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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the Quarterly Period Ended June 30, 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 0-16208
WESTFORD TECHNOLOGY VENTURES, L.P.
- ------------------------------------------------------------------------------
(Exact name of registrant as specified in
its charter)
Delaware 13-3423417
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
17 Academy Street, 5th Floor
Newark, New Jersey 07102-2905
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (973) 624-2131
Not applicable
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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
WESTFORD TECHNOLOGY VENTURES, L.P.
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
Balance Sheets as of June 30, 2002 (Unaudited) and December 31, 2001
Schedule of Portfolio Investments as of June 30, 2002 (Unaudited)
Statements of Operations for the Three and Six Months Ended June 30, 2002 and
2001 (Unaudited)
Statements of Cash Flows for the Six Months Ended June 30, 2002 and 2001
(Unaudited)
Statement of Changes in Partners' Capital for the Six Months Ended June 30, 2002
(Unaudited)
Notes to Financial Statements (Unaudited)
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Item 3. Quantitative and Qualitative Disclosure about Market Risk
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
Item 2. Changes in Securities.
Item 3. Defaults upon Senior Securities.
Item 4. Submission of Matters to a Vote of Security Holders.
Item 5. Other Information.
Item 6. Exhibits and Reports on Form 8-K.
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
WESTFORD TECHNOLOGY VENTURES, L.P.
BALANCE SHEETS
June 30, 2002 December 31,
(Unaudited) 2001
ASSETS
Portfolio investments at fair value (cost of $7,773,952 as of
June 30, 2002 and $7,733,952 as of December 31, 2001) $ 5,593,955 $ 5,553,955
Cash and cash equivalents 251,411 489,710
Accrued interest receivable 86,501 80,803
-------------- ----------------
TOTAL ASSETS $ 5,931,867 $ 6,124,468
============== ================
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Accounts payable and accrued expenses $ 37,146 $ 36,136
Due to Management Company 126,304 201,304
Due to Independent General Partners 7,500 7,500
-------------- ----------------
Total liabilities 170,950 244,940
-------------- ----------------
Partners' Capital:
Managing General Partner 240,580 240,575
Individual General Partners 2,701 2,743
Limited Partners (11,217 Units) 7,697,633 7,816,207
Unallocated net unrealized depreciation of investments (2,179,997) (2,179,997)
-------------- ----------------
Total partners' capital 5,760,917 5,879,528
-------------- ----------------
TOTAL LIABILITIES AND PARTNERS' CAPITAL $ 5,931,867 $ 6,124,468
============== ================
See notes to financial statements.
WESTFORD TECHNOLOGY VENTURES, L.P.
SCHEDULE OF PORTFOLIO INVESTMENTS (Unaudited)
June 30, 2002
Initial
Investment
Investment Description Date Cost Fair Value
- -------------------------------------------------------------------------------------------------------------------------------
Inn-Room Systems, Inc.*
Automated in-room vending units for the lodging industry
15,485 shares of Common Stock Oct. 1989 $ 1,320,349 $ 76,805
Convertible Demand Note at prime plus 1% 102,940 102,940
-------------- ----------------
1,423,289 179,745
- --------------------------------------------------------------------------------------------------------------------------------
Spectrix Corporation*
Infrared data transfer technology for networks
60,547 shares of Series A Preferred Stock June 1989 784,319 90,821
2,216,626 shares of Series B Preferred Stock 4,261,901 3,324,940
699,256 shares of Common Stock 354,878 1,048,884
Warrants to purchase 50,000 shares of Common Stock at
$4.00 per share, expiring 04/30/03 0 0
8% Demand Notes 40,000 40,000
-------------- ----------------
5,441,098 4,504,645
- --------------------------------------------------------------------------------------------------------------------------------
Thunderbird Technologies, Inc.
Designer of high performance, low power integrated
circuit products
788,796 shares of Series A Preferred Stock Oct. 1992 788,796 788,796
Convertible Demand Notes at prime 120,769 120,769
-------------- ----------------
909,565 909,565
- --------------------------------------------------------------------------------------------------------------------------------
TOTAL PORTFOLIO INVESTMENTS $ 7,773,952 $ 5,593,955
============== ================
* May be deemed an affiliated person of the Partnership as defined by the
Investment Company Act of 1940.
See notes to financial statements.
WESTFORD TECHNOLOGY VENTURES, L.P.
