<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1999
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number 000-21593
---------
WESTERN PENNSYLVANIA ADVENTURE CAPITAL FUND
(Exact Name of Registrant as Specified in its Charter)
Pennsylvania 25-1792727
------------ ----------
(State of Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
Scott Towne Center, Suite A-113
2101 Greentree Road
Pittsburgh, PA 15220-1400
(Address of Principal Executive Offices and Zip Code)
(412) 279-1760
(Registrant's Telephone Number, Including Area Code)
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.
X Yes ___ No
- -
Number of shares outstanding of the issuer's Common Stock, par value $.01 per
share, as of October 29, 1999: 2,210,434 Shares.
<PAGE>
PART 1 - Financial Information
<TABLE>
<CAPTION>
Page No.
Item 1 Financial Statements
<S> <C>
Report on Review by Independent Certified Public Accountants 3
Statements of Assets and Liabilities as of September 30, 1999 (unaudited) and
December 31, 1998 4
Statements of Operations, for the Periods July 1, 1999 through September 30, 1999
(unaudited) and January 1, 1999 through September 30, 1999 (unaudited) 5
Statements of Operations, for the Periods July 1, 1998 through September 30, 1998
(unaudited) and January 1, 1998 through September 30, 1998 (unaudited) 6
Statements of Changes in Net Assets for the Periods July 1, 1999 through September
30, 1999 (unaudited) and January 1, 1999 through September 30, 1999 (unaudited) 7
Statements of Changes in Net Assets, for the Periods July 1, 1998 through September
30, 1998 (unaudited) and January 1, 1998 through September 30, 1998 (unaudited) 8
Statements of Cash Flows, for the Periods July 1, 1999 through September 30, 1999
(unaudited) and January 1, 1999 through September 30, 1999 (unaudited) 9
Statements of Cash Flows, for the Periods July 1, 1998 through September 30, 1998
(unaudited) and January 1, 1998 through September 30, 1998 (unaudited) 10
Notes to Financial Statements 11
Item 2 Management's Discussion and Analysis of Financial Condition and Results of Operations 17
Statement by Management Concerning Review of Interim Information by Independent Certified Public
Accountants 18
Statement by Management Concerning the Fair Presentation of Interim Financial Information 19
</TABLE>
-2-
<PAGE>
REPORT ON REVIEW BY INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors
Western Pennsylvania Adventure Capital Fund
We have reviewed the accompanying statement of assets and liabilities of Western
Pennsylvania Adventure Capital Fund as of September 30, 1999, and the related
statements of operations, changes in net assets, and cash flows for the three
and nine month periods ended September 30, 1999 and 1998. These financial
statements are the responsibility of the company's management.
We conducted our reviews in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted
in accordance with generally accepted auditing standards, the objective of which
is the expression of an opinion regarding the financial statements taken as a
whole. Accordingly, we do not express such an opinion.
Based on our reviews, we are not aware of any material modifications that should
be made to the accompanying financial statements for them to be in conformity
with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the statement of assets and liabilities as of December 31, 1998 and
the related statements of operations, changes in net assets (deficit), and cash
flows for the year then ended (not presented herein), and in our report dated
March 24, 1999, we expressed an unqualified opinion on those financial
statements.
Goff, Ellenbogen, Backa & Alfera, LLC
Pittsburgh, Pennsylvania
November 5, 1999
-3-
<PAGE>
Western Pennsylvania Adventure Capital Fund
Statements of Assets and Liabilities
As of
<TABLE>
<CAPTION>
September 30, 1999 December 31, 1998
Assets --------------------- ----------------------
- ------ (unaudited)
<S> <C> <C>
Cash and Cash Equivalents $ 227,922 $ 289,824
Short Term Investments, Net 410,501 894,960
Receivables 22,806 6,453
Investment in Portfolio Companies 1,379,753 862,677
Prepaid Taxes 1,801 2,440
Organization Costs 9,880 12,160
---------- ----------
Total Assets $2,052,663 $2,068,514
========== ==========
Liabilities
- -----------
Accounts Payable $ 17,617 $ 14,396
Accrued Liabilities 12,600 14,700
---------- ----------
Total Liabilities $ 30,217 $ 29,096
========== ==========
Net Assets
- ----------
Common Stock, Par Value $.01 Per Share,
Authorized 10,000,000 Shares, Issued and
Outstanding 2,210,434 Shares $ 23,543 $ 23,543
Additional Paid In Capital 2,083,290 2,083,290
Syndication Costs (90,276) (85,507)
Retained Earnings 7,328 19,531
Treasury Stock - 143,899 Shares, at cost (1,439) (1,439)
---------- ----------
Net Assets Applicable to Shares Outstanding $2,022,446 $2,039,418
========== ==========
Net Assets Value Per Share $ 0.91 $ 0.92
========== ==========
</TABLE>
See Accountant's Report and accompanying notes to financial statements.
