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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] Annual Report Pursuant to Section 13 or 15(d) of The Securities
Exchange Act of 1934
For the Fiscal Year Ended December 31, 1997
OR
[ ] Transition Report Pursuant to Section 13 or 15(d) of The Securities
Exchange Act of 1934
For the transition period from to
Commission file number 0-16208
WESTFORD TECHNOLOGY VENTURES, L.P.
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(Exact name of registrant as specified in its charter)
Delaware 13-3423417
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
17 Academy Street, 5th Floor
Newark, New Jersey 07102-2905
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (201) 624-2131
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
None None
Securities registered pursuant to Section 12(g) of the Act:
Units of Limited Partnership Interest
===============================================================================
(Title of class)
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 ___
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
At March 16, 1998, 11,204 units of limited partnership interest ("Units") were
held by non-affiliates of the registrant. There is no established public trading
market for such Units.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive proxy statement relating to the 1998 Annual Meeting
of the Limited Partners of the Registrant, to be held on June 26, 1998 (the
"Annual Meeting Proxy Statement") are incorporated herein by reference in Part
III hereof. The Annual Meeting Proxy Statement will be filed with the Commission
not later than 120 days after the close of the fiscal year ended December 31,
1997.
PART I
Item 1. Business.
Formation
Westford Technology Ventures, L.P. (the "Partnership") is a Delaware limited
partnership formed on September 3, 1987. WTVI Co., L.P., the managing general
partner of the Partnership (the "Managing General Partner"), and four
individuals (the "Individual General Partners") are the general partners of the
Partnership. Hamilton Capital Management Inc. (the "Management Company") is the
general partner of the Managing General Partner and the Partnership's management
company. The Partnership began its principal operations on December 1, 1988.
The Partnership operates as a business development company under the Investment
Company Act of 1940. The Partnership's investment objective is to achieve
long-term capital appreciation by making venture capital investments in new and
developing companies and other special investment situations. The Partnership
considers this activity to constitute the single industry segment of venture
capital investing.
In 1988 and 1989, the Partnership publicly offered, through The Stuart-James
Company, Incorporated (the "Selling Agent"), 35,000 units of limited partnership
interest ("Units") at $1,000 per Unit. The Units were registered under the
Securities Act of 1933 pursuant to a Registration Statement on Form N-2 (File
No. 33-16891) which was declared effective on May 12, 1988. The Partnership held
its initial and final closings on November 25, 1988 and January 31, 1989,
respectively. A total of 11,217 Units were sold to limited partners (the
"Limited Partners"). Gross capital contributions to the Partnership total
$11,333,170, comprised of $11,217,000 from the Limited Partners, $112,170 from
the Managing General Partner and $4,000 from the Individual General Partners.
The Partnership is scheduled to terminate on December 31, 1998, subject to the
right of the Individual General Partners to extend the term for up to two
additional two-year periods if they determine that such extension is in the best
interest of the Partnership. The Partnership will terminate no later than
December 31, 2002.
The Venture Capital Investments
From its inception to December 31, 1997, the Partnership made cash investments
totaling $11.1 million, in eight portfolio investments. The Partnership has
fully invested its original net proceeds and will not make additional
investments in new portfolio companies. However, the Partnership will make
additional follow-on investments in existing portfolio companies when required.
At December 31, 1997, the Partnership had active investments in four portfolio
companies with an aggregate cost basis of $10.5 million and a fair value of $6.4
million. As of December 31, 1997, the Partnership had fully or partially
liquidated investments with an aggregate cost basis of $3.8 million. These
liquidated investments returned $5.6 million, resulting in a cumulative net
realized gain of $1.8 million. Additionally, from its inception to December 31,
1997, the Partnership had earned $584,000 of interest and dividend income from
its portfolio investments. As a result, from its inception to December 31, 1997,
the Partnership had a cumulative return from its venture capital investments of
$2.4 million.
During 1997, the Partnership completed follow-on investments in Spectrix
Corporation totaling $600,000. There were no portfolio liquidations during 1997.
The venture capital investments made during 1997 and other events affecting the
Partnership's portfolio investments are listed below.
During 1997, the Partnership completed follow-on investments in Spectrix
Corporation totaling $600,000, acquiring a series of demand promissory
notes. In March 1997, the expiration date of the Partnership's warrant to
purchase 50,000 shares of Spectrix common stock at $4.00 per share was
extended to 4/30/03 and, in December 1997, the expiration date of the
Partnership's warrant to purchase an additional 260,000 common shares at
$.50 per share was extended to 12/31/99.
In June 1997, the Partnership received 16,682 common shares of EIS
International, Inc., which were previously held in escrow in connection
with the 1996 merger of EIS and Cybernetics Systems, Inc. Additionally, in
July 1997, the Partnership received a $1,320 cash payment, representing the
final EIS escrow release. As a result of the final escrow settlement, the
Partnership realized a loss of $31,665 during 1997.
In December 1997, the Partnership exercised warrants for the purchase of
138,000 shares of Inn-Room Systems, Inc. common stock. The cost to exercise
such warrants, totaling $1,380, was paid through the reduction of the
principal balance of the demand promissory note, due from the company, from
$105,000 to $103,620. The maturity date of the demand promissory note was
extended to 12/31/98.