STATEMENTS OF OPERATIONS (Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
2002 2001 2002 2001
-------------- ------------ -------------- ------------
INVESTMENT INCOME AND EXPENSES
Income:
Interest from short-term investments $ 819 $ 3,584 $ 2,017 $ 7,791
Interest and other income from portfolio investments 2,915 5,112 5,956 10,512
----------- ------------- ------------- --------------
Totals 3,734 8,696 7,973 18,303
----------- ------------- ------------- --------------
Expenses:
Management fee 37,500 37,500 75,000 75,000
Professional fees 16,563 16,165 31,794 29,526
Mailing and printing 4,000 5,694 9,200 10,529
Independent General Partners' fees 3,750 3,750 7,500 7,500
Other expenses 1,550 1,500 3,090 3,080
----------- ------------- ------------- --------------
Totals 63,363 64,609 126,584 125,635
----------- ------------- ------------- --------------
NET INVESTMENT LOSS (59,629) (55,913) (118,611) (107,332)
Change in unrealized depreciation of investments - 1,488,216 - 1,488,216
----------- --------- ------------- --------------
NET (DECREASE) INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $ (59,629) $ 1,432,303 $ (118,611) $ 1,380,884
=========== ============= ============= ==============
See notes to financial statements.
WESTFORD TECHNOLOGY VENTURES, L.P.
STATEMENTS OF CASH FLOWS (Unaudited)
For the Six Months Ended June 30,
2002 2001
--------------- --------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net investment loss $ (118,611) $ (107,332)
Adjustments to reconcile net investment loss
to cash used for operating activities:
Increase in accrued interest and receivables (5,698) (9,923)
Decrease in payables, net (73,990) (122,086)
-------------- --------------
Cash used for operating activities (198,299) (239,341)
-------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of portfolio investments (40,000) -
-------------- --------------
Cash used for investing activities (40,000) -
-------------- --------------
Decrease in cash and cash equivalents (238,299) (239,341)
Cash and cash equivalents at beginning of period 489,710 919,613
-------------- --------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 251,411 $ 680,272
============== ==============
See notes to financial statements.
WESTFORD TECHNOLOGY VENTURES, L.P.
STATEMENT OF CHANGES IN PARTNERS' CAPITAL (Unaudited)
For the Six Months Ended June 30, 2002
Unallocated
Managing Individual Net Unrealized
General General Limited Depreciation of
Partner Partners Partners Investments Total
Balance at beginning of period $ 240,575 $ 2,743 $ 7,816,207 $ (2,179,997) $ 5,879,528
Net investment loss 5 (42) (118,574) - (118,611)
------------ --------- --------------- --------------- ---------------
Balance at end of period $ 240,580 $ 2,701 $ 7,697,633 (A) $ (2,179,997) $ 5,760,917
============ ========= =============== =============== ==========
(A) The net asset value per unit of limited partnership interest, including an
assumed allocation of net unrealized depreciation of investments, is $508
as of June 30, 2002.
See notes to financial statements.
WESTFORD TECHNOLOGY VENTURES, L.P.
NOTES TO FINANCIAL STATEMENTS (Unaudited)
1. Organization and Purpose
Westford Technology Ventures, L.P. (the "Partnership") is a Delaware
limited partnership formed on September 3, 1987. WTVI Co., L.P., the managing
general partner of the Partnership (the "Managing General Partner") and four
individuals (the "Individual General Partners") are the general partners of the
Partnership. Hamilton Capital Management Inc. (the "Management Company") is the
general partner of the Managing General Partner and the management company of
the Partnership. The Partnership began its principal operations on December 1,
1988.
The Partnership's objective is to achieve long-term capital appreciation by
making venture capital investments in new and developing companies and other
special investment situations. The Partnership will not engage in any other
business or activity. The Partnership is scheduled to terminate no later than
December 31, 2002.
2. Significant Accounting Policies
Valuation of Investments - Short-term investments are carried at amortized cost,
which approximates market. Portfolio investments are carried at fair value, as
determined quarterly by the Managing General Partner under the supervision of
the Individual General Partners. Publicly held portfolio securities are valued
at the closing public market price on the valuation date discounted by a factor
of between 0% to 50% for sales restrictions. Factors considered in the
determination of an appropriate discount include, underwriter lock-up or Rule
144 trading restrictions, insider status where the Partnership either has a
representative serving on the Board of Directors or is greater than a 10%
shareholder, and other liquidity factors such as the size of the Partnership's
position in a given company compared to the trading history of the public
security. Privately held portfolio securities are valued at cost until
significant developments affecting the portfolio company provide a basis for
change in valuation. The fair value of private securities is adjusted to reflect
1) meaningful third-party transactions in the private market or 2) significant
progress or slippage in the development of the company's business such that cost
is no longer reflective of fair value. As a venture capital investment fund, the
Partnership's portfolio investments involve a high degree of business and
financial risk that can result in substantial losses. The Managing General
Partner considers such risks in determining the fair value of the Partnership's
portfolio investments.
