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UNITED STATES
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 Year Ended December 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from N/A to N/A
--- ---
Commission File No. 814-82
TECHNOLOGY FUNDING VENTURE PARTNERS V, AN AGGRESSIVE GROWTH FUND, L.P.
- ----------------------------------------------------------------------
(Exact name of Registrant as specified in its charter)
DELAWARE 94-3094910
- ------------------------------- ----------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) No.)
2000 Alameda de las Pulgas, Suite 250
San Mateo, California 94403
- --------------------------------------- --------
(Address of principal executive offices) (Zip Code)
(650) 345-2200
--------------------------------------------------
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Limited
Partnership Units
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. [ ]
No active market for the units of limited partnership interests
("Units") exist, and therefore the market value of such Units cannot
be determined.
Documents incorporated by reference: Portions of the Prospectus dated
January 22, 1992, forming a part of Registration Statement No. 33-
31237 filed pursuant to Rule 424(c) of the General Rules and
Regulations under the Securities Act of 1933, as modified by Post-
Effective Amendment No. 1 dated April 23, 1990, are incorporated by
reference in Parts I and III hereof. Portions (pages 23 to 25) of the
Prospectus of Technology Funding Venture Capital Fund VI, LLC as
revised June 4, 1998 (accession number 0000950133-98-002220), forming
a part of the December 5, 1997, Pre-Effective Amendment No. 1 to the
Form N-2 Registration Statement No. 333-23913 dated July 11, 1997, are
incorporated by reference in Part III hereof.
PART I
Item 1. BUSINESS
- ------ --------
Technology Funding Venture Partners V, An Aggressive Growth
Fund, L.P. (the "Partnership") is a limited partnership
organized under the laws of the State of Delaware on June 26,
1989 and was inactive until it commenced the sale of Units in
May of 1990. The purpose of the Partnership is to make
venture capital investments in emerging growth companies as
described in the "Introductory Statement" and "Business of
the Partnership" sections of the Prospectus dated January 22,
1992. The Partnership has elected to be a business
development company under the Investment Company Act of 1940,
as amended (the "Act"), and operates as a nondiversified
investment company as that term is defined in the Act.
Additional characteristics of the Partnership's business are
discussed in the "Risk Factors" and "Conflicts of Interest"
sections of the Prospectus, which sections are also
incorporated herein by reference. The Partnership's term was
extended for a two-year period to December 31, 2000 pursuant
to unanimous approval by the Independent General Partners in
1998. The Partnership's term was extended for an additional
two-year period to December 31, 2002 pursuant to unanimous
approval by the Independent General Partners in 1999.
Item 2. PROPERTIES
- ------ ----------
The Registrant has no material physical properties.
Item 3. LEGAL PROCEEDINGS
- ------ -----------------
There are no material pending legal proceedings to which the
Registrant is party or of which any of its property is the
subject, other than routine litigation incidental to the
business of the Partnership.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- ------ ---------------------------------------------------
No matter was submitted to a vote of the holders of units of
Limited Partnership interests (Units) during 1999.
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
- ------ -------------------------------------------------------------
MATTERS
-------
(a) There is no established public trading market for the
Units.
(b) At December 31, 1999, there were 6,593 record holders of
Units.
(c) The Registrant, being a partnership, does not pay
dividends. Cash distributions, however, may be made to
the partners pursuant to the Registrant's Partnership
Agreement.
Item 6. SELECTED FINANCIAL DATA
- ------ -----------------------
For the Years Ended and As of December 31,
-----------------------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
Total interest income $ 290,090 16,681 109,168 177,557 620,711
Total dividend income -- -- 280,010 -- --
Net operating loss (933,174) (1,792,028) (678,851) (1,796,650) (1,095,815)
Net realized gain from sales
of equity investments 9,932,257 5,305 3,781,057 2,174,495 935,950
Realized losses from
investment write-downs (2,615) (3,375,003) (1,059,212) (4,049,697) (3,137,377)
Recoveries from investments
previously written-off -- -- -- 23,922 45,248
Net realized gain from
venture capital limited
partnership investments 501,038 237,354 38,757 22,997 --
Net realized income (loss) 9,497,506 (4,924,372) 2,081,751 (3,624,933) (3,251,994)
Change in net unrealized
fair value:
Equity investments 2,923,379 2,139,142 8,572,830 2,019,333 765,254
Secured notes receivable -- -- -- 955,000 (395,000)
Other investments -- 265,720 (265,720) -- --
Net income (loss) 12,420,885 (2,519,510) 10,388,861 (650,600) (2,881,740)
Net income (loss) per
Unit (1) 25.20 (6.14) 25.77 (1.61) (7.13)
Total assets 48,110,924 37,702,090 39,415,870 29,077,479 29,698,636
Distributions declared 6,657,582 -- -- -- --
Distributions declared
per Unit (2) 13.32 -- -- -- --
(1) See Notes 1 and 3 to the Financial Statements for discussion of partners' capital
reclassification and the method of calculation of net income (loss) per Unit.
(2) Calculation is based on distributions declared to Limited Partners divided by the weighted
average number of Units outstanding during the year.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
- ------ -------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS
-----------------------------------
Liquidity and Capital Resources
- -------------------------------
During 1999, net cash used by operating activities totaled
$1,783,280. The Partnership paid management fees of $247,697
to the Managing General Partners and reimbursed related
parties for operating expenses of $1,253,858. In addition,
$36,680 was paid to the Individual General Partners as
compensation for their services. Other operating expenses
and interest expense of $396,778 and $7,031 were paid,
respectively. The Partnership received $158,764 in interest
income.
In 1999, equity investments of $2,435,312 were funded
primarily to portfolio companies in the biotechnology,
medical and information technology industries and notes
receivable of $2,499,957 were issued primarily to portfolio
companies in the computer systems and software, environmental
and industrial/business automation industries. Proceeds from
the sale of equity investments were $14,094,806, $72,496 of
which was payable to an affiliated partnership at December
31, 1999. Cash distributions of $329,551 were received from
venture capital limited partnership investments. At December
31, 1999, the Partnership had commitments to fund additional
investments totaling $1,158,975. Repayments of net short-
term borrowings totaled $120,200 in 1999.
The Managing General Partners declared a $5,412,980 tax
distribution ($5,326,066 and $86,914 payable to Limited
Partners and General Partners, respectively) in the fourth
quarter of 1999, which was paid in February, 2000. In the
second and third quarters of 1999, the Managing General
Partners declared and paid tax distributions to the General
Partners totaling $1,244,602.
Cash and cash equivalents at December 31, 1999, were
$6,356,856. Cash reserves, interest income on short-term
investments and future proceeds from investment sales are
expected to be adequate to fund Partnership operations
through the next twelve months. Subsequent to December 31,
1999, the Partnership sold publicly traded shares in six
portfolio companies for proceeds totaling $15,721,330 and
realized a gain of $13,585,781.
Results of Operations
- ---------------------
1999 compared to 1998
- ---------------------
Net income was $12,420,885 in 1999, compared to net loss of
$2,519,510 in 1998. The increase in net income was primarily
due to a $9,926,952 increase in net realized gain from sales
of equity investments, a $3,372,388 decrease in realized loss
from investment write-downs, an increase of $518,517 in the
change in net unrealized fair value of investments, a
$549,377 decrease in total operating expenses, a $273,409
increase in total income and a $263,684 increase in net
realized gain from venture capital limited partnerships.
During 1999, the net realized gain from sales of equity
investments of $9,932,257 resulted primarily from the sale of
shares in Pilot Network Services, Inc., partially offset by a
loss on the sale of Avalon Imaging, Inc. The net realized
gain from sales of equity investments in 1998 was $5,305.
During 1999, realized loss from investment write-downs was
$2,615. During 1998, realized loss from investment write-
downs of $3,375,003 was primarily attributable to investments
in Conversion Technologies International, Inc., ConjuChem,
Inc., Yes! Entertainment Corporation and Transphase Systems,
Inc.
