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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 September 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 fair 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)
September 30, December 31,
2002 2001
------------ ------------
ASSETS
Equity investments (cost of
$20,572,988 and $18,819,615 at
September 30, 2002 and December 31, 2001,
respectively) $ 9,976,906 $11,259,445
Notes receivable, net (cost of
$184,552 and $5,620,368 at
September 30, 2002 and December 31, 2001,
respectively) 92,276 86,920
---------- ----------
Total investments 10,069,182 11,346,365
Cash and cash equivalents 2,860,847 7,222,914
Other receivables 666,667 --
Other assets 177,710 540,321
---------- ----------
Total assets $13,774,406 $19,109,600
========== ==========
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable and accrued expenses $ 36,502 $ 104,582
Short-term borrowings -- 1,200,000
Due to related parties 14,343 74,499
---------- ----------
Total liabilities 50,845 1,379,081
Commitments and contingencies
See Note 8.
Partners' capital:
Limited Partners (400,000 units outstanding) 17,116,310 21,083,200
General Partners (3,392,749) (3,352,681)
---------- ----------
Total partners' capital 13,723,561 17,730,519
---------- ----------
Total liabilities and partners' capital $13,774,406 $19,109,600
========== ==========
The accompanying notes are an integral part of these financial statements.
STATEMENTS OF INVESTMENTS
- -------------------------
Principal
Amount or September 31, 2002 December 31, 2001
Industry Shares at ------------------ -----------------
(1) Investment September 31, Cost Fair Cost Fair
Company Position Date 2002 Basis Value Basis Value
- ---------------- -------- ---------- ------------ ----- ----- ----- -----
Equity Investments
- ------------------
Biomedical
- ----------
0.2% and 4.6% at September 30, 2002 and December 31, 2001, respectively
- -----------------------------------------------------------------------
Celera Genomics
(formerly Axys
Pharmaceuticals, Common
Inc.) shares 2000 4,065 $ 141,000 $ 32,317 $ 141,000 $ 108,495
Matrix
Pharmaceuticals, Common
Inc. shares 2001 -- -- -- 311,970 702,629
---------- ---------- ---------- ----------
141,000 32,317 452,970 811,124
---------- ---------- ---------- ----------
Biotechnology
- -------------
5.9% and 4.6% at September 30, 2002 and December 31, 2001, respectively
- -----------------------------------------------------------------------
CellzDirect, Inc. Preferred
(a) (b) shares 2002 970,761 375,001 150,000 -- --
Molecular
Geriatrics Common
Corporation (a) shares 1993 47,170 250,000 4,245 250,000 4,245
STATEMENTS OF INVESTMENTS (continued)
- ------------------------------------
Prolinx, Inc. Common 1995-
(a) (b) shares 2000 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
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
--------- ---------- ---------- ----------
4,386,102 807,763 4,011,101 821,143
--------- ---------- ---------- ----------
Communications
- --------------
0.4% and 1.0% at September 30, 2002 and December 31, 2001, respectively
- -----------------------------------------------------------------------
iVillage Common 1996-
Inc. shares 2000 83,111 301,403 48,205 301,403 157,911
Pegasus
Communications Common 2000-
Corporation shares 2001 -- -- -- 54,461 20,696
---------- ---------- ---------- ----------
301,403 48,205 355,864 178,607
---------- ---------- ---------- ----------
Computer Systems and Software
- -----------------------------
1.2% and 0.2% at September 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 1,428 1,660 1,113 1,668 2,191
---------- ---------- ---------- ----------
40,160 158,613 40,168 34,906
---------- ---------- ---------- ----------
STATEMENTS OF INVESTMENTS (continued)
- ------------------------------------
Environmental
- -------------
0.0% and 0.0% at September 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 warrants
Sciences, at $28.00;
Inc.(a) expiring 2009 1999 1,806 1,806 180 1,806 180
---------- ---------- ---------- ----------
