<PAGE>
UNITED STATES
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 September 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from N/A to N/A
--- ---
Commission File No. 814-82
TECHNOLOGY FUNDING VENTURE PARTNERS V, AN AGGRESSIVE GROWTH FUND, L.P.
----------------------------------------------------------------------
(Exact name of Registrant as specified in its charter)
Delaware 94-3094910
- ------------------------------- ----------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
2000 Alameda de las Pulgas, Suite 250
San Mateo, California 94403
- --------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
(415) 345-2200
----------------------------------------------------
(Registrant's telephone number, including area code)
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
--- ---
No active market for the units of limited partnership interests
("Units") exists, and therefore the market value of such Units cannot be
determined.
<PAGE>
I. FINANCIAL INFORMATION
Item 1. Financial Statements
BALANCE SHEETS
- --------------
<TABLE>
<CAPTION>
(unaudited)
September 30, December 31,
1996 1995
------------- -----------
<S> <C> <C>
ASSETS
Investments:
Equity investments (cost basis
of $23,462,477 and $20,607,017 at
1996 and 1995, respectively) $28,568,893 24,289,218
Secured notes receivable, net
(cost basis of $19,254 and
$1,954,572 at 1996 and 1995,
respectively) 19,254 999,572
Other investments (cost basis
of $681,565 at 1996) 681,565 --
---------- ----------
Total investments 29,269,712 25,288,790
Cash and cash equivalents 6,397 4,396,042
Other assets 9,412 13,804
---------- ----------
Total $29,285,521 29,698,636
========== ==========
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable and accrued expenses $ 47,415 25,950
Due to related parties 389,781 40,970
Other liabilities 974 --
---------- ----------
Total liabilities 438,170 66,920
Commitments, contingencies and
subsequent events (Notes 4 and 8)
Partners' capital:
Limited Partners
(Units outstanding of
400,000 in both 1996 and 1995) 23,793,928 26,925,872
General Partners (52,993) (21,357)
Net unrealized fair value increase
(decrease) from cost:
Equity investments 5,106,416 3,682,201
Secured notes receivable -- (955,000)
---------- ----------
Total partners' capital 28,847,351 29,631,716
---------- ----------
Total $29,285,521 29,698,636
========== ==========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
STATEMENTS OF OPERATIONS (unaudited)
- -----------------------------------
<TABLE>
<CAPTION>
For the Three For the Nine
Months Ended Months Ended
September 30, September 30,
------------------------ --------------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Income:
Secured notes receivable interest $ 33,644 29,733 94,246 85,940
Short-term investments interest 7,350 104,131 67,058 431,559
------- ------- --------- ---------
Total income 40,994 133,864 161,304 517,499
Costs and expenses:
Management fees 97,498 199,060 292,496 597,223
Individual General Partners'
compensation 7,827 24,461 25,376 41,310
Amortization of organizational costs -- 1,750 -- 5,250
Operating expenses:
Investment operations 90,735 124,215 410,281 407,167
Administrative and investor services 150,140 85,997 381,269 338,269
Professional fees 55,007 10,792 95,226 67,719
Computer services 28,383 32,952 110,158 89,423
Expenses absorbed by General Partners (236,650) (102,578) (352,093) (102,578)
Expenses not subject to limitation -- -- 853,838 --
------- ------- --------- ---------
Total operating expenses 87,615 151,378 1,498,679 800,000
------- ------- --------- ---------
Total costs and expenses 192,940 376,649 1,816,551 1,443,783
------- ------- --------- ---------
Net operating loss (151,946) (242,785) (1,655,247) (926,284)
Realized gains from sales of
equity investments -- -- 902,118 935,950
Realized losses from investment
write-downs -- -- (2,434,373) (639,920)
Recoveries from investments previously
written off 23,922 -- 23,922 42,582
------- ------- --------- ---------
Net realized loss (128,024) (242,785) (3,163,580) (587,672)
Change in net unrealized
fair value:
Equity investments 774,890 505,335 1,424,215 1,107,893
Secured notes receivable 277,000 (155,000) 955,000 (288,000)
------- ------- --------- ---------
Net income (loss) $ 923,866 107,550 (784,365) 232,221
======= ======= ========= =========
Net realized loss per Unit $ -- (1) (8) (1)
======= ======= ========= =========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
STATEMENTS OF CASH FLOWS (unaudited)
- -----------------------------------
<TABLE>
<CAPTION>
For the Nine Months Ended September 30,
---------------------------------------
1996 1995
---- ----
<S> <C> <C>
Cash flows from operating activities:
Interest received $ 160,210 537,673
Cash paid to vendors (195,777) (199,676)
Cash paid to related parties (1,245,882) (1,170,534)
---------- ----------
Net cash used by
operating activities (1,281,449) (832,537)
---------- ----------
Cash flows from investing activities:
Secured notes receivable issued (208,334) --
Purchase of equity investments (4,463,764) (6,136,472)