During 1999, the increase in fair value of investments of
$2,923,379 was primarily due to portfolio companies in the
communications, medical and information technology
industries, partially offset by decreases due to the
investment sales discussed above. During 1998, the increase
of $2,404,862 was primarily due to portfolio companies in the
environmental, computer systems and software, and biomedical
industries, partially offset by decreases in the medical and
industrial/business automation industries.
Total operating expenses were $912,604 and $1,461,981 for
1999 and 1998, respectively. As disclosed in Note 2 to the
financial statements, the Partnership may not reimburse the
General Partners for expenses that aggregate more than one
percent of total Limited Partner capital contributions. As a
result, operating expenses of $259,468 and $731,757 were
absorbed by the General Partners in 1999 and 1998,
respectively. During late 1998, it was determined that
certain operational costs, primarily rent, paid directly by
the Partnership were not subject to the limitation.
Consequently, in 1998, $742,623 of direct Partnership
expenses absorbed by the General Partners in prior years were
recognized as additional expenses. Also disclosed in Note 2,
the Managing General Partners re-evaluated allocations to the
Partnership in 1998 and determined that they had not fully
recovered allocable operating expenses, primarily salary,
benefits, and professional fees, as permitted by the
Partnership Agreement. As a result, the Partnership was
charged $218,363 of additional operating expenses in 1998
which related to prior years. Had the limitation not been in
effect and had the additional expenses been recorded in prior
years, total operating expenses would have been $1,172,072
and $1,232,752 in 1999 and 1998, respectively.
Total income was $290,090 and $16,681 for 1999 and 1998,
respectively. The increase was primarily due to an increase
in interest income due to higher cash and cash equivalents
balances resulting from equity investment sales and an
increase in secured notes receivable.
Net realized gain from venture capital limited partnerships
totaled $501,038 and $237,354 in 1999 and 1998, respectively.
The 1999 gain primarily resulted from the distributions to
the Partnership of common shares in TUT Systems, Inc.,
Efficient Networks and Pilot Network Services, Inc. and a
cash distribution from El Dorado Ventures III, L.P.
Given the inherent risk associated with the business of the
Partnership, the future performance of the portfolio company
investments may significantly impact future operations.
1998 compared to 1997
- ---------------------
Net loss was $2,519,510 in 1998, compared to net income of
$10,388,861 in 1997. The increase in net loss was primarily
due to a decrease of $5,902,248 in the change in net
unrealized fair value of investments, a $3,775,752 decrease
in net realized gain from sales of equity investments, a
$2,315,791 increase in realized losses from investment write-
downs, a $821,675 increase in total operating expenses, and a
$372,497 decrease in total income.
During 1998, the increase in fair value of investments of
$2,404,862 was primarily due to portfolio companies in the
environmental, computer systems and software, and biomedical
industries, partially offset by decreases in the medical and
industrial/business automation industries. During 1997, the
increase of $8,307,110 was primarily due to portfolio
companies in the medical, computer system and software, and
microelectronics industries, partially offset by decreases in
the communications and industrial/business automation
industries.
During 1998, the net realized gain from sales of equity
investments was $5,305. Net realized gain from sales of
equity investments of $3,781,057 in 1997 resulted primarily
from the sales of shares in UT Starcom, Inc. and Bolder
Technologies Corporation.
During 1998, realized losses from investment write-downs of
$3,375,003 primarily attributable to investments in
Conversion Technologies International, Inc., ConjuChem, Inc.,
Yes! Entertainment Corporation and Transphase Systems, Inc.
During 1997, realized losses of $1,059,212 primarily related
to a portfolio company in the computer systems and software
industry.
Total operating expenses were $1,461,981 and $640,306 for
1998 and 1997, respectively. As disclosed in Note 2 to the
financial statements, the Partnership may not reimburse the
General Partners for expenses that aggregate more than one
percent of total Limited Partner capital contributions. As a
result, operating expenses of $731,757 and $404,486 were
absorbed by the General Partners in 1998 and 1997,
respectively. During late 1998, it was determined that
certain operational costs, primarily rent, paid directly by
the Partnership were not subject to the limitation.
Consequently, in 1998, $742,623 of direct Partnership
expenses absorbed by the General Partners in prior years were
recognized as additional expenses. Also disclosed in Note 2,
the Managing General Partners re-evaluated allocations to the
Partnership in 1998 and determined that they had not fully
recovered allocable operating expenses, primarily salary,
benefits, and professional fees, as permitted by the
Partnership Agreement. As a result, the Partnership was
charged $218,363 of additional operating expenses in 1998, of
which $28,212 and $190,151 related to 1997 and prior years,
respectively. Had the limitation not been in effect and had
the additional expenses been recorded in prior years, total
operating expenses would have been $1,232,752 and $1,073,004
in 1998 and 1997, respectively. The increase is primarily
due to a higher level of activity required for portfolio
management in 1998.
Total income was $16,681 and $389,178 for 1998 and 1997,
respectively. The decrease was primarily due to a decrease
in dividend income and a decrease in interest income due to
lower cash and cash equivalents balances resulting from new
and follow-on investments and a reduction in the secured
notes receivable.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
- ------ -------------------------------------------
The financial statements of the Registrant are set forth in
Item 14.
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
- ------- --------------------------------------------------
As a partnership, the Registrant has no directors or
executive officers. The Management Committee is responsible
for the management and administration of the Partnership.
The members of the Management Committee consist of the three
Individual General Partners and a representative from each of
Technology Funding Ltd., a California limited partnership
("TFL"), and its wholly-owned subsidiary, Technology Funding
Inc., a California corporation ("TFI"). TFL and TFI are the
Managing General Partners. Information concerning the
ownership of TFL and the business experience of the key
officers of TFI and the partners of TFL is incorporated by
reference from the sections entitled "Management of the
Partnership - The Managing General Partners" and "Management
of the Partnership - Key Personnel of the Managing General
Partners" in the Prospectus, which are incorporated herein by
reference. Changes in this information that have occurred
since the date of the Prospectus are included on pages 23 to
25 in the Technology Funding Venture Capital Fund VI, LLC
Prospectus, as revised June 4, 1998 (accession number
0000950133-98-002220), forming a part of the December 5, 1997
Pre-Effective Amendment No. 1 to the Form N-2 Registration
Statement No. 333-23913 dated July 11, 1997, which are
incorporated herein by reference.
Item 11. EXECUTIVE COMPENSATION
- ------- ----------------------
As a partnership, the Registrant has no officers or
directors. In 1999, the Partnership incurred $273,980 in
management fees. The fees are designed to compensate the
Managing General Partners for General Partner Overhead
incurred in performing management duties for the Partnership
through December 31, 1999. General Partner Overhead (as
defined in the Partnership Agreement) includes the General
Partners' share of rent and utilities, and certain salaries
and benefits paid by the Managing General Partners in
performing their obligations to the Partnership. As
compensation for their services, the Individual General
Partners each receive $6,000 annually, plus $1,000 for each
attended meeting of the Individual General Partners and
related expenses. For the year ended December 31, 1999,
$36,680 of such fees were incurred.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
- ------- ---------------------------------------------------
MANAGEMENT
----------
Not applicable. No Limited Partner beneficially holds more
than 5% of the aggregate number of Units held by all Limited
Partners, and neither the Managing General Partners nor any
of their officers, directors or partners own any Units. Two
of the three Individual General Partners each own 20 Units
and the third owns 70 Units. The Individual General Partners
control the affairs of the Partnership pursuant to the
Partnership Agreement.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- ------- ----------------------------------------------
The Registrant, or its investee companies, have engaged in no
transactions with the Managing General Partners or their
officers and partners other than as described above, in the
notes to the financial statements, or in the Partnership
Agreement.
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
- ------- ------------------------------------------------------
FORM 8-K
--------
(a) List of Documents filed as part of this Annual Report
on Form 10-K
(1) Financial Statements - the following financial
statements are filed as a part of this Report:
Independent Auditors' Report
Balance Sheets as of December 31, 1999
and 1998
Statements of Operations for the years
ended December 31, 1999, 1998 and 1997
Statements of Partners' Capital for the years
ended December 31, 1999, 1998 and 1997
Statements of Cash Flows for the years
ended December 31, 1999, 1998 and 1997
Notes to Financial Statements
(2) Financial Statement Schedules
All schedules have been omitted because they are
not applicable or the required information is
included in the financial statements or the notes
thereto.
