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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For The Year Ended December 31, 1994
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from N/A to N/A
--- ---
Commission File No. 814-82
TECHNOLOGY FUNDING VENTURE PARTNERS V, AN AGGRESSIVE GROWTH FUND, L.P.
- ----------------------------------------------------------------------
(Exact name of Registrant as specified in its charter)
DELAWARE 94-3094910
- ------------------------------- ----------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) No.)
2000 Alameda de las Pulgas, Suite 250
San Mateo, California 94403
- --------------------------------------- --------
(Address of principal executive offices) (Zip Code)
(415) 345-2200
--------------------------------------------------
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Limited
Partnership Units
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the Registrant was required to file such reports)
and (2) has been subject to such filing requirements for the past 90
days. Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy
or information statements incorporated by reference in Part III of
this Form 10-K or any amendment to this Form 10-K. [ ]
No active market for the units of limited partnership interests
("Units") exist, and therefore the market value of such Units cannot
be determined.
Documents incorporated by reference: Portions of the Prospectus dated
January 22, 1992 forming a part of Registration Statement No. 33-31237
and filed pursuant to Rule 424(c) of the General Rules and Regulations
under the Securities Act of 1933, and as modified by Post-Effective
Amendment No. 1 dated April 23, 1990, are incorporated by reference in
Parts I and III hereof. Portions of the Prospectus of Technology
Funding Medical Partners I, L.P., as modified by Cumulative Supplement
No. 4 dated January 4, 1995, forming a part of the May 3, 1993, Pre-
Effective Amendment No. 3 to the Form N-2 Registration Statement No.
33-54002 dated October 30, 1992 is incorporated by reference in Part
III hereof.
PART I
Item 1. BUSINESS
- ------ --------
Technology Funding Venture Partners V, An Aggressive Growth
Fund, L.P. (the "Partnership") is a limited partnership
organized under the laws of the State of Delaware in June
1989 and was inactive until it commenced the sale of Units in
May 1990. The purpose of the Partnership is to make venture
capital investments in emerging growth companies as described
in the "Introductory Statement" and "Business of the
Partnership" sections of the Prospectus dated January 22,
1992. The Partnership has elected to be a business
development company under the Investment Company Act of 1940,
as amended (the "Act"), and operates as a nondiversified
investment company as that term is defined in the Act.
Additional characteristics of the Partnership's business are
discussed in the "Risk Factors" and "Conflicts of Interest"
sections of the Prospectus, which sections are also
incorporated herein by reference. The Partnership's Amended
and Restated Limited Partnership Agreement ("Partnership
Agreement") provides that the Partnership will continue until
December 31, 1998, subject to the right of the individual
general partners to extend the term for up to two additional
two-year periods.
Item 2. PROPERTIES
- ------ ----------
The Registrant has no material physical properties.
Item 3. LEGAL PROCEEDINGS
- ------ -----------------
There are no material pending legal proceedings to which the
Registrant is party or of which any of its property is the
subject, other than ordinary routine litigation incidental to
the business of the Partnership.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- ------ ---------------------------------------------------
The Annual Meeting of the Limited Partners of the Partnership
was held on September 9, 1994 pursuant to a Notice of Meeting
dated July 11, 1994. At that meeting, proxies submitted by
Limited Partners documented that the Limited Partners elected
three individual general partners, elected the two Managing
General Partners, and ratified the selection of KPMG Peat
Marwick LLP as independent certified public accountants for
the fiscal year ended December 31, 1994. In addition,
proxies submitted by Limited Partners documented that a
majority vote was not received to pass a proposed amendment
to the Partnership Agreement to add a new Section 14.10 which
provides that the individual general partners shall be
required to call a meeting only once every three years of
Limited Partners if the only purpose of the meeting is to
seek Limited Partner consent of existing Managing General
Partners and the approval of existing independent certified
public accountants for the partnership; there were 187,157
Units voted in favor, 12,419 Units voted against, and 26,374
Units abstained.
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
- ------ -------------------------------------------------------------
MATTERS
-------
(a) There is no established public trading market for the
Units.
(b) At December 31, 1994, there were 6,553 record holders of
Units.
(c) The Registrant, being a partnership, does not pay
dividends. Cash distributions, however, may be made to
the partners pursuant to the Registrant's Partnership
Agreement.
Item 6. SELECTED FINANCIAL DATA
- ------ -----------------------
For the Years Ended and As of December 31,
-------------------------------------------------------------
1994 1993 1992 1991
---- ---- ---- ----
Total interest income $ 943,311 1,130,936 731,451 294,203
Net operating loss (689,890) (503,124) (3,511,985) (877,461)
Realized gain from
sale of equity investments 3,209,979 65,814 -- --
Realized losses from
investment write-downs (541,125) (187,887) -- --
Net realized loss from
venture capital limited
partnership investments -- (3,712) (4,657) --
Net realized income (loss) 1,978,964 (628,909) (3,516,642) (877,461)
Change in net unrealized
fair value:
Equity investments (314,082) 1,933,993 1,297,036 --
Secured notes receivable (443,000) (44,000) (73,000) --
Net income (loss) 1,221,882 1,261,084 (2,292,606) (877,461)
Net realized income
(loss) per Unit 5 (2) (16) (14)
Total assets 32,599,849 31,415,262 30,583,609 11,162,592
Distributions declared -- -- (592,693) (281,797)
Refer to the financial statement notes entitled "Summary of
Significant Accounting Policies" and "Allocation of Profits
and Losses" for a description of the method of calculation
of net realized income (loss) per Unit.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
- ------ --------------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS
-----------------------------------
Liquidity and Capital Resources
- -------------------------------
During 1994, net cash used by operations totaled $743,381.
The Partnership paid management fees of $795,579 to the
Managing General Partners and reimbursed related parties
for operating expenses of $574,227. In addition, $30,000
was paid to the individual general partners as compensation
for their services. Other operating expenses of $246,871
were paid. The Partnership received $903,296 in interest
income.
In 1994, the Partnership issued $128,812 in secured notes
receivable mostly to a portfolio company in the medical
industry. Equity investments of $8,513,620 were funded
primarily to portfolio companies in the medical,
biotechnology, computer systems and software, and
communications industries. Repayments of secured and
convertible notes receivable during 1994 provided cash of
$1,247,037. Proceeds from the sale of investments were
$3,287,569. The Partnership also received $35,451 in cash
distributions from venture capital limited partnerships.
At December 31, 1994, the Partnership had commitments to
fund additional investments totaling $898,895.
During 1994, UroMed Corporation and TheraTx, Incorporated
completed their initial public offerings (IPOs). The IPO's
indicate liquidity for these investments.
Cash and cash equivalents at December 31, 1994 were
$11,371,533. Future interest income on short-term
investments and notes receivable, and operating cash
reserves are expected to be adequate to fund Partnership
operations through the next twelve months.
Results of Operations
- ---------------------
1994 compared to 1993
- ---------------------
Net income was $1,221,882 and $1,261,084 in 1994 and 1993,
respectively. The slight decrease was primarily due to a
$2,248,075 decrease in the change in fair value of equity
investments, a $399,000 decrease in the change in fair
value of secured notes receivable, and a $353,238 increase
in realized losses from investment write-downs. These
changes were partially offset by a $3,144,165 increase in
net realized gain from the sale of equity investments.
During 1994, the decrease in fair value of equity
investments of $314,082 was primarily due to decreases in
portfolio companies in the biomedical, retail/consumer
products and communications industries, partially offset by
increases in portfolio companies in the medical industry.
