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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, 1995
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
filed pursuant to Rule 424(c) of the General Rules and Regulations
under the Securities Act of 1933, as modified by Post-Effective
Amendment No. 1 dated April 23, 1990, are incorporated by reference in
Parts I and III hereof. Portions 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 8, 1995 pursuant to a Notice of Meeting
dated July 17, 1995. 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, 1995. In addition,
proxies submitted by Limited Partners documented that a
majority vote was received to pass a proposed amendment to
the Partnership Agreement. This amendment added a new
Section, 14.11, which provides that the Management Committee
shall be required to call a meeting of Limited Partners once
every three years provided that the only purpose of the
meeting is to seek Limited Partner consent of existing
Managing General Partners and approve the existing
independent certified public accountants for the Partnership.
The number of Units voted in favor, against and abstained for
each matter submitted are as follows:
FOR AGAINST ABSTAINED
--- ------- ---------
Individual general partners 243,114 0 5,972
Managing General Partners 243,808 0 5,278
Ratification of KPMG Peat
Marwick LLP 232,169 1,625 15,292
Amendment to Partnership
Agreement 217,938 13,516 17,632
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, 1995, there were 6,560 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,
-------------------------------------------------------------------
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
Total interest income $ 620,711 943,311 1,130,936 731,451 294,203
Net operating loss (1,095,815) (689,890) (503,124) (3,511,985) (877,461)
Net realized gain from
sales of equity
investments 935,950 3,209,979 65,814 -- --
Realized losses from
investment write-downs (3,137,377) (541,125) (187,887) -- --
Recoveries from investments
previously written-off 45,248 -- -- -- --
Net realized loss from
venture capital limited
partnership investments -- -- (3,712) (4,657) --
Net realized (loss) income (3,251,994) 1,978,964 (628,909) (3,516,642) (877,461)
Change in net unrealized
fair value:
Equity investments 765,254 (314,082) 1,933,993 1,297,036 --
Secured notes receivable (395,000) (443,000) (44,000) (73,000) --
Net (loss) income (2,881,740) 1,221,882 1,261,084 (2,292,606) (877,461)
Net realized (loss)
income per Unit (8) 5 (2) (16) (14)
Total assets 29,698,636 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 1995, net cash used by operations totaled
$1,105,425. The Partnership paid management fees of
$796,279 to the Managing General Partners and reimbursed
related parties for operating expenses of $646,908. In
addition, $51,913 was paid to the individual general
partners as compensation for their services. Other
operating expenses of $231,037 were paid. The Partnership
received $620,712 in interest income.
In 1995, the Partnership issued $1,066,666 in secured notes
receivable to a portfolio company in the computer systems
and software industry. Equity investments of $7,414,638
were funded primarily to portfolio companies in the
environmental, medical, computer systems and software, and
industrial/business automation industries. Repayments of
secured and convertible notes receivable during 1995
provided cash of $588,817. Proceeds from the sale of
equity investments were $2,022,421 of which $783,735
related to sales prior to December 31, 1994 which have been
settled. At December 31, 1995, the Partnership had
commitments to fund additional investments totaling
$2,420,326 and has an outstanding guarantee of $1,000,000
as discussed in Note 8 to the financial statements.
During 1995, YES! Entertainment Corporation completed its
initial public offering ("IPO") and Khepri Pharmaceuticals.
Inc. was acquired by Arris Pharmaceuticals. Although the
Partnership's holdings are subject to selling restrictions,
these developments indicate potential future liquidity for
these investments.
Cash and cash equivalents at December 31, 1995 were
$4,396,042. 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
- ---------------------
1995 compared to 1994
- ---------------------
Net loss was $2,881,740 in 1995 compared to net income of
$1,221,882 at in 1994. The decrease was primarily due to a
$2,274,029 decrease in net realized gain from sales of
equity investments, a $2,596,252 increase in realized
losses from investment write-downs and a $322,600 decrease
in interest income. These changes were partially offset by
a $1,079,336 increase in the change in net unrealized fair
value of equity investments.
Net realized gains from sales of equity investments of
$935,950 for 1995 related to the partial sales of UroMed
Corporation and TheraTx, Incorporated. During 1994
$3,209,979 in net realized gains was related to the sales
of TheraTx, Incorporated, UroMed Corporation, Erox
Corporation, and Orthologic Corporation.
Realized losses from investment write-downs of $3,137,377
during 1995 primarily related to portfolio companies in the
environmental, medical and retail/consumer products
industries. In 1994, the Partnership realized losses from
investment write-downs of $541,125 related to portfolio
companies in the medical and environmental industries.
Total interest income was $620,711 and $943,311 during 1995
and 1994, respectively. The decrease was primarily due to
lower secured notes receivable interest income resulting
from notes placed on nonaccrual status.
During 1995, the increase in fair value of equity
investments of $765,254 was primarily due to portfolio
companies in the communications, microelectronics, and
retail/consumer products industries, partially offset by
decreases in portfolio companies in the medical industry.
During 1994, the decrease 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.
Total operating expenses were $861,329 and $800,000 in 1995
and 1994, respectively. Pursuant to the Partnership
Agreement, the Partnership may not reimburse the General
Partners for expenses that aggregate more than 2% of total
Limited Partner capital contributions. As a result,
operating expenses of $770,116 and $287,129 were absorbed
by the General Partners in 1995 and 1994, respectively. In
addition, as indicated in Note 3 to the financial
statements, 1995 operating expenses included additional
administrative and investor services expenses of $453,884
of which $61,329 related to a prior year in which the
limitation was not in effect. Had the limitation not been
in effect and had the additional expenses been recorded in
prior years, total operating expenses in 1995 and 1994
would have been $1,314,902 and $1,179,542, respectively.
