<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, 1999
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)
(650) 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,
1999 1998
------------ ------------
<S> <C> <C>
ASSETS
Equity investments (cost basis of
$18,821,875 and $21,268,672 at
1999 and 1998, respectively) $36,287,406 37,682,178
Notes receivable (cost basis of
$181,197) 181,197 --
---------- ----------
Total investments 36,468,603 37,682,178
Cash and cash equivalents 5,816,932 15,850
Other assets 4,879 4,062
---------- ----------
Total assets $42,290,414 37,702,090
========== ==========
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable and accrued expenses $ 116,612 60,445
Due to related parties 36,371 670,978
Short-term borrowings -- 120,200
---------- ----------
Total liabilities 152,983 851,623
Commitments, contingencies and
subsequent events
(Notes 2, 3, 6 and 8)
Partners' capital:
Limited Partners
(400,000 units outstanding) 25,862,176 20,483,914
General Partners (1,190,276) (46,953)
Net unrealized fair value increase
from cost of equity investments 17,465,531 16,413,506
---------- ----------
Total partners' capital 42,137,431 36,850,467
---------- ----------
Total liabilities and partners'
capital $42,290,414 37,702,090
========== ==========
</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,
------------------------ ----------------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Income:
Notes receivable interest $ 13,518 1,048 21,414 1,048
Short-term investment interest 53,533 1,046 102,883 14,478
--------- --------- --------- ---------
Total income 67,051 2,094 124,297 15,526
Costs and expenses:
Management fees 68,170 97,499 206,470 292,496
Individual General Partners'
compensation 8,337 13,023 25,874 31,420
Operating expenses:
Investment operations 73,210 118,160 261,082 349,730
Administrative and investor services 171,071 294,529 507,807 613,977
Professional fees 14,314 22,390 83,978 50,314
Computer services 40,446 57,434 103,219 170,807
Interest expense -- 7,805 7,031 7,805
Expenses absorbed by General
Partners (88,226) (421,041) (88,226) (545,365)
--------- --------- --------- ---------
Total operating expenses 210,815 79,277 874,891 647,268
--------- --------- --------- ---------
Total costs and expenses 287,322 189,799 1,107,235 971,184
--------- --------- --------- ---------
Net operating loss (220,271) (187,705) (982,938) (955,658)
Net realized (loss) gain from
sales of equity investments (1,665,091) -- 6,176,864 5,305
Realized losses from investment
write-downs -- -- (2,615) (664,299)
Net realized gain from venture capital
limited partnership investments 135,739 520 288,230 237,354
--------- --------- --------- ---------
Net realized (loss) income (1,749,623) (187,185) 5,479,541 (1,377,298)
Change in net unrealized
fair value:
Equity investments 1,083,088 (1,227,706) 1,052,025 (3,371,524)
Other investments -- -- -- 265,720
--------- --------- --------- ---------
Net (loss) income $ (666,535) (1,414,891) 6,531,566 (4,483,102)
========= ========= ========= =========
Net realized (loss) income per Unit $ (4.33) (0.46) 13.45 (3.41)
========= ========= ========= =========
</TABLE>
See accompanying notes to financial statements
<PAGE>
STATEMENTS OF CASH FLOWS (unaudited)
- -----------------------------------
<TABLE>
<CAPTION>
For the Nine Months
Ended September 30,
---------------------------
1999 1998
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Interest income received $ 103,024 15,456
Cash paid to vendors (324,496) (148,215)
Cash paid to related parties (1,354,965) (705,959)
Interest paid (7,031) (7,805)
--------- ---------
Net cash used by
operating activities (1,583,468) (846,523)
--------- ---------
Cash flows from investing activities:
Proceeds from sales of equity
investments 9,194,975 103,634
Purchase of equity investments (434,371) (1,406,319)
Notes receivable issued (211,763) (2,766)
Repayments of convertible notes
receivable -- 92,047
Distributions from venture capital
limited partnership investments 200,511 285,504
