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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, 1998
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)
(650) 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 (pages 23 to 25) of the
Prospectus of Technology Funding Venture Capital Fund VI, LLC as
revised June 4, 1998 (accession number 0000950133-98-002220), forming
a part of the December 5, 1997, Pre-Effective Amendment No. 1 to the
Form N-2 Registration Statement No. 333-23913 dated July 11, 1997, are
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 on June 26,
1989 and was inactive until it commenced the sale of Units in
May of 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 term was
extended for a two-year period to December 31, 2000 pursuant
to unanimous approval by the Independent General Partners in
1998. The Partnership's Amended and Restated Limited
Partnership Agreement ("Partnership Agreement") provides that
the Partnership may be further continued, subject to the
right of the Individual General Partners, for an additional
two-year period.
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 routine litigation incidental to the
business of the Partnership.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- ------ ---------------------------------------------------
The matters below were voted upon at the Annual Meeting of
the Partnership held on September 11, 1998. At the meeting
215,569 Limited Partner Units were represented in person or
by proxy.
a) Election of three Individual General Partners.
VOTES VOTES
NAME FOR WITHHELD
------------- ------- --------
Ben H. Crawford, Ph.D. 208,041 7,528
Harry E. Kitch, P.E. 207,658 7,911
Alfred E. Osborne, Jr., Ph.D. 208,434 7,135
b) Election of two Managing General Partners.
VOTES VOTES
NAME FOR WITHHELD
------------- ------- --------
Technology Funding Inc. 209,391 6,178
Technology Funding Limited 209,361 6,208
c) Ratification of appointment of KPMG LLP as
independent auditors.
For: 206,519
Against: 1,216
Abstain: 7,834
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, 1998, there were 6,582 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,
-----------------------------------------------------------------
1998 1997 1996 1995 1994
-------- -------- -------- -------- --------
Total interest income $ 16,681 109,168 177,557 620,711 943,311
Total dividend income -- 280,010 -- -- --
Net operating loss (1,792,028) (678,851) (1,796,650) (1,095,815) (689,890)
Net realized gain from
sales of equity
investments 5,305 3,781,057 2,174,495 935,950 3,209,979
Realized losses from
investment write-downs (3,375,003) (1,059,212) (4,049,697) (3,137,377) (541,125)
Recoveries from investments
previously written-off -- -- 23,922 45,248 --
Net realized gain from
venture capital limited
partnership investments 237,354 38,757 22,997 -- --
Net realized (loss) income (4,924,372) 2,081,751 (3,624,933) (3,251,994) 1,978,964
Change in net unrealized
fair value:
Equity investments 2,139,142 8,572,830 2,019,333 765,254 (314,082)
Secured notes receivable -- -- 955,000 (395,000) (443,000)
Other investments 265,720 (265,720) -- -- --
Net (loss) income (2,519,510) 10,388,861 (650,600) (2,881,740) 1,221,882
Net realized (loss)
income per Unit (12) 5 (9) (8) 5
Total assets 37,702,090 39,415,870 29,077,479 29,698,636 32,599,849
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 1998, net cash used by operating activities totaled
$1,015,985. The Partnership paid management fees of $375,354
to the Managing General Partners and reimbursed related
parties for operating expenses of $432,631. In addition,
$36,373 was paid to the Individual General Partners as
compensation for their services. Other operating expenses
and interest expense of $176,951 and $10,199 were paid,
respectively. The Partnership received $15,523 in interest
income.
In 1998, equity investments of $1,406,319 were funded
primarily to portfolio companies in the biotechnology,
medical and industrial/business automation industries.
Repayments of secured and convertible notes receivable during
1998 provided cash of $92,047. Proceeds from the sale of
equity investments were $103,634 and cash distributions of
$285,504 were received from venture capital limited
partnership investments. At December 31, 1998, the
Partnership had commitments to fund additional investments
totaling $585,407.
The Partnership has a borrowing account with a financial
institution. The borrowing capacity of this account which
fluctuates based on collateral value was $883,214 at December
31, 1998. The outstanding balance was $120,200 at December
31, 1998. The Partnership's investments in CV Therapeutics,
Inc., Megabios Corp., and Axys Pharmaceuticals, Inc. are
pledged as collateral. The borrowing capacity of this
account was $4,992,236 at March 26, 1999. The Partnership's
investment in Pilot Network Services, Inc. was pledged as
collateral in February 1999.
Cash and cash equivalents at December 31, 1998, were $15,850.
Future proceeds from investment sales and the borrowing
capacity of the Fund along with Managing General Partners'
support are expected to be adequate to fund Partnership
operations through the next twelve months.
Results of Operations
- ---------------------
1998 compared to 1997
- ---------------------
Net loss was $2,519,510 in 1998, compared to net income of
$10,388,861 in 1997. The increase in net loss was primarily
due to a decrease of $5,902,248 in the change in net
unrealized fair value of investments, a $3,775,752 decrease
in net realized gain from sales of equity investments, a
$2,315,791 increase in realized losses from investment write-
downs, a $821,675 increase in total operating expenses, and a
$372,497 decrease in total income.
During 1998, the increase in fair value of investments of
$2,404,862 was primarily due to portfolio companies in the
environmental, computer systems and software, and biomedical
industries, partially offset by decreases in the medical and
industrial/business automation industries. During 1997, the
increase of $8,307,110 was primarily due to portfolio
companies in the medical, computer system and software, and
microelectronics industries, partially offset by decreases in
the communications and industrial/business automation
industries.
During 1998, the net realized gain from sales of equity
investments was $5,305. Net realized gain from sales of
equity investments of $3,781,057 in 1997 resulted primarily
from the sales of shares in UT Starcom, Inc. and Bolder
Technologies Corporation.
During 1998, realized losses from investment write-downs of
$3,375,003 primarily attributable to investments in
Conversion Technologies International, Inc., ConjuChem, Inc.,
Yes! Entertainment Corporation and Transphase Systems, Inc.
During 1997, realized losses of $1,059,212 primarily related
to a portfolio company in the computer systems and software
industry.
Total operating expenses were $1,461,981 and $640,306 for
1998 and 1997, respectively. As disclosed in Note 3 to the
financial statements, the Partnership may not reimburse the
General Partners for expenses that aggregate more than one
percent of total Limited Partner capital contributions. As a
result, operating expenses of $731,751 and $404,486 were
absorbed by the General Partners in 1998 and 1997,
respectively. During late 1998, it was determined that
certain operational costs, primarily rent, paid directly by
the Partnership were not subject to the limitation.
Consequently, in 1998, $742,623 of direct Partnership
expenses absorbed by the General Partners in prior years were
recognized as additional expenses. Also disclosed in Note 3,
the Managing General Partners re-evaluated allocations to the
Partnership in 1998 and determined that they had not fully
recovered allocable operating expenses, primarily salary,
benefits, and professional fees, as permitted by the
Partnership Agreement. As a result, the Partnership was
charged $218,363 of additional operating expenses in 1998, of
which $28,212 and $190,151 related to 1997 and prior years,
respectively. Had the limitation not been in effect and had
the additional expenses been recorded in prior years, total
operating expenses would have been $1,232,752 and $1,073,004
in 1998 and 1997, respectively. The increase is primarily
due to a higher level of activity required for portfolio
management in 1998.