The increase of $135,360 between 1995 and 1994 was
primarily due to higher investment operations and
administrative and investor services expenses resulting
from higher overall portfolio activities.
Given the inherent risk associated with the business of the
Partnership, the future performance of the portfolio
company investments may significantly impact future
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 net unrealized fair
value of equity investments, a $399,000 decrease in the
change in net unrealized 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 sales 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.
Net realized gain from sales 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,
the $65,814 net realized gain 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. As a result of the operating expense limitation,
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.
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. The Management Committee is
responsible for the management and administration of the
Partnership. The members of the Management Committee
consist of the three individual general partners and a
representative from each of Technology Funding Ltd., a
California limited partnership ("TFL"), and its wholly-
owned subsidiary, Technology Funding Inc., a California
corporation ("TFI"). TFL and TFI are the Managing General
Partners. Information concerning the ownership of TFL and
the business experience of the key officers of TFI and the
partners of TFL is incorporated by reference from the
sections entitled "Management of the Partnership - The
Managing General Partners" and "Management of the
Partnership - Key Personnel of the Managing General
Partners" in the Prospectus, which are incorporated herein
by reference. Changes in this information that have
occurred since the date of the Prospectus are included 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 1995, the Partnership incurred $796,284 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, 1995. General Partner
Overhead (as defined in the Partnership Agreement) includes
the General Partners' share of rent and utilities, and
certain salaries and benefits paid by the Managing General
Partners in performing their obligations to the
Partnership. As compensation for their services, the
individual general partners each receive $6,000 annually,
plus $1,000 for each attended meeting of the individual
general partners and related expenses. For the year ended
December 31, 1995, $51,913 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 Managing
General Partners control the affairs of the Partnership
pursuant to the Partnership Agreement.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- ------- ----------------------------------------------
The Registrant, or its investee companies, have engaged in
no transactions with the Managing General Partners or their
officers and partners other than as described above, in the
notes to the financial statements, or in the Partnership
Agreement.
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
- ------- ------------------------------------------------------
FORM 8-K
--------
(a) List of Documents filed as part of this Annual Report
on Form 10-K
(1) Financial Statements - the following financial
statements are filed as a part of this Report:
Independent Auditors' Report
Balance Sheets as of December 31, 1995
and 1994
Statements of Operations for the years
ended December 31, 1995, 1994 and 1993
Statements of Partners' Capital for the years
ended December 31, 1995, 1994 and 1993
Statements of Cash Flows for the years
ended December 31, 1995, 1994 and 1993
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, 1995.
(c) Financial Data Schedule for the year ended and as of
December 31, 1995 (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, 1995 and 1994, and
the related statements of operations, partners' capital, and cash
flows for each of the years in the three-year period ended December
31, 1995. These financial statements are the responsibility of the
Partnership's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements. Our procedures
included confirmation of certain securities and loans owned, by
correspondence with the individual investee and borrowing companies,
and a physical examination of those securities held by a
safeguarding agent as of December 31, 1995 and 1994. 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, 1995 and 1994, and the results of its
operations and its cash flows for each of the years in the three-
year period ended December 31, 1995 in conformity with generally
accepted accounting principles.
San Francisco, California KPMG Peat Marwick LLP
March 22, 1996
BALANCE SHEETS
- --------------
December 31,
----------------------
1995 1994
---- ----
ASSETS
Investments:
Equity investments (cost basis of
$20,607,017 and $16,068,778 for 1995
and 1994, respectively) $24,289,218 18,985,725
Secured notes receivable, net
(cost basis of $1,954,572 and
$1,995,190 for 1995 and 1994,
respectively) 999,572 1,435,190
---------- ----------
Total investments 25,288,790 20,420,915
Cash and cash equivalents 4,396,042 11,371,533
Other assets 13,804 807,401
---------- ----------
Total $29,698,636 32,599,849
========== ==========
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable and accrued expenses $ 25,950 29,751
Due to related parties 40,970 55,781
Other liabilities -- 861
---------- ----------
Total liabilities 66,920 86,393
Commitments, contingencies and
subsequent events
(Notes 3, 5 and 8)
Partners' capital:
Limited Partners
(Units outstanding of
400,000 in both 1995 and 1994) 26,925,872 30,145,346
General Partners (21,357) 11,163
Net unrealized fair value increase
(decrease) from cost:
Equity investments 3,682,201 2,916,947
Secured notes receivable (955,000) (560,000)
---------- ----------
Total partners' capital 29,631,716 32,513,456
---------- ----------
Total $29,698,636 32,599,849
========== ==========
See accompanying notes to financial statements.
STATEMENTS OF OPERATIONS
- ------------------------
For the Years Ended December 31,
----------------------------------
1995 1994 1993
---- ---- ----
Interest Income:
Secured notes
receivable $ 106,723 385,438 531,039
Short-term investments 513,988 557,873 599,897
--------- --------- ---------
Total interest income 620,711 943,311 1,130,936
Costs and expenses:
Management fees 796,284 796,201 799,060
Individual general partners'
compensation 51,913 30,000 28,000
Amortization of
organizational costs 7,000 7,000 7,000
Operating expenses:
Administrative and
investor services 874,536 461,546 453,584
Investment operations 551,937 457,622 350,660
Professional fees 81,538 62,666 93,597
Computer services 123,434 105,295 130,972
Expenses absorbed by
General Partners (770,116) (287,129) (228,813)
--------- --------- ---------
Total operating
expenses 861,329 800,000 800,000
--------- --------- ---------
Total costs and expenses 1,716,526 1,633,201 1,634,060
--------- --------- ---------
Net operating loss (1,095,815) (689,890) (503,124)
Net realized gain from
sales of equity 935,950 3,209,979 65,814
investments
Realized losses from
investment write-downs (3,137,377) (541,125) (187,887)
Recoveries from
investments previously
written off 45,248 -- --
Net realized loss from
venture capital limited
partnership investments -- -- (3,712)
--------- --------- ---------
Net realized (loss) income (3,251,994) 1,978,964 (628,909)
Change in net unrealized
fair value:
Equity investments 765,254 (314,082) 1,933,993
Secured notes receivable (395,000) (443,000) (44,000)
--------- --------- ---------
Net (loss) income $(2,881,740) 1,221,882 1,261,084
========= ========= =========
Net realized (loss) income
per Unit $ (8) 5 (2)
========= ========= =========
See accompanying notes to financial statements.
