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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2002
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 No.)
incorporation or organization)
1107 Investment Boulevard, Suite 180
El Dorado Hills, California 95762
- --------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
(916) 941-1400
----------------------------------------------------
(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
--- ---
No active market for the units of limited partnership interests
("Units") exists, and therefore the market value of such Units cannot be
determined.
Forward-Looking Statements
- --------------------------
The Private Securities Litigation Reform Act of 1995 (the Act) provides
a safe harbor for forward-looking statements made by or on behalf of the
Partnership. The Partnership and its representatives may from time to
time make written or oral statements that are "forward-looking",
including statements contained in this report and other filings with the
Securities and Exchange Commission, and reports to the Partnership's
shareholders and news releases. All statements that express
expectations, estimates, forecasts and projections are forward-looking
statements within the meaning of the Act. In addition, other written or
oral statements which constitute forward-looking statements may be made
by or on behalf of the Partnership. Words such as "expects",
"anticipates", "intends", "plans", "believes", "seeks", "estimates",
"projects", "forecasts", "may", "should", variations of such words and
similar expressions are intended to identify such forward-looking
statements. These statements are not guarantees of future performance
and involve certain risks, uncertainties and assumptions which are
difficult to predict. Therefore, actual outcomes and results may differ
materially from what is expressed or forecasted in or suggested by such
forward-looking statements. The Partnership undertakes no obligation to
update publicly any forward-looking statements, whether as a result of
new information, future events or otherwise.
I. FINANCIAL INFORMATION
Item 1. Financial Statements
BALANCE SHEETS
- --------------
(unaudited)
June 30, December 31,
2002 2001
------------ ------------
ASSETS
Equity investments (cost of $19,478,929
and $18,819,615 at June 30, 2002
and December 31, 2001, respectively) $ 9,848,998 $11,259,445
Notes receivable, net (cost of $5,624,429
and $5,620,368 at June 30, 2002
and December 31, 2001, respectively) 88,950 86,920
---------- ----------
Total investments 9,937,948 11,346,365
Cash and cash equivalents 4,426,012 7,222,914
Other receivable 666,667 --
Other assets 168,696 540,321
---------- ----------
Total assets $15,199,323 $19,109,600
========== ==========
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable and accrued expenses $ 65,999 $ 104,582
Short-term borrowings -- 1,200,000
Due to related parties 62,828 74,499
---------- ----------
Total liabilities 128,827 1,379,081
Commitments and contingencies
See Note 8.
Partners' capital:
Limited Partners (400,000 units outstanding) 18,449,777 21,083,200
General Partners (3,379,281) (3,352,681)
---------- ----------
Total partners' capital 15,070,496 17,730,519
---------- ----------
Total liabilities and partners' capital $15,199,323 $19,109,600
========== ==========
See accompanying notes are an integral part of these financial statements.
STATEMENTS OF INVESTMENTS
- -------------------------
Principal
Amount or June 30, 2002 December 31, 2001
Industry Shares at ------------------ -------------------
(1) Investment June 30, Cost Fair Cost Fair
Company Position Date 2002 Basis Value Basis Value
- ---------------- -------- ---------- ----------- ----- ----- ----- -----
Equity Investments
- ------------------
Biomedical
- ----------
0.3% and 4.6% at June 30, 2002 and December 31, 2001, respectively
- -------------------------------------------------------------------
Celera Genomics
(formerly Axys
Pharmaceuticals, Common
Inc.) shares 2000 4,065 $ 141,000 $ 48,780 $ 141,000 $ 108,495
Matrix
Pharmaceuticals, Common
Inc. shares 2001 -- -- -- 311,970 702,629
---------- ---------- ---------- ----------
