, which was valued at $106.2 million versus its cost basis of $98.6 million at December 31, 2010. Therefore at December 31 our venture capital portfolio was in an appreciated state of $7.6 million.

We also held $42 million in cash and US treasuries as of December 31. We had no debt as of December 31.

Our net assets were approximately $146.9 million, and our net asset value per share was $4.76. This was an increase from our NAV per share of $4.51 at September 30, 2010, as well as an increase from our net asset value per share of $4.35 at December 31, 2009.

Turning to our income statement, for the year ended 2010 we had investment income of approximately $446,000. This compares with approximately $248,000 in investment income during 2009. The increase in our investment income reflects an increase in our bridge note interest as well as interest and fees from the participation agreement in the assets of GEO Semi. Interest income generated from our US government security holdings continues to be lower as compared to prior periods due to the decrease in yields.

Our total expenses were $8 million during 2010 compared with approximately $9 million during 2009. These total expense figures include both cash and non-cash-based operating expenses such as stock-based compensation.

Our non-cash stock-based compensation expense was approximately $2.1 million during 2010. This compares with approximately $3.1 million during 2009.

We had increases to rent expense and lease termination costs during 2010 and decreases to salaries, benefits, and stock-based compensation as well as administrative and operation expenses.

Rent expense also includes both cash and non-cash expenses. The non-cash portion of rent expense relates to the accounting for rent abatements and future escalation charges over the term of our 10-year lease. Our total cash paid in rent expense for 2010 was approximately $319,000 versus cash paid of approximately $317,000 during 2009.

Our total cash-based and accrued operating expenses for 2010 were approximately $5.67 million as compared with $5.68 million for 2009. This yielded a net operating loss of $7.6 million for 2010 as compared to a net operating loss of $8.8 million for 2009.

During the year ended December 31, 2010, we realized $3.7 million of losses on the disposal of investments. This compares to approximately $11.1 million in losses realized during 2009.

During the year ended December 31, 2010, there was a $21.9 million change in the value of our investment portfolio. Of his $21.9 million increase, approximately $3.6 million relates to investments that were disposed of during the year. The remaining $18.3 million increase represents a net increase in the value of the portfolio that was still on our balance sheet as of December 31.

Thank you, Patty. Daniel, will you take over from here?

Thank you, Doug. As Doug mentioned, significant developments at a number of our portfolio companies occurred in the first part of 2011. BioVex and NeoPhotonics generated the first liquidity events from our portfolio since 2005.

The acquisition of BioVex by Amgen that closed on March 4, 2011, was structured with an upfront payment and milestone payments that, if all paid in full, would result in an acquisition price of $1 billion. We received our portion of the upfront payment of $7.7 million at closing of the transaction. Our total proceeds from the sale of BioVex could reach $18.2 million if all of the milestones are met successfully; however there can be no assurance that these milestones will be achieved. The value our Board of Directors placed on BioVex as of December 31, 2010, includes in essence the amount of the upfront payment plus the probability-adjusted value of the potential future milestone payments.

The second liquidity event of NeoPhotonics occurred on February 2, 2011. The IPO was oversubscribed and resulted in not only pricing at the top of the range, but also an increase in the number of shares sold in the IPO.

Harris & Harris Group owns approximately 451,000 shares of NeoPhotonics. These shares are subject to a lockup period. However, following this period we will be free to sell when management believes it is the appropriate time to do so.

These liquidity events provide additional capital for us to reinvest in new and exciting investment opportunities that we believe hold the potential to generate substantial gains for our shareholders. The sources of liquidity that we use to make these investments are classified as primary and secondary liquidity.

Primary liquidity is comprised primarily of cash and US Treasury securities. The upfront payment from BioVex immediately added to our primary liquidity. Payments upon achieving milestones would also add to our primary liquidity in future quarters, if these milestones are achieved successfully.

The value of BioVex as of December 31, 2010, was included in the value of our venture capital investment portfolio and in the consolidated schedule of investments. In future quarters, the upfront payment will be included in our balance of cash and US Treasury securities.

The probability-adjusted value of future milestone payments as determined by our Board of Directors at the end of each fiscal quarter will be reflected on our balance sheet in a separate line item from our portfolio of venture capital investments, and will be included in primary liquidity only when payment is received for achievement of the milestones.