-4-
<PAGE>
Western Pennsylvania Adventure Capital Fund
Statements of Operations
For the Periods
<TABLE>
<CAPTION>
July 1, 1999 January 1, 1999
Through Through
September 30, 1999 September 30, 1999
--------------------------- ---------------------------
(unaudited) (unaudited)
<S> <C> <C>
Revenues:
Interest $15,321 $ 42,391
Management Fees 6,250 18,750
------- --------
Total Revenues 21,571 61,141
------- --------
Expenses:
General and Administration 4,200 12,600
Interest 0 48
Other Operating Expenses 25,448 58,316
------- --------
Total Expenses 29,648 70,964
------- --------
Profit (Loss) Before Income Tax (8,077) (9,823)
Income Tax Expense 375 2,380
------- --------
Net Income (Loss) $(8,452) $(12,203)
======= ========
Earnings Per Share $( .01) $( .01)
======= ========
</TABLE>
See Accountant's Report and accompanying notes to financial statements.
-5-
<PAGE>
Western Pennsylvania Adventure Capital Fund
Statements of Operations
For the Periods
<TABLE>
<CAPTION>
July 1, 1998 January 1, 1998
Through Through
September 30, 1998 September 30, 1998
------------------ ------------------
(unaudited) (unaudited)
<S> <C> <C>
Revenues:
$18,853 $65,458
Interest
Management Fees 6,250 6,250
------- -------
Total Revenues 25,103 71,708
------- -------
Expenses:
General and Administration 3,000 10,500
Interest 49 99
Other Operating Expenses 14,681 54,895
------- -------
Total Expenses 17,730 65,494
------- -------
Profit Before Income Tax 7,373 6,214
Income Tax Expense 299 4,580
------- -------
Net Income $ 7,074 $ 1,634
======= =======
Earnings Per Share $ .00 $ .00
======= =======
</TABLE>
See Accountant's Report and accompanying notes to financial statements.
-6-
<PAGE>
Western Pennsylvania Adventure Capital Fund
Statements of Changes in Net Assets
For the Periods
<TABLE>
<CAPTION>
July 1, 1999 January 1, 1999
through Through
September 30, 1999 September 30, 1999
------------------ ------------------
(unaudited) (unaudited)
<S> <C> <C>
From Operations:
Net Income (Loss) $ (8,452) $ (12,203)
From Share Transactions:
Syndication Costs 4,769 4,769
---------- ----------
Net Increase (Decrease) in Net Assets Derived 4,769 4,769
from Share Transactions ---------- ----------
Net (Decrease) in Net Assets (13,221) (16,972)
Net Assets:
Beginning of Period 2,035,667 2,039,418
---------- ----------
End of Period $2,022,446 $2,022,446
========== ==========
</TABLE>
See Accountant's Report and accompanying notes to financial statements.
-7-
<PAGE>
Western Pennsylvania Adventure Capital Fund
Statements of Changes in Net Assets
For the Periods
<TABLE>
<CAPTION>
July 1, 1998 January 1, 1998
through Through
September 30, 1998 September 30, 1998
------------------ ------------------
(unaudited) (unaudited)
<S> <C> <C>
From Operations
Net Profit $ 7,074 $ 1,634
Net Assets:
Beginning of Period 2,030,929 2,036,369
---------- ----------
End of Period $2,038,003 $2,038,003
========== ==========
</TABLE>
See Accountant's Report and accompanying notes to financial statements.
