Back to GetFilings.com
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, 2003
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 Blvd., 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
--- ---
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12B-2 of the Act). Yes No X
--- ---
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,
2003 2002
------------ ------------
ASSETS
Equity investments (cost of
$16,626,186 and $21,605,935 at
June 30, 2003, and December 31,
2002, respectively) $ 5,678,191 $ 6,827,968
Notes receivable, net (cost of
$189,453 and $184,293 at June 30,
2003, and December 31, 2002,
respectively) 37,891 36,858
---------- ----------
Total investments 5,716,082 6,864,826
Cash and cash equivalents 732,389 1,749,984
Prepaid expenses 317,716 357,106
Other receivable 2,926,549 774,298
Other assets 375 194,690
---------- ----------
Total assets $ 9,693,111 $ 9,940,904
========== ==========
BALANCE SHEETS (unaudited) (continued)
- -------------------------------------
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable and accrued expenses $ 37,551 $ 44,870
Due to related parties 148,002 21,279
---------- ----------
Total liabilities 185,553 66,149
Commitments and contingencies
(See Note 8)
Partners' capital:
Limited Partners
(400,000 Units outstanding) 12,942,470 13,305,996
General Partners (3,434,912) (3,431,241)
---------- ----------
Total partners' capital 9,507,558 9,874,755
---------- ----------
Total liabilities and partners' capital $ 9,693,111 $ 9,940,904
========== ==========
See accompanying notes are an integral part of these financial statements.
STATEMENTS OF INVESTMENTS
- -------------------------
Principal
Amount or June 30, 2003 December 31, 2002
Industry Shares at ----------------- -----------------
(1) Investment June 30, Cost Fair Cost Fair
Company Position Date 2003 Basis Value Basis Value
- -------------- -------- ---------- ----------- ----- ----- ----- -----
Equity Investments
- ------------------
Biomedical
- ----------
0.4% and 0.4% at June 30, 2003, and December 31, 2002, respectively
- -------------------------------------------------------------------
Celera Genomics Group
(formerly Axys
Pharmaceuticals, Common
Inc.) shares 2000 4,065 $ 141,000 $ 41,951 $ 141,000 $ 38,821
---------- --------- ---------- ---------
141,000 41,951 141,000 38,821
---------- --------- ---------- ---------
Biotechnology
- -------------
0.8% and 2.4% at June 30, 2003, and December 31, 2002, respectively
- -------------------------------------------------------------------
CellzDirect, Inc. Preferred
(a) (b) shares 2002 970,761 375,001 75,000 375,001 75,000
STATEMENTS OF INVESTMENTS (continued)
- ------------------------------------
Hemoxymed, Inc.
(formerly
Molecular
Geriatrics Common
Corporation)(a) shares 1993 31,057 250,000 2,795 250,000 1,708
Prolinx, Inc. Common 1995-
(a) (b) shares 2000 -- -- -- 2,766,870 64,544
Prolinx, Inc. Preferred 1995-
(a) (b) shares 2001 -- -- -- 988,170 98,835
Prolinx, Inc. Common and
(a) (b) Preferred share
warrants at
$.0001-$.90;
expiring 1998-
2004-2010 2001 -- -- -- 6,061 0
---------- --------- ---------- ---------
625,001 77,795 4,386,102 240,087
---------- --------- ---------- ---------
Communications
- --------------
3.6% and 1.6% at June 30, 2003, and December 31, 2002, respectively