Total income was $16,681 and $389,178 for 1998 and 1997,
respectively. The decrease was primarily due to a decrease
in dividend income and a decrease in interest income due to
lower cash and cash equivalents balances resulting from new
and follow-on investments and a reduction in the secured
notes receivable.
Given the inherent risk associated with the business of the
Partnership, the future performance of the portfolio company
investments may significantly impact future operations.
1997 compared to 1996
- ---------------------
Net income was $10,388,861 in 1997, compared to a net loss of
$650,600 in 1996. The increase in net income was primarily
due to a $5,332,777 increase in the change in net unrealized
fair value of investments and secured notes receivable, a
$2,990,485 decrease in realized losses from investment write-
downs, a $1,606,562 increase in net realized gain from sales
of equity investments, and a $909,575 decrease in operating
expenses.
The $8,572,830 increase in the fair value of equity
investments during 1997 was primarily due to portfolio
companies in the medical, computer systems and software, and
microelectronics industries, partially offset by decreases in
the communications and industrial and business automation
industries. During 1996, the increase in fair value of
equity investments of $2,019,333 was primarily due to
portfolio companies in the medical, computer systems and
software, and communications industries, partially offset by
decreases in the biotechnology and environmental industries.
During 1996, the Partnership also recorded a $955,000
increase in secured notes receivable value as a result of the
reclassification of secured notes receivable to equity and
other investments.
During 1997, realized losses from investment write-downs of
$1,059,212 primarily resulted from a portfolio company in the
computer systems and software industry. During 1996,
realized losses from investment write-downs of $4,049,697
primarily related to portfolio companies in the computer
systems and software and environmental industries.
Net realized gain from sales of equity investments of
$3,781,057 in 1997 resulted primarily from the sales of
shares in UT Starcom, Inc. and Bolder Technologies
Corporation. The 1996 net realized gain of $2,174,495 was
mostly due to sales of common stock of Bolder Technologies
Corporation and TheraTx, Incorporated.
Total operating expenses were $640,306 and $1,549,881 in 1997
and 1996, respectively. Included in 1997 operating expenses
are the costs of the Partnership's relocation of its
administrative and investor service operations to Santa Fe,
New Mexico. As disclosed in Note 3 to the financial
statements, the Partnership may not reimburse the General
Partners for expenses that aggregate more than one percent of
total Limited Partner capital contributions. As a result,
operating expenses of $404,486 and $531,571 were absorbed by
the General Partners in 1997 and 1996, respectively. During
1996, it was determined that certain operational costs paid
directly by the Partnership were not subject to the
limitation. Consequently, in 1996, $853,838 of direct
Partnership expenses absorbed by the General Partners in
prior years were recognized as additional expenses. Had the
limitation not been in effect and had the additional expenses
been recorded in prior years, total operating expenses in
1997 and 1996, would have been $1,044,792 and $1,227,614,
respectively. The decrease is primarily due to decreased
investment operations expenses as the overall level of
portfolio activity has decreased.
YEAR 2000
- ---------
Widespread use of computer programs that use two digits
rather than four to store, calculate, and display year values
in dates may cause computer systems to malfunction in the
year 2000, resulting in significant business delays and
disruptions.
The Partnership's State of Readiness
- ------------------------------------
Computer services are provided to the Partnership by its
Managing General Partner, Technology Funding Inc. ("TFI".)
For several years, TFI has sought to use Year 2000 compliant
storage formats and algorithms in its internally-developed
and maintained systems. TFI has also completed initial
evaluations of computer systems, software, and embedded
technologies. Those evaluations confirmed that certain
components of its network server hardware and operating
systems, voice mail system, e-mail system, and accounting
software may have Year 2000 compliance issues. These
resources and several less-critical components of the systems
environment were all scheduled as part of normal maintenance
and replacement cycles to be replaced or upgraded as Year
2000 compatible components became available from vendors
during 1998 and 1999. That program remains on schedule to
provide Year 2000 capable systems timely without significant
expenditures or disruption of Partnership operations.
However, the risk remains that TFI may not be able to verify
whether Year 2000 compatibility claims by vendors are
accurate, or whether changes undertaken to achieve Year 2000
compatibility will create other undetected problems in
associated systems. Therefore, TFI anticipates that Year
2000 compliance testing and maintenance of these systems will
continue as needed into the first quarter of 2000.
As part of Year 2000 evaluation, TFI has also assembled a
database listing its significant suppliers to assess the
extent to which it needs to prepare for any of those parties'
potential failure to remediate their Year 2000 compliance
issues. TFI is reviewing public Year 2000 statements of
those suppliers and preparing questionnaires to be sent to
mission-critical vendors whose public statements were not
adequate for assessment. TFI will continue to monitor its
significant suppliers as part of its Year 2000 evaluation.
However, there can be no guarantee that the systems of other
companies on which TFI relies will be timely converted, or
that failure to convert will not have a material adverse
effect on the Partnership and its operations. TFI is also
working with the Partnership's portfolio companies to
determine the extent to which their operations are vulnerable
to Year 2000 issues. There can be no guarantee that the
systems of portfolio companies in which the Partnership has
invested will be timely converted, or that their failure to
convert will not have a material adverse effect on the
Partnership.
The Cost to Address Year 2000 Issues
- ------------------------------------
Expenditures in 1998 related to Year 2000 issues were not
material to the Partnership's financial statements. TFI
expects that additional expenditures for Year 2000 compliance
will not be material to the Partnership.
The Risks Associated with Year 2000 Issues
- ------------------------------------------
Any failure by the portfolio companies in which the
Partnership has invested, or by those portfolio companies'
key suppliers or customers, to anticipate and avoid Year 2000
related problems at reasonable cost could have a material
adverse effect on the value of and/or the timing of
realization of value from the Partnership's investments. If
Year 2000 compliance issues are not resolved by December 31,
1999, internal system failures or miscalculations could cause
a temporary inability to process transactions, loss of
ability to send or receive e-mail and voice mail messages, or
disruptions in other normal business activities.
Additionally, failure of third parties on whom TFI relies to
remediate their Year 2000 issues timely could result in
disruptions in the Partnership's relationship with its
financial institutions, temporary disruptions in processing
transactions, unanticipated costs, and problems related to
the Partnership's daily operations. While TFI continues to
address its internal Year 2000 issues, until TFI receives and
evaluates responses from a significant number of its
suppliers, the overall risks associated with the Year 2000
issue remain difficult to describe and quantify. There can
be no guarantee that the Year 2000 issue will not have a
material adverse effect on the Partnership and its
operations.
TFI's Contingency Plan
- ----------------------
As part of its normal efforts to assure business continuation
in the event of natural disasters, systems failures, or other
disruptions, TFI has prepared contingency plans including an
extensive Year 2000 contingency plan. Taken together with
TFI's Year 2000 remediation plan, it identifies potential
points of failure, approaches to correcting known Year 2000
problems, dates by which the preferred corrections are
anticipated to be made and tested, and alternative approaches
if the corrections are not completed timely or are later
found to be inadequate. Although backup systems and
contingency approaches have been identified for most mission-
critical systems and vendor dependencies, there remain some
systems for which no good alternative exists, and there may
be some problems that prove more intractable than currently
anticipated.
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
-----------------------------------
None
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 on pages 23 to
25 in the Technology Funding Venture Capital Fund VI, LLC
Prospectus, as revised June 4, 1998 (accession number
0000950133-98-002220), forming a part of the December 5, 1997
Pre-Effective Amendment No. 1 to the Form N-2 Registration
Statement No. 333-23913 dated July 11, 1997, which are
incorporated herein by reference.
