A Publicly Traded Venture Capital Company Investing in Tiny Technology
FIRST QUARTER REPORT 2002
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.