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HARRIS & HARRIS GROUP INC /NY/ - 10-Q - Management's Discussion and Analysis of Financial Condition and Results of Operations(Edgar Glimpses Via Acquire Media NewsEdge) The information contained in this section should be read in conjunction with the Company's unaudited June 30, 2014, Consolidated Financial Statements and the Company's audited 2013 Consolidated Financial Statements and notes thereto.Cautionary Statement Regarding Forward-Looking Statements This Quarterly Report on Form 10-Q contains forward-looking statements that involve substantial risks and uncertainties. These forward-looking statements are not historical facts, but rather are based on current expectations, estimates and projections about the Company, our current and prospective portfolio investments, our industry, our beliefs, and our assumptions. Words such as "anticipates," "expects," "intends," "plans," "will," "may," "continue," "believes," "seeks," "estimates," "would," "could," "should," "targets," "projects," and variations of these words and similar expressions are intended to identify forward-looking statements. The forward-looking statements contained in this Quarterly Report involve risks and uncertainties, including statements as to: • our future operating results; • our business prospects and the prospects of our portfolio companies; • the impact of investments that we expect to make; • our contractual arrangements and relationships with third parties; • the dependence of our future success on the general economy and its impact on the industries in which we invest; • the ability of our portfolio companies to achieve their objectives; • our expected financings and investments; • the adequacy of our cash resources and working capital; and • the timing of cash flows, if any, from the operations and/or monetization of our positions in our portfolio companies. These statements are not guarantees of future performance and are subject to risks, uncertainties, and other factors, some of which are beyond our control and difficult to predict and could cause actual results to differ materially from those expressed or forecasted in the forward-looking statements, including without limitation: • an economic downturn could impair our portfolio companies' ability to continue to operate, which could lead to the loss of some or all of our investments in such portfolio companies; 62 • a contraction of available credit and/or an inability to access the equity markets could impair our investment activities; • interest rate volatility could adversely affect our results, particularly if we elect to use leverage as material part of our venture debt investment strategy; • currency fluctuations could adversely affect the results of our investments in foreign companies, particularly to the extent that we receive payments denominated in foreign currency rather than U.S. dollars; and • the risks, uncertainties and other factors we identify in "Risk Factors" and elsewhere in this Quarterly Report on Form 10-Q and in our other filings with the SEC. Although we believe that the assumptions on which these forward-looking statements are based are reasonable, any of those assumptions could prove to be inaccurate, and, as a result, the forward-looking statements based on those assumptions also could be inaccurate. Important assumptions include our ability to originate new investments, certain margins and levels of profitability and the availability of additional capital. In light of these and other uncertainties, the inclusion of a projection or forward-looking statement in this Quarterly Report on Form 10-Q should not be regarded as a representation by us that our plans and objectives will be achieved. These risks and uncertainties include those described or identified in "Risk Factors" and elsewhere in this Quarterly Report on Form 10-Q. You should not place undue reliance on these forward-looking statements, which apply only as of the date of this Quarterly Report on Form 10-Q. Background We incorporated under the laws of the state of New York in August 1981. In 1983, we completed an initial public offering ("IPO"). In 1984, we divested all of our assets except Otisville BioTech, Inc., and became a financial services company with the investment in Otisville as the initial focus of our business activity. In 1992, we registered as an investment company under the 1940 Act, commencing operations as a closed-end, non-diversified investment company. In 1995, we elected to become a BDC subject to the provisions of Sections 55 through 65of the 1940 Act. Overview We believe we provide five core benefits to our shareholders. First, we are an established firm with a positive track record of investing in venture capital-backed companies as further discussed in "Investments and Current Investment Pace" on page 70. Second, we provide shareholders with access to disruptive science-enabled companies, particularly ones that are enabled by BIOLOGY+ that would otherwise be difficult to access or inaccessible for most current and potential shareholders. Third, we have an existing portfolio of companies at varying stages of maturity that provide for a potential pipeline of investment returns over time. Fourth, we are able to invest opportunistically in a range of types of securities to take advantage of market inefficiencies. Fifth, we provide access to venture capital investments in a vehicle that, unlike private venture capital firms, has permanent capital, is transparentand is liquid. 63 We build transformative companies from disruptive science. We make venture capital investments in companies enabled by multidisciplinary, disruptive science. We define venture capital investments as the money and resources made available to privately held and publicly traded small businesses with exceptional growth potential. As of June 30, 2014, we had 26 equity-focused companies in our portfolio that have yet to complete liquidity events (e.g., IPOs or M&A transactions). This does not include 1) our publicly traded shares of Solazyme, Inc., and Champions Oncology, Inc.; 2) our three venture debt deals, GEO Semiconductor Inc., Nano Terra, Inc., and OHSO Clean, Inc.; and 3) our rights to milestone payments from Amgen, Inc., Laird Technologies, Inc., and Canon, Inc. As of June 30, 2014, we valued our 26 privately held equity-focused companies at $87,501,325. Including the companies referenced above, we valued our total venture capital portfolio at $96,122,831 as of June 30, 2014. At June 30, 2014, from first dollar in, the average and median holding periods for the 26 privately held equity-focused investments were 5.7 years and 5.9 years, respectively. Historically, as measured from first dollar in to last dollar out, the average and median holding periods for the 71 investments we have exited were 4.5 years and 3.4 years, respectively. Our execution strategy over the next five years has four parts: 1) Realize returns to increase shareholder value; 2) Invest for growth to increase shareholder value; 3) Partner to more effectively create value; and 4) Return value to our shareholders. Realize "Realize" refers to realizing value in our venture capital portfolio. Since our investment in Otisville in 1983 through June 30, 2014, we have made a total of 99 equity-focused venture capital investments. We have completely exited 71 of these 99 investments and partially exited through the sale of shares and/or the sale of call options covered by shares of two of these 99 investments, recognizing aggregate net realized gains of $87,516,147 on invested capital of $123,625,446, or 1.7 times invested capital. For the securities of the 26 companies in our equity-focused portfolio held at June 30, 2014, we have net unrealized depreciation of $20,535,785 on invested capital of $108,037,110. We have aggregate net realized gains on our exited companies offset by unrealized depreciation for our 26 currently held equity-focused investments of $66,980,362 on invested capital of $231,662,556. The amount of net realized gains includes: · Realized gains of $19,957,011 from the sale of BioVex Group, Inc., to Amgen, Inc., the sale of Innovalight, Inc., to DuPont, the sale of Crystal IS, Inc., to Asahi Kasei Group, the sale of Xradia, Inc., to Carl Zeiss AG, and the sale of the semiconductor lithography equipment business of Molecular Imprints, Inc., to Canon, Inc. We had invested a total of $18,231,340 in these five portfolio companies; · Realized gains of $17,801,322 from the sale of shares of Solazyme, Inc., on invested capital of $5,326,098. In addition, we generated $1,612,184 in realized gains on our sale and/or purchase of written call option and put option contracts covered by our shares of Solazyme, Inc.; · Realized gains of $296,972 from the sale of shares of Champions Oncology, Inc., on invested capital of $576,971; and 64 · Realized loss of $4,839,811, including call options, on our investment in NeoPhotonics Corporation on invested capital of $7,299,590. · Realized loss of $7,299,533 on our investment in Kovio, Inc., on invested capital of $7,299,533. On January 21, 2014, substantially all of Kovio's assets were sold by Square 1 Bank, Kovio's secured creditor, to Thin Film Electronics ASA. Our shares were subsequently declared worthless on February 19, 2014. The aggregate net realized gains and the cumulative invested capital do not reflect the cost or value of our shares of Solazyme, Inc., and Champions Oncology, Inc., that we owned as of June 30, 2014, or the premiums received on open option contracts of Solazyme of $145,426. The aggregate net realized gains also do not include potential milestone payments that could occur as part of the acquisitions of BioVex Group, Inc., Nextreme Thermal Solutions, Inc., or Molecular Imprints, Inc., at points in time in the future. If these amounts were included as of June 30, 2014, our aggregate net realized gains and cumulative invested capital from 1983 through June 30, 2014, would be $96,374,295 and $129,287,595, respectively, or 1.8 times invested capital. Recent and Potential Liquidity Events From Our Portfolio as of June 30, 2014 On July 15, 2014, we received the remaining escrow payment of $1,139,515 from Carl Zeiss AG's acquisition of Xradia, Inc., which was completed on July 19, 2013. As of June 30, 2014, we valued the funds held in escrow from the saleof Xradia at $1,139,515. On April 18, 2014, Canon, Inc., completed its acquisition of Molecular Imprints, Inc.'s semiconductor lithography equipment business. We received $6,486,461 at the close of the transaction and could receive an additional $625,000 from amounts held in escrow as well as up to $1.7 million upon the achievement of certain milestones. We have not received any milestone payments as of June 30, 2014, and there can be no assurance as to the timing and how much of this amount we will ultimately realize in the future, if any. With the closing of the transaction, a new spin-out company, which retained the name "Molecular Imprints, Inc.," was formed. This new company will continue development and commercialization of nanoscale patterning in consumer and biomedical applications. We are a shareholder of this new company. As of June 30, 2014, we valued potential milestone payments from the sale of Molecular Imprints at $630,257. As of June 30, 2014, we valued potential milestone payments from the sale of BioVex Group, Inc., at $3,496,847. If all the remaining milestone payments were to be paid by Amgen, Inc., we would receive $9,526,393. We have not received any milestone payments as of June 30, 2014, and there can be no assurance as to the timing and how much of this amount we will ultimately realize in the future, if any. As of June 30, 2014, we valued potential milestone payments from the sale of Nextreme Thermal Solutions, Inc., to Laird Technologies, Inc., at $0. On February 27, 2014, the board of directors of Contour Energy Systems, Inc., adopted a plan of complete liquidation and dissolution. Following the sale of Contour Energy's assets and settlement of its liabilities, any remaining proceeds will be distributed to its shareholders. We do not expect to receive any proceeds from this distribution. At June 30, 2014, we valued our investment in Contour Energy at $0. 