37,366 5,236 37,366 5,236
---------- ---------- ---------- ----------
High Tech Financial
- -------------------
2.0% and 0.0% at September 30, 2002 and December 31, 2001, respectively
- -----------------------------------------------------------------------
Vencore Solutions
LLC (a) (b) LLC Units 2002 625,000 625,000 250,000 -- --
Vencore Solutions LLC Unit
LLC (a) (b) warrants
at $0.001;
expiring 2007 2002 62,500 0 24,975 -- --
---------- ---------- ---------- ----------
625,000 274,975 -- --
---------- ---------- ---------- ----------
Industrial/Business Automation
- ------------------------------
4.6% and 2.5% at September 30, 2002 and December 31, 2001, respectively
- -----------------------------------------------------------------------
Innergy Power
Corp. Preferred 1995-
(a) (b) shares 2002 880,236 2,707,505 512,814 2,687,985 352,138
Innergy Power
Corp. Common 2001-
(a) (b) shares 2002 18,818 4,201 0 1 0
STATEMENTS OF INVESTMENTS (continued)
- -------------------------------------------
Innergy Power Common and
Corp. Preferred share
(a) (b) 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 $244,000 246,032 123,016 251,500 88,025
---------- ---------- ---------- ----------
2,960,738 635,830 2,943,672 440,163
---------- ---------- ---------- ----------
Information Technology
- ----------------------
1.8% and 1.5% at September 30, 2002 and December 31, 2001, respectively
- -----------------------------------------------------------------------
WorldRes, Inc. Common 1997-
(a) (b) shares 2001 222,063 1,059,652 199,856 1,059,652 266,475
WorldRes, Inc. Convertible
(a) (b) note (2) 2002 $136,000 141,967 42,590 -- --
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
---------- ---------- ---------- ----------
1,201,681 242,446 1,059,714 266,475
---------- ---------- ---------- ----------
Medical
- -------
38.6% and 35.4% at September 30, 2002 and December 31, 2001, respectively
- -------------------------------------------------------------------------
Acusphere, Inc. Preferred 1995-
(a) shares 2002 556,337 1,014,615 313,774 762,499 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
STATEMENTS OF INVESTMENTS (continued)
- ------------------------------------
CareCentric.
Solutions, Common
Inc. shares 1999 25,810 206,718 9,291 206,718 15,486
Endocare, Inc. Common 1996-
(b) shares 1999 49,764 163,874 356,062 163,874 446,135
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
Periodontix, Convertible 1999-
Inc.(a) notes (2) 2000 $273,000 352,567 4,427 331,059 128,602
Pharmadigm, Preferred 1993-
Inc.(a) (b) shares 2002 958,815 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 139,769 285,023 136,973 285,023 304,696
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
(a) (b) notes (2) 2001 $200,000 213,076 21,307 106,082 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 2002 415,974 838,279 141,432 762,234 608,450
---------- ---------- ---------- ----------
9,536,452 5,299,423 8,601,281 6,270,276
---------- ---------- ---------- ----------
STATEMENTS OF INVESTMENTS (continued)
- ------------------------------------
Microelectronics
- ----------------
15.1% and 11.6% at September 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
---------- ---------- ---------- ----------
Venture Capital Limited Partnership Investments
- -----------------------------------------------
2.9% and 2.1% at September 30, 2002 and December 31, 2001, respectively
- -----------------------------------------------------------------------
Capital Valley Preferred
Ventures(a) shares 2002 50,794 48,254 24,127 -- --
Capital Valley
Ventures(a) LLC units 2002 50,794 2,540 1,270 -- --
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 38,218 76,436 55,876
El Dorado Ltd.
Ventures III, Partnership
L.P. (a) interests various $250,000 212,460 106,230 212,460 30,578
O,W&W Pacrim Ltd.
Investments Partnership
Limited (a) interests various $400 1,000 500 1,000 126,120
Spectrum Equity Ltd.
Investors, Partnership
L.P.(a) interests various $500,000 398,082 199,041 398,082 110,087
Trinity Ventures Ltd.