-8-
<PAGE>
Western Pennsylvania Adventure Capital Fund
Statements of Cash Flows
For the Periods
<TABLE>
<CAPTION>
July 1, 1999 January 1, 1999
through through
September 30, 1999 September 30, 1999
------------------ ------------------
(unaudited) (unaudited)
<S> <C> <C>
Cash Flow from Operating Activities:
Income (Loss) $ (8,452) $ (12,203)
Changes in Assets and Liabilities:
Organization Costs - Amortization 760 2,280
Receivables - (Increase) (13,559) (16,353)
Prepaid Taxes - (Increase) Decrease (800) 639
Accounts Payable - Increase 5,936 3,221
Accrued Liabilities - Increase (Decrease) 4,200 (2,100)
--------- ---------
Net Cash (Used in) Operating Activities (11,915) (24,516)
--------- ---------
Cash Flow from Investing Activities:
Redemption of Short Term Investments, Net
of Purchases 121,535 484,459
Investment in Portfolio Companies (104,039) (517,076)
--------- ---------
Net Cash Provided By (Used in) Investing Activities 17,496 (32,617)
--------- ---------
Cash Flow from Financing Activities:
Syndication Costs (4,769) (4,769)
--------- ---------
Net Cash (Used in) Financing Activities: (4,769) (4,769)
--------- ---------
Net Increase (Decrease) in Cash and Cash Equivalents 812 (61,902)
Cash and Cash Equivalents at Beginning of Period 227,110 289,824
--------- ---------
Cash and Cash Equivalents at End of Period $ 227,922 $ 227,922
========= =========
</TABLE>
See Accountant's Report and accompanying notes to financial statements.
-9-
<PAGE>
Western Pennsylvania Adventure Capital Fund
Statements of Cash Flows
For the Periods
<TABLE>
<CAPTION>
July 1, 1998 January 1, 1998
through through
September 30, 1998 September 30, 1998
------------------ ------------------
(unaudited) (unaudited)
<S> <C> <C>
Cash Flow from Operating Activities:
Income $ 7,074 $ 1,634
Changes in Assets and Liabilities:
Organization Costs - Amortization 741 2,261
Prepaid Taxes - (Increase) (1,817) (2,820)
Accounts Payable - Increase (Decrease) (7,014) 2,855
Accrued Liabilities - Increase 3,000 1,980
--------- ---------
Net Cash Provided by (Used in) Operating
Activities 1,984 5,910
--------- ---------
Cash Flow from Investing Activities:
Redemption of Short Term Investments, Net
of Purchases 180,817 499,392
Investment in Portfolio Companies (210,927) (562,477)
--------- ---------
Net Cash Provided by (Used in)
Investing Activities (30,110) (63,085)
--------- ---------
Net Increase (Decrease) in Cash and Cash
Equivalents (28,126) (57,175)
Cash and Cash Equivalents at Beginning of Period
339,569 368,618
--------- ---------
Cash and Cash Equivalents at End of Period $ 311,443 $ 311,443
========= =========
</TABLE>
See Accountant's Report and accompanying notes to financial statements.
-10-
<PAGE>
Western Pennsylvania Adventure Capital Fund
Notes to Financial Statements
September 30, 1999
Note 1 - Summary of Significant Accounting Policies:
- ----------------------------------------------------
This summary of significant accounting policies of Western Pennsylvania
Adventure Capital Fund (the "Fund") is presented to assist in understanding the
Fund's financial statements. These accounting policies conform with generally
accepted accounting principles and have been consistently applied in the
preparation of the financial statements.
Nature of Operations
The Fund was incorporated on May 23, 1996, and began its primary business
activities in November 1997. The Fund has been formed to become a Business
Development Company ("BDC") and to be subject to the applicable provisions of
the Investment Company Act of 1940, as amended (the "1940 Act"). The Fund
invests primarily in the equity and/or debt securities of development stage
companies located in western Pennsylvania. The Fund seeks to make its
investments in conjunction with a consortium of investment partners such as
individual investors, private non-profit or for-profit companies or foundations,
and federal, state or local public, quasi-public or publicly-supported economic
development organizations, agencies or authorities which provide investment
capital or low interest or other financing for economic development.
The Fund's Board of Directors, which is elected by the shareholders annually,
has responsibility for management of the Fund, including authority to select
portfolio securities for investment by the Fund. The Board is advised by the
officers of the Fund and has been advised by The Enterprise Corporation of
Pittsburgh ("Enterprise"), which served as the Fund's investment advisor.
Enterprise screened potential Portfolio Companies and presented them to the
Fund's Board for investment consideration, conducted due diligence reviews of
investment candidates and managed the day-to-day operations of the Fund
including, portfolio management, preparing reports to shareholders and
performing administrative services. The recommendations of Enterprise as to
investments were advisory only and were not binding on the Fund or its Board of
Directors. Enterprise has been a private, non-profit consulting firm founded in
1983 for the purpose of assisting entrepreneurs in developing new business in
western Pennsylvania.
Enterprise received a fee equal to 5% of the aggregate amount of assets invested
by the Fund in portfolio securities for providing investment advisory and
administrative services to the Fund. Enterprise may also have received
compensation from investment partners or members of any investment consortium
that invested with the Fund in portfolio securities, all on such basis as such
other parties and Enterprise may have agreed.