Competition
The Partnership encounters competition from other entities having similar
investment objectives. Primary competition for venture capital investments has
been from venture capital partnerships and corporations, venture capital
affiliates of large industrial and financial companies, small business
investment companies and wealthy individuals. Competition also may develop from
foreign investors and from large industrial and financial companies investing
directly rather than through venture capital affiliates. The Partnership has
been a co-investor with other professional venture capital investors and these
relationships have generally expanded the Partnership's access to investment
opportunities.
Employees
The Partnership has no employees. The Managing General Partner, subject to the
supervision of the Individual General Partners, manages and controls the
Partnership's venture capital investments. The Management Company performs, or
arranges for others to perform, the management and administrative services
necessary for the operation of the Partnership and is responsible for managing
the Partnership's short-term investments.
Item 2. Properties.
The Partnership does not own or lease physical properties.
Item 3. Legal Proceedings.
The Partnership is not a party to any material pending legal proceedings.
Item 4. Submission of Matters to a Vote of Security Holders.
No matter was submitted to a vote of security holders during the fourth quarter
of the calendar year covered by this report.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
There is no established public trading market for the Units and it is not
anticipated that any public market for the Units will develop. Consequently,
Limited Partners cannot easily liquidate their investment. Several independent
broker/dealers provide an informal secondary market for limited partnership
interests. Units of limited partnership interest of the Partnership have traded
through this market on a limited basis. Transfers of Units are subject to
certain restrictions pursuant to the Partnership Agreement and also may be
affected by restrictions on resale imposed by the laws of certain states.
The approximate number of holders of Units as of March 16, 1998 is 1,812. The
Managing General Partner and the four Individual General Partners of the
Partnership also hold interests in the Partnership. Information contained in
Item 12 of this report "Security Ownership of Certain Beneficial Owners and
Management" is incorporated herein by reference.
The Partnership did not make any cash distributions to its Partners in
1997, 1996 or 1995 and has not made any cash
distributions to Partners since the inception of the Partnership.
Item 6. Selected Financial Data.
($ In Thousands, Except For Per Unit Information)
Years Ended December 31,
1997 1996 1995 1994 1993
--------- --------- --------- -------- -------
Total assets $ 6,655 $ 9,077 $ 10,817 $ 8,471 $ 8,981
Net assets 6,578 9,013 10,775 8,432 8,932
Cost of portfolio investments 600 1,033 336 1,464 1,143
Cumulative cost of portfolio investments 11,119 10,519 9,487 9,151 7,687
Net unrealized (depreciation) appreciation
of portfolio investments (4,162) (1,980) 2,448 (227) (406)
Net investment loss (222) (257) (318) (295) (269)
Net realized (loss) gain on investments (32) 2,923 (14) (384) -
Change in unrealized depreciation or
appreciation of investments (2,181) (4,428) 2,674 180 95
(Decrease) increase in net assets
resulting from operations (2,435) (1,762) 2,343 (500) (173)
PER UNIT OF LIMITED
PARTNERSHIP INTEREST
Net asset value, including net unrealized
appreciation or depreciation of investments $ 580 $ 790 $ 920 $ 744 $ 788
Net investment loss (22) (24) (28) (26) (24)
Net realized (loss) gain on investments (2) 219 (1) (34) -
Change in unrealized depreciation or
appreciation of investments (186) (325) 205 16 9
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Liquidity and Capital Resources
As of December 31, 1997, the Partnership had $16,000 in an interest-bearing cash
account. During 1997, the Partnership held short-term securities with maturities
typically ranging from 30 days to 90 days. Interest earned from such short-term
securities and interest-bearing cash balances was $12,000, $56,000 and $37,000
for the years ended December 31, 1997, 1996 and 1995, respectively. Interest
earned from cash balances and short-term investments in future periods is
subject to fluctuations in short-term interest rates and changes in cash
balances and amounts available for investment in short-term securities.
The Partnership has fully invested the net proceeds received from the offering
of Units and will not make additional investments in new portfolio companies.
However, the Partnership will make additional follow-on investments in existing
portfolio companies when required. As discussed below, during 1997, the
Partnership completed follow-on investments totaling $600,000 in Spectrix
Corporation.
Funds needed to cover the Partnership's future follow-on investments and
operating expenses will be obtained from existing cash reserves, interest and
other investment income and from proceeds from the sale of portfolio
investments.
Results of Operations
For the year ended December 31, 1997, the Partnership had a net realized loss
from operations of $254,000. For the years ended December 31, 1996 and 1995, the
Partnership had a net realized gain from operations of $2.7 million and a net
realized loss from operations of $332,000, respectively. Net realized gain or
loss from operations is comprised of (i) net realized gain or loss from
portfolio investments and (ii) net investment income or loss (interest and
dividend income less operating expenses).
Realized Gains and Losses from Portfolio Investments - For the year ended
December 31, 1997, the Partnership had a net realized loss from its portfolio
investments of $32,000, relating to the final escrow payment received, during
1997, in connection with the 1996 merger of EIS International, Inc. with
Cybernetics Systems, Inc. In June 1997, the Partnership received 16,682 common
shares of EIS, representing 100% of the shares previously held in escrow.
However, in connection with a settlement agreement among EIS and the former
Cybernetics shareholders, the Partnership received $1,320, representing only a
portion of the $32,985 cash balance previously held in escrow, realizing a loss
of $31,665 for 1997.