Proceeds from sales of equity
investments 1,017,678 2,022,421
Repayments of convertible and
secured notes receivable 539,933 561,652
Distributions from venture capital
limited partnerships 6,291 --
---------- ----------
Net cash used by investing activities (3,108,196) (3,552,399)
---------- ----------
Net decrease in cash and
cash equivalents (4,389,645) (4,384,936)
Cash and cash equivalents at
beginning of year 4,396,042 11,371,533
---------- ----------
Cash and cash equivalents at September 30 $ 6,397 6,986,597
========== ==========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
STATEMENTS OF CASH FLOWS (unaudited) (continued)
- -----------------------------------------------
<TABLE>
<CAPTION>
For the Nine Months Ended September 30,
---------------------------------------
1996 1995
---- ----
<S> <C> <C>
Reconciliation of net (loss) income to net
cash used by operating activities:
Net (loss) income $ (784,365) 232,221
Adjustments to reconcile net (loss) income to
net cash used by operating activities:
Realized gains from sales of
equity investments (902,118) (935,950)
Realized losses from investment
write-downs 2,434,373 639,920
Recoveries from investments previously
written off (23,922) (42,582)
Change in net unrealized fair value:
Equity investments (1,424,215) (1,107,893)
Secured notes receivable (955,000) 288,000
Other, net (1,867) (742)
Changes in:
Due to related parties 348,811 75,942
Accrued interest on secured and
convertible notes 773 26,166
Other changes, net 26,081 (7,619)
---------- ---------
Net cash used by operating activities $(1,281,449) (832,537)
========== =========
Non-cash investing activities:
Reclassification of secured notes to equity
investments (subordinated notes receivable) $ 1,275,000 --
========== =========
Reclassification of secured notes to
other investments $ 681,565 --
========== =========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
NOTES TO FINANCIAL STATEMENTS (unaudited)
- ----------------------------------------
1. General
-------
In the opinion of the Managing General Partners, the Balance Sheets as
of September 30, 1996, and December 31, 1995, and the related Statements
of Operations for the three and nine months ended September 30, 1996 and
1995, and Statements of Cash Flows for the nine months ended September
30, 1996 and 1995, reflect all adjustments which are necessary for a
fair presentation of the financial position, results of operations and
cash flows for such periods. These statements should be read in
conjunction with the Annual Report on Form 10-K for the year ended
December 31, 1995. The following notes to financial statements for
activity through September 30, 1996, supplement those included in the
Annual Report on Form 10-K. Allocation of income and loss to Limited
and General Partners is based on cumulative income and loss.
Adjustments, if any, are reflected in the current quarter balances.
2. Summary of Significant Accounting Policies
--------------------------------------------
The following accounting policy is in addition to those disclosed in the
1995, Annual Report on Form 10-K:
Other Investments
-----------------
At times, the Partnership will receive other assets in satisfaction of
secured notes receivable or equity investments in portfolio companies.
When the asset is received, existing investment balances in excess of
the fair value of the asset received are written off.
3. Financing of Partnership Operations
-------------------------------------
The Managing General Partners expect cash received from the liquidation
of Partnership investments and the collection of notes receivable will
provide the necessary liquidity to service Partnership debt and fund
Partnership operations. Until such future proceeds are received, the
Partnership is dependent upon the financial support of the Managing
General Partners to fund operations. The Managing General Partners have
committed to support the Partnership's working capital requirements
through advances as necessary.
4. Related Party Transactions
--------------------------
Related party costs are included in costs and expenses shown on the
Statements of Operations. Related party costs for the nine months ended
September 30, 1996 and 1995, were as follows:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Management fees $ 292,496 597,223
Amortization of organizational cost -- 5,250
Reimbursable operating expenses 775,076 710,521
Individual General Partners' compensation 25,376 41,310
Expenses absorbed by General Partners (352,093) (102,578)
Expenses not subject to limitation 853,838 --
</TABLE>
Certain reimbursable expenses have been accrued based upon interim
estimates prepared by the Managing General Partners and are adjusted to
actual costs periodically.
Amounts payable for management fees were $32,500 and $66,354 at
September 30, 1996, and December 31, 1995, respectively. Pursuant to
the Partnership Agreement, beginning January 2, 1996, management fees
changed from two percent to one percent per annum of total Limited
Partner capital contributions.