- -------------------------------------------------------------------
iVillage Common 1996-
Inc. shares 2000 83,111 301,403 123,004 301,403 78,124
WorldRes.com, Common 1997-
Inc. (a) (b) shares 2001 222,063 1,059,652 66,619 1,059,652 66,619
WorldRes.com, Convertible
Inc. (a) (b) note (2) 2002 $136,000 150,867 150,867 144,965 14,497
---------- --------- ---------- ---------
1,511,922 340,490 1,506,020 159,240
---------- --------- ---------- ---------
STATEMENTS OF INVESTMENTS (continued)
- ------------------------------------
Environmental
- -------------
0.0% and 0.0% at June 30, 2003, and December 31, 2002, respectively
- -------------------------------------------------------------------
Triangle
Biomedical
Sciences, Common
Inc.(a) shares 1999 1,806 35,560 0 35,560 0
Triangle Common
Biomedical share warrants
Sciences, at $28.00;
Inc.(a) expiring
2009 1999 1,806 1,806 0 1,806 0
---------- --------- ---------- ---------
37,366 0 37,366 0
---------- --------- ---------- ---------
High Tech/Financial
- -------------------
2.9% and 2.8% at June 30, 2003, and December 31, 2002, respectively
- -------------------------------------------------------------------
VenCore Solutions
LLC (a) (b) LLC Units 2002 625,000 625,000 250,000 625,000 250,000
VenCore Solutions LLC Unit
LLC (a) (b) warrants
at $0.001;
expiring
2007 2002 62,500 0 24,975 0 4,975
---------- --------- ---------- ---------
625,000 274,975 625,000 274,975
---------- --------- ---------- ---------
STATEMENTS OF INVESTMENTS (continued)
- ------------------------------------
Industrial/Business Automation
- ------------------------------
6.8% and 6.5% at June 30, 2003, and December 31, 2002, respectively
- -------------------------------------------------------------------
Innergy Power
Corporation Preferred 1995-
(a) (b) shares 2002 880,246 2,707,509 512,816 2,707,509 512,816
Innergy Power
Corporation Common 2001-
(a) (b) shares 2002 18,818 4,201 0 4,201 0
Innergy Power Common and
Corporation Preferred share
(a) (b) warrants at
$.60-$12.50;
expiring 1997-
2003-2006 2001 518,427 3,000 0 3,000 0
Innergy Power
Corporation Convertible
(a) (b) note (2) 2001 $244,000 260,631 130,316 250,952 125,476
---------- -------- ---------- --------
2,975,341 643,132 2,965,662 638,292
---------- -------- ---------- --------
Information Technology
- ----------------------
2.3% and 2.2% at June 30, 2003, and December 31, 2002, respectively
- -------------------------------------------------------------------
KeyEye
Communications, Preferred
Inc. (a) (b) shares 2002 3,142,856 550,000 220,000 550,000 220,000
STATEMENTS OF INVESTMENTS (continued)
- ------------------------------------
Virage, Inc. Common
shares 2002 1,428 1,660 1,199 1,660 1,001
---------- --------- ---------- ---------
551,660 221,199 551,660 221,001
---------- --------- ---------- ---------
Medical
- -------
41.9% and 44.0% at June 30, 2003, and December 31, 2002, respectively
- ---------------------------------------------------------------------
Acusphere, Inc. Preferred 1995-
(a) shares 2002 556,337 1,014,615 392,218 1,014,615 78,444
Acusphere, Inc. Convertible
(a) notes 2003 681,889 693,815 346,908 -- --
Atherotech, Preferred 2000-
Inc. (a) (b) shares 2002 1,055,372 2,724,822 1,882,784 2,724,822 2,824,175
CareCentric.