STATEMENTS OF PARTNERS' CAPITAL
- -------------------------------
For the years ended December 31, 1995, 1994 and 1993:
Net Unrealized Fair Value
Increase (Decrease) From Cost
-----------------------------
Limited General Equity Secured Notes
Partners Partners Investments Receivable Total
-------- -------- ----------- ------------- -----
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
Net realized loss (3,219,474) (32,520) -- -- (3,251,994)
Change in net unrealized
fair value:
Equity investments -- -- 765,254 -- 765,254
Secured notes receivable -- -- -- (395,000) (395,000)
---------- -------- --------- -------- ----------
Partners' capital,
December 31, 1995 $26,925,872 (21,357) 3,682,201 (955,000) 29,631,716
========== ======== ========= ======== ==========
See accompanying notes to financial statements.
STATEMENTS OF CASH FLOWS
- ------------------------
For The Years Ended December 31,
------------------------------------
1995 1994 1993
---- ---- ----
Cash flows from operating
activities:
Interest received $ 620,712 903,296 929,791
Cash paid to vendors (231,037) (246,871) (339,936)
Cash paid to related
parties (1,495,100) (1,399,806) (1,573,401)
---------- ---------- ----------
Net cash used by
operating activities (1,105,425) (743,381) (983,546)
---------- ---------- ----------
Cash flows from investing
activities:
Secured notes receivable
issued (1,066,666) (128,812) (1,650,646)
Purchase of equity
investments (7,414,638) (8,513,620) (5,143,397)
Repayment of secured and
convertible notes
receivable 588,817 1,247,037 554,784
Proceeds from sales of
investments 2,022,421 3,287,569 146,313
Distributions from venture
capital limited partnership
investments -- 35,451 1,010
---------- ---------- ----------
Net cash used by
investing activities (5,870,066) (4,072,375) (6,091,936)
---------- ---------- ----------
Cash flows from financing
activities:
Distributions to Limited and
General Partners -- -- (174,577)
---------- ---------- ----------
Net cash used
by financing activities -- -- (174,577)
---------- ---------- ----------
Net decrease in cash
and cash equivalents (6,975,491) (4,815,756) (7,250,059)
Cash and cash equivalents
at beginning of year 11,371,533 16,187,289 23,437,348
---------- ---------- ----------
Cash and cash equivalents
at end of year $ 4,396,042 11,371,533 16,187,289
========== ========== ==========
See accompanying notes to financial statements.
STATEMENTS OF CASH FLOWS (continued)
- -----------------------------------
For the Years Ended December 31,
--------------------------------------
1995 1994 1993
---- ---- ----
Reconciliation of net
(loss) income to net cash
used by operating activities:
Net (loss) income $(2,881,740) 1,221,882 1,261,084
Adjustments to reconcile
net (loss) income to net
cash used by operating
activities:
Amortization of
organizational costs 7,000 7,000 7,000
Change in net unrealized
fair value:
Equity investments (765,254) 314,082 (1,933,993)
Secured notes
receivable 395,000 443,000 44,000
Realized losses from
investment write-downs 3,137,377 541,125 187,887
Net realized gain from sales
of equity investments (935,950) (3,209,979) (65,814)
Recoveries from investments
previously written off (45,248) -- --
Other, net (5,992) (11,072) (7,760)
Changes in:
Accrued interest on
convertible and secured
notes 5,993 (28,943) (189,673)
Other assets 3,710 16,819 (31,423)
Accounts payable and
accrued expenses (3,801) (16,826) (16,999)
Due to/from related
parties (14,811) (18,148) (211,454)
Other liabilities (1,709) (2,321) (26,401)
--------- --------- ---------
Net cash used by operating
activities $(1,105,425) (743,381) (983,546)
========= ========= =========
Non-cash investing
activities:
Common stock recovered
from equity investments
previously written off $ 45,248 -- --
========= ========= =========
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.
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.
Preparation of Financial Statements and Use of Estimates
- --------------------------------------------------------
These financial statements have been prepared on the accrual basis of
accounting in accordance with generally accepted accounting
principles. This required management to make estimates and
assumptions that affect the reported amounts of assets and
liabilities and disclosure on contingent assets and liabilities at
the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results
could differ from those estimates.
The financial statements included non-marketable investments of
$23,863,594 and $17,510,124 (81% and 54% of partners' capital) as of
December 31, 1995 and 1994, respectively, whose values have been
estimated by the Managing General Partners in the absence of readily
ascertainable market values. 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 investment
existed, the differences could be material. In addition, for certain
publicly traded investments that may not be marketable due to selling
restrictions, the Managing General Partners have applied an
illiquidity discount of 25% in determining fair value as mentioned
below.
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.
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.
Since the accompanying financial statements are prepared using
generally accepted accounting principles which may not equate to tax
accounting, the Partnership's total tax basis in investments was
higher than the reported total cost basis of $22,561,589 by
$1,583,508 as of December 31, 1995.
