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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934.
For the quarterly period ended July 31, 2002
--------------------------------------------
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the transition period from to
----------------- -----------------------
Commission file number 000-29665
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EXCELSIOR VENTURE PARTNERS III, LLC
- --------------------------------------------------------------------------------
(Exact Name of Registrant as Specified in Its Charter)
DELAWARE 13-4102528
- --------------------------------------------------------------------------------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
114 West 47th Street, New York, NY 10036-1532
- --------------------------------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code (212) 852-1000
----------------------------
- --------------------------------------------------------------------------------
Former Name, Former Address and Former Fiscal Year,
if Changed Since last Report.
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 [_]
EXCELSIOR VENTURE PARTNERS III, LLC
This Quarterly Report on Form 10-Q contains historical information and
forward-looking statements. Statements looking forward in time are included in
this Form 10-Q pursuant to the "safe harbor" provisions of the Private
Securities Litigation Reform Act of 1995. They involve known and unknown risks
and uncertainties that may cause Excelsior Venture Partners III, LLC's (the
"Company's") actual results to differ from future performance suggested herein.
INDEX PAGE NO.
----- --------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements. 1
Portfolio of Investments as of July 31, 2002. 1
Statement of Assets and Liabilities at July 31, 2002 and
October 31, 2001. 3
Statement of Operations for the nine-month periods ended
July 31, 2002 and July 31, 2001. 4
Statement of Changes in Net Assets for the nine-month
periods ended July 31, 2002 and July 31, 2001. 5
Statement of Cash Flows for the nine-month periods ended
July 31, 2002 and July 31, 2001. 6
Financial Highlights at July 31, 2002 and October 31, 2001. 7
Notes to Financial Statements. 8
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of perations. 11
Item 3. Quantitative and Qualitative Disclosures about Market Risk. 12
PART II. OTHER INFORMATION
Item 1. Legal Proceedings. 12
Item 2. Changes in Securities and Use of Proceeds. 12
Item 3. Defaults Upon Senior Securities. 12
Item 4. Submission of Matters to a Vote of Security Holders. 12
Item 5. Other Information. 12
Item 6. Exhibits and Reports on Form 8-K. 13
SIGNATURES 14
CERTIFICATIONS 14
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
Excelsior Venture Partners III, LLC
Portfolio of Investments (Unaudited)
- --------------------------------------------------------------------------------
July 31, 2002
------------------------
PORTFOLIO STRUCTURE
- -------------------
SHORT-TERM INVESTMENTS:
U.S. GOVERNMENT OBLIGATIONS $ 82,945,451 58.16%
INVESTMENT COMPANIES 4,489,268 3.15%
PRIVATE COMPANIES 54,396,825 38.14%
PRIVATE INVESTMENT FUNDS 1,188,755 0.83%
------------ -------
TOTAL INVESTMENTS 143,020,299 100.28%
OTHER ASSETS & LIABILITIES (NET) (393,328) (0.28)%
------------ ------
NET ASSETS $142,626,971 100.00%
============ ======
See Notes to Financial Statements.