In 1993, the increase of $1,933,993 was primarily due to
increases in portfolio companies in the medical and
communications industries, partially offset by decreases in
the retail/consumer products industry.
During 1994, the Partnership recorded a decrease in fair
value of secured notes receivable of $443,000
based upon the level of loan loss reserves deemed adequate
by the Managing General Partners. A $44,000 decrease was
recorded for 1993.
During 1994, the Partnership realized losses from
investment write-downs of $541,125 related to portfolio
companies in the medical and environmental industries.
During 1993, the Partnership realized losses of $187,887
related to a portfolio company in the biotechnology
industry as the company sold its assets.
Realized gains from sale of equity investments was
$3,209,979 for the year ended December 31, 1994, related to
the sales of TheraTx, Incorporated, UroMed Corporation,
Erox Corporation, and Orthologic Corporation. During 1993,
realized gains of $65,814 mostly related to partial sales
of Erox Corporation.
During 1994, total interest income was $943,311 compared to
$1,130,936 in 1993. The decrease was primarily due to a
reduction in notes receivable interest income as loans to a
portfolio company in the environmental industry were placed
on nonaccrual status.
Total operating expenses were $800,000 in both 1994 and
1993. Pursuant to the Partnership Agreement, the
Partnership may not reimburse the General Partners for
expenses that aggregate more than 2% of total limited
partner contributions. As a result, operating expenses of
$287,129 and $228,813 were absorbed by the General Partners
in 1994 and 1993, respectively. Had the limitation not
been in effect, total operating expenses in 1994 and 1993
would have been $1,087,129 and $1,028,813, respectively.
The increase was primarily due to higher overall portfolio
activity.
Given the inherent risk associated with the business of the
Partnership, the future performance of the portfolio
company investments may significantly impact future
operations.
1993 compared to 1992
- ---------------------
Net income was $1,261,084 in 1993 compared to a net loss of
$2,292,606 in 1992. The change was primarily due to a
$2,344,691 decrease in management fees, a $636,957 increase
in the change in net unrealized fair value of equity
investments, a $395,906 increase in notes receivable
interest income, and a $263,685 decrease in total operating
expenses. These changes were partially offset by a
$187,887 increase in realized losses from investment write-
downs.
Management fees were $799,060 in 1993 compared to
$3,143,751 in 1992. In 1992, as Limited Partners were
admitted to the Partnership, a full first year fee was paid
in this final year of Unit sales. Also contributing to the
decrease was a change in the management fee rate from four
percent of Adjusted Capital Contributions to two percent.
Management fees are expected to be at this level until 1995
and will decrease thereafter as discussed in the financial
statements note entitled "Related Party Transactions."
The change in fair value of equity investments reflected a
net increase in the fair value of the Partnership's
holdings. In 1993, the increase of $1,933,993 was
primarily attributable to increases in portfolio companies
in the medical and communications industries, partially
offset by decreases in the retail/consumer products
industry. In 1992, the increase of $1,297,036 was
primarily due to portfolio companies in the medical and
retail/consumer products industries.
Notes receivable interest income was $531,039 and $135,133
for the years ended December 31, 1993 and 1992,
respectively. The increase was primarily due to higher
average outstanding balances on interest-bearing notes in
1993 as more funds were being invested.
Total operating expenses were $800,000 in 1993 compared to
$1,063,685 in 1992. The decrease is due to the Partnership
recognizing all of the 1991 contingent liabilities totaling
$263,685 in 1992 as new Units were sold. As previously
disclosed, the Partnership may not reimburse the General
Partners for expenses that aggregate more than 2% of total
limited partner contributions. As a result, operating
expenses of $228,813 and $187,161 were absorbed by the
General Partners in 1993 and 1992, respectively.
During 1993, the Partnership realized losses from
investment write-downs of $187,887 related to a portfolio
company in the biotechnology industry as the company sold
its assets and the Managing General Partners do not believe
the Partnership will receive any value for its investment.
No such losses were realized in the same period in 1992.
Realized gains from sale of equity investments were $65,814
for the year ended December 31, 1993, mostly related to
sales of EROX Corporation. No such gains were recorded in
1992.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
- ------ -------------------------------------------
The financial statements of the Registrant are set forth in
Item 14.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
- ------ ------------------------------------------------
ACCOUNTING AND FINANCIAL DISCLOSURE
-----------------------------------
Registrant has reported no disagreements with its
accountants on matters of accounting principles or
practices or financial statement disclosure.
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
- ------- --------------------------------------------------
As a partnership, the Registrant has no directors or
executive officers. Subject to the supervision of the
individual general partners, the Managing General Partners
(Technology Funding Ltd., a California limited partnership
("TFL") and Technology Funding Inc., a California
corporation ("TFI"), a wholly-owned subsidiary of TFL), are
responsible for management of the Partnership, negotiation
and structuring of financing arrangements, overseeing
activities of the portfolio companies, and day-to-day
administration of the Partnership affairs. Information
concerning the ownership of TFL and the business experience
of the key officers of TFI and the partners of TFL is
incorporated by reference from the sections entitled
"Management of the Partnership - The Managing General
Partners" and "Management of the Partnership - Key
Personnel of the Managing General Partners" in the
Prospectus, which are incorporated herein by reference.
Changes in this information that have occurred since the
date of the Prospectus are included in the Technology
Funding Medical Partners I, L.P. Prospectus, as modified by
Cumulative Supplement No. 4 dated January 4, 1995, forming
a part of the May 3, 1993, Pre-Effective Amendment No. 3 to
the Form N-2 Registration Statement No. 33-54002 dated
October 30, 1992 which is incorporated herein by reference.
Item 11. EXECUTIVE COMPENSATION
- ------- ----------------------
As a partnership, the Registrant has no officers or
directors. In 1994, the Partnership incurred $796,201 in
management fees. The fees are designed to compensate the
Managing General Partners for General Partner Overhead
incurred in performing management duties for the
Partnership through December 31, 1994. General Partner
Overhead (as defined in the Partnership Agreement) includes
rent, utilities, and certain salaries and benefits paid by
the Managing General Partners. As compensation for their
services, the individual general partners receive $6,000
annually plus $1,000 for each attended meeting of the
individual general partners. For the year ended December
31, 1994, $30,000 of such fees were incurred.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
- ------- ---------------------------------------------------
MANAGEMENT
----------
Not applicable. No Limited Partner beneficially holds more
than 5% of the aggregate number of Units held by all
Limited Partners, and neither the Managing General Partners
nor any of their officers, directors or partners own any
Units. Two of the three individual general partners each
own 20 Units and the third owns 70 Units. The General
Partners control the affairs of the Partnership pursuant to
the Partnership Agreement.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- ------- ----------------------------------------------
The Registrant has engaged in no transactions with the
Managing General Partners or their officers and partners
other than as described above, in the notes to the
financial statements, or in the Prospectus.
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
- ------- ------------------------------------------------------
FORM 8-K
--------
(a) List of Documents filed as part of this Annual Report
on Form 10-K
(1) Financial Statements - the following financial
statements are filed as a part of this Report:
Independent Auditors' Report
Balance Sheets as of December 31, 1994
and 1993
Statements of Operations for the years
ended December 31, 1994, 1993 and 1992
Statements of Partners' Capital for the years
ended December 31, 1994, 1993 and 1992
Statements of Cash Flows for the years
ended December 31, 1994, 1993 and 1992
Notes to Financial Statements
(2) Financial Statement Schedules
All schedules have been omitted because they are
not applicable or the required information is
included in the financial statements or the notes
thereto.
