AS OF DECEMBER 31, 2005
Harris & Harris Group, Inc., reported today that, as of December 31, 2005, its net asset value and net asset value per share were $117,987,742 and $5.68, respectively. Net asset value declined by $5,388,950, or $0.26 per share, from the third quarter of 2005. The primary reason for the decline in net asset value was an increase in the provision for taxes of $8,282,367, partially offset by a decrease in the provision for employee profit sharing of $2,298,095. Both the increase in the provision for taxes and most of the decrease in the provision for employee profit sharing were the result of the decision to pay taxes on behalf of shareholders through a deemed dividend.
The primary reason for the increase in taxes was the sale in the fourth quarter of the Company's position in NeuroMetrix, Inc. (Nasdaq: NURO), for net proceeds of approximately $34,591,136, versus the Company's cost of $4,411,374. The Company was the seed investor in NeuroMetrix, a spin-out from the Harvard-MIT Division of Health, Science and Technology. Accounting rules do not permit the Company to establish reserves for taxes on unrealized gains.
The primary reason for the decrease in the provision for employee profit sharing was that the Company chose to retain its net realized long-term capital gains for reinvestment for growth, rather than distribute them as a cash dividend. When the Company chooses to retain its net realized long-term capital gains, it declares a deemed dividend and pays taxes on behalf of shareholders. Conversely, when the Company distributes its net realized long-term capital gains as a cash dividend, the shareholders pay all of the taxes. The taxes paid by the Company on behalf of shareholders reduce the amount of profit against which the profit sharing payable to employees is calculated. Had the Company chosen to distribute its net realized long-term capital gains as a cash dividend, the provision for employee profit sharing would have been $3,420,737 for 2005, rather than the actual provision for employee profit sharing of $1,796,264 for 2005.
Harris & Harris Group is a publicly traded venture capital company that now makes initial investments exclusively in tiny technology, including nanotechnology, microsystems and microelectromechanical systems (MEMS). The Company's last 27 initial private equity investments have been in tiny technology-enabled companies. The Company has 20,756,345 common shares outstanding.
Detailed information about Harris & Harris Group and its holdings can be found on its website at www.TinyTechVC.com.
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