1
Excelsior Venture Partners III, LLC
Portfolio of Investments (Unaudited)
- --------------------------------------------------------------------------------
July 31, 2002
---------------------------
Principal Acquisition Value
Amount/Shares Date ## (Note 1)
- ------------- -------- --------
U.S. GOVERNMENT OBLIGATIONS - 58.16%
$83,000,000 U.S. Treasury Bill
1.69%, 8/15/02 $ 82,945,451
------------------
Total - U.S. Government Obligations (Cost $82,945,451) 82,945,451
------------------
PRIVATE COMPANIES**, #, @ -- 38.14%
647,948 Adeza Biomedical Corporation, Series 5 Preferred 09/01 3,000,000
2,419,355 Ancile Pharmaceuticals, Inc., Series D Preferred 11/01 3,000,000
44,247,788 Cenquest, Inc., Series 1 Preferred 07/01 2,000,000
2,333,333 Ethertronics, Inc., Series B Preferred 06/01 3,500,000
1,879,699 Genoptix, Inc., Series B Preferred 12/01 2,500,000
4,330,504 LightConnect, Inc., Series B Preferred 07/01 2,500,000
4,374,256 LogicLibrary, Inc., Series A Preferred 01/02 2,000,000
15,739,638 MIDAS Vision Systems, Inc., Series C Preferred 12/01 4,000,000
7,089,552 Monterey Design Systems, Inc., Series 1 Preferred 12/01 4,750,000
956,234 NanoOpto Corporation, Series A-1 Preferred 10/01&3/02 2,231,211
1,538,461 NetLogic Microsystems, Inc., Series D Preferred 8/01 5,000,000
5,333,333 OpVista, Inc., Series B Preferred 07/01 4,000,000
6,000,000 Pilot Software Acquisition Corp., Series A Preferred 5/02 3,000,000
517,260 Senomyx, Inc., Series E Preferred 11/01 1,500,000
2,211,898 Silverback Systems, Inc., Series B Preferred 02/02 1,415,614
4,166,667 Tensys Medical, Inc., Series C Preferred 03/02 5,000,000
3,096,551 Virtual Silicon Technology, Inc., Series C Preferred 12/01 5,000,000
------------------
Total - Private Companies (Cost $56,896,827) 54,396,825
------------------
PRIVATE INVESTMENT FUNDS/**/, /#/ -- 0.83%
Advanced Technology Ventures VII, L.P. 08/01-03/02 176,926
CHL Medical Partners II, L.P. 01/02-06/02 177,094
Morgenthaler Partners VII, L.P. 07/01-04/02 416,554
Prospect Venture Partners II, L.P. 06/01-06/02 418,181
------------------
Total - Private Investment Funds (Cost $1,375,428) 1,188,755
------------------
INVESTMENT COMPANIES - 3.15%
4,489,268 Dreyfus Government Cash Management Account 4,489,268
------------------
Total - Investment Companies (Cost $4,489,268)
TOTAL INVESTMENTS (Cost $145,706,974*) - 100.28% 143,020,299
OTHER ASSETS & LIABILITIES (NET) - (0.28)% (393,328)
------------------
NET ASSETS - 100.00% $ 142,626,971
------------------
* Aggregate cost for federal tax and book purposes.
** Restricted as to public resale. Acquired between June 1, 2001 and July 31,
2002. Total cost of restricted securities at July 31, 2002 aggregated
$58,272,255. Total market value of restricted securities owned at July 31,
2002 was $55,585,580 or 38.97% of net assets.
# Non-income producing securities.
## Required disclosure for restricted securities only.
@ At July 31, 2002 the Company owned 5% or more of the company's outstanding
shares thereby making the company an affiliate as defined by the Investment
Company Act of 1940. Total market value of affiliated securities owned at
July 31, 2002 was $54,396,825.
See Notes to Financial Statements.
2
Excelsior Venture Partners III, LLC
Statement of Assets and Liabilities
- --------------------------------------------------------------------------------
July 31, 2002 October 31, 2001
------------- ----------------
(Unaudited)
ASSETS:
Investment Securities, at Cost $145,706,974 $139,742,790
============ ============
Investment Securities, at Value $143,020,299 $139,676,495
Cash and Cash Equivalents 628,571 8,433,122
Receivables:
Interest 7,833 --
Other Receivables 1,271 --
Receivable due from Distributor -- 50,000
Prepaid Assets 30,200 43,070
------------ ------------
Total Assets 143,688,174 148,202,687
------------ ------------
LIABILITIES:
Management Fees Payable 734,343 1,377,259
Administration and Professional Fees Payable 254,013 249,241
Board of Managers' Fees Payable 44,876 45,000
Offering Costs Payable -- 93,880
Accrued Expenses and Other Payables 27,971 16,529
------------ ------------
Total Liabilities 1,061,203 1,781,909
------------ ------------
NET ASSETS $142,626,971 $146,420,778
============ ============
NET ASSETS consist of:
Accumulated Undistributed Net Investment Income/(Loss) $ (830,499) $ 343,692
Accumulated Net Realized Gain on Investments 7,363 6,599
Net Unrealized Depreciation on Investments (2,686,675) (66,295)
Paid in Capital 146,136,782 146,136,782
------------ ------------
Total Net Assets $142,626,971 $146,420,778
============ ============
Units of Membership Interest Outstanding 295,210 295,210
------------ ------------
NET ASSET VALUE PER UNIT $ 483.14 $ 495.99
============ ============
See Notes to Financial Statements.
