FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended July 31, 2002
or
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number 000-28405
MEVC DRAPER FISHER JURVETSON FUND I, INC.
(Exact name of the registrant as specified in its charter)
DELAWARE 94-3346760
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
991 Folsom Street
San Francisco, California 94107-1020
(Address of principal (Zip Code)
executive offices)
Registrant's telephone number, including area code: (877) 474-6382
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
Common Stock New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes |X| No |_|
As of September 16, 2002, there were 16,500,000 shares of Registrant's common
stock, $.01 par value (the "Shares"), outstanding. The net asset value of a
share at July 31, 2002 was $12.36.
meVC Draper Fisher Jurvetson Fund I, Inc.
(A Delaware Corporation)
Index
Part I. Financial Information Page
Item 1. Financial Statements
Balance Sheets
- July 31, 2002 and October 31, 2001...................... 01
Statement of Operations
- For the Period November 1, 2001 to July 31, 2002........ 02
Statement of Operations
- For the Quarter May 1, 2002 to July 31, 2002 and
the Quarter May 1, 2001 to July 31, 2001..................... 03
Statements of Cash Flows
- For the Period November 1, 2001 to July 31, 2002 and
the Period November 1, 2000 to July 31, 2001................. 04
Statement of Shareholders' Equity
- Period ended July 31, 2002.............................. 05
Selected Per Share Data and Ratios
- For the Period ended July 31, 2002 and
the Year ended October 31, 2001.............................. 06
Schedule of Investments
- July 31, 2002........................................... 07
Notes to Financial Statements................................ 13
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.......................... 21
Item 3. Quantitative and Qualitative Disclosure about Market Risk.... 25
Part II. Other Information
Item 1. Legal Proceedings............................................. 26
Item 4. Submission of Matters to a Vote of Security Holders........... 26
Item 6. Exhibits and Reports on Form 8-K.............................. 27
SIGNATURE................................................................... 29
Exhibits.................................................................... 30
Part I. Financial Information
ITEM 1. FINANCIAL STATEMENTS
meVC Draper Fisher Jurvetson Fund I, Inc.
Balance Sheets
(Unaudited)
ASSETS July 31, October 31,
2002 2001
------------- -------------
Investments in preferred stocks, at fair value
(cost $140,524,496 and $148,886,310, respectively) $ 55,577,321 $ 90,926,328
Investments in short-term securities, at market value
(cost $59,456,055 and $151,320,526, respectively) . 59,431,227 151,373,377
Cash and cash equivalents
(cost $91,025,823 and $12,353,422, respectively) .. 91,025,823 12,353,422
Subordinated notes (cost $5,327,475 and $0, respectively) 5,327,475 --
Interest receivable ..................................... 17,411 396,656
------------- -------------
Total assets ............................................ 211,379,257 255,049,783
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities (Note 2, 7):
Payable for investments purchased ....................... 6,089,918 --
Management fee payable .................................. 114,442 578,227
Custody/Accounting/Transfer Agency ...................... 23,015 --
Administration .......................................... 33,750 --
Audit Fees .............................................. 89,400 --
Legal Fees .............................................. 485,559 --
Director's Fees ......................................... 206,400 --
Employee Compensation & Benefits ........................ 221,735 --
Accrued Expenses ........................................ 206,561 --
------------- -------------
Total liabilities ....................................... 7,470,780 578,227
------------- -------------
Shareholders' Equity:
Common Stock, $0.01 par value; 150,000,000 shares
authorized and 16,500,000 outstanding .......... 165,000 165,000
Additional paid in capital .......................... 311,485,000 311,485,000
Retained deficit .................................... (107,741,523) (57,178,444)
------------- -------------
Total shareholders' equity .............................. 203,908,477 254,471,556
------------- -------------
Total liabilities and shareholders' equity .............. $ 211,379,257 $ 255,049,783
============= =============
Net asset value per share ............................... $ 12.36 $ 15.42
============= =============
The accompanying notes are an integral part of these financial statements.
1
meVC Draper Fisher Jurvetson Fund I, Inc.
Statement of Operations
For the Period November 1, 2001 to July 31, 2002
(Unaudited)
Investment Income:
Interest income .................................. $ 2,776,045
Dividend income .................................. 9,745
------------
Total investment income ................................... 2,785,790
------------
Operating Expenses:
Management fees .................................. 3,592,753
Custody/Accounting/Transfer Agency ............... 23,015
Administration ................................... 33,750
Audit Fees ....................................... 89,400
Legal Fees ....................................... 485,559
Director's Fees .................................. 206,400
Employee Compensation & Benefits ................. 221,736
Accrued Expenses ................................. 206,561
------------
Total operating expenses .................................. 4,859,174
------------
Net investment loss ....................................... (2,073,384)
------------
Net Realized and Unrealized Loss on
Investment Transactions:
Net realized loss on
investment transactions .......................... (20,696,133)
------------
Net unrealized depreciation on
investment transactions .......................... (27,064,872)
------------
Realized and unrealized loss on
investment transactions .......................... (47,761,005)
------------
Net decrease in net assets resulting
from operations ........................................... $(49,834,389)
============
Net decrease in net assets resulting
from operations per share ................................. $ (3.02)
============
Dividends declared per Share .............................. $ 0.04
============
The accompanying notes are an integral part of these financial statements.
2
meVC Draper Fisher Jurvetson Fund I, Inc.
Statements of Operations
(Unaudited)
For the quarter For the quarter
May 1, 2002 to May 1, 2001 to
July 31, 2002 July 31, 2001
--------------- ---------------
Investment Income:
Interest income ..................... $ 806,238 $ 1,799,202
------------ ------------
Operating Expenses:
Management fees (Note 2) ............ 588,049 1,845,235
Custody/Accounting/Transfer Agency .. 23,015 --
Administration ...................... 33,750 --
Audit Fees .......................... 89,400 --
Legal Fees .......................... 485,559 --
Director's Fees ..................... 206,400 --
Employee Compensation & Benefits .... 221,736 --
Accrued Expenses .................... 206,561 --
------------ ------------
Total operating expenses ..................... 1,854,470 1,845,235
------------ ------------
Net investment loss .......................... (1,048,232) (46,033)
------------ ------------
Net Realized and Unrealized (Loss) Gain on
Investment Transactions:
Net realized (loss) gain on
investment transactions ............. (17,368,574) 4,398
------------ ------------
Net unrealized depreciation on
investment transactions ............. (2,380,632) (16,569,793)
------------ ------------
Realized and unrealized loss on
investment transactions ............. (19,749,206) (16,565,395)
------------ ------------
Net decrease in net assets resulting
from operations .............................. $(20,797,438) $(16,611,428)
============ ============
Net decrease in net assets resulting
from operations per share .................... $ (1.26) $ (1.01)
============ ============
Dividends declared per Share ................. $ -- $ --
============ ============
The accompanying notes are an integral part of these financial statements.
3
meVC Draper Fisher Jurvetson Fund I, Inc.
Statements of Cash Flows
(Unaudited)
For the period For the period
November 1, 2001 November 1, 2000
to July 31, 2002 to July 31, 2001
---------------- ----------------
Cash Flows from Operating Activities:
Net decrease in net assets resulting from operations .... $ (49,834,389) $ (26,141,567)
Adjustments to reconcile net cash provided by operations:
Realized loss (gain) ............................... 20,696,133 (4,295)
Unrealized depreciation ............................ 27,064,872 28,079,658
Changes in assets and liabilities:
Expenses payable .............................. 802,635 (56,002)
Interest receivable ........................... 379,245 278,047
Investment purchased payable .................. 6,089,918 100,000
Purchases of preferred stock ....................... (20,506,754) (36,325,157)
Purchases of short-term investments ................ (123,189,975) (106,432,239)
Purchases of cash equivalents ...................... (770,704,696) (820,953,502)
Sales of preferred stocks .......................... 8,170,283 --
Sales/Maturities of short-term investments ......... 203,421,303 102,946,261
Sales/Maturities of cash equivalents ............... 777,012,516 818,381,346
------------- -------------
Net cash provided (used) by operating activities ... 79,401,091 (40,127,450)
------------- -------------
Cash Flows from Financing Activities:
Distributions ...................................... (728,690) (5,644,650)
------------- -------------
Net cash used for financing activities ............. (728,690) (5,644,650)
------------- -------------
Net change in cash and cash equivalents for the period ...... 78,672,401 (45,772,100)
------------- -------------
Cash and cash equivalents, beginning of period .............. 12,353,422 115,760,166
------------- -------------
Cash and cash equivalents, end of the period ................ $ 91,025,823 $ 69,988,066
============= =============
The accompanying notes are an integral part of these financial statements.
4
meVC Draper Fisher Jurvetson Fund I, Inc.
Statement of Shareholders' Equity
(Unaudited)
Additional Total
Common Paid in Retained Shareholders'
Stock Capital Deficit Equity
--------- ------------- ------------- -------------
Balance at March 31, 2000* ................................. $ 3 $ 4,997 $ -- $ 5,000
Issuance of 16,500,000 shares through
Initial public offering (Net of Offering Costs) ......... 165,000 311,485,000 -- 311,650,000
Redemption of seed shares .................................. (3) (4,997) -- (5,000)
Net decrease in net assets from operations ................. -- -- (203,261) (203,261)
--------- ------------- ------------- -------------
Balance at October 31, 2000 ................................ $ 165,000 $ 311,485,000 $ (203,261) $ 311,446,739
--------- ------------- ------------- -------------
Distributions from net investment income ................... -- -- (5,644,650) (5,644,650)
Net decrease in net assets from operations ................. -- -- (51,330,533) (51,330,533)
--------- ------------- ------------- -------------
Balance at October 31, 2001 ................................ $ 165,000 $ 311,485,000 $ (57,178,444) $ 254,471,556
--------- ------------- ------------- -------------
Distributions from net investment income ................... -- -- (728,690) (728,690)
Net decrease in net assets from operations ................. -- -- (49,834,389) (49,834,389)
--------- ------------- ------------- -------------
Balance at July 31, 2002 ................................... $ 165,000 $ 311,485,000 $(107,741,523) $ 203,908,477
--------- ------------- ------------- -------------
* Commencement of operations.