Solutions, Common
Inc. shares 1999 25,810 206,718 17,551 206,718 16,777
Endocare, Inc. Common 1996-
(b) shares 1999 49,764 163,874 102,018 163,874 26,376
Impres Medical, Preferred
Inc.(a) (b) shares 2002 1,071,429 742,500 450,000 742,500 450,000
Impres Medical, Common share
Inc.(a) (b) warrants
at $1.00;
expiring
2007 2002 214,285 7,500 0 7,500 0
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 $273,000 374,076 4,427 359,816 4,427
Pharmadigm, Preferred 1993-
Inc.(a) (b) shares 2002 917,596 1,304,396 383,526 1,304,396 383,526
Pherin
Pharmaceuticals, Preferred
Inc.(a) shares 1991 -- -- -- 200,000 106,000
Physiometrix, Common 1996-
Inc. shares 2000 139,769 285,023 209,654 285,023 76,873
Resolution
Sciences
Corporation Preferred
(a) (b) shares 2000 -- -- -- 970,000 0
Resolution
Sciences
Corporation Convertible 2001-
(a) (b) note (2) 2002 -- -- -- 215,804 0
Sanarus Medical, Preferred
Inc.(a) (b) shares 1999 260,000 390,000 89,960 390,000 224,900
Valentis, Inc. Common 1994-
shares 2002 23,866 908,970 93,247 908,970 157,515
---------- --------- ---------- ---------
9,372,310 3,972,293 10,050,039 4,349,013
---------- --------- ---------- ---------
Microelectronics
- ----------------
0.0% and 7.1% at June 30, 2003, and December 31, 2002, respectively
- -------------------------------------------------------------------
Tessera, Inc.(a) Preferred
(3) shares 1992 -- -- -- 500,000 542,368
STATEMENTS OF INVESTMENTS (continued)
- ------------------------------------
Tessera, Inc.(a) Common
(3) shares 1997 -- -- -- 56,500 157,632
---------- --------- ---------- ---------
-- -- 556,500 700,000
---------- --------- ---------- ---------
Venture Capital Limited Partnership Investments
- -----------------------------------------------
1.1% and 2.1% at June 30, 2003, and December 31, 2002, respectively
- -------------------------------------------------------------------
Capital Valley Preferred
Ventures (a) shares 2002 50,794 48,254 19,302 48,254 14,476
Capital Valley
Ventures (a) LLC units 2002 50,794 2,540 1,016 2,540 762
CVM Equity Ltd.
Fund IV, Ltd Partnership
(a) interests various $150,000 76,436 38,218 76,436 38,218
El Dorado Ltd.
Ventures III, Partnership
L.P. (a) interests various $250,000 212,460 13,984 212,460 24,739
O,W&W Pacrim Ltd.
Investments Partnership
Limited (a) interests various $400 1,000 500 1,000 500
Spectrum Equity Ltd.
Investors, Partnership
L.P. (a) interests various $500,000 398,082 9,429 398,082 103,937
STATEMENTS OF INVESTMENTS (continued)
- ------------------------------------
Trinity Ventures Ltd.
IV, L.P. (a) Partnership
interests various $175,006 47,814 23,907 47,814 23,907
---------- --------- ---------- ---------
786,586 106,356 786,586 206,539
---------- --------- ---------- ---------
Total equity investments 59.7% and 69.1% at
June 30, 2003, and December 31, 2002,
respectively 16,626,186 5,678,191 21,605,935 6,827,968
---------- --------- ---------- ---------
Notes Receivable, Net
- ---------------------
Avalon Vision Secured
Solutions, Inc. note, 16%,
due 2004 1999 $164,906 189,453 37,891 184,293 36,858
---------- --------- ---------- ---------
Total notes receivable 0.4% and 0.4% at
June 30, 2003, and December 31, 2002,
respectively 189,453 37,891 184,293 36,858
---------- --------- ---------- ---------
Total investments 60.1% and 69.5% at
June 30, 2003, and December 31, 2002,
respectively $16,815,639 $5,716,082 $21,790,228 $6,864,826
========== ========= ========== =========
STATEMENTS OF INVESTMENTS (continued)
- ------------------------------------
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 06/30/03 and 12/31/02.
(2) The Partnership has no income-producing equity investments except for convertible
notes, which include accrued interest. Interest rates on such notes range from 8.0
percent to 8.25 percent.
(3) The Partnership filed dissenters' rights for Tessera, Inc., in June, 2003. The fair
value has been classified as a receivable as a result of this action. See Note 4.
The accompanying notes are an integral part of these financial statements.