Net Realized Income (Loss) Per Unit
- -----------------------------------
Net realized income (loss) per Unit is calculated by dividing the
weighted average number of Units outstanding (400,000) at December
31, 1995, 1994 and 1993 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 and subordinated notes receivable as repayment of these
notes generally 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. The 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,
--------------------------------
1995 1994 1993
---- ---- ----
Increase in fair value
from cost of marketable
equity securities $ 487,551 1,465,476 537,645
Increase in fair value from
cost of non-marketable
equity securities 3,194,650 1,451,471 2,693,384
--------- --------- ---------
Net unrealized fair
value increase from
cost at end of year 3,682,201 2,916,947 3,231,029
Net unrealized fair
value increase from
cost at beginning of year 2,916,947 3,231,029 1,297,036
--------- --------- ---------
Change in net unrealized
fair value of equity
investments $ 765,254 (314,082) 1,933,993
========= ========= =========
3. Related Party Transactions
--------------------------
Related party costs are included in costs and expenses shown on the
Statements of Operations. For the years ended December 31, 1995,
1994 and 1993, related party costs were as follows:
1995 1994 1993
---- ---- ----
Management fees $ 796,284 796,201 799,060
Individual General
Partners' compensation 51,913 30,000 28,000
Amortization of organi-
zational costs 7,000 7,000 7,000
Reimbursable operating
expenses:
Administrative and
investor services 758,167 308,321 299,021
Investment operations 520,607 428,970 333,707
Computer services 123,434 105,295 130,972
Expenses absorbed by
General Partners (770,116) (287,129) (228,813)
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.
Such amounts due to related parties were $66,354 and $66,349 at
December 31, 1995 and 1994, respectively.
The Partnership reimburses the Managing General Partners for
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. At December 31, 1995, amounts due from related
parties related to such expenses were $25,384 compared to $10,568 due
to related parties at December 31, 1994. During late 1995, operating
cost allocations to the Partnership were reevaluated. The Managing
General Partners determined that they had not fully recovered
allocable overhead as permitted by the Partnership Agreement. As a
result, the Partnership was charged additional administrative and
investor services expenses of $453,884 that was not previously
recognized by the Partnership; however, $392,555 of this amount was
absorbed by the Managing General Partners. The $453,884 consisted of
$137,341, $92,413, $92,695 and $131,435 for 1995, 1994, 1993 and
prior years, respectively.
As discussed in 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. As a result of this limitation in 1995, 1994 and
1993, the Managing General Partners absorbed Partnership operating
costs of $770,116, $287,129, and $228,813 respectively.
Had the limitation not been in effect and had the additional expenses
been recorded in prior years, total operating expenses would have
been $1,314,902, $1,179,542 and 1,121,508 for 1995, 1994, and 1993,
respectively. The increase of $135,360 between 1995 and 1994 was due
to higher investment operations and administrative and investor
services expenses from higher overall portfolio activities.
As compensation for their services, the individual general partners
each receive $6,000 annually, plus $1,000 for each attended meeting
of the individual general partners and related expenses. Two of the
three individual general partners each own 20 Units and the third
owns 70 Units.
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.
In 1995, TFL had a sublease rental agreement with a Partnership
portfolio company in the medical industry. The terms of this
agreement was similar to those which would apply to an unrelated
party.
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. Unit months
are the number of half months a Unit would be
outstanding if held from the date the original holder of
such Unit was deemed admitted into the Partnership until
the termination of the offering of Units.
(b) Losses:
(i) First, to the partners as necessary to offset the net
profits previously allocated to the partners under
(a)(iii) above; then
(ii) 99% to the Limited Partners and 1% to the Managing
General Partners.
Losses allocable to Limited Partners in excess of their capital
account balances will be allocated to the Managing General Partners.
Net profits thereafter, otherwise allocable to those Limited
Partners, and 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, 1995 and 1994, equity investments consisted of:
December 31, 1995 December 31, 1994
Principal ----------------- -----------------
Investment Amount or Cost Fair Cost Fair
Industry/Company Position Date Shares Basis Value Basis Value
- ---------------- -------- ---- ------ ----- ----- ----- -----
Biomedical
- ----------
Arcturus Common
Pharmaceutical share
Corporation warrant
at $3.62;
expiring