141,000 48,780 452,970 811,124
---------- ---------- ---------- ----------
Biotechnology
- -------------
4.4% and 4.6% at June 30, 2002 and December 31, 2001, respectively
- -------------------------------------------------------------------
Molecular
Geriatrics Common
Corporation (a) shares 1993 47,170 250,000 4,245 250,000 4,245
Prolinx, Inc. Common 1995-
(a) (b) shares 2001 717,162 2,766,870 258,177 2,766,870 322,722
Prolinx, Inc. Preferred 1995-
(a) (b) shares 2001 1,098,169 988,170 395,341 988,170 494,176
STATEMENTS OF INVESTMENTS (continued)
- -------------------------------------
Prolinx, Inc. Common and
(a) (b) Preferred
share
warrants at
$.0001-$.90;
expiring 1998-
2004-2010 2001 20,361 6,061 0 6,061 0
--------- ---------- ---------- ---------
4,011,101 657,763 4,011,101 821,143
--------- ---------- ---------- ----------
Communications
- --------------
0.7% and 1.0% at June 30, 2002 and December 31, 2001, respectively
- -------------------------------------------------------------------
iVillage Common 1996-
Inc. shares 2000 83,111 301,403 104,721 301,403 157,911
Pegasus
Communications Common 2000-
Corporation shares 2001 -- -- -- 54,461 20,696
---------- ---------- ---------- ----------
301,403 104,721 355,864 178,607
---------- ---------- ---------- ----------
Computer Systems and Software
- -----------------------------
1.0% and 0.2% at June 30, 2002 and December 31, 2001, respectively
- -------------------------------------------------------------------
Ascential
Software Common
Corporation shares 2001 -- -- -- 0 1,215
Lynk Systems, Common
Inc.(a) shares 1998 105,000 38,500 157,500 38,500 31,500
Virage, Inc. Common
shares 2002 630 1,165 504 1,668 2,191
---------- ---------- ---------- ----------
39,665 158,004 40,168 34,906
---------- ---------- ---------- ----------
STATEMENTS OF INVESTMENTS (continued)
- ------------------------------------
Environmental
- -------------
0.0% and 0.0% at June 30, 2002 and December 31, 2001, respectively
- -------------------------------------------------------------------
Triangle
Biomedical
Sciences, Common
Inc.(a) shares 1999 1,806 35,560 5,056 35,560 5,056
Triangle Common
Biomedical share
Sciences, warrants
Inc.(a) at $28.00;
expiring
2009 1999 1,806 1,806 180 1,806 180
---------- ---------- ---------- ----------
37,366 5,236 37,366 5,236
---------- ---------- ---------- ----------
Industrial/Business Automation
- ------------------------------
4.2% and 2.5% at June 30, 2002 and December 31, 2001, respectively
- -------------------------------------------------------------------
Innergy Power
Corp. Preferred 1995-
(a) (b) shares 2001 870,475 2,687,985 503,054 2,687,985 352,138
Innergy Power
Corp. Common 2001-
(a) (b) shares 2002 18,818 4,201 0 1 0
Innergy Power Common and
Corp. Preferred
(a) (b) share warrants
at $.60-$12.50;
expiring 1997-
2003-2006 2001 458,809 3,000 0 4,186 0
Innergy Power
Corp. Convertible
(a) (b) note (2) 2001 $244,000 261,181 128,157 251,500 88,025
---------- ---------- ---------- ----------
2,956,367 631,211 2,943,672 440,163
---------- ---------- ---------- ----------
STATEMENTS OF INVESTMENTS (continued)
- ------------------------------------
Information Technology
- ----------------------
2.1 and 1.5% at June 30, 2002 and December 31, 2001, respectively
- -------------------------------------------------------------------
WorldRes, Inc. Common 1997-
(a) (b) shares 2001 222,063 1,059,652 266,475 1,059,652 266,475
WorldRes, Inc. Converible
note (2) 2002 $136,000 138,968 55,574 -- --
WorldRes, Inc. Common and
(a) (b) Preferred
share warrants
at $3.00-$3.70;
expiring 1997-
2002-2007 2002 22,919 62 0 62 0
---------- ---------- ---------- ----------
1,198,682 322,049 1,059,714 266,475
---------- ---------- ---------- ----------
Medical
- -------
36.7% and 35.4% at June 30, 2002 and December 31, 2001, respectively
- ---------------------------------------------------------------------
Acusphere, Inc. Preferred 1995-
(a) shares 2002 556,337 1,014,615 470,661 762,499 1,075,963
Atherotech, Preferred 2000-
Inc. (a) (b) shares 2002 1,006,045 2,504,823 2,692,176 2,000,000 1,875,000
Atherotech, Convertible
Inc. (a) (b) note (2) 2001 -- -- -- 251,315 150,789
CareCentric.