--------- ---------
Net cash provided (used) by
investing activities 8,749,352 (927,900)
--------- ---------
Cash flows from financing activities:
Repayment of (proceeds from) short-term
borrowings, net (120,200) 407,805
Distribution to partners (1,244,602) --
--------- ---------
Net cash (used) provided by financing
activities (1,364,802) 407 805
--------- ---------
Net increase (decrease) in cash and
cash equivalents 5,801,082 (1,366,618)
Cash and cash equivalents at
beginning of year 15,850 1,839,535
--------- ---------
Cash and cash equivalents
at September 30 $5,816,932 472,917
========= =========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
STATEMENTS OF CASH FLOWS (unaudited) (continued)
- -----------------------------------------------
<TABLE>
<CAPTION>
For the Nine Months
Ended September 30,
---------------------------
1999 1998
--------- ---------
<S> <C> <C>
Reconciliation of net income
(loss) to net cash used by
operating activities:
Net income (loss) $ 6,531,566 (4,483,102)
Adjustments to reconcile net income
(loss) to net cash used by
operating activities:
Amortization of discount on
secured notes receivable -- (339)
Net realized gain from sales of
equity investments (6,176,864) (5,305)
Realized losses from investment
write-downs 2,615 664,299
Realized gain from venture
capital limited partnership
investments (288,230) (237,354)
Change in net unrealized fair
value:
Equity investments (1,052,025) 3,371,524
Other investments -- (265,720)
Changes in:
Due to/from related parties (634,607) 118,721
Other 34,077 (9,247)
--------- ---------
Net cash used by operating activities $(1,583,468) (846,523)
========= =========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
NOTES TO FINANCIAL STATEMENTS (unaudited)
- ----------------------------------------
1. General
-------
In the opinion of the Managing General Partner, the accompanying interim
financial statements reflect all adjustments necessary for a fair
presentation of the financial position, results of operations and cash
flows for the interim periods presented. These statements should be read
in conjunction with the Annual Report on Form 10-K for the year ended
December 31, 1998. 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.
In June 1999, the Individual General Partners extended the term of the
Partnership to December 31, 2002.
2. 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, 1999 and 1998, were as follows:
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Management fees $206,470 292,496
Reimbursable operating expenses 576,240 1,046,129
Individual General Partners' compensation 25,874 31,420
Expenses absorbed by General Partners' (88,226) (545,365)
</TABLE>
Certain reimbursable expenses have been accrued based upon interim
estimates prepared by the Managing General Partners and are adjusted to
actual cost periodically. There were $14,300 and $670,978 due to related
parties at September 30, 1999 and December 31, 1998, respectively, for such
reimbursable expenses.
Amounts payable for management fees were $22,071 and $0 at September 30,
1999 and December 31, 1998, respectively.
Pursuant to the Partnership Agreement, the Partnership shall reimburse the
Managing General Partners for operational cost incurred by the Managing
General Partners in conjunction with the business of the Partnership. The
Partnership may not pay the Managing General Partners for operational costs
that aggregate more than 1% of total Limited Partner capital contributions.
For the nine months ended September 30, 1999 and 1998, operating expenses
absorbed by the Managing General Partners totaled $88,226 and $545,365,
respectively.
Officers of the Managing General Partners occasionally receive stock
options as compensation for serving on the Boards of Directors of portfolio
companies. At September 30, 1999, the Partnership had an indirect interest
in Conversion Technologies International, Inc., Endocare, Inc. and
Physiometrix, Inc. non-transferable options with a total fair market value
of $93,138.