The accompanying notes are an integral part of these financial statements.
5
meVC Draper Fisher Jurvetson Fund I, Inc.
Selected per Share Data and Ratios
For the Period
November 1, 2001 For the Year
to July 31, 2002 Ended
(Unaudited) October 31, 2001
---------------- ----------------
Net asset value, beginning of period ................. $ 15.42 $ 18.88
Income (loss) from investment operations:
Net investment (loss) income ...................... (0.13) 0.10
Net realized and unrealized loss on investments.... (2.89) (3.22)
----------- -----------
Total from investment operations .................. (3.02) (3.12)
----------- -----------
Less distributions from and in excess of:
Net investment income ............................. (0.04) (0.34)
Net realized and unrealized gain .................. -- --
----------- -----------
Total distributions ............................... (0.04) (0.34)
----------- -----------
Net asset value, end of period ....................... $ 12.36 $ 15.42
=========== ===========
Market Value, end of period .......................... $ 7.65 $ 9.25
=========== ===========
Total Return - At NAV (a) ............................ (19.49)% (15.99)%
Total Return - At Market (a) ......................... (16.93)% (17.26)%
Ratios and Supplemental Data:
Net assets, end of period (in thousands) ............. $ 203,908 $ 254,472
Ratios to average net assets:
Expenses (b) (Note 2, 7) ............................ 2.76% 2.50%
Net investment income (b) ........................... (1.18)% 0.56%
(a) Total return is historical and assumes changes in share price,
reinvestments of all dividends and distributions, and no sales charge.
Total return for periods of less than one year is not annualized.
(b) Annualized.
The accompanying notes are an integral part of these financial statements.
6
meVC Draper Fisher Jurvetson Fund I, Inc.
Schedule of Investments
July 31, 2002
(Unaudited)
Date of
Initial
Description Shares/Principal Investment Cost Fair Value
- ------------------------------------------------------------------------------------------------------------------------------------
Preferred Stocks-27.26% (a, b, c, d) (Note 3, 5)
Actelis Networks, Inc., Series C .................. 1,506,025 May 2001 $ 5,000,003 $ 5,000,003
Annuncio Software, Inc., Series E ................. 625,000 July 2000 5,000,000 1,706,250
*AuctionWatch.com, Inc., Common Stock .............. 10,476 June 2000 5,500,000 --
*AuctionWatch.com, Inc., Series A .................. 6,443,188 Jan. 2002 1,134,001 1,134,001
*BlueStar Solutions, Inc.:
Common Stock ................................ 49,474 May 2000 3,999,999 --
Series C Preferred .......................... 74,211 May 2000 5,999,999 1,499,990
Series C Warrants, expire 5/26/03 ........... 136,054 May 2000 -- --
*BlueStar Solutions Inc., Series D ................. 4,545,455 Feb. 2002 3,000,000 3,000,000
*CBCA, Inc., Series E .............................. 4,774,636 Apr. 2002 9,999,998 9,999,998
Cidera, Inc., Series D ............................. 857,192 Aug. 2000 7,500,001 500,000
DataPlay, Inc., Series D ........................... 2,500,000 June 2001 7,500,000 2,500,000
*Endymion Systems, Inc., Series A .................. 7,156,760 June 2000 7,000,000 2,000,314
*EXP Systems, Inc., Series C ....................... 330,750 June 2000 1,891,891 350,000
*Foliofn, Inc., Series C ........................... 5,802,259 June 2000 15,000,000 2,999,768
InfoImage, Inc.:
Series AA Preferred ........................ 11,740,340 June 2001 352,210 --
Common Stock Warrants ...................... 92,663,933 June 2001 -- --
Common Stock ............................... 933,120 June 2001 2,004,480 --
Series C Warrants for common stock,
expire 6/2/10 ............................. 259,200 June 2001 -- --
*Ishoni Networks, Inc., Series C ................... 2,003,607 Nov. 2000 10,000,003 2,499,900
*IQdestination, Series B ........................... 1,150,000 Sep. 2000 2,300,000 --
*IQdestination, Series C ........................... 1,295,775 June 2001 920,000 --
*IQdestination, Series C1 .......................... 535,714 Feb. 2002 300,000 --
Lumeta Corporation, Series A ...................... 384,615 Oct. 2000 250,000 269,231
Lumeta Corporation, Series B ...................... 266,846 June 2002 156,489 186,792
The accompanying notes are an integral part of these financial statements.
7
meVC Draper Fisher Jurvetson Fund I, Inc.
Schedule of Investments
July 31, 2002
(Unaudited)
Date of
Initial
Description Shares/Principal Investment Cost Fair Value
- ------------------------------------------------------------------------------------------------------------------------------------
Preferred Stocks (cont.)
*MediaPrise, Inc., Series A ...................... 2,196,193 Sep. 2000 $ 2,000,000 $ --
*Pagoo, Inc., Series C ........................... 3,412,969 July 2000 9,999,999 --
*Pagoo, Inc., Series D ........................... 2,098,636 Feb. 2001 4,000,000 2,600,000
*Phosistor Technologies, Inc., Series B .......... 6,666,667 Jan. 2002 1,000,000 1,000,000
*ProcessClaims, Inc., Series C ................... 6,250,000 June 2001 2,000,000 2,943,750
*ProcessClaims, Inc., Series D ................... 849,257 May 2002 400,000 400,000
*ProcessClaims, Inc.
Series E warrants, expire 12/31/05 ........ 873,362 May 2002 20 20
*Safestone Technologies PLC, Series A ............ 1,714,455 Dec. 2000 3,515,402 2,187,302
*Safestone Technologies PLC, Series B ............ 391,923 July 2002 500,000 500,000
*ShopEaze Systems, Inc., Series B ................ 2,097,902 May 2000 6,000,000 --
*Sonexis, Inc., Series C ......................... 2,590,674 June 2000 10,000,000 7,000,001
*Yaga, Inc., Series A ............................ 300,000 Nov. 2000 300,000 300,000
*Yaga, Inc.:
Series B .................................. 1,000,000 June 2001 2,000,000 1,000,000
Series B Warrants, expire 6/08/04 ......... 100,000 June 2001 -- --
*0-In Design Automation, Inc., Series E .......... 2,239,291 Nov. 2001 4,000,001 4,000,001
------------ ------------
Total Preferred Stocks ..................................................................... 140,524,496 55,577,321
------------ ------------
Subordinated Notes- 2.61% (b)
InfoUSA, Inc.
6.000%, 09/29/2003 ........................ 1,827,475 Dec. 2001 1,827,475 1,827,475
Dataplay, Inc.
6.000%, 05/10/2005 ........................ 2,000,000 May 2002 2,000,000 2,000,000
Dataplay, Inc.
6.000%, 06/17/2005 ........................ 500,000 June 2002 500,000 500,000
Dataplay, Inc.
6.000%, 06/27/2005 ........................ 1,000,000 June 2002 1,000,000 1,000,000
------------ ------------
Total Subordinated Notes .............................................................. 5,327,475 5,327,475
------------ ------------
The accompanying notes are an integral part of these financial statements.
8
meVC Draper Fisher Jurvetson Fund I, Inc.
Schedule of Investments
July 31, 2002
(Unaudited)
Date of
Initial
Description Shares/Principal Investment Cost Value
- ------------------------------------------------------------------------------------------------------------------------------------
Short-Term Securities-29.15% (b)
Corporate Bonds-2.83%
CIT Group Holdings, Inc.
6.375%, 11/15/2002 ........................ 3,000,000 Dec. 2001 $ 3,032,808 $ 3,005,340
Public Service Electric Gas Co.
7.190%, 09/06/2002 ........................ 2,745,000 Nov. 2001 2,756,016 2,756,501
------------ ------------
Total Corporate Bonds .................................................................. 5,788,824 5,761,841
------------ ------------
Certificates of Deposit-2.20%
National City Corp.
1.770%, 09/24/2002 ........................ 4,500,000 June 2001 4,500,000 4,500,000
------------ ------------
U.S. Government & Agency Securities-12.92%
Federal Home Loan Mortgage Disc. Cons
1.720%, 09/03/2002 ........................ 4,000,000 Jan. 2002 3,993,693 3,993,693
Federal Home Loan Mortgage Corp.
6.625%, 08/15/2002 ........................ 3,000,000 Aug. 2001 3,003,449 3,005,604
Federal National Mortgage Association Disc. Cons
1.920%, 08/09/2002 ........................ 4,850,000 Dec. 2001 4,847,931 4,847,931
Federal National Mortgage Association Disc. Cons
3.410%, 08/09/2002 ........................ 10,000,000 Dec. 2001 9,992,422 9,992,422
Federal National Mortgage Association
1.790%, 08/21/2002 ........................ 4,500,000 Apr. 2002 4,495,525 4,495,525
------------ ------------
Total U.S. Government & Agency ......................................................... 26,333,020 26,335,175
------------ ------------
Commercial Paper-7.77%
General Electric Capital Corp.
1.970%, 09/10/02 .......................... 7,000,000 Dec. 2001 6,984,678 6,984,678
Home Depot
1.77%, 11/06/2002 ......................... 1,100,000 July 2002 1,094,754 1,094,754
The accompanying notes are an integral part of these financial statements.