(3) Exhibits
Registrant's Amended and Restated Limited
Partnership Agreement (incorporated by reference to
Exhibit A to Registrant's Prospectus dated January
22, 1992 included in Registration Statement No. 33-
31237 filed pursuant to Rule 424(b) of the General
Rules and Regulations under the Securities Act of
1933).
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the Registrant
during the year ended December 31, 1999.
(c) Financial Data Schedule for the year ended and as of
December 31, 1999 (Exhibit 27).
INDEPENDENT AUDITORS' REPORT
----------------------------
The Partners
Technology Funding Venture Partners V, An Aggressive Growth Fund,
L.P.:
We have audited the accompanying balance sheets of Technology Funding
Venture Partners V, An Aggressive Growth Fund, L.P. (a Delaware
limited partnership) as of December 31, 1999 and 1998, and the related
statements of operations, partners' capital, and cash flows for each
of the years in the three-year period ended December 31, 1999. 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. Our procedures included confirmation of certain
securities and notes owned, by correspondence with the individual
investee and borrowing companies, and a physical examination of those
securities held by a safeguarding agent as of December 31, 1999 and
1998. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating
the overall financial statement presentation. 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 Technology
Funding Venture Partners V, An Aggressive Growth Fund, L.P. as of
December 31, 1999 and 1998, and the results of its operations and its
cash flows for each of the years in the three-year period ended
December 31, 1999, in conformity with generally accepted accounting
principles.
Albuquerque, New Mexico /S/KPMG LLP
March 29, 2000
BALANCE SHEETS
- --------------
December 31,
---------------------
1999 1998
------ ------
ASSETS
Investments:
Equity investments (cost basis of
$19,844,552 and $21,268,672 for
1999 and 1998, respectively) $39,181,437 37,682,178
Notes receivable, net
(cost basis of $2,569,534) 2,569,534 --
---------- ----------
Total investments 41,750,971 37,682,178
Cash and cash equivalents 6,356,856 15,850
Other assets 3,097 4,062
---------- ----------
Total assets $48,110,924 37,702,090
========== ==========
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable and accrued expenses $ 56,565 60,445
Distributions payable to Limited and
General Partners 5,412,980 --
Due to related parties 27,609 670,978
Short-term borrowings -- 120,200
---------- ----------
Total liabilities 5,497,154 851,623
Commitments, contingencies, and
subsequent events (Notes 2, 4,
9 and 10)
Partners' capital
(400,000 Limited Partner Units
outstanding) 42,613,770 36,850,467
---------- ----------
Total liabilities and
partners' capital $48,110,924 37,702,090
========== ==========
See accompanying notes to financial statements.
STATEMENTS OF OPERATIONS
- ------------------------
For the Years Ended December 31,
------------------------------------
1999 1998 1997
------ ------ ------
Income:
Notes receivable
interest $ 131,465 2,170 56,636
Short-term investment
interest 158,625 14,511 52,532
Dividend income -- -- 280,010
---------- --------- ----------
Total income 290,090 16,681 389,178
Costs and expenses:
Management fees 273,980 310,355 389,995
Individual General
Partners' compensation 36,680 36,373 37,728
Operating expenses:
Administrative and
investor services 630,612 747,710 559,356
Investment operations 286,252 400,301 284,380
Professional fees 101,392 92,298 73,067
Computer services 146,785 200,607 127,989
Interest expense 7,031 10,199 --
Expenses absorbed by
General Partners (259,468) (731,757) (404,486)
Expenses absorbed by
General Partners
in prior years -- 742,623 --
---------- --------- ----------
Total operating
expenses 912,604 1,461,981 640,306
---------- --------- ----------
Total costs and
expenses 1,223,264 1,808,709 1,068,029
---------- --------- ----------
Net operating loss (933,174) (1,792,028) (678,851)
Net realized gain from
sales of equity
investments 9,932,257 5,305 3,781,057
Realized losses from
investment write-downs (2,615) (3,375,003) (1,059,212)
Net realized gain from
venture capital limited
partnership investments 501,038 237,354 38,757
---------- --------- ----------
Net realized income
(loss) 9,497,506 (4,924,372) 2,081,751
Change in net unrealized
fair value:
Equity investments 2,923,379 2,139,142 8,572,830
Other investments -- 265,720 (265,720)
---------- --------- ----------
Net income (loss) $12,420,885 (2,519,510) 10,388,861
========== ========= ==========
Net income (loss) per
Unit 25.20 (6.14) 25.77
========== ========= ==========
See accompanying notes to financial statements.
STATEMENTS OF PARTNERS' CAPITAL
- -------------------------------
For the years ended December 31, 1999, 1998 and 1997:
Reclassified-(see Note 1)
------------------------
Limited General
Partners Partners Total
-------- -------- -----
Partners' capital,
December 31, 1996 $28,991,815 (10,699) 28,981,116
Net income 10,306,115 82,746 10,388,861
---------- --------- ----------
Partners' capital,
December 31, 1997 39,297,930 72,047 39,369,977
Net loss (2,455,475) (64,035) (2,519,510)
---------- --------- ----------
Partners' capital,
December 31, 1998 36,842,455 8,012 36,850,467
Net income 10,078,623 2,342,262 12,420,885
Distributions (5,326,066) (1,331,516) (6,657,582)
---------- --------- ----------
Partners' capital,
December 31, 1999 $41,595,012 1,018,758 42,613,770
========== ========= ==========
See accompanying notes to financial statements.
STATEMENTS OF CASH FLOWS
- ------------------------
For The Years Ended December 31,
-----------------------------------
1999 1998 1997
------ ------ ------
Cash flows from operating
activities:
Interest received $ 158,764 15,523 76,332
Dividends received -- -- 280,010
Cash paid to vendors (396,778) (176,951) (287,846)
Cash paid to related parties (1,538,235) (844,358) (921,578)
Interest paid on short-term
borrowings (7,031) (10,199) --
---------- --------- ----------
Net cash used by
operating activities (1,783,280) (1,015,985) (853,082)
---------- --------- ----------
Cash flows from investing
activities:
Notes receivable issued (2,499,957) (2,766) (33,902)
Purchase of equity
investments (2,435,312) (1,406,319) (2,595,910)
Payment of loan guarantee -- -- (1,055,862)
Repayment of convertible
and other notes receivable -- 92,047 94,938
Proceeds from sales of
investments 14,094,806 103,634 4,508,995
Distributions from venture
capital limited partnership
investments 329,551 285,504 157,273
---------- --------- ----------
Net cash provided (used)
by investing activities 9,489,088 (927,900) 1,075,532
---------- --------- ----------
Cash flows from financing
activities:
(Repayment of) proceeds from
short-term borrowings, net (120,200) 120,200 --
Distributions to General
Partners (1,244,602) -- --
---------- --------- ----------
Net cash (used) provided
by financing activities (1,364,802) 120,200 --
---------- --------- ----------
Net increase (decrease) in
cash and cash equivalents 6,341,006 (1,823,685) 222,450
Cash and cash equivalents
at beginning of year 15,850 1,839,535 1,617,085
---------- --------- ----------
Cash and cash equivalents
at end of year $ 6,356,856 15,850 1,839,535
========== ========= ==========
STATEMENTS OF CASH FLOWS (continued)
- -----------------------------------
For The Years Ended December 31,
-----------------------------------
1999 1998 1997
------ ------ ------
Reconciliation of net
income (loss) to net cash
used by operating activities:
Net income (loss) $12,420,885 (2,519,510) 10,388,861
Adjustments to reconcile net
income (loss) to net cash
used by operating
activities:
Change in net unrealized
fair value:
Equity investments (2,923,379) (2,139,142) (8,572,830)
Other investments -- (265,720) 265,720
Realized losses from
investment write-downs 2,615 3,375,003 1,059,212
Net realized gain from sales
of equity investments (9,932,257) (5,305) (3,781,057)
Net realized gain from
venture capital limited
partnership investments (501,038) (237,354) (38,757)
Other, net -- (339) --
Changes in:
Accrued interest on
notes receivable (131,326) (819) (32,836)
Due to/from related parties (715,865) 757,056 (145,324)
Other, net (2,915) 20,145 3,929
---------- ---------- ----------
Net cash used by
operating activities $(1,783,280) (1,015,985) (853,082)
========== ========= ==========
STATEMENTS OF CASH FLOWS (continued)
- -----------------------------------
For The Years Ended December 31,
-----------------------------------
1999 1998 1997
------ ------ ------
Supplemental schedule of
non-cash investing activities:
Secured notes receivable
converted to equity
investments $ 36,763 -- --
========= ========= ==========
Investment sales proceeds
payable to affiliated
partnership $ 72,496 -- --
========= ========= ==========
Supplemental schedule of
non-cash financing
activities:
Distributions payable to
Limited and General
Partners $ 5,412,980 -- --
========= ========= ===========
See accompanying notes to financial statements.