3
Excelsior Venture Partners III, LLC
Statement of Operations (Unaudited)
- --------------------------------------------------------------------------------
(April 5, 2001
Commencement
of Operations)
Nine Months Ended to July 31,
July 31, 2002 2001
----------------- --------------
INVESTMENT INCOME:
Interest Income $ 1,371,465 $ 1,717,849
------------ -------------
Total Income 1,371,465 1,717,849
------------ -------------
EXPENSES:
Management Fees 2,184,803 630,860
Professional Fees 214,661 77,327
Organizational Expenses (Note 4) (93,880) 20,172
Administration Fees 120,755 34,705
Board of Managers' Fees 67,876 15,130
Custodian Fees 13,463 --
Miscellaneous 18,702 13,269
Insurance 19,276 --
------------ -------------
Total Expenses 2,545,656 791,463
NET INVESTMENT INCOME/(LOSS) (1,174,191) 926,386
------------ -------------
REALIZED AND UNREALIZED GAIN/
LOSS ON INVESTMENTS
Net Realized Gain on Security Transactions 764 6,562
Change in Unrealized Depreciation on Investments (2,620,380) (9,973)
------------ -------------
NET REALIZED AND UNREALIZED
LOSS ON INVESTMENTS (2,619,616) (3,411)
------------ -------------
NET INCREASE/DECREASE IN NET
ASSETS RESULTING FROM OPERATIONS $ (3,793,807) $ 922,975
============ =============
See Notes to Financial Statements.
4
Excelsior Venture Partners III, LLC
Statement of Changes in Net Assets (Unaudited)
- --------------------------------------------------------------------------------
(April 5, 2001
Commencement
of Operations)
Nine Months Ended to July 31,
July 31, 2002 2001
----------------- --------------
OPERATIONS:
Net Investment Income/(Loss) $ (1,174,191) $ 926,386
Net Realized Gain on Investments 764 6,562
Change in Unrealized Depreciation on Investments (2,620,380) (9,973)
------------ ------------
Net Increase/(Decrease) in Net Assets
Resulting from Operations (3,793,807) 922,975
MEMBERSHIP INTEREST TRANACTIONS:
Proceeds from units of membership interest sold --
147,604,500
DISTRIBUTION TO SHAREHOLDERS FROM:
Net Investment Income -- --
Net Realized Gain on Investments -- (487,151)
------------ ------------
NET INCREASE/(DECREASE) IN NET ASSETS (3,793,807) 148,040,324
NET ASSETS:
Beginning of Period 146,420,778 500
------------ ------------
End of Period $142,626,971 $148,040,824
============ ============
See Notes to Financial Statements.
5
Excelsior Venture Partners III, LLC
Statement of Cash Flows (Unaudited)
- --------------------------------------------------------------------------------
(April 5, 2001
Commencement
of Operations)
Nine Months Ended to July 31,
July 31, 2002 2001
----------------- --------------
CASH FLOWS FROM INVESTING AND
OPERATING ACTIVITIES:
Gain from investments sold $ 764 $ 6,562
Change in short term investments 27,342,642 (124,468,232)
Securities purchased (33,306,827) (14,800,429)
Income received 1,412,452 1,717,849
Expenses paid (3,253,582) (387,691)
------------ -------------
Net Cash Used for Investing and Operating Activities (7,804,551) (137,931,941)
------------ -------------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Capital Contributions -- 147,604,500
Distributions -- (487,151)
------------ -------------
Net Increase/(Decrease) in Cash (7,804,551) 9,185,408
------------ -------------
CASH AT BEGINNING OF PERIOD 8,433,122 500
============ =============
CASH AT END OF PERIOD $ 628,571 $ 9,185,908
============ =============
See Notes to Financial Statements.