For the year ended December 31, 1996, the Partnership had a net realized gain
from its portfolio investments of $2.9 million. In May 1996, the Partnership
sold its remaining 21,673 shares of Cincinnati Bell Inc. common stock in the
public market for $1.1 million, realizing a gain of $657,100. In March 1996, EIS
International, Inc., a public company, completed its merger with Cybernetics
Systems International, Inc. In connection with the merger, the Partnership
exchanged its Cybernetics holdings for $460,245 in cash, 206,267 shares of
restricted EIS common stock and warrants to purchase 29,015 shares of EIS common
stock at $1.41 per share. Of the total merger consideration, $32,985 of cash and
16,682 shares of EIS common stock were placed in escrow, the release of which
was contingent upon certain events. Claims set forth by EIS International
subsequent to the merger were resolved through arbitration, resulting in a loss
to the Partnership in 1997, as discussed above. The Partnership recognized a
$2.2 million realized gain in 1996 in connection with the merger.
For the year ended December 31, 1995, the Partnership had a net realized loss
from its portfolio investments of $14,000. During 1995, the Partnership sold
20,000 shares of Cincinnati Bell Inc. in the public market for $389,000,
realizing a loss of $4,000 and wrote-off the remaining cost of its 1% limited
partnership interest in Picture Productions, L.P., resulting in a realized loss
of $10,000.
Investment Income and Expenses - Net investment loss for the years ended
December 31, 1997, 1996 and 1995 was $222,000, $257,000, and $318,000,
respectively. The $35,000 decrease in net investment loss for 1997 compared to
1996 includes a $38,000 increase in investment income offset by a $3,000
increase in operating expenses. The increase in investment income primarily
resulted from an $82,000 increase in interest income from portfolio investments
partially offset by a $44,000 decrease in interest from short-term investments.
The increase in interest income from portfolio investments relates to the
additional interest bearing promissory notes due from Spectrix Corporation held
by the Partnership during 1997 compared to 1996. The decrease in interest from
short-term investments for 1997 compared to 1996 primarily is due to a reduction
of funds available for investment in such securities during 1997. The $3,000
increase in operating expenses for 1997 as compared to 1996 includes an $18,000
increase in professional fees, offset by a $15,000 reduction in other operating
costs.
The $62,000 decrease in net investment loss for 1996 compared to 1995 includes a
$41,000 increase in investment income and a $21,000 decrease in operating
expenses. The increase in investment income includes a $20,000 increase in
interest earned from short-term investments and a $21,000 increase in interest
and dividend income from portfolio investments. The increase in interest from
short-term investments was due to an increase in funds available to invest in
such securities for 1996 compared to 1995. The increase in interest and dividend
income from portfolio investments for 1996 compared to 1995 primarily resulted
from an increase in interest bearing securities of Spectrix Corporation and
Inn-Room Systems, Inc. held by the Partnership during 1996.
The Management Company is responsible for the management and administrative
services necessary for the operation of the Partnership. The Management Company
receives a management fee at an annual rate of 2.5% of the gross capital
contributions to the Partnership (net of selling commissions and organizational
expenses paid by the Partnership), reduced by capital distributed and realized
losses, with a minimum annual fee of $200,000. The management fee was $224,000
for each of the years ended December 31, 1997, 1996 and 1995. To the extent
possible, the management fee and other expenses incurred by the Partnership are
paid with funds provided from operations. Funds provided from operations for the
periods discussed, primarily were obtained from interest received from
short-term investments and interest and other income earned from portfolio
investments.
Unrealized Gains and Losses and Changes in Unrealized Depreciation or
Appreciation of Portfolio Investments - For the year ended December 31, 1997,
the Partnership had a $2.2 million net unrealized loss, primarily resulting from
the net downward revaluation of its investment in Spectrix Corporation in
September 1997. Accordingly, net unrealized depreciation increased by $2.2
million for 1997.
For the year ended December 31, 1996, the Partnership had a $1.6 million net
unrealized loss primarily resulting from the downward revaluation of its
investment in EIS International, Inc. Additionally during 1996, $2.8 million of
net unrealized gain was transferred to realized gain relating to investments
sold during 1996, as discussed above. The $1.6 million net unrealized loss
combined with the $2.8 million transfer from unrealized gain to realized gain
resulted in a $4.4 million increase in net unrealized depreciation of
investments for 1996.
For the year ended December 31, 1995, the Partnership had a $2.6 million net
unrealized gain primarily resulting from the upward revaluation of its
investment in Cybernetics Systems International, Inc. Additionally during 1995,
$42,000 of unrealized losses were reversed due to the sale of 20,000 shares of
Cincinnati Bell common stock. The $2.6 million net unrealized gain combined with
the $42,000 transfer from unrealized loss to realized loss resulted in a $2.7
million increase in net unrealized appreciation of investments for 1995.
Net Assets - Changes in net assets resulting from operations are comprised of
(1) net realized gain or loss from operations and (2) changes in net unrealized
appreciation or depreciation of portfolio investments. For the years ended
December 31, 1997 and 1996, the Partnership had a net decrease in net assets
from operations of $2.4 million and $1.8 million, respectively. For the year
ended December 31, 1995, the Partnership had a net increase in net assets from
operations of $2.3 million.
At December 31, 1997, the Partnership's net assets were $6.6 million, down $2.4
million from $9.0 million at December 31, 1996. The $2.4 million decrease was
comprised of the $2.2 million increase in unrealized depreciation of investments
and the $254,000 net realized loss from operations for 1997.
At December 31, 1996, the Partnership's net assets were $9.0 million, down $1.8
million from $10.8 million at December 31, 1995. The $1.8 million decrease was
comprised of the $2.6 million net realized gain from operations offset by the
$4.4 million increase in unrealized depreciation of investments for 1996.