IV, L.P. (a) Partnership
interests various $175,006 47,814 23,907 47,814 32,751
---------- ---------- ---------- ----------
786,586 393,293 760,979 380,599
---------- ---------- ---------- ----------
STATEMENTS OF INVESTMENTS (continued)
- ------------------------------------
Total equity investments - 72.7% and 63.5% at
September 30, 2002 and December 31, 2001,
respectively 20,572,988 9,976,906 18,819,615 11,259,445
---------- ---------- ---------- ----------
Notes Receivable, Net
- ---------------------
Avalon Vision Secured
Solutions, Inc. note, 16%,
due 2004 1999 $164,906 184,552 92,276 173,840 86,920
Sutmyn Secured
Storage note, 50%,
Corporation due on 1999-
(b) demand 2000 -- -- -- 5,446,528 0
---------- ---------- ---------- ----------
Total notes receivable - 0.7% and 0.5% at
September 30, 2002 and December 31, 2001,
respectively 184,552 92,276 5,620,368 86,920
---------- ---------- ---------- ----------
Total investments - 73.4% and 64.0% at
September 30, 2002 and December 31, 2001,
respectively $20,757,540 $10,069,182 $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 September 30, 2002 and December 31, 2001.
(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 Three Months For the Nine Months
Ended September 30, Ended September 30,
---------------------- ----------------------
2002 2001 2002 2001
------ ------ ------ ------
Investment income:
Notes receivable interest $ 24,170 $ 27,757 $ 72,492 $ 82,253
Short-term interest income 11,565 58,786 58,568 304,343
-------- --------- -------- ---------
Total investment income 35,735 86,543 131,060 386,596
Investment expenses:
Management fees 37,999 60,237 133,924 180,712
Independent General Partners' compensation 3,500 10,043 17,500 33,492
Investment operations 63,071 57,273 367,814 295,636
Administrative and investor services 263,033 282,970 1,663,171 976,007
Professional fees 17,104 56,085 94,142 206,779
Computer services 28,981 49,508 117,956 146,417
Interest expense -- -- 13,035 54,647
--------- --------- --------- ---------
Total investment expenses 413,688 516,116 2,407,542 1,893,690
--------- --------- --------- ---------
Net investment loss (377,953) (429,573) (2,276,482) (1,507,094)
--------- --------- --------- ---------
Net realized (loss) gain from sales
of equity investments -- (8,915) 616,293 (300,542)
Realized loss from investment
write off (5,446,528) (3,161,092) (5,446,528) (3,161,092)
Realized gain from venture capital
limited partnership investments 494 28,368 27,832 303,455
--------- --------- --------- ---------
Net realized loss (5,446,034) (3,141,639) (4,802,403) (3,158,179)
--------- --------- --------- ---------
STATEMENTS OF OPERATIONS (unaudited)(continued)
- ----------------------------------------------
(Increase) decrease in unrealized
depreciation:
Equity investments (966,151) 1,615,341 (3,035,912) (2,279,433)
Notes receivable 5,443,203 -- 5,441,172 34,504
--------- --------- --------- ---------
Net decrease (increase) in unrealized
depreciation 4,477,052 1,615,341 2,405,260 (2,244,929)
--------- --------- --------- ---------
Other income -- -- 666,667 --
--------- --------- --------- ---------
Net decrease in partners'
capital resulting from operations $(1,346,935) $(1,955,871) $(4,006,958) $(6,910,202)
========= ========= ========= =========
Net decrease in partners'
capital resulting from operations
per Unit $ (3.34) $ (4.84) $ (9.92) $ (17.10)
========= ========== ========= ==========
The accompanying notes are an integral part of these financial statements.