STATEMENTS OF OPERATIONS (unaudited)
- -----------------------------------
For the Three Months For the Six Months
Ended June 30, Ended June 30,
------------------------ ----------------------
2003 2002 2003 2002
-------- -------- -------- --------
Investment income:
Notes receivable interest $ 33,504 $ 24,290 $ 57,439 $ 48,322
Short-term interest income 2,470 15,975 5,017 47,003
-------- --------- -------- ---------
Total investment income 35,974 40,265 62,456 95,325
Investment expenses:
Management fees 21,881 47,963 46,729 95,925
Individual General Partners' compensation 10,003 4,967 20,003 14,000
Investment operations 76,677 68,118 293,138 304,743
Administrative and investor services 392,693 593,845 1,216,343 1,400,138
Professional fees 42,289 41,125 131,188 77,038
Computer services 31,855 43,215 59,505 88,975
Interest expense -- 1,964 -- 13,035
--------- --------- --------- ---------
Total investment expenses 575,398 801,197 1,766,906 1,993,854
--------- --------- --------- ---------
Net investment loss (539,424) (760,932) (1,704,450)
(1,898,529)
--------- --------- --------- ---------
STATEMENTS OF OPERATIONS (unaudited)(continued)
- ----------------------------------------------
Realized loss from investment
write-offs -- -- (5,149,494) --
Realized gain from dissenters' rights
action (See Note 4) 2,353,809 -- 2,353,809 --
Net realized (loss) gain from sales
of equity investments -- (1,186) -- 616,293
Realized gain from venture capital
limited partnership investments 113,263 4,786 113,263 27,338
--------- --------- --------- ---------
Net realized income (loss) 2,467,072 3,600 (2,682,422) 643,631
--------- --------- --------- ---------
(Increase) decrease in unrealized
depreciation:
Equity investments (993,624) (1,552,939) 3,829,972
(2,069,761)
Notes receivable 1,077 1,268 (4,127)
(2,031)
--------- --------- --------- ---------
Net (increase) decrease in
unrealized depreciation (992,547) (1,551,671) 3,825,845
(2,071,792)
--------- --------- --------- ---------
Other income -- -- 193,830 666,667
--------- --------- --------- ---------
Net increase (decrease) in partners'
capital resulting from operations $ 935,101 $(2,309,003) $ (367,197)
$(2,660,023)
========= ========= ========= =========
Net increase (decrease) in partners'
capital resulting from operations
per Unit $ 2.31 $ (5.71) $ (0.91) $
(6.58)
========= ========= ========= =========
See accompanying notes are an integral part of these financial statements.
STATEMENTS OF CASH FLOWS (unaudited)
- -----------------------------------
For the Six Months Ended June 30,
---------------------------------
2003 2002
--------- ---------
Net decrease in partners'
capital resulting from operations $ (367,197) $(2,660,023)
Adjustments to reconcile net
decrease in partners' capital
resulting from operations
to net cash used by operating
activities:
Net realized gain from sales
of equity investments -- (616,293)
Realized gain from venture capital
limited partnership investments (113,263) (27,338)
Realized loss from investment
write-offs 5,149,494 --
Realized gain from dissenters'
rights action (2,353,809) --
Net (decrease) increase in unrealized
depreciation:
Equity investments (3,829,972) 2,069,761
Notes receivable 4,127 2,031
Increase in accrued interest on notes
receivable (49,515) (39,178)
Decrease (increase) in other
receivables 758,057 (666,667)
Decrease in prepaid expenses 39,390 --
Decrease in accounts payable
and accrued expenses (7,319) (38,583)
Increase (decrease) in due to related
parties 126,723 (11,671)
Other changes, net 194,315 (14,451)
--------- ---------
Net cash used by operating activities (448,969) (2,002,412)
--------- ---------
STATEMENTS OF CASH FLOWS (unaudited) (continued)
- -----------------------------------------------
Cash flows from investing activities:
Proceeds from sales of equity
investments -- 1,370,006
Purchase of equity investments (681,889) (988,116)
Distributions from venture capital
limited partnership investments 113,263 23,620
--------- ---------
Net cash provided by investing
activities (568,626) 405,510
--------- ---------
Cash flows from financing activities:
Repayment of short-term borrowings -- (1,200,000)
--------- ---------
Net cash used by financing activities -- (1,200,000)
--------- ---------
Net decrease in cash and
cash equivalents (1,017,595) (2,796,902)
Cash and cash equivalents at
beginning of year 1,749,984 7,222,914
--------- ---------
Cash and cash equivalents
at June 30 $ 732,389 $4,426,012
========= =========
Supplemental Schedule of Non-Cash Activities:
Conversion of equity investments