At December 31, 1995, the Partnership's net assets were $10.8 million, up $2.3
million from $8.4 million at December 31, 1994. The $2.3 million increase was
comprised of the $2.7 million increase in unrealized appreciation of investments
offset by the $332,000 net realized loss from operations for 1995.
Gains and losses from investments are allocated to the Partners' capital
accounts when realized in accordance with the Partnership Agreement (see Note 3
of Notes to Financial Statements). However, for purposes of calculating the net
asset value per unit of limited partnership interest ("Unit"), net unrealized
appreciation or depreciation of investments has been included as if it had been
realized and allocated to the Limited Partners in accordance with the
Partnership Agreement. Pursuant to such calculation, the net asset value per
$1,000 Unit at December 31, 1997, 1996 and 1995 was $580, $790, and $920,
respectively.
Item 8. Financial Statements and Supplementary Data.
WESTFORD TECHNOLOGY VENTURES, L.P.
INDEX
Report of Independent Certified Public Accountants - BDO Seidman, LLP
Balance Sheets as of December 31, 1997 and 1996
Schedule of Portfolio Investments as of December 31, 1997
Schedule of Portfolio Investments as of December 31, 1996
Statements of Operations for the years ended December 31, 1997, 1996 and 1995
Statements of Cash Flows for the years ended December 31, 1997, 1996 and 1995
Statements of Changes in Partners' Capital for the years ended December 31,
1995, 1996 and 1997
Notes to Financial Statements
NOTE - All schedules are omitted because of the absence of conditions under
which they are required or because the required information is included in the
financial statements or the notes thereto.
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Partners
Westford Technology Ventures, L.P.
Newark, New Jersey
We have audited the accompanying balance sheets of Westford Technology Ventures,
L.P. (the "Partnership"), including the schedule of portfolio investments, as of
December 31, 1997 and 1996, and the related statements of operations, changes in
partners' capital, and cash flows for each of the three years in the period
ended December 31, 1997. These financial statements are the responsibility of
the Partnership's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall presentation of the financial
statements. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Westford Technology Ventures,
L.P. at December 31, 1997 and 1996, and the results of its operations and its
cash flows for each of the three years in the period ended December 31, 1997 in
conformity with generally accepted accounting principles.
As explained in Note 2, the financial statements include investments valued at
$6,366,864 and $7,948,265, at December 31, 1997 and 1996, respectively,
representing 97% and 88% of partners' capital, respectively, whose values have
been estimated by the managing general partner in the absence of readily
ascertainable market values. We have reviewed the procedures used by the
managing general partner in arriving at its estimates or value of such
investments and have inspected underlying documentation and, in the
circumstances, we believe the procedures are reasonable and the documentation
appropriate. However, those estimated values may differ significantly from the
values that would have been used had a ready market for the investments existed,
and the differences could be material.
BDO Seidman, LLP
New York, New York
February 27, 1998
WESTFORD TECHNOLOGY VENTURES, L.P.
BALANCE SHEETS
December 31,
1997 1996
--------------- -----------
ASSETS
Portfolio investments, at fair value (cost $10,528,421 at
December 31, 1997 and $9,928,421 at December 31, 1996) $ 6,366,864 $ 7,948,265
Cash and cash equivalents 16,061 900,186
Cash held in escrow - 32,985
Receivable from securities sold (net of unamortized discount of
$66,322 at December 31, 1997 and $85,029 at December 31, 1996) 122,180 160,642
Accrued interest receivable 150,000 34,854
--------------- ----------------
TOTAL ASSETS $ 6,655,105 $ 9,076,932
=============== ================
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Accounts payable $ 44,355 $ 53,337
Due to Management Company 22,134 -
Due to Independent General Partners 10,500 10,500
--------------- ----------------
Total Liabilities 76,989 63,837
--------------- ----------------
Partners' Capital:
Managing General Partner 577,197 559,134
Individual General Partners 3,577 3,674
Limited Partners (11,217 Units) 10,158,899 10,430,443
Unallocated net unrealized depreciation of investments (4,161,557) (1,980,156)
--------------- ----------------
Total Partners' Capital 6,578,116 9,013,095
--------------- ----------------
TOTAL LIABILITIES AND PARTNERS' CAPITAL $ 6,655,105 $ 9,076,932
See notes to financial statements.
WESTFORD TECHNOLOGY VENTURES, L.P.
SCHEDULE OF PORTFOLIO INVESTMENTS
December 31, 1997
Initial Investment
Company / Position Date Cost Fair Value
EIS International, Inc.(A) (B)
206,267 shares of Common Stock Mar. 1990 $ 2,726,335 $ 1,134,469
Warrants to purchase 29,015 shares of Common Stock
at $1.41 per share, expiring between 12/31/98 and 3/23/00 438,469 118,767
-------------- -------------
3,164,804 1,253,236
- -------------------------------------------------------------------------------------------------------------------------------
Inn-Room Systems, Inc.*(C)
1,480,491 shares of Common Stock Oct. 1989 1,285,894 740,246
Demand Promissory Note at 1% plus prime due 12/31/98 103,620 103,620
Warrants to purchase 68,003 shares of Common Stock at
$0.01 per share, expiring 6/30/98 33,775 33,321
-------------- -------------
1,423,289 877,187
- -------------------------------------------------------------------------------------------------------------------------------
Spectrix Corporation*(D)
742,304 shares of Preferred Stock June 1989 3,511,351 1,113,458
274,862 shares of Common Stock 142,681 412,293
Demand Promissory Notes at 8% 1,497,500 1,497,500
Warrants to purchase 424,394 shares of Common Stock
at $.50 per share, expiring between 12/31/99 and 4/30/03 0 424,394
Warrants to purchase 50,000 shares of Common Stock at
$4.00 per share, expiring 04/30/03 0 0
-------------- -------------
5,151,532 3,447,645
- -------------------------------------------------------------------------------------------------------------------------------
Thunderbird Technologies, Inc.