9
meVC Draper Fisher Jurvetson Fund I, Inc.
Schedule of Investments
July 31, 2002
(Unaudited)
Date of
Initial
Description Shares/Principal Investment Cost Value
- ------------------------------------------------------------------------------------------------------------------------------------
Commercial Paper (cont.)
Shell Finance
1.780%, 09/20/2002 ........................ 2,100,000 June 2002 $ 2,094,808 $ 2,094,808
Societe Generale
1.86%, 12/16/2002 ......................... 5,700,000 June 2002 5,659,654 5,659,654
------------ ------------
Total Commercial Paper .................................................................... 15,833,894 15,833,894
------------ ------------
Certificate of Deposit-3.43%
Deutsche Bank
1.77%, 10/22/2002 ......................... 7,000,000 July 2002 7,000,317 7,000,317
------------ ------------
Total Short Term Securities ........................................................... 59,456,055 59,431,227
------------ ------------
Cash and Cash Equivalents-44.64% (b)
Commercial Paper-40.17%
ABN Amro
1.770%, 08/08/2002 ........................ 2,000,000 June 2002 1,999,312 1,999,312
ABN Amro
1.760%, 10/11/2002 ........................ 1,000,000 July 2002 996,529 996,529
Alcon Finance
1.730%, 08/27/2002 ........................ 7,000,000 July 2002 6,991,254 6,991,254
American Gen Fin Corp.
1.760%, 09/09/2002 ........................ 2,000,000 July 2002 1,996,187 1,996,187
BNP Paribas
1.73%, 09/17/2002 ......................... 5,000,000 June 2002 4,988,707 4,988,707
CDC Commercial
1.730%, 08/02/2002 ........................ 2,500,000 June 2002 2,499,880 2,499,880
CDC Commercial
1.720%, 08/22/2002 ........................ 4,500,000 July 2002 4,495,485 4,495,485
Citicorp
1.750%, 08/01/2002 ........................ 2,000,000 July 2002 2,000,000 2,000,000
The accompanying notes are an integral part of these financial statements.
10
meVC Draper Fisher Jurvetson Fund I, Inc.
Schedule of Investments
July 31, 2002
(Unaudited)
Date of
Initial
Description Shares/Principal Investment Cost Value
- ------------------------------------------------------------------------------------------------------------------------------------
Cash and Cash Equivalents (cont.)
Citigroup, Inc.
1.750%, 08/20/2002 ........................ 5,000,000 July 2002 $ 4,995,382 $ 4,995,382
Danske Corp.
1.750%, 08/12/2002 ........................ 1,800,000 July 2002 1,799,037 1,799,037
Danske Corp.
1.765%, 08/22/2002 ........................ 3,100,000 July 2002 3,096,808 3,096,808
Formosa Plastics Corp.
1.750%, 08/20/2002 ........................ 4,000,000 July 2002 3,996,305 3,996,305
Fortis Funding
1.750%, 09/04/2002 ........................ 6,100,000 July 2002 6,089,918 6,089,918
Fuji Photo Film Finance
1.750%, 09/05/2002 ........................ 6,000,000 July 2002 5,989,792 5,989,792
Ing America
1.810%, 08/22/2002 ........................ 4,000,000 May 2002 3,995,777 3,995,777
Ing America
1.760%, 09/06/2002 ........................ 3,000,000 July 2002 2,994,720 2,994,720
Johnson and Johnson
1.770%, 08/06/2002 ........................ 2,200,000 May 2002 2,199,459 2,199,459
Nestles Capital Corp.
1.750%, 08/05/2002 ........................ 6,700,000 May 2002 6,698,697 6,698,697
Nestle Fin France
1.720%, 08/19/2002 ........................ 2,600,000 July 2002 2,597,764 2,597,764
Shell Finance
1.770%, 08/20/2002 ........................ 1,000,000 June 2002 999,066 999,066
Siemens Cap Corp.
1.730%, 08/12/2002 ........................ 5,500,000 June 2002 5,497,093 5,497,093
UBS Fin Inc.
1.770%, 08/07/2002 ........................ 5,000,000 July 2002 4,998,525 4,998,525
------------ ------------
Total Commercial Paper .................................................................... 81,915,697 81,915,697
------------ ------------
The accompanying notes are an integral part of these financial statements.
11
meVC Draper Fisher Jurvetson Fund I, Inc.
Schedule of Investments
July 31, 2002
(Unaudited)
Date of
Initial
Description Shares/Principal Investment Cost Fair Value/Value
- ------------------------------------------------------------------------------------------------------------------------------------
Certificates of Deposit-1.47%
Wells Fargo Bank
1.760%, 08/01/2002 ........................ 3,000,000 June 2002 $ 3,000,000 $ 3,000,000
------------ ------------
Money Market Funds-3.00%
SSgA Money Market Fund
1.596% .................................... 6,110,126 July 2002 6,110,126 6,110,126
------------ ------------
Total Cash and Cash Equivalents .......................................................... 91,025,823 91,025,823
------------ ------------
Total Investments ......................................................................... $296,333,849 $211,361,846
============ ============
(a) These securities are restricted from public sale without prior
registration under the Securities Act of 1933. The Fund negotiates certain
aspects of the method and timing of the disposition of these investments,
including registration rights and related costs.
(b) Percentages are based on net assets of $203,908,477.
(c) As defined in the Investment Company Act of 1940, at July 31, 2002, the
Fund was considered to have a controlling interest in Auctionwatch, Inc.
(d) As defined in the Investment Company Act of 1940, all of the Fund's
preferred stock investments are in eligible portfolio companies except
Safestone Technologies PLC. The Fund provides significant managerial
assistance to all of the portfolio companies in which it has invested,
except InfoImage, Inc., IQdestination, Mediaprise, Inc., Shopeaze Systems,
Inc, which are in the process of ceasing operations. The Fund provides
significant managerial assistance to portfolio companies that comprise
100% of the total value of the investments in portfolio companies at July
31, 2002.
* Affiliated Issuers (Total Market Value of $45,415,045): companies in which
the Fund owns at least 5% of the voting securities.
The accompanying notes are an integral part of these financial statements.
12
meVC Draper Fisher Jurvetson Fund I, Inc.
Notes to Financial Statements
July 31, 2002
(Unaudited)
1. Basis of Presentation
The accompanying unaudited financial statements have been prepared in
accordance with the instructions to Form 10-Q and do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for a fair
presentation have been included. These statements should be read in conjunction
with the financial statements and notes thereto included in the Company's Annual
Report on Form 10-K for the year ended October 31, 2001, as filed with the
Securities and Exchange Commission (File No. 814-00201).
2. Change of Fund Management Structure
From the beginning of the fiscal quarter through June 19, 2002, the Fund
was charged a management fee by meVC Advisers, Inc. ("meVC Advisers" or "the
former Advisor") at a rate of 2.5% of the average weekly net assets of the Fund,
paid monthly in arrears. The former Advisor had agreed to pay compensation to
the directors and officers for any and all services rendered to the Fund and had
agreed to pay all Fund expenses above and beyond the 2.5% management fee paid to
the former Advisor by the Fund. The former Advisor resigned without notice on
June 19, 2002. As a result, the Fund's board internalized the Fund's operations,
including management of the Fund's investments, and began to pay it's own
expenses directly. The previous 2.5% expense cap, the maximum amount of
compensation to be paid to the former Advisor, was terminated at the time of the
Adviser's resignation.
3. Concentration of Market Risk
Financial instruments that subject the Fund to concentrations of market
risk consist principally of preferred stocks, which represent approximately
27.26% of the Fund's net assets. The preferred stocks, as discussed in Note 5,
consist of investments in companies with no readily determinable market values
and as such are valued in accordance with the Fund's fair value policies. The
Fund's investment strategy represents a high degree of business and financial
risk due to the fact that the investments include entities with little operating
history or entities that possess operations in new or developing industries.
These investments are subject to restrictions on resale because they were
acquired from the issuer in private placement transactions.
4. Transactions with Other Parties
Through March 2002, Fleet Investment Advisors managed the Fund's cash
portfolio under a sub-advisory agreement with the former Advisor. Subsequently,
the former Advisor managed those assets until its resignation on June 19, 2002.
Since that time, the Fund's cash portfolio is managed internally by Fund
employees.
On June 19, 2002, when meVC Advisers resigned as the Investment Advisor to
the Fund effective immediately, the former Advisor's sub-advisory agreement with
Draper Fisher Jurvetson MeVC Management Co. LLC ("Draper Advisers" or "the
former Sub-Advisor") was terminated automatically as a matter of contract
construction. On June 20, 2002, the Board voted to internalize all investment
management and administrative functions of the Fund effective immediately.
On June 26, 2002, the Fund acquired various assets from meVC Advisers
necessary to run the Fund's information systems and web site, including but not
limited to, website equipment, systems hardware and software, and intellectual
property. The assets were purchased for $17,855.
13
In June and July 2002, the Fund utilized the services of Draper Fisher
Jurvetson MeVC Management Co, LLC as a temporary payroll agent to facilitate the
payment of the Fund's employees. Management believed it was in the stockholders'
best interest to maintain continuity of payroll while operations were initiated
with the Fund's ongoing payroll vendor.