Item 11. EXECUTIVE COMPENSATION
- ------- ----------------------
As a partnership, the Registrant has no officers or
directors. In 1998, the Partnership incurred $310,355 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, 1998. 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, 1998,
$36,373 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 Individual 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, 1998
and 1997
Statements of Operations for the years
ended December 31, 1998, 1997 and 1996
Statements of Partners' Capital for the years
ended December 31, 1998, 1997 and 1996
Statements of Cash Flows for the years
ended December 31, 1998, 1997 and 1996
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, 1998.
(c) Financial Data Schedule for the year ended and as of
December 31, 1998 (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, 1998 and 1997, and the related
statements of operations, partners' capital, and cash flows for each
of the years in the three-year period ended December 31, 1998. 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, 1998 and
1997. 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, 1998 and 1997, and the results of its operations and its
cash flows for each of the years in the three-year period ended
December 31, 1998, in conformity with generally accepted accounting
principles.
Albuquerque, New Mexico /S/KPMG LLP
March 26, 1999
BALANCE SHEETS
- --------------
December 31,
---------------------
1998 1997
------ ------
ASSETS
Investments:
Equity investments (cost basis of
$21,268,672 and $22,803,180
for 1998 and 1997, respectively) $37,682,178 37,077,544
Secured notes receivable, net
(cost basis of $4,479 for 1997) -- 4,479
Other investments (cost basis of
$664,299 for 1998 and 1997) -- 398,579
---------- ----------
Total investments 37,682,178 37,480,602
Cash and cash equivalents 15,850 1,839,535
Due from related parties -- 86,078
Other assets 4,062 9,655
---------- ----------
Total assets $37,702,090 39,415,870
========== ==========
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable and accrued expenses $ 60,445 45,893
Due to related parties 670,978 --
Short-term borrowings 120,200 --
---------- ----------
Total liabilities 851,623 45,893
Commitments, contingencies, and
subsequent events (Notes 3, 5,
10, and 11)
Partners' capital:
Limited Partners
(Units outstanding of
400,000 in both 1998 and 1997) 20,483,914 25,359,042
General Partners (46,953) 2,291
Net unrealized fair value increase
(decrease) from cost:
Equity investments 16,413,506 14,274,364
Other investments -- (265,720)
---------- ----------
Total partners' capital 36,850,467 39,369,977
---------- ----------
Total liabilities and
Partners' capital $37,702,090 39,415,870
========== ==========
See accompanying notes to financial statements.
STATEMENTS OF OPERATIONS
- ------------------------
For the Years Ended December 31,
------------------------------------
1998 1997 1996
------ ------ ------
Income:
Secured notes receivable
interest $ 2,170 56,636 106,108
Short-term investment
interest 14,511 52,532 71,449
Dividend income -- 280,010 --
--------- ---------- ---------
Total income 16,681 389,178 177,557
Costs and expenses:
Management fees 310,355 389,995 389,995
Individual General
Partners' compensation 36,373 37,728 34,331
Operating expenses:
Administrative and
investor services 747,710 559,356 466,439
Investment operations 400,301 284,380 487,139
Professional fees 92,298 73,067 113,891
Computer services 200,607 127,989 160,145
Interest expense 10,199 -- --
Expenses absorbed by
General Partners (731,757) (404,486) (531,571)
Expenses absorbed by
General Partners
in prior years 742,623 -- 853,838
--------- ---------- ---------
Total operating
expenses 1,461,981 640,306 1,549,881
--------- ---------- ---------
Total costs and
expenses 1,808,709 1,068,029 1,974,207
--------- ---------- ---------
Net operating loss (1,792,028) (678,851) (1,796,650)
Net realized gain from
sales of equity
investments 5,305 3,781,057 2,174,495
Realized losses from
investment write-downs (3,375,003) (1,059,212) (4,049,697)
Recoveries from
investments previously
written off -- -- 23,922
Net realized gain from
venture capital limited
partnership investments 237,354 38,757 22,997
--------- ---------- ---------
Net realized (loss)
income (4,924,372) 2,081,751 (3,624,933)
Change in net unrealized
fair value:
Equity investments 2,139,142 8,572,830 2,019,333
Other investments 265,720 (265,720) --
Secured notes
receivable -- -- 955,000
--------- ---------- ---------
Net (loss) income $(2,519,510) 10,388,861 (650,600)
========= ========== =========
Net realized (loss)
income per Unit $ (12) 5 (9)
========= ========== =========
See accompanying notes to financial statements.
STATEMENTS OF PARTNERS' CAPITAL
- -------------------------------
For the years ended December 31, 1998, 1997 and 1996:
Net Unrealized Fair
Value Increase
(Decrease) From Cost
------------------------
Equity Secured
Limited General and Other Notes
Partners Partners Investments Receivable Total
-------- -------- ----------- ----------- -----
Partners' capital,
December 31, 1995 $26,925,872 (21,357) 3,682,201 (955,000) 29,631,716
Net realized loss (3,588,684) (36,249) -- -- (3,624,933)
Change in net unrealized
fair value:
Equity investments -- -- 2,019,333 -- 2,019,333
Secured notes receivable -- -- -- 955,000 955,000
---------- ------ --------- ------- ----------
Partners' capital,
December 31, 1996 23,337,188 (57,606) 5,701,534 -- 28,981,116
Net realized income 2,021,854 59,897 -- -- 2,081,751
Change in net unrealized
fair value:
Equity investments -- -- 8,572,830 -- 8,572,830
Other investments -- -- (265,720) -- (265,720)
---------- ------ ---------- -------- ----------
Partners' capital,
December 31, 1997 25,359,042 2,291 14,008,644 -- 39,369,977
Net realized loss (4,875,128) (49,244) -- -- (4,924,372)
Change in net unrealized
fair value:
Equity investments -- -- 2,139,142 -- 2,139,142
Other investments -- -- 265,720 -- 265,720
---------- ------ --------- ------- ----------
Partners' capital,
December 31, 1998 $20,483,914 (46,953) 16,413,506 -- 36,850,467
========== ====== ========== ======== ==========
See accompanying notes to financial statements.