NOTES TO FINANCIAL STATEMENTS
- -----------------------------
1. Summary of Significant Accounting Policies
------------------------------------------
Organization
- ------------
Technology Funding Venture Partners V, An Aggressive Growth Fund,
L.P. (the "Partnership") is a limited partnership organized under
the laws of the State of Delaware on June 26, 1989. The purpose of
the Partnership is to make venture capital investments in emerging
growth companies. The Partnership elected to be a business
development company under the Investment Company Act of 1940, as
amended (the "Act"), and operates as a nondiversified investment
company as that term is defined in the Act. The Managing General
Partners are Technology Funding Ltd. ("TFL") and Technology Funding
Inc. ("TFI"), a wholly owned subsidiary of TFL. There are also
three Individual General Partners.
The Partnership offering commenced in May of 1990. On January 2,
1991, the minimum number of Units required to commence Partnership
operations (15,000) had been sold. The offering terminated with
400,000 Units sold on December 31, 1992. The Partnership's term was
extended for a two-year period to December 31, 2000 pursuant to
unanimous approval by the Independent General Partners in 1998. The
Partnership's term was extended for an additional two-year period to
December 31, 2002 pursuant to unanimous approval by the Independent
General Partners in 1999.
Preparation of Financial Statements and 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 amounts reported in the financial
statements and accompanying notes. Actual results could differ from
those estimates. Estimates are used when accounting for
investments, change in unrealized fair value of investments,
liabilities and contingencies. Because of the inherent uncertainty
of valuation, the estimated fair value of investments may differ
significantly from the values that would have been used had a ready
market for investments existed, and the differences could be
material.
Partners' Capital Reclassification
- ----------------------------------
Commencing in the fourth quarter of 1999, the Partnership is including the change in net
unrealized fair value of investments in the profits and losses allocated to partners' capital
accounts based on a reevaluation of the Partnership Agreement. Accordingly, prior years have been
reclassified to conform to the current year presentation. The allocations of the net unrealized
fair value increase (decrease) from cost of investments, and resulting reclassifications, were
determined by applying the provisions of the Partnership Agreement described in Note 3 from the
inception of the Partnership. The reclassification has no effect on total partners' capital or
the Partnership's net income or loss for any period. The reclassifications resulting from the
reevaluation of the Partnership Agreement have the effect of accelerating the allocation of
profits or losses (under the provisions described in Note 3) to partners' capital accounts and, as
a result, may permit the acceleration of distributions to Partners to the extent allowable under
the Partnership Agreement.
The allocations of the net unrealized fair value increase reclassified in prior periods are as
follows:
Net Unrealized
Fair Value
Increase
Limited General From Cost of
Partners Partners Investments Total
-------- -------- --------------- -----
Partners' capital, December 31, 1996,
before reclassification $23,337,188 (57,606) 5,701,534 28,981,116
Allocation of net unrealized fair value
increase from cost 5,654,627 46,907 (5,701,534) --
---------- ------ ---------- ----------
Partners' capital, December 31, 1996,
as reclassified $28,991,815 (10,699) -- 28,981,116
========== ====== ========== ==========
Partners' capital, December 31, 1997,
before reclassification $25,359,042 2,291 14,008,644 39,369,977
Allocation of net unrealized fair value
increase from cost 13,938,888 69,756 (14,008,644) --
---------- ------ ---------- ----------
Partners' capital, December 31, 1997,
as reclassified $39,297,930 72,047 -- 39,369,977
========== ====== ========== ==========
Partners' capital, December 31, 1998,
before reclassification $20,483,914 (46,953) 16,413,506 36,850,467
Allocation of net unrealized fair value
increase from cost 16,358,541 54,965 (16,413,506) --
---------- ------ ---------- ----------
Partners' capital, December 31, 1998,
as reclassified $36,842,455 8,012 -- 36,850,467
========== ====== ========== ==========
The reclassifications of the change in net unrealized fair value of investments for prior periods
are as follows:
Limited General
Partners Partners Total
-------- -------- -----
For the Year Ended December 31, 1997 $8,284,261 22,849 8,307,110
For the Year Ended December 31, 1998 2,419,653 (14,791) 2,404,862
Investments
- -----------
Equity and Other Investments
----------------------------
The Partnership's method of accounting for investments, in
accordance with generally accepted accounting principles, is the
fair value basis used for investment companies. The fair value of
Partnership equity investments is their initial cost basis with
changes as noted below:
The fair value for publicly traded equity investments (marketable
equity securities) is based upon the five-day-average closing sales
price or bid/ask price that is available on a national securities
exchange or over-the-counter market. Certain publicly traded equity
investments may not be marketable due to selling restrictions and
for those securities, an illiquidity discount of up to 33% is
applied when determining the fair value; the actual discount
percentage is based on the type and length of the restrictions.
Investments valued under this method were $11,037,866 and $3,311,167
at December 31, 1999 and 1998, respectively.
All investments which are not publicly traded are valued at fair
market value as determined by the Managing General Partners in the
absence of readily ascertainable market values. Equity investments
valued under this method were $28,143,571 and $34,371,011 at
December 31, 1999 and 1998, respectively. Generally, investments in
privately held companies are valued at original cost unless there is
clear evidence of a change in fair value, such as a recent round of
third-party financings or events that, in the opinion of the
Managing General Partners, indicate a change in value.
Convertible and subordinated notes receivable are stated at cost
plus accrued interest, which is equivalent to fair value, and are
included in equity investments as repayment of these notes generally
occurs through conversion into equity investments.
Venture capital limited partnership investments are initially
recorded at cost and are valued based on the fair value of the
underlying investments. Limited partnership distributions that are
a return of capital reduce the cost basis of the Partnership's
investment. Distributions from limited partnership cumulative
earnings are reflected as realized gains by the Partnership.
At times, the Partnership may receive other assets in satisfaction
of secured notes receivable or equity investments in portfolio
companies. Such assets are classified as other investments and are
recorded at their fair value upon receipt.
Where, in the opinion of the Managing General Partner, events
indicate that the fair value of equity, venture capital and other
investments and convertible and subordinated notes receivable may
not be recoverable, a write-down to estimated fair value is
recorded. Temporary changes in fair value result in increases or
decreases to the unrealized fair value of equity investments.
Adjustments to fair value basis are reflected as "Change in net
unrealized fair value of equity investments." In the case of an
other than temporary decline in value below cost basis, an
appropriate reduction in the cost basis is recognized as a realized
loss with the fair value being adjusted to match the new cost basis.
Cost basis adjustments are reflected as "Realized losses from
investment write-downs" or "Net realized loss from venture capital
limited partnership investments" in the Statements of Operations.
Sales of equity investments are recorded on the trade date. The
basis on which cost is determined in computing realized gains or
losses is specific identification.