6
Excelsior Venture Partners III, LLC
Financial Highlights (Unaudited)
- --------------------------------------------------------------------------------
Per Unit Operating Performance: (1) 1#
(April 5, 2001
Commencement
Nine Months Ended of Operations) to
July 31, 2002 October 31, 2001
------------- ----------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 495.99 $ 500.00
Deduction of Offering Cost from Contributions -- (4.97)
INCOME FROM INVESTMENT OPERATIONS:
Net Investment Income/(Loss) (3.98) 2.81
Net Realized and Unrealized Loss on Investments (8.87) (0.20)
--------------- ---------------
Total from Investment Operations (12.85) 2.61
--------------- ---------------
DISTRIBUTIONS:
From Investment Income -- (1.65)
--------------- ---------------
Total Distributions -- (1.65)
--------------- ---------------
NET ASSET VALUE, END OF PERIOD $ 483.14 $ 495.99
=============== ===============
TOTAL NET ASSET VALUE RETURN (3) (2.59)% 0.52%
=============== ===============
Ratios and supplemental data:
Net Assets, End of Period (000's) $ 142,627 $ 146,421
Ratios to Average Net Assets (2)
Gross Expenses 2.42% 1.35%
Net Expenses 2.34% 1.32%
Net Investment Income (Loss) (1.08)% 0.58%
Portfolio Turnover (3) 0.00% 0.00%
(1) Selected data for a unit of membership interest outstanding throughout the
period
(2) Annualized
(3) Non-annualized
See Notes to Financial Statements.
7
Excelsior Venture Partners III, LLC
Notes to Financial Statements (Unaudited)
Note 1 -- Significant Accounting Policies
Excelsior Venture Partners III, LLC (the "Company") is a non-diversified,
closed-end management investment company, which has elected to be treated as a
business development company or "BDC" under the Investment Company Act of 1940,
as amended. The Company was established as a Delaware limited liability company
on February 18, 2000. The Company commenced operations on April 5, 2001. The
duration of the Company is ten years (subject to two, two-year extensions) from
the final subscription closing, at which time the affairs of the Company will be
wound up and its assets distributed pro rata to members as soon as is
practicable.
Certain costs incurred in connection with the initial offering of units
totaled $1,468,218. Each member's share of these costs was deducted from his,
her or its initial capital contribution.
The following is a summary of the Company's significant accounting
policies. Such policies are in conformity with generally accepted accounting
principles for investment companies and are consistently followed in the
preparation of the financial statements. Generally accepted accounting
principles in the United States require management to make estimates and
assumptions that affect the reported amounts and disclosures in the financial
statements. Actual results could differ from these estimates.
A. Investment Valuation:
The Company values portfolio securities quarterly and at such other
times as, in the Board of Managers' view, circumstances warrant. Securities
for which market quotations are readily available generally will be valued
at the last sale price on the date of valuation or, if no sale occurred, at
the mean of the latest bid and ask prices; provided that, as to such
securities that may have legal, contractual or practical restrictions on
transfer, a discount of 10% to 40% from the public market price will be
applied. Securities for which no public market exists and other assets will
be valued at fair value as determined in good faith by the Investment
Advisers (as defined below) or a committee of the Board under the
supervision of the Board pursuant to certain valuation procedures
summarized below. Securities having remaining maturities of 60 days or less
are valued at amortized cost.
The value for securities for which no public market exists is
difficult to determine. Generally, such investments will be valued on a
"going concern" basis without giving effect to any disposition costs. There
is a range of values that is reasonable for such investments at any
particular time. Initially, direct investments are valued based upon their
original cost, until developments provide a sufficient basis for use of a
valuation other than cost. Upon the occurrence of developments providing a
sufficient basis for a change in valuation, direct investments will be
valued by the "private market" or "appraisal" method of valuation. The
private market method shall only be used with respect to reliable third
party transactions by sophisticated, independent investors. The appraisal
method shall be based upon such factors affecting the company such as
earnings, net worth, reliable private sale prices of the company's
securities, the market prices for similar securities of comparable
companies, an assessment of the company's future prospects or, if
appropriate, liquidation value. The values for the investments referred to
in this paragraph will be estimated regularly by the Investment Advisers or
a committee of the Board and, in any event, not less frequently than
quarterly. However, there can be no assurance that such value will
represent the return that might ultimately be realized by the Company from
the investments.
At July 31, 2002, market quotations were not readily available for
securities valued at $55,585,580. Such securities were valued by the
Investment Advisers, under the supervision of the Board of Managers.
Because of the inherent uncertainty of valuation, the estimated values may
differ significantly from the values that would have been used had a ready
market for the securities existed, and the differences could be material.
8
B. Security transactions and investment income:
Security transactions are recorded on a trade date basis. Realized
gains and losses on investments sold are recorded on the basis of
identified cost. Interest income, adjusted for amortization of premiums and
discounts on investments, is earned from settlement date and is recorded on
the accrual basis. Dividend income is recorded on the ex-dividend date.