STATEMENTS OF CASH FLOWS
- ------------------------
For The Years Ended December 31,
-----------------------------------
1998 1997 1996
------ ------ ------
Cash flows from operating
activities:
Interest received $ 15,523 76,332 166,387
Dividends received -- 280,010 --
Cash paid to vendors (176,951) (287,846) (276,630)
Cash paid to related parties (844,358) (921,578) (1,659,888)
Interest paid on short-term
borrowings (10,199) -- --
--------- --------- ---------
Net cash used by
operating activities (1,015,985) (853,082) (1,770,131)
--------- --------- ---------
Cash flows from investing
activities:
Secured notes receivable
issued (2,766) (33,902) (208,334)
Purchase of equity
investments (1,406,319) (2,595,910) (4,843,447)
Payment of loan guarantee -- (1,055,862) --
Repayment of secured and
convertible notes receivable 92,047 94,938 547,440
Proceeds from sales of
investments 103,634 4,508,995 3,466,227
Distributions from venture
capital limited partnership
investments 285,504 157,273 29,288
--------- --------- ---------
Net cash (used) provided
by investing activities (927,900) 1,075,532 (1,008,826)
--------- --------- ---------
Cash flows from financing
activities:
Proceeds from short-term
borrowings, net 120,200 -- --
--------- --------- ---------
Net cash provided by
financing activities 120,200 -- --
--------- --------- ---------
Net (decrease) increase in
cash and cash equivalents (1,823,685) 222,450 (2,778,957)
Cash and cash equivalents
at beginning of year 1,839,535 1,617,085 4,396,042
--------- --------- ---------
Cash and cash equivalents
at end of year $ 15,850 1,839,535 1,617,085
========= ========= =========
STATEMENTS OF CASH FLOWS (continued)
- -----------------------------------
For The Years Ended December 31,
-----------------------------------
1998 1997 1996
------ ------ ------
Reconciliation of net
(loss) income to net cash
used by operating activities:
Net (loss) income $(2,519,510) 10,388,861 (650,600)
Adjustments to reconcile net
(loss) income to net cash
used by operating
activities:
Change in net unrealized
fair value:
Equity investments (2,139,142) (8,572,830) (2,019,333)
Secured notes receivable -- -- (955,000)
Other investments (265,720) 265,720 --
Realized losses from
investment write-downs 3,375,003 1,059,212 4,049,697
Net realized gain from sales
of equity investments (5,305) (3,781,057) (2,174,495)
Net realized gain from
venture capital limited
partnership investments (237,354) (38,757) (22,997)
Recoveries from investments
previously written off -- -- (23,922)
Other, net (339) -- (1,867)
Changes in:
Accrued interest on
convertible and
secured notes (819) (32,836) (9,303)
Accounts payable and
accrued expenses 14,552 8,776 10,417
Due to/from related parties 757,056 (145,324) 18,276
Other, net 5,593 (4,847) 8,996
--------- --------- ---------
Net cash used by
operating activities $(1,015,985) (853,082) (1,770,131)
========= ========= =========
Non-cash investing activities:
Reclassification of secured
notes to equity investments
(subordinated notes
receivable) $ -- -- 1,275,000
========= ========= =========
Reclassification of secured
notes to other investments $ -- -- 681,565
========= ========= =========
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 on June 26, 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 of 1990. On January 2,
1991, the minimum number of Units required to commence Partnership
operations (15,000) had been sold. The offering terminated with
400,000 Units sold on December 31, 1992. The Partnership's term was
extended for a two-year period to December 31, 2000 pursuant to
unanimous approval by the Independent General Partners in 1998. The
Partnership Agreement provides that the Partnership may be further
extended for an additional two-year period from such date if the
Independent General Partners so determine or unless sooner
dissolved.
Preparation of Financial Statements and Use of Estimates
- --------------------------------------------------------
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from
those estimates. Estimates are used when accounting for
investments, change in unrealized fair value of investments,
liabilities and contingencies. Because of the inherent uncertainty
of valuation, the estimated fair value of investments may differ
significantly from the values that would have been used had a ready
market for investments existed, and the differences could be
material.
Investments
- -----------
Equity and Other 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 equity investments is their initial cost basis with
changes as noted below:
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 and
for those securities, an illiquidity discount of up to 33% is
applied when determining the fair value; the actual discount
percentage is based on the type and length of the restrictions.
Investments valued under this method were $3,311,167 and $1,703,410
at December 31, 1998 and 1997, respectively.
All investments which are not publicly traded are valued at fair
market value as determined by the Managing General Partners in the
absence of readily ascertainable market values. Equity investments
valued under this method were $34,371,011 and $35,374,134 at
December 31, 1998 and 1997, respectively. Generally, investments in
privately held companies are valued at original cost unless there is
clear evidence of a change in fair value, such as a recent round of
third-party financings or events that, in the opinion of the
Managing General Partners, indicate a change in value.
Convertible and subordinated notes receivable are stated at cost
plus accrued interest, which is equivalent to fair value, and are
included in equity investments as repayment of these notes generally
occurs through conversion into equity investments.
Venture capital limited partnership investments are initially
recorded at cost and are valued based on the fair value of the
underlying investments. Limited partnership distributions that are
a return of capital reduce the cost basis of the Partnership's
investment. Distributions from limited partnership cumulative
earnings are reflected as realized gains by the Partnership.
At times, the Partnership may receive other assets in satisfaction
of secured notes receivable or equity investments in portfolio
companies. Such assets are classified as other investments and are
recorded at their fair value upon receipt.
Where, in the opinion of the Managing General Partner, events
indicate that the fair value of equity, venture capital and other
investments and convertible and subordinated notes receivable may
not be recoverable, a write-down to estimated fair value is
recorded. Temporary changes in fair value result in increases or
decreases to the unrealized fair value of equity investments.
Adjustments to fair value basis are reflected as "Change in net
unrealized fair value of equity investments." 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.
Cost basis adjustments are reflected as "Realized losses from
investment write-downs" or "Net realized loss from venture capital
limited partnership investments" in the Statements of Operations.
Sales of equity investments are recorded on the trade date. The
basis on which cost is determined in computing realized gains or
losses is specific identification.
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 issued 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.
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.
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 $21,268,672 by
$2,751,009 as of December 31, 1998.
Net Realized Income (Loss) Per Unit
- -----------------------------------
Net realized income (loss) per Unit is calculated by dividing the
weighted average number of Units outstanding of 400,000 at December
31, 1998, 1997 and 1996 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.
2. Financing of Partnership Operations
-----------------------------------
The Managing General Partners expect cash received from the future
liquidation of Partnership investments and short-term borrowings
will provide the necessary liquidity to fund Partnership operations.
The Partnership may be dependent upon the financial support of the
Managing General Partners to fund operations if future proceeds are
not received timely. The Managing General Partners have committed
to support the Partnership's working capital requirements through
short-term advances as necessary.
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, 1998,
1997 and 1996, related party costs were as follows:
1998 1997 1996
-------- -------- --------
Management fees $ 310,355 389,995 389,995
Individual General
Partners' compensation 36,373 37,728 34,331
Reimbursable operating
expenses:
Administrative and
investor services 668,292 373,519 341,641
Investment operations 374,921 260,707 429,785
Computer services 200,607 118,791 160,145
Expenses absorbed by
General Partners (731,757) (404,486) (531,571)
Expenses absorbed by
General Partners
in prior years 742,623 -- 853,838
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, beginning January 2, 1996, management fees
changed from 2% to 1% per annum of adjusted capital contributions.
Such amounts due to related parties were $0 and $64,999 at December
31, 1998 and 1997, respectively.
The Partnership reimburses the Managing General Partners for certain
operating expenses incurred in connection with the business of the
Partnership. Reimbursable operating expenses paid by the Managing
General Partners include expenses (other than Organizational and
Offering Expenses and General Partner Overhead) such as
administrative and investor services, investment operations, and
computer services. Pursuant to the Partnership Agreement, the
Partnership may not reimburse the Managing General Partners for
certain operational costs that aggregate more than 1% of total
Limited Partner capital contributions. At December 31, 1998,
amounts due to related parties related to such expenses were
$670,978, compared to $151,077 due from related parties at December
31, 1997.
In 1998, 1997, and 1996, the Managing General Partners absorbed
$731,751, $404,486, and $531,571, respectively, in operating
expenses. In late 1998, it was determined that certain operational
costs, primarily rent, absorbed by the General Partners in prior
years were not subject to this limitation; consequently, $742,623
was reimbursed to the General Partners. In 1996, it was determined
that certain operational costs paid directly to the Partnership
which had been absorbed by the General Partners in prior years were
not subject to this limitation; consequently, $853,838 was
reimbursed to the General Partners.