Notes Receivable
----------------
The secured and unsecured notes receivable portfolio includes
accrued interest less the discount related to warrants and the
allowance for loan losses. The portfolio approximates fair value
through inclusion of an allowance for loan losses. Allowance for
loan losses is reviewed quarterly by the Managing General Partners
and is adjusted to a level deemed adequate to cover possible losses
inherent in notes and unfunded commitments. Notes receivable are
placed on nonaccrual status when, in the opinion of the Managing
General Partners, the future collectibility of interest or principal
is in doubt.
In conjunction with the secured notes issued to portfolio companies,
the Partnership has received warrants to purchase certain shares of
capital stock of the borrowing companies. The cost basis of the
warrants and the resulting discount has been estimated by the
Managing General Partners to be 1% of the principal balance of the
original notes made to the borrowing companies. The discount is
amortized to interest income on a straight-line basis over the term
of the loan. Warrants received in conjunction with convertible
notes are not assigned any additional costs. These warrants are
included in the equity investment portfolio.
Nonrefundable fees received in connection with loan fundings are
deferred and amortized to interest income over the contractual life
of the loan using the effective interest method or the straight-line
method if it is not materially different. Direct loan origination
costs mainly consist of third-party costs and generally are
reimbursed by portfolio companies.
Cash and Cash Equivalents
- -------------------------
Cash and cash equivalents are principally comprised of cash invested
in demand accounts, money market instruments, and commercial paper
and are stated at cost plus accrued interest. The Partnership
considers all money market and short-term investments with an
original maturity of three months or less to be cash equivalents.
Provision for Income Taxes
- --------------------------
No provision for income taxes has been made by the Partnership as
the Partnership is not directly subject to taxation. The partners
are to report their respective shares of Partnership income or loss
on their individual tax returns.
Since the accompanying financial statements are prepared using
generally accepted accounting principles which may not equate to tax
accounting, the Partnership's total tax basis in investments was
higher than the reported total cost basis of $22,414,086 by $958,219
as of December 31, 1999.
Net Income (Loss) Per Unit
- --------------------------
Commencing in the fourth quarter of 1999, the Partnership is
including the change in net unrealized fair value of equity
investments in the profits and losses allocated to partners' capital
accounts. (See Partners' Capital Reclassification discussion above.
The 1998 and 1997 per Unit amounts have been modified to conform to
this presentation.) Net income (loss) per Unit is calculated by
dividing the weighted average number of Units outstanding of 400,000
for the years ended December 31, 1999, 1998 and 1997 into the total
net income (loss) allocated to the Limited Partners. The Managing
General Partners contributed 0.1% of total Limited Partner capital
contributions and did not receive any Partnership units.
2. Related Party Transactions
--------------------------
Related party costs are included in costs and expenses shown on the
Statements of Operations. For the years ended December 31, 1999,
1998 and 1997, related party costs were as follows:
1999 1998 1997
-------- -------- --------
Management fees $ 273,980 310,355 389,995
Individual General
Partners' compensation 36,680 36,373 37,728
Reimbursable operating
expenses:
Administrative and
investor services 351,206 668,292 373,519
Investment operations 273,187 374,921 260,707
Computer services 146,785 200,607 118,791
Expenses absorbed by
General Partners (259,468) (731,757) (404,486)
Expenses absorbed by
General Partners
in prior years -- 742,623 --
Management fees are 1% per annum of adjusted capital contributions.
Management fees compensate the Managing General Partners solely for
General Partner Overhead (as defined in the Partnership Agreement)
incurred in supervising the operation and management of the
Partnership and the Partnership's investments. Amounts due to
related parties for management fees were $26,283 and $0 at December
31, 1999 and 1998, respectively.
The Partnership reimburses the Managing General Partners for certain
operating expenses incurred in connection with the business of the
Partnership. Reimbursable operating expenses paid by the Managing
General Partners include expenses (other than Organizational and
Offering Expenses and General Partner Overhead) such as
administrative and investor services, investment operations, and
computer services. Pursuant to the Partnership Agreement, the
Partnership may not reimburse the Managing General Partners for
certain operational costs that aggregate more than 1% of total
Limited Partner capital contributions. At December 31, 1999,
amounts due from related parties related to such expenses were
$71,170, compared to $670,978 due to related parties at December 31,
1998.
In 1999, 1998, and 1997, the Managing General Partners absorbed
$259,468, $731,757, and $404,486, respectively, in operating
expenses. In late 1998, it was determined that certain operational
costs, primarily rent, absorbed by the General Partners in prior
years were not subject to this limitation; consequently, $742,623
was reimbursed to the General Partners.
The Managing General Partners allocate operating expenses incurred
in connection with the business of the Partnership based on employee
hours incurred. In 1998, operating cost allocations to the
Partnership were re-evaluated. The Managing General Partners
determined that they had not fully recovered allocable operating
expenses, primarily salary, benefits, and professional fees, as
permitted by the Partnership Agreement. As a result, the
Partnership was charged additional operating expenses of $218,363
consisting of $28,212 and $190,151 for 1997 and prior years,
respectively. Had the additional expenses been recorded in prior
years and had the operating expense limitation not been in effect,
operating expenses would have been $1,172,072, $1,232,752 and
$1,073,004 for 1999, 1998 and 1997, respectively.
The Partnership, at December 31, 1999, owes an affiliated
partnership $72,496 for proceeds from equity investment sales. This
amount was paid in February, 2000. There was no such payable at
December 31, 1998.
As compensation for their services, the Individual General Partners
each receive $6,000 annually, plus $1,000 for each attended meeting
of the Individual General Partners and related expenses. Two of the
three Individual General Partners each own 20 Units and the third
owns 70 Units.
Effective November 1, 1997, TFL assigned its California office lease
to Technology Funding Property Management LLC (TFPM), an entity that
is affiliated to the Managing General Partner. Effective December
31, 1998, TFPM was acquired by TFL. Under the terms of a rent
agreement, TFL charges the Partnership for its share of office rent
and related overhead costs on a cost recovery basis. These amounts
are included in administrative and investor service costs.
Under the terms of a computer service agreement, Technology
Administrative Management, a division of TFL, charges the
Partnership for its share of computer support costs. These amounts
are included in computer services expenses.
Officers of the Managing General Partners occasionally receive stock
options as compensation for serving on the Boards of Directors of
portfolio companies. It is the Managing General Partners' policy
that all such compensation be transferred to the investing
partnerships. If the options are non-transferable, they are not
recorded as an asset of the Partnership. Any profit from the
exercise of such options will be transferred if and when the options
are exercised and the underlying stock is sold by the officers. Any
such profit is allocated amongst the Partnership and affiliated
partnerships based upon their proportionate investments in the
portfolio company. At December 31, 1999, the Partnership had an
indirect interest in non-transferable Physiometrix, Inc. options at
an exercise price higher than the current market value. At December
31, 1999, the Partnership and affiliated partnerships had an
indirect interest in non-transferable Endocare, Inc. and
Physiometrix, Inc. options with a fair market value of $161,778.
3. Allocation of Profits and Losses
--------------------------------
In accordance with the Partnership Agreement (see Note 1), net
profits and losses of the Partnership are allocated based on the
beginning-of-year partners' capital balances as follows:
(a) Profits:
(i) First, to those partners with deficit capital account
balances until such deficits have been eliminated;
(ii) Second, to the partners as necessary to offset net loss
and sales commissions previously allocated under
(b)(ii) below; then
(iii)75% to the Limited Partners as a group in proportion to
the number of Units, 5% to the Limited Partners in
proportion to the Unit Months of each Limited Partner,
and 20% to the Managing General Partners. Unit months
are the number of half months a Unit would be
outstanding if held from the date the original holder
of such Unit was deemed admitted into the Partnership
until the termination of the offering of Units.
(b) Losses:
(i) First, to the partners as necessary to offset the net
profits previously allocated to the partners under
(a)(iii) above; then
(ii) 99% to the Limited Partners and 1% to the Managing
General Partners.
Losses allocable to Limited Partners in excess of their capital
account balances will be allocated to the Managing General Partners.
Net profit thereafter, otherwise allocable to those Limited
Partners, is allocated to the Managing General Partners to the
extent of such losses. For allocation purposes, the Units held by
the Individual General Partners will be treated as Units held by
Limited Partners.