08/97 08/92 16,549 $ 0 0 4,000 15,490
Arris Common
Pharmaceuticals,shares
Inc. 12/95 26,723 353,000 282,596 -- --
Arris Common
Pharmaceuticals,shares held
Inc. in escrow 12/95 11,132 147,000 117,721 -- --
Khepri Series C
Pharmaceuticals, Preferred
Inc. shares 11/94 333,333 -- -- 500,000 500,000
Redcell, Inc. Series B
Preferred
shares 12/94 797,872 750,000 750,000 750,000 750,000
Biotechnology
- -------------
CV Therapeutics, Series D
Inc. Preferred
shares 03/94 625,000 1,250,000 1,250,000 1,250,000 1,250,000
CV Therapeutics Series E
Preferred
shares 09/95 64,000 126,720 126,720 -- --
CV Therapeutics Series E
Preferred
share warrant
at $2.00;
expiring
09/00 09/95 32,000 1,280 1,280 -- --
Molecular Series B
Geriatrics Preferred
Corporation shares 09/93 500,000 250,000 250,000 250,000 250,000
Prolinx, Inc. Series A
Preferred
shares 05/95 328,929 328,929 328,929 -- --
Prolinx, Inc. Series A
Preferred
shares 12/95 342,071 342,071 342,071 -- --
Communications
- --------------
Coded Common
Communications shares
Corporation 04/93 145,454 149,818 143,999 396,000 171,781
Coded Common
Communications share
Corporation warrant
at $3.16;
expired
04/95 04/93 145,454 -- -- 4,000 0
Positive Series E
Communications, Preferred
Inc. shares 09/94 285,714 1,000,000 1,214,285 1,000,000 1,000,000
Positive Series G
Communications, Preferred
Inc. shares 08/95 17,885 76,011 76,011 -- --
Unitech Telecom, Convertible
Inc. note (1) 05/94 $100,000 -- -- 106,039 106,039
Unitech Telecom, Common
Inc. share
warrant
at $2.75;
expiring
05/99 03/95 36,364 0 502,187 0 0
Unitech Telecom, Series A
Inc. Preferred
shares 03/95 46,875 375,000 776,250 -- --
Computer Systems and Software
- -----------------------------
Ascent Logic Common
Corporation share
warrant
at $.94;
expiring
03/97 03/92 31,915 2,500 0 2,500 0
Ascent Logic Series D
Corporation Preferred
share
warrant
at $.35;
expired
01/95 10/92 571,428 -- -- 4,000 0
Ascent Logic Series C
Corporation Preferred
shares 10/92 425,532 396,000 148,936 396,000 148,936
Lynk Systems, Common
Inc. share
warrant
at $1.00;
expiring
07/98 07/93 105,000 3,500 140,700 3,500 8,750
Pilot Network Series D
Services, Inc. Preferred
shares 03/95 371,557 650,225 650,225 -- --
Velocity Series A
Incorporated Preferred
shares 10/94 12,572,652 2,068,674 2,068,674 2,068,674 2,068,674
Velocity Common
Incorporated share
warrant
at $1.00;
expiring
03/00 03/95 25,000 0 0 -- --
Velocity Convertible 08/95-
Incorporated notes (1) 10/95 $250,000 250,000 250,000 -- --
Environmental
- -------------
Conversion Series A
Technologies Preferred
International, shares
Inc. 05/95 600,000 1,500,000 1,500,000 -- --
Conversion Series A
Technologies Preferred
International, share warrants
Inc. at $3.00;
expiring
05/00 05/95 73,828 0 0 -- --
Conversion Convertible
Technologies notes (1)
International, 09/95-
Inc. 11/95 $187,500 190,011 190,011 -- --
Conversion Common share
Technologies warrant
International, at $4.00;
Inc. expiring 12/98 12/95 93,750 0 0 -- --
SRG Holdings, Series C
Inc. Preferred
shares 09/93 6,666,667 0 0 1,000,000 1,000,000
SRG Holdings, Convertible
Inc. note (1) 07/94 $56,880 63,465 63,465 58,852 58,852
SRG Holdings, Convertible
Inc. note (1) 09/94 $116,261 128,507 128,507 119,077 119,077
SRG Holdings, Convertible
Inc. note (1) 01/95 $5,101 5,488 5,488 -- --
SRG Holdings, Common share
Inc. warrant at
$.0526; expiring
03/05 03/95 1,389,302 0 0 -- --
SRG Holdings, Subordinated
Inc. note (1) 04/95 $56,880 60,656 60,656 -- --
SRG Holdings, Subordinated
Inc. note (1) 06/95 $122,547 137,743 137,743 -- --
TMC, Inc. Series A
Preferred
shares 12/95 50,000 25,000 25,000 -- --
Transphase Common
Systems, Inc. share
warrant
at $12.57;
expiring 11/92-
11/97-02/98 02/93 25,269 0 0 0 0
Transphase Common
Systems, Inc. share
warrant
at $12.57;
expiring
11/99 02/93 1,710 0 0 0 0
Transphase Common
Systems, Inc. share
warrant
at $12.57;
expiring
11/99 04/94 10,263 0 0 0 0
Transphase Common
Systems, Inc. share
warrant
at $12.57;
expiring
11/99 11/94 1,710 0 0 0 0
Industrial/Business Automation
- ------------------------------
Avalon Imaging, Redeemable
Inc. Series A
Preferred
shares 12/94 144,509 250,001 250,001 250,001 250,001
Bolder Series C
Technologies Preferred
Corporation shares 09/94 250,000 500,000 1,000,000 500,000 500,000
Bolder Series B
Technologies Preferred
Corporation shares 10/94 50,001 50,001 200,004 50,001 100,002
Bolder Common
Technologies share
Corporation warrant
at $0.50;
expiring
03/00 03/95 8,694 87 30,429 -- --
Bolder Series C
Technologies Preferred
Corporation shares 05/95 810 1,622 3,240 -- --
Bolder Series D
Technologies Preferred
Corporation shares 05/95 17,366 69,467 69,464 -- --
Portable Series A
Energy Preferred
Products, Inc. shares 06/95 1,100,000 1,100,000 1,100,000 -- --
Medical
- -------
Acusphere, Inc. Series B
Preferred
shares 05/95 250,000 400,000 400,000 -- --
ADESSO Specialty Series A
Services Preferred
Organization, shares
Inc. 07/95 400,000 400,000 400,000 -- --
Biex, Inc. Series A
Preferred
shares 07/93 128,205 83,333 128,205 83,333 128,205
Biex, Inc. Series B
Preferred
shares 10/94 63,907 63,907 63,907 63,907 63,907
Biex, Inc. Series B
Preferred
