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A
Publicly Traded Venture Capital Company Investing in Tiny Technology |
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SECOND QUARTER REPORT 2005 |
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Fellow
Shareholders: |
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On August 23, 2005, we completed
our previously announced public offering of 3,050,000 shares of our common
stock at $11.25 per share, for estimated net proceeds of approximately
$31,913,750 after deducting underwriting discounts and commissions and
estimated expenses payable by the Company.
We have granted an option to the underwriters to purchase up to an
additional 457,000 shares of our common stock at $11.25 per share through
September 16, 2005, to cover over-allotments, if any. All of the shares of common stock were sold
by us pursuant to an effective shelf registration statement filed with the
Securities and Exchange Commission.
ThinkEquity Partners LLC acted as the sole book runner for the
offering. Punk, Ziegel & Company
acted as co-manager for the offering.
This offering was essentially the balance of a 7,000,000 share shelf
registration that we had filed with the Securities and Exchange Commission in
February of 2004. We had previously
sold 3,450,000 shares at $11.25 per share in an offering underwritten by the
same two firms on June 30, 2004. |
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The Company has made
significant progress on multiple fronts over the last 13 months since our
June 30, 2004, public offering.
During that period: |
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§
Owing primarily
to the successful initial public offering of NeuroMetrix, Inc., and its
subsequent price appreciation, and to the anti-dilutive effect of our
3,450,000 share June 30, 2004, stock offering at $11.25 per share, our net
asset value per share increased from $2.85 on June 29, 2004, to $5.07 on
August 17, 2005. |
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§
We reviewed over
300 investment opportunities. |
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§
We completed
eight new investments in tiny technology companies. |
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§
We completed 15
follow-on investments in our tiny technology portfolio companies. |
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§
Altogether, we invested
$12,467,726 in tiny technology companies, with pre-emptive rights to make
follow-on investments in future rounds of financing in these companies. |
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§
NeuroMetrix (Nasdaq: NURO) completed a successful initial public
offering. |
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§
We hired six new
employees (two investment professionals, two accounting professionals, a
general counsel and chief compliance officer and an administrative
assistant), for a net increase of four in our number of full-time employees,
to a current total of 10. |
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These additional employees
include Patricia N. Egan and Thomas M. McCarthy. Ms. Egan joined us as Chief
Accounting Officer and Vice President during the quarter ended June 30,
2005. Prior to joining us, she was a
Manager in the Financial Services Group of PricewaterhouseCoopers, LLP. She was graduated from |
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In the first half of the year,
we invested a total of $5,644,076 in tiny technology. Of this total, $3,300,000 was in three new investments,
and $2,344,076 was in six follow-on investments. (Please see page 26 of our Quarterly Report
on Form 10-Q for the period ended June 30, 2005, for more details.) |
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At June 30, 2005, the value of
our venture capital portfolio totaled $45,421,482. Since the close of the first half of 2005
to the date of this Letter to Shareholders, we have invested an additional
$1,083,000 in two follow-on investments.
Our last 24 initial investments, dating back to 2001, have been in
tiny technology. |
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At June 30, 2005,
approximately half of the value of our venture capital portfolio was in our
1,137,570 shares of NeuroMetrix, Inc. (Nasdaq: NURO), a company in which we
were the seed investor that went public in July of 2004. Although our lock-up period with respect to
the sale of these shares ended in January of this year, as of the date of
this letter, we have chosen not to sell any of this holding. Because NeuroMetrix is the last of our
significant non-tiny technology investments, once we sell our interest in it,
our Company's portfolio will be essentially composed only of tiny technology
companies. |
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As our fellow shareholders, we
are appreciative of your understanding of the cyclical nature of the venture capital
industry, as well as your shared vision of the commercial significance of
tiny technology, particularly nanotechnology.
We welcome our new shareholders and the additional capital that you
have provided to us. |
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Charles E. Harris Douglas
W. Jamison |
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Chairman and Chief Executive
Officer President
and Chief Operating Officer |
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Managing Director Managing
Director |
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Daniel V. Leff Alexei
A. Andreev |
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Executive Vice President Executive
Vice President |
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Managing Director Managing
Director |
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August 24, 2005 |
Unaudited Schedule of Investments* |
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(As of June 30, 2005) |
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Shares/ |
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Principal |
Value |
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Investment
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AlphaSimplex Group, LLC |
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Limited
Liability Company Interest |
-- |
$ 125,000 |
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Cambrios Technologies
Corporation |
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Series
B Convertible Preferred |
1,294,025 |
1,294,025 |
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Chlorogen, Inc. |
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Series
A Convertible Preferred |
4,478,038 |
785,000 |
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Continuum Photonics, Inc. |
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Series
B Convertible Preferred Stock |
2,000,000 |
57,865 |
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Series
C Convertible Preferred Stock |
2,689,103 |
199,635 |
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257,500 |
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Series
A Convertible Preferred |
274,100 |
199,983 |
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CSwitch, Inc. |
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Series
A Convertible Preferred Stock |
1,000,000 |
1,000,000 |
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eLite
Optoelectronics Inc. |
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Series
B Convertible Preferred Stock |
1,861,504 |
1,000,000 |
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Experion
Systems, Inc. |
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Series
A Convertible Preferred Stock |
187,500 |
0 |
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Series
B Convertible Preferred Stock |
22,500 |
0 |
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Series
C Convertible Preferred Stock |
222,184 |
0 |
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Series
D Convertible Preferred Stock |
64,501 |
0 |
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0 |
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Exponential Business
Development Company |
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Limited
Partnership Interest |
-- |
0 |
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Heartware, Inc. |
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Series
A-2 Non-Voting Preferred Stock |
47,620 |
0 |
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Kereos, Inc. |