Use of Estimates - The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
Investment Transactions - Investment transactions are recorded on the accrual
method. Portfolio investments are recorded on the trade date, the date the
Partnership obtains an enforceable right to demand the securities or payment
therefore. Realized gains and losses on investments sold are computed on a
specific identification basis.
WESTFORD TECHNOLOGY VENTURES, L.P.
NOTES TO FINANCIAL STATEMENTS (Unaudited), continued
Income Taxes - No provision for income taxes has been made since all income and
losses are allocable to the Partners for inclusion in their respective income
tax returns. The Partnership's net assets for financial reporting purposes
differ from its net assets for tax purposes. Net unrealized depreciation of $2.2
million as of June 30, 2002, was recorded for financial statement purposes but
has not been recognized for tax purposes. Additionally, from inception to June
30, 2002, other timing differences relating to the sale of Units totaling $1.2
million were charged to partners' capital on the financial statements but have
not been deducted or charged against partners' capital for tax purposes.
Cash Equivalents - The Partnership considers all highly liquid debt instruments
(primarily money market funds) to be cash equivalents.
3. Allocation of Partnership Profits and Losses
The Partnership Agreement provides that the Managing General Partner will be
allocated, on a cumulative basis over the life of the Partnership, 20% of the
Partnership's aggregate investment income and net realized gains from venture
capital investments, provided that such amount is positive. All other gains and
losses of the Partnership are allocated among all the Partners, including the
Managing General Partner, in proportion to their respective capital
contributions to the Partnership.
4. Related Party Transactions
The Management Company is responsible for the management and administrative
services necessary for the operation of the Partnership. For these services, the
Management Company received a management fee through December 31, 1999 at an
annual rate of 2.5% of the gross capital contributions to the Partnership (net
of selling commissions and organizational expenses paid by the Partnership),
reduced by capital distributed and realized losses, with a minimum fee of
$200,000 per annum. The Management Company voluntarily agreed to reduce the
minimum management fee payable by the Partnership to $150,000 per annum,
effective January 1, 2000.
The Management Company also directly provides certain shareholder services and
database management support for the Limited Partners of the Partnership. For
such services, the Management Company had charged the Partnership an additional
fee of $8,500 per quarter through December 31, 1998. This amount was paid to the
Management Company in addition to the regular management fee discussed above.
Effective January 1, 1999, however, the Management Company agreed to provide
such services for no additional fee.
From inception of the Partnership to December 31, 1998, each of the three
Independent General Partners received an annual fee of $10,000 and $1,000 for
each meeting of the Independent General Partners attended, plus out-of-pocket
expenses. Effective January 1, 1999, the annual fee paid to each Independent
General Partner was reduced to $5,000. Additionally, effective January 1, 2000,
the Independent General Partners voluntarily waived all future meeting fees.
WESTFORD TECHNOLOGY VENTURES, L.P.
NOTES TO FINANCIAL STATEMENTS (Unaudited), continued
5. Classification of Portfolio Investments
As of June 30, 2002 the Partnership's portfolio investments were categorized as
follows:
As of June 30, 2002: Percentage of
- -------------------
Investment Type Cost Fair Value Net Assets*
- --------------- --------------- --------------- -----------
Preferred Stock $ 5,835,016 $ 4,204,557 72.99%
Common Stock 1,675,227 1,125,689 19.54%
Debt Securities 263,709 263,709 4.58%
---------------- -------------- -------
Total $ 7,773,952 $ 5,593,955 97.11%
================ ============== ======
Country/Geographic Region
Midwestern U.S. $ 6,864,387 $ 4,684,390 81.32%
Eastern U.S. 909,565 909,565 15.79%
---------------- -------------- ------
Total $ 7,773,952 $ 5,593,955 97.11%
================ ============== ======
Industry
Wireless Communications $ 5,441,098 $ 4,504,645 78.20%
Vending Equipment 1,423,289 179,745 3.12%
Semiconductors 909,565 909,565 15.79%
---------------- -------------- ------
Total $ 7,773,952 $ 5,593,955 97.11%
================ ============== ======
* Fair value as a percentage of net assets.