STATEMENTS OF CASH FLOWS (unaudited)
- -----------------------------------
For the Nine Months Ended Sept 30,
---------------------------------
2002 2001
-------- --------
Net decrease in partners'
capital resulting from operations $(4,006,958) $(6,910,202)
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) 300,542
Realized loss from
investment write off 5,446,528 3,161,092
Realized gain from venture capital
limited partnership investments (27,832) (303,455)
Net increase (decrease) in unrealized
depreciation:
Equity investments 3,035,912 2,279,433
Notes receivable (5,441,172) (34,504)
Increase in other receivable (666,667) --
Increase in accrued interest on notes
receivable (63,349) (70,272)
Decrease in accounts payable
and accrued expenses (68,080) (39,112)
Decrease in due to related
parties (60,156) (722,365)
Other changes, net (23,465) (100,622)
--------- ----------
Net cash used by operating activities (2,491,532) (2,439,465)
--------- ----------
Cash flows from investing activities:
Proceeds from sales of equity
investments 1,370,006 479,998
Purchase of equity investments (2,064,161) (2,025,482)
Repayments of notes receivable -- 4,604
Distributions from venture capital
limited partnership investments 23,620 62,882
--------- ----------
Net cash used by investing
activities (670,535) (1,477,998)
--------- ----------
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 (4,362,067) (6,217,463)
Cash and cash equivalents at
beginning of year 7,222,914 13,261,432
--------- ----------
Cash and cash equivalents
at September 30 $ 2,860,847 $ 7,043,969
========= ==========
Supplemental schedule of non-cash
investing activity:
Non-cash exercise of warrants $ -- $ 9,340
========= ==========
The 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 September 30,
2002 and December 31, 2001, was $22,588,137 and $22,527,447, respectively.
At September 30, 2002 and December 31, 2001, gross unrealized depreciation
on investments based on cost for federal income tax purposes was as
follows:
September 30, December 31,
2002 2001
------------ -----------
Unrealized appreciation $ 2,651,861 $ 3,306,512
Unrealized depreciation (15,170,816) (14,487,594)
---------- ----------
Net unrealized depreciation $(12,518,955) $(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 nine months ended
September 30, 2002 and 2001, were as follows:
2002 2001
-------- --------
Management fees $ 133,924 $180,712
Reimbursable operating expenses 1,912,139 1,243,012
Individual General Partners' compensation 17,500 33,492
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.
Amounts due to related parties for such expenses were $4,998 and $ 57,054
at September 30, 2002 and December 31, 2001, respectively.
Management fees due to the Managing General Partners were $9,345 and
$17,445 September 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 September 30, 2002, the Partnership and affiliated
partnerships had an indirect interest in non-transferable Physiometrix,
Inc. options at an exercise price higher than the current market value. At
September 30, 2002, the Partnership and affiliated partnerships had an
indirect interest in non-transferable Endocare, Inc. options with a fair
value of $164,331.
4. Equity Investments
------------------
All investments are valued at fair value as determined in good faith by the
Managing General Partners.
Marketable Equity Securities
- ----------------------------
At September 30, 2002 and December 31, 2001, marketable equity securities
had aggregate costs of $1,774,083 and $2,064,477, respectively, and
aggregate market values of $369,331 and $1,921,770, respectively. The net
unrealized loss at September 30, 2002 and December 31, 2001, included gross
gains of $562 and $429,082, respectively.
Restricted Securities
- ---------------------
At September 30, 2002 and December 31, 2001, restricted securities had
aggregate fair values of $9,607,575 and $9,337,675, respectively,
representing 70.0 percent and 52.7 percent, respectively, of the net assets
of the Partnership.
Significant purchases and sales of equity investments during the nine
months ended September 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 shares and 25,000 LLC Units
for $25,000.
CellzDirect, Inc.
- -----------------
In August 2002, the Partnership purchased 970,761 Series B Preferred shares
of the company for $375,001.
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.
In August 2002, the company extended a convertible note issued to the
Partnership to August 2003 and converted accrued interest of $19,520 into
9,761 Series C Preferred shares.
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.
Valentis, Inc.