65 On July 31, 2014, Enumeral Biomedical Corp. completed a reverse merger into a publicly traded shell company, Enumeral Biomedical Holdings, Inc. The operations of Enumeral Biomedical Corp. became those of the surviving entity. Simultaneously with the merger, the Company made a $1.5 million investment in Enumeral Biomedical Holdings. Enumeral Biomedical Holdings is traded publicly on the OTC market under the symbol ENUM. The Company's securities of Enumeral Biomedical Holdings will be subject to a lock-up agreement for up to 18 months from the date of the close of the merger. ENUM's stock closed trading on August 7, 2014, at $2.00 per share. On August 1, 2014, the Company received $549,238 in payment of the outstanding principal, interest and warrants of OHSO Clean, Inc. Our companies often plan for and/or begin the process of pursuing potential sales and/or IPOs of those companies by hiring bankers and/or advisors to attempt to pursue such liquidity events. We consider these efforts to be in the ordinary course of business for those companies until the potential and timing of a transaction become tangible through events such as acceptance of letters of intent to acquire a company and/or the beginning of a road show to pursue an IPO. Strategy for Managing Publicly Traded Positions During the six months ended June 30, 2014, our strategy for managing our publicly traded positions has generated $119,697 in net cash proceeds from premiums on call options sold of Solazyme, Inc. We also sold 117,834 shares of Solazyme in open market transactions for proceeds, net of commission, of $1,407,520. The net increase in our primary liquidity from these transactions was $1,527,217. Through June 30, 2014, we have generated $2,469,676 in net cash premiums on call options sold and put options purchased of Solazyme since the company completed an IPO in May 2011. We have sold a total of 2,254,149 shares of Solazyme since its IPO for net proceeds, after commission, of $22,400,495 or an average sale price of $9.94 per share. Including premiums from call and put options, the average sale price for these shares was $11.03 per share. Our cost basis in Solazyme is $2.36 per share. As of June 30, 2014, our remaining 50,000 shares of Solazyme are under the following option contracts: No. of Shares Expiration Date Strike Price 50,000 September 20, 2014 $ 12.50 During the six months ended June 30, 2014, we sold 575,756 shares of our position in Champions Oncology, Inc., in open market transactions for net proceeds, after commission, of $636,259 or an average sale price of $1.11 per share. Our average cost basis in Champions is $0.67 per share. These increases in primary liquidity are important for our efforts to continue to fund existing and new portfolio companies that could generate future investment returns. 66 Maturity of Current Equity-Focused Venture Capital Portfolio There are three main drivers of our potential growth in value over the next five years. First, we have a larger portfolio of more mature companies than we have had historically. Second, we believe the quality of our existing portfolio is stronger than it has been historically. Third, we own larger percentages of the companies in the existing portfolio than we have owned historically. Our current portfolio is comprised of BIOLOGY+ and other companies at varying stages of maturity in a diverse set of industries. As our portfolio companies mature, we seek to invest in new early- and mid-stage companies that may mature into mid- and late-stage companies. This continuous progression creates a pipeline of investment maturities that may lead to future sources of positive contributions to net asset value per share as these companies mature and potentially experience liquidity and exit events. Our pipeline of investment maturities for the 23 equity-focused companies in our portfolio that have yet to complete liquidity events (e.g., IPOs or M&A transactions) and are not in the process of being shut down are shown in the figure below. [[Image Removed]] We expect some of our portfolio companies to transition between stages of maturity over time. This transition may be forward if the company is maturing and is successfully executing its business plan or may be backward if the company is not successfully executing its business plan or decides to change its business plan substantially from its original plan. Transitions backward may be accompanied by an increase in non-performance risk, which reduces valuation. We discuss non-performance risk and its implications on value below in the section titled "Valuation of Investments." Molecular Imprints, Inc., which we previously categorized as a late-stage company, was acquired by Canon, Inc., in the second quarter of 2014, and we have retained ownership in a new company created from the non-semiconductor manufacturing business of Molecular Imprints. We categorized the new company, which retained the name "Molecular Imprints, Inc." as a mid-stage company. Additionally, we categorized our new portfolio company, UberSeq, Inc., as an early-stage company. 67 Ownership of Our Portfolio Companies By studying our portfolio in greater detail, it is evident to us that potential returns from approximately half of the companies in our portfolio could be the real drivers of net asset value growth over the coming years. These companies include ones in which we have substantial ownership and ones where we believe the potential value at exit is substantial. The table below provides some additional detail on our ownership of the 23 equity-focused companies in our portfolio that have yet to complete liquidity events (e.g., IPOs or M&A transactions) and are not in the process of being shut down. Portfolio Company Voting Ownership Range EchoPixel, Inc. Enumeral Biomedical Corp. ProMuc, Inc. >20% Senova Systems, Inc. Sionyx, Inc. UberSeq, Inc. ABSMaterials, Inc. HZO, Inc. 15-20% Produced Water Absorbents, Inc. Adesto Technologies Corporation Metabolon, Inc. 10-15% OpGen, Inc. AgBiome, L.L.C. 5-10% Ensemble Therapeutics Corporation Bridgelux, Inc. Cambrios Technologies Corporation Champions Oncology, Inc. D-Wave Systems, Inc. 2.5-5% Mersana Therapeutics, Inc. Molecular Imprints, Inc. Nantero, Inc. Cobalt Technologies, Inc. 0-2.5% Nanosys, Inc. 68 In previous communications with shareholders, we have discussed how we are managing our portfolio, feeding the "fat hogs" and starving the "lean hogs" to maximize our value at exit. Many of the leaner hogs have experienced write-downs in valuation, and we have de-emphasized them in terms of the time allocation of our team. These steps allow us to focus our time and capital on the companies we believe will be the drivers of our growth. This increases the risk and potential loss of invested capital in these portfolio companies, but it also may increase the potential returns if they are successful. We currently believe companies like D-Wave Systems, Inc., Metabolon, Inc., Adesto Technologies Corporation, HZO, Inc., Produced Water Absorbents, Inc., AgBiome, LLC, Senova Systems, Inc., Enumeral Biomedical Corp. and EchoPixel, Inc., have the potential to be real drivers of growth in our portfolio in the coming years. Level of Involvement in Our Portfolio Companies The 1940 Act requires that BDCs offer to "make available significant managerial assistance" to portfolio companies. We are actively involved with our portfolio companies through membership on boards of directors, as observers to the boards of directors and/or through frequent communication with management. As of June 30, 2014, we held at least one board seat or observer rights on 18 of our 23 equity-focused portfolio companies that have yet to complete a liquidity event or an uplisting to a national exchange and are not in the process of beingshut down (78 percent). We may be involved actively in the formation and development of business strategies of our earliest stage portfolio companies. This involvement may include hiring management, licensing intellectual property, securing space and raising additional capital. We also provide managerial assistance to late-stage companies looking for potential exit opportunities by leveraging our relationships with the banking and investment community and our knowledge and experience in running a micro-capitalization publicly traded business. Invest Growth in Ownership of Portfolio Companies The chart below depicts the change in our ownership of our portfolio companies from 2001 through 2014 as our assets have increased. Our fully diluted, investment-weighted average ownership has increased from approximately five percent for initial investments made between 2001 and 2004 to approximately 16 percent for initial investments made between 2009 and 2014. This increasing ownership, which we have noted in previous shareholder communications, gives us more control over these companies to potentially affect outcomes beneficial to the Company. Over the coming five years, as companies where our initial investment was made between 2005 and the present continue to mature and exit, we believe our increased levels of ownership have the potential to provide greater returns than our historical investments. 