5. Portfolio Investments
During the nine months ended July 31, 2002, the Fund invested
approximately $15,000,000 in three new companies, made ten follow-on investments
in AuctionWatch.com, Inc., BlueStar Solutions, Inc., DataPlay, Inc.,
IQdestination, Lumeta Corporation, ProcessClaims, Inc., and Safestone PLC of
approximately $9,006,756, had two portfolio company exit events with proceeds
totaling approximately $8,170,283 and a realized loss of approximately
$9,937,825 in the sale of infoUSA.com, Inc. to its parent entity and the
disbursement of assets from EXP Systems, Inc., and had one portfolio company
write-off with a realized loss of approximately $10,760,460 in the irreversible
dilution of equity in Personic Software, Inc. Changes to and additions to the
Fund's individual equity and equity-linked security investments, during the nine
months ended July 31, 2002, were comprised of the following:
AuctionWatch.com, Inc.
On November 19, 2001, the Valuation Committee of the Board of Directors
marked down the remaining valuation of the Fund's investment in the Series C
Convertible Preferred Stock ("Series C Preferred Stock") issue of
AuctionWatch.com, Inc. ("AuctionWatch") by 11%. The Fund's investment then
consisted of 1,047,619 shares of Series C Preferred Stock at a valuation of
$1.9688 per share.
On January 31, 2002 the Fund entered into a follow-on investment of
$1,134,001 in AuctionWatch. The Fund's investment consisted of 6,443,188 shares
of Series A Convertible Preferred Stock ("Series A Convertible Preferred Stock")
at $0.176 per share.
The Series A Preferred Stock ranks senior, with respect to liquidation
preference, to any series of Preferred Stock issued prior to the Series A and
senior to the Common Stock. In the event of a Qualified Initial Public Offering
("Qualified IPO"), the Series A Preferred Stock, as converted to common stock,
will not be transferred in a public distribution prior to one hundred and eighty
days after the date of the final prospectus used in such Qualified IPO.
Pursuant to the terms of the financing, the Series C Preferred Stock was
converted into 10,476 shares of Common Stock, along with the entirety of
AuctionWatch's Series A Convertible Preferred Stock, Series B Convertible
Preferred Stock , and all other Series C Convertible Preferred Stock. The Fund's
investments now consist of 10,476 shares of Common Stock at a valuation of $0.00
per share and 6,443,188 shares of Series A Preferred Stock at a valuation of
$0.176 per share.
0-In Design Automation, Inc.
On November 29, 2001 the Fund entered into approximately a $4,000,000
investment in 0-In Design Automation, Inc.. ("0-In"). The Fund's investment
consisted of 2,239,291 shares of Series E Convertible Preferred Stock (Series E
Preferred Stock") at $1.78628 per share.
The Series E Preferred Stock ranks senior, with respect to liquidation
preference, to any series of Preferred Stock issued prior to the Series E and
senior to the Common Stock. In the event of a Qualified IPO, the Series E
Preferred Stock, as converted to common stock, will not be transferred in a
public distribution prior to one hundred and eighty days after the date of the
final prospectus used in such Qualified IPO.
infoUSA.com, Inc.
On December 29, 2001 the Fund agreed to the acquisition of the assets of
infoUSA.com, Inc. by infoUSA, Inc., the parent company of infoUSA.com, Inc. In
return, the Fund received proceeds of $6,670,282.47 made up of $4,842,807.82 in
cash and $1,827,474.65 in the form of a promissory note from infoUSA, Inc. The
Fund shall receive interest on the unpaid principal balance of the Note at the
rate of 6% per annum, paid quarterly.
14
The Note is due and payable on September 29, 2003. The entire transaction
resulted in a realized loss of $3,329,714.53 for the Fund.
Annuncio Software, Inc.
On January 15, 2002, the Valuation Committee of the Board of Directors
marked down the remaining valuation of the Fund's investment in the Series E
Convertible Preferred Stock ("Series E Preferred Stock") issue of Annuncio
Software, Inc. ("Annuncio") by 55%. The Valuation Committee's decision was based
on the announcement of an impending acquisition of Annuncio by PeopleSoft, Inc.
The Fund's investment now consists of 625,000 shares of Series E Preferred Stock
at a valuation of $2.73 per share which is believed to be what the Fund will
receive at the completion of the acquisition.
Phosistor Technologies, Inc.
On January 24, 2002 the Fund entered into a $1,000,000 investment in
Phosistor Technologies, Inc. ("Phosistor"). The Fund's investment consisted of
6,666,667 shares of Series B Convertible Preferred Stock (Series B Preferred
Stock") at $0.15 per share.
The Series B Preferred Stock ranks pari passu, with respect to liquidation
preference, to any series of Preferred Stock issued prior to the Series B and
senior to the Common Stock. In the event of a Qualified IPO, the Series B
Preferred Stock, as converted to common stock, will not be transferred in a
public distribution prior to one hundred and eighty days after the date of the
final prospectus used in such Qualified IPO.
Cidera, Inc.
On January 31, 2002, the Valuation Committee of the Board of Directors
marked down the remaining value of the Fund's investment in the Series D
Convertible Preferred Stock issue of Cidera, Inc. ("Cidera") by 76%. The Fund's
investment then consisted of 857,192 shares of Series D Convertible Preferred
Stock ("Series D Preferred Stock") at a valuation of $1.0499 per share.
On April 19, 2002, the Valuation Committee of the Board of Directors
marked down the remaining value of the Fund's investment in the Series D
Preferred Stock issue of Cidera by 56%. The Fund's investment now consists of
857,192 shares of Series D Preferred Stock at a valuation of $0.5833 per share.
EXP Systems, Inc.
On January 31, 2002, the Valuation Committee of the Board of Directors
marked down the remaining value of the Fund's investment in the Convertible
Preferred Stock issue of EXP Systems, Inc. ("EXP") by 33%. The Fund's investment
then consisted of 1,748,252 shares of Series C Convertible Preferred Stock
("Series C Preferred Stock") at a valuation of $1.43 per share.
On May 17, 2002, the Valuation Committee of the Board of Directors marked
down the remaining valuation of the Fund's investment in the Series C Preferred
Stock issue of EXP by 26%. The Valuation Committee's decision was based on the
announcement of an impending disbursement of capital by EXP. The Fund's
investment then consisted of 1,748,252 shares of Series C Preferred Stock at a
valuation of $1.0582 per share was believed to be what the Fund would receive at
the completion of the disbursement of capital.
On June 19, 2002 the Fund agreed to certain assets of EXP being disbursed
pro rata to the shareholders of each of the Series A Convertible Preferred
stock, Series B Convertible Preferred Stock, and Series C Preferred Stock. In
return, the Fund received proceeds of approximately $1,500,000 in cash. The
entire transaction resulted in a realized loss of $6,608,111 for the Fund. The
Fund's investment now consists of 330,750 shares of Series C Preferred Stock at
a valuation of $1.0582 per share.
Foliofn, Inc.
On January 31, 2002, the Valuation Committee of the Board of Directors
marked down the remaining value of the Fund's investment in the Series C
Convertible Preferred Stock issue of Foliofn, Inc. ("Foliofn") by 33%.
15
The Fund's investment then consisted of 5,802,259 shares of Series C Convertible
Preferred Stock ("Series C Preferred Stock") at a valuation of $0.8617 per
share.
On July 31, 2002, the Valuation Committee of the Board of Directors marked
down the remaining value of the Fund's investment in the Series C Preferred
Stock issue of Foliofn by 40%. The Fund's investment now consists of 5,802,259
shares of Series C Convertible Preferred Stock ("Series C Preferred Stock") at a
valuation of $0.5170 per share.
InfoImage, Inc.
On January 31, 2002, the Valuation Committee of the Board of Directors
marked down the value of the Fund's investment in the Series AA Convertible
Preferred Stock issue of InfoImage, Inc. ("InfoImage") by 100%. The Fund's
investments now consist of 933,120 shares of Common Stock at a valuation of
$0.00, 11,740,340 shares of Series AA Convertible Preferred Stock ("Series AA
Preferred Stock") at a valuation of $0.00 per share, 92,663,933 Common Stock
warrants at a valuation of $0.00 and 259,200 Series C Warrants for Common Stock
at a valuation of $0.00.
Ishoni Networks, Inc.
On January 31, 2002, the Valuation Committee of the Board of Directors
marked down the remaining value of the Fund's investment in the Convertible
Preferred Stock issue of Ishoni Networks, Inc. ("Ishoni") by 33%. The Fund's
investment then consisted of 2,003,607 shares of Series C Convertible Preferred
Stock ("Series C Preferred Stock") at a valuation of $2.4955 per share.
On July 31, 2002, the Valuation Committee of the Board of Directors marked
down the remaining value of the Fund's investment in the Series C Preferred
Stock issue of Ishoni by 50%. The Fund's investment now consists of 2,003,607
shares of Series C Preferred Stock at a valuation of $1.2477 per share.
MediaPrise, Inc.
On January 31, 2002, the Valuation Committee of the Board of Directors
marked down the value of the Fund's investment in the Series A Convertible
Preferred Stock issue of MediaPrise, Inc. ("MediaPrise") by 100%. The Fund's
investment now consists of 2,196,193 shares of Series A Convertible Preferred
Stock ("Series A Preferred Stock") at a valuation of $0.00 per share.
Pagoo, Inc.
On January 31, 2002, the Valuation Committee of the Board of Directors
marked down the remaining value of the Fund's investment in the Series C
Convertible Preferred Stock issue of Pagoo, Inc. ("Pagoo") by 54%. The Fund's
investments then consisted of 3,412,969 shares of Series C Convertible Preferred
Stock ("Series C Preferred Stock") at a valuation of $1.0255 per share and
2,098,636 shares of Series D Convertible Preferred Stock ("Series D Preferred
Stock") at a valuation of $1.906 per share.