- --------------
In September 2002, the Partnership acquired 219,700 common shares of the
company for $76,045.
Vencore Solutions, LLC
- ----------------------
During September 2002, the Partnership acquired 625,000 Series A units of
the Limited Liability Company for $625,000. In addition, a warrant for
62,500 Series A units was issued.
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 nine months ended September 30, 2002, the Partnership received stock
distributions of Virage, Inc, with a total fair value of $4,213. 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.
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 October 2002, the Partnership sold its entire investment in Lynk
Systems, Inc. for $551,250.
In November 2002, the Partnership sold its entire investment in R2
Technology, Inc. for $840,330.
Subsequent to September 30, 2002, the fair value of the Partnership's
investment in Endocare, Inc. decreased by $280,420 as a result of a
decrease in the publicly-traded price on November 8, 2002.
5. Notes Receivable
----------------
Activity from January 1 through September 30 consisted of:
2002 2001
------ -------
Balance at January 1 $ 86,920 $138,020
Repayments of notes receivable -- (4,604)
Write off of notes receivable and
accrued interest (5,446,528) --
Change in accrued interest receivable 10,712 9,446
Net decrease in unrealized
depreciation of notes receivable 5,441,172 34,504
--------- -------
Balance at September 30 $ 92,276 $177,366
========= =======
The interest rate on notes receivable at September 30, 2002 was 16 percent.
All notes are due in 2004.
In September 2002, notes receivable and accrued interest due from Sutmyn
Storage Corporation in the amount of $5,446,528 were written off. The fair
value of these notes was reduced to zero during 2000 and it has been
determined by the Managing General Partners that there will be no recovery
on the notes as the company has ceased operations.
6. Cash and Cash Equivalents
-------------------------
Cash and cash equivalents at September 30, 2002 and December 31, 2001
consisted of:
2002 2001
------ ------
Demand accounts $ 280,742 $ 38,347
Money market accounts 2,580,105 7,184,567
--------- ---------
Total $2,860,847 $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 September 30, 2002, the Partnership had the following
unfunded commitments:
TYPE
- ----
Equity investments $1,250,000
Notes receivable 244,533
Venture capital limited partnership investments 25,000
---------
Total $1,519,533
=========
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 immediately filed a petition to vacate
the award, and on October 9, 2002 the original award was upheld by the
Federal District Court. Kanematsu has filed an appeal seeking to overturn
the court's confirmation of the arbitration decision. 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 Nine Months Ended September 30,
---------------------------------
2002 2001
------ ------
(all amounts on a per Unit basis)
Net asset value,
beginning of period $35.75 $52.45
Loss from investment operations:
Net investment loss (3.98) (3.73)
Net realized and unrealized
loss on investments (5.94) (13.37)
----- -----
Total from investment
operations (9.92) (17.10)
----- -----
Net asset value, end of period $25.83 $35.35
===== =====
Total Return (27.74)% (32.60)%
Ratios to average net assets:
Net investment loss (12.94)% (8.50)%
Expenses 19.55% 10.78%
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 September 30, 2002, the General Partners have a
negative capital balance of $3,392,749. 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 nine months ended September 30, 2002, net cash used by operating
activities totaled $2,491,532. The Partnership paid management fees of
$142,024 to the Managing General Partners and reimbursed related parties
for other investment expenses of $1,964,195. In addition, $17,500 was paid
to the Individual General Partners as compensation for their services. The
Partnership paid other investment expenses and interest expense of $422,489
and $13,035, respectively. Interest income of $67,711 was received.
During the nine months ended September 30, 2002, equity investments of
$2,064,161 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 September 30, 2002, the Partnership had commitments to fund
additional investments totaling $1,519,533.
Cash and cash equivalents at September 30, 2002, were $2,860,847. 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 $1,346,935
for the quarter ended September 30, 2002, compared to a net decrease in
partners' capital resulting from operations of $1,955,871 for the same
period in 2001.