(3) Exhibits
Registrant's Amended and Restated Limited
Partnership Agreement (incorporated by reference
to Exhibit A to Registrant's Prospectus dated
January 22, 1992 included in Registration
Statement No. 33-31237 filed pursuant to Rule
424(b) of the General Rules and Regulations under
the Securities Act of 1933).
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the Registrant
during the year ended December 31, 1994.
(c) Financial Data Schedule for the year ended and as of
December 31, 1994 (Exhibit 27).
INDEPENDENT AUDITORS' REPORT
----------------------------
The Partners
Technology Funding Venture Partners V, An Aggressive Growth Fund,
L.P.:
We have audited the accompanying balance sheets of Technology
Funding Venture Partners V, An Aggressive Growth Fund, L.P. (a
Delaware limited partnership) as of December 31, 1994 and 1993, and
the related statements of operations, partners' capital, and cash
flows for each of the years in the three-year period ended December
31, 1994. These financial statements are the responsibility of the
Partnership's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements. Our procedures
included confirmation of certain securities owned by correspondence
with the individual investee companies and a physical examination of
those securities held by a safeguarding agent as of December 31,
1994 and 1993. An audit also includes assessing the accounting
principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of
Technology Funding Venture Partners V, An Aggressive Growth Fund,
L.P. as of December 31, 1994 and 1993, and the results of its
operations and its cash flows for each of the years in the three-
year period ended December 31, 1994 in conformity with generally
accepted accounting principles.
As explained in Notes 1, 5 and 6, the financial statements include
investments of $20,420,915 and $15,180,488 (63% and 49% of partners'
capital) as of December 31, 1994 and 1993, respectively, whose
values, in certain circumstances, have been estimated by the
Managing General Partners in the absence of readily ascertainable
market values. We have reviewed the procedures used by the Managing
General Partners in arriving at their estimate of value of such
securities and have inspected underlying documentation, and, in the
circumstances, we believe the procedures are reasonable and the
documentation appropriate. However, because of the inherent
uncertainty of valuation, those estimated values may differ
significantly from the values that would have been used had a ready
market for the investments existed, and the difference could be
material.
San Francisco, California KPMG Peat Marwick LLP
March 17, 1995
BALANCE SHEETS
- --------------
December 31,
----------------------
1994 1993
---- ----
ASSETS
Investments:
Equity investments (cost basis of
$16,068,778 and $8,972,447 for 1994
and 1993, respectively) $18,985,725 12,203,476
Secured notes receivable, net
(cost basis of $1,995,190 and
$3,094,012 for 1994 and 1993,
respectively) 1,435,190 2,977,012
---------- ----------
Total investments 20,420,915 15,180,488
Cash and cash equivalents 11,371,533 16,187,289
Other assets 807,401 47,485
---------- ----------
Total $32,599,849 31,415,262
========== ==========
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable and accrued expenses $ 29,751 46,577
Due to related parties 55,781 73,929
Other liabilities 861 3,182
---------- ----------
Total liabilities 86,393 123,688
Commitments and subsequent events
(Notes 3, 5 and 8)
Partners' capital:
Limited Partners
(Units outstanding of
400,000 in both 1994 and 1993) 30,145,346 28,216,611
General Partners 11,163 (39,066)
Net unrealized fair value increase
(decrease) from cost:
Equity investments 2,916,947 3,231,029
Secured notes receivable (560,000) (117,000)
---------- ----------
Total partners' capital 32,513,456 31,291,574
---------- ----------
Total $32,599,849 31,415,262
========== ==========
See accompanying notes to financial statements.
STATEMENTS OF OPERATIONS
- -----------------------
For the Years Ended December 31,
----------------------------------
1994 1993 1992
---- ---- ----
Interest Income:
Secured notes
receivable $ 385,438 531,039 135,133
Short-term investments 557,873 599,897 596,318
--------- --------- ---------
Total interest income 943,311 1,130,936 731,451
Costs and expenses:
Management fees 796,201 799,060 3,143,751
Individual general partners'
compensation 30,000 28,000 29,000
Amortization of
organizational costs 7,000 7,000 7,000
Operating expenses:
Administrative and
investor services 461,546 453,584 532,192
Investment operations 457,622 350,660 457,314
Professional fees 62,666 93,597 109,465
Computer services 105,295 130,972 151,875
Expenses absorbed by
General Partners (287,129) (228,813) (187,161)
--------- --------- ---------
Total operating
expenses 800,000 800,000 1,063,685
--------- --------- ---------
Total costs and expenses 1,633,201 1,634,060 4,243,436
--------- --------- ---------
Net operating loss (689,890) (503,124) (3,511,985)
Realized gains from sale of
equity investments 3,209,979 65,814 --
Realized losses from
investment write-downs (541,125) (187,887) --
Net realized loss from
venture capital limited
partnership investments -- (3,712) (4,657)
--------- --------- ---------
Net realized income (loss) 1,978,964 (628,909) (3,516,642)
Change in net unrealized
fair value:
Equity investments (314,082) 1,933,993 1,297,036
Secured notes receivable (443,000) (44,000) (73,000)
--------- --------- ---------
Net income (loss) $1,221,882 1,261,084 (2,292,606)
========= ========= =========
Net realized income
(loss) per Unit $ 5 (2) (16)
========= ========= =========
See accompanying notes to financial statements.
STATEMENTS OF PARTNERS' CAPITAL
- -------------------------------
For the years ended December 31, 1994, 1993 and 1992:
Net Unrealized Fair Value
Increase (Decrease) From Cost
-----------------------------
Limited General Equity Secured Notes
Partners Partners Investments Receivable Total
-------- -------- ----------- ------------- -----
Partners' capital,
December 31, 1991 $11,024,785 (4,584) -- -- 11,020,201
Sale of partnership
interests 25,729,200 25,768 -- -- 25,754,968
Syndication fees (3,846,515) (12,865) -- -- (3,859,380)
Distribution of Offering
Period income (586,763) (5,930) -- -- (592,693)
Net realized loss (3,481,476) (35,166) -- -- (3,516,642)
Change in net unrealized
fair value:
Equity investments -- -- 1,297,036 -- 1,297,036
Secured notes receivable -- -- -- (73,000) (73,000)
---------- -------- --------- -------- ----------
Partners' capital,
December 31, 1992 28,839,231 (32,777) 1,297,036 (73,000) 30,030,490
Net realized loss (622,620) (6,289) -- -- (628,909)
Change in net unrealized
fair value:
Equity investments -- -- 1,933,993 -- 1,933,993
Secured notes receivable -- -- -- (44,000) (44,000)
---------- -------- --------- -------- ----------
Partners' capital,
December 31, 1993 28,216,611 (39,066) 3,231,029 (117,000) 31,291,574
Net realized income 1,928,735 50,229 -- -- 1,978,964
Change in net unrealized
fair value:
Equity investments -- -- (314,082) -- (314,082)
Secured notes receivable -- -- -- (443,000) (443,000)
---------- -------- --------- -------- ----------
Partners' capital,
December 31, 1994 $30,145,346 11,163 2,916,947 (560,000) 32,513,456
========== ======== ========= ======== ==========
See accompanying notes to financial statements.