69 [[Image Removed]] Our goal with our new investments is to have even greater ownership at the time of the realization of our return than we have had historically for all of the reasons discussed above. Investments and Current Investment Pace The following is a summary of our initial and follow-on equity-focused investments from January 1, 2010, to June 30, 2014. We consider a "round led" to be a round where we were the new investor or the leader of a group of investors in an investee company. Typically, but not always, the lead investor negotiates the price and terms of the deal with the investee company. Investments in Our Equity-Focused Portfolio of Investments in Privately Held and Publicly Traded Companies Six Months Ended 2010 2011 2012 2013 June 30, 2014 Total Incremental Investments $ 9,560,721 $ 17,688,903 $ 15,141,941 $ 18,076,288 $ 9,954,799 No. of New Investments 3 4 2 2 1 No. of Follow-On Investment Rounds 27 31 26 37 22 No. of Rounds Led 5 4 3 9 4 Average Dollar Amount - Initial $ 117,069 $ 1,339,744 $ 1,407,500 $ 550,001 $ 500,000 Average Dollar Amount - Follow-On $ 341,093 $ 397,740 $ 474,113 $ 449,359 $ 429,764 70 Industry Sectors of Investment We generally classify our investments in one of three industry sectors: Life Sciences, Energy and Electronics. The interdisciplinary nature of science-based inventions enables our portfolio companies to address needs in multiple sectors rather than being confined to addressing needs in one sector. As such, many of our companies can adjust their business foci to address needs in a secondary sector should opportunities in the company's primary sector decrease in number or magnitude. We classify companies in our life sciences portfolio as those that address problems in life sciences-related industries, including biotechnology, agriculture, advanced materials and chemicals, diagnostics, healthcare, bioprocessing, water, industrial biotechnology, food, nutrition and energy. We classify companies that address life science-related problems as a primary or secondary sector as BIOLOGY+. With our focus on investing in BIOLOGY+ companies, we expect that the number of companies addressing life science-related industries as a primary focus will grow, while those that address electronics and energy-related sectors as a primary focus will decline. That said, we expect these companies may address electronics and energy-related sectors as a secondary sector given the interdisciplinary nature of BIOLOGY+ companies. We classify companies in our energy portfolio as those that seek to improve performance, productivity or efficiency, and to reduce environmental impact, waste, cost, energy consumption or raw materials. Energy is a term used commonly to describe products and processes that solve global problems related to resource constraints. The term "cleantech" is also used commonly in a similar manner. We classify companies in our electronics portfolio as those that address problems in electronics-related industries, including semiconductors, telecommunications and data communications, metrology and test and measurement. Our Sources of Liquid Capital The sources of liquidity that we use to make our investments are classified as primary and secondary liquidity. As of June 30, 2014, and December 31, 2013, our total primary and secondary liquidity was $27,874,282 and $33,620,478, respectively. We do not include funds available from our credit facility as primary or secondary liquidity. We believe it is important to examine both our primary and secondary liquidity when assessing the strength of our balance sheet and our future investment capabilities. Primary liquidity is comprised of cash, U.S. government securities and certain receivables. As of June 30, 2014, we held $24,676,324 in cash and $85,063 in certain receivables. As of December 31, 2013, we held $8,538,548 in cash, $18,999,810 in U.S. government securities and $534,826 in certain receivables. 71 During the six months ended June 30, 2014, we sold 117,834 shares of our investment in Solazyme, Inc., in open market sales. We received $1,407,520 in net proceeds from these transactions. During the six months ended June 30, 2014, we sold 575,756 shares of our investment in Champions Oncology, Inc., in open market sales. We received $636,259 in net proceeds from these transactions. The proceeds received from these transactions added to our primary liquidity. On April 18, 2014, we received proceeds of $6,486,461 from the sale of Molecular Imprints, Inc.'s semiconductor lithography equipment business to Canon, Inc., which also added to our primary liquidity in the second quarter of 2014. On July 15, 2014, the remaining funds totaling $1,139,515 from the sale of Xradia, Inc., were released from escrow, which will add to our primary liquidity in the third quarter. Payments upon achieving milestones of the BioVex Group, Inc., and Molecular Imprints, Inc., sales would also add to our primary liquidity in future quarters if these milestones are achieved successfully. The probability-adjusted values of the future milestone payments for the sales of BioVex and Molecular Imprints, as determined at the end of each fiscal quarter, are included as an asset on our Consolidated Statements of Assets and Liabilities and will be included in primary liquidity only if and when payment is received for achievement of the milestones. Our secondary liquidity is comprised of the stock of publicly traded companies. Although these companies are publicly traded, their stock may not trade at high volumes and prices may be volatile, which may restrict our ability to sell our positions at any given time. As of June 30, 2014, our secondary liquidity was $3,112,895. Solazyme, Inc., accounts for $589,000 of this amount based on its closing price as of June 30, 2014. If our option contracts are called at their strike prices, we would receive proceeds of $625,000. The common stock of Champions Oncology, Inc., accounts for $2,523,895 of the total amount of secondary liquidity based on its closing price as of June 30, 2014. As of December 31, 2013, our secondary liquidity was $5,547,294. Solazyme, Inc., accounted for $1,827,712 of this amount based on its closing price as of December 31, 2013. The common stock of Champions Oncology, Inc., accounted for $3,719,582 of the total amount of secondary liquidity based on its closing price as of December 31, 2013. All of our public securities were freely tradable as of June 30, 2014. A decision to sell our shares would result in the cash received from the sale of these assets being included in primary liquidity. Until that time, we will continue to include the value of our shares of our publicly traded portfolio companies in secondary liquidity unless the average trading volume of each company reaches sufficient levels for us to monetize our stock in such companies over a short period of time. We also have the $20,000,000 Loan Facility, which we can draw on to increase liquidity. As of June 30, 2014, we had no outstanding debt relating to thisLoan Facility. Partner As the structure of the public markets has changed over the last decade, the time and dollars required to build transformative companies has increased. Scale and manufacturing expertise is now critical to get to a successful outcome. We believe this expertise is best accomplished by partnering with corporations at earlier stages in the development of the enterprise. Proper partnering can lead to more capital efficient businesses that provide better returns for investors. Return Our plan for returning value to shareholders has three steps. Step one of our return plan was implemented over the past five years. It includes investing in early-stage companies where we believe we can own greater than 10 percent of the company at exit with invested capital of between $5 million and $10 millionin each company. 72 Step two is our focus on BIOLOGY+. Our best investment returns over the past 10 years have come from companies that have businesses intersecting with the life sciences. We are now focusing our efforts on BIOLOGY+, as we believe the future returns for companies commercializing technologies that sell into the life science markets will be greater than those focused on other markets we have invested in historically. Since 2008, approximately 79 percent of our new initial investments have been in companies that fit our BIOLOGY+ investment thesis. This percentage will increase over the coming years. That said, we note that past performance may not be indicative of future performance. Step three is our partnering efforts. We continue to pursue strategies to increase the return profile of early-stage investing, and to reduce the cost profile so that it shifts to a profile more representative of the venture capital industry of 15 to 20 years ago. We believe this will require an environment for doing early-stage investing that includes working with corporate partners earlier in the development of these companies to 1) ascertain if there is demand for the company's technology/products and 2) to help these start-ups prepare for scale and manufacturing in a way that permits seamless adoption by industry and the consumer. This is the basis of our partnership strategy. We believe that execution of these three steps will generate returns for shareholders over the coming years. We are focused on increasing value for shareholders through growing net asset value per share, and we believe we may have an opportunity to reduce the number of shares outstanding and provide deemed dividends as well as cash dividends as we execute on this strategy. Current Business Environment The second quarter of 2014 ended with increases in value in the public market indices. These increases coincided with continued strength in IPO's but a decrease in M&A transactions according to the National Venture Capital Association. Fundraising by venture capital firms was robust, but the five largest venture funds raised continued to account for a significant amount of the total capital raised by new and follow-on funds. These dynamics continue to lead to a difficult fundraising environment for venture-backed companies, particularly those in the middle stages of development and those focused on sectors in which we invest. Our overall goal remains unchanged. We want to maintain our leadership position in investing in science-enabled and BIOLOGY+ companies and increase our net asset value per share outstanding. The current environment for venture capital financings continues to favor those firms that have capital to invest regardless of the stage of the investee company. We continue to finance our new and follow-on equity and convertible debt investments from our cash reserves held in bank accounts. We may in the future invest borrowed capital to take advantage of opportunities that we believe will return greater than the cost of such borrowed capital. We have historically held, and may in the future again hold, our cash in U.S. Treasury securities. We believe the current status of the venture capital industry and the current economic climate provide opportunities to invest this capital at historically low valuations and under favorable terms in equity and convertible debt of new and existing privately held and publiclytraded companies. 