Pursuant to the Partnership Agreement, the Partnership shall reimburse
the Managing General Partners for operational costs incurred by the
Managing General Partners in conjunction with the business of the
Partnership. The Partnership may not pay or reimburse the Managing
General Partners for operational costs that aggregate more than 1% of
total Limited Partner capital contributions. During 1996, it was
determined that operational costs paid directly by the Partnership were
not subject to this limitation; consequently, $853,838 was returned to
the Managing General Partners. For the nine months ended September 30,
1996 and 1995, operating expenses incurred by the Managing General
Partners exceeded the limitation by $352,093 and $102,578, respectively,
resulting in these amounts being absorbed by the Managing General
Partners. Due to related parties was $357,281 at September 30, 1996,
compared to due from related parties of $25,384 at December 31, 1995,
for reimbursable operating expenses.
5. Equity Investments
------------------
A full listing of the Partnership's equity investments at December 31,
1995, is in the 1995 Annual Report. Activity from January 1 through
September 30, 1996, consisted of:
<TABLE>
<CAPTION>
January 1 -
September 30, 1996
Principal -------------------
Investment Amount or Cost Fair
Industry/Company Position Date Shares Basis Value
- ---------------- -------- ---------- --------- ----- -----
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1996 $20,607,017 24,289,218
---------- ----------
Significant changes:
Biomedical
- ----------
RedCell, Inc. Convertible 02/96&
notes (1) 07/96 $197,925 207,194 207,194
Biotechnology
- -------------
Molecular Geriatrics Series B Preferred
Corporation shares 09/93 500,000 (250,000) (250,000)
Molecular Geriatrics Common
Corporation shares 01/96 47,170 250,000 94,340
Prolinx, Inc. Series A Preferred
shares 09/96 429,000 429,000 429,000
Communications
- --------------
Coded Communications Common
Corporation shares 04/93 145,454 (77,091) (66,181)
Positive Convertible
Communications, Inc. note (1) 03/96 $63,047 65,648 65,648
Positive Common share
Communications, Inc. warrant at $0.50;
expiring 03/01 03/96 3,709 4 13,909
Wire Networks, Inc. Series A Preferred
shares 02/96 78,553 106,047 106,047
Wire Networks, Inc. Series B Preferred
shares 02/96 95,980 215,955 215,955
Computer Systems and Software
- -----------------------------
Forte Software, Common
Inc. shares 09/96 1,591 46,139 59,543
Informix Common
Software, Inc. shares 03/96 1,534 51,773 44,831
Pilot Network Series D Preferred
Services, Inc. shares 03/95 371,557 0 836,003
Pilot Network Series E Preferred
Services, Inc. shares 07/96 73,970 295,880 295,880
Velocity Incorporated Series A Preferred
shares 10/94 12,572,652 (2,000,000) (2,068,674)
Velocity Incorporated Subordinated 08/95-
notes (1) 10/95 $250,000 0 (250,000)
Velocity Incorporated Subordinated 11/95-
notes (1) 09/96 $1,296,650 1,296,650 268,334
Environmental
- -------------
Conversion Technologies Series A Preferred
International, Inc. shares 05/95 600,000 (1,500,000) (1,500,000)
Conversion Technologies Convertible 09/95-
International, Inc. note (1) 11/95 $187,500 (190,011) (190,011)
Conversion Technologies Common
International, Inc. shares 05/96 207,547 1,500,000 537,962
SRG Products Convertible 07/94-
Corporation notes (1) 01/95 $178,242 (197,460) (197,460)
SRG Products Subordinated
Corporation note (1) 06/95 $122,547 (137,743) (137,743)
Industrial/Business Automation
- ------------------------------
Avalon Imaging, Inc. Redeemable
Series A Preferred
shares 12/94 144,509 0 183,526
Avalon Imaging, Inc. Redeemable
Series B Preferred 02/96&
shares 06/96 166,667 500,001 500,001
Avalon Imaging, Inc. Common
shares 04/96 125,000 250,000 250,000
Bolder Technologies Series B, C and D
Preferred 09/94-
Corporation shares 05/95 318,177 (621,090) (1,272,708)
Bolder Technologies Common
Corporation share warrant
at $.50;
expiring 03/00 03/95 8,694 (87) (30,429)
Bolder Technologies Common
Corporation shares 05/96 217,499 625,207 2,515,376
Medical
- -------
Acusphere, Inc. Series B Preferred
shares 05/95 250,000 0 135,000
Acusphere, Inc. Series C Preferred
shares 05/96 23,364 49,999 49,999
ADESSO Specialty Series A Preferred
Services Organization, shares
Inc. 07/95 400,000 0 900,000
ADESSO Specialty Series B Preferred
Services Organization, shares
Inc. 03/96 369,231 1,200,001 1,200,001
ADESSO Specialty Series A Preferred
Services Organization, share warrant at
Inc. $1.00; expiring
03/01 03/96 68,704 0 154,584
Biex, Inc. Series A, B and C
Preferred 07/93-
shares 12/95 358,779 0 179,391
Biex, Inc. Series B Preferred
share warrant
@ $1.00;
expiring 10/99 10/94 23,540 0 11,770
Biex, Inc. Series C Preferred