share warrant
at $1.00;
expiring
10/99 10/94 23,540 8 0 8 0
Biex, Inc. Series C
Preferred
shares 06/95 83,334 83,334 83,334 -- --
Biex, Inc. Series C
Preferred
shares 12/95 83,333 83,333 83,333 -- --
CareCentric Series A
Solutions, Inc. Preferred
shares 10/95 166,667 250,000 250,000 -- --
Circadian, Inc. Series A
Preferred
shares 12/92 500,000 0 0 500,000 1,000,000
Circadian, Inc. Series B
Preferred
shares 12/93 21,333 0 0 170,664 170,664
Circadian, Inc. Convertible 09/95 &
notes (1) 11/95 $141,980 0 0 -- --
Everest & Common
Jennings shares
International,
Ltd. 01/94 592,717 637,516 325,994 637,516 318,882
Intelliwire, Common
Inc. shares 02/93 8,715 436 6,536 436 12,027
Intelliwire, Series A
Inc. Preferred
shares 02/93 4,358 2,179 3,269 2,179 6,014
Megabios Corp. Series C
Preferred
shares 09/94 579,375 750,001 750,001 750,001 750,001
Megabios Corp. Series C
Preferred
shares 12/94 173,812 225,000 225,000 225,000 225,000
Megabios Corp. Series C
Preferred
shares 07/95 150,637 195,000 195,000 -- --
Oculon Series II
Corporation Senior
Preferred
shares 06/92 400,000 -- -- 0 0
Oculon Series III
Corporation Senior
Preferred
shares 01/94 106,796 -- -- 0 0
Oxford Common
GlycoSystems shares
Group PLC 08/93 533,867 999,927 427,094 999,927 999,927
Paradigm Series A
Biosciences, Preferred
Inc. shares 04/93 322,581 396,000 396,000 396,000 396,000
Paradigm Series A
Biosciences, Preferred
Inc. shares 12/94 215,054 270,667 270,667 270,667 270,667
Paradigm Convertible
Biosciences, note (1)
Inc. 10/95 $102,500 104,544 104,544 -- --
Paradigm Series B
Biosciences, Preferred
Inc. share warrant
at $2.50;
expiring 10/00 10/95 10,250 0 0 -- --
Periodontix, Series A
Inc. Preferred
shares 12/93 150,000 150,000 150,000 150,000 150,000
Pharmos Common
Corporation shares 04/95 60,331 45,248 88,083 -- --
PHERIN Series B
Corporation Preferred
shares 08/91 200,000 200,000 200,000 200,000 200,000
Physiometrix, Common
Incorporated share
warrant
at $1,750;
expiring
06/97 06/92 16 0 0 0 0
Physiometrix, Common 01/94 &
Incorporated shares 05/94 337 375,054 1,685 375,054 1,680
Physiometrix, Series D
Incorporated Preferred 01/94 &
shares 02/94 338,151 114,971 1,690,755 114,971 1,690,755
R2 Technology, Series A-1
Inc. Preferred
shares 05/94 400,000 400,000 400,000 400,000 400,000
R2 Technology, Convertible
Inc. note (1) 11/95 $133,334 135,044 135,044 -- --
R2 Technology, Series B
Inc. Preferred
share warrant
expiring 11/00;
exercise price
to be
determined 11/95 6,667 0 0 -- --
TheraTx, Common
Incorporated shares (2) 06/94 70,042 105,063 867,120 121,563 1,588,423
UroMed Common
Corporation shares 03/94 179,828 -- -- 286,236 831,705
Microelectronics
- ----------------
Tessera, Inc. Common
share
warrant
at $.73;
expiring
04/97 04/92 72,754 3,500 82,940 3,500 0
Tessera, Inc. Series B
Preferred
shares 05/92 666,666 500,000 1,246,665 500,000 500,000
Retail/Consumer Products
- ------------------------
PETsMART, Inc. Common
shares 12/95 454 14,528 13,756 -- --
YES! Series B
Entertainment Preferred
Corporation shares 01/93 750,000 -- -- 500,000 375,000
YES!
Entertainment Common
Corporation shares 06/95 55,555 166,665 271,247 -- --
Venture Capital Limited Partnership Investments
- -----------------------------------------------
Colorado Venture Ltd.
Management Partnership
Equity Fund IV interests various $150,000 150,000 129,588 100,000 90,163
El Dorado Ltd.
Ventures III Partnership
interests various $187,500 149,960 189,689 99,960 120,320
OW & W Pacrim Ltd.
Investments Partnership
Limited interests various $250,000 250,000 247,508 250,000 250,183
Spectrum Equity Ltd.
Investors Partnership
interests various $200,525 200,144 186,761 74,619 72,938
Trinity Ventures Ltd.
IV, L.P. Partnership
interests various $120,316 98,879 90,901 80,593 75,662
---------- ---------- ---------- ----------
Total equity investments $20,607,017 24,289,218 16,068,778 18,985,725
========== ========== ========== ==========
- -- No investment held at end of period.
0 Investment active with a carrying value or fair value of zero.
(1) Convertible and subordinated notes include accrued interest. Interest rates on
such notes range from 6% to 24%.
(2) Common stockholders have a right to purchase one Preferred share for each share
of common stock held, subject to certain conditions.
Marketable Equity Securities
- ----------------------------
At December 31, 1995 and 1994, marketable equity securities had
aggregate costs of $937,645 and $1,445,315, respectively, and
aggregate market values of $1,425,196 and $2,910,791, respectively.
The net unrealized gains at December 31, 1995 and 1994 included gross
gains of $804,892 and $2,012,329, respectively.
Acusphere, Inc.
- ---------------
In May 1995, the Partnership invested in Acusphere, Inc. by purchasing
250,000 Series B Preferred shares at a total cost of $400,000.
ADESSO Specialty Services Organization, Inc.
- --------------------------------------------
In July 1995, the Partnership invested in ADESSO Specialty Services
Organization, Inc. by purchasing 400,000 Series A Preferred shares at
a total cost of $400,000.
Arris Pharmaceuticals, Inc./Khepri Pharmaceuticals, Inc.