Solutions, Common
Inc. shares 1999 25,810 206,718 13,421 206,718 15,486
Endocare, Inc. Common 1996-
(b) shares 1999 49,764 163,874 328,692 163,874 446,135
Periodontix, Preferred 1993-
Inc.(a) shares 1999 339,253 556,001 0 556,001 0
Periodontix, Common share
Inc.(a) warrants
at $2.25;
expiring 1999-
2004-2006 2000 24,667 0 0 0 0
STATEMENTS OF INVESTMENTS (continued)
- ------------------------------------
Periodontix, Convertible 1999-
Inc.(a) notes (2) 2000 $273,000 345,317 4,427 331,059 128,602
Pharmadigm, Preferred 1993-
Inc.(a) (b) shares 2002 917,596 1,304,396 383,526 1,079,396 220,144
Pherin
Pharmaceuticals, Preferred
Inc.(a) shares 1991 200,000 200,000 424,000 200,000 106,000
Physiometrix, Common 1996-
Inc. shares 2000 139,769 285,023 114,611 285,023 304,696
R2 Technology, Preferred 1994-
Inc. (a) shares 1996 468,541 537,080 494,555 537,080 791,287
Resolution
Sciences Corp. Preferred
(a) (b) shares 2000 485,000 970,000 97,000 970,000 291,000
Resolution
Sciences Corp. Convertible 2001-
(a) (b) notes (2) 2002 $200,000 210,178 21,018 106,082 31,824
Sanarus Medical, Preferred
Inc.(a) (b) shares 1999 260,000 390,000 224,900 390,000 224,900
Valentis, Inc. Common 1994-
shares 1995 196,274 762,234 263,008 762,234 608,450
---------- ---------- ---------- ----------
9,450,259 5,531,995 8,601,281 6,270,276
---------- ---------- ---------- ----------
Microelectronics
- ----------------
13.8% and 11.6% at June 30, 2002 and December 31, 2001, respectively
- ---------------------------------------------------------------------
Tessera, Inc.(a) Preferred
shares 1992 444,444 500,000 1,999,998 500,000 1,999,998
Tessera, Inc.(a) Common
shares 1997 48,502 56,500 78,807 56,500 50,918
---------- ---------- ---------- ----------
556,500 2,078,805 556,500 2,050,916
---------- ---------- ---------- ----------
STATEMENTS OF INVESTMENTS (continued)
- ------------------------------------
Venture Capital Limited Partnership Investments
- -----------------------------------------------
2.1% and 2.1% at June 30, 2002 and December 31, 2001, respectively
- -------------------------------------------------------------------
Capital Valley Preferred
Ventures(a) shares 2002 50,794 48,254 48,254 -- --
Capital Valley
Ventures(a) LLC units 2002 50,794 2,540 2,540 -- --
Capital Valley Convertible
Ventures(a) note (2) 2001 -- -- -- 25,187 25,187
CVM Equity Ltd.
Fund IV, Ltd(a) Partnership
interests various $150,000 76,436 47,965 76,436 55,876
El Dorado Ltd.
Ventures III, Partnership
L.P. (a) interests various $250,000 212,460 29,343 212,460 30,578
O,W&W Pacrim Ltd.
Investments Partnership
Limited (a) interests various $400 1,000 43,819 1,000 126,120
Spectrum Equity Ltd.
Investors, Partnership
L.P.(a) interests various $500,000 398,082 107,554 398,082 110,087
Trinity Ventures Ltd.
IV, L.P. (a) Partnership
interests various $175,006 47,814 30,959 47,814 32,751
---------- ---------- ---------- ----------
786,586 310,434 760,979 380,599
---------- ---------- ---------- ----------
Total equity investments - 65.3% and 63.5% at
June 30, 2002 and December 31, 2001,
respectively 19,478,929 9,848,998 18,819,615 11,259,445
---------- ---------- ---------- ----------
STATEMENTS OF INVESTMENTS (continued)
- ------------------------------------
Notes Receivable, Net
- ---------------------
Avalon Vision Secured
Solutions, Inc. note, 16%,
due 2004 1999 $164,906 177,901 88,950 173,840 86,920
Sutmyn Secured
Storage note, 50%,
Corporation due on 1999-
(b) demand 2000 $4,000,000 5,446,528 0 5,446,528 0
---------- ---------- ---------- ----------
Total notes receivable - 0.6% and 0.5% at
June 30, 2002 and December 31, 2001,
respectively 5,624,429 88,950 5,620,368 86,920
---------- ---------- ---------- ----------
Total investments - 65.9% and 64.0% at
June 30, 2002 and December 31, 2001,
respectively $25,103,358 $ 9,937,948 $24,439,983 $11,346,365
========== ========== ========== ==========
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 06/30/02 and 12/31/01.