On May 16, 2002, the Valuation Committee of the Board of Directors marked
down the remaining value of the Fund's investment in the Series C Preferred
Stock issue of Pagoo by 100% and marked down the value of the Fund's investment
in the Series D Preferred Stock issue of Pagoo by 35%. The Fund's investments
now consist of 3,412,969 shares of Series C Convertible Preferred Stock ("Series
C Preferred Stock") at a valuation of $0.00 per share and 2,098,636 shares of
Series D Convertible Preferred Stock ("Series D Preferred Stock") at a valuation
of $1.2389 per share.
ShopEaze Systems, Inc.
On January 31, 2002, the Valuation Committee of the Board of Directors
marked down the remaining value of the Fund's investment in the Convertible
Preferred Stock issue of ShopEaze Systems, Inc. ("ShopEaze") by 56%. The Fund's
investment then consisted of 2,097,902 shares of Series B Convertible Preferred
Stock ("Series B Preferred Stock") at a valuation of $0.4767 per share.
16
On April 16, 2002, the Valuation Committee of the Board of Directors
marked down the valuation of the Fund's approximately $6,000,000 investment in
the Series B Preferred Stock issue of ShopEaze by the remaining 16%. The Fund's
investment now consists of 2,097,902 shares of Series B Convertible Preferred
Stock ("Series B Preferred Stock") at a valuation of $0.00 per share.
IQdestination
On February 5, 2002 the Fund entered into a follow-on investment of
approximately $300,000 in IQdestination. The Fund's investment consisted of
535,714 shares of Series C1 Convertible Preferred Stock ("Series C1 Preferred
Stock") at $0.56 per share.
The Series C1 Preferred Stock ranks senior, with respect to liquidation
preference, to any series of Preferred Stock issued prior to the Series C1 and
senior to the Common Stock. In the event of a Qualified IPO, the Series C1
Preferred Stock, as converted to common stock, will not be transferred in a
public distribution prior to one hundred and eighty days after the date of the
final prospectus used in such Qualified IPO.
Due to the investment in Series C1 Preferred Stock at a lower price per
share than the Series B Convertible Preferred Stock ("Series B Preferred Stock")
and the Series C Convertible Preferred Stock ("Series C Preferred Stock"), the
values of the Series B Preferred Stock and the Series C Preferred Stock were
subsequently marked down in accordance with the valuation policies as set forth
in the Fund's Registration Statement. Pursuant to the terms of the financing,
the markdown only considers the anti-dilutive covenants of the Series C
Preferred Stock as contained in IQdestination's Articles of Incorporation. The
Fund's investments then consisted of 1,150,000 shares of Series B Preferred
Stock at a valuation of $0.56 per share, 1,295,775 shares of Series C Preferred
Stock at a valuation of $0.6089 and 535,714 shares of Series C1 Preferred Stock
at a valuation of $0.56 per share.
On April 30, 2002, the Valuation Committee of the Board of Directors
marked down the remaining value of the Fund's investments in the Series B
Preferred Stock, the Series C Preferred Stock, and the Series C1 Preferred Stock
issues of IQdestination. The Valuation Committee's decision was based on the
announcement of the winding down of IQdestination. The Fund's investments now
consist of 1,150,000 shares of Series B Preferred Stock at a valuation of $0.00
per share, 1,295,775 shares of Series C Preferred Stock at a valuation of $0.00
and 535,714 shares of Series C1 Preferred Stock at a valuation of $0.00 per
share which is believed to be what the Fund will receive at the completion of
the wind down.
Lumeta Corporation
On February 13, 2002 the Fund entered into a follow-on investment of
approximately $30,303 in Lumeta Corporation ("Lumeta"). The Fund's investment
consisted of a Convertible Promissory Note (the "Note") with a face value of
$30,303 and earning interest at a rate of 12% per annum. The Note is due and
payable on May 31, 2002.
On June 10, 2002, the Fund entered into a follow-on investment of
approximately $126,186.20 in Lumeta. The Fund's investment consisted of 180,266
shares of Series B Convertible Preferred Stock ("Series B Preferred Stock") at
$0.70 per share. In conjunction with the Series B Preferred stock financing, the
Fund converted its $30,303 note into 86,580 shares of Series B Preferred Stock
at $0.35 per share
The Series B Preferred Stock ranks senior, with respect to liquidation
preference, to any series of Preferred Stock issued prior to the Series B and
senior to the Common Stock. In the event of a Qualified Initial Public Offering
("Qualified IPO"), the Series B Preferred Stock, as converted to common stock,
will not be transferred in a public distribution prior to one hundred and eighty
days after the date of the final prospectus used in such Qualified IPO.
Due to the investment in the Series B Preferred Stock at a higher price
per share than the Series A Convertible Preferred Stock, the value of the Series
A Convertible Preferred Stock was subsequently marked up in accordance with the
valuation policies as set forth in the Fund's Registration Statement.
17
BlueStar Solutions, Inc.
On February 28, 2002 the Fund entered into a follow-on investment of
approximately $3,000,000 in BlueStar Solutions, Inc ("BlueStar"). The Fund's
investment consisted of 4,545,455 shares of Series D Convertible Preferred Stock
("Series D Preferred Stock") at $0.66 per share.
The Series D Preferred Stock ranks senior, with respect to liquidation
preference, to any series of Preferred Stock issued prior to the Series D and
senior to the Common Stock. In the event of a Qualified Initial Public Offering
("Qualified IPO"), the Series D Preferred Stock, as converted to common stock,
will not be transferred in a public distribution prior to one hundred and eighty
days after the date of the final prospectus used in such Qualified IPO.
Pursuant to the terms of the financing, (i) the Fund's Series C Preferred
Stock was recapitalized in an 11-for-1 reverse split, along with the entirety of
BlueStar's Common Stock, Series A Convertible Preferred Stock, Series B
Convertible Preferred Stock, and all other Series C Convertible Preferred Stock,
and (ii) the Fund's Series C Preferred Stock was partially effected by a
"pay-to-play" provision pursuant to which the preferred stock of certain
existing preferred shareholders was converted to Common Stock, along with
certain of BlueStar's Series A Convertible Preferred Stock, Series B Convertible
Preferred Stock , and other Series C Convertible Preferred Stock. The Fund's
investments now consist of 49,474 shares of Common Stock (as converted from the
Series C Preferred Stock) at a valuation of $0.00 per share, 74,211 shares of
Series C Preferred Stock at a valuation of $20.2125 per share, 136,054 warrants
for Series C Preferred Stock at a valuation of $0.00 per share, and 4,545,455
shares of Series D Preferred Stock at a valuation of $0.66 per share.
CBCA, Inc.
On April 15, 2002 and April 29, 2002, the Fund entered into approximately
a $10,000,000 investment (two closing dates) in CBCA, Inc. ("CBCA"). The Fund's
investment consisted of 4,774,636 shares of Series E Convertible Preferred Stock
(Series E Preferred Stock") at $2.0944 per share.
The Series E Preferred Stock ranks senior, with respect to liquidation
preference, to any series of Preferred Stock issued prior to the Series E and
senior to the Common Stock. In the event of a Qualified IPO, the Series E
Preferred Stock, as converted to common stock, will not be transferred in a
public distribution prior to one hundred and eighty days after the date of the
final prospectus used in such Qualified IPO.
Endymion Systems, Inc.
On April 19, 2002, the Valuation Committee of the Board of Directors
marked down the remaining value of the Fund's investment in the Series A
Convertible Preferred Stock issue of Endymion Systems, Inc. ("Endymion") by 43%.
The Fund's investment then consisted of 7,156,760 shares of Series A Convertible
Preferred Stock ("Series A Preferred Stock") at a valuation of $0.4192 per
share.
On July 31, 2002, the Valuation Committee of the Board of Directors marked
down the remaining value of the Fund's investment in the Series A Preferred
Stock issue of Endymion by 33%. The Fund's investment now consists of 7,156,760
shares of Series A Preferred Stock ("Series A Preferred Stock") at a valuation
of $0.2795 per share.
ProcessClaims, Inc.
On May 7, 2002, the Fund entered into approximately a $400,000 follow-on
investment in ProcessClaims, Inc. ("ProcessClaims"). The Fund's investment
consisted of 849,257 shares of Series D Convertible Preferred Stock ("Series D
Preferred Stock") at $0.471 per share. The Fund's investment also consisted of
873,362 warrants to purchase Series E Preferred Stock at $0.000023 per share.
The warrants expire on December 31, 2005.
The Series D Preferred Stock ranks pari passu, with respect to liquidation
preference, to the Series C Convertible Preferred Stock and the Series E
Convertible Preferred Stock and senior to any series of Preferred Stock issued
prior to the Series C and senior to the Common Stock. In the event of a
Qualified IPO, the Series D Preferred Stock, as converted to common stock, will
not be transferred in a public distribution prior to one hundred and eighty days
after the date of the final prospectus used in such Qualified IPO.
18
Due to the investment in the Series D Preferred Stock at a higher price
per share than the Series C Convertible Preferred Stock, the value of the Series
C Convertible Preferred Stock was subsequently marked up in accordance with the
valuation policies as set forth in the Fund's Registration Statement.
DataPlay, Inc.
On May 9, 2002 the Fund entered into a follow-on investment of $2,000,000
in DataPlay, Inc. ("DataPlay"). The Fund's investment consisted of a Convertible
Promissory Note (the "Note") with a face value of $2,000,000 and earning
interest at a rate of 6% per annum. The Note is due and payable on May 10, 2005.
On June 14, 2002 the Fund entered into a follow-on investment of $500,000
in DataPlay. The Fund's investment consisted of a Convertible Promissory Note
(the "Note") with a face value of $500,000 and earning interest at a rate of 6%
per annum. The Note is due and payable on June 17, 2005.