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Series
B Convertible Preferred Stock |
290,910 |
800,000 |
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Molecular Imprints, Inc. |
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Series
B Convertible Preferred Stock |
1,333,333 |
2,000,000 |
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NanoGram Corporation |
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Series
I Convertible Preferred Stock |
63,210 |
21,672 |
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Series
II Convertible Preferred Stock |
1,250,904 |
1,000,723 |
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1,022,395 |
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Nanomix, Inc. |
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Series
C Convertible Preferred Stock |
9,779,181 |
2,500,000 |
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NanoOpto Corporation |
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Series
A-1 Convertible Preferred Stock |
267,857 |
32,490 |
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Series
B Convertible Preferred Stock |
3,819,935 |
1,110,073 |
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Series
C Convertible Preferred Stock |
1,932,789 |
842,503 |
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Warrants
at $0.4359 expiring 03/15/10 |
193,279 |
0 |
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1,985,066 |
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Nanopharma Corp. |
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Series
A Convertible Preferred Stock |
684,516 |
136,903 |
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Secured
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$650,000 |
650,000 |
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786,903 |
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Nanosys, Inc. |
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Series
C Convertible Preferred Stock |
803,428 |
1,500,000 |
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Nantero, Inc. |
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Series
A Convertible Preferred Stock |
345,070 |
1,046,908 |
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Series
B Convertible Preferred Stock |
207,051 |
628,172 |
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Series
C Convertible Preferred Stock |
188,315 |
571,329 |
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2,246,409 |
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NeoPhotonics
Corporation |
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Common
Stock |
60,580 |
9,105 |
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Series
1 Convertible Preferred Stock |
1,831,256 |
2,014,677 |
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Warrants
at $0.15 expiring 01/26/10 |
16,364 |
164 |
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Warrants
at $0.15 expiring 12/05/10 |
14,063 |
140 |
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2,024,086 |
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NeuroMetrix, Inc. |
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Common
Stock |
1,137,570 |
22,785,527 |
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Nextreme Thermal Solutions,
Inc. |
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Series
A Convertible Preferred Stock |
500,000 |
500,000 |
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Optiva, Inc. |
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Series
C Convertible Preferred Stock |
1,249,999 |
0 |
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Secured
Stock
Warrant coverage |
$150,000 |
75,000 |
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75,000 |
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Questech Corporation |
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Common
Stock |
646,954 |
724,588 |
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Warrants
at $1.50 expiring 11/16/05 |
1,250 |
0 |
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Warrants
at $1.50 expiring 08/03/06 |
8,500 |
0 |
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Warrants
at $1.50 expiring 11/21/07 |
3,750 |
0 |
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Warrants
at $1.50 expiring 11/19/08 |
5,000 |
0 |
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Warrants
at $1.50 expiring 11/19/09 |
5,000 |
0 |
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724,588 |
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Solazyme, Inc. |
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Convertible
Promissory Note |
$310,000 |
310,000 |
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Starfire Systems, Inc. |
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Common
Stock |
375,000 |
150,000 |
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Series
A-1 Convertible Preferred Stock |
600,000 |
600,000 |
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750,000 |
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Zia Laser, Inc. |
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Series
C Convertible Preferred Stock |
1,500,000 |
750,000 |
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Total |
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$45,421,482 |
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*Selected
quarterly financial information. The
information contained herein does not include the full unaudited quarterly
financial information. Please see the
Company's report on Form 10-Q for the quarter ended June 30, 2005 for the
unaudited financial information and notes thereto. |
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CONSOLIDATED STATEMENTS OF ASSETS AND
LIABILITIES* |
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ASSETS |
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June 30,
2005 |
December 31, 2004 |
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(Unaudited) |
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$ 55,386,507 |
$45,273,054 |
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Investments, at value |
45,421,482 |
31,621,960 |
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Restricted funds |
1,617,185 |
1,591,971 |
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Funds in escrow |
999,999 |
0 |
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Receivable from portfolio company |
0 |
10,000 |
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Interest receivable |
70,278 |
58,960 |
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Income tax receivable |
7,891 |
2,480 |
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Prepaid expenses |
232,353 |
542,489 |
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Other assets, net of reserve of $255,486 at 12/31/04 |
258,530 |
260,537 |
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Total
assets |
$103,994,225 |
$79,361,451 |
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LIABILITIES
& NET ASSETS |
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Accounts payable and accrued liabilities |
$ 2,775,400 |
$ 2,905,658 |
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Broker payable |
18,297,158 |
0 |
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Accrued profit sharing |
2,012,465 |
311,594 |
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Deferred rent |
31,529 |
34,930 |
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Deferred income tax liability |
1,364,470 |
1,364,470 |
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Total
liabilities |
24,481,022 |
4,616,652 |
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Net assets |
$ 79,513,203 =========== |
$ 74,744,799 =========== |
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Net assets
are comprised of: |
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Preferred stock, $0.10 par value, 2,000,000 shares
authorized; none issued |
$ 0 |
$ 0 |
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Common stock, $0.01 par value, 30,000,000 shares
authorized at 6/30/05 and 25,000,000 |
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shares authorized
at 12/31/04; 19,077,585 issued at 6/30/05 and 12/31/04 |
190,776 |
190,776 |
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Additional paid in capital |
85,658,150 |
85,658,150 |
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Accumulated net realized loss |
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