(2) The Partnership has no income-producing equity investments except for convertible notes which
include accrued interest. Interest rates on such notes range from 5.75 percent to 12 percent.
The accompanying notes are an integral part of these financial statements.
STATEMENTS OF OPERATIONS (unaudited)
- -----------------------------------
For the Six Months For the Six Months
Ended June 30, Ended June 30,
------------------------ ----------------------
2002 2001 2002 2001
-------- -------- -------- --------
Investment income:
Notes receivable interest $ 24,290 $ 26,642 $ 48,322 $ 54,496
Short-term interest income 15,975 77,611 47,003 245,557
-------- --------- -------- ---------
Total investment income 40,265 104,253 95,325 300,053
Investment expenses:
Management fees 47,963 60,238 95,925 120,475
Individual General Partners' compensation 4,967 14,430 14,000 23,449
Investment operations 68,118 170,524 304,743 238,363
Administrative and investor services 593,845 471,426 1,400,138 693,037
Professional fees 41,125 103,621 77,038 150,694
Computer services 43,215 52,169 88,975 96,909
Interest expense 1,964 440 13,035 54,647
--------- --------- --------- ---------
Total investment expenses 801,197 872,848 1,993,854 1,377,574
--------- --------- --------- ---------
Net investment loss (760,932) (768,595) (1,898,529) (1,077,521)
--------- --------- --------- ---------
Net realized (loss) gain from sales
of equity investments (1,186) 3,456 616,293 (291,627)
Realized gain from venture capital
limited partnership investments 4,786 41,600 27,338 275,087
--------- --------- --------- ---------
Net realized income (loss) 3,600 45,056 643,631 (16,540)
--------- --------- --------- ---------
STATEMENTS OF OPERATIONS (unaudited)(continued)
- -----------------------------------------------
(Increase) decrease in unrealized
depreciation:
Equity investments (1,552,939) (372,868) (2,069,761) (3,894,774)
Notes receivable 1,268 -- (2,031) 34,504
--------- --------- --------- ---------
Net increase in unrealized
depreciation (1,551,671) (372,868) (2,071,792) (3,860,270)
--------- --------- --------- ---------
Other income -- -- 666,667 --
--------- --------- --------- ---------
Net decrease in partners' capital
resulting from operations $(2,309,003) $(1,096,407) $(2,660,023) $(4,954,331)
========= ========= ========= =========
Net decrease in partners' capital
resulting from operations
per Unit $ (5.71) $ (2.71) $ (6.58) $ (12.26)
========= ========= ========= =========
STATEMENTS OF CASH FLOWS (unaudited)
- -----------------------------------
For the Six Months Ended June 30,
---------------------------------
2002 2001
--------- ---------
Net decrease in partners' capital
resulting from operations $(2,660,023) $(4,954,331)
Adjustments to reconcile net
decrease in partners' capital
resulting from operations
to net cash used by operating
activities:
Net realized (gain) loss from
sales of equity investments (616,293) 291,627
Realized gain from venture capital
limited partnership investments (27,338) (275,087)
Net increase (decrease) in unrealized
depreciation:
Equity investments 2,069,761 3,894,774
Notes receivable 2,031 (34,504)
Increase in other receivable (666,667) --
Increase in accrued interest on notes
receivable (39,178) (42,516)
Decrease in accounts payable
and accrued expenses (38,583) (17,870)
Decrease in due to related parties (11,671) (1,154,573)
Other changes, net (14,451) (37,970)
--------- ----------
Net cash used by operating activities (2,002,412) (2,330,450)
--------- ----------
Cash flows from investing activities:
Proceeds from sales of equity
investments 1,370,006 437,972
Purchase of equity investments (988,116) (1,934,015)
Repayments of notes receivable -- 4,604
Distributions from venture capital
limited partnership investments 23,620 37,882
--------- ----------
Net cash provided (used) by investing
activities 405,510 (1,453,557)
--------- ----------
STATEMENTS OF CASH FLOWS (unaudited) (continued)
- ------------------------------------------------
Cash flows from financing activities:
Repayment of short-term borrowings (1,200,000) (2,300,000)
--------- ----------
Net cash used by financing activities (1,200,000) (2,300,000)
--------- ----------
Net decrease in cash and cash
equivalents (2,796,902) (6,084,007)
Cash and cash equivalents at
beginning of year 7,222,914 13,261,432
--------- ----------
Cash and cash equivalents
at June 30 $ 4,426,012 $ 7,177,425
========= ==========
See accompanying notes are an integral part of these financial statements.