As of December 31, 1998, Enterprise ceased operations. The Fund is
investigating alternatives to replace the services previously provided by
Enterprise. Temporarily, the Fund is handling advisory services on a internal
basis and has contracted externally for administrative and support services.
Basis of Presentation - Interim Financial Statements
The financial information included herein has been prepared from the books and
records without audit. The accompanying financial statements have been prepared
in accordance with the instructions to Form 10-Q and do not include all of the
information and the footnotes required by generally accepted accounting
principles for complete statements. In the opinion of management, all
adjustments, consisting only of normal recurring adjustments, necessary for a
fair presentation of the financial condition, results of operations, changes in
net assets, and cash flows, have been included.
-11-
<PAGE>
The preparation of financial statements in conformity with generally accepted
accounting principles 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 revenue and expenses during the reporting period. Actual
results could differ from those estimates.
These financial statements should be read in conjunction with the financial
statements and notes thereto for the period January 1, 1998 to December 31,
1998, contained in the Fund's 1998 Annual Report on Form 10-K.
Basis of Presentation - Net Assets
During 1996, the Fund began offering a total of 5,000,000 shares of its common
stock, par value $.01, at a price of $1.00 per share under Regulation E of the
Securities Act of 1933 (the "Offering"). In connection with its services in
organizing the formation and development of the Fund, Enterprise purchased
250,000 shares of common stock for $.01 per share, which represented 4.8% of the
total potential outstanding shares of the Fund. The shares purchased by
Enterprise represented founder's shares. If less than 5,000,000 shares were sold
in the Offering, the Fund had the right to repurchase from Enterprise for $.01
per share such number of shares as would result in Enterprise's ownership
percentage in the Fund immediately following the Offering being 4.8%.
During 1997, the Fund sold 2,104,333 shares of its common stock and closed the
Offering. As of December 31, 1997, the Fund repurchased 143,899 shares of its
common stock from Enterprise, thereby reducing Enterprise's ownership to 106,101
shares, which represented 4.8 percent of the then total shares issued and
outstanding (2,210,434 shares). The repurchased shares are presented as
Treasury Stock, at cost.
There were no transactions involving the Fund's Shares during the nine month
period ending September 30, 1999.
Syndication Costs
Legal, accounting and other costs of $90,276 ($85,507 in 1997) incurred in
connection with the Fund's sales of securities have been capitalized and
reported as a permanent reduction of net assets in accordance with generally
accepted accounting principles. Syndication costs incurred in the three and nine
month periods ending September 30, 1999 were $4,769.
Cash and Cash Equivalents
Cash and Cash Equivalents consist of cash in checking accounts and high quality
money market instruments having or deemed to have remaining maturities of
thirteen months or less.
Short Term Investments
The Fund's short term investments consist of high quality commercial paper and
U.S. Government securities. These investments generally are purchased at a
discount from face value and are redeemed at maturity at face value. The
difference represents interest income which will accrue over the period from
date of acquisition to date of maturity. The Fund uses the effective yield to
maturity method to recognize the accretion of interest income over the life of
each individual short term investment. This method produces a rate of return
which is constant over the period from acquisition to maturity. Using this
method, the interest income recognized on each individual investment will
increase over time as the carrying value of that investment increases. The Fund
records these investments net of remaining unearned interest income.
In accordance with Statement of Financial Accounting Standards ("SFAS") No. 115,
"Accounting for Certain Investments in Debt and Equity Securities," the Fund has
classified all short term investments as held-to-maturity ("HTM") as of
September 30, 1999 and December 31, 1998.
-12-
<PAGE>
Investments in Portfolio Companies
Investments are stated at value. Investments for which market quotations are
readily available are valued at the last trade price on or within one local
business day of the date of determination as obtained from a pricing source. If
no such trade price is available, such investments are valued at the quoted bid
price or the mean between the quoted bid and asked price on the date of
determination as obtained from a pricing source. Securities for which market
quotations are not readily available are valued at fair value in good faith
using methods determined by or under the direction of the Fund's Board of
Directors.
Start-Up and Organization Costs
A total of $15,200 has been incurred in connection with the start-up and
organization of the Fund. These costs have been deferred and are being amortized
ratably over a period of 60 months beginning January 1, 1998.
Earnings Per Share
During 1997, the Fund adopted SFAS No. 128, "Earnings Per Share". Its
application is not expected to affect the calculations of basic and diluted
earnings per share.
Earnings per share is computed using the weighted average number of shares
outstanding during the respective periods. There are no outstanding stock
options, warrants, or other contingently issuable shares.