Our secondary liquidity is comprised of stock of publicly traded companies. Since selling our position in NeuroMetrix in 2005, the amount of secondary liquidity on our balance sheet has been minimal.

The IPO of NeoPhotonics has increased our source of secondary liquidity to approximately $4.5 million based on the closing price of NeoPhotonics as of March 16, 2011. We do not currently have plans to sell our position in NeoPhotonics once the lockup restrictions expire.

We have historically generated significant gains on our investments in the aftermarket. However, we cannot guarantee this trend will occur with our investment in NeoPhotonics.

Following the expiration of the lockup restriction, our shares will be freely tradable at the discretion of management. When sold, these assets would shift from secondary to primary liquidity.

Should additional portfolio companies successfully complete IPOs, or should we make investments in publicly traded companies, our source of secondary liquidity could materially increase. We believe these developments make it important, therefore, to examine both primary and secondary liquidity when assessing the strength of our balance sheet and our future investment capabilities.

Our strong balance sheet provided an opportunity to secure a line of credit from TD Bank during the first quarter of 2011 under favorable terms. A primary purpose of our borrowing power is to increase our ability to acquire venture debt investments by both acquiring larger positions and by acquiring more positions, while maintaining substantial balance of cash on our balance sheet.

We believe we need a strong balance sheet to have access to the best deal flow in our equity venture investments. We will only use this line of credit to complement our investments in venture debt.

We actively seek opportunities to provide the largest return on invested capital for our shareholders, and so we carefully manage our annual expenses. We came in under budget and below $6 million in cash-based expenses for the second consecutive year. We believe we are the smallest publicly traded accelerated filer with only 10 full-time employees.

We are also seeking actively ways of generating near-term cash flow to offset our operating expenses. Our investments in venture debt are a source of this cash flow.

We currently have $1.4 million in principal outstanding in three separate venture debt investments in two companies. We continue to seek additional venture debt investment opportunities.

I will now turn it back over to Doug.

Thank you. To conclude, I would like to make you aware of a few items.

First, on March 24, Solazyme's Algenist skincare product line will go on sale at Sephora. It is already available at Sephora.com.

I believe almost every Sephora store in the US and Europe will be carrying it, and QVC has its launch and demonstrations beginning March 25. This is unprecedented for a newly developed product.

Algenist has a polysaccharide known as alguronic acid that has been shown to be more effective than current skincare polysaccharides' hyaluronic acid at protecting skin and reversing aging.

Please try it out and let us know what you think. You may not like the price, but we like the margins.

Second, for those of you trying to reach us, we will work to return your calls and e-mails; but we will be on the road a lot in the coming months. We will be focusing in two areas.

First, we will be on the road telling our story to institutional and retail investors and analysts. We have always had a very interesting story to tell, but now we have the credibility of visibility to liquidity as well. We are making an effort to introduce our story to a wider audience.

Second, we will be actively sourcing and diligencing prospective companies and working with our existing portfolio. Harris & Harris Group is run by 10 very impressive individuals. But with 10 people, when we are focused on a given task, there isn't much time for anything else.

Thank you for understanding; and certainly reach out to us if you have any questions. Thank you.

Operator, we are now ready for questions.

(Operator Instructions) Michael Lew, Needham and Company.

Good morning, Doug. Good morning, Daniel. First, congratulations on the NeoPhotonics IPO and also on the Solazyme filing.

I had a couple of questions. You have had companies that you have classified as late stage. Now, how far along are the other seven late-stage companies, in your view?

In a best case scenario, how many do you believe that could seek to exit over the next year, in your opinion?

It probably would be difficult to estimate how many will choose to exit over the next year. Again there's a lot of conditions that impact that. I will talk to a couple of them, though.

In there, another company we spend a lot of time talking about, Bridgelux -- Bridgelux is a late-stage company. I think we've said publicly that its revenue doubled from 2009 to 2010. It's in the LED space, which is a very interesting space currently as well. So that certainly is a company that is performing very well.

Another company in that portfolio, Metabolon, is a company that we haven't really spent much time talking about publicly. It is -- you heard of the rise of genomics and proteomics. It is about metabolomics, which is basically the biochemical profile of your body. It tells you in real-time what is happening in your body. That company also has quickly expanding revenue as well and looks to do good things certainly over the coming years.