73 Valuation of Investments We value our privately held venture capital investments each quarter as determined in good faith by our Valuation Committee, a committee of all the independent directors, within guidelines established by our Board of Directors in accordance with the 1940 Act. See "Footnote to Consolidated Schedule of Investments" contained in "Consolidated Financial Statements" for additional information. The values of privately held, venture capital-backed companies are inherently more difficult to determine than those of publicly traded companies at any single point in time because securities of these types of companies are not actively traded. We believe, perhaps even more than in the past, that illiquidity, and the perception of illiquidity, can affect value. Management believes further that the long-term effects of the difficult venture capital market and difficult exit environments will continue to affect negatively the fundraising ability of weak companies regardless of near-term improvements in the overall global economy and public markets and that these factors can also affect value. We note that while the valuations of our privately held, venture capital-backed companies may decrease, sometimes substantially, such decrease may facilitate an increase in our ownership of the overall company in conjunction with a follow-on investment in such company. In these cases, the ultimate return on our overall invested capital could be greater than it would have been without such interim decrease in valuation. In each of the years in the period of 2010 through 2013 and for the six months ended June 30, 2014, excluding our rights to milestone payments, we recorded the following gross write-ups in privately held securities as a percentage of net assets at the beginning of the year ("BOY"), gross write-downs in privately held securities as a percentage of net assets at the beginning of the year, and change in value of private portfolio securities as a percentage of net assets at the beginning of the year. Gross Write-Ups and Write-Downs of the Privately Held Portfolio Six Months Ended 2010 2011 2012 2013 June 30, 2014 Net Asset Value, BOY $ 134,158,258 $ 146,853,912 $ 145,698,407 $ 128,436,774 $ 122,701,575 Gross Write-Downs During Year $ (11,391,367 ) $ (11,375,661) $ (19,604,046 ) $ (19,089,816 ) $ (7,199,274 ) Gross Write-Ups During Year $ 30,051,847 $ 11,997,991 $ 14,099,904 $ 10,218,994 $ 8,672,224 Gross Write-Downs as a Percentage of Net Asset Value, BOY (8.5 )% (7.8 )% (13.5 )% (14.9 )% (5.9 )% Gross Write-Ups as a Percentage of Net Asset Value, BOY 22.4 % 8.2 % 9.7 % 8.0 % 7.1 % Net Change as a Percentage of Net Asset Value, BOY 13.9 % 0.4 % (3.8 )% (6.9 )% 1.2 % From March 31, 2014, to June 30, 2014, the value of our equity-focused venture capital portfolio, including our rights to potential future milestone payments from the sales of BioVex Group, Inc., Nextreme Thermal Solutions, Inc., and Molecular Imprints, Inc., increased by $5,384,980, from $89,379,494 to $94,764,474. 74 Not including our rights to potential future milestone payments from the sale of BioVex Group, Inc., Nextreme Thermal Solutions, Inc., and Molecular Imprints, Inc., our equity-focused portfolio companies increased in value by $4,749,476. This increase was primarily owing to 1) follow-on investments of $7,567,819 and 2) a net increase in value owing to the terms and pricing of new rounds of financing of $7,342,060, offset by 1) a net decrease of $7,354,679 owing to the sale of Molecular Imprints, offset by cash proceeds to us of $6,486,461, 2) net decreases in the valuations of Solazyme, Inc., and Champions Oncology, Inc., and sales of a portion of our shares of these companies of $1,143,101, offset by net cash proceeds to us of $1,209,201 that are not included in the valuations of Solazyme and Champions Oncology as of June 30, 2014, and 3) a net decrease in value owing to a net increase in discounts for non-performance risk of $1,466,344. The remaining component of the change in the value of our equity-focused portfolio companies of $196,279 was primarily owing to net decreases in public company comparables, the value of warrants, currency fluctuations and net interest on convertible bridge notes. We note that our Valuation Committee and ultimately our Board of Directors take into account multiple sources of quantitative and qualitative inputs to determine the value of our privately held portfolio companies. We note that our Valuation Committee does not set the value of Solazyme, Inc., our freely tradable publicly traded portfolio company, or the value of our shares of Champions Oncology, Inc., which trades on an OTC exchange. We define non-performance as the risk that the price per share (or implied valuation of a portfolio company) or the effective yield of a debt security of a portfolio company, as applicable, does not appropriately represent the risk that a portfolio company that requires or seeks to raise additional capital will be (a) unable to raise capital, will need to be shut down and will not return our invested capital; or (b) able to raise capital, but at a valuation significantly lower than the implied post-money valuation. Our best estimates of non-performance risk of our portfolio companies are included in the valuation of the companies as of June 30, 2014. In the future, as these companies receive terms for additional financings or if they are unable to receive additional financing and, therefore, proceed with sales or shutdowns of the business, we expect the contribution of the discount for non-performance risk to vary in importance in determining the fair values of our securities of these companies. Changes in discounts for non-performance risk could positively or negatively affect the value of our portfolio companies in future quarters. As of June 30, 2014, non-performance risk was a significant factor in determining the values of six of our 26 equity-focused portfolio companies and warrants of Champions Oncology, Inc., that are fair valued by our Board of Directors. These six companies accounted for approximately $8.3 million, or nine percent, of the total value of our equity-focused venture capital portfolio, not including our rights to milestone payments from the sale of BioVex Group, Inc., to Amgen, Inc. As of December 31, 2013, non-performance risk was a significant factor in determining the values of six of our 26 equity-focused portfolio companies and warrants of Champions Oncology, Inc., that are fair valued by our Board of Directors. These six companies accounted for approximately $17.8 million, or 20 percent, of the total value of our equity-focused venture capital portfolio, not including our rights to milestone payments from the sale of BioVex Group, Inc., to Amgen, Inc. As of June 30, 2014, our top ten investments by value accounted for approximately 79 percent of the value of our equity-focused venture capital portfolio. 75 Top Ten Equity-Focused Investments by Value Cumulative % of Equity Focused Portfolio Company Value as of 06/30/2014 Venture Capital Portfolio Adesto Technologies Corp. $ 14,701,448 16 % HZO, Inc. $ 10,836,938 28 % Metabolon, Inc. $ 10,655,029 40 % D-Wave Systems, Inc. $ 10,503,617 52 % Produced Water Absorbents, Inc. $ 6,783,100 59 % Enumeral Biomedical Corp. $ 3,969,050 63 % Nanosys, Inc. $ 3,776,158 68 % Ensemble Therapeutics Corp. $ 3,749,795 72 % Bridgelux, Inc. $ 3,262,016 75 % Nantero, Inc. $ 3,034,180 79 % Results of Operations We present the financial results of our operations utilizing accounting principles generally accepted in the United States of America ("GAAP") for investment companies. On this basis, the principal measure of our financial performance during any period is the net increase (decrease) in our net assets resulting from our operating activities, which is the sum of the followingthree elements: Net Operating Income (Loss) - the difference between our income from interest, dividends, and fees and our operating expenses. Net Realized Gain (Loss) on Investments - the difference between the net proceeds of sales of portfolio securities and their stated cost. Net Increase (Decrease) in Unrealized Appreciation or Depreciation on Investments - the net unrealized change in the value of our investment portfolio. Owing to the structure and objectives of our business, we generally expect to experience net operating losses and seek to generate increases in our net assets from operations through the long-term appreciation and monetization of our venture capital investments. We have relied, and continue to rely, primarily on proceeds from sales of investments, rather than on investment income, to defray a significant portion of our operating expenses. Because such sales are unpredictable, we attempt to maintain adequate working capital to provide for fiscal periods when there are no such sales. 76 The potential for, or occurrence of, inflation could result in rising interest rates for government-backed debt. We may also invest in both short- and long-term U.S. government and agency securities. To the extent that we invest in short- and long-term U.S. government and agency securities, changes in interest rates result in changes in the value of these obligations that result in an increase or decrease of our net asset value. The level of interest rate risk exposure at any given point in time depends on the market environment, the expectations of future price and market movements, and the quantity and duration of long-term U.S. government and agency securities held by the Company, and it will vary from period to period. During the three months and six months ended June 30, 2014, our average holdings of U.S. government securities were $4,999,900 and $5,571,344, respectively. During the three months and six months ended June 30, 2013, our average holdings of U.S. government securities were $13,999,790 and $13,999,480, respectively. Three months ended June 30, 2014, as compared with the three months ended June 30, 2013 In the three months ended June 30, 2014, and June 30, 2013, we had net increases in net assets resulting from operations of $4,328,055 and $4,104,761, respectively. Investment Income and Expenses: We had net operating losses of $2,084,855 and $1,989,938 for the three months ended June 30, 2014, and June 30, 2013, respectively. The variation in these results is primarily owing to the changes in investment income and operating expenses, including non-cash expense included in salaries, benefits and stock-based compensation of $188,487 in 2014 primarily associated with the compensation cost for restricted stock as compared with $315,480 for the same period in 2013. During the three months ended June 30, 2014, and 2013, total investment income was $133,835 and $189,963, respectively. During the three months ended June 30, 2014, and 2013, total operating expenses were $2,218,690 and $2,179,901, respectively. During the three months ended June 30, 2014, as compared with the same period in 2013, investment income decreased, reflecting a decrease in interest income from subordinated and senior secured debt and senior secured debt through a participation agreement, rental income from the sublet of our office space at 420 Florence Street, Palo Alto, CA, owing to the expiration of the lease in 2013, a decrease in our average holdings of U.S. government securities, and a decrease in interest income from a non-convertible promissory note and convertible bridge notes. During the three months ended June 30, 2014, our average holdings of U.S. government securities were $4,999,900 as compared with $13,999,790 during the three months ended June 30, 2013, primarily owing to the decrease in yield available over the durations of maturities in which we were willing to invest. Operating expenses, including non-cash, stock-based compensation expenses, were $2,218,690 and $2,179,901 for the three months ended June 30, 2014, and June 30, 2013, respectively. The increase in operating expenses for the three months ended June 30, 2014, as compared with the three months ended June 30, 2013, was primarily owing to increases in administration and operations expense, professional fees, interest and other debt expenses, directors' fees and expenses and custody fees, offset by decreases in salaries, benefits and stock-based compensation expense, rent expense and insurance expense. 