Realized loss from investment write offs total $5,446,528 during the
quarter ended September 30, 2002, and relate to notes and interest
receivable from Sutmyn Storage Corporation. The fair value of these notes
was reduced to zero during 2000 and it has been determined by the Managing
General Partners that there will be no recovery on the notes as the company
has ceased operations. During the quarter ended September 30, 2001,
realized loss from investment write offs totaled $3,161,092. This amount
related to the write off of investments in Adesso Healthcare Technology
Services, Inc. and eoSports, Incorporated.
Net unrealized depreciation on notes receivable was $92,276 and $5,535,479
at September 30, and June 30, 2002, respectively. During the quarter ended
September 30, 2002, the net decrease in unrealized depreciation of notes
receivable of $5,443,203 was mainly attributable to the write off of notes
receivable from Sutmyn Storage Corporation. During the quarter ended
September 30, 2001, there was no decrease in the fair value of notes
receivable.
Net unrealized depreciation on equity investments was $10,596,082 and
$9,629,931 at September 30, 2002 and June 30, 2002, respectively. During
the quarter ended September 30, 2002, the Partnership recorded an increase
in net unrealized depreciation on equity investments of $966,151 compared
to a decrease in unrealized depreciation of $1,615,341 during 2001. The
2002 increase was primarily due to decreases in the fair values of private
portfolio companies in the biotechnology, high tech/financial and medical
industries along with a decrease in the publicly-traded price of Valentis,
Inc. The change in 2001 was primarily attributable to the write off of
Adesso Healthcare Technology Services, Inc. and eoSports, Incorporated and
an increase in the fair value of Prolinx, Inc., partially offset by
decreases in the fair values of companies in the medical industry.
Total investment expenses were $413,688 for the quarter ended September 30,
2002, compared to $516,116 for the same period in 2001. The decrease is
primarily due to decreased management and professional fees and decreased
administrative and investor services costs.
For the quarters ended September 30, 2002 and 2001, interest income was
$35,735 and $86,543, respectively.
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 nine months compared to corresponding nine months in the preceding
- ---------------------------------------------------------------------------
year
- ----
Net decrease in partners' capital resulting from operations was $4,006,958
for the nine months ended September 30, 2002, compared to a net decrease in
partners' capital resulting from operations of $6,910,202 for the same
period in 2001.
Realized loss from investment write offs total $5,446,528 during the nine
months ended September 30, 2002, and relate to notes and interest
receivable from Sutmyn Storage Corporation. The fair value of these notes
was reduced to zero during 2000 and it has been determined by the Managing
General Partners that there will be no recovery on the notes as the company
has ceased operations. During the nine months ended September 30, 2001,
realized loss from investment write offs totaled $3,161,092. This amount
related to the write off of investments in Adesso Healthcare Technology
Services, Inc. and eoSports, Incorporated.
Net unrealized depreciation on notes receivable was $92,276 and $5,533,448
at September 30, 2002 and December 31, 2001, respectively. During the nine
months ended September 30, 2002, the net decrease in unrealized
depreciation of notes receivable of $5,441,172 was mainly attributable to
the write off of notes receivable from Sutmyn Storage Corporation. During
the nine months ended September 30, 2001, the Partnership recorded a
$34,504 increase in the fair value of notes receivable.
For the nine months ended September 30, 2002, net realized gain from equity
investment sales of $616,293 was primarily related to the sale of Matrix
Pharmaceuticals, Inc. During the same period in 2001, the Partnership
realized net losses from the sales of equity investments of $300,542,
primarily related to the sale of Efficient Networks, Inc.
Net unrealized depreciation on equity investments was $10,596,082 and
$7,560,170 at September 30, 2002 and December 31, 2001, respectively.