STATEMENTS OF CASH FLOWS
- ------------------------
For The Years Ended December 31,
------------------------------------
1994 1993 1992
---- ---- ----
Cash flows from operations:
Interest received $ 903,296 929,791 679,631
Cash paid to vendors (246,871) (339,936) (236,708)
Cash paid to related
parties (1,399,806) (1,573,401) (3,566,081)
---------- ---------- ----------
Net cash used by
operations (743,381) (983,546) (3,123,158)
---------- ---------- ----------
Cash flows from investing
activities:
Secured notes receivable
issued (128,812) (1,650,646) (1,924,447)
Purchase of equity
investments (8,513,620) (5,143,397) (3,237,502)
Repayment of secured and
convertible notes
receivable 1,247,037 554,784 302,033
Proceeds from sale of
investments 3,287,569 146,313 --
Distributions from venture
capital limited partnership
investments 35,451 1,010 --
---------- ---------- ----------
Net cash used by
investing activities (4,072,375) (6,091,936) (4,859,916)
---------- ---------- ----------
Cash flows from financing
activities:
Net proceeds from sale of
limited partnership
interests -- -- 25,729,200
Managing General Partners'
capital contributions -- -- 25,768
Payments for syndication fees -- -- (3,859,380)
Distributions to Limited and
General Partners -- (174,577) (524,407)
---------- ---------- ----------
Net cash (used) provided
by financing activities -- (174,577) 21,371,181
---------- ---------- ----------
Net (decrease) increase in
cash and cash equivalents (4,815,756) (7,250,059) 13,388,107
Cash and cash equivalents
at beginning of year 16,187,289 23,437,348 10,049,241
---------- ---------- ----------
Cash and cash equivalents
at end of year $11,371,533 16,187,289 23,437,348
========== ========== ==========
See accompanying notes to financial statements.
STATEMENTS OF CASH FLOWS (continued)
- -----------------------------------
For the Years Ended December 31,
--------------------------------------
1994 1993 1992
---- ---- ----
Reconciliation of net
income (loss) to net cash
used by operations:
Net income (loss) $ 1,221,882 1,261,084 (2,292,606)
Adjustments to reconcile
net income (loss) to net
cash used by operations:
Amortization of
organizational costs 7,000 7,000 7,000
Change in net unrealized
fair value:
Equity investments 314,082 (1,933,993) (1,297,036)
Secured notes
receivable 443,000 44,000 73,000
Realized losses from
investment write-downs 541,125 187,887 --
Realized gains from sale of
equity investments (3,209,979) (65,814) --
Net realized loss from
venture capital limited
partnership investments -- 3,712 4,657
Other, net (11,072) (11,472) (2,660)
Changes in:
Accrued interest on
convertible and secured
notes (28,943) (189,673) (40,648)
Other assets 16,819 (31,423) 4,706
Accounts payable and
accrued expenses (16,826) (16,999) 27,476
Due to/from related
parties (18,148) (211,454) 363,370
Other liabilities (2,321) (26,401) 29,583
--------- --------- ---------
Net cash used by operations $ (743,381) (983,546) (3,123,158)
========= ========= =========
Non-cash investing activities:
Additions to stock purchase
warrants $ -- 5,650 42,500
========= ========= =========
See accompanying notes to financial statements.
NOTES TO FINANCIAL STATEMENTS
- -----------------------------
1. Summary of Significant Accounting Policies
------------------------------------------
Organization
- ------------
Technology Funding Venture Partners V, An Aggressive Growth Fund,
L.P. (the "Partnership") is a limited partnership organized under the
laws of the State of Delaware in June 1989. The purpose of the
Partnership is to make venture capital investments in emerging growth
companies. The Partnership elected to be a business development
company under the Investment Company Act of 1940, as amended (the
"Act"), and operates as a nondiversified investment company as that
term is defined in the Act. The Managing General Partners are
Technology Funding Ltd. ("TFL") and Technology Funding Inc. ("TFI"),
a wholly-owned subsidiary of TFL. There are also three individual
general partners. A wholly-owned subsidiary of TFI, Technology
Funding Securities Corporation ("TFSC"), was the dealer-manager for
the offering.
The Partnership offering commenced in May 1990. On January 2, 1991,
the minimum number of Units required to commence Partnership
operations (15,000) had been sold. On December 31, 1992, the
offering terminated with 400,000 Units sold. The Partnership
Agreement provides that the Partnership will continue until December
31, 1998, unless further extended for up to two additional two-year
periods from such date if the Managing General Partners so determine
or unless sooner dissolved.
Cash and Cash Equivalents
- -------------------------
Cash and cash equivalents are principally comprised of cash invested
in demand accounts, money market instruments and commercial paper and
are stated at cost plus accrued interest. The Partnership considers
all money market and short-term investments with an original maturity
of three months or less to be cash equivalents.
Syndication Fees
- ----------------
Syndication fees, which consist of commissions and organizational and
offering costs, are deducted from the partners' capital accounts.
Pursuant to the Partnership Agreement, selling commissions are
allocated solely to the Limited Partners. All other syndication fees
are allocated 99% to the Limited Partners and 1% to the Managing
General Partners. Syndication fees are not deductible for income tax
purposes. Such fees may result in a reduction of any gain (or an
increase in any loss) realized for tax purposes by the partners upon
dissolution of the Partnership or a transfer of their interests.
Organizational Costs
- --------------------
Organizational costs of $35,000 are amortized over 60 months, using
the straight-line method.
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 generally
accepted accounting principles which may not equate to tax
accounting, however, the difference in the total book and tax cost
basis as of December 31, 1994 is not material.
Net Realized Income (Loss) Per Unit
- -----------------------------------
Net realized income (loss) per Unit is calculated by dividing the
weighted average number of Units outstanding for the years ended
December 31, 1994, 1993 and 1992 of 400,000, 400,000, and 219,481,
respectively, into total net realized income (loss) allocated to the
Limited Partners. The Managing General Partners contributed an
amount equal to 0.1% of total limited partner capital contributions
and did not receive any Partnership Units.
Investments:
- -----------
The Partnership's method of accounting for investments, in accordance
with generally accepted accounting principles, is the fair value
basis used for investment companies. The fair value of Partnership
investments is their initial cost basis with changes as noted below:
Equity Investments
------------------
The fair value for publicly-traded equity investments (marketable
equity securities) is based upon the five day average closing sales
price or bid/ask price that is available on a national securities
exchange or over-the-counter market. Certain publicly-traded equity
investments may not be marketable due to selling restrictions. For
publicly-traded equity investments with selling restrictions, an
illiquidity discount of 25% is applied when determining the fair
value. Sales of equity investments are recorded on the trade date.
The basis on which cost is determined in computing realized gains or
losses is generally specific identification.
Other equity investments, which are not publicly traded, are
generally valued utilizing pricing obtained from the most recent
round of third-party financings. Valuation is estimated quarterly by
the Managing General Partners. Included in equity investments are
convertible or subordinated notes receivable as repayment of these
notes may occur through conversion into equity investments.
Venture capital limited partnership investments are initially
recorded at cost and reduced for distributions that are a return of
capital. Distributions from limited partnership cumulative earnings
are reflected as realized gains by the Partnership.
Equity and venture capital limited partnership investments with
temporary changes in fair value result in increases or decreases to
the unrealized fair value of equity investments. The cost basis does
not change. In the case of an other than temporary decline in value
below cost basis, an appropriate reduction in the cost basis is
recognized as a realized loss with the fair value being adjusted to
match the new cost basis. Adjustments to fair value basis are
reflected as "Change in net unrealized fair value of equity
investments." Cost basis adjustments are reflected as "Realized
losses from investment write-downs" or "Net realized loss from
venture capital limited partnership investments" on the Statements of
Operations.
Secured Notes Receivable, net
-----------------------------
The secured notes receivable portfolio includes accrued interest less
the discount related to warrants and the allowance for loan losses.