77 Administration and operations expense increased by $37,010, or 21.8 percent, for the three months ended June 30, 2014, as compared with June 30, 2013, primarily as a result of net increases in general office and administration expenses, including costs of $28,135 associated with a Meet the Portfolio Day event. We did not hold a Meet the Portfolio Day during the comparable period in 2013. Professional fees increased by $108,214, or 39.1 percent, for the three months ended June 30, 2014, as compared with June 30, 2013, primarily as a result of an increase in consulting fees associated with investor outreach and marketing efforts and certain accounting fees, offset by a decrease in certain legal fees. Interest and other debt expense increased by $88,402, or 1,505 percent, for the three months ended June 30, 2014, as compared with June 30, 2013, primarily as a result of non-utilization fees and amortization of closing fees associated with our Loan Facility. Directors' fees and expenses increased by $34,725, or 59.5 percent, for the three months ended June 30, 2014, as compared with June 30, 2013, primarily owing to an increase in overall fees and the addition of a new member to our Board of Directors in 2014. Custody fees increased by $247, or 1.8 percent, for the three months ended June 30, 2014, as compared with June 30, 2013. Salaries, benefits and stock-based compensation expense decreased by $195,288, or 13.5 percent, for the three months ended June 30, 2014, as compared with June 30, 2013, primarily as a result of decreases in compensation cost for restricted stock awards associated with the Stock Plan owing to a reversal of compensation expense of $128,004 for stock awards that were forfeited as a result of the voluntary termination of one of our employees on June 30, 2014, a decrease of $22,344 in the projected benefit obligation expense accrual for medical and pension retirement benefits and a decrease in employee bonus accruals, offset by increases in costs associated with the increase in salary and benefits for one of our employees whose status changed from a part-time employee in 2013 to a full-time employee in 2014. While the non-cash, stock-based compensation expense for the Stock Plan increased our operating expenses by $188,487, this increase was offset by a corresponding increase to our additional paid-in capital, resulting in no net impact to our net asset value. Rent expense decreased by $21,421, or 21.1 percent, for the three months ended June 30, 2014, as compared with June 30, 2013, owing primarily to the expiration of the lease for our office space at 420 Florence Street, Palo Alto, CA, on August 30, 2013. Our rent expense of $80,065 for the three months ended June 30, 2014, includes $91,391 of rent paid in cash, net of $11,326 non-cash rent expense, credits and abatements that we recognize on a straight-line basis over the lease term. Our rent paid in cash of $91,391 includes $12,682 of real estate tax escalation charges on our corporate headquarters located at 1450 Broadway in New York City. Insurance expense decreased by $12,173, or 12.7 percent, for the three months ended June 30, 2014, as compared with June 30, 2013, primarily as a result of a decrease in overall annual renewal premiums. Realized Gains and Losses from Investments: During the three months ended June 30, 2014, and June 30, 2013, we realized net gains on investments of $5,693,250 and $7,590,533, respectively. During the three months ended June 30, 2014, we realized net gains of $5,693,250 consisting of a realized gain on the sale of our investment in Molecular Imprints, Inc., of $3,946,838, a realized gain of $4,570 on the sale of 16,000 shares of Champions Oncology, Inc., a realized gain of $956,312 on the sale of 100,000 shares of Solazyme, and a realized gain of $197,309 on the repurchase and expiration of certain Solazyme, Inc., written call option contracts. At June 30, 2014, we still owned 2,523,895 and 50,000 shares of Champions Oncology and Solazyme, respectively. We also had a realized gain of $588,221 on our escrow payment from the sale of Xradia, Inc. 78 During the three months ended June 30, 2013, we realized net gains of $7,590,533, consisting primarily of a realized gain of $7,651,058 on the sale of 966,490 shares of Solazyme, Inc., of which 303,500 shares were called subject to the terms of written call option contracts and a realized gain of $105,313 on the early repayments of the senior secured and subordinated secured debt by GEO Semiconductor, Inc., offset by a realized loss of $150,711 on the repurchase and expiration of certain Solazyme written call option contracts and a realized loss of $15,127 on the expiration of certain Solazyme purchased put option contracts. At June 30, 2013, we still owned 580,000 shares of Solazyme. Net Unrealized Appreciation and Depreciation of Portfolio Securities: During the three months ended June 30, 2014, net unrealized depreciation on total investments decreased by $719,660, or 3.7 percent, from accumulated net unrealized depreciation of $19,468,401 at March 31, 2014, to accumulated net unrealized depreciation of $18,748,741 at June 30, 2014. During the three months ended June 30, 2013, net unrealized depreciation on total investments increased by $1,495,673, or 321.8 percent, from accumulated net unrealized depreciation of $464,833 at March 31, 2013, to accumulated net unrealized depreciation of $1,960,506 at June 30, 2013. During the three months ended June 30, 2014, net unrealized depreciation on our venture capital investments decreased by $797,090, from net unrealized depreciation of $19,643,757 at March 31, 2014, to net unrealized depreciation of $18,846,667 at June 30, 2014, owing primarily to write-ups in the valuations of the following portfolio company investments: Investment Amount of Write-Up D-Wave Systems, Inc. $ 3,840,927 Produced Water Absorbents, Inc. 1,976,649 HZO, Inc. 1,391,005 SynGlyco, Inc. 371,649 Enumeral Biomedical Corp. 183,577 Champions Oncology, Inc. 30,095 GEO Semiconductor, Inc. 7,774 OpGen, Inc. 1,494 NanoTerra, Inc. 1,321 The write-ups for the three months ended June 30, 2014, were offset by write-downs in the valuations of the following portfolio company investments: 79 Investment Amount of Write-Down Cambrios Technologies Corporation $ 854,586 SiOnyx, Inc. 747,795 Ultora, Inc. 251,094 Nanosys, Inc. 219,526 Bridgelux, Inc. 154,145 Ensemble Therapeutics Corporation 130,717 OHSO Clean, Inc. 47,567 Contour Energy Systems, Inc. 21,418 Cobalt Technologies, Inc. 43 Metabolon, Inc. 7 We had an increase in unrealized depreciation of $3,876,968 on our investment in Molecular Imprints, Inc., owing to a realized gain on the sale of its securities. We had a decrease in unrealized depreciation of $587 on the rights to milestone payments from Canon, Inc.'s acquisition of Molecular Imprints, Inc. We had a decrease in unrealized depreciation of $5,247 on the rights to milestone payments from Amgen, Inc.'s acquisition of BioVex Group, Inc. We had a decrease in unrealized depreciation owing to foreign currency translation of $206,811 on our investment in D-Wave Systems, Inc. We had an increase in unrealized depreciation of $916,180 on our investment in Solazyme, Inc., primarily owing to realized gains on the partial sale of the securities. Unrealized appreciation on our U.S. government securities portfolio decreased from unrealized appreciation of $121 at March 31, 2014, to $0 at June 30, 2014. We did not hold any U.S. government securities at June 30, 2014. During the three months ended June 30, 2013, net unrealized depreciation on our venture capital investments increased by $1,095,295, from net unrealized depreciation of $597,882 at March 31, 2013, to net unrealized depreciation of $1,693,177 at June 30, 2013, owing primarily to write-downs in the valuations of the following investments held: Investment Amount of Write-Down OpGen, Inc. $ 2,037,500 Contour Energy Systems, Inc. 1,918,598 Kovio, Inc. 1,336,165 Laser Light Engines, Inc. 1,288,502 GEO Semiconductor, Inc. 106,022 Cobalt Technologies, Inc. 20 80 The write-downs for the three months ended June 30, 2013, were offset by write-ups in the valuations of the following investments held: Investment Amount of Write-Up Bridgelux, Inc. $ 2,759,246 Solazyme, Inc. 2,331,589 Champions Oncology, Inc. 2,066,982 Ancora Pharmaceuticals Inc. 1,834,999 Xradia, Inc. 865,108 Ensemble Therapeutics Corporation 811,352 Senova Systems, Inc. 312,882 Adesto Technologies Corporation 75,114 SiOnyx, Inc. 23,406 Metabolon, Inc. 16,345 D-Wave Systems, Inc. 12,326 OHSO Clean, Inc. 8,804 Nano Terra, Inc. 3,103 Nanosys, Inc. 726 HZO, Inc. 265 We had a decrease in unrealized appreciation of $21,092 on the rights to milestone payments from Amgen, Inc.'s acquisition of BioVex Group, Inc. We had a decrease in unrealized appreciation of $197,041 on our investment in D-Wave Systems, Inc., owing to foreign currency translation. We had a decrease in unrealized appreciation of $5,312,602 on our investment in Solazyme, Inc., owing to realized gains on the sale of its securities. Unrealized appreciation on our U.S. government securities portfolio decreased from unrealized appreciation of $189 at March 31, 2013, to unrealized depreciation of $5 at June 30, 2013. Six months ended June 30, 2014, as compared with the six months ended June 30, 2013 In the six months ended June 30, 2014, we had a net decrease in net assets resulting from operations of $2,147,622. In the six months ended June 30, 2013, we had a net increase in net assets resulting from operations of $2,044,569. Investment Income and Expenses: We had net operating losses of $4,060,227 and $3,925,511 for the six months ended June 30, 2014, and June 30, 2013, respectively. The variation in these results is primarily owing to the changes in investment income and operating expenses, including non-cash expense included in salaries, benefits and stock-based compensation of $497,634 in 2014 primarily associated with the compensation cost for restricted stock as compared with $630,201 for the same period in 2013. During the six months ended June 30, 2014, and 2013, total investment income was $280,126 and $375,053, respectively. During the six months ended June 30, 2014, and 2013, total operating expenses were $4,340,353 and$4,300,564, respectively. 