6. Interim Financial Statements
The interim financial data as of June 30, 2002 and for the six months ended June
30, 2002 and June 30, 2001 is unaudited. However, in the opinion of Partnership,
the interim data includes all adjustments consisting only of normal recurring
adjustments, necessary for a fair statement of the results for the interim
periods.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
------------------------------------------------------------------
Liquidity and Capital Resources
As of June 30, 2002, the Partnership held $251,411 in an interest-bearing cash
account. The Partnership earned $819 and $2,017 of interest from such cash
account for the three and six months ended June 30, 2002. Interest earned from
the Partnership's cash balances and short-term investments, if any, in future
periods is subject to fluctuations in short-term interest rates and changes in
amounts available for investment in such securities.
The Partnership is in its liquidation phase and will not make investments in any
new portfolio companies. However, the Partnership may make additional follow-on
investments in existing portfolio companies, if required. During the three
months ended June 30, 2002, the Partnership made a $40,000 follow-on investment
in Spectrix Corporation, acquiring 8% demand notes.
As of June 30, 2002, the Partnership's current liabilities of $170,950 included
$126,304 due to the Management Company and $7,500 due to the Independent General
Partners. Funds needed to cover such current liabilities, future follow-on
investments, if any, and operating expenses will be obtained primarily from
existing cash reserves and proceeds from the sale of the Partnership's remaining
portfolio investments.
Results of Operations
Investment Income and Expenses - Net investment loss for the three months ended
June 30, 2002 and 2001 was $59,629 and $55,913, respectively. The unfavorable
change in net investment loss for the 2002 period compared to the same period in
2001 is comprised of a $4,962 decrease in investment income partially offset by
a $1,246 decrease in operating expenses. The decrease in investment income
primarily resulted from a reduction of the Partnership's idle cash balances as
well as a reduction in interest rates during the three months ended June 30,
2002 compared to the same period in 2001. The slight reduction in operating
expenses primarily resulted from lower printing and mailing costs for the 2002
period compared to the same period in 2001.
Net investment loss for the six months ended June 30, 2002 and 2001 was $118,611
and $107,332, respectively. The unfavorable change in net investment loss for
the 2002 period as compared to the same period in 2001 is comprised of a $10,330
decrease in investment income and a $949 increase in operating expenses. The
decline in investment income resulted from the reduced interest from short-term
investments and a decrease in interest from portfolio investments, as discussed
above. The slight increase in operating expenses for the six months ended June
30, 2002 compared to the same period in 2001 primarily resulted from small
increases in professional fees offset by small reductions in mailing and
printing costs for the 2002 period.
The Management Company is responsible for the management and administrative
services necessary for the operation of the Partnership. For these services, the
Management Company received a management fee through December 31, 1999 at an
annual rate of 2.5% of the gross capital contributions to the Partnership (net
of selling commissions and organizational expenses paid by the Partnership),
reduced by capital distributed and realized losses, with a minimum fee of
$200,000 per annum. The Management Company voluntarily agreed to reduce the
minimum management fee payable by the Partnership to $150,000 per annum,
effective January 1, 2000. As a result, the management fee for the three months
ended June 30, 2002 and 2001 was $37,500 and the management fee for the six
months ended June, 2002 and 2001 was $75,000.
To the extent possible, the management fee and other expenses incurred directly
by the Partnership are paid with funds provided from operations. Funds provided
from operations primarily are obtained from interest received from short-term
investments, income earned from portfolio investments and proceeds received from
the sale of portfolio investments.
Realized Gains and Losses from Portfolio Investments - The Partnership had no
realized gains or losses from its portfolio investments during the three and six
months ended June 30, 2002 and 2001.
Unrealized Gains and Losses and Changes in Unrealized Depreciation of Portfolio
Investments - The Partnership had no change in net unrealized depreciation of
investments for the six months ended June 30, 2002. For the six months ended
June 30, 2001, the Partnership had a $1,488,216 favorable change in net
unrealized depreciation of investments, resulting from the upward revaluation of
its investment in Spectrix Corporation.
Net Assets - As of June 30, 2002, the Partnership's net assets were $5,760,917
as compared to net assets of $5,879,528 as of December 31, 2001. This reduced
net asset value represents the $118,611 net investment loss for the six months
ended June 30, 2002.