Losses from unaffiliated venture capital limited partnership
investments are allocated pursuant to section (b) above. Gains are
allocated 99% to the Limited Partners and 1% to the Managing General
Partners.
4. Equity Investments
------------------
At December 31, 1999, and December 31, 1998, equity investments consisted of:
December 31, 1999 December 31, 1998
Principal ------------------ -----------------
Industry(1)/ Investment Amount or Cost Fair Cost Fair
Company Position Date Shares Basis Value Basis Value
- ---------------- -------- ---- ------ ----- ----- ----- -----
Biomedical--0.4%
- ----------------
Axys
Pharmaceuticals,Common
Inc. shares 1995 37,855 $500,000 154,751 500,000 215,319
ConjuChem Inc. Preferred
(a) share warrants aggregate
at exercise purchase
price TBD; price
expiring 2001 1996 $29,689 0 0 0 0
---------- ---------- ---------- ----------
500,000 154,751 500,000 215,319
---------- ---------- ---------- ----------
Biotechnology--8.0%
- -------------------
CV Therapeutics, Common
Inc. share
warrant
at $20.00;
expiring
2000 1995 3,200 1,280 16,522 1,280 0
CV Therapeutics, Common 1994-
Inc. Shares 1995 16,204 322,800 407,741 1,376,720 325,553
Molecular
Geriatrics Common
Corporation (a) shares 1993 47,170 250,000 94,340 250,000 94,340
Prolinx, Inc.(a) Preferred 1995-
shares 1999 1,801,909 2,254,888 2,666,825 1,749,193 3,168,684
Prolinx, Inc. Common and
(a) Preferred share
warrants at
$.0001-$.05; 1998-
expiring 2004 1999 TBD 247,949 244,305 3,644 0
---------- ---------- ---------- ---------
3,076,917 3,429,733 3,380,837 3,588,577
---------- ---------- ---------- ----------
Communications--6.9%
- --------------------
Efficient Common
Networks, Inc. shares 1999 951 75,254 64,487 -- --
NetChannel, Inc. Escrowed
sales
proceeds 1998 -- -- -- 12,460 12,460
Positive
Communications, Preferred 1994-
Inc.(a) shares 1999 200,022 252,028 252,028 1,076,011 1,290,296
Positive
Communications, Common
Inc.(a) shares 1999 303,599 1,076,011 382,535 -- --
Positive
Communications, Convertible
Inc.(a) note (2) 1996 -- -- -- 74,159 74,159
Positive Common share
Communications, warrants at
Inc.(a) $.50; expiring
2001 1996 9,246 10 7,027 10 34,673
Women.com Common 1996-
Networks, Inc. shares 1999 204,384 499,457 2,215,011 380,337 633,233
(a) ---------- ---------- ---------- ----------
1,902,760 2,921,088 1,542,977 2,044,821
---------- ---------- ---------- ----------
Computer Systems and Software--10.7%
- ------------------------------------
Ascent Logic Preferred
Corporation(a) shares 1992 425,532 396,000 148,936 396,000 148,936
Ascent Logic Common
Corporation(a) shares 1997 36,443 23,796 12,755 23,796 12,755
Lynk Systems, Common
Inc.(a) share 1998 105,000 38,500 157,500 38,500 157,500
Pilot Network Common 1996-
Services, Inc. shares 1999 198,814 284,553 4,259,590 946,105 7,087,621
Versant Common
Corporation shares 1997 -- -- -- 18,559 4,784
---------- ---------- ---------- ----------
742,849 4,578,781 1,422,960 7,411,596
---------- ---------- ---------- ----------
Environmental--0.1%
- -------------------
Conversion
Technologies
International, Common
Inc. shares 1996 -- -- -- 0 2,075
Conversion
Technologies
International, Preferred 1997-
Inc. shares 1998 -- -- -- 0 789
Naiad
Technologies, Preferred 1995-
Inc. shares 1997 -- -- -- 215,202 371,580
Triangle
Biomedical
Sciences, Common
Inc.(a) shares 1999 1,806 35,560 50,568 -- --
Triangle Common
Biomedical share warrants
Sciences, at $28.00;
Inc.(a) expiring 2009 1999 1,806 1,806 1,806 -- --
---------- ---------- ---------- ----------
37,366 52,374 215,202 374,444
---------- ---------- ---------- ----------
Industrial/Business Automation--1.8%
- ------------------------------------
Avalon Imaging, Common
Inc. shares 1996 -- -- -- 250,000 250,000
Avalon Imaging, Preferred 1994-
Inc. shares 1998 -- -- -- 1,429,361 1,557,903
Portable Energy
Products, Inc. Preferred 1995-
(a) (b) shares 1998 3,738,522 1,972,520 747,704 1,972,520 747,704
Portable Energy Common and
Products, Inc. Preferred share
(a) (b) warrants at
$.06-$1.00;
expiring 1996-
2001-2004 1999 1,039,118 4,186 18,682 4,186 18,682
PRI Automation, Common
Inc. shares 1999 10 451 635 2,362 2,533
---------- ---------- ---------- ----------
1,977,157 767,021 3,658,429 2,576,822
---------- ---------- ---------- ----------
Information Technology--3.3%
- ----------------------------
WorldRes, Inc. Preferred 1997-
(a) (b) shares 1999 117,127 819,652 1,361,029 217,184 219,551
WorldRes, Inc. Preferred
(a) (b) share warrants
at $3.70-$4.63;
expiring 1997-
2002-2003 1998 6,479 62 45,524 0 0
---------- ---------- ---------- ----------
819,714 1,406,553 217,184 219,551
---------- ---------- ---------- ----------
Medical--49.8%
- --------------
Acusphere, Inc. Preferred 1995-
(a) shares 1997 377,531 762,499 1,245,852 762,499 1,245,852
ADESSO Specialty
Services
Organization Preferred 1995-
Inc.(a) (b) shares 1997 797,326 1,835,999 6,697,538 1,835,999 6,697,538
ADESSO Specialty Preferred
Services share warrant
Organization at $1.00;
Inc.(a)(b) expiring 2001 1996 68,704 0 508,410 0 508,410
Biex, Inc. Preferred 1993-
(a) (b) shares 1999 644,279 678,409 678,409 663,917 1,527,520
Biex, Inc. Preferred
(a) (b) share warrant
at $1.00;
exercised
1999 1994 -- -- -- 8 35,310
CareCentric. Preferred 1995-
Solutions, Inc shares 1997 -- -- -- 320,655 239,130
CareCentric Common share
Solutions, Inc. warrant at $.15;
expiring 2002 1997 -- -- -- 20,959 20,959
CareCentric Convertible
Solutions, Inc. notes (2) 1998 -- -- -- 43,856 43,856
Endocare, Inc. Common 1996-
(b) shares 1999 49,764 163,874 414,286 152,624 91,474
Intella
Interventional Common
Systems, Inc. shares 1993 584 0 0 436 13,944
Intella
Interventional Preferred
Systems, Inc. shares 1993 304 0 0 2,179 6,973
Oxford
GlycoSciences Common
Plc shares 1993 213,546 999,927 1,772,432 999,927 894,117
Periodontix, Preferred 1993-
Inc.(a) shares 1999 339,253 556,001 763,320 416,001 678,726
Periodontix, Common share
Inc.(a) warrant
at $2.75;
expiring
2006 1999 13,454 0 0 -- --
Periodontix, Convertible
Inc.(a) notes (2) 1999 $173,000 182,501 182,501 -- --
Pharmadigm, Preferred 1993-
Inc.(a) shares 1998 733,815 1,079,396 1,775,833 1,079,396 1,771,673
Pharmadigm, Preferred
Inc.(a) share warrants
at $2.00-$2.50;
expiring 2000- 1995-
2001 1997 22,286 378 4,815 378 5,055
Pharmos Common
Corporation shares 1995 60,331 45,248 122,170 45,248 95,444
Pherin
Pharmaceuticals,Preferred
Inc.(a) shares 1991 200,000 200,000 1,060,000 200,000 400,000
Physiometrix, Common
Inc.(b) share warrant
at $6.60;
expiring 2001 1996 13,525 179 0 179 0
Physiometrix, Common
Inc.(b) shares 1996 287,021 668,557 947,169 668,557 152,827
R2 Technology, Preferred 1994-
Inc.(a) shares 1996 468,541 537,080 1,714,452 537,080 873,080
R2 Technology, Preferred
Inc.(a) share warrant
at $2.00;
expiring 2000 1995 9,667 0 14,647 0 0
Sanarus Medical, Preferred
Inc.(a)(b) shares 1999 260,000 390,000 390,000 -- --
Simione Central
Holdings, Inc. Preferred
(a) shares 1999 68,576 206,718 73,291 -- --
Valentis, Inc. Common 1994-
shares 1995 301,274 1,170,001 2,866,020 1,170,001 1,498,839
---------- ---------- ---------- ----------
9,476,767 21,231,145 8,919,899 16,800,727
---------- ---------- ---------- ----------
Microelectronics--8.0%
- ----------------------
Tessera, Inc.(a) Preferred
shares 1992 666,666 500,000 3,333,330 500,000 3,333,330
Tessera, Inc.(a) Common
shares 1997 72,754 56,500 72,754 56,500 72,754
---------- ---------- ---------- ----------
556,500 3,406,084 556,500 3,406,084
---------- ---------- ---------- ----------
Retail/Consumer Products--0.0%
- ------------------------------
Horizon Organic
Holding Common
Corporation shares 1999 1,003 15,797 7,698 -- --
YES!