The portfolio approximates fair value through inclusion of an
allowance for loan losses. Allowance for loan losses is reviewed
quarterly by the Managing General Partners and is adjusted to a level
deemed adequate to cover possible losses inherent in notes and
unfunded commitments. Notes receivable are placed on nonaccrual
status when, in the opinion of the Managing General Partners, the
future collectibility of interest or principal is in doubt.
In conjunction with the secured notes granted to portfolio companies,
the Partnership has received warrants to purchase certain shares of
capital stock of the borrowing companies. The cost basis of the
warrants and the resulting discount has been estimated by the
Managing General Partners to be 1% of the principal balance of the
original notes made to the borrowing companies. The discount is
amortized to interest income on a straight-line basis over the term
of the loan. Warrants received in conjunction with convertible notes
are not assigned any additional costs. These warrants are included
in the equity investment portfolio.
Nonrefundable fees received in connection with loan fundings are
deferred and amortized to interest income over the contractual life
of the loan using the effective interest method or the straight-line
method if it is not materially different. Direct loan origination
costs mainly consist of third-party costs and generally are
reimbursed by portfolio companies.
2. Change in Net Unrealized Fair Value of Equity Investments
---------------------------------------------------------
In accordance with the accounting policy as stated in Note 1, the
Statements of Operations include a line item entitled "Change in net
unrealized fair value of equity investments." The table below
discloses details of the changes:
For the Years Ended December 31,
--------------------------------
1994 1993 1992
---- ---- ----
Increase in fair value
from cost of marketable
equity securities $1,465,476 537,645 --
Increase in fair value from
cost of non-marketable
equity securities 1,451,471 2,693,384 1,297,036
--------- --------- ---------
Net unrealized fair
value increase from
cost at end of year 2,916,947 3,231,029 1,297,036
Net unrealized fair
value increase from
cost at beginning of year 3,231,029 1,297,036 --
--------- --------- ---------
Change in net unrealized
fair value of equity
investments $ (314,082) 1,933,993 1,297,036
========= ========= =========
3. Related Party Transactions
--------------------------
Related party costs are included in costs and expenses shown on the
Statements of Operations and Partners' Capital. For the years ended
December 31, 1994, 1993 and 1992, related party costs were as
follows:
1994 1993 1992
---- ---- ----
Management fees $ 796,201 799,060 3,143,751
Individual General
Partners' compensation 30,000 28,000 29,000
Syndication fees -- -- 3,859,380
Amortization of organi-
zational costs 7,000 7,000 7,000
Reimbursable operating
expenses:
Administrative and
investor services 308,321 299,021 376,536
Investment operations 428,970 333,707 415,474
Computer services 105,295 130,972 151,851
Expenses absorbed by
General Partners (287,129) (228,813) (187,161)
Management fees are equal to six percent of the total limited
partners' capital contributions for the first year of Partnership
operations, four percent of Adjusted Capital Contributions (as
defined in the Partnership Agreement) for the second year, two
percent of Adjusted Capital Contributions for the third, fourth, and
fifth years, and one percent of Adjusted Capital Contributions in the
sixth and subsequent years. Management fees compensate the Managing
General Partners solely for General Partner Overhead (as defined in
the Partnership Agreement) incurred in supervising the operation and
management of the Partnership and the Partnership's investments.
Pursuant to the Partnership Agreement, a full first year fee was paid
to the Managing General Partners as each additional Limited Partner
was admitted to the Partnership, regardless of the date the Limited
Partner was admitted. Such amounts due to related parties were
$66,349 and $65,727 at December 31, 1994 and 1993, respectively.
The Partnership reimburses the Managing General Partners for
organizational and offering expenses (up to five percent of the total
limited partners' capital contributions) incurred in connection with
organizing the Partnership and the offering of Units thereof. Such
reimbursements have been reflected in the Statements of Partners'
Capital as syndication fees except for $35,000 of organizational
costs capitalized in 1991.
Also included in the syndication fees are commissions and fees paid
to Technology Funding Securities Corporation, the dealer-manager.
There were no such fees paid in 1994 and 1993. During the year ended
December 31, 1992, the Partnership paid commissions and fees of
$2,572,920, of which $2,403,903 was reallowed to participating
broker-dealers.
As compensation for their services, the individual general partners
each receive $6,000 annually plus $1,000 for each attended meeting of
the Management Committee. In 1994, 1993 and 1992, $30,000, $28,000,
and $29,000 of such fees were paid, respectively, and are included in
the Statements of Operations. Two of the three individual general
partners each own 20 Units and the third owns 70 Units.
The Partnership reimburses the Managing General Partners for
operating expenses paid by the Managing General Partners incurred in
connection with the business of the Partnership. Reimbursable
operating expenses paid by the Managing General Partners include
costs (other than Organizational and Offering Expenses and General
Partner Overhead) such as administrative and investor services,
investment operations, and computer services. Amounts due from
related parties related to such expenses were $10,568 compared to
$8,202 due to related parties at December 31, 1994 and 1993,
respectively.
Pursuant to the Partnership Agreement, the Partnership may not pay or
reimburse the Managing General Partners for operational costs that
aggregate more than 2% of total limited partner capital contributions
of the Partnership. In 1994, 1993 and 1992, the Managing General
Partners absorbed Partnership operating costs of $287,129, $228,813,
and $187,161 respectively, as a result of this 2% limitation.
Under the terms of a computer service agreement, the Partnership
recognized charges from Technology Administrative Management, a
division of TFL, for its share of computer support costs. These
amounts are included in computer services expense.
4. Allocation of Profits and Losses
--------------------------------
Net realized profits and losses of the Partnership are allocated
based on the beginning of year partners' capital balances as follows:
(a) Profits:
(i) First, to those partners with deficit capital account
balances until such deficits have been eliminated;
(ii) Second, to the partners as necessary to offset net loss
and sales commissions previously allocated under (b)(ii)
below; then
(iii)75% to the Limited Partners as a group in proportion to
the number of Units, 5% to the Limited Partners in
proportion to the Unit Months of each Limited Partner,
and 20% to the Managing General Partners.
(b) Losses:
(i) First, to the partners as necessary to offset the net
profits previously allocated to the partners under
(a)(iii) above; then
(ii) 99% to the Limited Partners and 1% to the Managing
General Partners.
Losses allocable to Limited Partners in excess of their capital
account balances will be allocated to the Managing General Partners,
with net profits thereafter otherwise allocable to those Limited
Partners being allocated to the Managing General Partners to the
extent of such losses. For allocation purposes, the Units held by
the individual general partners will be treated as Units held by
Limited Partners.
Interest income earned on funds held in escrow was allocated 100% to
the Limited Partners. Income earned on short-term investments during
the Offering Period was allocated monthly 99% to the Limited Partners
and 1% to the Managing General Partners.
Losses from unaffiliated venture capital limited partnership
investments are allocated pursuant to section (b) above. Gains are
allocated first to offset previously allocated losses pursuant to
(b)(i) above, and then 99% to the Limited Partners and 1% to the
Managing General Partners.