shares 04/96 83,333 83,333 125,000
Biex, Inc. Series D Preferred
shares 08/96 111,115 166,673 166,673
CareCentric Series A Preferred
Solutions, Inc. shares 10/95 166,667 0 33,333
CareCentric Series B Preferred
Solution, Inc. shares 09/96 12,794 21,750 21,750
Everest & Jennings Common
International, Ltd. shares 01/94 59,272 0 (165,962)
Paradigm Biosciences, Series A Preferred 04/93&
Inc. shares 12/94 537,635 0 408,603
Paradigm Biosciences, Convertible
Inc. note (1) 10/95 $102,500 (104,544) (104,544)
Paradigm Biosciences, Series B Preferred
Inc. shares 05/96 137,778 275,556 275,556
Periodontix, Series A Preferred
Inc. shares 12/93 150,000 0 150,000
Periodontix, Series B Preferred
Inc. shares 02/96 100,500 201,000 201,000
PHERIN Corporation Series B Preferred
shares 08/91 200,000 0 200,000
Physiometrix, Common 01/94&
Inc. shares 05/94 337 (375,054) (1,685)
Physiometrix, Series D Preferred 01/94&
Inc. shares 02/94 338,151 (114,971) (1,690,755)
Physiometrix, Common share 01/94&
Inc. warrant at $6.60;
expiring 06/01 04/96 13,525 179 0
Physiometrix, Common
Inc. shares 04/96 287,021 668,557 1,404,599
R2 Technology, Series A-1 Preferred
Inc. shares 05/94 400,000 0 336,000
R2 Technology, Convertible
Inc. note (1) 11/95 $133,334 (135,044) (135,044)
R2 Technology, Series B-1 Preferred
Inc. shares 03/96 68,541 137,080 137,080
TheraTx, Common
Incorporated shares 06/94 70,042 (105,063) (867,120)
Retail/Consumer Products
- ------------------------
YES! Entertainment Common
Corporation shares 06/95 55,555 0 286,039
Venture Capital Limited Partnership Investments
- -----------------------------------------------
Various Ltd. Partnership
Interests various $1,024,279 11,735 145,406
---------- ----------
Total significant changes during the nine
months ended September 30, 1996 2,847,203 4,217,017
Other changes, net 8,257 62,658
---------- ----------
Total equity investments at September 30, 1996 $23,462,477 28,568,893
========== ==========
(1) Convertible and subordinated notes include accrued interest. Interest rates on notes
issued in 1996 ranged from 8% to 18%.
</TABLE>
Marketable Equity Securities
- ----------------------------
At September 30, 1996, and December 31, 1995, marketable equity
securities had aggregate costs of $3,358,527 and $937,645, respectively,
and aggregate market values of $4,879,207 and $1,425,196, respectively.
The net unrealized gains at September 30, 1996, and December 31, 1995,
included gross gains of $2,744,436 and $804,892, respectively.
Acusphere, Inc.
- ---------------
In May of 1996, the Partnership made an additional investment in
Acusphere, Inc., by purchasing 23,364 Series C Preferred shares for
$49,999. The pricing of this round indicated a fair value increase of
$135,000 for the Partnership's existing investment.
ADESSO Specialty Services Organization, Inc.
- --------------------------------------------
In early 1996, the Partnership funded $450,000 in convertible notes to
the company and received a warrant to purchase 68,704 Series A Preferred
shares at $1.00 per share. Then in March of 1996, the Partnership made
an additional investment in the company by purchasing 369,231 Series B
Preferred shares for $1,200,001. The purchase price included $925,185
in cash and the conversion of $274,816 in principal from the notes
discussed above. The remaining principal of $175,184, including
interest, was repaid in 1996. The pricing of this round indicated an
increase in the fair value of $1,054,584 for the Partnership's existing
investment.
Avalon Imaging, Inc.
- --------------------
During the first half of 1996, the Partnership made additional
investments in the company by purchasing 166,667 Redeemable Series B
Preferred shares for $500,001. The pricing of this round of financing
indicated an increase in fair value of $183,526 for the Partnership's
existing investment. The Partnership also purchased 125,000 common
shares for $250,000 in April of 1996.
Biex, Inc.
- ----------
In April of 1996, the Partnership purchased an additional 83,333 Series
C Preferred shares for $83,333. Then in August of 1996, the Partnership
purchased 111,115 Series D Preferred shares for $166,673. The pricing
of the Series D financing round, in which third parties participated,
indicated an increase in the change in fair value of $232,828 for the
Partnership's prior investments.
Bolder Technologies Corporation
- -------------------------------
In May of 1996, the company completed its initial public offering
("IPO"). Prior to the IPO, the company effected a reverse stock split
resulting in the Partnership's preferred share investments being
converted into 212,117 common shares. In addition, the Partnership net
exercised its common share warrant and received 5,382 common shares and
realized a gain of $4,030.