On June 26, 2002 the Fund entered into a follow-on investment of
$1,000,000 in DataPlay. The Fund's investment consisted of a Convertible
Promissory Note (the "Note") with a face value of $1,000,000 and earning
interest at a rate of 6% per annum. The Note is due and payable on June 27,
2005.
Safestone PLC
On July 3, 2002 Fund entered into a $500,000 follow-on investment in
Safestone PLC ("Safestone"). The Fund's investment consisted of 391,923 shares
of Series B Convertible Preferred Stock ("Series B Preferred Stock") at $1.2758
per share. In conjunction with the Series B Preferred Stock financing, the Fund
exercised its Series A Share Anti-Dilution Warrant, purchasing 1,064,054 shares
of Series A Convertible Preferred Stock ("Series A Preferred Stock") at $0.01526
per share.
The Series B Preferred Stock ranks senior, with respect to liquidation
preference, to the Series A Preferred Stock and any series of Preferred Stock
issued prior to the Series B and senior to the Common Stock. In the event of a
Qualified IPO, the Series B Preferred Stock, as converted to common stock, will
not be transferred in a public distribution prior to one hundred and eighty days
after the date of the final prospectus used in such Qualified IPO.
Due to the investment in the Series B Preferred Stock at a lower price per
share than the Series A Preferred Stock, the value of the Series A Preferred
Stock was subsequently marked down in accordance with the valuation policies as
set forth in the Fund's Registration Statement.
Personic Software, Inc.
On July 31, 2002 the Fund removed Personic Software, Inc. ("Personic")
from its accounting records as the Fund's equity position, along with all of the
other preferred equity investors, had been irreversibly diluted by an investor
holding a senior secured note. The entire transaction resulted in a realized
loss of approximately $10,760,460 for the Fund.
Sonexis, Inc.
On July 31, 2002, the Valuation Committee of the Board of Directors marked
down the value of the Fund's investment in the Series C Convertible Preferred
Stock issue of Sonexis, Inc. ("Sonexis") by 30%. The Fund's investment now
consists of 2,590,674 shares of Series C Convertible Preferred Stock ("Series C
Preferred Stock") at a valuation of $2.702 per share.
Yaga, Inc.
On July 31, 2002, the Valuation Committee of the Board of Directors marked
down the value of the Fund's investments in the Series A Convertible Preferred
Stock and Series B Convertible Stock issues of Yaga, Inc. ("Yaga") by 50%. The
Fund's investments now consist of 300,000 shares of Series A Convertible
Preferred Stock ("Series A Preferred Stock") at a valuation of $1.00 per share,
2,000,000 shares of Series B Convertible
19
Preferred Stock ("Series B Preferred Stock") at a valuation of $1.00 per share
and 100,000 warrants to purchase Series B Preferred Stock at a valuation of
$0.00 per share.
6. Submission of Matters to a Vote of Security Holders
During the Fund's Annual Meeting of Shareholders in March 2002, the
proposed revised advisory agreement between the former Advisor and the Fund and
the proposed new investment advisory agreement between the former Sub-Advisor
and the Fund were not approved by the shareholders. Pursuant to an interim
agreement dated March 27, 2002, meVC Advisers continued to serve as the Fund's
investment advisor, until its resignation on June 19, 2002. Also pursuant to an
interim agreement dated March 27, 2002, Draper Advisers continued to serve as
the Fund's investment sub-advisor, until the contract terminated automatically
on June 19, 2002 when the former Advisor resigned. At that time the Board voted
to internalize all management and administrative functions of the Fund effective
immediately and continues to consider options available to the Fund in light of
the outcome of the Annual Meeting and subsequent resignation of the former
Advisor and former Sub-Advisor.
7. Subsequent Events
On August 16, 2002, the Fund entered into an investment of $200,000 in the
form of a 6% Subordinated Promissory Note with DataPlay, Inc maturing on August
16, 2005.
On August 23, 2002, the Fund entered into an investment of $400,000 in the
form of a 6% Subordinated Promissory Note with DataPlay, Inc maturing on August
26, 2005.
On August 27, 2002 the Fund removed the Common Stock, Series AA
Convertible Preferred Stock, Common Stock warrants, and Series C Warrants for
Common Stock of InfoImage from its accounting records, as InfoImage had filed
for bankruptcy under Chapter 7 of the US Code. The entire transaction resulted
in a realized loss of approximately $2,356,690 for the Fund.
On August 30, 2002, the Fund entered into an investment of $200,000 in the
form of a 6% Subordinated Promissory Note with DataPlay, Inc maturing on
September 3, 2005.
Subsequent to the resignation of meVC Advisers, the Fund determined that
the former Advisor had not paid certain vendors for services performed on behalf
of the Fund, as called for under the Advisory Agreement with the Fund. On August
30, 2002, the Fund paid or accrued $463,535.48 in expenses to pay those vendors,
which resulted in a $0.028 decrease in net asset value per share. The Fund is
considering action it may take against the former Advisor to recover these
expenses; although, there is no guarantee of recovery.
On September 10, 2002 the Fund removed the Series B Convertible Preferred
Stock, Series C Convertible Preferred Stock, and the Series C1 Convertible
Preferred Stock of IQdestination from its accounting records as the company had
ceased operations and the inside investors had signed a certificate of
dissolution. The entire transaction resulted in a realized loss of approximately
$3,520,000 for the Fund.
On September 10, 2002 the Fund agreed to the acquisition of the assets of
Annuncio by PeopleSoft. In return, the Fund received proceeds of $1,585,381.20
made up of $1,205,749.55 in cash and $379,631.65 to be held in escrow until
January 31, 2003. The entire transaction resulted in a realized loss of
$3,414,618.80 for the Fund.
On September 13, 2002 the Fund agreed to the partial return of capital for
Pagoo in the amount of $2,430,059.97. In conjunction with the return of capital,
the Fund's Series C Preferred Stock and Series D Preferred Stock was
recapitalized into Series A-1 Convertible Preferred Shares, along with the
entirety of Pagoo's Common Stock, Series A Convertible Preferred Stock, Series B
Convertible Preferred Stock, Series C Convertible Preferred Stock and Series D
Convertible Preferred Stock. The Series D-1 Convertible Preferred Stock was
recapitalized into Series A-2 Convertible Preferred Stock.
20
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
This report contains certain statements of a forward-looking nature
relating to future events or the future financial performance of the Company and
its investment portfolio companies. Words such as may, will, expect, believe,
anticipate, intend, could, estimate, might and continue, and the negative or
other variations thereof or comparable terminology, are intended to identify
forward-looking statements. Forward-looking statements are included in this
report pursuant to the "Safe Harbor" provision of the Private Securities
Litigation Reform Act of 1995. Such statements are predictions only, and the
actual events or results may differ materially from those discussed in the
forward-looking statements. Factors that could cause or contribute to such
differences include, but are not limited to, those relating to investment
capital demand, pricing, market acceptance, the effect of economic conditions,
litigation and the effect of regulatory proceedings, competitive forces, the
results of financing and investing efforts, the ability to complete transactions
and other risks identified below or in the Company's filings with the
Commission. Readers are cautioned not to place undue reliance on these
forward-looking statements, which speak only as of the date hereof. The Company
undertakes no obligation to publicly revise these forward-looking statements to
reflect events or circumstances occurring after the date hereof or to reflect
the occurrence of unanticipated events. The following analysis of the financial
condition and results of operations of the Company should be read in conjunction
with the Financial Statements, the Notes thereto and the other financial
information included elsewhere in this report.
Overview
The Fund continues to operate as a closed-end, non-diversified management
investment company that has elected to be treated as a business development
company under the Investment Company Act of 1940, as amended (the "1940 Act").
From March 27, 2000 to June 19, 2002, the Fund's advisor was meVC Advisers
pursuant to an investment advisory agreement dated March 27, 2000 and an interim
investment advisory agreement dated March 27, 2002. In general, the duties of
the former adviser were to manage the Fund's day-to-day operations and
administration, record keeping and regulatory compliance functions, and oversee
the operations of the Sub-Advisor.
From March 27, 2000 to June 19, 2002, the Fund's Sub-Advisor was Draper
Advisers pursuant to an investment sub-advisory agreement dated March 27, 2000
and an interim investment advisory agreement dated March 27, 2002 by and between
meVC Advisers and Draper Advisers. In general, the duties of the former
sub-adviser were to manage the investment and reinvestment of the Fund's assets
and provide or make available managerial assistance to the companies in which
the Fund invests.
On March 27, 2002, the Fund held its Annual Meeting of Shareholders. At
the meeting the shareholders were also asked to approve a revised advisory
agreement between the former Advisor and the Fund and a new advisory agreement
between the former sub-advisor and the Fund. As the agreements did not receive
the required votes, they were not approved. In light of that, and in accordance
with rules adopted by the Securities Exchange Commission ("SEC"), the former
Advisor continued to serve as the Fund's investment adviser, pursuant to an
interim agreement dated March 27, 2002, for a period not to exceed 150 days and
the former Sub-Advisor continued to provide service to the Fund pursuant to an
interim agreement dated March 27, 2002, for a period not to exceed 150 days.
On June 17, 2002, Paul Wozniak and Peter Freudenthal resigned their
respective roles with meVC Advisers and the Fund. Mr. Wozniak served as the
Secretary and Vice-President of Operations for meVC Advisers and as the
Vice-President, Chief Operating Officer, Treasurer, and Secretary for the Fund.
