The risk of venture capital investments is 100%
As briefly outlined earlier, New Venturetec offers the opportunity for significant capital gains. However, no assurance can be given that such returns can be realized. The risk of venture capital investments is 100%. In order for the Company to be successful in investing in start-up and emerging companies, it must identify potentially profitable enterprises at an early stage in their development, a process which is very difficult even for people with considerable experience in the venture capital field. Furthermore, the Company is competing for investment opportunities with a number of other venture capital firms. The Company may also invest in businesses which are not start-up or emerging companies, but which are for various reasons seeking to raise additional capital without making a public offering of securities. These reasons can include adverse conditions in the public securities markets, or a record of earnings and/or growth, which is less than adequate for a successful public offering of securities.
Lack of liquidity of investments
Investments will usually consist of securities that are subject to restrictions on resale as they are acquired from companies in private placement transactions. Neither the Company nor any investors, to whom the Company distributes restricted securities, will be able to sell such restricted securities to the public unless the sale is registered under applicable Federal and State securities laws, or unless an exemption from such registration is available. In connection with any particular portfolio investment, the Company may negotiate for rights to require registration under the Act. No assurance can be given, however, that the Company will be successful in such negotiations or that registration will provide adequate means of liquidating such investment.
Management, technological risks
The quality of the management of venture companies included in the portfolio of the Company is crucial for the success of the investments of the Company. Although the Investment Manager will use his expertise and experience in assessing the quality of the management, the Company has to fully rely on the management of the companies contained in the Company’s investment portfolio.
Furthermore, no assurance can be given that the management will be successful in handling the technological risks, which are inherent in projects of startup companies. Research might not lead to satisfactory results and technological improvements or changes by competitors might endanger the successful launch of a product or service.
The accounts of the Company’s subsidiary are maintained in US Dollars and the Net Asset Value per share is also published in US Dollars. The Company’s investments are usually made in US Dollars. Any investment in other currencies than the US Dollar might lead to positive or negative impacts on the Company’s performance in its consolidated annual financial statements, including its statement of comprehensive income. The Company’s consolidated financial statements are presented in US Dollars. The fluctuation of foreign currencies could substantially impact the net asset value per share.
Since the Company’s shares are listed in Swiss francs, fluctuation in exchange rates between the Swiss Franc and the US Dollar could also materially impact the price of the Company’s shares. Nevertheless, the Company does not hedge against these currency risks.
Political, regulatory risks
The value of the Company’s assets may be affected by uncertainties such as international political developments, transfer risks, changes in government policies, taxation, restriction on foreign investment and other developments in the laws and regulations of the countries in which the Company’s assets are invested. This is especially the case in the biotechnology and communications sectors, where successful launches of products are dependent on government approval (such as FDA for biotechnology and FCC for telecommunications firms).
The markets and individual investment vehicles in which the Company will primarily invest may prove to be highly volatile from time to time as a result of market specific risk. This may be, for example, due to a sudden change in underlying economic factors as well as changes in government policies on taxation or changes in legislation relating to the level of foreign ownership in companies.
The company’s share price
Considerable price fluctuations in the shares may arise due to the general position of the investment sector, the economy as a whole and the financial markets. Such price fluctuations could have a positive and negative effect on the share price regardless of the Company’s financial condition and results of operations.
Patent risks and proprietary rights
The success of the investments will depend largely on the ability to obtain patents on products to protect trade secrets and to operate without infringing the proprietary rights of others.
Legal standards regarding the scope of claims and the validity of patents, e.g. in the biotechnology market, are uncertain and evolving. There can be no assurance that the underlying firms’ patents will provide them with significant competitive advantages, or that challenges will not be instituted against the validity or enforceability of any patent owned by the firms. The cost of litigation to uphold the validity and prevent infringement of a patent is substantial.
The accounting, auditing, financial and disclosure requirements and reporting standards of the Company, on a consolidated basis, are those defined in the International Financial Reporting Standards of the International Accounting Standards Board. The net asset value is based on estimates of the Investment Manager. Investors should recognize that the biweekly calculation is based on indicative values and may therefore contain only limited information on the real value of the net assets of the Company. The difficulties involved in calculating the net asset value are discussed further in the Annual Report of New Venturetec.
Reliance on the Investment Manager
The Company is relying on Madison Partners SA (represented by Peter Friedli), being mandated as the Investment Manager, and its ability to evaluate investment opportunities and to further develop the Company’s investments. All investment decisions for the Company as well as the Net Asset Value computation are made unilaterally by the Investment Manager. The Board of Directors is responsible for ensuring that the Investment Manager follows the Investment Policy set by the Company. However, it should be realized that Peter Friedli is the key person for both the Investment Manager and the Board of Directors and that between him and the Company conflicts of interests may arise.
Liquidity of Venturetec's investment in Osiris Therapeutics
Venturetec, Inc. directly owns 4,103,301 shares of Osiris Therapeutics, which represents 12.1% of the outstanding shares of Osiris Therapeutics. Based on this ownership, Venturetec is a reporting person in respect of Osiris Therapeutics and is subject to reporting requirements of Section 16 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Venturetec has reported its transactions and holdings of Osiris Therapeutics with the United States Securities and Exchange Commission (SEC) through the filing of Forms 3 and 4, consistently since first becoming a reporting person following the IPO of Osiris Therapeutics.
The sale by Venturetec of shares of Osiris Therapeutics common stock requires either registration under the Securities Act of 1933, as amended (the “Securities Act”), or that the sale be exempt from registration. Rule 144 under the Securities Act provides a safe harbor from registration for sales by a person other than an issuer, underwriter or dealer. Compliance with Rule 144 requires compliance with various restrictions set forth in the rule, including limitations on the number of shares sold in a given period and the manner in which sales may be completed. For sales by an affiliate of an issuer, which Venturetec is presumed to be, Rule 144 provides that the volume of securities sold during any preceding three-month period may not exceed the greatest of the following limitations:
1% of the stock outstanding, which for Osiris Therapeutics would be 338,224 shares.
The average weekly reported volume of trading reported on all national securities exchanges during the preceding four weeks ending September 30, 2013, which for Osiris Therapeutics is currently 314,425.
The average weekly volume of trading of the securities reported through the consolidated transaction reporting system, which for the week ended September 30, 2013, was 530,700 shares.
Accordingly, for sales of Osiris Therapeutics common stock, the so called “volume limitation” under Rule 144 for an affiliate is currently 530,700 shares available to be sold during the next three months.
Rule 144 also requires, in the case of affiliate sales, that a Form 144 be filed with the SEC in advance of the sale. The sale must then take place within 90 days after the filing of the Form 144. If and when a sale transaction occurs, the sale must be reported to the SEC by the filing of a Form 4, within two days.
In addition, as a greater than 10% Shareholder, Venturetec is further limited as to when it can engage in purchasing or selling shares of Osiris Therapeutics. Venturetec is subject to Osiris’ Trading Window and must clear all purchase and/or sales transactions in the Company’s common stock with either the President & CEO or the Chief Financial Officer. Osiris’ Trading Window usually closes 15-days prior to the end of each fiscal quarter and then reopens on the third Trading Day after the financial results for the quarter are published, which typically is 40 – 45 days after the fiscal quarter end. The Trading Window may also close during other times at the discretion of the Company.
These restrictions are unrelated and independent of Mr. Friedli's involvement.