Income Taxes
The Fund has adopted the SFAS No. 109, "Accounting for Income Taxes", from its
inception. SFAS 109 requires an asset and liability approach that recognizes
deferred tax assets and liabilities for the expected future tax consequences of
events that have been recognized in the Fund's financial statements or tax
returns. In estimating future tax consequences, SFAS 109 generally considers all
expected future events other than enactments of changes in the tax law or rates.
As of September 30, 1999 and December 31, 1998, the Fund had no significant
temporary or permanent differences and, therefore, it did not have any deferred
taxes.
Note 2 - Sale of Securities
- ---------------------------
The Fund has begun offering for sale up to 2,750,000 shares of its Common Stock
at $1.45 per share, or a maximum of $3,987,500 under an Offering Circular dated
September 10, 1999 ("Offering Circular"). The Fund intends to use the proceeds
from this sale of securities primarily to invest in the equity and/or debt
securities of additional development stage companies located in western
Pennsylvania, and to make follow on investments, as appropriate, in existing
portfolio companies. The proceeds from this sale of securities will be
temporarily invested, pending investments in portfolio companies, in cash
equivalents, government securities, and high quality debt securities. A portion
of these proceeds may be used for normal operating expenses. As of October 28,
1999, the Fund had received subscriptions to purchase 258,950 shares
($375,477.50).
-13-
<PAGE>
Note 3 - Investments in Portfolio Companies
- -------------------------------------------
Effective June 14, 1999, the Fund committed to exercise its pre-emptive rights
to purchase its pro rata share of Neo Linear, Inc. ("Neo Linear") bridge
financing. Under this bridge financing, Neo Linear obtained commitments from its
current investors to purchase $1,194,682 of Convertible Promissory Notes
("Notes") due December 31, 1999, with interest at 14 percent per annum. Neo
Linear issued $597,341, or 50% of this amount and had the right to call the
balance of the commitments at any time prior to December 31, 1999. The Notes,
plus accrued interest, are convertible into, at the same price and on the same
terms, as the next round security, plus premium shares equal to 30% of the Note
principal at no additional cost. The Fund's pro rata share is $50,131. Of this
amount, $25,065.50 was paid on June 10, 1999, and the balance of $25,065.50 has
been called and was paid by the fund on August 25, 1999. Neo Linear produces
computer aided design software for the semiconductor industry.
During the past several months, MediaSite, Inc. (formerly ISLIP Media Network,
Inc.) has been in the process of selling its Series B preferred stock ("Series
B") at $1.30 per share. These shares are being offered through Saturn Capital,
Inc. which earns a 9 percent underwriting fee, plus warrants to purchase 19,230
shares at $1.30 per share for each $100,000 of gross proceeds received by
MediaSite. As of September 30, 1999, MediaSite has closed on 4,869,999 shares
for a total consideration of $6,330,999. The offering is continuing at this
time. The Series B is convertible into common stock on a one-for-one basis, has
voting rights with common stock on an as-converted basis, has board
representation rights, and liquidation preferences.
Holders of the existing Series A Preferred Stock, including the Fund, have
certain pre-emptive rights to participate in this Series B offering. The amount
of the Fund's pre-emptive rights is dependent upon the total amount to be raised
in this Series B offering.
MediaSite produces software to deliver network-based searchable digital video
and audio libraries.
Note 4 - Co-Investor Agreement
- ------------------------------
On June 30, 1998, the Fund and the Urban Redevelopment Authority of Pittsburgh
("URA") entered into a co-investment agreement ("Agreement"). Under the terms of
this Agreement, the URA will create an escrow account of $1,000,000 to be used
for direct investment in certain select Fund's portfolio companies, located
within the City of Pittsburgh and meeting other criteria established by the URA.
The escrow account also will be used for payment of the Fund's investment and
management fees related to such investments. The URA will match, on a
dollar-for-dollar basis, the Fund's investment in portfolio companies, subject
to the limitations of the portfolio companies' location within the City of
Pittsburgh and such companies meeting the URA's criteria for funding.
The annual management fee payable to the Fund is $25,000. Further, the URA will
pay the Fund's investment advisor a transaction fee of five percent (5%) of the
URA's portion of its investment. All fees will be paid from the escrow account.
In addition, the URA, as part of the Agreement, has agreed to subordinate its
rights to any return on its investment until the private equity participants,
investing in each of the contemplated transactions, including the Fund, have
recovered their original investments in the portfolio companies. Thereafter, the
URA and all equity participants, including the Fund, will participate in all
future distributions in accordance with their investment.