Mr. Freudenthal served as the Chief Executive Officer and President of meVC
Advisers and Vice-Chairman of the Fund. On June 19, 2002, meVC Advisers resigned
as the Fund's investment adviser, effective immediately. As a result, the
sub-advisory agreement with Draper Advisers was terminated automatically as a
matter of contract construction. As a result of the resignation of the former
adviser and termination of the sub-advisors contract, the 150 day period that
related to the interim investment advisory agreements was no longer applicable.
21
On June 20, 2002, the Board voted to internalize all investment management
and administrative functions of the Fund, effective immediately. The Board
concluded that the internalized structure would be a more efficient way to run
the Fund and that it would provide shareholders greater visibility with respect
to the Fund's expenses than they had previously. An administrative team was
hired by the Fund to manage the Fund's day-to-day operations and administration,
record keeping and regulatory compliance functions. John Grillos, the Fund's
Chief Executive Officer, accepted the Board's request to manage, on an interim
basis, the investment and reinvestment of the Fund's assets and provide or make
available managerial assistance to the companies in which the Fund invests.
The Board continues to engage in a systematic review of candidates to
serve as the Fund's ongoing manager and has announced that it expects to
conclude its review and name a manager by September 30, 2002 to serve on an
ongoing basis. On September 11, 2002, the Court of Chancery in New Castle
County, Delaware, rejected a motion by Millenco LP ("Millenco'), a Cayman-based
hedge fund, that would have prevented the Board from hiring such a manager
without shareholder approval.
Results of Operations
The Fund began operations upon the completion of an initial public
offering on March 31, 2000. Since inception, the Fund has operated in a
depressed market with an economy experiencing a mild recession. Recently, the
markets have had to bear the weight of various accounting and financial scandals
further weakening an already unstable market environment. The Fund, along with
many other venture capital funds launched in the same time period, have not
yielded the returns historically experienced in the venture capital community.
For the three months ended July 31, 2002, the Fund had a decrease in net assets
resulting from operations of $20,797,438 as compared to the three months ended
July 31, 2001, during which the Fund had a decrease in net assets resulting from
operations of $16,611,428. The Fund's principal investment objective remains the
realization of long-term capital appreciation. Pending the completion of
investments that meet the Fund's investment objective, available funds are
invested in short-term securities.
Liquidity and Capital Resources
At July 31, 2002, the Fund had $55,577,321 of its net assets (the value of
total assets less total liabilities) of $203,908,477 invested in portfolio
securities of 23 companies, $5,327,475 in four subordinated notes, $59,431,227
of its net assets invested in temporary investments consisting of Certificates
of Deposit, commercial paper, corporate bonds and U.S. government and agency
securities, and $91,025,823 in money market funds and cash and cash equivalents.
The Fund considers all money market and all highly liquid temporary cash
investments purchased with an original maturity of three months or less to be
cash equivalents. Current balance sheet resources are believed to be sufficient
to finance any future commitments.
The Fund reserves the right to retain net long-term capital gains in
excess of net short-term capital losses for reinvestment or to pay contingencies
and expenses. Such retained amounts, if any, will be taxable to the Fund as
long-term capital gains, and shareholders will be able to claim their
proportionate share of the federal income taxes paid by the Fund on such gains
as a credit against their own federal income-tax liabilities. Shareholders will
also be entitled to increase the adjusted tax basis of their Fund shares by the
difference between their undistributed capital gains and their tax credit.
Investment Income and Expenses
Net investment loss after all operating expenses amounted to $1,048,232
for the three months ended July 31, 2002, and $46,033 for the three months ended
July 31, 2001, respectively. As the Fund continues to invest in preferred stock
of portfolio companies, fewer assets are available to invest in short-term,
interest-bearing securities. In addition and in connection with general economic
trends, the Fund has received a lower interest rate on short-term securities in
which it has invested.
From the beginning of the fiscal quarter through June 19, 2002, the Fund
was charged a management fee by meVC Advisers at a rate of 2.5% of the average
weekly net assets of the Fund, paid monthly in arrears. The former Advisor had
agreed to pay compensation to the directors and officers for any and all
services rendered to the Fund and had agreed to pay all Fund expenses above and
beyond the 2.5% management fee paid to the
22
former Advisor by the Fund. The former Advisor resigned without notice on June
19, 2002. As a result, the Fund's board internalized the Fund's operations,
including management of the Fund's investments, and began to pay it's own
expenses directly.
The previous 2.5% expense cap, the maximum amount of compensation to be
paid to the former Advisor, was terminated at the time of the Adviser's
resignation. From June 20, 2002 through the end of the fiscal quarter, the Fund
accrued $1,266,421 in operating expenses. Such total fees amounted to $1,854,470
for the three months ended July 31, 2002 (including $1,266,421 in operating
expenses and $588,049 in management fees) and $1,845,235 for the three months
ended July 31, 2001, respectively.
The Fund's Board of Directors approved an operating budget for the Fund's
internalized structure which may result in fees lesser or greater than 2.5% on
an annualized basis.
Unrealized Appreciation and Depreciation of Portfolio Securities
During the nine months ended July 31, 2002, the Fund had a net increase in
unrealized depreciation on investment transactions of $27,064,872. Such
depreciation resulted mainly from the Valuation Committee of the Board of
Directors' decision to mark down the value of the Fund's investments in Annuncio
Software, Inc., AuctionWatch.com, Inc., Cidera, Inc., DataPlay, Inc., Endymion
Systems, Inc., EXP Systems, Inc., Foliofn, Inc., InfoImage, Inc., IQdestination,
Ishoni Networks, Inc., Lumeta Corporation, MediaPrise, Inc., Pagoo, Inc.,
Safestone Technologies PLC, ShopEaze Systems, Inc., Sonexis, Inc., and Yaga,
Inc. For the nine months ended July 31, 2002, the increase in the Fund's
retained deficit is $49,834,389 and the total retained deficit since inception
is $107,741,523; the retained deficit is due primarily to the Valuation
Committee of the Board of Director's decision to mark down the valuations of
certain portfolio company investments, as private companies experienced a
decline in valuations similar to that of public companies. Management expects
the unrealized losses of the Fund's investments in InfoImage Inc.,
IQdestination, Mediaprise, Inc., and Shopeaze Systems, Inc. to be realized as
soon as dissolution papers are completed and signed by the companies' respective
inside investors.
During the nine months ended July 31, 2001, the Fund had a net increase in
unrealized depreciation on investment transactions of $28,079,658. Such
depreciation also resulted mainly from the Valuation Committee of the Board of
Directors' decision to mark down the value of the Fund's investments in certain
portfolio companies. During the nine months ended July 31, 2001, the Fund's
retained deficit was $31,989,478. Such deficit also resulted mainly from the
Valuation Committee of the Board of Directors' decision to mark down the value
of the Fund's investments in certain portfolio companies.
Realized Gain and Loss on Portfolio Securities
For the nine months ended July 31, 2002, the Fund had a net realized loss
of $20,696,133. Such loss was realized mainly from the transactions involving
the assets of infoUSA.com, Inc. being acquired by infoUSA, Inc., the parent
company of infoUSA.com, Inc., the disbursement of assets from EXP Systems, Inc.
to its preferred shareholders, and the write-off of Personic Software, Inc. due
to the irreversible dilution of the Fund's equity position. Management expects
the unrealized losses of the Fund's investments in InfoImage Inc.,
IQdestination, Mediaprise, Inc., and Shopeaze Systems, Inc. to be realized as
soon as dissolution papers are completed and signed by the companies' respective
inside investors.
For the nine months ended July 31, 2001, the Fund had a net realized gain
of $4,295. Due to the recent nature of the portfolio company investments, there
were no portfolio company exit events during the period ended July 31, 2001 to
create any significant realized gains or losses.
Dividends
On December 4, 2001, the Fund announced an ordinary income cash dividend
of $0.044163 per share, payable on January 3, 2002, to stockholders of record at
the close of business on December 10, 2001. The Fund went ex-dividend on
December 6, 2001. Distributions can be made payable by the Fund in the form of
either a cash distribution or a stock dividend. On the Fund's ex-dividend date,
the Fund was trading on the New York Stock Exchange (the "NYSE") at a discount
to net asset value. In accordance with the Dividend Reinvestment
23
Plan, the Dividend Distribution Agent purchased shares on the open market of the
NYSE for those shareholders electing to take their distributions in the form of
stock dividends.
Portfolio Investments
At July 31, 2002, the cost of equity and equity-linked security
investments held by the Fund to date was $140,524,496, and their aggregate
market value was estimated to be $55,577,321. While the current values of
certain Portfolio Companies have been greatly reduced, Management believes that
a number of the companies identified have upside potential for long-term growth
in sales and earnings. The Investment Staff continuously evaluates opportunities
to realize value for the Fund and its stockholders. In that regard the
Investment Staff will periodically evaluate potential acquisitions, financing
transactions, initial public offerings, strategic alliances and sale
opportunities involving the Fund's Portfolio Companies. These transactions and
activities, while reflected in the Fund's calculation of net asset value, are
generally not disclosed to the Fund's shareholders and the investing public
until such time as the transactions are publicly announced or completed, as the
case may be.
Subsequent Events
On August 16, 2002, the Fund entered into an investment of $200,000 in the
form of a 6% Subordinated Promissory Note with DataPlay, Inc maturing on August
16, 2005.
On August 23, 2002, the Fund entered into an investment of $400,000 in the
form of a 6% Subordinated Promissory Note with DataPlay, Inc maturing on August
26, 2005.
On August 27, 2002 the Fund removed the Common Stock, Series AA
Convertible Preferred Stock, Common Stock warrants, and Series C Warrants for
Common Stock of InfoImage from its accounting records, as InfoImage had filed
for bankruptcy under Chapter 7 of the US Code. The entire transaction resulted
in a realized loss of approximately $2,356,690 for the Fund.