788,796 shares of Preferred Stock Oct. 1992 788,796 788,796
- -------------------------------------------------------------------------------------------------------------------------------
TOTALS $ 10,528,421 $ 6,366,864
(A) Public company.
(B) In June 1997, the Partnership received 16,682 common shares of EIS
International, Inc., which were previously held in escrow in connection with
the 1996 merger of EIS and Cybernetics Systems, Inc. Additionally, in July
1997, the Partnership received a $1,320 cash payment, representing the final
EIS escrow release. As a result of the final escrow settlement, the
Partnership realized a loss of $31,665 during 1997.
(C) In December 1997, the Partnership exercised warrants for the purchase of
138,000 shares of Inn-Room Systems, Inc. common stock. The cost to exercise
such warrants, totaling $1,380, was paid through the reduction of the
principal balance of the demand promissory note, due from the company, from
$105,000 to $103,620. The maturity date of the demand promissory note was
extended to 12/31/98.
(D) During the year, the Partnership completed follow-on investments in Spectrix
Corporation totaling $600,000, acquiring a series of promissory demand
notes. In March 1997, the expiration date of the Partnership's warrant to
purchase 50,000 shares of Spectrix common stock at $4.00 per share was
extended to 4/30/03 and, in December 1997, the expiration date of the
Partnership's warrant to purchase an additional 260,000 common shares at
$.50 per share was extended to 12/31/99.
* May be deemed an affiliated person of the Partnership as defined in the
Investment Company Act of 1940.
See notes to financial statements.
WESTFORD TECHNOLOGY VENTURES, L.P.
SCHEDULE OF PORTFOLIO INVESTMENTS
December 31, 1996
Initial Investment
Company / Position Date Cost Fair Value
EIS International, Inc.
189,585 shares of Common Stock Mar. 1990 $ 2,505,841 $ 1,308,137
16,682 shares of Common Stock, held in escrow 220,494 115,105
Warrants to purchase 29,015 shares of Common Stock
at $1.41 per share, expiring between 12/31/98 and 3/23/00 438,469 209,439
------------- -------------
3,164,804 1,632,681
- -------------------------------------------------------------------------------------------------------------------------------
Inn-Room Systems, Inc. *
1,342,491 shares of Common Stock Oct. 1989 1,243,686 671,254
Demand Promissory Note at 1% plus prime due 12/31/97 105,000 105,000
Warrants to purchase 206,003 shares of Common Stock at
$0.01 per share, expiring between 12/31/97 and 6/30/98 74,603 100,941
------------- -------------
1,423,289 877,195
- -------------------------------------------------------------------------------------------------------------------------------
Spectrix Corporation*
742,304 shares of Preferred Stock June 1989 3,511,351 2,041,335
274,862 shares of Common Stock 142,681 755,871
Demand Promissory Notes at 8% 897,500 897,500
Warrants to purchase 424,394 shares of Common Stock
at $.50 per share, expiring between 12/31/97 and 4/30/03 0 954,887
Warrants to purchase 50,000 shares of Common Stock at
$4.00 per share, expiring 12/2/99 and 2/1/00 0 0
------------- -------------
4,551,532 4,649,593
- -------------------------------------------------------------------------------------------------------------------------------
Thunderbird Technologies, Inc.
788,796 shares of Preferred Stock Oct. 1992 788,796 788,796
- -------------------------------------------------------------------------------------------------------------------------------
TOTALS $ 9,928,421 $ 7,948,265
(A) Public company
* May be deemed an affiliated person of the Partnership as defined in the
Investment Company Act of 1940.
See notes to financial statements.
WESTFORD TECHNOLOGY VENTURES, L.P.
STATEMENTS OF OPERATIONS
For the Years Ended December 31,
1997 1996 1995
--------------- -------------- --------
INVESTMENT INCOME AND EXPENSES
Income:
Interest from short-term investments $ 11,692 $ 56,377 $ 36,711
Interest and dividend income from portfolio investments 135,562 53,141 32,112
--------------- --------------- ---------------
Total investment income 147,254 109,518 68,823
--------------- --------------- ---------------
Expenses:
Management fee 223,586 223,784 224,013
Professional fees 80,330 61,746 87,604
Independent General Partners' fees 42,000 42,000 42,000
Mailing and printing 18,962 30,250 22,155
Miscellaneous 4,289 8,535 11,344
--------------- --------------- ---------------
Total expenses 369,167 366,315 387,116
--------------- --------------- ---------------
NET INVESTMENT LOSS (221,913) (256,797) (318,293)
Net realized (loss) gain from portfolio investments (31,665) 2,923,123 (13,589)
--------------- --------------- ---------------
NET REALIZED (LOSS) GAIN FROM OPERATIONS (253,578) 2,666,326 (331,882)
Change in unrealized depreciation or appreciation
of investments (2,181,401) (4,428,010) 2,674,488
--------------- --------------- ---------------
NET (DECREASE) INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $ (2,434,979) $ (1,761,684) $ 2,342,606
=============== =============== ===============
See notes to financial statements.