-14-
<PAGE>
Note 5 - Short Term Investments
- -------------------------------
The Fund, pending investments in Portfolio Securities, temporarily invests its
excess funds in short term high quality commercial paper and U.S. Government
securities. These investments generally are purchased at a discount from face
value and are redeemed at maturity at face value. The discount from face value
represents unearned interest income and is recognized over the remaining term of
the security using the effective yield to maturity method. All of the short term
investments are classified as HTM in accordance with SFAS No. 115. The face
value, carrying value, and market value for HTM investments were as follows at
September 30, 1999 and December 31, 1998:
As of September 30, 1999
------------------------
Investment Face Value Carrying Value Market Value
- ---------- ---------- -------------- ------------
U.S. Government Securities $413,000 $410,501 $410,395
======== ======== ========
As of December 31, 1998
-----------------------
Investment Face Value Carrying Value Market Value
- ---------- ---------- -------------- ------------
U.S. Government Securities $908,299 $894,960 $895,192
======== ======== ========
Note 6 - Related Party Transactions
- -----------------------------------
Accounts payable as of September 30, 1999, includes $10,000 payable to
Enterprise for investment advisory and administrative services. Accrued
liabilities at September 30, 1999 includes $12,600 for Board of Directors fees.
Accounts payable as of December 31, 1998, includes $10,000 payable to Enterprise
for investment advisory and administrative services. Accrued liabilities at
December 31, 1998 includes $14,700 for Board of Directors fees.
Note 7 - Year 2000 Conversion
- -----------------------------
In 1998, the Fund initiated a program to prepare its computer systems and
applications for the year 2000. The Year 2000 issue is the result of computer
programs being written using two digits rather than four to define the
applicable year. Any of the Fund's programs that have time-sensitive software
may recognize a date using "00" as the year 1900 rather than the year 2000. This
could result in a system failure or miscalculations. The Fund presently believes
that, with appropriate modifications to existing software and conversions to new
software, the Year 2000 issue will not pose significant problems for the Fund's
computer systems as so modified and converted.
Note 8 - Subsequent Events
- --------------------------
On October 15, 1999, Applied Electro-Optics Corporation ("AEC") completed the
first closing on the sale of $1,497,000 of Convertible Promissory Notes
("Promissory Notes") due in eighteen months with interest at ten percent per
annum. The Promissory Notes, plus accrued interest, are convertible into, at the
same price and on the same terms, as the next round security, plus premium
shares equal to 30% of the Promissory Note principal at no additional cost. The
Fund and the Fund and the Fund shareholders purchased $100,000 and $470,000,
respectively, and currently hold an ownership interest of 6.7 percent and 31.4
percent, respectively, of these Promissory Notes. The sale of these Promissory
Notes, of which $2,000,000 has been authorized by AEC, is continuing at this
time.
-15-
<PAGE>
AEC develops switching components for fiber-optic communication and image
setting equipment industries.
On October 11, 1999, the Board of Directors of the Fund approved the Western
Pennsylvania Adventure Capital Fund 1999 Stock Option Plan (the "Plan" or the
"Option Plan") which authorizes the grant of options to purchase the Fund's
Common Stock to directors, officers, employees and members of the advisory board
of the Fund and its subsidiaries. The Plan is intended to offer participants
substantial incentives to join or continue to serve the Fund and, by aligning
their interests with those of shareholders, to act in a manner calculated to
maximize shareholder value.
Approval of the Plan is necessary for the Fund to issue incentive stock options
thereunder, but the Plan can otherwise be continued in effect on the basis of
the Board's adoption. The Plan is being submitted for approval to the
shareholders of the Fund at the annual meeting of shareholders scheduled to be
held on November 17, 1999.
The maximum number of shares of Common Stock which may be issued under the Plan
will be 500,000. The maximum number of shares of Common Stock which may be
issued under the Plan to any one participant will be 100,000. The option price
per share of Common Stock deliverable upon the exercise of an option is the
price determined at the time the option is granted, but cannot be less than the
fair market value of the Fund's Common Stock on the date of grant. Unless the
vesting schedule is modified in any particular written grant agreement, each
option will become exercisable under the Plan in 25% increments beginning on the
first, second, third and fourth anniversaries of the date of grant.
Following the effective date of the Plan, each of the Fund's five directors will
be awarded options to purchase 50,000 shares of its Common Stock at an exercise
price of $1.45 per share to (250,000 shares in the aggregate). These options
will vest upon issuance as to 50% of the shares issuable, with the remaining
shares to vest in equal increments on the first and second anniversary dates of
issuance.