- --------------------------------------------------------
In December 1995, Khepri Pharmaceuticals, Inc. ("Khepri") was acquired
by Arris Pharmaceuticals, Inc. ("Arris"). The Partnership's Series C
Preferred shares were exchanged for 37,855 shares of Arris common
stock, of which 11,132 shares were held in an escrow account. The
Partnership recorded a decrease in fair value of $99,683 to reflect
the publicly-traded market price of its investment at December 31,
1995; the investment fair value was adjusted to reflect a 25% discount
for restricted securities.
Biex, Inc.
- ----------
In June and December 1995, the Partnership made additional investments
in Biex, Inc. by purchasing 166,667 Series C Preferred shares at a
total cost of $166,667.
Bolder Technologies Corporation
- -------------------------------
In March 1995, the Partnership issued an unsecured convertible note
for $69,467 and purchased a warrant for 8,694 common shares with an
exercise price of $0.50 per share for $87.
Then in May 1995, the Partnership converted the unsecured note
mentioned above into 17,366 Series D Preferred shares and the accrued
interest of $1,622 into 810 Series C preferred shares. This round of
equity conversion in which other investors participated indicated an
increase in the change in fair value of $631,959 for the Partnership's
investments.
CareCentric Solutions, Inc.
- --------------------------
In October 1995, the Partnership made an investment in CareCentric
Solutions, Inc. by purchasing 166,667 Series A Preferred shares at a
total cost of $250,000.
Circadian, Inc.
- ---------------
In early 1996, the company filed for protection under Chapter 7 of the
United States Bankruptcy Code. Accordingly, the Partnership has
written off its investments of $815,892 of which $670,664 had been
invested as of January 1, 1995.
Coded Communications Corporation
- --------------------------------
During the second quarter of 1995, the Managing General Partners
determined that there had been an other than temporary decline in
value of the Partnership's investments. As a result, the Partnership
realized a loss of $250,182. The Partnership also recorded a decrease
in fair value of $27,782 to reflect the unrestricted market value at
December 31, 1995.
Conversion Technologies International, Inc.
- -------------------------------------------
In May 1995, the Partnership invested $1,500,000 in Conversion
Technologies International, Inc. by purchasing 600,000 Series A
Preferred shares and receiving a warrant to purchase Series A
Preferred shares. Then in the second half of 1995, the Partnership
issued $187,500 in convertible notes to the company.
CV Therapeutics, Inc.
- ---------------------
In September 1995, the Partnership made an additional investment in CV
Therapeutics, Inc. by purchasing 64,000 Series E Preferred shares and
receiving a warrant to purchase 32,000 Series E Preferred shares for a
total cost of $128,000.
Lynk Systems, Inc.
- ------------------
In the fourth quarter of 1995, the company had a series C round of
equity financing in which the Partnership did not participate. The
pricing of this round with other investors indicated an increase in
the fair value of $131,950 for the Partnership's existing investment.
Megabios Corp.
- --------------
In July 1995, the Partnership made an additional $195,000 investment
in Megabios Corp. by purchasing 150,637 Series C Preferred shares.
Oxford GlycoSystems Group PLC
- -----------------------------
In March 1995, the company had a new round of equity financing in
which the Partnership did not participate. The pricing of this round
indicated a decrease in fair value of $572,833 for the Partnership's
existing investments.
Paradigm Biosciences, Inc.
- --------------------------
In October 1995, the Partnership issued $102,500 in convertible notes
to the company and received a warrant to purchase 10,250 Series B
Preferred shares at $2.50 per share.
Pharmos Corporation/Oculon Corporation
- --------------------------------------
In March 1995, Oculon Corporation ("Oculon") was acquired by Pharmos
Corporation ("Pharmos"). The Partnership's Series II Senior Preferred
shares were canceled while the Series III Senior Preferred shares were
exchanged for 60,331 shares of marketable, unrestricted Pharmos common
stock. The Partnership recorded the $45,248 cost basis of the Pharmos
stock as a recovery from Oculon investments previously written off.
An increase in fair value of $42,835 reflected the market value of the
Pharmos stock at December 31, 1995.
Pilot Network Services, Inc.
- ----------------------------
In March 1995, the Partnership invested $650,225 in the company by
purchasing 371,557 Series D Preferred shares.
Portable Energy Products, Inc.
- ------------------------------
In June 1995, the Partnership invested $1,100,000 in the company by
purchasing 1,100,000 Series A Preferred shares.
Positive Communications, Inc.
- -----------------------------
In August 1995, the Partnership made an additional $76,011 investment
in Positive Communications, Inc. by purchasing 17,885 Series G
Preferred shares. The pricing of this financing in which other
investors participated indicated an increase in the change in fair
value of $214,285 in the Partnership's existing investments.
Prolinx, Inc.
- -------------
In May and December 1995, the Partnership invested $671,000 in
Prolinx, Inc. by purchasing 671,000 Series A Preferred shares.
R2 Technology, Inc.
- -------------------
In November 1995, the Partnership issued a $133,334 convertible note
to the company and received a warrant to purchase Series B Preferred
shares. The warrant exercise price will be determined upon completion
of the next round of equity financing.
SRG Holdings, Inc.
- ------------------
In late 1995, based on the Managing General Partners' opinion, there
has been an other than temporary decline in value for the Series C
Preferred shares. Accordingly, a write-down of $1,000,000 was
recorded. However, the Managing General Partners believe that the
value of existing and newly issued convertible and subordinated notes
in 1995 totaling $184,528, are collectible.
Tessera, Inc.
- -------------
In the fourth quarter of 1995, the company had a Series C round of
equity financing in which the Partnership did not participate. The
pricing of this financing indicated an increase in the change in fair
value of $829,605 for the Partnership's existing investments.
TheraTx, Inc.