WESTFORD TECHNOLOGY VENTURES, L.P.
STATEMENTS OF CASH FLOWS
For the Years Ended December 31,
1997 1996 1995
------------- -------------- ----------
CASH FLOWS USED FOR OPERATING ACTIVITIES
Net investment loss $ (221,913) $ (256,797) $ (318,293)
Adjustments to reconcile net investment loss to cash used for operating
activities:
Decrease (increase) in accrued interest on short-term
investments - 1,395 (1,147)
(Increase) decrease in accrued interest and other receivables (117,371) (35,480) 9,227
Increase in payables 13,152 22,078 3,116
------------- -------------- ---------------
Cash used for operating activities (326,132) (268,804) (307,097)
------------- -------------- ---------------
CASH (USED FOR) PROVIDED FROM INVESTING
ACTIVITIES
Net proceeds from sale or maturity of short-term investments - 348,158 149,363
Cost of portfolio investments purchased (600,000) (1,032,500) (336,496)
Proceeds from the sale of portfolio investments 42,007 1,646,828 419,393
------------- -------------- ---------------
Cash (used for) provided from investing activities (557,993) 962,486 232,260
------------- -------------- ---------------
(Decrease) increase in cash and cash equivalents (884,125) 693,682 (74,837)
Cash and cash equivalents at beginning of period 900,186 206,504 281,341
------------- -------------- ---------------
CASH AND CASH EQUIVALENTS AT END
OF PERIOD $ 16,061 $ 900,186 $ 206,504
============= ============== ===============
Supplemental disclosure of non-cash investing and
financing activities:
Proceeds from sale of Cybernetics - EIS stock $ - $ 3,164,804 $ -
Proceeds from sale of Cybernetics - cash held in escrow $ - $ 32,985 $ -
Acquisition of 138,000 common shares of Inn-Room
Systems, Inc. - through reduction of notes $ 1,380 $ - $ -
See notes to financial statements.
WESTFORD TECHNOLOGY VENTURES, L.P.
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
For the Years Ended December 31, 1995, 1996 and 1997
Unallocated
Net Unrealized
Managing Individual Appreciation
General General Limited (Depreciation)
Partner Partners Partners of Investments Total
Balance at December 31, 1994 $ 85,701 $ 3,010 $ 8,570,096 $ (226,634) $ 8,432,173
Net investment loss (3,151) (112) (315,030) - (318,293)
Net realized loss from
portfolio investments (134) (5) (13,450) - (13,589)
Change in unrealized
appreciation of investments - - - 2,674,488 2,674,488
------------ ---------- --------------- --------------- ---------------
Balance at December 31, 1995 82,416 2,893 8,241,616(A) 2,447,854 10,774,779
Net investment loss 7,981 (94) (264,684) - (256,797)
Net realized gain from
portfolio investments 468,737 875 2,453,511 - 2,923,123
Change in unrealized
depreciation of investments - - - (4,428,010) (4,428,010)
------------ ---------- --------------- --------------- ---------------
Balance at December 31, 1996 559,134 3,674 10,430,443(A) (1,980,156) 9,013,095
Net investment loss 24,647 (88) (246,472) - (221,913)
Net realized loss from
portfolio investments (6,584) (9) (25,072) - (31,665)
Change in unrealized
depreciation of investments - - - (2,181,401) (2,181,401)
------------ ---------- --------------- --------------- ---------------
Balance at December 31, 1997 $ 577,197 $ 3,577 $ 10,158,899(A) $ (4,161,557) $ 6,578,116
============ ========== =============== =============== ===============
(A) The net asset value per unit of limited partnership interest, including an
assumed allocation of net unrealized appreciation (depreciation) of
investments, was $580, $790 and $920 at December 31, 1997, 1996 and 1995,
respectively.
See notes to financial statements.
WESTFORD TECHNOLOGY VENTURES, L.P.
NOTES TO FINANCIAL STATEMENTS
1. Organization and Purpose
Westford Technology Ventures, L.P. (the "Partnership") is a Delaware limited
partnership formed on September 3, 1987. WTVI Co., L.P., the managing general
partner of the Partnership (the "Managing General Partner") and four individuals
(the "Individual General Partners") are the general partners of the Partnership.
Hamilton Capital Management Inc. (the "Management Company") is the general
partner of the Managing General Partner and the management company of the
Partnership. The Partnership began its principal operations on December 1, 1988.
The Partnership's objective is to achieve long-term capital appreciation by
making venture capital investments in new and developing companies and other
special investment situations. The Partnership will not engage in any other
business or activity. The Partnership is scheduled to terminate on December 31,
1998, subject to the right of the Individual General Partners to extend the term
for up to two additional two-year periods.
2. Significant Accounting Policies
Valuation of Investments - Short-term investments are carried at amortized cost
which approximates market. Portfolio investments are carried at fair value as
determined quarterly by the Managing General Partner under the supervision of
the Individual General Partners. The fair value of publicly-held portfolio
securities is adjusted to the closing public market price for the last trading
day of each quarter discounted by a factor of 0% to 50% for sales restrictions.