On October 26, 1999, the Board of Directors of the Fund approved the extension
of the sale of Common Stock under the Offering Circular from October 31, 1999
until January 31, 2000 or such earlier date that the Offering is fully
subscribed.
On October 28, 1999, the Fund filed a Supplement dated October 27, 1999 to its
Offering Circular dated September 10, 1999 which: (1) described the extension
of the sale of Common Stock under the Offering Circular to January 31, 2000 or
such earlier date that the Offering is fully subscribed; (2) revised the table
of investments in portfolio companies to incorporate additional investments from
the date of the Offering Circular through the date of the Supplement; and (3)
described the Option Plan approved by the Fund's Board of Directors and
scheduled to be submitted for approval by the shareholders at the annual meeting
of shareholders scheduled to be held on November 17, 1999.
-16-
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
- --------------------------------------------------------------------------------
of Operations
- -------------
Results of Operations
- ---------------------
Revenues for the three and nine month periods ending September 30, 1999,
consisted of interest income and management fees of $15,321 and $6,250, and
$42,391 and $18,750, respectively. General and administrative expenses for the
three and nine month periods amounted to $4,200 and $12,600, respectively, and
consisted of directors fees. Other operating expenses for the three and nine
month periods amounted to $25,448 and $58,316, respectively, and included $7,630
and $28,000, respectively, of legal and accounting fees. In addition, other
operating expenses for the three and nine month periods include $12,000 of fees
paid to the Fund's Advisory Board.
Revenues for the three and nine month periods ending September 30, 1998
consisted of interest income and management fees of $25,103 and $71,708,
respectively. General and administrative expenses for the three and nine month
periods ending September 30, 1998 amounted to $3,000 and $10,500, respectively,
and consisted of directors fees. Other operating expenses for the three and
nine month periods ending September 30, 1998 amounted to $14,681 and $54,895,
respectively, and included investment advisory and administrative services of
$10,000 and $27,500, respectively, and legal and accounting fees of $3,172 and
$23,850, respectively.
Financial Condition, Liquidity and Capital Resources
- ----------------------------------------------------
The Registrant, through its sale of Common Stock under the Offering, raised
$2,104,333 in 1997. As of September 30, 1999, the Registrant had invested
$1,379,753 in Portfolio Companies, and held cash, cash equivalents, and short-
term investments in high quality commercial paper and U.S. Government securities
of $638,423 Most of this amount, except for normal operating expenses, is
available for investment in Portfolio Securities.
The Registrant, through its sale of Common Stock under the Offering Circular has
raised $375,477.50 through October 28, 1999. These funds temporarily are
invested in cash equivalents and short term investments in high quality
commercial paper and U.S. Government securities. Sale of Common Stock of the
Registrant under the Offering Circular is continuing at this time.
-17-
<PAGE>
Statement by Management Concerning Review of Interim Financial Information
by Independent Certified Public Accountants
The September 30, 1999 financial statements included in this filing on Form 10-Q
have been reviewed by Goff, Ellenbogen, Backa & Alfera, LLC, independent
certified public accountants, in accordance with established professional
standards and procedures for such reviews. The report of Goff, Ellenbogen,
Backa & Alfera, LLC commenting on their reviews accompanies the financial
statements included in Item 1 of Part I.
-18-
<PAGE>
Statement by Management Concerning the Fair Presentation
of Interim Financial Information
The financial information included herein is unaudited; however, such
information reflects all adjustments (consisting solely of normal recurring
adjustments), which are, in the opinion of management, necessary to a fair
statement of the results for the interim periods. The report of Goff,
Ellenbogen, Backa & Alfera, LLC commenting upon their reviews accompanies the
financial statements included in Item 1 of Part I.