At September 30, 1996, the Partnership recorded an increase in the
change in fair value of $1,208,209 to reflect the publicly-traded market
price of its investments; a portion of the fair value was adjusted to
reflect a discount for restricted securities.
CareCentric Solutions, Inc.
- ---------------------------
In September of 1996, the Partnership made an additional investment in
the company by purchasing 12,794 Series B Preferred shares for $21,750.
The pricing of this round, in which third parties participated,
indicated an increase in fair value of $33,333 for the Partnership's
existing investment.
Coded Communications Corporation
- --------------------------------
During the first quarter of 1996, the Managing General Partners
determined that there had been an other than temporary decline in the
value of the Partnership's investment. As a result, the Partnership
realized a loss of $77,091. The Partnership also recorded a decrease in
fair value of $66,181 to reflect the unrestricted market value at
September 30, 1996.
Conversion Technologies International, Inc.
- -------------------------------------------
In May of 1996, the company completed its IPO. Prior to the IPO, the
company effected a reverse stock split resulting in the Partnership's
Series A Preferred shares, Series A Preferred warrant and common share
warrant being converted into 207,547 common shares, a warrant to
purchase 51,884 common shares, and 93,750 Class A warrants,
respectively. The convertible note with a principal balance of
$187,500, including accrued interest, was repaid in full. At September
30, 1996, the Partnership recorded a decrease in the change in fair
value of $962,038 to reflect the publicly-traded market price of its
investments; a portion of the fair value was adjusted to reflect a
discount for restricted securities.
Molecular Geriatrics Corporation
- --------------------------------
In January of 1996, the company converted its Series B Preferred shares
into common shares and then effected a reverse stock split.
Consequently, the Partnership's Series B investment became 47,170 common
shares.
In June of 1996, the company completed a Series C Preferred round of
financing in which the Partnership did not participate. The pricing of
this round indicated a $155,660 fair value decrease in the Partnership's
investments.
Paradigm Biosciences, Inc.
- --------------------------
In February of 1996, the Partnership issued $86,666 in convertible notes
to the company and received a warrant to purchase 10,833 Series B
Preferred shares at $2.00 per share.
In May of 1996, the Partnership purchased 137,778 Series B Preferred
shares with $80,000 in cash and by converting two notes totaling
$189,166 including accrued interest of $6,390 for a total cost of
$275,556. The pricing of this conversion financing round, in which
third parties participated, indicated an increase in the change in fair
value of $408,603 for the Partnership's existing investment.
Periodontix, Inc.
- -----------------
In February of 1996, the Partnership made an additional investment in
the company by purchasing 100,500 Series B Preferred shares for
$201,000. The pricing of this round indicated an increase in fair value
of $150,000 for the Partnership's existing investment.
PHERIN Corporation
- ------------------
The Partnership recorded an increase in fair value of $200,000, based on
the valuation set at a prior round of financing in which third parties
participated.
Physiometrix, Inc.
- -----------------
In January of 1996, the Partnership issued $178,532 in convertible notes
to the company.
In April of 1996, the Partnership completed its IPO. Prior to the IPO,
the company effected a reverse stock split resulting in the
Partnership's common shares, preferred shares, and $178,532 note
receivable being converted into 287,021 common shares while the common
share warrant was canceled. The Partnership also received a warrant to
purchase 13,525 common shares. At September 30, 1996, the Partnership
recorded a decrease in fair value of $287,841 to reflect the publicly-
traded market price of its investments; the fair value was adjusted to
reflect a discount for restricted securities.
Pilot Network Services, Inc.
- ----------------------------
In July of 1996, the Partnership made an additional investment in the
company by purchasing 73,970 Series E Preferred shares for $295,880.
The pricing of this round, in which third parties participated,
indicated an increase in fair value of $836,003 for the Partnership's
existing investment.
Positive Communications, Inc.
- -----------------------------
In March of 1996, the Partnership issued $63,047 in convertible notes to
the company and purchased a warrant to acquire 3,709 common shares.
Prolinx, Inc.
- -------------
In September of 1996, the Partnership made an additional investment in
the company by purchasing 429,000 Series A Preferred shares for
$429,000.
R2 Technology, Inc.
- -------------------
In March of 1996, the Partnership purchased 68,541 Series B-1 Preferred
shares by converting the November, 1995, $133,334 note (including
accrued interest of $3,746). The pricing of this conversion financing
round in which third parties participated, indicated an increase in the
change in fair value of $336,000 for the Partnership's existing
investment.
RedCell, Inc.
- -------------
In February and July of 1996, the Partnership issued $179,932 and
$17,993, respectively, in convertible notes receivable to the company.
SRG Products Corporation/SRG Holdings, Inc.