Factors considered in the determination of an appropriate discount include,
underwriter lock-up or Rule 144 trading restrictions, insider status where the
Partnership either has a representative serving on the Board of Directors or is
greater than a 10% shareholder, and other liquidity factors such as the size of
the Partnership's position in a given company compared to the trading history of
the public security. Privately-held portfolio securities are carried at cost
until significant developments affecting the portfolio company provide a basis
for change in valuation. The fair value of private securities is adjusted 1) to
reflect meaningful third-party transactions in the private market or 2) to
reflect significant progress or slippage in the development of the company's
business such that cost is no longer reflective of fair value. As a venture
capital investment fund, the Partnership's portfolio investments involve a high
degree of business and financial risk that can result in substantial losses. The
Managing General Partner considers such risks in determining the fair value of
the Partnership's portfolio investments.
Use of Estimates - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Investment Transactions - Investment transactions are recorded on the accrual
method. Portfolio investments are recorded on the trade date, the date the
Partnership obtains an enforceable right to demand the securities or payment
therefor. Realized gains and losses on investments sold are computed on a
specific identification basis.
WESTFORD TECHNOLOGY VENTURES, L.P.
NOTES TO FINANCIAL STATEMENTS - continued
Income Taxes - No provision for income taxes has been made since all income and
losses are allocable to the Partners for inclusion in their respective income
tax returns. The Partnership's net assets for financial reporting purposes
differ from its net assets for tax purposes. Net unrealized depreciation of
$4,161,557 at December 31, 1997, which was recorded for financial statement
purposes, has not been recognized for tax purposes. From inception to December
31, 1997, other timing differences relating to net realized gains totaling $1.0
million have been recorded on the Partnership's financial statements but have
not yet been recorded on the Partnership's tax return. Additionally, syndication
costs relating to the selling of Units totaling $1.2 million were charged to
partners' capital on the financial statements but have not been deducted or
charged against partners' capital for tax purposes.
Cash Equivalents - The Partnership considers all highly liquid debt instruments
(primarily money market funds) to be cash equivalents.
3. Allocation of Partnership Profits and Losses
The Partnership Agreement provides that the Managing General Partner will be
allocated, on a cumulative basis over the life of the Partnership, 20% of the
Partnership's aggregate investment income and net realized gains from venture
capital investments, provided that such amount is positive. All other gains and
losses of the Partnership are allocated among all the Partners, including the
Managing General Partner, in proportion to their respective capital
contributions to the Partnership.
4. Related Party Transactions
The Management Company is responsible for the management and administrative
services necessary for the operation of the Partnership. For these services, the
Management Company receives a management fee at an annual rate of 2.5% of the
gross capital contributions to the Partnership (net of selling commissions and
organizational expenses paid by the Partnership), reduced by capital distributed
and realized losses, with a minimum fee of $200,000 per annum. Such fee is
determined quarterly and paid monthly.
The Management Company also directly provides certain shareholder services and
database management support for the Limited Partners of the Partnership. For
such services, the Management Company charges the Partnership $8,500 per
quarter. This amount is paid to the Management Company in addition to the
regular management fee discussed above.
5. Independent General Partners' Fees
As compensation for services rendered to the Partnership, each of the three
Independent General Partners receives $10,000 annually in quarterly installments
and $1,000 for each meeting of the Independent General Partners attended, plus
out-of-pocket expenses.
WESTFORD TECHNOLOGY VENTURES, L.P.
NOTES TO FINANCIAL STATEMENTS - continued
6. Classification of Portfolio Investments
As of December 31, 1997 and 1996, the Partnership's investments were categorized
as follows:
As of December 31, 1997: Percentage of
Type of Investments Cost Fair Value Net Assets*
- ------------------- --------------- --------------- -----------
Preferred Stock $ 4,300,147 $ 1,902,254 28.92%
Common Stock 4,154,910 2,287,008 34.77%
Common Stock Warrants 472,244 576,482 8.76%
Debt Securities 1,601,120 1,601,120 24.34%
---------------- -------------- ------
Total $ 10,528,421 $ 6,366,864 96.79%
================ ============== ======
Country/Geographic Region
Midwestern U.S. $ 6,574,821 $ 4,324,832 65.75%
Eastern U.S. 3,953,600 2,042,032 31.04%
---------------- -------------- ------
Total $ 10,528,421 $ 6,366,864 96.79%
================ ============== ======
Industry
Wireless Communications $ 5,151,532 $ 3,447,645 52.41%
Computer Software 3,164,804 1,253,236 19.06%
Vending Equipment 1,423,289 877,187 13.33%
Semiconductors 788,796 788,796 11.99%
---------------- -------------- -------
Total $ 10,528,421 $ 6,366,864 96.79%
================ ============== ======
As of December 31, 1996: Percentage of
Type of Investments Cost Fair Value Net Assets*
- ------------------- --------------- --------------- -----------
Preferred Stock $ 4,300,147 $ 2,830,131 31.40%
Common Stock 4,112,702 2,850,367 31.63%
Common Stock Warrants 513,072 1,265,267 14.04%
Debt Securities 1,002,500 1,002,500 11.12%
--------------- --------------- ------
Total $ 9,928,421 $ 7,948,265 88.19%
=============== =============== ======
Country/Geographic Region
Midwestern U.S. $ 5,974,821 $ 5,526,788 61.32%
Eastern U.S. 3,953,600 2,421,477 26.87%
--------------- --------------- ------
Total $ 9,928,421 $ 7,948,265 88.19%
=============== =============== ======
Industry
Wireless Communications $ 4,551,532 $ 4,649,594 51.59%
Computer Software 3,164,804 1,632,681 18.11%
Vending Equipment 1,423,289 877,194 9.73%
Semiconductors 788,796 788,796 8.76%
--------------- --------------- -------
Total $ 9,928,421 $ 7,948,265 88.19%
=============== =============== ======
* Fair value as a percentage of net assets.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
None.