- -------------
In January 1995, the Partnership sold 11,000 common shares of TheraTx,
Inc. for proceeds of $214,719 and realized a gain of $198,219. The
Partnership also sold a portion of its investments in 1994 for
$3,096,863, of which $127,750 was settled in 1995. The Partnership
recorded a decrease in the change in fair value of $704,803 at
December 31, 1995; a portion was realized related to the sale
mentioned above, with the remainder due to a decrease in the market
value of the remaining unrestricted shares at December 31, 1995.
TMC, Inc.
- ---------
In December 1995, the Partnership made an investment in TMC, Inc. by
purchasing 50,000 Series A Preferred shares at a total cost of
$25,000.
Unitech Telecom, Inc.
- ---------------------
In March 1995, the Partnership purchased 46,875 Series A Preferred
shares from the company at a total cost of $375,000. The purchase
price consisted of $275,000 in cash and the conversion of a $100,000
note issued in May 1994. Interest on the note was paid in cash.
In the fourth quarter of 1995, the company had a Series B round of
financing in which the Partnership did not participate. The pricing
of this round indicated an increase in the change in fair value of
$903,437 for the Partnership's investments.
UroMed Corporation
- ------------------
In January 1995, the Partnership sold its remaining holdings in the
company for total proceeds of $1,023,967 and realized a gain of
$737,731. The Partnership also sold 150,000 common shares in December
1994, for $761,918, of which $655,985 was settled in 1995.
Velocity Incorporated
- ---------------------
During the second half of 1995, the Partnership issued convertible
notes totaling $250,000 to the company.
YES! Entertainment Corporation
- ------------------------------
In June 1995, the company completed its initial public offering
("IPO"). Prior to the IPO, the company effected a 1-for-15 reverse
stock split. The Partnership's Series B Preferred shares were
converted into 55,555 common shares. The Managing General Partners
determined that there has been an other than temporary decline in
value of the Partnership's investment; as a result, a realized loss of
$333,335 was recorded. In addition, the loss takes into consideration
the fact that the stock will be restricted for another one and one
half years.
Venture Capital Limited Partnership Investments
- -----------------------------------------------
The Partnership recorded a cost basis increase of $243,811 in venture
capital limited partnership investments during 1995. The increase was
a result of additional contributions of $258,339, partially offset by
distributions of stock with a fair value of $14,528. The Partnership
recorded an increase in fair value of $235,181 mainly due to the
effect of the transactions described above, slightly offset by a
decrease in fair value of the underlying investments of certain
venture capital limited partnership investments.
Other Equity Investments
- ------------------------
Other significant changes reflected above relate to market value
fluctuations or the elimination of a discount relating to selling
restrictions for publicly-traded portfolio companies.
6. Secured Notes Receivable, Net
-----------------------------
At December 31, 1995 and 1994, secured notes receivable consisted of:
1995 1994
---- ----
Secured notes receivable $1,946,958 1,900,674
Accrued interest 26,747 119,641
Unamortized discount related to warrants (19,133) (25,125)
--------- ---------
Total secured notes receivable,
at cost basis 1,954,572 1,995,190
Allowance for loan losses (955,000) (560,000)
--------- ---------
Total secured notes receivable,
net fair value $ 999,572 1,435,190
========= =========
Changes in the allowance for loan losses were as follows:
1995 1994
---- ----
Balance, beginning of year $ 560,000 117,000
--------- -------
Provision for loan losses 1,076,565 443,000
Secured notes receivable write-offs
Environmental (681,565) --
---------- -------
Change in net unrealized fair value
of secured notes receivable 395,000 443,000
--------- -------
Balance, end of year $ 955,000 560,000
========= =======
These notes are secured by specific assets of the borrowing companies.
Interest rates on secured notes receivable at December 31, 1995 ranged
from 12% to 12.875%.
The provision for loan losses is generally comprised of realized loan
losses, net of recognized recoveries, and a change in net unrealized
fair value based upon the level of loan loss reserves deemed adequate
by the Managing General Partners at the respective year ends.
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. 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 $1,835,279 were on nonaccrual status
due to uncertainties related to the borrowers' financial condition at
December 31, 1995. The Managing General Partners continue to monitor
the progress of these companies. The fair value at December 31, 1995
is based on the Managing General Partners' estimate of collectibility
of these notes.
The scheduled principal repayments ending in 1999 are as follows:
Year Ending Principal
December 31, Repayments
----------- ----------
1996 1,557,425
1997 199,709
1998 157,438
1999 32,386
---------
Total $1,946,958
=========
7. Cash and Cash Equivalents
-------------------------
Cash and cash equivalents at December 31, 1995 and 1994 consisted of:
1995 1994
---- ----
Demand accounts $ 152,033 2,241
Money-market accounts 4,244,009 11,369,292
---------- ----------
Total $ 4,396,042 11,371,533
========== ==========
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, 1995, the Partnership had unfunded commitments as
follows:
Type
- ----
Equity investments $1,590,333
Venture capital limited partnership investments 446,659
Bridge notes and accounts receivable lines of credit 383,334
---------
Total $2,420,326
=========
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.
In September 1995, the Partnership guaranteed a $1,000,000 line of
credit between a financial institution and a portfolio company in the
computer systems and software industry. While the Partnership expects
the portfolio company to repay the line of credit, if the portfolio
company fails to do so, the Partnership may be liable up to the
guarantee amount.
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 22, 1996 By: /s/Debbie A. Wong
----------------------------------
Debbie a. Wong
Controller
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 22, 1996
- ------------------------ Executive Officer
Charles R. Kokesh and Chairman of
Technology Funding Inc.
and Managing General
Partner of Technology
Funding Ltd.
/s/Gregory T. George Group Vice President March 22, 1996
- ------------------------ 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.