C. Income taxes:
Under current law and based on certain assumptions and
representations, the Company intends to be treated as a partnership for
federal, state and local income tax purposes. By reason of this treatment
the Company will itself not be subject to income tax. Rather, each member,
in computing income tax, will include his, her or its allocable share of
Company items of income, gain, loss, deduction and expense.
D. Dividends to members:
The Company will distribute all cash that the Investment Adviser does
not expect to use in the operation of the Company. Due to the nature of the
Company's investments, investors should not expect distributions of cash or
property during the first several years of the Company's operations.
E. Other:
The Company treats all highly-liquid financial instruments that mature
within three months as cash equivalents.
Note 2 -- Investment Advisory Fee, Administration Fee and Related Party
Transactions
U.S. Trust Company serves as the Investment Adviser to the Company pursuant
to an Investment Advisory Agreement with the Company. United States Trust
Company of New York ("U.S. Trust NY") and U.S. Trust Company, N.A. serve as
Investment Sub-Advisers to the Company pursuant to Investment Sub-Advisory
Agreements with U.S. Trust Company and the Company. In return for its services
and expenses which U.S. Trust Company assumes under the Investment Advisory
Agreement, the Company will pay U.S. Trust Company, on a quarterly basis, a
management fee at an annual rate equal to 2.00% of the Company's average
quarterly net assets through the fifth anniversary of the first closing date and
1.00% of net assets thereafter. Pursuant to the Investment Sub-Advisory
Agreements, U.S. Trust Company pays investment management fees to U.S. Trust NY
and U.S. Trust Company, N.A.
In addition to the management fee, U.S. Trust Company is entitled to
allocations and distributions equal to the Incentive Carried Interest. The
Incentive Carried Interest is an amount equal to 20% of the Company's cumulative
realized capital gains on Direct Investments, net of cumulative realized capital
losses and current net unrealized capital depreciation on all of the Company's
investments and cumulative net expenses of the Company. Direct Investments means
Company investments in domestic and foreign companies in which the equity is
closely held by company founders, management, and/ or a limited number of
institutional investors and negotiated private investments in public companies.
The Incentive Carried Interest will be determined annually as of the end of each
calendar year.
On December 20, 2001, the Board of Managers approved an Investment
Sub-Advisory Agreement, substantially similar to those currently in effect,
among the Company, U.S. Trust Company and U.S. Trust Company, N.A. Prior to
December 21, 2001, the effective date of the Agreement, U.S. Trust NY served as
the sole Investment Sub-Adviser to the Company.
U.S. Trust Company is a Connecticut state bank and trust company. U.S.
Trust NY is a New York state-chartered bank and trust company and a member of
the Federal Reserve System. U.S. Trust Company, N.A. is a nationally chartered
bank. Each is a wholly-owned subsidiary of U.S. Trust Corporation, a registered
bank holding company. U.S. Trust Corporation is an indirect wholly-owned
subsidiary of The Charles Schwab Corporation ("Schwab").
9
Pursuant to an Administration, Accounting and Investor Services Agreement,
the Company retains PFPC Inc. ("PFPC"), an indirect wholly-owned subsidiary of
PNC Bank N.A., as administrator, accounting and investor services agent. In
addition, PFPC Trust Company serves as the Company's custodian. In consideration
for its services, the Company (i) pays PFPC a variable fee between 0.105% and
0.07%, based on average quarterly net assets, payable monthly, subject to a
minimum quarterly fee of approximately $30,000, (ii) pays annual fees of
approximately $15,000 for taxation services and (iii) reimburses PFPC for
out-of-pocket expenses.
Charles Schwab & Co., Inc. (the "Distributor"), the principal subsidiary of
Schwab, serves as the Company's distributor for the offering of units. U.S.
Trust Company paid the Distributor from its own assets an amount equal to 0.02%
of the total of all subscriptions received in this offering. U.S. Trust Company
or an affiliate will pay the Distributor an on-going fee for the sale of units
and the provision of ongoing investor services in an amount equal to the annual
rate of 0.45% of the average quarterly net asset value of all outstanding units
held by investors introduced to the Company by the Distributor through the fifth
anniversary of the final subscription closing date and at the annual rate of
0.22% thereafter, subject to elimination upon all such fees totaling 6.5% of the
gross proceeds received by the Company from this offering.