So when we look at that late-stage portfolio, I think that the factors that will decide whether those companies either decide to sell themselves or potentially file for IPOs really relate to what is the market in general doing. At what point do they really need to access greater amounts of capital to play their strategies out? And also, what the investors would like to do as well.

So again I think you will see exits. Again, one thing we've always said is we always point to the maturing portfolio, but oftentimes it's not out of the latest stage portfolio that you see exits. Sometimes you see them actually come for technology buys early on.

Such was the case of NanoGram Devices, that was sold for 3.4 times its investment 14 months after the investment.

So again there's a lot of good things happening in that late stage. Another company, Xradia, has also been cash flow positive for a while.

Okay. Also as you mentioned, the -- your portfolio is maturing. Do you think a record level NAV could be achieved this year?

A record level NAV of $5.95 was hit in -- I believe it was June 30 of 2008. Of course that was before the economic crisis. As we noted in the Shareholder Letter, we are really focused here on looking at ways to grow NAV substantially over periods of time.

Do I think it will be reached this year? As we look at that portfolio I think it would depend on some of the exit opportunities. When we look at Solazyme, a very, very exciting company in our portfolio, it's just very difficult to predict at this point in time how the market would view that, and at what price, if it could consummate an IPO.

Okay. Also on the public company portfolio, what is the investment strategy there? Are you focusing on certain markets (multiple speakers) electronics versus clean tech and healthcare?

In the public market portfolio? I think we've really refined our approach in the public market, certainly over the last year since we first started announcing it. We are looking at nanotechnology. We are looking at everything from healthcare to clean tech to electronics and semiconductors.

We are really looking at the smallest companies. Some of these companies, probably one would look at them and view them to be private companies. Why are they actually public?

So no, there's not one specific area; but we are looking for high-growth companies that we believe are probably further along than our earliest stage companies on both revenue and bringing their technology to the market. But where we would still look for venture capital returns in three- to five-year time periods.

Okay. One last question with regard to staffing. There was recent departure from the team. Are there plans to backfill that position?

Currently we have no plans to hire a new Managing Director. We have three Managing Directors currently. We also have Misti Ushio, who has been part of our team for a while. Misti has been heading up our healthcare, and Misti was the deal team member most responsible for BioVex over the last couple years as well.

We did in January bring in a gentleman, Ian Chia. Ian is a PhD geneticist developmental biologist out of Columbia, and he is working with the team as well.

So currently we believe we have the right-size team with the right focus at the right levels to be able to execute on our strategy.

Okay, thank you.

[Daniel Jove].

Thanks for taking my call and congratulations on the recent liquidity events. I have a question. I've been a shareholder in Harris & Harris long enough to remember the policy on deemed dividends. I don't want to put the cart before the horse, but if we continue to have successes there you like you've had, we could be looking at a dividend again this year.

Is the Company fully committed to maintaining the deemed dividend policy? Or is there a willingness to look at the temporary IRS revenue procedure 2010-12 that's been implemented to allow the RIC (technical difficulty) their dividend-paying requirements by paying partially in stock and partially in cash?

We will need to look into that as the year goes forward. I would say at this point in time we are committed to the deemed dividend strategy. Let me differentiate that, too, from what we could do, which is pass out a cash dividend.

In our public documents we have said that we believe the retention of long-term capital gains for future investment is the best use of capital at the current time. So we would plan to continue with the deemed dividend.

If you look at what I believe is the biggest weakness to Harris & Harris Group, it's still our capital. We are a small venture capital firm. We are investing in a capital-intense area -- healthcare, clean tech, electronics and semiconductors.

There are opportunities in BioVex. There were opportunities in NeoPhotonics, down the road, to get more money into those companies, but we just don't have the assets under management to be able to keep the diversification we would need and still do that.

So as I think I have said publicly, when we look out, we think $8 million to $10 million to $12 million in some of these deals would be the best opportunity to get the returns we're looking for and also really to be more impactful moving NAV in the future. So I think in the near-term, if we can get to some of these exits I think you're going to see us declare the deemed dividend; reinvest the proceeds back into Harris & Harris Group; and be able to put more money into our best deals to really grow NAV down the road.

Okay, thank you. Could I ask one small follow-up question? Or not a follow-up, but in terms of the BioVex milestones, can you give some idea as to the timeline for, say, the longest term milestone? Are we looking at something within two years or five years as to when those expire?

I will start that off; then maybe, Daniel, you can say something to it. The milestones as we said publicly are both regulatory milestones and financial milestones.