The Managing General Partners allocate operating expenses incurred
in connection with the business of the Partnership based on employee
hours incurred. In 1998, operating cost allocations to the
Partnership were re-evaluated. The Managing General Partners
determined that they had not fully recovered allocable operating
expenses, primarily salary, benefits, and professional fees, as
permitted by the Partnership Agreement. As a result, the
Partnership was charged additional operating expenses of $218,363
consisting of $28,212, $47,481,and $142,670 for 1997, 1996 and prior
years, respectively. Had the additional expenses been recorded in
prior years and had the operating expense limitation not been in
effect, operating expenses would have been $1,232,752, $1,073,004,
and $1,275,095 for 1998, 1997, and 1996, respectively.
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.
Effective November 1, 1997, TFL assigned its California office lease
to Technology Funding Property Management LLC (TFPM), an entity that
is affiliated to the Managing General Partner. Under the terms of a
rent agreement, TFPM charges the Partnership for its share of office
rent and related overhead costs. These amounts are included in
administrative and investor service costs.
Under the terms of a computer service agreement, Technology
Administrative Management, a division of TFL, charges the
Partnership for its share of computer support costs. These amounts
are included in computer services expenses.
Officers of the Managing General Partners occasionally receive stock
options as compensation for serving on the Boards of Directors of
portfolio companies. It is the Managing General Partners' policy
that all such compensation be transferred to the investing
partnerships. If the options are non-transferable, they are not
recorded as an asset of the Partnership. Any profit from the
exercise of such options will be transferred if and when the options
are exercised and the underlying stock is sold by the officers. At
December 31, 1998, the Partnership had an indirect interest in non-
transferable Endocare, Inc., Physiometrix, Inc. and Conversion
Technologies International, Inc. options at an exercise price higher
than the current market value.
In 1996, TFL had a sublease rental agreement with a Partnership
portfolio company in the medical industry. The terms of this
agreement were similar to those which would apply to an unrelated
party.
4. Allocation of Profits and Losses
--------------------------------
Net realized profit and loss 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 profit thereafter, otherwise allocable to those Limited
Partners, is 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.
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, 1998, and December 31, 1997, equity investments consisted of:
December 31, 1998 December 31, 1997
Principal ------------------ -----------------
Investment Amount or Cost Fair Cost Fair
Industry/Company Position Date Shares Basis Value Basis Value
- ---------------- -------- ---- ------ ----- ----- ----- -----
Biomedical
- ----------
Axys Common
Pharmaceuticals,shares
Inc. 12/95 37,855 $500,000 215,319 500,000 315,711
ConjuChem, Inc. Series B
(formerly Preferred
RedCell, Inc.) shares 12/94 797,872 0 0 750,000 0
ConjuChem, Inc. Convertible
(formerly note (1) 02/96-
RedCell, Inc.) 07/96 $197,925 0 0 215,329 215,329
ConjuChem, Inc. Series C
(formerly Preferred
RedCell, Inc.) share warrant
at exercise $26,990
price TBD; aggregate
expiring purchase
02/01 02/96 price 0 0 0 0
ConjuChem, Inc. Series C
(formerly Preferred
RedCell, Inc.) share warrant
at exercise
price TBD; $2,699
expiring aggregate
07/01 purchase
07/96 price 0 0 0 0
Biotechnology
- -------------
CV Therapeutics, Common
Inc. share
warrant
at $20.00;
expiring
09/00 09/95 3,200 1,280 0 1,280 0
CV Therapeutics, Common 03/94&
Inc. Shares 09/95 68,900 1,376,720 325,553 1,376,720 625,612
Molecular Common
Geriatrics shares
Corporation 09/93 47,170 250,000 94,340 250,000 94,340
Prolinx, Inc. Series A
Preferred
shares 05/95 328,929 328,929 713,776 328,929 575,626
Prolinx, Inc. Series A
Preferred
shares 12/95 342,071 342,071 742,294 342,071 598,624
Prolinx, Inc. Series A
Preferred
shares 09/96 429,000 429,000 930,930 429,000 750,750
Prolinx, Inc. Series B
Preferred
shares 07/97 192,300 288,461 417,308 288,461 288,461
Prolinx, Inc. Series C
Preferred
shares 04/98 167,915 360,732 364,376 -- --
Prolinx, Inc. Common share
warrant at
$.0001; shares
and expiration
date TBD 04/98 TBD 3,644 0 -- --
Communications
- --------------
NetChannel, Inc. Escrowed
sales
proceeds 06/98 $12,460 12,460 12,460 -- --
NetChannel, Inc. Series B
Preferred
shares 10/96 47,340 -- -- 24,750 25,000
NetChannel, Inc. Series B
Preferred
shares 01/97 47,340 -- -- 11,477 25,000
NetChannel, Inc. Series B
Preferred
shares 03/97 56,808 -- -- 13,774 29,999
NetChannel, Inc. Convertible
note (1) 05/97 $11,279 -- -- 11,917 11,917
NetChannel, Inc. Series B
Preferred
shares 05/97 31,970 -- -- 14,067 16,883
NetChannel, Inc. Convertible
note (1) 09/97 $ 9,375 -- -- 9,605 9,605
NetChannel, Inc. Convertible
note (1) 09/97 $ 9,375 -- -- 9,592 9,592
Positive Series E
Communications, Preferred
Inc. shares 09/94 285,714 1,000,000 1,214,285 1,000,000 1,214,285
Positive Series G
Communications, Preferred
Inc. shares 08/95 17,885 76,011 76,011 76,011 76,011
Positive Convertible
Communications, note (1)
Inc. 03/96 $63,047 74,159 74,159 72,037 72,037
Positive Common
Communications, share
Inc. warrant
at $.50;
expiring
03/01 03/96 3,709 4 13,909 4 13,909
Positive Common
Communications, share
Inc. warrant
at $0.50;
expiring
10/01 10/96 5,537 6 20,764 6 20,764
Women.com
Networks Series A
(formerly Wire Preferred
Networks, Inc.) shares 02/96 78,553 106,047 258,439 106,047 238,801
Women.com
Networks Series B
(formerly Wire Preferred
Networks, Inc.) shares 02/96 95,980 215,955 315,774 215,955 291,779
Women.com
Networks Series C
(formerly Wire Preferred
Networks, Inc.) shares 07/97 2,740 8,330 9,015 8,330 8,330
Women.com
Networks Series D
(formerly Wire Preferred
Networks, Inc.) shares 06/98 15,199 50,005 50,005 -- --
Computer Systems and Software
- -----------------------------
Ascent Logic Series C
Corporation Preferred
shares 10/92 425,532 396,000 148,936 396,000 148,936
Ascent Logic Common
Corporation shares 03/97 36,443 23,796 12,755 23,796 12,755
Lynk Systems, Common
Inc. share
warrant