During the nine months ended September 30, 2002, the Partnership recorded
an increase in net unrealized depreciation on equity investments of
$3,035,912 compared to an increase in net unrealized depreciation of
$2,279,433 during 2001. In 2002, the increase in net unrealized
depreciation was mainly attributable to decreases in the fair value of
private portfolio companies in the biotechnology, high tech/financial and
medical industries along with a decrease in the publicly-traded price of
Valentis, Inc. The change in 2001 was primarily attributable to a decrease
in the fair value of Prolinx, Inc. and a decrease in the publicly-traded
prices of Physiometrix, Inc. and Valentis, Inc., partially offset by the
write off of Adesso Healthcare Technology Services, Inc. and eoSports,
Incorporated.
Other income was $666,667 for the nine months ended September 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 immediately filed a petition to vacate
the award, and on October 9, 2002 the original award was upheld by the
Federal District Court. Kanematsu has filed an appeal seeking to overturn
the court's confirmation of the arbitration decision. 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 $2,407,542 and $1,893,690 for the nine
months ended September 30, 2002 and 2001, respectively. The increase was
primarily due to increased administrative, personnel and investor services
costs.
During the nine months ended September 30, 2002, the Partnership recorded
net realized gains from venture capital limited partnership investments of
$27,832. During the same period in 2001, there were gains of $303,455.
The gains represents distributions from profits of venture capital limited
partnership investments.
During the nine months ended September 30, 2002 and 2001, interest income
was $131,060 and $386,596, respectively. The decrease was primarily the
result of reduced cash balances.
Item 4. Procedures and Controls
The undersigned is responsible for establishing and maintaining disclosure
controls and procedures for Technology Funding Partners V, L.P. Such
officer has concluded (based upon his evaluation of these controls and
procedures as of a date within 90 days of the filing of this report) that
Technology Funding Partners V, L.P.'s disclosure controls and procedures
are effective to ensure that information required to be disclosed by
Technology Funding Partners V, L.P. in this report is accumulated and
communicated to Technology Funding Partners V, L.P.'s management, including
its principal executive officers as appropriate, to allow timely decisions
regarding required disclosure.
The certifying officer also has indicated that there were no significant
changes in Technology Funding Partners V, L.P.'s internal controls or other
factors that could significantly affect such controls subsequent to the
date of their evaluation, and there were no corrective actions with regard
to significant deficiencies and material weaknesses.
CERTIFICATION
-------------
I, Charles R. Kokesh, President, Chief Executive Officer, Chief Financial
Officer and Chairman of Technology Funding Inc. and Managing General
Partner of Technology Funding Limited, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Technology Funding
Partners V, L.P.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. I am responsible for establishing and maintaining disclosure controls
and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the
registrant and I have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant is made known to me by others within
the entity, particularly during the period in which this quarterly report
is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the Evaluation Date); and
c) presented in this quarterly report my conclusions about the
effectiveness of the disclosure controls and procedures based on my
evaluation as of the Evaluation Date;
5. I have disclosed, based on my most recent evaluation, to the
registrant's auditors and the audit committee of registrant's board of
directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. I have indicated in this quarterly report whether or not there were
significant changes in internal controls or in other factors that could
significantly affect internal controls subsequent to the date of my most
recent evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
Date: November 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
II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) On August 16, 2002, the Partnership filed its Amended and Restated
Limited Partnership Agreement on Form 8-K.
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: November 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.
CERTIFICATION
-------------
In connection with the Technology Funding Partners V, L.P. (the
Partnership) Quarterly Report on Form 10-Q for the period ending September
30, 2002, as filed with the Securities and Exchange Commission (the
Report), I Charles, R. Kokesh, President, Chief Executive Officer, Chief
Financial Officer and Chairman of Technology Funding Inc. and Managing
General Partner of Technology Funding Limited, certify, pursuant to 18
U.S.C. Section 1350, as added Section 906 of the Sarbanes-Oxley Act of
2002, that:
1. The Report fully complies with the requirements of Section 15(d) of
the Securities Exchange Act of 1934; and
2. To my knowledge, the information contained in the Report fairly
presents, in all material respects, the financial condition and
results of operations of the Partnership as of and for the period
covered by the Report.
Date: November 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