to other receivables resulting
from dissenters' rights action
(See Note 4) $ 2,910,308 --
========= ==========
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 in the United States of America. These
statements should be read in conjunction with the Annual Report on Form 10-
K for the year ended December 31, 2002. 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 of America, which may
not equate to tax accounting. The cost of investments on a tax basis at
June 30, 2003, and December 31, 2002, was $17,470,749 and $22,445,400,
respectively. At June 30, 2003, and December 31, 2002, gross unrealized
depreciation on investments based on cost for federal income tax purposes
was as follows:
June 30, December 31,
2003 2002
----------- -----------
Unrealized appreciation $ 47,889 $ 708,843
Unrealized depreciation (11,802,556) (16,289,355)
---------- ----------
Net unrealized depreciation $(11,754,667) $(15,580,512)
========== ==========
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, 2003 and 2002, were as follows:
2003 2002
-------- --------
Management fees $ 46,729 $ 95,925
Operating expenses reimbursed
to related parties 1,510,958 1,626,241
Individual General Partners' compensation 20,003 14,000
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. Prior to 2000, the
Partnership Agreement stated that the Partnership could not reimburse the
Managing General Partners for certain operational costs that aggregate more
than 1 percent of total Limited Partner capital contributions. On December
8, 2000, the Limited Partners approved an amendment to the Partnership
Agreement, which removed the limit on reimbursement of operational costs
effective January 1, 2000. Certain reimbursable expenses have been accrued
based upon interim estimates prepared by the Managing General Partners and
are adjusted to actual cost periodically. There were $139,565 and $9,866
due to related parties at June 30, 2003, and December 31, 2002,
respectively, for such reimbursable expenses.
Management fees due to the Managing General Partners were $8,437 and
$11,413 at June 30, 2003, and December 31, 2002, 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, 2003, the Partnership and affiliated
partnerships had an indirect interest in non-transferable Endocare, Inc.,
Sanarus Medical, Inc. and Physiometrix, Inc. options with a fair value of
$21,838.
Retention bonuses were offered to and accepted by key employees of the
Managing General Partners in late 2002. The expense for these bonuses,
which were approved by the Independent General Partners during the
September 2002 Individual General Partner meeting, was prepaid by the
Partnership in October and December 2002. The amount of prepaid operating
expenses was $371,570. The bonuses, incremented by annual salary
increases, will be paid to those individuals who are still full-time
employees of the Managing General Partners in April 2007. The expense for
the bonus is recognized ratably over the beneficial period, October 2002 to
April 2007. As of June 30, 2003, the Partnership has recognized expense of
$39,390. Upon the resignation of personnel, no adjustment to the retention
bonus amount previously paid by the Partnership to the Managing General
Partners shall occur until a replacement person is hired.
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, 2003, and December 31, 2002, marketable equity securities had
aggregate costs of $1,844,774 and aggregate market values of $486,606 and
$369,111, respectively. The net unrealized losses at June 30, 2003, and
December 31, 2002, included gross gains of $6,050 and $22,809,
respectively.
Restricted Securities
- ---------------------
At June 30, 2003, and December 31, 2002, restricted securities had
aggregate costs of $14,781,412 and $19,761,161, respectively, and aggregate
fair values of $5,191,585 and $6,458,857, respectively, representing 54.6
percent and 66.3 percent, respectively, of the net assets of the
Partnership.
Significant purchases, sales and write-offs of equity investments during
the six months ended June 30, 2003, are as follows:
Acusphere, Inc.
- --------------
The Partnership funded convertible secured notes of $537,267 and $144,622
to Acusphere, Inc. in April and June, 2003. Both notes carry a rate of 10
percent and will mature in April and June, 2004, respectively.
Pherin Pharmaceuticals, Inc.
- ---------------------------
The Partnership wrote off its entire investment of $200,000 as of March 31,
2003, after Pherin Pharmaceuticals, Inc. ceased domestic operations. The
Partnership is not expecting any return on its investment.