NOTES TO FINANCIAL STATEMENTS (unaudited)
- ----------------------------------------
1. Interim Financial Statements
----------------------------
The accompanying unaudited financial statements included herein have been
prepared in accordance with the requirements of Form 10-Q and, therefore,
do not include all information and footnotes which would be presented were
such financial statements prepared in accordance with generally accepted
accounting principles. These statements should be read in conjunction with
the Annual Report on Form 10-K for the year ended December 31, 2001. In
the opinion of the Managing General Partners, the accompanying interim
financial statements reflect all adjustments necessary for the fair
presentation of the financial position, results of operations, and cash
flows for the interim periods presented. Allocation of income and loss to
Limited and General Partners is based on cumulative income and loss.
Adjustments, if any, are reflected in the current quarter balances. The
results of operations for such interim periods are not necessarily
indicative of results of operations to be expected for the full year.
2. 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.
The accompanying financial statements are prepared using accounting
principles generally accepted in the United States which may not equate to
tax accounting. The cost of investments on a tax basis at June 30, 2002
and December 31, 2001, was $21,483,957 and $22,527,447, respectively. At
June 30, 2002 and December 31, 2001, gross unrealized depreciation on
investments based on cost for federal income tax purposes was as follows:
June 30, December 31,
2002 2001
----------- -----------
Unrealized appreciation $ 2,568,246 $ 3,306,512
Unrealized depreciation (14,114,255) (14,487,594)
---------- ----------
Net unrealized depreciation $(11,546,009) $(11,181,082)
========== ==========
3. Related Party Transactions
--------------------------
Related party costs are included in investment expenses shown on the
Statements of Operations. Related party costs for the six months ended
June 30, 2002 and 2001, were as follows:
2002 2001
-------- --------
Management fees $ 95,925 $120,475
Reimbursable operating expenses 1,626,241 929,452
Individual General Partners' compensation 14,000 23,449
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. Certain reimbursable
expenses have been accrued based upon interim estimates prepared by the
Managing General Partners and are adjusted to actual cost periodically.
There was $46,840 due to related parties at June 30, 2002, compared to
$57,054 due to related parties at December 31, 2001, for such reimbursable
expenses.
Management fees due to the Managing General Partners were $15,988 and
$17,445 at June 30, 2002 and December 31, 2001, respectively, and were
included in due to related parties.
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 June 30, 2002, the Partnership and affiliated
partnerships had an indirect interest in non-transferable Endocare, Inc.
and Physiometrix, Inc. options with a fair value of $145,081.
4. Equity Investments
------------------
All investments are valued at fair value as determined in good faith by the
Managing General Partners.
Marketable Equity Securities
- ----------------------------
At June 30, 2002 and December 31, 2001, marketable equity securities had
aggregate costs of $1,697,543 and $2,064,477, respectively, and aggregate
market values of $545,045 and $1,921,770, respectively. The net unrealized
loss at December 31, 2001 included gross gains of $429,082. There were no
gross gains at June 30, 2002.
Restricted Securities
- ---------------------
At June 30, 2002 and December 31, 2001, restricted securities had aggregate
fair values of $9,303,953 and $9,337,675, respectively, representing 61.7
percent and 52.7 percent, respectively, of the net assets of the
Partnership.
Significant purchases and sales of equity investments during the six months
ended June 30, 2002, are as follows:
Acusphere, Inc.
- ---------------
In June 2002, the Partnership purchased 178,806 shares of Series J
Preferred stock of the company for $252,116.
Atherotech, Inc.
- ----------------
In March 2002, the Partnership purchased 56,053 Series D Preferred shares
for $250,000. The Partnership also converted notes receivable of $254,823
and received 57,135 Series D Preferred shares.
Capital Valley Ventures
- -----------------------
In March 2002, the Partnership converted $25,794 in notes receivable to
25,794 Series A Preferred shares and 25,794 LLC Units. Also in March, the
partnership purchased 25,000 Series A Preferred and 25,000 LLC Units for
$25,000.