5. Equity Investments
------------------
At December 31, 1994 and 1993, equity investments consisted of:
December 31, 1994 December 31, 1993
Principal ----------------- -----------------
Investment Amount or Cost Fair Cost Fair
Industry/Company Position Date Shares Basis Value Basis Value
- ---------------- -------- ---- ------ ----- ----- ----- -----
Biomedical
- ----------
Arcturus Common
Pharmaceutical warrant
Corporation at $3.62;
expiring
08/97 08/92 16,549 $ 4,000 15,490 4,000 15,490
Khepri Series C
Pharmaceuticals Preferred
Inc. shares 11/94 333,333 500,000 500,000 -- --
Redcell, Inc. Funds held
in escrow for
Series B
Preferred
shares 12/94 797,872 750,000 750,000 -- --
Biotechnology
- -------------
CV Therapeutics, Series D
Inc. Preferred
shares 03/94 625,000 1,250,000 1,250,000 -- --
Molecular Series B
Geriatrics Preferred
Corporation shares 09/93 500,000 250,000 250,000 250,000 250,000
Communications
- --------------
Coded Common
Communications shares 04/93 145,454 396,000 171,781 396,000 672,725
Corporation
Coded Common
Communications share
Corporation warrants
at $3.16;
expiring
04/95 04/93 145,454 4,000 0 4,000 204,725
Positive Series E
Communications, Preferred
Inc. shares 09/94 285,714 1,000,000 1,000,000 -- --
Unitech Telecom, Convertible
Inc. note (1) 05/94 $100,000 106,039 106,039 -- --
Unitech Telecom, Common
Inc. warrants
at $2.75;
expiring
05/99 05/94 36,364 0 0 -- --
Computer Systems and Software
- -----------------------------
Ascent Logic Common
Corporation warrants
at $.94;
expiring
03/97 03/92 31,915 2,500 0 2,500 2,500
Ascent Logic Series D
Corporation Preferred
share
warrants
at $.35;
expiring
01/95 10/92 571,428 4,000 0 4,000 4,000
Ascent Logic Series C
Corporation Preferred
shares 10/92 425,532 396,000 148,936 396,000 396,000
Lynk Systems, Common
Inc. warrants
at $1.00;
expiring
07/98 07/93 35,000 3,500 8,750 3,500 3,500
Velocity Convertible
Incorporated note (1) 09/93 $250,000 -- -- 256,944 256,944
Velocity Warrants
Incorporated for common
shares at
$.25;
expiring
09/98 09/93 100,000 -- -- 0 0
Velocity Convertible
Incorporated note (1) 11/93 $125,000 -- -- 126,979 126,979
Velocity Warrants for
Incorporated common
shares at
$.25;
expiring
11/98 11/93 50,000 -- -- 0 0
Velocity Convertible
Incorporated note (1) 12/93 $125,000 -- -- 125,833 125,833
Velocity Warrants for
Incorporated common
shares at
$.25;
expiring
12/98 12/93 50,000 -- -- 0 0
Velocity Series A
Incorporated Preferred
shares 10/94 12,572,652 2,068,674 2,068,674 -- --
Environmental
- -------------
SRG Holdings, Series C
Inc. Preferred
shares 09/93 6,666,667 1,000,000 1,000,000 1,000,000 1,000,000
SRG Holdings, Convertible
Inc. note (1) 07/94 $56,880 58,852 58,852 -- --
SRG Holdings, Convertible
Inc. note (1) 09/94 $116,261 119,077 119,077 -- --
Transphase Common
Systems, Inc. warrants
at $12.57;
expiring 11/92-
11/97-02/98 02/93 25,269 0 0 25,000 25,000
Transphase Common
Systems, Inc. warrants at
$12.57;
expiring
02/98 02/93 1,710 0 0 2,150 2,150
Transphase Common
Systems, Inc. warrants at
$12.57;
expiring
04/99 04/94 10,263 0 0 -- --
Industrial/Business Automation
- ------------------------------
Avalon Imaging, Redeemable
Inc. Series A
Preferred
shares 12/94 144,509 250,001 250,001 -- --
Bolder Series C
Technologies Preferred
Corporation shares 09/94 250,000 500,000 500,000 -- --
Bolder Series B
Technologies Preferred
Corporation shares 10/94 50,001 50,001 100,002 -- --
Oxford
GlycoSystems Common
Group PLC shares 08/93 533,867 999,927 999,927 999,927 999,927
Medical
- -------
Biex, Inc. Series A
Preferred
shares 07/93 128,205 83,333 128,205 83,333 83,333
Biex, Inc. Series B
Preferred
shares 10/94 63,907 63,907 63,907 -- --
Biex, Inc. Series B
Preferred
share warrants
at $1.00;
expiring
10/97 10/94 23,540 8 0 -- --
Circadian, Inc. Series A
Preferred
shares 12/92 500,000 500,000 1,000,000 500,000 1,000,000
Circadian, Inc. Series B
Preferred
shares 12/93 21,333 170,664 170,664 170,664 170,664
Everest & Jennings
International Common
Ltd. shares 01/94 592,717 637,516 318,882 -- --
Intelliwire, Common
Inc. shares 02/93 8,715 436 12,027 436 436
Intelliwire, Series A
Inc. Preferred
shares 02/93 4,358 2,179 6,014 2,179 2,179
Medical Series C
Composite Preferred
Technology, Inc shares 03/92 153,846 -- -- 500,000 500,000
Medical Convertible
Composite notes (1) 01/93 -
Technology, Inc 07/93 $127,171 -- -- 137,189 137,189
Medical Series C
Composite Preferred
Technology, Inc share
warrants
at $3.25;
expiring
01/98 - 01/93 -
07/98 07/93 9,781 -- -- 0 0
Megabios Corp. Series C
Preferred
shares 09/94 579,375 750,001 750,001 -- --
Megabios Corp. Series C
Preferred
shares 12/94 173,812 225,000 225,000 -- --
Oculon Series II
Corporation Senior
Preferred
shares 06/92 400,000 0 0 350,000 350,000
Oculon Series III
Corporation Senior
Preferred
shares 01/94 106,796 0 0 -- --
OrthoLogic Common
Corporation shares 05/93 3,115 -- -- 10,501 12,946
Paradigm Series A
Biosciences, Preferred
Inc. shares 04/93 322,581 396,000 396,000 396,000 396,000
Paradigm Warrants for
Biosciences, Series A
Inc. Preferred
shares
at $1.24;
expiring
04/98 04/93 215,054 -- -- 4,000 4,000
Paradigm Series A
Biosciences, Preferred
Inc. shares 12/94 215,054 270,667 270,667 -- --
Periodontix, Series A
Inc. Preferred
shares 12/93 150,000 150,000 150,000 150,000 150,000
PHERIN Series B
Corporation Preferred
shares 08/91 200,000 200,000 200,000 200,000 700,000
Physiometrix, Series B & C
Incorporated Preferred 05/92 &
shares 05/93 180,125 -- -- 375,002 0
Physiometrix, Common
Incorporated warrants
at $1,750;
expiring
06/97 06/92 16 0 0 2,500 0
Physiometrix, Common 01/94 &
Incorporated shares 05/94 337 375,054 1,680 -- --
Physiometrix, Series D
Incorporated Preferred 01/94 &
shares 02/94 338,151 114,971 1,690,755 -- --
R2 Technology, Series A-1
Inc. Preferred
shares 05/94 400,000 400,000 400,000 -- --
TheraTx, Series C
Incorporated Preferred
shares 08/91 500,000 -- -- 250,000 815,289
TheraTx, Series C
Incorporated Preferred
share
warrants
at $.50;
expiring
01/97 01/92 120,000 -- -- 5,000 135,669
TheraTx, Series D
Incorporated Preferred
shares 06/92 153,320 -- -- 250,000 250,000
TheraTx, Common
Incorporated shares 06/94 81,042 121,563 1,588,423 -- --
UroMed Series C
Corporation Preferred
shares 10/92 200,382 -- -- 525,001 1,502,865
UroMed Common
Corporation shares 03/94 179,828 286,236 831,705 -- --
Microelectronics
- ----------------
Tessera, Inc. Common
warrants
at $.73;
expiring
04/97 04/92 72,754 3,500 0 3,500 3,500
Tessera, Inc. Series B
Preferred
shares 05/92 666,666 500,000 500,000 500,000 500,000
Retail/Consumer Products
- ------------------------
EROX Corporation Common shares 01/93 110,000 -- -- 110,000 167,750
Yes! Series B
Entertainment Preferred
Corporation shares 01/93 750,000 500,000 375,000 500,000 862,500
Venture Capital Limited Partnership Investments
- -----------------------------------------------
Colorado Venture Ltd.