The regulatory milestones, just to put that into perspective for you, because you can look at this; this would be public. They are wrapping up Phase III clinical trials currently; usually within the year one would see the filing then of the BLA. And really most of your regulatory milestones are then met. So that gives you some idea of regulatory milestones.

As for financial milestones, they are fairly standard. There will be sales milestones in there, and we expect those to go out multiple years.

All right, thank you very much.

(Operator Instructions) Theodore Cohen.

(technical difficulty) the early days of Charlie Harris, who I had a high regard for, and I'm sure he's missed. I am to say the least a little bit disappointed with the performance of the Company. The statement you have made that you are going to go out and make institutional contact and hopefully generate some interest in the stock is refreshing to hear.

I just don't have any idea why this Company is selling at about 2% to 3% -- the market price 2% to 3% above the NAV. With all that is in this portfolio and with the cash position that you have and with no debt, this Company should be selling, in my opinion, at a much higher price.

I'd like to have a comment as to why you think it is where it is, and what your real efforts are going to be to generate some shareholder value as far as the stock price.

Thank you for your question. Of course, we certainly here all hold -- held Charlie in high regards as well. He was a great mentor to many of us here.

You know, I think we feel the same way you do about where the stock is trading currently. Clearly with some exits -- and clearly in the case of BioVex, where you have the beginnings of real venture-capital-type returns that one would expect from nanotechnology -- we think there should be an excitement.

Certainly as you looked at some of those metrics early on as well, that Wall Street certainly has left nanotechnology for dead. But it has been quietly growing and emerging, and we think that certainly over the next couple years you're going to see that.

As far as what we are going to do -- look, I always -- stock price is supply and demand. And clearly there hasn't been a tremendous demand for it. It's often difficult to predict the timing of that.

But management's thought is, first and foremost, we are going to focus on doing what we do, which is making good capital investments and looking for returns that can grow net asset value for share. That's what we do as management.

But we do believe that we need to be out on the road telling the story. And we believe, now that we have the beginnings of these credible events, that to tell the story about what is in the portfolio, but also to talk about some recent events -- especially with the team here now that has sourced, diligenced, and worked with these deals -- we think that's an exciting story to go tell.

So we are going to be speaking to institutional shareholders. A lot of institutional shareholders just have not been interested in stocks that are below $5, that are sub-$200-million microcaps. But a lot of shareholders are often interested in stories that are really beginning to grow.

We're going to speak to retail investors. Retail investors have always been a large proportion of our shareholders. And believe it or not, our retail shareholders have been far more patient than institutions are these days, that tend to churn their stocks every nine months.

The biggest thing, we are going to start talking to analysts. Our story is a difficult story to cover for analysts.

Michael Lew, who was on the phone at Needham, they have to understand what's happening with our companies, understand these markets across diverse areas. So it's a very difficult story to understand.

From our perspective, we like it. There's a lot of diversity. If you begin to see the exits in nanotechnology, they are impacting all of these different industries. But it's difficult to cover.

So we are working on ways to tell our story. As you saw today, as we talk more about our healthcare portfolio, as we talk about our clean tech portfolio, as we talk about electronics and semiconductors, it becomes easier to grasp those three portfolios and how they are performing, rather than 31 companies. But ultimately it would be great to have analysts and the investment community out there helping to tell our story.

Because again we are 10 people and we're going to be focused on making great investments. The best way to grow Harris & Harris Group is to have more exits like BioVex, to have exciting companies like Solazyme that really can both impact the world they sell into and also impact our NAV per share.

What about the portfolio companies that may be in trouble or may not be materialized into something profitable? Do you have any idea as to how much is at risk and how much you may have to write off because it doesn't have the potential that you thought it would?

Certainly, that's always the case. I think historically over 60% of the companies we have invested in have lost money. You see a lot of companies in our portfolio currently in a depreciated state. And shareholders shouldn't expect that to change materially now that we've focused on nanotechnology.

As of December 31, everything we know was reflected in our valuations by the independent Board members and the valuation committee, but I would expect some more. There will certainly be events.

But again, a few things to note. Sometimes values go down before they go up. BioVex went down dramatically before it was purchased for up to $1 billion.

NeoPhotonics has changed over time. NeuroMetrix, it went on to be in 2005 a $30 million gain; was actually held at a depreciated state up until its last round of capital.