Innergy Power Corporation
- -------------------------
In January 2002, the Partnership net exercised a common stock warrant for
10,000 shares at $0.60 each and received 7,000 shares with a cost basis of
$4,200. The Partnership realized a gain of $4,200 on the warrant exercise.
Matrix Pharmaceuticals, Inc.
- ----------------------------
In January 2002, the Partnership sold its entire investment in the company
for proceeds of $971,134 and a realized gain of $659,164.
Pegasus Communications
- ----------------------
In January 2002, the partnership sold 1,988 common shares in the company
for proceeds of $7,191 and realized a loss of $47,270.
Pharmadigm, Inc.
- ----------------
In May 2002, the Partnership acquired 225,000 shares of Series F Preferred
stock of the company for $225,000.
Resolution Sciences Corporation
- -------------------------------
In April 2002, the Partnership issued a $100,000 convertible note to the
company with an interest rate of prime plus 1 percent and a maturity date
of April 2003.
WorldRes, Inc.
- --------------
In April 2002, the Partnership issued a convertible note for $136,000 to
the company. The note bears interest at prime plus 4 percent and is due in
April 2003.
Venture Capital Limited Partnership Investments
- -----------------------------------------------
In the six months ended June 30, 2002, the Partnership received stock
distributions of Virage, Inc, with a total fair value of $3,718. Cash
distributions of $20,000 and $3,620 were received from O,W&W Pacrim
Investments Limited and Spectrum Equity Investors, L.P., respectively.
These distributions were recorded as realized gains.
The Partnership recorded a $95,772 decrease in fair value primarily as a
result of the above distributions and a decrease in the fair value of the
underlying investments of the Partnerships.
Other Equity Investments
- ------------------------
Other significant changes reflected in the Statements of Investments relate
to market value fluctuations for publicly-traded portfolio companies or
changes in the fair value of private companies as determined in accordance
with the policy described in Note 1 to the financial statements included in
the Partnership's December 31, 2001 Form 10-K.
Subsequent Events
- -----------------
In August 2002, the Partnership purchased 970,761 Series B Preferred shares
of CellzDirect for $375,000.
5. Notes Receivable
----------------
Activity from January 1 through June 30 consisted of:
2002 2001
-------- --------
Balance at January 1 $ 86,920 $ 138,020
Repayments of notes receivable -- (4,604)
Change in accrued interest receivable 4,061 2,703
Net (increase) decrease in unrealized
depreciation of notes receivable (2,031) 34,504
------- ---------
Balance at June 30 $ 88,950 $ 170,623
======= =========
The interest rate on notes receivable at June 30, 2002 ranged from 16
percent to 50 percent. All notes are due on demand with the exception of
$177,901, due 2004.
6. Cash and Cash Equivalents
-------------------------
Cash and cash equivalents at June 30, 2002 and December 31, 2001 consisted
of:
2002 2001
-------- ------
Demand accounts $ 131,408 $ 38,347
Money market accounts 4,294,604 7,184,567
--------- ----------
Total $4,426,012 $ 7,222,914
========= ==========
7. Short-Term Borrowings
---------------------
In December 2001, the Partnership borrowed $1,200,000 from a commercial
financial institution and pledged $1,200,000 in cash as collateral for the
note. The 2001 note and accrued interest of $11,038 were repaid on March
15, 2002.
8. Commitments and Contingencies
-----------------------------
From time to time, 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. As they do not represent current outstanding
balances, these unfunded commitments are not recognized in the financial
statements. At June 30, 2002, the Partnership had the following unfunded
commitments:
TYPE
- ----
Equity investments $375,000
Notes receivable 244,533
Venture capital limited partnership investments 25,000
-------
Total $644,533
=======
The Partnership has also guaranteed equipment leases of $350,000.
In October 2000, Kanematsu Corporation, a creditor of one of the
Partnership's portfolio companies, initiated an arbitration proceeding
against the Partnership, two affiliated partnerships, and a fourth co-
investor. Kanematsu was seeking to recover $2,000,000, the purchase price
in a contract by which the Partnership and the other entities were alleged
to have agreed to purchase certain debt securities of the portfolio company
from Kanematsu. The Partnership and affiliated partnerships asserted
counterclaims against Kanematsu. On February 12, 2002, the Partnership,
affiliated partnerships and the co-investor were awarded $4,000,000 and all
of Kanematsu's claims were denied. The award is in full settlement of all
claims and counterclaims. Kanematsu has filed a complaint in federal
district court regarding the arbitration; however, Kanematsu has not filed
a motion to vacate the award. A ruling on the complaint is still pending.