- -------------------------------------------
During the second quarter of 1996, SRG Holdings, Inc., was acquired by
SRG Products Corporation whereby the Partnership's Series C Preferred
shares and common share warrant investments were canceled. In addition,
the Managing General Partners determined that there has been an other
than temporary decline in the value of the Partnership's note
investment. As a result, the Partnership realized a loss of $357,282
for its convertible and subordinated notes receivable including accrued
interest.
TheraTx, Incorporated
- ---------------------
In April of 1996, the Partnership sold its remaining holdings in the
company for total proceeds of $998,724 and a realized gain of $893,661.
Velocity Incorporated
- ---------------------
During the first nine months of 1996, the Partnership issued $21,650 in
subordinated notes to continue the company operations and reclassified
secured notes receivable of $1,275,000 to subordinated notes.
During the second quarter of 1996, the Managing General Partners
determined that there has been an other than temporary decline in value
of the Partnership's preferred share investment. As a result, a
realized loss of $2,000,000 was recorded. The Partnership also recorded
a decrease in fair value of $2,050,340 for its investment.
Wire Networks, Inc.
- -------------------
In February of 1996, the Partnership invested in the company by
purchasing 78,553 Series A Preferred shares and 95,980 Series B
Preferred shares for $106,047 and $215,955, respectively.
Venture Capital Limited Partnership Investments
- -----------------------------------------------
The Partnership recorded a cost basis increase of $11,735 in venture
capital limited partnership investments during the nine months ended
September 30, 1996. The increase was a result of additional
contributions of $115,938, partially offset by stock and cash
distributions of $97,912 and $6,291, respectively. The Partnership
recorded a fair value increase of $145,406 as a result of a net increase
in fair value of the underlying investments and the effects of the
transactions described above.
During the nine months ended September 30, 1996, the Partnership
received common stock distributions of Informix, Inc., and Forte
Software, Inc., with fair values of $51,773 and $46,139, respectively.
These distributions represented returns of capital.
Other Equity Investments
- ------------------------
Other significant changes reflected above relate to market value
fluctuations or the elimination of a discount relating to selling
restrictions for publicly-traded portfolio companies. The Partnership's
YES! Entertainment Corporation shares are restricted.
6. Secured Notes Receivable, Net
-----------------------------
Activity from January 1, 1996, through September 30, 1996, consisted of:
<TABLE>
<S> <C>
Balance at January 1, 1996 $ 999,572
1996 activity:
Secured notes receivable issued 208,334
Repayments of secured notes receivable (177,249)
Decrease in allowance for loan losses 955,000
Change in interest receivable (11,705)
Other activity, net 1,867
Reclassification of secure notes receivable to
equity investments (subordinated notes receivable) (1,275,000)
Reclassification of secured notes receivable to other
investments (681,565)
---------
Total secured notes receivable, net, at September 30, 1996 $ 19,254
=========
</TABLE>
The Partnership had accrued interest of $15,042 and $26,747 at September
30, 1996, and December 31, 1995, respectively.
Activity in the allowance for loan losses was as follows:
<TABLE>
<S> <C>
Balance at January 1, 1996 $ 955,000
Change in net unrealized fair value of
secured notes receivable (955,000)
---------
Balance at September 30, 1996 $ --
=========
</TABLE>
The allowance for loan losses is adjusted quarterly based upon changes
to the portfolio size and risk profile. Although the allowance is
established by evaluating individual debtor repayment ability, the
allowance represents the Managing General Partners' assessment of the
portfolio as a whole.
During the third quarter of 1996, the Partnership reclassified $681,565
in secured notes receivable related to a portfolio company in the
environmental industry to other investments as the notes were sold to a
third party in exchange for a portion of the net proceeds collectible
from the portfolio company.
Refer to Note 5, Equity Investments, for information regarding the
reclassification of notes to equity investments.
7. Cash and Cash Equivalents
-------------------------
Cash and cash equivalents at September 30, 1996, and December 31, 1995,
consisted of:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Demand accounts $ 2,327 152,033
Money-market accounts 4,070 4,244,009
--------- ---------
Total $ 6,397 4,396,042
========= =========
</TABLE>
8. Commitments, Contingencies and Subsequent Events
------------------------------------------------
The Partnership is a party to financial instruments with off-balance-
sheet risk in the normal course of its business. Generally, these
instruments are commitments for future equity fundings, venture capital
limited partnership investments, equipment financing commitments, or
accounts receivable lines of credit that are outstanding but not
currently fully utilized. As they do not represent current outstanding
balances, these unfunded commitments are properly not recognized in the
financial statements. At September 30, 1996, the Partnership had
unfunded commitments as follows:
<TABLE>
<S> <C>
Type
- ----
Equity investments $ 122,911
Venture capital limited partnership investments 319,783
Term notes 534,600
--------
Total $ 977,294
========
</TABLE>
In September of 1995, the Partnership jointly guaranteed with two
affiliated partnerships a $2,000,000 line of credit between a financial
institution and a portfolio company in the computer systems and software
industry of which the Partnership's share is $1,000,000. However, if
the affiliated partnerships are unable to finance their portion of the
guarantee, the Partnership's share may increase up to $2,000,000. While
the Partnership expects the portfolio company to repay the line of
credit, if the portfolio company fails to do so, the Partnership may be
liable up to the guarantee amount.