Prolinx, Inc.
- -------------
In March 2003, the Partnership wrote off its entire investment of
$3,761,101 in Prolinx, Inc. The company filed for Chapter 7 bankruptcy on
March 27, 2003. There is no anticipated recovery for the shareholders.
Resolution Sciences Corporation
- -------------------------------
During the quarter ended March 31, 2003, Resolution Sciences Corporation
filed for Chapter 7 bankruptcy and the investors will not realize any
recovery. Consequently, the Partnership wrote off its entire investment of
$1,185,804 as of March 31, 2003.
Tessera, Inc.
- ------------
In January 2003, Tessera, Inc., closed a corporate reorganization under
which Tessera, Inc., became a wholly owned subsidiary of Tessera
Technologies. The reorganization was intended to position the company for
an initial public offering when favorable market conditions return. The
dissenters' rights provision of the California General Corporation Law
allows any shareholder who does not wish to accept the consideration
offered through a merger to have the "fair market value" of the investment
determined by a state court. The Partnership filed a Summons and Complaint
claiming dissenters' rights against Tessera in May 2003. As a result, the
Partnership has recorded a receivable of $2,910,308, representing the fair
value of the dissenters' rights.
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, 2002, Form 10-K.
5. Notes Receivable
----------------
Activity from January 1 through June 30 consisted of:
2003 2002
-------- --------
Balance at January 1 $36,858 $86,920
Change in interest receivable 5,160 4,061
Net increase in unrealized depreciation
of notes receivable (4,127) (2,031)
------ ------
Balance at June 30 $37,891 $88,950
====== ======
The interest rate on the note receivable at June 30, 2003, was 16 percent.
The note is due in 2004.
6. Cash and Cash Equivalents
-------------------------
Cash and cash equivalents at June 30, 2003, and December 31, 2002,
consisted of:
2003 2002
-------- --------
Demand accounts $ 99,598 $ 814,726
Money market accounts 632,791 935,258
------- ---------
Total $732,389 $1,749,984
======= =========
7. Other Receivables
-----------------
As of June 30, 2003, other receivables consists of the following:
2003
--------
Advance to Dakota Heritage, LLC $ 16,241
Dissenters' rights receivable 2,910,308
---------
Total other receivables $2,926,549
=========
Dakota Heritage, LLC
- -------------------------------
At June 30, 2003, on behalf of Dakota Heritage, LLC (DHL), the Partnership
had advanced $16,241 to Dakota Arms, Inc. (DAI), a wholly-owned subsidiary
of DHL. An agreement is in place for the Partnership, an affiliated
partnership and an outside party, to invest $50,000, $700,000 and $500,000,
respectively, in DHL, providing the Partnership and the affiliated
partnership a 51% majority ownership in DHL which is expected to own 81% of
DAI upon completion of the transaction. When the investment closes, the
advance will be repaid.
Tessera, Inc.
- ------------
The Partnership filed a Summons and Complaint claiming dissenters' rights
against Tessera, Inc. in May 2003. As a result, the Partnership has
recorded a receivable of $2,910,308, representing the fair value of the
dissenters' rights. (See Note 5.)
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, 2003, the Partnership had unfunded equity
commitments of $33,760.
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. The Partnership recognized revenue and a
receivable of $666,667 as of February 12, 2002, for its proportionate share
of the award. Kanematsu immediately filed a petition to vacate the award,
and on October 9, 2002, the United States District Court issued an order
confirming the arbitration award. Kanematsu appealed the order but in
early November 2002 paid a forbearance fee of $200,000 in exchange for an
option to settle all liabilities. On November 29, 2002, Kanematsu agreed
to settle for $3,999,999. A decision on the allocation of the proceeds
between the Partnership, affiliates and co-investor was reached in January
2003; however, a dispute regarding the legal fees arose. The Partnership
received $774,298 on February 13, 2003, which represented its proportionate
share of the settlement, less disputed legal fees, plus accrued interest.