Management Partnership
Equity Fund IV interests various $100,000 100,000 90,163 50,000 50,000
El Dorado Ltd.
Ventures III Partnership
interests various $137,500 99,960 120,320 79,089 79,365
OW & W Pacrim Ltd.
Investments Partnership
Limited interests various $250,000 250,000 250,183 167,500 167,472
Spectrum Equity Ltd.
Investors Partnership
interests 1994 $75,000 74,619 72,938 -- --
Trinity Ventures Ltd.
IV, L.P. Partnership
interests various $87,502 80,593 75,662 53,720 76,546
---------- ---------- ---------- ----------
Total equity investments $16,068,778 18,985,725 8,972,447 12,203,476
========== ========== ========== ==========
- -- No investment held at end of period.
0 Investment active with a carrying value or fair value of zero.
(1) Convertible notes include accrued interest. Interest rates on convertible
notes range from 8% to 10%.
Marketable Equity Securities
- ----------------------------
At December 31, 1994 and 1993, marketable equity securities had
aggregate costs of $1,445,315 and $520,501, respectively, and
aggregate market values of $2,910,791 and $1,058,146, respectively.
The gross unrealized gains at December 31, 1994 and 1993 included
gross gains of $2,012,329 and $537,645, respectively.
Ascent Logic Corporation
- ------------------------
During the third quarter of 1994, the company had a new round of
equity financing in which the Partnership did not participate. Based
upon the Managing General Partners' opinion, the Partnership recorded
a decrease of $253,564 in the fair value of its existing investments.
Avalon Imaging, Inc.
- --------------------
In December 1994, the Partnership invested in Avalon Imaging, Inc. by
purchasing 144,509 Redeemable Series A Preferred shares at a total
cost of $250,001.
Biex, Inc.
- ----------
In October 1994, the Partnership purchased 63,907 Series B Preferred
shares at a total cost of $63,907. The purchase price consisted of
$31,395 in cash and the conversion of a note issued in June 1994,
including interest, of $32,512. The Partnership also received
warrants to purchase 23,540 Series B Preferred shares at an exercise
price of $1.00 per share. The pricing of the Series B financing in
which other investors participated indicated an increase in fair value
of $44,872 in the Partnership's existing investments.
Bolder Technologies Corporation
- -------------------------------
In September 1994, the Partnership invested in Bolder Technologies
Corporation by purchasing 250,000 Series C Preferred shares at $2.00
per share, or $500,000. Then, in October 1994, the Partnership
purchased 50,001 Series B Preferred shares at $1.00 per share from
another investor. The Series B Preferred shares are valued similar to
the Series C Preferred shares.
Coded Communication Corporation
- -------------------------------
The Partnership recorded a decrease in fair value of $705,669 to
reflect the publicly-traded market price at December 31, 1994.
CV Therapeutics, Inc.
- ---------------------
In March 1994, the Partnership invested in CV Therapeutics, Inc. by
purchasing 625,000 Series D Preferred shares at a total cost of
$1,250,000.
EROX Corporation
- ----------------
During the first quarter of 1994, the Partnership sold all of its
holdings in the company for total proceeds of $193,437 and a realized
gain of $83,437.
Everest & Jennings International Ltd./ Medical Composite Technology,
- ---------------------------------------------------------------------
Inc.
- ----
In January 1994, Medical Composite Technology, Inc. ("MCT") was
acquired by Everest & Jennings International Ltd. ("E & J"). The
Partnership's Series C Preferred shares in MCT as well as convertible
notes including accrued interest were exchanged for 592,717 shares of
unrestricted E & J common stock while the warrants for the Series C
Preferred shares were canceled. The Partnership recorded a decrease
in fair value of $318,634 to reflect the market value at
December 31, 1994.
Khepri Pharmaceuticals, Inc.
- ----------------------------
In November 1994, the Partnership invested in Khepri Pharmaceuticals,
Inc. by purchasing 333,333 Series C Preferred shares at a total cost
of $500,000.
Megabios Corp.
- --------------
In September and December 1994, the Partnership invested in Megabios
Corp. by purchasing 753,187 Series C Preferred shares at a total cost
of $975,001.
Oculon Corporation
- ------------------
In late 1994, the company suspended its clinical trials due to
unexpected negative test results on its lead compound. As a result of
this outcome, the Managing General Partners have determined that there
has been a decline in value of the Partnership's investment.
Accordingly, the Partnership has written off its investment of
$460,000 of which $350,000 was outstanding as of January 1, 1994.
OrthoLogic Corporation
- ----------------------
In January 1994, the Partnership sold all its holdings in the company
for total proceeds of $19,079 and a realized gain of $8,578.
Paradigm Biosciences, Inc.
- --------------------------
In December 1994, the Partnership exercised its warrants to purchase
215,054 Series A Preferred shares. The total recorded cost basis and
fair value of $270,667 included the cash exercise price of $266,667 at
$1.24 per share and the warrant cost basis of $4,000.
PHERIN Corporation
- ------------------
Based upon the Managing General Partners' assessment of a prior round
of financing, the Partnership has valued the investment at cost
resulting in a fair value decrease of $500,000.
Physiometrix, Incorporated
- --------------------------
In January 1994, the company had a 1,000 to 1 reverse stock split
followed by a conversion of the Partnership's existing preferred share
holdings to 181 common shares. The Partnership purchased an
additional 156 common shares from other investors at a nominal price.
The Partnership's common warrants were written off due to a decline in
value. In early 1994, the Partnership participated in an equity
financing by purchasing 338,151 Series D Preferred shares at a total
cost of $114,971.
In June 1994, the company had a Series E preferred round of equity
financing in which the Partnership did not participate. The pricing
of this round indicated a change in fair value increase of $1,579,912
for the Partnership's existing investments.
Positive Communications, Inc.
- -----------------------------
In September 1994, the Partnership invested in Positive
Communications, Inc. by purchasing 285,714 Series E Preferred shares
at a total cost of $1,000,000.
R2 Technology, Inc.
- -------------------
In May 1994, the Partnership invested in R2 Technology, Inc. by
purchasing 400,000 Series A-1 Preferred shares at a total cost of
$400,000.
Redcell, Inc.
- -------------
In December 1994, the Partnership deposited $750,000 into an escrow
fund to purchase 797,872 Series B Preferred shares upon the final
close of the financing round, which occurred in late February 1995.
SRG Holdings, Inc.
- ------------------
In 1994, the Partnership issued convertible notes receivable totaling
$173,141 to the company.
Tessera, Inc.
- -------------
In early 1994, the company completed a new, lower valuation, round of
financing in which the Partnership did not participate. In late 1994,
another round of financing was completed with a new investor; this
financing was at a higher valuation than the prior round, but equal to
the Partnership's cost basis.
TheraTx, Incorporated
- ---------------------
During 1994, the Partnership sold a portion of its investment in the
company for $3,096,863 resulting in total realized gains of
$2,594,804. The Partnership also recorded a fair value increase of
$770,902 primarily related to the increase in value of the remaining
unrestricted, marketable shares at December 31, 1994, partially offset
by a decrease due to the sale of shares.