In October of 1996, the $2,000,000 guarantee discussed above was reduced
to $1,000,000 as the affiliated partnerships have assumed a portion of
the financial institution's line of credit. The remaining $1,000,000 is
guaranteed by the Partnership but the affiliated partnerships remain
joint guarantors.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Liquidity and Capital Resources
- -------------------------------
During the nine months ended September 30, 1996, net cash used by
operating activities totaled $1,281,449. The Partnership paid
management fees of $326,350 to the Managing General Partners and
reimbursed related parties for operating expenses of $894,156. In
addition, $25,376 was paid to the Individual General Partners as
compensation for their services. Other operating expenses of $195,777
were paid and $160,210 in interest income was received.
During the nine months ended September 30, 1996, the Partnership funded
secured notes receivable totaling $208,334 to a portfolio company in the
computer systems and software industry and equity investments of
$4,463,764 primarily to portfolio companies in the medical,
industrial/business automation, and biotechnology industries. Proceeds
from sales of equity investments were $1,017,678. Repayments of
convertible and secured notes receivable provided cash of $539,933. As
of September 30, 1996, the Partnership was committed to fund additional
investments totaling $977,294 and has outstanding guarantees up to
$2,000,000 as disclosed in Note 8 to the financial statements. However,
at October 31, 1996, the outstanding guarantee decreased to $1,000,000.
During the first nine months of 1996, Bolder Technologies, Inc.,
Conversion Technologies International, Inc., and Physiometrix, Inc.,
completed their initial public offerings ("IPOs"). Although the
Partnership's holdings in these companies are subject to selling
restrictions, the IPOs indicate potential future liquidity for these
investments.
Cash and cash equivalents at September 30, 1996, were $6,397. Proceeds
from investment sales and Managing General Partners' support are
expected to be adequate to fund Partnership operations through the next
twelve months.
Results of Operations
- ---------------------
Current quarter compared to corresponding quarter in the preceding year
- -----------------------------------------------------------------------
Net income was $923,866 and $107,550 for the three months ended
September 30, 1996 and 1995, respectively. The increase in net income
was primarily due to increases of $432,000 and $269,555 in the changes
in net unrealized fair value of secured notes receivable and equity
investments, respectively, a $101,562 decrease in management fees, and a
$63,763 decrease in total operating expenses. These changes were
partially offset by a $92,870 decrease in total income.
The Partnership recorded an increase in the fair value of secured notes
receivable of $277,000 for the quarter ended September 30, 1996, due to
the reclassification of secured notes receivable to other investments as
these notes had been reflected with fair values less than cost. A
$155,000 decrease was recorded for the same period in 1995.
During the three months ended September 30, 1996, the increase in the
fair value of equity investments of $774,890 was primarily due to
increases in portfolio companies in the computer systems and software,
and industrial/business automation industries, partially offset by
decreases in the environmental, and medical industries. During the same
period in 1995, the increase in fair value of $505,335 was primarily due
to increases in the medical and communications industries.
Management fees were $97,498 and $199,060 for the three months ended
September 30, 1996 and 1995, respectively. Pursuant to the Partnership
Agreement, management fees decreased from two percent to one percent per
annum of total Limited Partner capital contribution beginning in January
of 1996.
Total operating expenses were $87,615 for the quarter ended September
30, 1996, compared to $151,378 for the same period in 1995. Such
expenses were net of amounts absorbed by the Managing General Partners
of $236,650 and $102,578 during the quarters ended September 30, 1996
and 1995, respectively. Had the limitation not been in effect, total
operating expenses would have been $324,265 and $253,956 in the third
quarters of 1996 and 1995, respectively. The increase was primarily due
to higher 1996 administrative and investor services expenses which
included allocable overhead costs as disclosed in the 1995 Annual
Report.
Total income was $40,994 and $133,864 for the quarters ended September
30, 1996 and 1995, respectively. The decrease was mainly due to lower
cash and cash equivalents balances as a result of new and follow-on
investments.
Given the inherent risk associated with the business of the Partnership,
the future performance of the portfolio company investments may
significantly impact future operations.