Entertainment Common
Corporation shares 1995 55,555 0 5,000 0 2,556
--------- ---------- ---------- ----------
15,797 12,698 0 2,556
--------- ---------- ---------- ----------
Venture Capital Limited Partnership Investments--2.9%
- -----------------------------------------------------
CVM Equity Ltd.
Fund IV, Ltd(a) Partnership
interests various $150,000 76,436 144,768 76,436 146,116
El Dorado Ltd.
Ventures III, Partnership
L.P. (a) interests various $250,000 212,460 568,922 212,460 329,520
O,W&W Pacrim Ltd.
Investments Partnership
Limited (a) interests various 400 25,900 21,691 175,300 74,198
Spectrum Equity Ltd.
Investors, Partnership
L.P.(a) interests various $478,025 376,107 410,364 353,604 423,870
Trinity Ventures Ltd.
IV, L.P.(a) Partnership
interests various $175,006 47,822 75,464 36,884 67,977
---------- ---------- ---------- ----------
738,725 1,221,209 854,684 1,041,681
---------- ---------- ---------- ----------
Total equity investments--91.9% $19,844,552 39,181,437 21,268,672 37,682,178
========== ========== ========== ==========
Legend and footnotes:
- -- No investment held at end of period.
0 Investment active with a carrying value or fair value of zero.
(a) Equity security acquired in a private placement transaction; resale may be subject to certain
selling restrictions.
(b) Portfolio company is an affiliate of the Partnership; resale may be subject to certain selling
restrictions.
(1) Represents the total fair value of a particular industry segment as a percentage of partners'
capital at 12/31/99.
(2) The Partnership has no income-producing equity investments except for convertible notes which
include accrued interest. Interest rates on such notes are 8%.
Marketable Equity Securities
- ----------------------------
At December 31, 1999 and 1998, marketable equity securities had aggregate
costs of $3,856,351 and $6,069,452, respectively, and aggregate market
values of $11,037,866 and $3,311,167, respectively. The net unrealized
gain/loss at December 31, 1999 and 1998, included gross gains of
$7,545,809 and $379,205, respectively.
Avalon Imaging, Inc.
- --------------------
In October 1999, the company agreed to sell its assets. The Partnership
received no proceeds from this sale and realized a loss of $1,679,361.
In addition, the Partnership paid $288,194 on its guarantee of the
company's line of credit.
Biex, Inc.
- ----------
In May 1999, the Partnership received a stock dividend of 18,786
Preferred shares with a fair value of $20,253. In October 1999, the
Partnership exercised a warrant and purchased 14,486 Series B Preferred
shares for $14,492. The company's failure to meet certain revenue
targets established in the Series F Preferred shares round had a dilutive
impact on the Partnership's expected return and, as a result, the
Partnership recorded a $898,905 decrease in fair value at December 31,
1999.
CV Therapeutics, Inc.
- ---------------------
In 1999, the Partnership sold a total of 52,696 common shares for
proceeds of $923,695 and realized a loss of $130,225.
Periodontix, Inc.
- -----------------
In 1999, the Partnership funded convertible notes receivable totaling
$173,000 to the company. The notes bear interest at 8% and are due in
one year. In December 1999, the Partnership purchased 62,222 Series D
Preferred shares for $140,000. The pricing of this round indicated a
$55,406 decrease in the fair value of the Partnership's investment.
Pherin Pharmaceuticals, Inc.
- ----------------------------
In the second quarter of 1999, the company completed a round of financing
in which the Partnership did not participate. The pricing of this round,
in which third parties participated, indicated a $660,000 increase in the
fair value of the Partnership's investment.
Pilot Network Services, Inc.
- ----------------------------
In 1999, El Dorado Ventures III, L.P., a venture capital limited
partnership, distributed 7,760 common shares valued at $117,381 to the
Partnership. In 1999, the Partnership sold 700,000 common shares for
proceeds of $12,944,681 and realized a gain of $12,165,748.
Positive Communications, Inc.
- -----------------------------
In November 1999, the company completed a recapitalization and a new
round of financing. The Partnership's Series E and G Preferred shares
were converted to common shares at a ratio of 1:1. The Partnership's
convertible note together with interest was converted into 63,925 New
Series A Preferred shares. The Partnership also purchased 136,097 New
Series A Preferred shares for $171,482. The pricing of this round
indicated a $935,407 decrease in the fair value of the Partnership's
investment.
Prolinx, Inc.
- -------------
In December 1999, the Partnership purchased 341,686 Series D Preferred
shares for $505,695 and a warrant for 170,843 Series D Preferred shares
for $244,305. The pricing of this round indicated a $1,007,554 decrease
in the fair value of the Partnership's Preferred shares.
R2 Technology, Inc.
- -------------------
In May 1999, the company completed a round of financing in which the
Partnership did not participate. The pricing of this round, in which
third parties participated, indicated a $856,019 increase in the fair
value of the Partnership's Preferred shares and warrants.
Sanarus Medical, Inc.
- ---------------------
In November 1999, the Partnership purchased 260,000 Series A Preferred
shares for $390,000.
Simione Central Holdings, Inc. (formerly CareCentric Solutions, Inc.)
- --------------------------------------------------------------------
In August 1999, CareCentric Solutions, Inc. was acquired by Simione
Central Holdings, Inc. The Partnership received 68,576 Simione Series A
Preferred shares and realized a loss of $224,611 on the sale.
Triangle Biomedical Sciences, Inc. (formerly Naiad Technologies, Inc.)
- ---------------------------------------------------------------------
In August 1999, Naiad Technologies, Inc. was acquired by Triangle
Biomedical Sciences, Inc., a privately held company. The Partnership
received 254 Triangle common shares and a warrant for 254 Triangle common
shares and realized a loss of $207,836 on the sale. In conjunction with
the sale, the Partnership agreed to advance $30,000 to Naiad to settle
outstanding liabilities for which the Partnership received 1,552 Triangle
common shares and a warrant for 1,552 common shares.
Women.com Networks, Inc.
- ------------------------
In May 1999, the Partnership purchased 11,912 Series E Preferred shares
for $119,120. In October 1999, the Company completed an initial public
offering priced at $10 per common share and the Partnership's Preferred
shares were converted into 204,384 common shares.
WorldRes, Inc.
- --------------
In March 1999, the Partnership made an additional investment in the
company by purchasing 12,397 Series D Preferred shares for $75,002. In
November 1999, the Partnership made an additional investment in the
company by purchasing 45,392 Series E Preferred shares for $527,466. The
pricing of these rounds, in which third parties participated, indicated a
$584,472 increase in the fair value of the Partnership's existing
investment in the company's Preferred shares and warrants at December 31,
1999.