PART III
Item 10. Directors and Executive Officers of the Registrant.
The Partnership
The information set forth under the caption "Election of General Partners" in
the Annual Meeting Proxy Statement is incorporated herein by reference.
The Management Company
The Management Company performs, or arranges for others to perform, the
management and administrative services necessary for the operation of the
Partnership pursuant to the Management Agreement between the Partnership and the
Management Company. At March 16, 1998, the directors and executive officers of
the Management Company are:
Name and Age Position Held Director Since
Jeffrey T. Hamilton (60) President, Secretary and September 3, 1987
Chairman of the Board of
Directors
Louise M. Hamilton (57) Director August 23, 1991
Susan J. Trammell (43) Treasurer and Director February 27, 1991
The directors of the Management Company will serve as directors until the next
annual meeting of stockholders and until their successors are elected and
qualified. The officers of the Management Company will hold office until the
next annual meeting of the Board of Directors of the Management Company and
until their successors are elected and qualified.
The information with respect to Mr. Hamilton, the sole shareholder of the
Management Company, set forth under the subcaption "Election of Individual
General Partners" in the Annual Meeting Proxy Statement is incorporated herein
by reference.
There are no family relationships among any of the Individual General Partners
of the Partnership. Jeffrey T. Hamilton and Louise M. Hamilton, President,
Secretary and Chairman of the Board of Directors and Director of the Management
Company, respectively, are husband and wife.
Item 11. Executive Compensation.
The information with respect to the compensation of the Individual General
Partners set forth under the subcaption "Election of Individual General
Partners" in the Annual Meeting Proxy Statement is incorporated herein by
reference.
The information with respect to the allocation and distribution of the
Partnership's profits and losses to the Managing General Partner set forth under
the subcaption "Election of Managing General Partner" in the Annual Meeting
Proxy Statement is incorporated herein by reference.
The information with respect to the management fee payable to the Management
Company set forth under the caption "The Terms of the Current Management
Agreement and the Proposed Management Agreement" in the Annual Meeting Proxy
Statement is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
The information concerning the security ownership of the Individual General
Partners set forth under the subcaption "Election of Individual General
Partners" in the Annual Meeting Proxy Statement is incorporated herein by
reference.
As of March 16, 1998, no person or group is known by the Partnership to be the
beneficial owner of more than 5 percent of the Units. Mr. Ames, an Individual
General Partner of the Partnership, owns 10 Units and Ms. Trammell, the
Treasurer and Director of the Management Company, owns 3 Units. The Individual
General Partners and the directors and officers of the Management Company as a
group own 13 Units or less than one percent of the total Units outstanding.
The Partnership is not aware of any arrangement which may, at a subsequent date,
result in a change of control of the Partnership.
Item 13. Certain Relationships and Related Transactions.
Not applicable.
PART IV
Item 14. Exhibits, Financial Statements, Schedules and Reports on Form 8-K.
(a) 1. Financial Statements
Report of Independent Certified Public Accountants -
BDO Seidman, LLP
Balance Sheets as of December 31, 1997 and 1996
Schedule of Portfolio Investments as of December 31, 1997
Schedule of Portfolio Investments as of December 31, 1996
Statements of Operations for the years ended December 31,
1997, 1996 and 1995
Statements of Cash Flows for the years ended December 31,
1997, 1996 and 1995
Statements of Changes in Partners' Capital for the years ended
December 31, 1995, 1996 and 1997
Notes to Financial Statements
2. Exhibits
3.1 Amended and Restated Certificate of Limited Partnership
of the Registrant (filed as Exhibit 3.1 to the
Registrant's Annual Report on Form 10-K for the year
ended December 31, 1991 and incorporated herein by
reference).
3.2 Amended and Restated Agreement of Limited Partnership
of the Registrant (filed as Exhibit 1(c) to the
Registrant's Registration Statement on Form N-2 (No.
33-16891) and incorporated herein by reference).
10 Management Agreement dated as of February 28, 1991
between the Registrant and the Management Company
(filed as Exhibit A to the Registrant's definitive
proxy statement in connection with the 1991 Annual
Meeting of Limited Partners and incorporated herein by
reference).
27 Financial Data Schedule.
(b) No reports on Form 8-K have been filed during the fourth quarter
of the fiscal year covered by this report.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, this report has been signed below by the following persons on
behalf of the Registrant, in the capacities indicated on the 27th day of March
1998.
WESTFORD TECHNOLOGY VENTURES, L.P.
By: WTVI Co., L.P.
its managing general partner
By: Hamilton Capital Management Inc.
its general partner
By: /s/ Jeffrey T. Hamilton President, Secretary and Director (Principal
Jeffrey T. Hamilton Executive Officer) of Hamilton Capital
Management Inc. and Individual General
Partner of Westford Technology Ventures, L.P.
By: /s/ Susan J. Trammell Treasurer and Director (Principal Financial
Susan J. Trammell and Accounting Officer) of Hamilton Capital
Management Inc.
By: /s/ Robert S. Ames Individual General Partner of
Robert S. Ames Westford Technology Ventures, L.P.
By: /s/ Alfred M. Bertocchi Individual General Partner of
Alfred M. Bertocchi Westford Technology Ventures, L.P.
By: /s/ George M. Weimer Individual General Partner of
George M. Weimer Westford Technology Ventures, L.P.