Current nine months compared to corresponding nine months in the
- ----------------------------------------------------------------
preceding year
- --------------
Net loss was $784,365 for the nine months ended September 30, 1996,
compared to net income of $232,221 during the same period in 1995. The
change was primarily due to a $1,794,453 increase in realized losses
from investment write-downs, a $698,679 increase in total operating
expenses, and a $356,195 decrease in total income. These changes were
partially offset by a $1,243,000 increase in the change in net
unrealized change in the fair value of secured notes receivable, a
$304,727 decrease in management fees, and a $316,322 increase in the
change in net unrealized change in fair value of equity investments.
During the nine months ended September 30, 1996, realized losses from
investment write-downs of $2,434,373 mostly related to equity
investments in the computer systems and software industry. In 1995,
realized losses of $639,920 primarily related to portfolio companies in
the retail/consumer products and communications industries.
Total operating expenses were $1,498,679 and $800,000 for the nine
months ended September 30, 1996 and 1995, respectively. Such expenses
were net of amounts absorbed by the Managing General Partners of
$352,093 and $102,578 for the nine months ended September 30, 1996 and
1995, respectively. In addition, in 1996, $853,838 of direct
Partnership expenses not subject to the limitation was returned to the
Managing General Partners as disclosed in Note 4 to the financial
statements. Had this amount not been recorded as an expense in 1996 and
had the limitation not been in effect, total operating expenses would
have been $996,934 and $902,578 during the nine months ended September
30, 1996 and 1995, respectively. The increase was primarily due to
higher 1996 administrative and investor services expenses which included
allocable overhead costs.
Total income was $161,304 and $517,499 for the nine months ended
September 30, 1996 and 1995, respectively. The decrease was primarily
due to lower cash and cash equivalents balances resulting from new and
follow-on investments.
During the nine months ended September 30, 1996, the Partnership
recorded a $955,000 increase in secured notes receivable fair value.
The increase was due to the reclassification of secured notes receivable
of $1,275,000 and $681,565 to equity investments and other investments,
respectively, as these notes had been reflected with fair values less
than cost. A $288,000 decrease was recorded for the same period in
1995.
Management fees were $292,496 and $597,223 for the nine months ended
September 30, 1996 and 1995, respectively. As discussed above,
management fees decreased from two percent to one percent per annum
beginning in January of 1996.
During the nine months ended September 30, 1996, the increase in fair
value of equity investments of $1,424,215 was primarily due to portfolio
companies in the industrial/business automation, and medical industries,
partially offset by decreases in the environmental, and computer systems
and software industries. During the same period in 1995, the increase
of $1,107,893 was partially due to portfolio companies in the
microelectronics, communications, and retail/consumer products
industries, partially offset by decreases in the medical industry.
II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) No reports on Form 8-K were filed by the Partnership during the
quarter ended September 30, 1996.
(b) Financial Data Schedule for the nine months ended and as of
September 30, 1996 (Exhibit 27).
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be
signed on its behalf by the undersigned, thereunto duly authorized.
TECHNOLOGY FUNDING VENTURE PARTNERS V,
AN AGGRESSIVE GROWTH FUND, L.P.
By: TECHNOLOGY FUNDING INC.
Managing General Partner
Date: November 8, 1996 By: /s/Debbie A. Wong
------------------------------------
Debbie A. Wong
Controller
<TABLE> <S> <C>
<ARTICLE>6
<LEGEND>THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE FORM 10-Q AS OF SEPTEMBER 30, 1996, AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
<MULTIPLIER>1
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<PERIOD-TYPE> 9-MOS
<INVESTMENTS-AT-COST> 24,163,296
<INVESTMENTS-AT-VALUE> 29,269,712
<RECEIVABLES> 0
<ASSETS-OTHER> 9,412
<OTHER-ITEMS-ASSETS> 6,397
<TOTAL-ASSETS> 29,285,521
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 438,170
<TOTAL-LIABILITIES> 438,170
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 23,740,935
<SHARES-COMMON-STOCK> 400,000
<SHARES-COMMON-PRIOR> 400,000
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 5,106,416
<NET-ASSETS> 28,847,351
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 161,304
<OTHER-INCOME> 0
<EXPENSES-NET> (1,816,551)
<NET-INVESTMENT-INCOME> (1,655,247)
<REALIZED-GAINS-CURRENT> (1,508,333)
<APPREC-INCREASE-CURRENT> 2,379,215
<NET-CHANGE-FROM-OPS> (784,365)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> (784,365)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 292,496
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,819,793
<AVERAGE-NET-ASSETS> 29,239,534
<PER-SHARE-NAV-BEGIN> 67
<PER-SHARE-NII> (8)
<PER-SHARE-GAIN-APPREC> 0 <F1>
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 59
<EXPENSE-RATIO> 6.2
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<FN>
<F1>
A zero value is used since the change in net unrealized fair value is
not allocated to General Partners and Limited Partners as it is not
taxable. Only taxable gains or losses are allocated in accordance with
the Partnership Agreement.
</FN>
</TABLE>