81 During the six months ended June 30, 2014, as compared with the same period in 2013, investment income decreased, reflecting a decrease in interest income from subordinated and senior secured debt and senior secured debt through a participation agreement, rental income from the sublet of our office space at 420 Florence Street, Palo Alto, CA, owing to the expiration of the lease in 2013, a decrease in our average holdings of U.S. government securities and a decrease in interest income from a non-convertible promissory note and convertible bridge notes. During the six months ended June 30, 2014, our average holdings of U.S. government securities were $5,571,344 as compared with $13,999,480 during the six months ended June 30, 2013, primarily owing to the decrease in yield available over the durations of maturities in which we were willing to invest. Operating expenses, including non-cash, stock-based compensation expenses, were $4,340,353 and $4,300,564 for the six months ended June 30, 2014, and June 30, 2013, respectively. The increase in operating expenses for the six months ended June 30, 2014, as compared with the six months ended June 30, 2013, was primarily owing to increases in administration and operations expense, interest and other debt expense, directors' fees and expenses and custody fees, offset by decreases in salaries, benefits and stock-based compensation expense, professional fees, rent expense and insurance expense. Administration and operations expense increased by $33,398, or 11.0 percent, for the six months ended June 30, 2014, as compared with June 30, 2013, primarily as a result of net increases in general office and administration expenses, including costs of $31,235 associated with a Meet the Portfolio Day event, offset by timing differences related to certain accrued expenses. We did not hold a Meet the Portfolio Day during the comparable period in 2013. Interest and other debt expense increased by $176,291, or 1,506 percent, for the six months ended June 30, 2014, as compared with June 30, 2013, primarily as a result of non-utilization fees and amortization of closing fees associated with our Loan Facility. Directors' fees and expenses increased by $55,532, or 42.4 percent, for the six months ended June 30, 2014, as compared with June 30, 2013, primarily owing to an increase in overall fees and the addition of a new member to our Board of Directors in 2014. Custody fees increased by $1,245, or 4.5 percent, for the six months ended June 30, 2014, as compared with June 30, 2013. Salaries, benefits and stock-based compensation expense decreased by $100,613, or 3.6 percent, for the six months ended June 30, 2014, as compared with June 30, 2013, primarily as a result of decreases in compensation cost for restricted stock awards associated with the Stock Plan owing to a reversal of compensation expense of $128,004 for stock awards that were forfeited as a result of the voluntary termination of one of our employees on June 30, 2014, a decrease of $34,480 in the projected benefit obligation expense accrual for medical and pension retirement benefits and a decrease in employee bonus accruals, offset by increases in costs associated with the increase in salary and benefits for one of our employees whose status changed from a part-time employee in 2013 to a full-time employee in 2014. While the non-cash, stock-based compensation expense for the Stock Plan increased our operating expenses by $497,634, this increase was offset by a corresponding increase to our additional paid-in capital, resulting in no net impact to our net asset value. Professional fees decreased by $65,645, or 9.9 percent, for the six months ended June 30, 2014, as compared with June 30, 2013, primarily as a result of a decrease in certain legal fees, offset by an increase in consulting fees associated with investor outreach and marketing efforts. Rent expense decreased by $54,610, or 26.9 percent, for the six months ended June 30, 2014, as compared with June 30, 2013, owing primarily to the expiration of the lease for our office space at 420 Florence Street, Palo Alto, CA, on August 30, 2013. Our rent expense of $148,091 for the six months ended June 30, 2014, includes $170,384 of rent paid in cash, net of $22,293 non-cash rent expense, credits and abatements that we recognize on a straight-line basis over the lease term. Our rent paid in cash of $170,384 includes $12,682 of real estate tax escalation charges on our corporate headquarters located at 1450 Broadway in New York City. Insurance expense decreased by $4,363, or 2.5 percent, for the six months ended June 30, 2014, as compared with June 30, 2013, primarily as a result of a decrease in overallannual renewal premiums. 82 Realized Gains and Losses from Investments: During the six months ended June 30, 2014, and June 30, 2013, we realized net (losses) gains on investments of $(1,344,075) and $4,214,370, respectively. During the six months ended June 30, 2014, we realized net losses of $1,344,075, consisting primarily of a realized loss on the value of our investment in Kovio, Inc., of $7,299,533, offset by a realized gain of $3,946,838 on the sale of our investment in Molecular Imprints, Inc., a realized gain of $204,442 on the sale of 575,756 shares of Champions Oncology, Inc., a realized gain of $1,129,054 on the sale of 117,834 shares of Solazyme, and a realized gain of $86,653 on the repurchase and expiration of certain Solazyme, Inc., written call option contracts. At June 30, 2014, we still owned 2,523,895 and 50,000 shares of Champions Oncology and Solazyme, respectively. We also had a realized gain of $588,440 on our escrow payment from the sale of Xradia, Inc. During the six months ended June 30, 2013, we realized net gains of $4,214,370, consisting primarily of a realized gain of $9,084,167 on the sale of 1,217,790 shares of Solazyme, Inc., of which 554,800 shares were called subject to the terms of written call option contracts, a realized gain of $148,729 on our escrow payment from the sale of Crystal IS, Inc., and a realized gain of $105,313 on the early repayments of the senior secured and subordinated secured debt by GEO Semiconductor, Inc., offset by a realized loss on our investment in Nextreme Thermal Solutions, Inc., of $4,384,762, a realized loss of $540,106 on the sale of 50,807 shares of NeoPhotonics Corporation, of which 50,800 shares were called subject to the terms of written call option contracts, a realized loss of $126,762 on the repurchase and expiration of certain Solazyme and NeoPhotonics written call option contracts, and a realized loss of $72,209 on the expiration of certain Solazyme purchased put option contracts. At June 30, 2013, we still owned 580,000 shares of Solazyme. At June 30, 2013, we did not hold any shares of NeoPhotonics. Net Unrealized Appreciation and Depreciation of Portfolio Securities: During the six months ended June 30, 2014, net unrealized depreciation on total investments decreased by $3,272,666, or 14.9 percent, from accumulated net unrealized depreciation of $22,021,407 at December 31, 2013, to accumulated net unrealized depreciation of $18,748,741 at June 30, 2014. During the six months ended June 30, 2013, net unrealized depreciation on total investments decreased by $1,777,881, or 47.6 percent, from accumulated net unrealized depreciation of $3,738,387 at December 31, 2012, to accumulated net unrealized depreciationof $1,960,506 at June 30, 2013. During the six months ended June 30, 2014, net unrealized depreciation on our venture capital investments decreased by $3,183,667, from net unrealized depreciation of $22,030,334 at December 31, 2013, to net unrealized depreciation of $18,846,667 at June 30, 2014, owing primarily to a net decrease in unrealized depreciation on our investment in Kovio, Inc., of $7,299,533 resulting in a realized loss on this investment when such securities were deemed worthless. We also had the following write-ups in the valuations of the following portfolio company investments: 83 Investment Amount of Write-Up D-Wave Systems, Inc. $ 3,836,607 Produced Water Absorbents, Inc. 1,976,649 HZO, Inc. 1,403,984 Enumeral Biomedical Corp. 1,024,212 SynGlyco, Inc. 343,460 Bridgelux, Inc. 61,374 GEO Semiconductor, Inc. 23,126 NanoTerra, Inc. 10,480 OpGen, Inc. 1,494 The write-ups for the six months ended June 30, 2014, were offset by write-downs in the valuations of the following portfolio company investments: Investment Amount of Write-Down SiOnyx, Inc. $ 4,721,194 Cambrios Technologies Corporation 854,586 Champions Oncology, Inc. 764,222 Ensemble Therapeutics Corporation 362,534 Nanosys, Inc. 353,099 Cobalt Technologies, Inc. 300,533 Ultora, Inc. 251,094 Laser Light Engines, Inc. 182,061 Contour Energy Systems, Inc. 90,844 Metabolon, Inc. 44,175 OHSO Clean, Inc. 39,154 We had an increase in unrealized depreciation of $3,872,348 on our investment in Molecular Imprints, Inc., primarily owing to a realized gain on the sale ofits securities. We had a decrease in unrealized depreciation of $7,414 on the rights to milestone payments from Amgen, Inc.'s acquisition of BioVex Group, Inc. We had a decrease in unrealized depreciation of $587 on the rights to milestone payments from Canon, Inc.'s acquisition of Molecular Imprints, Inc. We had an increase in unrealized depreciation owing to foreign currency translation of $9,162 on our investment in D-Wave Systems, Inc. We had an increase in unrealized depreciation of $960,247 on our investment in Solazyme, Inc., primarily owing to realized gains on the partial sale of the securities. 84 Unrealized appreciation on our U.S. government securities portfolio decreased from unrealized appreciation of $45 at December 31, 2013, to $0 at June 30, 2014. We did not hold any U.S. government securities at June 30, 2014. During the six months ended June 30, 2013, net unrealized depreciation on our venture capital investments decreased by $2,055,454, from net unrealized depreciation of $3,748,631 at December 31, 2012, to net unrealized depreciation of $1,693,177 at June 30, 2013, resulting primarily from an increase in unrealized appreciation of $4,384,762 on our investment in Nextreme Thermal Solutions, Inc., owing to a realized loss on the sale of its securities and increases in the valuations of the following investments held: Investment Amount of Write-Up Bridgelux, Inc. $ 3,836,471 Solazyme, Inc. 2,238,800 Champions Oncology, Inc. 2,070,806 Xradia, Inc. 1,702,187 Ancora Pharmaceuticals Inc. 988,110 Ensemble Therapeutics Corporation 718,169 HZO, Inc. 569,325 AgBiome, LLC 500,000 Enumeral Biomedical Corp. 239,481 ABSMaterials, Inc. 40,949 OHSO Clean, Inc. 14,928 Nano Terra, Inc. 7,692 D-Wave Systems, Inc. 7,041 Cobalt Technologies, Inc. 6,031 Nanosys, Inc. 986 Metabolon, Inc. 53 The write-ups for the six months ended June 30, 2013, were offset by write-downs in the valuations of the following investments held: Investment Amount of Write-Down Contour Energy Systems, Inc. $ 3,197,662 OpGen, Inc. 2,852,500 Kovio, Inc. 1,336,165 Laser Light Engines, Inc. 1,008,222 Senova Systems, Inc. 292,887 GEO Semiconductor, Inc. 64,651 Produced Water Absorbents, Inc. 28,170 SiOnyx, Inc. 5 We had a decrease in unrealized appreciation of $17,014 on the rights to milestone payments from Amgen, Inc.'s acquisition of BioVex Group, Inc. 85 We had a decrease in unrealized appreciation of $310,047 on our investment in D-Wave Systems, Inc., owing to foreign currency translation. We had an increase in unrealized appreciation of $530,934 on our investment in NeoPhotonics Corporation owing to realized losses on the sale of its securities. We had a decrease in unrealized appreciation of $6,693,948 on our investment in Solazyme, Inc., owing to realized gains on the sale of its securities. Unrealized appreciation on our U.S. government securities portfolio decreased from unrealized appreciation of $2,744 at December 31, 2012, to unrealized depreciation of $5 at June 30, 2013. Financial Condition June 30, 2014 At June 30, 2014, our total assets and net assets were $123,373,855 and $120,878,223, respectively. At December 31, 2013, they were $125,063,946 and $122,701,575, respectively. At June 30, 2014, our net asset value per share was $3.87 as compared with $3.93 at December 31, 2013. At June 30, 2014, and December 31, 2013, our shares outstanding were 31,245,664 and 31,197,438, respectively. Significant developments in the six months ended June 30, 2014, included an increase in the holdings of our venture capital investments of $2,223,372 and a decrease in our cash and treasury holdings of $2,862,034. The increase in the value of our venture capital investments from $93,899,459 at December 31, 2013, to $96,122,831 at June 30, 2014, resulted primarily from new and follow-on investments of $9,954,799, offset by a decrease in the net value of