-19-
<PAGE>
Part II - Other Information
Item 6. Exhibits and Reports on Form 8-K
(a) Lists of Exhibits
11 Computation of earnings per share for the three and nine
month periods ended September 30, 1999 and September 30,
1998
27 Financial Data Schedule
(b) Reports on Form 8-K
There were no reports on Form 8-K filed for the quarter ended
September 30, 1999
-20-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Western
Pennsylvania Adventure Capital Fund has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized:
Western Pennsylvania Adventure Capital Fund
(Registrant)
Date: November 5, 1999 /s/G. Richard Patton
--------------------
G. Richard Patton
President and Chief Executive Officer
and Director
Date: November 5, 1999 /s/Alvin J. Catz
--------------------
Alvin J. Catz
Chief Financial Officer, Treasurer and Director
-21-
<PAGE>
Item 6 (a), Exhibit 11
Western Pennsylvania Adventure Capital Fund
Schedule of Computation of Earnings Per Common Share
For the Periods
<TABLE>
<CAPTION>
July 1, 1999 January 1, 1999
through through
September 30, 1999 September 30, 1999
----------------------- --------------------
(unaudited) (unaudited)
<S> <C> <C>
Net Income (Loss) $ (8,452) $ (12,203)
========== ==========
Weighted Average Number of Common Shares Outstanding
2,210,434 2,210,434
========== ==========
Earnings per Common Share $ (0.01) $ (0.01)
========== ==========
</TABLE>
<TABLE>
<CAPTION>
July 1, 1998 January 1, 1998
through Through
September 30, 1998 September 30, 1998
---------------------- -------------------
(unaudited) (unaudited)
<S> <C> <C>
Net Income (Loss) $ 7,074 $ 1,634
========== ==========
Weighted Average Number of Common Shares Outstanding
2,210,434 2,210,434
========== ==========
Earnings per Common Share $ 0.00 $ 0.00
========== ==========
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
STATEMENT OF ASSETS AND LIABILITIES AT SEPTEMBER 30, 1999 AND THE STATEMENT OF
OPERATIONS FROM JANUARY 1, 1999 TO SEPTEMBER 30, 1999 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1999 DEC-31-1999
<PERIOD-START> JUL-01-1999 JAN-01-1999
<PERIOD-END> SEP-30-1999 SEP-30-1999
<INVESTMENTS-AT-COST> 1,790,254 1,790,254
<INVESTMENTS-AT-VALUE> 1,790,148 1,790,148
<RECEIVABLES> 22,806 22,806
<ASSETS-OTHER> 11,681 11,681
<OTHER-ITEMS-ASSETS> 227,922 227,922
<TOTAL-ASSETS> 2,052,663 2,052,663
<PAYABLE-FOR-SECURITIES> 0 0
<SENIOR-LONG-TERM-DEBT> 0 0
<OTHER-ITEMS-LIABILITIES> 30,217 30,217
<TOTAL-LIABILITIES> 30,217 30,217
<SENIOR-EQUITY> 0 0
<PAID-IN-CAPITAL-COMMON> 2,083,290 2,083,290
<SHARES-COMMON-STOCK> 2,210,434 2,210,434
<SHARES-COMMON-PRIOR> 2,210,434 2,210,434
<ACCUMULATED-NII-CURRENT> 21,571 61,141
<OVERDISTRIBUTION-NII> 0 0
<ACCUMULATED-NET-GAINS> 0 0
<OVERDISTRIBUTION-GAINS> 0 0
<ACCUM-APPREC-OR-DEPREC> 88 106
<NET-ASSETS> 2,022,446 2,022,446
<DIVIDEND-INCOME> 0 0
<INTEREST-INCOME> 15,321 42,391
<OTHER-INCOME> 6,250 18,750
<EXPENSES-NET> 29,648 70,964
<NET-INVESTMENT-INCOME> (8,452) (12,203)
<REALIZED-GAINS-CURRENT> 0 0
<APPREC-INCREASE-CURRENT> 88 106
<NET-CHANGE-FROM-OPS> (8,452) (12,203)
<EQUALIZATION> 0 0
<DISTRIBUTIONS-OF-INCOME> 0 0
<DISTRIBUTIONS-OF-GAINS> 0 0
<DISTRIBUTIONS-OTHER> 0 0
<NUMBER-OF-SHARES-SOLD> 0 0
<NUMBER-OF-SHARES-REDEEMED> 0 0
<SHARES-REINVESTED> 0 0
<NET-CHANGE-IN-ASSETS> (13,221) (16,972)
<ACCUMULATED-NII-PRIOR> 0 0
<ACCUMULATED-GAINS-PRIOR> 0 0
<OVERDISTRIB-NII-PRIOR> 0 0
<OVERDIST-NET-GAINS-PRIOR> 0 0
<GROSS-ADVISORY-FEES> 0 0
<INTEREST-EXPENSE> 0 48
<GROSS-EXPENSE> 29,648 70,964
<AVERAGE-NET-ASSETS> 2,029,057 2,030,932
<PER-SHARE-NAV-BEGIN> .92 .92
<PER-SHARE-NII> .00 .00
<PER-SHARE-GAIN-APPREC> .00 .00
<PER-SHARE-DIVIDEND> .00 .00
<PER-SHARE-DISTRIBUTIONS> .00 .00
<RETURNS-OF-CAPITAL> .00 .00
<PER-SHARE-NAV-END> .91 .92
<EXPENSE-RATIO> .01 .03
</TABLE>