at $0.33;
exercised
06/98 07/93 105,000 -- -- 3,500 369,600
Lynk Systems, Common
Inc. share 06/98 105,000 38,500 157,500 -- --
Pilot Network Common
Services, Inc. shares 06/98 743,114 650,225 5,910,877 650,225 3,344,013
Pilot Network Common
Services, Inc. shares 07/96 147,940 295,880 1,176,744 295,880 665,730
Velocity Common
Inc. share
warrant
at $1.00;
expiring
03/00 03/95 25,000 0 0 0 0
Velocity Subordinated 08/95-
Inc. notes (1) 08/97 $1,550,000 0 0 0 0
Versant Common
Corporation shares 05/97 2,091 18,559 4,784 18,559 28,396
Environmental
- -------------
Conversion Common
Technologies shares
International,
Inc. 05/96 207,547 0 2,075 1,500,000 197,170
Conversion Class A
Technologies warrant
International, at $5.85;
Inc. expiring
05/01 05/96 93,750 0 0 0 0
Conversion Common share
Technologies warrant
International, at $5.28;
Inc. expiring
05/00 05/96 51,884 0 0 0 8,301
Conversion
Technologies Series A
International, Preferred 08/97-
Inc. shares 04/98 8,820 0 789 78,750 78,750
Naiad Series A
Technologies, Preferred
Inc. shares 12/95 50,000 25,000 162,500 25,000 162,500
Naiad Series B
Technologies, Preferred
Inc. shares 11/96 15,102 30,204 49,082 30,204 49,082
Naiad Series C
Technologies, Preferred
Inc. shares 11/97 49,230 159,998 159,998 159,998 159,998
SRG Products Subordinated
Corporation note (1) 04/95 $56,880 -- -- 57,224 57,224
SRG Products Preferred
Corporation shares 12/97 4,068,625 0 0 0 0
Industrial/Business Automation
- ------------------------------
Avalon Imaging, Redeemable
Inc. Series A
Preferred
shares 12/94 144,509 250,001 217,154 250,001 197,081
Avalon Imaging, Redeemable
Inc. Series B
Preferred 02/96&
shares 06/96 166,667 500,001 592,196 499,671 537,125
Avalon Imaging, Common
Inc. shares 04/96 125,000 250,000 250,000 250,000 250,000
Avalon Imaging, Series C
Inc. Preferred
share
warrant at
exercise price $45,967
TBD; aggregate
expiring purchase
03/02 03/97 price 0 0 0 0
Avalon Imaging, Series C
Inc. Preferred
shares 09/97 379,037 409,360 451,054 409,360 409,360
Avalon Imaging, Series C
Inc. Preferred
share
warrant at
exercise price $12,250
TBD; aggregate
expiring purchase
10/02 10/97 price 0 0 0 0
Avalon Imaging, Series C
Inc. Preferred 03/98 &
shares 08/98 249,999 269,999 297,499 -- --
Portable Series A
Energy Preferred
Products, Inc. shares 06/95 1,100,000 1,100,000 220,000 1,100,000 687,500
Portable Convertible
Energy note (1)
Products, Inc. 10/96 $202,508 -- -- 3,242 3,242
Portable Common
Energy share
Products, Inc. warrant
at $1.00;
expiring
09/01 10/96 155,804 0 0 0 0
Portable Series A
Energy Preferred
Products, Inc. share
warrant
at $0.10;
expiring
09/01 10/96 186,816 0 18,682 0 98,078
Portable Common
Energy share
Products, Inc. warrant
at $1.00;
expiring
03/02 03/97 98,398 0 0 0 0
Portable Convertible
Energy note (1)
Products, Inc. interest 03/97 $98,398 -- -- 1,983 1,983
Portable Common
Energy share
Products, Inc. warrant
at $1.00;
expiring
06/02 06/97 8,476 339 0 339 0
Portable Common
Energy share
Products, Inc. warrant
at $1.00;
expiring
06/02 07/97 21,182 847 0 847 0
Portable Convertible
Energy note (1)
Products, Inc. interest 06/97 $33,902 -- -- 683 683
Portable Convertible
Energy note (1)
Products, Inc. interest 07/97 $84,727 -- -- 1,707 1,707
Portable Series B
Energy Preferred
Products, Inc. shares 12/97 1,138,522 575,520 227,704 568,156 697,917
Portable Series C
Energy Preferred
Products, Inc. shares 07/98 1,500,000 297,000 300,000 -- --
Portable Series C
Energy warrant at
Products, Inc. $.20; expiring
07/03 07/98 375,000 3,000 0 -- --
PRI Automation, Common 02/98-
Inc. shares 09/98 53 2,362 2,533 -- --
Information Technology
- ----------------------
Metromail, Common
Inc. shares 12/93 1,957 -- -- 46,723 35,970
WorldRes, Inc. Series B
Preferred
shares 01/97 7,396 24,998 27,365 24,998 27,365
WorldRes, Inc. Series X share $ 938
warrant at aggregate
price TBD; purchase
expiring 10/02 10/97 price 0 0 0 0
WorldRes, Inc. Series C
Preferred
shares 12/97 51,942 192,186 192,186 192,186 192,186
WorldRes, Inc. Interest 10/97 $75 -- -- 75 75
Medical
- -------
Acusphere, Inc. Series B
Preferred
shares 05/95 250,000 400,000 825,000 400,000 750,000
Acusphere, Inc. Series C
Preferred
shares 05/96 23,364 49,999 77,101 49,999 70,092
Acusphere, Inc. Series D
Preferred
shares 11/97 104,167 312,500 343,751 312,500 312,500
ADESSO Specialty Series A
Services Preferred
Organization shares
Inc. 07/95 400,000 400,000 3,360,000 400,000 3,360,000
ADESSO Specialty Series B
Services Preferred
Organization shares
Inc. 03/96 369,231 1,200,001 3,101,540 1,200,001 3,101,540
ADESSO Specialty Series A
Services Preferred
Organization share warrant
Inc. at $1.00;
expiring
03/01 03/96 68,704 0 508,410 0 508,410
ADESSO Specialty Series D
Services Preferred
Organization shares
Inc. 12/97 28,095 235,998 235,998 235,998 235,998
Biex, Inc. Series A
Preferred
shares 07/93 128,205 83,333 320,513 83,333 320,513
Biex, Inc. Series B
Preferred
shares 10/94 63,907 63,907 159,768 63,907 159,768
Biex, Inc. Series B
Preferred
share warrant
at $1.00;
expiring
10/99 10/94 23,540 8 35,310 8 35,310
Biex, Inc. Series C
Preferred
shares 06/95 83,334 83,334 208,335 83,334 208,335
Biex, Inc. Series C
Preferred
shares 12/95 83,333 83,333 208,333 83,333 208,333
Biex, Inc. Series C
Preferred
shares 04/96 83,333 83,333 208,333 83,333 208,333
Biex, Inc. Series D
Preferred
shares 08/96 111,115 166,673 277,788 166,673 277,788
Biex, Inc. Series D
Preferred
shares 03/97 44,446 66,669 111,115 66,669 111,115
Biex, Inc. Series E
Preferred
shares 08/97 13,334 33,335 33,335 33,335 33,335
CareCentric Series A
Solutions, Inc. Preferred
shares 10/95 166,667 250,000 175,000 250,000 186,926
CareCentric Series B
Solutions, Inc. Preferred
shares 09/96 14,500 21,750 15,225 21,750 16,263
CareCentric Series C
Solutions, Inc. Preferred
shares 12/97 46,576 48,905 48,905 48,905 48,905
CareCentric Common share
Solutions, Inc. warrant at
$.15; expiring
12/02 12/97 23,288 20,959 20,959 20,959 20,959
CareCentric Convertible 04/98-
Solutions, Inc. notes (1) 06/98 $41,250 43,856 43,856 -- --
Endocare, Inc. Common
shares 08/96 250 750 496 750 895
Endocare, Inc. Common
share
warrant
at $3.00;
expiring
08/01 08/96 3,750 0 0 0 1,631
Endocare, Inc. Common
shares 01/97 1,750 6,125 3,479 6,125 6,265
Endocare, Inc. Common
shares 01/97 8,300 20,750 16,500 20,750 28,142
Endocare, Inc. Common
shares 04/98 35,714 124,999 70,999 -- --
Intella Common
Interventional shares