our venture capital investments of $5,687,647 and a net decrease of $2,043,780 owing to the sale of certain of our shares of Solazyme, Inc., and Champions Oncology, Inc. The decrease in our cash and treasury holdings from $27,538,358 at December 31, 2013, to $24,676,324 at June 30, 2014, is primarily owing to follow-on venture capital investments totaling $9,954,799 and to the payment of cash for operating expenses of $3,887,383, offset by net proceeds of $2,043,780 received from the sale of certain of our shares of Solazyme and Champions Oncology, net premium proceeds of $119,697 received from certain Solazyme written call options, $1,235,312 received from the portion of our payment held in escrow from the sale of Xradia, Inc., and $6,486,461 received from the sale of Molecular Imprints, Inc. The following table is a summary of additions to our portfolio of venture capital investments made during the six months ended June 30, 2014: New Investments Amount of Investment UberSeq, Inc. $ 500,000 86 Follow-On Investments Amount of Investment HZO, Inc. $ 2,000,003 Produced Water Absorbents, Inc. 1,000,268 Enumeral Biomedical Corp. 935,000 D-Wave Systems, Inc. 762,568 Produced Water Absorbents, Inc. 750,000 ABSMaterials, Inc. 500,000 Senova Systems, Inc. 500,000 EchoPixel,Inc. 500,000 SiOnyx, Inc. 415,635 Produced Water Absorbents, Inc. 330,677 Enumeral Biomedical Corp. 250,000 Senova Systems, Inc. 250,000 OpGen, Inc. 245,017 Mersana Therapeutics, Inc. 240,500 HZO, Inc. 206,997 D-Wave Systems, Inc. 170,043 OpGen, Inc. 120,000 SiOnyx, Inc. 93,976 Ultora, Inc. 86,039 Enumeral Biomedical Corp. 65,000 Laser Light Engines, Inc. 19,331 Laser Light Engines, Inc. 13,745 Total $ 9,954,799 The following tables summarize the values of our portfolios of venture capital investments and U.S. government securities, as compared with their cost, at June 30, 2014, and December 31, 2013: June 30, 2014 December 31, 2013 Venture capital investments, at cost $ 114,969,498 $ 115,929,793 Net unrealized (depreciation) (1) (18,846,667 ) (22,030,334 ) Venture capital investments, at value $ 96,122,831 $ 93,899,459 June 30, 2014 December 31, 2013 U.S. government securities, at cost $ 0 $ 18,999,765 Net unrealized appreciation(1) 0 45 U.S. government obligations, at value $ 0 $ 18,999,810 (1)At June 30, 2014, and December 31, 2013, the net accumulated unrealized depreciation on investments, including written call options, was $18,748,741 and $22,021,407, respectively. 87 Cash Flow Net cash provided by operating activities for the six months ended June 30, 2014, was $16,207,714, primarily reflecting the net sale of U.S. government securities of $18,999,008 and proceeds from the sale of investments of $9,766,197, offset by the purchase of venture capital investments of $9,954,799 and the payment of operating expenses. Net cash used in investing activities for the six months ended June 30, 2014, was $1,066, primarily reflecting the purchase of fixed assets. Net cash used in operating activities for the six months ended June 30, 2013, was $118,366, primarily reflecting the purchase of venture capital investments of $7,108,150 and the payment of operating expenses, partially offset by proceeds from the sale of investments of $13,161,839 and net proceeds fromcall options of $534,920. Net cash used in investing activities for the six months ended June 30, 2013, was $3,909, primarily reflecting the purchase of fixed assets. Liquidity and Capital Resources Our liquidity and capital resources are generated and are generally available through our cash holdings, interest earned on our investments on U.S. government securities, cash flows from the sales of U.S. government securities and payments received on our venture debt investments, proceeds from periodic follow-on equity offerings and realized capital gains retained for reinvestment. We fund our day-to-day operations using interest earned and proceeds from our cash holdings, the sales of our investments in U.S. government securities, when applicable, and interest earned from our venture debt securities. We believe the increase or decrease in the value of our venture capital investments does not materially affect the day-to-day operations of the Company or our daily liquidity. As of June 30, 2014, and December 31, 2013, we had no investments in money market mutual funds. Our Loan Facility may be used to fund our investments and not for the payment of day-to-day operating expenses. As of June 30, 2014, we had no debt outstanding. We have not issued any debt securities, and, therefore, are not subject to credit agency downgrades. As a venture capital company, it is critical that we have capital available to support our best companies until we have an opportunity for liquidity in our investments. As such, we will continue to maintain a substantial amount of liquid capital on our balance sheet. Although we cannot predict future market conditions, we continue to believe that our current cash and U.S. government security holdings and our ability to adjust our investment pace will provide us with adequate liquidity to execute our current business strategy. At June 30, 2014, and December 31, 2013, our total net primary liquidity was $24,761,387 and $28,073,184, respectively. Our primary liquidity is principally comprised of our cash, U.S. government securities, when applicable, and certain receivables. The decrease in our primary liquidity from December 31, 2013, to June 30, 2014, is primarily owing to the use of funds for investments totaling $9,954,799 and payment of net operating expenses, offset by the receipt of $1,235,312 from the portion of our upfront payment held in escrow from the sale of Xradia, Inc., the receipt of $6,486,461 from the sale of Molecular Imprints, Inc., and net proceeds of $2,043,780 received from the sales of certain of our shares of Solazyme, Inc., and Champions Oncology, Inc. During the six months ended June 30, 2014, we also purchased and sold call option contracts on our publicly traded positions generating net proceeds of $119,697. 88 At June 30, 2014, and December 31, 2013, our secondary liquidity was $3,112,895 and $5,547,294, respectively. Our secondary liquidity consists of our publicly traded securities. Although these companies are publicly traded, their stock may not trade at high volumes and prices can be volatile, which may restrict our ability to sell our positions at any given time. We may also be restricted for a period of time in selling our positions in these companies due to our shares being unregistered. As of June 30, 2014, none of our publicly traded securities were restricted from sale. We do not include funds held in escrow from the sale of investments in primary or secondary liquidity. These funds become primary liquidity if and when they are received at the expiration of the escrow period. We believe that the current and future venture capital environment may adversely affect the valuation of investment portfolios, lead to tighter lending standards and result in reduced access to capital. These conditions may lead to a decline in net asset value and/or decline in valuations of our portfolio companies in future quarters. Although we cannot predict future market conditions, we continue to believe that our current cash and U.S. government security holdings and our ability to adjust our investment pace will provide us with adequate liquidity to execute our current business strategy. Except for a rights offering, we are generally not able to issue and sell our common stock at a price below our net asset value per share, exclusive of any distributing commission or discount, without shareholder approval. As of June 30, 2014, our net asset value per share was $3.87 per share and our closing market price was $3.18 per share. We do not currently have shareholder approval to issue or sell shares below our net asset value per share. Borrowings On September 30, 2013, the Company entered into the Loan Facility that may be used by the Company to fund investments in portfolio companies. The Loan Facility, among other things, matures on September 30, 2017, and bears interest at 10 percent per annum in cash. The Company has the option to have interest accrue at a rate of 13.5 percent per annum if the Company decides not to pay interest in cash monthly. The Company currently plans to pay interest in cash if and when any borrowings are outstanding. The Loan Facility also requires payment of a draw fee on each borrowing equal to 1.0 percent of such borrowing and an unused commitment fee of 1.0 percent per annum. Interest and fee payments under the Loan Facility are made quarterly in arrears. The Company may prepay the loans or reduce the aggregate commitments under the Loan Facility at any time prior to the maturity date, as long as certain conditions are met, including payment of required prepayment or termination fees. The Loan Facility is secured by all of the assets of the Company and its wholly owned subsidiaries, subject to certain customary exclusions. The Loan Facility contains certain affirmative and negative covenants, including without limitation: (a) maintenance of certain minimum liquidity requirements; (b) maintenance of an eligible asset leverage ratio of not less than 4.0:1.0; (c) limitations on liens; (d) limitations on the incurrence of additional indebtedness; and (e) limitations on structural changes, mergers and disposition of assets (other than in the normal course of our business activities). There were no borrowings at closing, and at June 30, 2014, the Company had no outstanding debt. 89 At June 30, 2014, and December 31, 2013, the Company had no outstanding debt. The remaining capacity under the Loan Facility was $20,000,000 at June 30, 2014. Contractual Obligations A summary of our significant contractual payment obligations is as follows: Payments Due by Period Less than More Than Total 1 Year 1-3 Years 3-5 Years 5 Years Multi-Draw Loan Facility(1) $ 0 $ 0 $ 0 $ 0 $ 0 Operating leases $ 1,632,676 $ 297,517 $ 575,459 $ 604,591 $ 155,109 (1)As of June 30, 2014, we had $20,000,000 of unused borrowing capacity under our Loan Facility. Critical Accounting Policies The Company's significant accounting policies are described in Note 3 to the Consolidated Financial Statements and in the Footnote to the Consolidated Schedule of Investments. Critical accounting policies are those that are both important to the presentation of our financial condition and results of operations and those that require management's most difficult, complex or subjective judgments. The Company considers the following accounting policies and related estimates to be critical: Valuation of Portfolio Investments The most significant estimate inherent in the preparation of our consolidated financial statements is the valuation of investments and the related amounts of unrealized appreciation and depreciation of investments recorded. As a BDC, we invest in primarily illiquid securities that generally have no established trading market. Investments are stated at "value" as defined in the 1940 Act and in the applicable regulations of the SEC and U.S. GAAP. ASC 820 defines fair value, establishes a framework for measuring fair value and expands disclosures about assets and liabilities measured at fair value. ASC 820 provides a consistent definition of fair value that focuses on exit price in the principal, or most