<PAGE>
3. Equity Investments
------------------
<TABLE>
A full listing of the Partnership's equity investments at December 31, 1998, is in the 1998
Annual Report on Form 10-K. Activity from January 1 through September 30, 1999, consisted of:
<CAPTION>
January 1 through
September 30, 1999
------------------
Principal
Investment Amount or Cost Fair
Industry/Company Position Date Shares Basis Value
- ---------------- -------- ---------- --------- ----- -----
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1999 $21,268,672 37,682,178
---------- ----------
Significant changes:
Biomedical
- ----------
Axys Common
Pharmaceuticals, Inc. shares 12/95 37,855 0 (69,804)
Biotechnology
- -------------
CV Therapeutics, Inc. Common 03/94-
shares 09/95 34,450 (689,000) 223,925
Communications
- --------------
Tut Systems, Common
Inc. shares 07/99 2,302 93,931 60,729
Women.com Networks Series A
Preferred
shares 02/96 78,553 0 527,091
Women.com Networks Series B
Preferred
shares 02/96 95,980 0 644,026
Women.com Networks Series C
Preferred
shares 07/97 2,740 0 18,385
Women.com Networks Series D
Preferred
shares 06/98 15,199 0 101,985
Women.com Networks Series E
Preferred
shares 05/99 11,912 119,120 119,120
Computer Systems and Software
- -----------------------------
Pilot Network Common 03/95-
Services, Inc. shares 05/99 388,814 (495,303) (3,547,080)
Environmental
- --------------
Triangle Biomedical Series A, B
Sciences, Inc. and C
(formerly Naiad Preferred 12/95-
Technologies, Inc.) shares 11/97 114,332 (215,202) (371,580)
Triangle Biomedical
Sciences, Inc.
(formerly Naiad Common
Technologies, Inc.) shares 09/99 1,437 30,412 41,668
Industrial/Business Automation
- ------------------------------
Avalon Imaging, Series A, B
Inc. and C
Preferred 12/94-
shares 08/98 940,212 (1,028,614) (1,157,156)
Avalon Imaging, Common
Inc. shares 04/96 125,000 (250,000) (250,000)
Information Technology
- ----------------------
WorldRes, Inc. Series B and C
Preferred 01/97-
shares 12/97 59,338 0 139,445
WorldRes, Inc. Series D
Preferred
shares 03/99 12,397 75,002 75,002
Medical
- -------
Biex, Inc. Series A, B,
C, D and E
Preferred 07/93-
shares 08/97 629,793 0 109,942
Endocare, Inc. Common 08/96-
shares 04/98 46,014 0 193,260
Endocare, Inc. Common
shares 07/99 3,750 11,250 23,205
Oxford Common
GlycoSciences Plc shares 08/93 213,546 0 262,235
Periodontix, Inc. Convertible 04/99-
notes 09/99 $173,000 179,012 179,012
Pherin Series B
Pharmaceuticals, Inc. Preferred
shares 08/91 200,000 0 660,000
R2 Technology, Inc. Series A-1
and B-1
Preferred 05/94-
shares 03/96 468,541 0 841,372
Simione Central Series A, B
Holdings, Inc. and C
(formerly CareCentric Preferred 10/95-
Solutions, Inc.) shares 12/97 227,743 (320,655) (239,130)
Simione Central Common share
Holdings, Inc. warrant at
(formerly CareCentric $.15;
Solutions, Inc.) expiring 12/02 12/97 23,265 (20,959) (20,959)
Simione Central
Holdings, Inc. Convertible
(formerly CareCentric notes and 04/98-
Solutions, Inc.) interest 06/98 $41,250 (43,856) (43,856)
Simione Central
Holdings, Inc.
(formerly CareCentric Common
Solutions, Inc.) shares 08/99 68,824 206,718 77,943
Valentis, Inc. Common
(formerly Megabios shares 09/94-
Corp.) 07/95 301,274 0 82,977
Venture Capital Limited Partnership Investments
- -----------------------------------------------
Various Limited
Partnership
Interests various $1,053,431 (115,962) (54,023)
---------- ---------
Total significant changes during the nine
months ended September 30, 1999 (2,464,106) (1,372,266)
Other changes, net 17,309 (22,506)
---------- ----------
Total equity investments at September 30, 1999 $18,821,875 36,287,406
========== ==========
</TABLE>
Marketable Equity Securities
- ----------------------------
At September 30, 1999, and December 31, 1998, marketable equity securities
had aggregate costs of $4,434,812 and $6,069,452, respectively, and
aggregate market values of $7,543,327 and $3,311,167, respectively. The
net unrealized gain/loss at September 30, 1999 and December 31, 1998
included gross gains of $3,917,398 and $379,205, respectively.