The Partnership has recognized revenue and a receivable of $666,667 as of
February 12, 2002, for its proportionate share of the award.
From time to time, the Partnership is subject to routine litigation
incidental to the business of the Partnership. Although there can be no
assurances as to the ultimate disposition of these matters and the
proceeding disclosed above, it is the opinion of the Managing General
Partners, based upon the information available at this time, that the
expected outcome of these matters, individually or in the aggregate, will
not have a material adverse effect on the results of operations and
financial condition of the Partnership.
9. Financial Highlights
--------------------
For The Six Months Ended June 30,
---------------------------------
2002 2001
------ ------
(all amounts on a per Unit basis)
Net asset value,
beginning of period $35.81 $52.55
Loss from investment operations:
Net investment loss (4.70) (2.66)
Net realized and unrealized
loss on investments (1.88) (9.60)
----- -----
Total from investment
operations (6.58) (12.26)
----- -----
Net asset value, end of period $29.23 $40.29
===== =====
Total Return (18.38)% (23.33)%
Ratios to average net assets:
Net investment loss (14.45)% (5.75)%
Expenses 15.33% 7.42%
Pursuant to the Partnership Agreement, net profit shall be allocated first
to those Partners with deficit capital account balances until such deficits
have been eliminated. As of June 30, 2002, the General Partners have a
negative capital balance of $3,379,281. Net asset value has been calculated
in accordance with this provision of the Partnership Agreement.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Liquidity and Capital Resources
- -------------------------------
The Partnership operates as a business development company under the
Investment Company Act of 1940 and makes venture capital investments in new
and developing companies. The Partnership's financial condition is
dependent upon the success of the portfolio companies. There is no ready
market for many of the Partnership's investments. It is possible that some
of its venture capital investments may be a complete loss or may be
unprofitable and that others will appear likely to become successful, but
may never realize their potential. The valuation of the Partnership's
investments in securities for which there are no available market quotes is
subject to the estimate of the Managing General Partners in accordance with
the valuation guidance described in Note 1 to the financial statements
included in the Partnership's December 31, 2001 Form 10-K. In the absence
of readily obtainable market values, the estimated fair value of the
Partnership's investments may differ significantly from the values that
would have been used had a ready market existed.
During the six months ended June 30, 2002, net cash used by operating
activities totaled $2,002,412. The Partnership paid management fees of
$97,382 to the Managing General Partners and reimbursed related parties for
other investment expenses of $1,636,455. In addition, $14,000 was paid to
the Individual General Partners as compensation for their services. The
Partnership paid other investment expenses and interest expense of $297,687
and $13,035, respectively. Interest income of $56,147 was received.
During the six months ended June 30, 2002, equity investments of $988,116
were funded primarily to portfolio companies in the medical industry.
Proceeds from the sale of equity investments were $1,370,006 and cash
distributions of $23,620 were received from venture capital limited
partnership investments. Repayments of short-term borrowings totaled
$1,200,000. At June 30, 2002, the Partnership had commitments to fund
additional investments totaling $644,533.
Cash and cash equivalents at June 30, 2002, were $4,426,012. 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.
Results of Operations
- ---------------------
Current quarter compared to corresponding quarter in the preceding year
- -----------------------------------------------------------------------
Net decrease in partners' capital resulting from operations was $2,309,003
for the quarter ended June 30, 2002, compared to a net decrease in
partners' capital resulting from operations of $1,096,407 for the same
period in 2001.
Net unrealized depreciation on equity investments was $9,629,931 and
$8,076,992 at June 30, 2002 and March 31, 2002, respectively. During the
quarter ended June 30, 2002, the Partnership recorded an increase in net
unrealized depreciation on equity investments of $1,552,939 compared to an
increase in unrealized depreciation of $372,868 during 2001. The change in
2002 was primarily attributable to a decrease in the publicly-traded price
of Valentis, Inc. and decreases in the fair value of private portfolio
companies in the medical and biotechnology industries. The 2001 increase
in net unrealized depreciation on investments was primarily attributable to
a decrease in the fair value of Prolinx, Inc., a private portfolio company
in the biotechnology industry, partially offset by increases in the fair
values of companies in the medical industry.