So they will move because these companies tend to be early stage, and events can impact them both ways. Daniel, maybe you can speak to just the amount -- the value of our portfolio in what assets, as well. Because I think that's where I feel the most confidence that we are protected.

In fact one is that in the top 10 investments by value, which actually the slide is now up for those on the webcast, that represents 72% of the value of our portfolio as of December 31. Of these top 10 investments, at least six do not need to raise capital in 2011, based on the information that we have as of December 31.

Those are typically when companies do raise capital that's -- need to raise capital, as we talked about in our valuations and our financial disclosures. Depending on the state of the company, the state of the markets, nonperformance risk can come in, which is the chance that a company may not be able to raise capital at its same price per share or higher than the last round of financing and may need to be shut down.

Nonperformance risk has been a component of our valuations for -- since September of 2008. By looking at our top 10 investments as of December 31, the values of those with the information we have as of that date is fairly stable.

So financing risk is still one of the largest risks you face in venture capital financing right now. So to have companies that don't need financing is a strong thing to have.

Secondly, look, even if you look at the late-stage portfolio, which is where a lot of the value is -- and that's good, right? The values in the earliest stage companies, that still have technology risk, a lot of those won't go on to be the big winners. Hopefully when they get to that last basket that we've put in our MD&A of our financials, these companies are moving forward.

If you look at that, Metabolon, Xradia, Solazyme, Bridgelux, NeoPhotonics all had record revenue in 2010. These companies are performing well.

Not only that, even as the whole market crashed in 2008, 2009, these companies had record revenue through that period of time. They are young, exciting companies. They are changing their industries, and they grow even through the recession.

So I think we are in a pretty good position if you look at where the value in our portfolio is. Will we have writedowns and writeoffs? Yes, we will certainly have writedowns and writeoffs.

What we hope is that companies like BioVex, potentially the companies like Solazyme, the upside to them is far more dramatic than the downsides, which are limited of course to our investment in those companies.

Thank you; I have one further question. From the numbers put forth it appears that you have close to $50 million in terms of liquid cash or near cash. Is it your intention to use most of this money for new acquisitions or new investments? Or are you planning to hold on to this for secondary or third-round investments in existing portfolio companies?

Great question. We often -- as a standard business practice weekly we go through our estimates of what our existing portfolio would need. One of the charts we put in the MD&A section of the 10-K. You've seen actually our follow-on investments over the last couple years decreasing.

We think in some respects that's a good sign, that these companies don't need additional cash. So that continues to decrease.

However with every new investment we make, in the best companies we're looking to put $5 million to $7 million to $8 million in those companies, so they will need additional capital down the road.

So I think that capital will be used. We will make new investments. We make new investments, we will earmark for future investments in that company. The cash will be used for follow-on investments.

Again as we've always managed the cash of this Company, the key is never to put the Company in a position where it has to go to the market to raise capital at an inopportune time. So we certainly want to make sure we have the right amount of capital on the balance sheet, the right amount of capital in our investments, so that we have the best opportunity to maximize value and not have to do something because we need to do it for a cash perspective.

Thank you. Hopefully there will be some more interest in the stock and that we will see something that represents, I guess, a recognition of investors that the portfolio does have greater value than what it now shows.

We're right there beside you. Thank you.

Kris Tuttle.

Thanks for taking my question. I had a question for you guys, if you could provide maybe a little perspective on one of the investment themes we associated with Harris & Harris is photonics segment -- of which NeoPhotonics, recently public, a good example.

But the market suddenly and acutely fell in love with the sector in February. It even culminated in some articles I saw out there talking about photonics being the key to the next generation of Moore's Law, etc., etc. That love affair seems to have ended pretty quickly in March for the sector, and for NeoPhotonics in particular.

But just commenting on the technology area and the sector, can you give us some perspective on where -- what you are seeing or what you believe the future for these photonic-type devices represents? Either in the next couple years, if what happened in February was really just a flash in the pan, or if there is in fact more of a fundamental movement towards these technologies in the future.

Certainly. Daniel, do you want to address that?

Sure. Hi, Kris. Great question. The photonics industry historically has been fairly cyclical, although the trend has always been increasing in need for higher bandwidth.

As technology and as the Internet continues to provide more and more data over these networks, you are going to see, I believe, increased adoption of photonic technologies for fiber to the home, fiber to the premise, which -- and providing fiber-optic-based speeds to the individual, not just large corporations.