Venture Capital Limited Partnership Investments
- -----------------------------------------------
The Partnership made additional investments totaling $33,438 in venture
capital limited partnerships during the year ended December 31, 1999.
The Partnership received cash distributions totaling $329,551 from
Spectrum Equity Investors L.P., CVM Equity Fund IV, Ltd., Trinity
Ventures IV, L.P., El Dorado Ventures III, L.P. and O, W & W Pacrim
Investments Limited. The Partnership received stock distributions of
Pilot Network Services, Inc., TUT Systems, Inc., Horizon Organic Holding
Corporation, Rogue Wave Software, Inc., Informix Corporation, PRI
Automation, Inc. and Efficient Networks, Inc. with a fair value of
$320,884. Distributions totaling $501,038 were recorded as realized
gains and distributions totaling $149,397 were recorded as returns of
capital.
The Partnership recorded a $295,487 increase in fair value as a result of
a net increase in the fair value of the underlying investments of the
partnerships, partially offset by distributions received from such
partnerships.
Other Equity Investments
- ------------------------
Other significant changes reflected above primarily relate to market
value fluctuations or the elimination of a discount relating to selling
restrictions for publicly traded portfolio companies. Portions of the
Partnership's Simione Central Holdings, Inc. and Women.com Networks, Inc.
shares are restricted.
5. Change in Net Unrealized Fair Value of Equity Investments
---------------------------------------------------------
In accordance with the accounting policy as stated in Note 1, the
Statements of Operations include a line item entitled "Change in net
unrealized fair value of equity investments." The table below discloses
details of the changes:
For the Years Ended December 31,
---------------------------------------
1999 1998 1997
------ ------ ------
Increase (decrease) in fair
value from cost of
marketable equity
securities $ 7,181,515 (2,758,285) (2,245,008)
Increase in fair value from
cost of non-marketable
equity securities 12,155,370 19,171,791 16,519,372
---------- ---------- ----------
Net unrealized fair
value increase from
cost at end of year 19,336,885 16,413,506 14,274,364
Net unrealized fair
value increase from
cost at beginning of year 16,413,506 14,274,364 5,701,534
---------- ---------- ----------
Change in net unrealized
fair value of equity
investments $ 2,923,379 2,139,142 8,572,830
========== ========== ==========
6. Notes Receivable
----------------
Activity from January 1 through December 31 consisted of:
1999 1998
------ ------
Balance, beginning of year $ -- 4,479
Secured notes receivable issued 2,324,957 2,766
Unsecured notes receivable issued 175,000 --
Repayments of notes receivable -- (2,766)
Secured notes converted to equity
investments (36,763) --
Increase (decrease) in accrued interest 106,340 (4,479)
--------- -----
Balance, end of year $2,569,534 --
========= =====
The secured notes are collateralized by specific assets of the borrowing
companies. The interest rate on notes receivable at December 31, 1999
ranged from 8.5% to 50%. All notes are due on demand.
7. Cash and Cash Equivalents
-------------------------
Cash and cash equivalents at December 31, 1999 and 1998, consisted of:
1999 1998
-------- --------
Demand accounts $3,419,708 14,093
Money-market accounts 2,937,148 1,757
--------- ------
Total $6,356,856 15,850
========= ======
8. Short-Term Borrowings
---------------------
The Partnership has a borrowing account with a financial institution. At
December 31, 1999, the borrowing capacity of this account, which
fluctuates based on collateral value, was $1,510,386 and there were no
outstanding borrowings. Interest is charged at the prime rate plus one-
half percent. The weighted-average interest rate for the year ended
December 31, 1999 was 8.25% and interest expense was $7,031. The
Partnership's investments in Valentis, Inc. (formerly Megabios Corp.) and
Axys Pharmaceuticals, Inc. are pledged as collateral.
9. Distributions
-------------
In the second and third quarters of 1999, the Managing General Partners
declared and paid a tax distribution to the General Partners totaling
$1,244,602. In December 1999, the Managing General Partners declared a
tax distribution for Unit holders as of December 31, 1999 totaling
$5,412,980 (payable to each partner based on their proportionate share of
partner capital), of which $86,914 and $5,326,066 ($13.32 per unit) was
paid to the General Partners and Limited Partners, respectively, in
February, 2000.
10. Commitments and Contingencies
-----------------------------
The Partnership is a party to financial instruments with off-balance-
sheet risk in the normal course of its business. Generally, these
instruments are commitments for future equity fundings, venture capital
limited partnership investments, equipment financing commitments, or
accounts receivable lines of credit that are outstanding but not
currently fully utilized by a borrowing company. As they do not
represent current outstanding balances, these unfunded commitments are
properly not recognized in the financial statements.
As of December 31, 1999, the Partnership had unfunded commitments as
follows:
Type
- ----
Notes receivable $ 200,000
Equity investments 200,000
Equipment lease guarantees 737,000
Venture capital limited partnership investments 21,975
---------
Total $1,158,975
=========
The Partnership uses the same credit policies in making these commitments
and conditional obligations as it does for on-balance-sheet instruments.
Commitments to extend financing are agreements to lend to a company as
long as there are no violations of any conditions established in the
contract. The credit lines generally have fixed termination dates or
other termination clauses. Since many of the commitments are expected to
expire without being fully drawn upon, the total commitment amounts do
not necessarily represent future cash requirements. All convertible and
secured note commitments funded require collateral specified in the
agreements.
11. Subsequent Events
-----------------
Subsequent to December 31, 1999, the Partnership sold publicly traded
shares in six portfolio companies for proceeds totaling $15,721,330 and a
realized gain of $13,585,781. The following table discloses details of
the transactions:
Additional
12/31/99 Sale Value Realized
Company Fair Value Proceeds Realized Gain
- ----------- ---------- -------- ---------- --------
CV Therapeutics, Inc. $ 407,741 437,508 29,767 114,708
Efficient Networks, Inc. 64,487 109,365 44,878 34,111
Oxford GlycoSciences Plc 1,772,432 7,651,640 5,879,208 6,651,713
Pharmos Corporation 122,170 191,382 69,212 146,134
Pilot Network Services,
Inc. 4,259,590 5,324,390 1,064,800 5,039,837
Valentis, Inc. 998,865 2,007,045 1,008,180 1,599,278
--------- ---------- --------- ----------
Total $7,625,285 15,721,330 8,096,045 13,585,781
========= ========== ========= ==========
Significant changes in the fair value of the Partnership's investments
subsequent to December 31, 1999 are:
Increase
(Decrease)
12/31/99 03/20/00 in
Company Fair Value Fair Value Fair Value
- ----------- ---------- ---------- ----------
Endocare, Inc. $ 414,286 957,957 543,671
Physiometrix, Inc. 947,169 5,808,950 4,861,781
Valentis, Inc. 1,867,155 2,551,562 684,407
Women.com Networks, Inc. 2,215,011 1,552,041 (662,970)
--------- ---------- ---------
Total $5,443,621 10,870,510 5,426,889
========= ========== =========
The March 20, 2000 fair value is based on the closing price of the
portfolio company's publicly traded common shares on that date, with an
illiquidity discount for selling restrictions where applicable.
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be
signed on its behalf by the undersigned, thereunto duly authorized.
TECHNOLOGY FUNDING VENTURE PARTNERS V,
AN AGGRESSIVE GROWTH FUND, L.P.
By: TECHNOLOGY FUNDING INC.
Managing General Partner
Date: March 29, 2000 By: /s/Michael Brenner
----------------------------------
Michael Brenner
Vice President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated:
Signature Capacity Date
--------- -------- ----
/s/Charles R. Kokesh President, Chief March 29, 2000
- ------------------------ Executive Officer,
Charles R. Kokesh Chief Financial officer
and Chairman of
Technology Funding Inc.
and Managing General
Partner of Technology
Funding Ltd.
The above represents the Board of Directors of Technology Funding Inc.
and the General Partners of Technology Funding Ltd.