Systems, Inc. 02/93 8,715 436 13,944 436 13,944
Intella Series A
Interventional Preferred
Systems, Inc. shares 02/93 4,358 2,179 6,973 2,179 6,973
Megabios Corp. Common
shares 09/94 193,125 750,001 960,797 750,001 2,177,871
Megabios Corp. Common
shares 12/94 57,937 225,000 288,237 225,000 653,356
Megabios Corp. Common
shares 07/95 50,212 195,000 249,805 195,000 566,241
Oxford Common
GlycoSciences shares
Plc 08/93 213,546 999,927 894,117 999,927 747,414
Periodontix, Series A
Inc. Preferred
shares 12/93 150,000 150,000 367,500 150,000 367,500
Periodontix, Series B
Inc. Preferred
shares 02/96 100,500 201,000 246,225 201,000 246,225
Periodontix, Series C
Inc. Preferred
shares 02/98 26,531 65,001 65,001 -- --
Pharmadigm, Series A
Inc. Preferred
shares 04/93 322,581 396,000 780,646 396,000 709,678
Pharmadigm, Series A
Inc. Preferred
shares 12/94 215,054 270,667 520,431 270,667 473,119
Pharmadigm, Series B
Inc. Preferred
share warrant
at $2.50;
expiring
10/00 10/95 10,250 0 0 0 0
Pharmadigm, Series B
Inc. Preferred
share warrant
at $2.00;
expiring
02/01 02/96 10,833 0 4,550 0 2,167
Pharmadigm, Series B
Inc. Preferred
shares 05/96 137,778 275,556 333,423 275,556 303,112
Pharmadigm, Series C
Inc. Preferred
shares 06/97 17,183 37,423 37,423 37,423 37,423
Pharmadigm, Series C
Inc. Preferred
share warrant
at $2.20;
expiring
06/00 06/97 1,203 378 505 378 378
Pharmadigm, Series D
Inc. Preferred
shares 06/98 41,219 99,750 99,750 -- --
Pharmos Common
Corporation shares 04/95 & 11/95 60,331 45,248 95,444 45,248 121,266
Pherin Series B
Pharmaceuticals,Preferred
Inc. shares 08/91 200,000 200,000 400,000 200,000 400,000
Physiometrix, Common
Inc. share warrant
at $6.60;
expiring
06/01 01/96 13,525 179 0 179 0
Physiometrix, Common
Inc. shares 04/96 287,021 668,557 152,827 668,557 520,208
R2 Technology, Series A-1
Inc. Preferred
shares 05/94 400,000 400,000 736,000 400,000 736,000
R2 Technology, Series B
Inc. Preferred
share warrant
at $2.00;
expiring
11/00 11/95 9,667 0 0 0 0
R2 Technology, Series B-1
Inc. Preferred
shares 03/96 68,541 137,080 137,080 137,080 137,080
Microelectronics
- ----------------
Tessera, Inc. Series B
Preferred
shares 05/92 666,666 500,000 3,333,330 500,000 3,333,330
Tessera, Inc. Common
shares 04/97 72,754 56,500 72,754 56,500 72,754
Retail/Consumer Products
- ------------------------
YES! Common
Entertainment shares
Corporation 06/95 55,555 0 2,556 166,665 91,999
Venture Capital Limited Partnership Investments
- -----------------------------------------------
CVM Equity Ltd.
Fund IV, Ltd Partnership
interests various $150,000 76,436 146,116 103,277 107,455
El Dorado Ltd.
Ventures III, Partnership
L.P. interests various $250,000 212,460 329,520 212,460 331,186
O,W&W Pacrim Ltd.
Investments Partnership
Limited interests various $175,300 175,300 74,198 175,300 175,300
Spectrum Equity Ltd.
Investors, L.P. Partnership
interests various $455,525 353,604 423,870 347,275 485,841
Trinity Ventures Ltd.
IV, L.P. Partnership
interests various $164,068 36,884 67,977 10,941 97,276
---------- ---------- ---------- ----------
Total equity investments $21,268,672 37,682,178 22,803,180 37,077,544
========== ========== ========== ==========
- -- 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 8% to 12%.
Marketable Equity Securities
- ----------------------------
At December 31, 1998 and 1997, marketable equity securities had aggregate
costs of $6,069,452 and $3,948,418, respectively, and aggregate market
values of $3,311,167 and $1,703,410, respectively. The net unrealized
losses at December 31, 1998 and 1997, included gross gains of $379,205
and $103,141, respectively.
Acusphere, Inc.
- ---------------
In October 1998, the company had a new round of financing in which the
Partnership did not participate. The pricing of this round, in which
third parties participated, indicated an increase in fair value of
$113,260 for the Partnership's existing investment.
Avalon Imaging, Inc.
- --------------------
In March 1998, the Partnership purchased 138,888 Series C Preferred
shares for $149,999. In August 1998, the Partnership purchased an
additional 111,111 Series C Preferred shares for $120,000. The pricing
of this round, in which third parties participated, indicated a fair
value increase of $144,338 for the Partnership's existing investment.
ConjuChem, Inc. (formerly RedCell, Inc.)
- ----------------------------------------
In December 1998, the Partnership wrote off the remaining fair value and
cost basis of its investment and realized a loss of $965,289. This was
based on the opinion of the Managing General Partners that the operating
status of the company indicated a permanent decline in value.
Conversion Technologies International, Inc.
- -------------------------------------------
In December 1998, the Partnership wrote off the cost basis of its
investment in the company and realized a loss of $1,578,750. This was
based upon the opinion of the Managing General Partners that the
operating status of the company indicated a permanent decline in value.
Endocare, Inc.
- --------------
In April 1998, the Partnership purchased 35,714 common shares for
$124,999 in a private placement. At December 31, 1998, the Partnership
recorded a $70,458 decrease in the fair value of its investment in the
company based on the publicly traded market price of the company's
investment.
Lynk Systems, Inc.
- ------------------
In June 1998, the Partnership paid $35,000 to exercise its warrant for
105,000 common shares. The fair value of the common shares, as
determined by the company, represents a $247,100 decrease in fair value
from the price established in their last round of third-party financing.
NetChannel, Inc.
- ----------------
In June 1998, America Online, Inc. completed its acquisition of the
company. The Partnership realized a loss of $15,488 on the completion of
the sale transaction. Proceeds of $36,118 and $34,669 were received from
the sale of the Partnership's preferred shares and repayment of
convertible and other notes receivable. An amount of $12,460 in future
sale proceeds will remain in escrow through December 1999 pending final
resolution of the sale.
Oxford GlycoSciences Plc
- ------------------------
The company completed its initial public offering on the London Stock
Exchange in April 1998 at 280 pence per common share. The Partnership's
preferred shares were converted to 213,546 common shares.
Periodontix, Inc.