Each member of the Board of Managers receives $7,000 annually, $2,000 per
meeting attended and is reimbursed for expenses incurred for attending meetings.
No person who is an officer, manager or employee of U.S. Trust Corporation, or
its subsidiaries, who serves as an officer, manager or employee of the Company
receives any compensation from the Company.
As of July 31, 2002, Excelsior Venture Investors III, LLC had an investment
in the Company of $90,544,284. This represents an ownership interest of 63.483%
in the Company.
Note 3 -- Purchases and Sales of Securities:
Excluding short-term investments, the Company had $33,306,827 in purchases
and $0 in sales of securities for the nine-month period ended July 31, 2002.
Excluding short-term investments, the Company had $14,800,429 in purchases and
$0 in sales of securities for the nine-month period ended July 31, 2001.
Note 4 -- Organization Fees
The Company originally estimated organization fees totaling $154,976, which
were expensed in the fiscal period ended October 31, 2001. As a result of the
Company's final closing held on May 11, 2001, the Company was reimbursed for
$50,000 in organizational expenses from the Distributor. Certain organizational
expenses totaling $93,880 that were anticipated were ultimately never incurred.
As a result, the Company reversed $93,880 of organizational expense, as
reflected in the Statement of Operations.
Note 5 -- Commitments
As of July 31, 2002, the Company had outstanding investment commitments
totaling $9,624,571.
Note 6 -- Transactions with Affiliated Companies
An affiliated company is a company in which the Company has ownership of at
least 5% of the voting securities. The Company did not receive dividend or
interest income from affiliated companies during the nine-month period ended
July 31, 2002. Transactions with companies, which are or were affiliates, are as
follows:
10
Sale/Merger Realized Value
Affiliate Purchases Proceeds Gain (Loss) (Note 1)
- --------- --------- -------- ----------- --------
NanoOpto Corporation, Series A-1 Preferred $ 231,212 -- -- $ 2,231,211
--------- ------------- -------------- ------------
Total $ 231,212 -- -- $ 2,231,211
========= ============= ============== ============
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Results of Operations
- ---------------------
Nine-Month Period Ended July 31, 2002 as Compared to the Similar Period in 2001
The Company's net asset value per unit of membership interest was
$483.14 at July 31, 2002, a decrease of $12.85 per unit from the net asset value
per unit of membership interest of $495.99 at October 31, 2001. This decrease is
principally the result of (i) a $2,500,000 write-down of LightConnect, Inc., a
private company investment, during the period and (ii) operating expenses
exceeding investment income during the period primarily due to a decline in net
investment income and the management fee accrual. During the period, the Company
completed a direct investment in Pilot Software Acquisition Corp.'s Series A
Preferred Stock. The Company also contributed capital to CHL Medical Partners
II, L.P. and Prospect Venture Partners II, L.P., each a private equity fund. The
Company's net asset value per unit was $501.48 at July 31, 2001, up $1.48 per
unit from the net asset value per unit of $500.00 at October 31, 2000 due to an
increase in net investment income.
Realized and Unrealized Gains and Losses from Portfolio Investments
- -------------------------------------------------------------------
For the nine-month periods ended July 31, 2002 and 2001, the Company
had a net realized gain on security transactions of $764 and $6,562,
respectively. For the nine-month periods ended July 31, 2002 and 2001, the
Company had a net change in unrealized depreciation on investments of
($2,620,380) and ($9,973), respectively. The realized gains were principally the
result of the Company's sale of short-term investments during these periods. The
change in unrealized depreciation was principally the result of a decline in the
value of LightConnect, Inc., a private company investment.
Investment Income and Expenses
- ------------------------------
For the nine-month period ended July 31, 2002, the Company had interest
income of $1,371,465 and net operating expenses of $2,545,656, resulting in net
investment loss of $1,174,191. In comparison, for the similar period ended July
31, 2001, the Company had interest income of $1,717,849 and net operating
expenses of $791,463, resulting in net investment income of $926,386. This
decrease in net investment income resulted from the negative impact of the
decline in short-term interest rates, coupled with an increase in management
fees during the period.