You are already seeing this in many other countries. Korea and China are much further ahead than the United States and Europe in adopting these technologies.

So I think from our perspective it is a near-term hiccup or downturn in how the photonics industry is being perceived, but that the trend will continue to be positive as bandwidth needs continue to increase.

Maybe just add to that, so one of the reasons we talked about primary and secondary liquidity today is that once these companies are public it doesn't mean that one needs to sell them. Actually sometimes traditional venture capitalists have to sell them at the end of a lockup, because they have to distribute those gains or losses.

We do not have to do that. If you look at NeoPhotonics, NeoPhotonics for a year -- I'm sorry, NeuroMetrix in 2004, for a year after its IPO, it really did nothing. And then in a period of about 6 to 8 months it went from 9 to over 30.

And that is the way of the market. You said it beautifully. Timing is everything sometimes. For us what's important is -- and this will be true in semiconductors, which are very cyclical as well -- is to be in a position where you can wait to maximize your value in that investment.

Independent of that, NeoPhotonics -- look, it's got what we believe is the fastest growth rate in revenue in the industry. Its revenue has increased quarter-over-quarter over the last set of years. We believe it's just on the beginning of that at this point in time. It's still small.

As long as we believe management can carry out their plans for growth, as long as we see the increase in bandwidth, it's our plan to ride that growth in NeoPhotonics. So it is a small IPO at this point in time; but we believe there's a lot of growth ahead of it as the demand for higher bandwidth continues to grow.

During that period time, there will be high points and low points in that cycle. But we think if NeoPhotonics can grow over the next set of years, if we can be patient and wait till the time where we can maximize our value, that's where we can get our investors its best investment return.

Again, as you say, that will move with the cycles. But there's not going to be a decrease in the demand for high bandwidth. Look at the social networking sites; look at everybody on Facebook; look at everything that's happening out there now, the videos on YouTube. The demand for bandwidth is only increasing.

China is developing. India is developing. NeoPhotonics is the largest supplier to Huawei, which is one of the fastest growing telecommunication companies in the world. We believe those are all very good trends.

Right. That's helpful perspective, guys. I appreciate it.

Michael Lew.

Thanks, I just had a quick follow-up. With regards to Ultora I do realize it's in the early stages. But you had highlighted the key performance metrics being power and energy density. I think the end-market opportunity for the ultra-caps will rapidly accelerate given the focus on emissions reductions. What do you expect the company to have a test product out in the field?

Michael, I don't think we're at liberty to say that at this point in time. It's very early.

What I can say is if you looked at our investment on our consolidated schedule of investments at December 31, it was miniscule; and the reason being is it's really the diligence.

What I can say is we are investing beside probably the premier venture capital firm in this deal. It's probably over the next 3 months to 6 months to watch what's happening with it technologically; but it is very early-stage investment.

The other thing, Michael, I know you know Alexei Andreev really well. For those on the phone, Alexei Andreev is our Managing Director in our Palo Alto office. He is a solid-state physicist, PhD out of Moscow, very, very knowledgeable in the power space. Michael, you know him; I would certainly speak to Alexei over the coming months.

Okay, great. Thanks.

Sam Rebotsky.

Good morning, gentlemen. Your investment seems very unique. From an investor's point of view, I just have a suggestion. It would be helpful that -- if in your 10-Qs and your releases you would list your costs next to the market value, so it's easier to understand how well you are doing on your investments.

And a further comment as far as your specific portfolio on your website, if there was a link to the private companies. Just -- most companies will provide a link to their website. That would make it easier for investors to figure out what you have and better understand, and that might help you get a greater valuation for your portfolio.

Thank you. Point taken on the first one and we will work to do that. That's definitely something we can do.

On the second point, Sandra, would you like to comment on that?

Hi, it's Sandra Forman. I am the General Counsel, and it's certainly something we can look into. Thank you for your suggestion.

There are two -- Rand Capital has links to that, and I think Safeguard Scientifics also. So I think it's something in the industry.

One further thing, to the extent you could talk about -- you indicated in your press release the revenue, etc. To the extent that you could, say, combine the groups etc. and talk about revenue or whatever metrics. So that when you look at the companies you have a metric to look at on a quarterly basis, that further would be helpful.

So we won't be able -- they are private companies.

