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A Publicly Traded Venture Capital Company Investing in
Tiny Technology FIRST
QUARTER REPORT 2002
FELLOW
SHAREHOLDERS: �������������� The first quarter of 2002 was a
signal quarter for our Company. On February 14, following a Board of Directors
meeting, we announced that the Company would focus for the first time on a
single area of venture capital investing: small technology, including
nanotechnology, microsystems and microelectromechanical systems (MEMS). At the time of that strategic announcement, we already
had a small-technology investment in privately held Nantero, Inc., a Harvard
University spin-off developing a non-volatile random access memory (NRAM)
utilizing carbon nanotubes; and another such investment in Nanopharma Corp., a spin-off from Massachusetts General
Hospital founded to develop advanced drug delivery systems.� We were also far enough along in due
diligence and negotiations on various other small-technology opportunities that
we were able to co-invest with other venture capital firms in two more such
investments during the first quarter.�
The first was NanoOpto Corp., a Princeton University spin-off that is
applying proprietary nano-optics and nano-manufacturing technology to design
and make components for optical networking.�
The second was NeoPhotonics Corporation, a privately held company
developing patented technology that enables the manufacture of unique nanoscale
optical compositions for the telecommunications industry.� At this writing, we have five
small-technology investments in the portfolio, having also invested on May 6 in
privately held Nanotechnologies, Inc., an Austin, Texas-based producer of a
wide variety of nanoscale materials using a proprietary plasma-based
technology. �������������� Now that we are focusing all of
our new business activity on small technology, we are finding fully relevant
all of the experience and relationships that we have built up over the years in
our high technology venture capital investing activities.� And the advantages of specialization in
terms of expertise, corporate identity and networking effects are proving to be
even greater than we had hoped when we made this strategic decision.� We are encouraged by positive feedback that
is taking many forms, including recognition from thought leaders in small
technology, robust deal flow from scientists, research universities,
entrepreneurs and other venture capitalists, and some extremely attractive
candidates for employment.� But to try
to maximize the economic benefits of this specialization, we are having to
reorient the Company. �������������� As previously discussed in the
Annual Report for the year 2001, part of this reorientation was the addition to
our Board of Directors of two of the outside consultants who help us evaluate
small-technology opportunities, Dr. Kelly S. Kirkpatrick and Lori D.
Pressman.� Also, we are interviewing a
number of candidates with strong backgrounds in science and technology, as well
as other relevant qualifications, for a senior position within the Company.� And to add to our liquid capital, we have filed
a transferable rights offering with the Securities and Exchange
Commission.� If declared effective and
fully subscribed, this rights offering would raise net proceeds of
approximately $6.5 million.� As noted in
the prospectus, which should be read in its entirety by shareholders when it
becomes available, we intend to invest all of the net proceeds of the offering
in small technology within a 12-month period. �������������� In
summary, we believe that your Company has a major opportunity in small
technology.� But continuing to translate
this opportunity into reality will be a major job of work.� Shareholders should also be mindful that
small technology is at least as risky as other technology-based, early stage
venture capital investing, which is one of the riskiest types of
investing.� But we cannot pursue our new
mission without incurring this risk.�
This mission is straightforward and simple:� 1) to create wealth for our shareholders by making the best
venture capital investments that we can make in small technology; and, 2) as a
natural byproduct of that work, to give our shareholders an increasingly pure
play on a reasonably diversified portfolio of small-technology venture capital
investments.� Charles E. Harris���������������������������������������������������������������������������������������� Mel
P. Melsheimer Chairman and Chief Executive Officer���������������������������������������������������� President
and Chief Operating Officer May
28, 2002 This letter may contain
statements of a forward-looking nature relating to future events.� Statements contained in this letter that are
forward looking statements are intended to be made pursuant to the Safe Harbor
Provisions of the Private Securities Litigation Reform Act of 1995.� These forward-looking statements are subject
to the inherent uncertainties in predicting future results and conditions.� These statements reflect the Company's
current beliefs, and a number of important factors could cause actual results
to differ materially from those expressed in this press release.� Please see the Company's Annual Report on
Form 10-K filed with the Securities and Exchange Commission for a more detailed
discussion of the risks and uncertainties associated with the Company�s
business, including but not limited to the risks and uncertainties associated
with venture capital investing and other significant factors that could affect
the Company's actual results.� Except as
otherwise required by Federal securities laws, Harris & Harris Group, Inc.
undertakes no obligation to update or revise these forward looking statements
to reflect new events or uncertainties.
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