For the quarters ended June 30, 2002 and 2001, interest income was $40,265
and $104,253, respectively. The decrease was primarily the result of
reduced cash balances.
Total investment expenses were $801,197 for the quarter ended June 30,
2002, compared to $872,848 for the same period in 2001. The decrease was
primarily due to decreased investment monitoring activity and professional
fees partially offset by increased administrative and investor services
costs.
Given the inherent risk associated with the business of the Partnership,
the future performance of the portfolio company investments may
significantly impact future operations.
Current six months compared to corresponding six months in the preceding
- -----------------------------------------------------------------------
Year
- ----
Net decrease in partners' capital resulting from operations was $2,660,023
for the six months ended June 30, 2002, compared to a net decrease in
partners' capital resulting from operations of $4,954,331 for the same
period in 2001.
Net unrealized depreciation on equity investments were $9,629,931 and
$7,560,170 at June 30, 2002 and December 31, 2001, respectively. During
the six months ended June 30, 2002, the Partnership recorded an increase in
net unrealized depreciation on equity investments of $2,069,761 compared to
an increase in net unrealized depreciation of $3,894,774 during 2001. The
change in 2002 was primarily related to decreases in the fair value of
private portfolio companies in the medical and biotechnology industries.
In 2001, the increase in net unrealized depreciation was mainly
attributable to a decrease in the fair value of Prolinx, Inc. and a
decrease in the publicly-traded price of Physiometrix, Inc.
For the six months ended June 30, 2002, net realized gain from equity
investment sales of $616,293 primarily related to the sale of Matrix
Pharmaceuticals, Inc. Net realized loss from sales of equity investments
was $291,627 for the six months ended June 30, 2001, and primarily related
to the sale of Efficient Networks, Inc.
Other income was $666,667 for the six months ended June 30, 2002. In
October 2000, Kanematsu Corporation, a creditor of one of the Partnership's
portfolio companies, initiated an arbitration proceeding against the
Partnership, two affiliated partnerships, and a fourth co-investor.
Kanematsu was seeking to recover $2,000,000, the purchase price in a
contract by which the Partnership and the other entities were alleged to
have agreed to purchase certain debt securities of the portfolio company
from Kanematsu. The Partnership and affiliated partnerships asserted
counterclaims against Kanematsu. On February 12, 2002, the Partnership,
affiliated partnerships and the co-investor were awarded $4,000,000 and all
of Kanematsu's claims were denied. The award is in full settlement of all
claims and counterclaims. Kanematsu has filed a complaint in federal
district court regarding the arbitration; however, Kanematsu has not filed
a motion to vacate the award. A ruling on the complaint is still pending.
The Partnership has recognized revenue and a receivable of $666,667 as of
February 12, 2002, for its proportionate share of the award. There was no
such income in the corresponding period of 2001.
Total investment expenses were $1,993,854 and $1,377,574 for the six months
ended June 30, 2002 and 2001, respectively. The increase was primarily due
to increased administrative and investor services costs.
During the six months ended June 30, 2002, the Partnership recorded net
realized gains from venture capital limited partnership investments of
$27,338. During the same period in 2001, there were gains of $275,087.
The gains represented distributions from profits of venture capital limited
partnership investments.
During the six months ended June 30, 2002 and 2001, interest income was
$95,325 and $300,053, respectively. The decrease was primarily the result
of reduced cash balances.
II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) A report on Form 8-K was filed by the Registrant on June 28, 2002, to
report the appointment of Grant Thornton LLP as the Partnership's
public accountants. No financial statements were filed.
CERTIFICATION
-------------
The undersigned hereby certifies, to such officer's knowledge, that this
report fully complies with the requirements of Section 15(d) of the
Securities Exchange Act of 1934 and that the information contained in the
report fairly presents, in all material respects, the financial condition
and results of operation of the Partnership.
Date: August 14, 2002 By: /s/Charles R. Kokesh
--------------------------------
Charles R. Kokesh
President, Chief Executive
Officer, Chief Financial
Officer and Chairman of
Technology Funding Inc. and
Managing General Partner of
Technology Funding Limited
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.
TECHNOLOGY FUNDING LTD.
Managing General Partners
Date: August 14, 2002 By: /s/Charles R. Kokesh
---------------------
Charles R. Kokesh
President, Chief Executive Officer,
Chief Financial Officer and
Chairman of Technology Funding Inc.
and Managing General Partner of
Technology Funding Ltd.