As of June 30, 2001, the Partnership's net assets were $5,990,166, reflecting an
increase of $1,380,884 from net assets of $4,609,282 as of December 31, 2000.
This change represents the increase in net assets resulting from operations for
the six-month period, comprised of the $1,488,216 favorable change in net
unrealized depreciation of investments exceeding the $107,332 net realized loss
from operations for the six months ended June 30, 2001.
Gains and losses from investments are allocated to the Partners' capital
accounts when realized in accordance with the Partnership Agreement (see Note 3
of Notes to Financial Statements). However, for purposes of calculating the net
asset value per unit of limited partnership interest ("Unit"), net unrealized
appreciation or depreciation of investments has been included as if it had been
realized and allocated to the Limited Partners in accordance with the
Partnership Agreement. Pursuant to such calculation, the net asset value per
$1,000 Unit at June 30, 2002 and December 31, 2001 was $508 and $519,
respectively.
Item 3. Quantitative and Qualitative Disclosures about Market Risk.
-----------------------------------------------------------
The Partnership is subject to market risk arising from changes in the value of
its portfolio investments, short-term investments and interest-bearing cash
equivalents, which may result from fluctuations in interest rates and equity
prices. The Partnership has calculated its market risk related to its holdings
of these investments based on changes in interest rates and equity prices
utilizing a sensitivity analysis. The sensitivity analysis estimates the
hypothetical change in fair values, cash flows and earnings based on an assumed
10% change (increase or decrease) in interest rates and equity prices. To
perform the sensitivity analysis, the assumed 10% change is applied to market
rates and prices on investments held by the Partnership at the end of the
accounting period.
The Partnership's portfolio investments had an aggregate fair value of
$5,593,955 as of June 30, 2002. An assumed 10% decline from this fair value,
including an assumed 10% decline of the per share market prices of the
Partnership's publicly-traded securities, would result in a reduction to the
fair value of such investments and a corresponding unrealized loss of $559,396.
The Partnership had no short-term investments as of June 30, 2002. Market risk
relating to the Partnership's interest-bearing cash equivalents held as of June
30, 2002 is considered to be immaterial.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
-----------------
The Partnership is not a party to any material pending legal proceedings.
Item 2. Changes in Securities.
---------------------
None.
Item 3. Defaults Upon Senior Securities.
-------------------------------
None.
Item 4. Submission of Matters to a Vote of Security Holders.
---------------------------------------------------
The 2002 Annual Meeting of Limited Partners, originally scheduled for June 28,
2002, was held on July 29, 2002. At the meeting, the following matters were
voted on and approved:
Affirmative
Votes Withheld
Election of the four Individual General Partners, to serve
for the ensuing year:
Jeffrey T. Hamilton 4,288 1,510
----- -----
Robert S. Ames 4,312 1,486
----- -----
Alfred M. Bertocchi 4,319 1,479
----- -----
George M. Weimer 4,322 1,476
----- -----
Affirmative Negative
Votes Votes Abstentions
Election of the General Partner, WTVI Co., L.P.
to serve as Managing General Partner
for the ensuing year. 4,285 1,513 n/a
----- -----
Approval of the continuance of the
Management Agreement between the
Partnership and the Management Company 3,997 1,357 444
----- ----- ---
Ratification of the selection of
BDO Seidman LLP as independent
auditors for the Partnership's fiscal
year ending December 31, 2002 4,867 451 480
----- --- ---
Item 5. Other Information.
-----------------
None.
Item 6. Exhibits and Reports on Form 8-K.
--------------------------------
1. Exhibits:
a) 99.1 Certification of chief executive officer pursuant to
18 U.S.C. Section 1350, as adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002
b) 99.2 Certification of chief financial officer pursuant to
18 U.S.C. Section 1350, as adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002
2. Reports on Form 8-K:
None
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, this report has been signed below by the following persons on
behalf of the Registrant, in the capacities, and on the date indicated.
WESTFORD TECHNOLOGY VENTURES, L.P.
By: WTVI Co., L.P.
its managing general partner
By: Hamilton Capital Management Inc.
its general partner
By: /s/ Jeffrey T. Hamilton
------------------------------------------------
Jeffrey T. Hamilton
President, Secretary and Director
(Principal Executive Officer and
Principal Financial and Accounting Officer)
of Hamilton Capital Management Inc. and
Individual General Partner of Westford Technology Ventures, L.P.
Date: August 14, 2002