In May 1994, the Partnership received 19,116 common warrants in
conjunction with a note receivable funding. During the same month,
the company announced a common stock three-for-one reverse split. In
June 1994, TheraTx, Incorporated completed its initial public offering
(IPO). Immediately prior to the IPO, the Partnership cash exercised
both its common and preferred warrants and received 46,372 common
shares; a cost basis of $123,623 was recorded for these shares. The
Partnership's existing preferred stock holdings were converted into
217,774 shares of common stock. The Partnership sold 54,104 common
shares into the offering for total proceeds of $603,801 resulting in a
realized gain of $442,355. Then, in December 1994, the Partnership
sold an additional 129,000 common shares for $2,493,063 resulting in a
realized gain of $2,152,449. Approximately $128,000 of the sales
price was an unsettled trade at December 31, 1994 and was included in
"Other Assets" on the Balance Sheet.
Unitech Telecom, Inc.
- ---------------------
In May 1994, the partnership invested in Unitech Telecom, Inc. by
issuing a $100,000 convertible note receivable. As a result of this
investment, the Partnership received warrants to purchase 36,364
common shares at an exercise price of $2.75, expiring in May 1999.
UroMed Corporation
- ------------------
In March 1994, UroMed Corporation completed its IPO. As a result, the
Partnership's preferred stock holdings were converted into 329,828
shares of unrestricted common stock at a cost basis of $524,994. In
December 1994, the Partnership sold 150,000 common shares for $761,918
resulting in a realized gain of $523,160. Approximately $656,000 of
the sales price was an unsettled trade at December 31, 1994 and was
included in "Other Assets" on the Balance Sheet. The Partnership
recorded a decrease in fair value of $432,395, a portion of which was
realized from the sale mentioned above, with the remainder related to
the decrease in value of the remaining unrestricted, marketable shares
at December 31, 1994.
Velocity Incorporated
- ---------------------
During the first nine months of 1994, the Partnership issued $500,000
in convertible notes to the company and received various warrants to
purchase common shares. Then in late 1994, the Partnership made an
additional $1,000,000 investment. This investment, together with all
the existing convertible notes, including interest, were used to
purchase 12,572,652 Series A Preferred shares at a total cost basis of
$2,068,674. All existing warrants were canceled as part of the
conversion.
YES! Entertainment Corporation
- ------------------------------
In May 1994, the company had a new round of equity financing in which
the Partnership did not participate. The investment fair value has
been adjusted to reflect the valuation from this round of financing.
Venture Capital Limited Partnership Investments
- -----------------------------------------------
The Partnership recorded a cost basis increase of $254,863 in venture
capital limited partnership investments during 1994. The increase
consisted of additional contributions of $290,314, partially offset by
cash distributions of $35,451. These transactions increased fair
values accordingly.
6. Secured Notes Receivable, Net
-----------------------------
At December 31, 1994 and 1993, secured notes receivable consisted of:
1994 1993
---- ----
Secured notes receivable $1,900,674 2,915,557
Accrued interest 119,641 213,377
Unamortized discount related to warrants (25,125) (34,922)
--------- ---------
Total secured notes receivable,
at cost basis 1,995,190 3,094,012
Allowance for loan losses (560,000) (117,000)
--------- ---------
Total secured notes receivable,
net fair value $1,435,190 2,977,012
========= =========
Changes in the allowance for loan losses were as follows:
1994 1993
---- ----
Balance, beginning of year $117,000 73,000
Change in net unrealized fair value
of secured notes receivable 443,000 44,000
------- -------
Balance, end of year $560,000 117,000
======= =======
These notes are secured by specific assets of the borrowing companies.
Interest rates on secured notes receivable at December 31, 1994 ranged
from 11.75% to 13.7%.
The allowance for loan losses is evaluated quarterly by the Managing
General Partners and is adjusted based upon changes to the portfolio
size and risk profile. There were no write-offs during 1994 or 1993.
Although the allowance for loan losses is established by evaluating
individual debtor repayment ability, the allowance represents the
Managing General Partners' assessment of the portfolio taken as a
whole.
Notes with a total cost basis of $1,366,767 were on nonaccrual status
due to uncertainties related to a borrower's financial condition at
December 31, 1994. Placement on nonaccrual status resulted in a
reversal of approximately $144,000 in accrued interest receivable of
which approximately $94,000 was accrued during the current year. The
Managing General Partners continue to monitor the progress of this
company. The fair value at December 31, 1994 is based on the Managing
General Partners' estimate of collectibility of these notes.
The scheduled principal repayments remaining over the next five years
are:
Year Ending Principal
December 31, Repayments
----------- ----------
1995 $ 872,671
1996 351,262
1997 297,106
1998 314,876
1999 64,759
---------
Total $1,900,674
=========
7. Cash and Cash Equivalents
-------------------------
Cash and cash equivalents at December 31, 1994 and 1993 consisted of:
1994 1993
---- ----
Demand accounts $ 2,241 2,304
Money-market accounts 11,369,292 16,184,985
---------- ----------
Total $11,371,533 16,187,289
========== ==========
8. Commitments
-----------
The Partnership is a party to financial instruments with off-balance-
sheet risk in the normal course of its business. Generally, these
instruments are commitments for future equity fundings, venture
capital limited partnership investments, equipment financing
commitments, or accounts receivable lines of credit that are
outstanding but not currently fully utilized by a borrowing company.
As they do not represent current outstanding balances, these unfunded
commitments are properly not recognized in the financial statements.
As of December 31, 1994, the Partnership had unfunded commitments as
follows:
Type
- ----
Equity investments $193,897
Venture capital limited partnership investments 704,998
-------
Total $898,895
=======
The Partnership uses the same credit policies in making these
commitments and conditional obligations as it does for on-balance-
sheet instruments. Commitments to extend financing are agreements to
lend to a company as long as there are no violations of any conditions
established in the contract. The credit lines generally have fixed
termination dates or other termination clauses. Since many of the
commitments are expected to expire without being fully drawn upon, the
total commitment amounts do not necessarily represent future cash
requirements. All convertible and secured note commitments funded
require collateral specified in the agreements.
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be
signed on its behalf by the undersigned, thereunto duly authorized.
TECHNOLOGY FUNDING VENTURE PARTNERS V,
AN AGGRESSIVE GROWTH FUND, L.P.
By: TECHNOLOGY FUNDING INC.
Managing General Partner
Date: March 17, 1995 By: /s/Frank R. Pope
----------------------------------
Frank R. Pope
Executive Vice President and
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report has been signed below by the following persons on behalf
of the Registrant and in the capacities and on the dates indicated:
Signature Capacity Date
--------- -------- ----
/s/Charles R. Kokesh President, Chief March 17, 1995
- ------------------------ Executive Officer
Charles R. Kokesh and Chairman of
Technology Funding Inc.
and Managing General
Partner of Technology
Funding Ltd.
/s/Frank R. Pope Executive Vice March 17, 1995
- ------------------------ President, Chief
Frank R. Pope Financial Officer,
Secretary and a
Director of Technology
Funding Inc. and a
General Partner of
Technology Funding Ltd.
/s/Gregory T. George Group Vice President March 17, 1995
- -------------------------- of Technology Funding
Gregory T. George Inc. and a General
Partner of Technology
Funding Ltd.
The above represents a majority of the Board of Directors of
Technology Funding Inc. and a majority of the General Partners of
Technology Funding Ltd.