- -----------------
In February 1998, the Partnership made an additional investment in the
company by purchasing 26,531 Series C Preferred shares for $65,001.
Pharmadigm, Inc.
- ----------------
In June 1998, the Partnership made an additional investment in the
company by purchasing 41,219 Series D Preferred shares for $99,750. The
pricing of this round, in which third parties participated, indicated a
$151,101 increase in the fair value of the Partnership's existing
investment.
Pilot Network Services, Inc.
- ----------------------------
In August 1998, the company completed its initial public offering at
$14.00 per common share. Prior to the offering, the company effected a
2-for-1 stock split which increased the Partnership holdings to 891,054
common shares.
Subsequent to December 31, 1998, the fair value of the Partnership's
investment increased to $11,152,432 as a result of the expiration of the
underwriter's lockup on February 7, 1999 and an increase in the publicly
traded market price at March 22, 1999. On March 24, 1999, the
Partnership sold 55,000 common shares for proceeds of $775,000 and
realized a gain of $665,000.
Portable Energy Products, Inc.
- ------------------------------
In July 1998, the Partnership purchased 1,500,000 Series C Preferred
shares and 375,000 common share warrants for $300,000. The pricing of
this round, in which third parties participated, indicated a $1,017,109
decrease in the fair value of the Partnership's existing investment.
Prolinx, Inc.
- -------------
In April 1998, the Partnership made an additional investment in the
company by purchasing 167,915 Series C Preferred shares and a common
share warrant for $364,376. The pricing of this round, in which third
parties participated, indicated a $590,847 increase in the fair value of
the Partnership's existing investment.
Women.com Networks (formerly Wire Networks, Inc.)
- -----------------------------------------------
In February 1998, the company changed its name from Wire Networks, Inc.
to Women.com Networks. In June 1998, the Partnership made an additional
investment in the company by purchasing 15,199 Series D Preferred shares
for $50,005. The pricing of this round, in which third parties
participated, indicated a $44,318 increase in the fair value of the
Partnership's existing investment.
In January 1999, the company and Hearst New Media & Technology, a wholly
owned unit of the Hearst Corporation, announced the formation of a joint
venture which will be a leading online community for women on the Web.
YES! Entertainment Corporation
- ------------------------------
In December 1998, the Partnership wrote off the cost basis of its
investment in the company and realized a loss of $166,665. This was
based upon the opinion of the Managing General Partners that the
operating status of the company indicated a permanent decline in value.
Venture Capital Limited Partnership Investments
- -----------------------------------------------
The Partnership made additional investments totaling $55,943 in venture
capital limited partnerships during the year ended December 31, 1998.
The Partnership received cash distributions totaling $285,504 from
Spectrum Equity Investors L.P., CVM Equity Fund IV, Ltd., and Trinity
Ventures IV, L.P. The Partnership received stock distributions of PRI
Automation, Inc. with a fair value of $2,362. Distributions totaling
$237,354 were recorded as realized gains and distributions totaling
$50,512 were recorded as returns of capital.
The Partnership recorded a $160,808 decrease in fair value as a result of
a net decrease in the fair value of the underlying investments of the
partnerships, caused, in part, by distributions received from such
partnerships.
Other Equity Investments
- ------------------------
Other significant changes reflected above primarily relate to market
value fluctuations or the elimination of a discount relating to selling
restrictions for publicly traded portfolio companies. Portions of the
Partnership's Conversion Technologies International, Inc. and
Physiometrix, Inc. shares are restricted.
6. 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,
---------------------------------------
1998 1997 1996
------ ------ ------
Decrease in fair value
from cost of marketable
equity securities $(2,758,285) (2,245,008) (778,613)
Increase in fair value from
cost of non-marketable
equity securities 19,171,791 16,519,372 6,480,147
---------- ---------- ---------
Net unrealized fair
value increase from
cost at end of year 16,413,506 14,274,364 5,701,534
Net unrealized fair
value increase from
cost at beginning of year 14,274,364 5,701,534 3,682,201
---------- ---------- ---------
Change in net unrealized
fair value of equity
investments $ 2,139,142 8,572,830 2,019,333
========== ========== =========
7. Secured Notes Receivable, Net
-----------------------------
Activity from January 1 through December 31 consisted of:
1998 1997
-------- --------
Balance, beginning of year $4,479 29,142
Secured notes receivable issued 2,766 33,902
Repayments of secured notes receivable (2,766) (47,873)
Decrease in accrued interest (4,479) (10,692)
----- ------
Balance, end of year $ -- 4,479
===== ======
There were no secured notes receivable at December 31, 1998. There was
no activity in the loan loss allowance in 1998 or 1997.
8. Other Investments
-----------------
During 1996, the Partnership reclassified $681,565 in secured notes
receivable and $17,266 in unamortized warrant discounts related to
Transphase Systems, Inc. to other investments as the notes were sold to a
third party in exchange for a portion of the net proceeds collectible
from the company. In June 1998, the Partnership wrote off the fair value
and cost basis of its investment in the company and realized a loss of
$664,299. This was based on the opinion of the Managing General Partner
that the unlikely prospects for recovery of the investment indicated a
permanent decline in value.
9. Cash and Cash Equivalents
-------------------------
Cash and cash equivalents at December 31, 1998 and 1997, consisted of:
1998 1997
-------- --------
Demand accounts $14,093 4,221
Money-market accounts 1,757 1,835,314
------ ---------
Total $15,850 1,839,535
====== =========
10. Short-Term Borrowings
---------------------
The Partnership has a borrowing account with a financial institution. At
December 31, 1998, the borrowing capacity of this account, which
fluctuates based on collateral value, was $883,214; as of March 26, 1999,
the borrowing capacity was $4,992,236 and the outstanding balance was
$442,430. Interest is charged at the prime rate plus one-half percent.
The weighted-average interest rate for the year ended December 31, 1998
was 8.67% and interest expense was $10,199. The Partnership's
investments in Megabios Corp., CV Therapeutics, Inc., Axys
Pharmaceuticals, Inc., and Pilot Network Services, Inc. are pledged as
collateral.
11. Commitments and Contingencies
-----------------------------
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, 1998, the Partnership had unfunded commitments as
follows:
Type
- ----
Equity investments $200,000
Equipment lease guarantees 300,000
Venture capital limited partnership investments 85,407
-------
Total $585,407
=======
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 jointly guaranteed with two affiliated
partnerships a $2,000,000 line of credit between a financial institution
and a portfolio company in the computer systems and software industry of
which the Partnership's share was $1,000,000. In October 1997, the
$2,000,000 guarantee was reduced to $1,000,000 as the affiliated
partnerships assumed a portion of the financial institution's line of
credit. The remaining $1,000,000 was guaranteed by the Partnership but
the affiliated partnerships remained joint guarantors. In November 1997,
the portfolio company failed to repay the line of credit. The Partnership
paid $1,055,862 under the terms of the guarantee and assumed a note
receivable from the portfolio company. The note was written off as a
realized loss from investment write-downs in December 1997. The
Partnership has no continuing commitment related to this guarantee.
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 29 1999 By: /s/Michael Brenner
----------------------------------
Michael Brenner
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 29, 1999
- ------------------------ Executive Officer,
Charles R. Kokesh Chief Financial officer
and Chairman of
Technology Funding Inc.
and Managing General
Partner of Technology
Funding Ltd.
The above represents the Board of Directors of Technology Funding Inc.
and the General Partners of Technology Funding Ltd.