The Partnership recognized the additional revenue and receivable of
$107,631 at December 31, 2002. In March 2003, the law firm remitted
$193,830, the remaining amount of the award, to the Partnership. The fee
dispute has not been resolved.
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,
--------------------------------
2003 2002
------ ------
(all amounts on a per Unit basis)
Net asset value,
beginning of period $16.09 $35.81
(Loss) income from investment
operations:
Net investment loss (4.22) (4.70)
Net realized and unrealized
(loss) gain on investments 3.31 (1.88)
----- -----
Total from investment
operations (0.91) (6.58)
----- -----
Net asset value, end of period $15.18 $29.23
===== =====
Total return (5.65)% (18.38)%
Ratios to average net assets:
Net investment loss (26.98)% (14.45)%
Expenses 28.25% 15.33%
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. The net asset values shown above assume the
Partnership is in liquidation. Upon liquidation, the General Partners
would contribute capital equal to the amount of the Limited Partners'
deficit. As of June 30, 2003 and 2002, the General Partners had a negative
capital balance of $3,434,912 and $3,379,281, respectively. Upon
liquidation, the General Partners would not be required to contribute cash
to the Partnership, as the net asset value is greater than the General
Partners' negative capital balance. 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, 2002, 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, 2003, net cash used by operating
activities totaled $448,969. The Partnership paid management fees of
$39,042 to the Managing General Partners and reimbursed related parties for
other investment expenses of $1,158,217. In addition, $20,003 was paid to
the Individual General Partners as compensation for their services. The
Partnership paid other investment expenses of $196,535. The Partnership
received interest income of $12,941 and other income of $951,887.
During the six months ended June 30, 2003, there were no equity investments
funded. At June 30, 2003, the Partnership had no commitments to fund
additional investments.
Cash and cash equivalents at June 30, 2003, were $732,389. 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 $935,101
for the three months ended June 30, 2003, compared to a net decrease in
partners' capital resulting from operations of $2,309,003 for the same
period in 2002.
During the three months ending June 30, 2003, the Partnership recorded a
gain of $2,353,809 as a result of filing dissenters' rights. In January
2003, Tessera, Inc., closed a corporate reorganization under which Tessera,
Inc., became a wholly owned subsidiary of Tessera Technologies. The
reorganization was intended to position the company for an initial public
offering when favorable market conditions return. The dissenters' rights
provision of the California General Corporation Law allows any shareholder
who does not wish to accept the consideration offered through a merger to
have the "fair market value" of the investment determined by a state court.
The Partnership filed a Summons and Complaint claiming dissenters' rights
against Tessera in May 2003. As a result, the Partnership recorded a
receivable of $2,910,308, representing the $556,499 cost of the investment
and the gain of $2,353,809. There were no similar gains recorded during the
three months ending June 30, 2002.
Net unrealized depreciation on equity investments was $10,947,955 and
$14,777,967 at June 30, 2003, and December 31, 2002, respectively. During
the quarters ended June 30, 2003, and 2002, the Partnership recorded a
decrease in net unrealized depreciation on equity investments of $993,624
and $1,552,939, respectively. The increase in 2003 was primarily
attributable to decreases in the fair value of privately held companies in
the medical industry. 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 portfolio companies in the medical industry and
biotechnology industries.
Total investment expenses were $575,398 for the quarter ended June 30,
2003, compared to $801,197 for the same period in 2002. The decrease was
related to reduced management fees, administrative and investor services,
and computer service costs.
During the quarter ended June 30, 2003, the Partnership recorded net
realized gains from venture capital limited partnership investments of
$113,263. During the same period in 2002, there were gains of $4,786.
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 $367,197
for the six months ended June 30, 2003, compared to a net decrease in
partners' capital resulting from operations of $2,660,023 for the same
period in 2002.
During the six months ended June 30, 2003, the Partnership wrote off its
investments in Pherin Pharmaceuticals, Inc., Prolinx, Inc. and Resolution
Sciences Corporation. These totaled $200,000, $3,761,101 and $1,188,393,
respectively. During the same period in 2002, there were no write-offs.