advantageous, market and prioritizes, within a measurement of fair value, the use of market-based inputs over entity-specific inputs. ASC 820 also establishes the following three-level hierarchy for fair value measurements based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date. • Level 1 - inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets; 90 • Level 2 - inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument. Level 2 inputs are in those markets for which there are few transactions, the prices are not current, little public information exists or instances where prices vary substantially over time or among brokered market makers; and • Level 3 - inputs to the valuation methodology are unobservable and significant to the fair value measurement. Unobservable inputs are those inputs that reflect our own assumptions that market participants would use to price the asset or liability based upon the best available information. Financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement and are not necessarily an indication of risks associated with the investment. See "Note 6. Fair Value of Investments" in the accompanying notes to our consolidated financial statements for additional information regarding fair value measurements. Value, as defined in Section 2(a)(41) of the 1940 Act, is (i) the market price for those securities for which a market quotation is readily available and (ii) the fair value as determined in good faith by, or under the direction of, the Board of Directors for all other assets. See "Valuation Procedures" in the "Footnote to Consolidated Schedule of Investments" for additional information. As of June 30, 2014, our financial statements include venture capital investments valued at $93,009,936, the fair values of which were determined in good faith by, or under the direction of, the Board of Directors. As of June 30, 2014, approximately 77 percent of our net assets represent investments in portfolio companies at fair value by the Board of Directors. Determining fair value requires that judgment be applied to the specific facts and circumstances of each portfolio investment, although our valuation policy is intended to provide a consistent basis for determining fair value of the portfolio investments. Factors that may be considered include, but are not limited to, the cost of the Company's investment; transactions in the portfolio company's securities or unconditional firm offers by responsible parties; the financial condition and operating results of the company; the long-term potential of the business and technology of the company; the values of similar securities issued by companies in similar businesses; multiples to revenues, net income or EBITDA that similar securities issued by companies in similar businesses receive; the proportion of the company's securities we own and the nature of any rights to require the company to register restricted securities under the applicable securities laws; management's assessment of non-performance risk; the achievement of milestones; discounts for restrictions on transfers of publicly traded securities; and the rights and preferences of the class of securities we own as compared with other classes of securities the portfolio has issued. In addition, with respect to our debt investments for which no readily available market quotations are available, we will generally consider the financial condition and current and expected future cash flows of the portfolio company; the creditworthiness of the portfolio company and its ability to meet its current debt obligations; the relative seniority of our debt investment within the portfolio company's capital structure; the availability and value of any available collateral; and changes in market interest rates and credit spreads for similar debt investments. 91 Historically, difficult venture capital environments have resulted in companies not receiving financing and being subsequently closed down with a loss of investment to venture investors, and other companies receiving financing but at significantly lower valuations than the preceding rounds, leading to very deep dilution for those who do not participate in the new rounds of investment. Our best estimate of this non-performance risk has been quantified and included in the valuation of our portfolio companies as of June 30, 2014. All investments recorded at fair value are categorized based upon the level of judgment associated with the inputs used to measure their fair value. Hierarchical levels related to the amount of subjectivity associated with the inputs to fair valuation of these assets are as discussed above. As of June 30, 2014, approximately 97 percent of our portfolio company investments were classified as Level 3 in the hierarchy, indicating a high level of judgment required in their valuation. The values assigned to our assets are based on available information and do not necessarily represent amounts that might ultimately be realized, as these amounts depend on future circumstances and cannot be reasonably determined until the individual investments are actually liquidated or become readily marketable. Upon sale of investments, the values that are ultimately realized may be materially different from what is presently estimated. Stock-Based Compensation Determining the appropriate fair-value model and calculating the fair value of share-based awards on the date of grant requires judgment. Historically, we have used the Black-Scholes-Merton option pricing model to estimate the fair value of employee stock options. Management uses the Black-Scholes-Merton option pricing model in instances where we lack historical data necessary for more complex models and when the share award terms can be valued within the model. Other models may yield fair values that are significantly different from those calculated by the Black-Scholes-Merton option pricing model. Management uses a binomial lattice option pricing model in instances where it is necessary to include a broader array of assumptions. We used the binomial lattice model for the 10-year NQSOs granted on March 18, 2009, and for performance-based restricted stock awards. These awards included accelerated vesting provisions or target stock prices that were based on market conditions. Option pricing models require the use of subjective input assumptions, including expected volatility, expected life, expected dividend rate, and expected risk-free rate of return. Variations in the expected volatility or expected term assumptions have a significant impact on fair value. As the volatility or expected term assumptions increase, the fair value of the stock option increases. The expected dividend rate and expected risk-free rate of return are not as significant to the calculation of fair value. A higher assumed dividend rate yields a lower fair value, whereas higher assumed interest rates yield higher fair values for stock options. 92 In the Black-Scholes-Merton model, we use the simplified calculation of expected term as described in the SEC's Staff Accounting Bulletin 107 because of the lack of historical information about option exercise patterns. In the binomial lattice model, we use an expected term that assumes the options will be exercised at two times the strike price because of the lack of option exercise patterns. Future exercise behavior could be materially different than thatwhich is assumed by the model. Expected volatility is based on the historical fluctuations in the Company's stock. The Company's stock has historically been volatile, which increases the fair value of the underlying share-based awards. GAAP requires us to develop an estimate of the number of share-based awards that will be forfeited owing to employee turnover. Quarterly changes in the estimated forfeiture rate can have a significant effect on reported share-based compensation, as the effect of adjusting the rate for all expense amortization after the grant date is recognized in the period the forfeiture estimate is changed. If the actual forfeiture rate proves to be higher than the estimated forfeiture rate, then an adjustment will be made to increase the estimated forfeiture rate, which would result in a decrease to the expense recognized in the financial statements. If the actual forfeiture rate proves to be lower than the estimated forfeiture rate, then an adjustment will be made to decrease the estimated forfeiture rate, which would result in an increase to the expense recognized in the financial statements. Such adjustments would affect our operating expenses and additional paid-in capital, but would have no effecton our net asset value. Pension and Post-Retirement Benefit Plan Assumptions The Company provides a Retiree Medical Benefit Plan for employees who meet certain eligibility requirements. Until it was terminated on May 5, 2011, the Company also provided an Executive Mandatory Retirement Benefit Plan for certain individuals employed by us in a bona fide executive or high policy-making position. Our former President accrued benefits under this plan prior to his retirement, and the termination of the plan has no impact on his accrued benefits. Several statistical and other factors that attempt to anticipate future events are used in calculating the expense and liability values related to our post-retirement benefit plans. These factors include assumptions we make about the discount rate, the rate of increase in healthcare costs, and mortality, among others. The discount rate reflects the current rate at which the post-retirement medical benefit and pension liabilities could be effectively settled considering the timing of expected payments for plan participants. In estimating this rate, we consider the Citigroup Pension Liability Index in the determination of the appropriate discount rate assumptions. The weighted average rate we utilized to measure our post retirement medical benefit obligation as of December 31, 2013, and to calculate our 2014 expense was 4.79 percent. We used a discount rate of 2.75 percent to calculate our pension obligation for the Executive Mandatory Retirement Benefit Plan. Recent Developments - Portfolio Companies On July 11, 2014, the Company made a $209,020 follow-on investment in OpGen, Inc., a privately held portfolio company. 93 On July 15, 2014, we received $1,139,515 upon the release of the remaining funds held in escrow from the acquisition of Xradia, Inc., by Carl Zeiss AG during 2013. On July 21, 2014, the Company made a $216,012 new investment in Accelerator IV - New York Corporation, a privately held portfolio company. On July 31, 2014, Enumeral Biomedical Corp. completed a reverse merger into a publicly traded shell company, Enumeral Biomedical Holdings, Inc. The operations of Enumeral Biomedical Corp. became those of the surviving entity. Simultaneously with the merger, the Company made a $1.5 million investment in Enumeral Biomedical Holdings. Enumeral Biomedical Holdings is traded publicly on the OTC market under the symbol ENUM. The Company's securities of Enumeral Biomedical Holdings will be subject to a lock-up agreement for up to 18 months from the date of the close of the merger. ENUM's stock closed trading on August 7, 2014, at $2.00 per share. On August 1, 2014, the Company received $549,238 in payment of the outstanding principal, interest and warrants of OHSO Clean, Inc. |