Sure.

We don't disclose their revenue if they don't. There are companies -- for instance Metabolon, that tends to be much more open; and if they publicly disclose it we provide it. You've seen us do that in the past with Bridgelux and Molecular Imprints in years that they disclosed it.

So we try to get that information. We try to be as transparent as possible when we can.

One of the things we're trying to do though -- because for a lot of the companies we can't really disclose; and some of the companies we really can't talk to that much, either because the other investors don't want it talked about it or the company doesn't. One of the things we're doing by really spending more time talking about the clean tech portfolio, the healthcare portfolio, the electronics and semiconductors, we should be able to break down some of those metrics into those portfolios, which gives investors a little better idea of what's happening in each of those sectors. Cost, value, perhaps revenue for them, other metrics, who's growing, who's not growing. So we continue to work on that to provide the greatest transparency possible.

One of the strengths, we think, of our vehicle as a venture capital vehicle is we can be far more transparent than most venture capital firms are. And we actually think that's a good thing.

Okay. I've got one other question on the Solazyme. You may or may not be able to answer it.

When you look through the document that was filed, the S-1, there was a valuation of about $500 million as based on the latest valuation. Would you relate that, the valuation that you use for Solazyme, in excess of about $10 a share or somewhere thereabouts, would that relate to that $500 million?

Or how would you relate your valuation of Solazyme relative to the information in the document? Could you --?

We can't provide you all that information, but I will give you maybe two points. The first is certainly the last round of financing is always an input in our valuation and really needs to be, under fair value accounting.

Secondly, as they filed for an IPO, what the market and what fair value accounting does is we also look at comparables. So there are comparables out in the marketplace as well for Solazyme. So those are certainly both two inputs that are reflected in the value of Solazyme as of December 31.

One further comment. The premier venture capital company was American Research and Development. If you could get there -- in other words, what they have done with their investments, even though it takes longer, it's worthwhile. As long as you could tell the Street what you are doing, they probably could maybe have a longer horizon. Good luck.

Thank you. We were big fans of General Doriot and American Research and Development. It was a great firm.

Good luck.

Thank you.

Tim Beyers, The Motley Fool.

Hey, guys. I had a quick question just following up on what we were asking about Solazyme -- the gentleman just before me here. Doug, can you remind me? I think at one point you said that the representative investment that you have in Solazyme is about a 5%. It's more than 5% of the company, right? Or not?

No, in Solazyme, if you look -- I can tell you what we said publicly, and it's in our consolidated schedule of investment. Up until the last round of financing, Solazyme was between 5% and 25% by voting interest. After the last investment was made in the company, our ownership dropped into the category below 5%.

Just an aside on that, when I say that one of our biggest weaknesses is we are capital-constrained, what I mean is Solazyme did a $60 million financing. We have $5 million in Solazyme. We just don't have the capital to compete in that type of financing, to writes the checks that were being written -- $10 million, $15 million checks. For that type of transaction we do get diluted.

However if you go back and look -- and you should be able to do this. If you go back and look, we were the first institutional investor in Solazyme. So because Solazyme -- and very rare during these times in venture capital -- because Solazyme has always raised money at successively higher valuations, as the gentleman that reflected what the valuation was currently certainly deducted, that early investment is certainly sitting in an appreciated state and certainly could be a very big win. So we are in early; but unfortunately we can't always write the big checks as these capital-intensive companies raise that money.

Having said that, our goal as we have stated publicly now is to really look at investments where we can own greater than 8% of the company at the time of exit. We think that's a good place for us to be and where we need to be, and that's where we are focused on certainly in some of our newer investments. So sorry (multiple speakers).

Okay. No, no; that's all right. Just a quick follow-up to that. So the valuation that you have in the current 10-K, the $23 million assumes an ownership stake under 5% at this point.

That is correct.

Okay, awesome. Good quarter. Thanks, guys. I appreciate it.

Thank you. I'm showing no further questions at this time. I'd like to turn the call back over to the speakers for closing remarks.

I don't think we have any closing remarks at this time. We just want to say certainly thank you for your support and we will look forward to -- actually our annual shareholder meeting in May, which is where we will talk publicly about certainly the results from the first quarter of 2011 as well. Thank you.

Ladies and gentlemen, thank you for your participation in today's conference. This concludes the program. You may all now disconnect. Thank you and have a nice day.