During the six months ending June 30, 2003, the Partnership recorded a gain
of $2,353,809 as a result of filing dissenters' rights. In January 2003,
Tessera, Inc., closed a corporate reorganization under which Tessera, Inc.,
became a wholly owned subsidiary of Tessera Technologies. The
reorganization was intended to position the company for an initial public
offering when favorable market conditions return. The dissenters' rights
provision of the California General Corporation Law allows any shareholder
who does not wish to accept the consideration offered through a merger to
have the "fair market value" of the investment determined by a state court.
The Partnership filed a Summons and Complaint claiming dissenters' rights
against Tessera in May 2003. As a result, the Partnership recorded a
receivable of $2,910,308, representing the $556,499 cost of the investment
and the gain of $2,353,809. There were no similar gains recorded during the
six months ending June 30, 2002.
Net unrealized depreciation on equity investments was $10,947,995 and
$14,777,967 at June 30, 2003, and December 31, 2002, respectively. During
the six months ended June 30, 2003, the Partnership recorded a decrease in
net unrealized depreciation on equity investments of $3,825,845 compared to
an increase in unrealized depreciation of $2,069,761 during 2002. The
decrease in depreciation in 2003 was primarily attributable to the write-
off of the Partnership's investments in Pherin Pharmaceuticals, Inc.,
Prolinx, Inc. and Resolution Sciences Corporation. The change in 2002 was
primarily attributable to a net decrease in the fair value of portfolio
companies in the medical and biotechnology industries.
Other income of $193,830 and $666,667 was recognized during the six months
ended June 30, 2003 and 2002, respectively. This was the result of a
settlement between Kanematsu Corporation, a creditor of one of the
Partnership's portfolio companies, and the Partnership. See Note 8.
For the six months ended June 30, 2002, net realized gain from equity
investment sales of $616,293 was primarily related to the sale of Matrix
Pharmaceutical, Inc. During the same period in 2003, there was no realized
gain.
Total investment expenses were $1,766,906 for the six months ended June 30,
2003, compared to $1,993,854 for the same period in 2002. Decreased
management fees, administrative and investor service costs were offset by
Increased professional fees related to the Kanematsu legal proceeding.
During the six months ended June 30, 2002, the Partnership recorded net
realized gains from venture capital limited partnership investments of
$113,263. During the same period in 2002, there were gains of $27,338.
During the six months ended June 30, 2003 and 2002, interest income was
$62,456 and $95,325, respectively. The decrease was primarily the result
of reduced cash balances.
Given the inherent risk associated with the business of the Partnership,
the future performance of the portfolio company investments may
significantly impact future operations.
Item 3. Procedures and Controls
The undersigned is responsible for establishing and maintaining disclosure
controls and procedures for Technology Funding Partners V, An Aggressive
Growth Fund, 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, An Aggressive Growth Fund,
L.P.'s disclosure controls and procedures are effective to ensure that
information required to be disclosed by Technology Funding Partners V, An
Aggressive Growth Fund, L.P. in this report is accumulated and communicated
to Technology Funding Partners V, An Aggressive Growth Fund, 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 IV, L.P.'s internal controls or
other factors that could significantly affect such controls subsequent to
the date of their evaluation other than changes needed to maintain adequate
separation of duties and responsibilities of personnel in the ordinary
course of business, 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 Ltd., certify that:
1. I have reviewed this quarterly report on Form 10-Q of Technology Funding
Partners V, An Aggressive Growth Fund, 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: August 11, 2003 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.
II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) A report on Form 8-K was filed by the Partnership during the
quarter ended March 31, 2003. Pursuant to Article 6 of the Partnership
Agreement for Technology Funding Partners V, An Aggressive Growth
Fund, L.P., the Partnership Agreement had been amended. The corrected
Amended and Restated Limited Partnership Agreement is included in the
8-K filed on January 8, 2003.
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 11, 2003 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, An Aggressive Growth
Fund, L.P. (the Partnership) Quarterly Report on Form 10-Q for the period
ending March 31, 2003, 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 Ltd., 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: August 11, 2003 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.