U.S. Trust Company (the "Investment Adviser") and United States Trust
Company of New York and U.S. Trust Company, N.A. (each an "Investment
Sub-Adviser" and together with U.S. Trust Company, the "Investment Advisers")
provide investment management and administrative services required for the
operation of the Company. In consideration of the services rendered by the
Investment Advisers, the Company pays a management fee based upon a percentage
of the net assets of the Company invested or committed to be invested in certain
types of investments and an incentive fee based in part on a percentage of
realized capital gains of the Company. Such fee is determined and payable
quarterly. For the nine-month periods ended July 31, 2002 and 2001, the
Investment Advisers earned $2,184,803 and $630,860 in management fees,
respectively. Whereas management fees accrued through July 31, 2002 represent
nine months of expense accrual, fees accrued through July 31, 2001 represent
management fees incurred from the Company's final closing date of May 11, 2001
through July 31, 2001, approximately three months of expense accrual.
11
Net Assets
- ----------
At July 31, 2002, the Company's net assets were $142,626,971, a
decrease of $3,793,807 from net assets of $146,420,778 at October 31, 2001. The
decrease was primarily the result of (i) an unrealized loss due to the
$2,500,000 write-down of LightConnect, Inc., a private company investment and
(ii) a net investment loss, primarily due to management fees exceeding interest
income earned for the nine-month period ended July 31, 2002. The Company's net
assets at July 31, 2001 were $148,040,824, up $148,040,324 from net assets of
$500 at October 31, 2000. This is due to the commencement of the Company's
operations on April 5, 2001 whereby proceeds from units of membership interest
sold were received in connection with the Company's offering period, which
closed on May 11, 2001.
Liquidity and Capital Resources
- -------------------------------
The Company will focus its investments in the securities of
privately-held venture capital companies, and to a lesser extent in venture
capital, buyout and other private equity funds managed by third parties. The
Company may offer managerial assistance to certain of such privately-held
venture capital companies companies. The Company invests its available cash in
short-term investments of marketable securities pending distribution to
investors.
At July 31, 2002, the Company held $628,571 in cash and $143,020,299 in
investments as compared to $8,433,122 in cash and $139,676,495 in investments at
October 31, 2001. These changes from October 31, 2001 were due to purchases and
sales of short-term investments made by the Company during the period in order
to provide liquidity for the purchase of direct investments and private fund
investments. In connection with the Company's total commitments to private funds
in the amount of $11,000,000 since inception, the Company, through July 31,
2002, has contributed a total of $1,375,429.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Equity Price Risk
The Company anticipates that a majority of its investment portfolio
will consist of equity securities in private companies and private investment
funds, which are not publicly traded. These investments are recorded at fair
value as determined by the Investment Advisers in accordance with valuation
guidelines adopted by the Board of Managers. This method of valuation does not
result in increases or decreases in the fair value of these equity securities in
response to changes in market prices. Thus, these equity securities are not
subject to equity price risk normally associated with public equity markets. As
of July 31, 2002, the Company held no investments in the equity securities of
public companies.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
None.
Item 2. Changes in Securities and Use of Proceeds.
None.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
Item 5. Other Information.
None.
12
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
99.1 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes- Oxley Act of 2002.
(b) Reports on Form 8-K.
None.
13
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
EXCELSIOR VENTURE PARTNERS III, LLC
Date: September 13, 2002 By: /s/ David I. Fann
--------------------------------
David I. Fann
Co-Chief Executive Officer
Date: September 13, 2002 By: /s/ Douglas A. Lindgren
--------------------------------
Douglas A. Lindgren
Co-Chief Executive Officer
Date: September 13, 2002 By: /s/ Brian F. Schmidt
--------------------------------
Brian F. Schmidt
Chief Financial Officer
(Principal Financial Officer)
CERTIFICATIONS
I, David I. Fann, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Excelsior Venture
Partners III, LLC;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report; and
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report.
Date: September 13, 2002
/s/ David I. Fann
----------------------------------
Name: David I. Fann
Title: Co-Chief Executive Officer
I, Douglas A. Lindgren, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Excelsior Venture
Partners III, LLC;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report; and
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report.
Date: September 13, 2002
/s/ Douglas A. Lindgren
-----------------------------------
Name: Douglas A. Lindgren
Title: Co-Chief Executive Officer
14
I, Brian F. Schmidt, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Excelsior Venture
Partners III, LLC;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report; and
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report.
Date: September 13, 2002
/s/ Brian F. Schmidt
-----------------------------------
Name: Brian F. Schmidt
Title: Chief Financial Officer
(Principal Financial Officer)
15