On August 30, 2002, the Fund entered into an investment of $200,000 in the
form of a 6% Subordinated Promissory Note with DataPlay, Inc maturing on
September 3, 2005.
On September 10, 2002 the Fund removed the Series B Convertible Preferred
Stock, Series C Convertible Preferred Stock, and the Series C1 Convertible
Preferred Stock of IQdestination from its accounting records as the company had
ceased operations and the inside investors had signed a certificate of
dissolution. The entire transaction resulted in a realized loss of approximately
$3,520,000 for the Fund.
On September 10, 2002 the Fund agreed to the acquisition of assets of
Annuncio by PeopleSoft. In return, the Fund received proceeds of $1,585,381.20
made up of $1,205,749.55 in cash and $379,631.65 to be held in escrow until
January 31, 2003. The entire transaction resulted in a realized loss of
$3,414,618.80 for the Fund.
On September 13, 2002 the Fund agreed to the partial return of capital for
Pagoo in the amount of $2,430,059.97. In conjunction with the return of capital,
the Fund's Series C Preferred Stock and Series D Preferred Stock was
recapitalized into Series A-1 Convertible Preferred Shares, along with the
entirety of Pagoo's Common Stock, Series A Convertible Preferred Stock, Series B
Convertible Preferred Stock, Series C Convertible Preferred Stock and Series D
Convertible Preferred Stock. The Series D-1 Convertible Preferred Stock was
recapitalized into Series A-2 Convertible Preferred Stock.
24
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
We invest in small companies, and our investments are considered
speculative in nature. Our investments often include securities that are subject
to legal or contractual restrictions on resale that adversely affect the
liquidity and marketability of such securities. As a result, we are subject to
risk of loss which may prevent our stockholders from achieving price
appreciation and dividend distributions.
The portion of our portfolio consisting of investments in private
companies is also subject to valuation risk. We value our privately held
investments based on a determination of their fair value made in good faith by
our board of directors on a quarterly basis and otherwise required in accordance
with our established guidelines. In the absence of a readily ascertainable
market value, the estimated values of our investments may differ significantly
from the values that would exist if a ready market for these securities existed.
Any changes in valuation are recorded in our statements of operations as "Net
unrealized gain (loss) on investments."
25
Part II. Other Information
ITEM 1. LEGAL PROCEEDINGS
On February 20, 2002, Millenco, filed a complaint in the United States
District Court for the District of Delaware against the former Advisor and the
Fund. The Fund was designated a "nominal" defendant for purposes of effectuating
the relief sought in the complaint. The complaint alleges that the fees received
by the former Advisor from the Fund for fiscal year 2001 were excessive, in
violation of Section 36(b) of the Investment Company Act of 1940. Neither the
former Sub-Advisor nor any of the Fund's directors or officers is named as a
defendant in the case. The Fund moved to dismiss the complaint against it, on
the ground that it may not be named as a defendant in a Section 36(b) suit.
During a telephonic hearing with the court, Millenco said it did not oppose
dismissal of the suit against the Fund, but it vigorously opposed dismissal or
transfer of the suit against the former Advisor.
On April 3, 2002, Millenco filed a complaint against the Fund in the Court
of Chancery, New Castle County, Delaware, seeking a judicial determination of
the stockholder's vote of March 27, 2002, to approve investment advisory
agreements between the Fund and the former Advisor and between the Fund and the
former Sub-Advisor. See Item #4. On April 5, 2002, Millenco moved to accelerate
the trial of the case. However, on April 8, 2002, the Fund informed the Chancery
Court that the Fund's Board of Directors decided that the two challenged
agreements had failed, that a stockholder's meeting would not be reconvened on
his matter, and that plaintiff had withdrawn its request to accelerate the
trial. Subsequently, on April 17, 2002, the Fund moved to dismiss the suit as
moot. Millenco never filed a response to that motion, and the Court never acted
upon it.
On July 30, 2002, Millenco filed an amended complaint against the Fund and
the Fund's directors in the Court of Chancery, New Castle County, Delaware,
seeking to (i) invalidate the election of two of the Fund's four directors, John
M. Grillos and Larry Gerhard, at the 2001 and 2002 Annual Meetings of
Stockholders, to three-year terms expiring 2004 and 2005, respectively; and (ii)
require the Fund to hold a special Meeting of Stockholders, for the purpose of
holding new elections to the board seats currently held my Mr. Grillos and Mr.
Gerhard and the vacant board seat due to Peter Freudenthal's resignation in June
2002.
Subsequent Events
On August 21, 2002, Judge Farnan of the U.S. District Court for the
District of Delaware issued an order granting the Fund's motion to dismiss the
Fund from the February 20, 2002 lawsuit, as filed by Millenco, since Section
36(b) of the Investment Company Act of 1940 prohibits an action against the Fund
because it has not received compensation or payments from a registered
investment company.
On August 23, 2002, Millenco moved for leave to file a second amended
complaint, in which it proposed to add another allegation to its first amended
complaint. On September 4, 2002, Millenco moved for leave to file a re-written
version of its proposed second amended complaint, in which it added two more
allegations to its first amended complaint.
On September 11, 2002, Vice Chancellor Stephen Lamb of the Chancery Court
(1) granted the Fund's motion to dismiss the claims in the first amended
complaint for an expedited proceeding to invalidate the director elections and
order new elections, (2) denied Millenco's motion for a "status quo" order that
would have prevented the Fund from internally hiring a Fund manager without
shareholder approval, (3) allowed Millenco to file the September 4th version of
its second amended complaint, subject to a motion by the Fund to dismiss several
of the claims in it, and (4) denied the Fund's motion to dismiss a breach of
fiduciary duty claim in the second amended complaint based on the Fund's alleged
failure to disclose in past proxy statements certain outside relationships of
several of the Fund's directors.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On March 27, 2002, the Fund held its Annual Meeting of Shareholders. Of
the 16,500,000 shares outstanding and entitled to vote, 15,008,220 were
represented at the meeting by proxy or in person. As a result
26
of a last minute change in position by the New York Stock Exchange the evening
before the Annual Meeting, brokers' ability to vote shares with discretion on
behalf of their clients was called into question. This affected approximately
half of the votes submitted, all of which had been voted in favor of the
proposals. The Fund originally proposed an adjournment of the Annual Meeting
until April 25, 2002 to resolve the status of these broker votes and to permit
shareholders the opportunity to cast their votes on the proposals. However, the
Fund's Board of Directors later determined not to reconvene the Annual Meeting.
At the meeting the shareholders were asked to re-elect Larry J Gerhard to
serve on the Fund's Board of Directors for a three-year term. For Mr. Gerhard,
10,231,514 shares voted for his reelection, with 4,616,759 voted against and
159,947 share votes withheld. As Mr. Gerhard received a majority of the votes
cast, he was subsequently reelected as a director of the Fund until 2005.
At the meeting the shareholders were also asked to approve a revised
advisory agreement between the former Advisor and the Fund. Regarding the
contract, 2,641,655 shares voted for the approval, with 5,024,676 votes against,
116,737 votes withheld and 7,225,152 broker non-votes. As the agreement did not
receive the required votes, it was subsequently not approved. The former Advisor
continued to serve as the Fund's investment adviser, pursuant to an interim
agreement dated March 27, 2002, until its resignation on June 19, 2002. At that
time, the Board voted to internalize all management and administrative functions
of the Fund effective immediately and continues to consider options available to
the Fund in light of the outcome of the Annual Meeting and subsequent
resignation of the former Advisor.
At the meeting the shareholders were also asked to approve a new
investment advisory agreement between the former Sub-Advisor and the Fund.
Regarding the contract, 2,634,963 shares voted for the approval, with 5,026,165
voted against, 121,940 votes withheld and 7,225,152 broker non-votes. As the
agreement did not receive the required votes, it was subsequently not approved.
The former Sub-Advisor continued to serve as the Fund's investment sub-adviser,
pursuant to an interim dated March 27, 2002, until its required resignation on
June 19, 2002. At that time, the Board voted to internalize all management and
administrative functions of the Fund effective immediately and continues to
consider options available to the Fund in light of the outcome of the Annual
Meeting and subsequent resignation of the former Sub-Advisor.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit No. Exhibit
99.1 Certification of Chief Executive Officer and Acting
Chief Operating Officer of meVC Draper Fisher Jurvetson
Fund I, Inc.
Other required Exhibits are included in this Form 10-Q or have been
previously filed in the Company's Registration Statement on Form N-2 (Reg.
No. 333-92287).
27
(b) Reports on Form 8-K
During the period ended July 31, 2002, the Fund filed three reports on
Form 8-K. The first report, dated April 5, 2002, was filed to report the
Board of Directors' decision not to reconvene the Annual Meeting and to
announce that two proposals had failed to receive the necessary votes for
approval as of March 27, 2002. The second report, dated June 18, 2002, was
filed to report the Board of Directors' acceptance of the resignations of
Peter S. Freudenthal and Paul D. Wozniak from the Fund. The third report,
dated June 20, 2002, was filed to report the Board of Directors' unanimous
decision to internalize all management and administrative functions of the
Fund effective immediately.
28
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has caused this report to be signed by the
undersigned, thereunto duly authorized.
MEVC DRAPER FISHER JURVETSON FUND I, INC.
Date: September 20, 2002 /s/ JOHN M GRILLOS
------------------------------------------
John M. Grillos
Chief Executive Officer, Director
MEVC DRAPER FISHER JURVETSON FUND I, INC.
Date: September 20, 2002 /s/ ANN E. OGLANIAN
------------------------------------------
Ann E. Oglanian
Acting Chief Operating Officer
29