Avalon Imaging, Inc.
- --------------------
In October 1999, the company agreed to sell its assets. The Partnership
valued its portion of the estimated sales proceeds at $400,747 and realized
a loss of $1,278,614 as of September 30, 1999. As discussed in Note 8, the
Partnership has guaranteed the company's line of credit at a bank. The
estimated sales proceeds have been reduced by the Partnership's share of
the guarantee which totaled $221,294 at September 30, 1999.
Biex, Inc.
- ----------
In March 1999, the company completed a round of financing in which the
Partnership did not participate. The pricing of this round, in which third
parties participated, indicated a $63,452 increase in the fair value of the
Partnership's investment in the company's preferred shares and warrants.
In May 1999, the Partnership received a stock dividend of 18,786 Preferred
shares with a fair value of $48,844.
CV Therapeutics, Inc.
- ---------------------
In August and September 1999, the Partnership sold a total of 34,450 common
shares for proceeds of $509,813 and realized a loss of $179,187.
Endocare, Inc.
- --------------
In July 1999, the Partnership exercised a warrant and purchased 3,750
common shares for $11,250.
Periodontix, Inc.
- -----------------
In 1999, the Partnership funded convertible notes receivable totaling
$173,000 to the company. The notes bear interest at 8% and are due in one
year.
Pherin Pharmaceuticals, Inc.
- ----------------------------
In the second quarter of 1999, the company completed a round of financing
in which the Partnership did not participate. The pricing of this round,
in which third parties participated, indicated a $660,000 increase in the
fair value of the Partnership's investment.
Pilot Network Services, Inc.
- ----------------------------
In February 1999, El Dorado Ventures III, L.P. (El Dorado), a venture
capital limited partnership, distributed 4,376 common shares valued at
$56,689 to the Partnership. In March 1999, the Partnership sold 175,000
common shares for proceeds of $2,557,503 and realized a gain of $2,237,944.
In April 1999, the Partnership sold an additional 335,000 common shares for
proceeds of $6,120,929 and realized a gain of $5,827,804. In May 1999, El
Dorado distributed an additional 3,393 common shares valued at $60,692 to
the Partnership. The Partnership has pledged 50,000 common shares as
collateral for its guarantee of a portfolio company's line of credit (see
Note 8.)
Based on the publicly-traded market price, the fair value of the
Partnership's investment increased from $3,540,540 at September 30, 1999 to
$6,439,732 on November 11, 1999.
R2 Technology, Inc.
- -------------------
In May 1999, the company completed a round of financing in which the
Partnership did not participate. The pricing of this round, in which third
parties participated, indicated a $856,019 increase in the fair value of
the Partnership's Preferred shares and warrants.
Simione Central Holdings, Inc. (formerly CareCentric Solutions, Inc.)
- --------------------------------------------------------------------
In August 1999, CareCentric Solutions, Inc. was acquired by Simione Central
Holdings, Inc. The Partnership received 68,824 Simione common shares and
realized a loss of $224,611 on the sale. The Simione shares are publicly
traded, but may not be sold prior to December 2000.
Triangle Biomedical Sciences, Inc. (formerly Naiad Technologies, Inc.)
- ---------------------------------------------------------------------
In August 1999, Naiad Technologies, Inc. was acquired by Triangle
Biomedical Sciences, Inc., a privately held company. The Partnership
received 273 Triangle common shares and a warrant for 273 Triangle common
shares and realized a loss of $207,290 on the sale. In conjunction with
the sale, the Partnership agreed to advance $25,000 to Naiad to settle
outstanding liabilities; through September 30, 1999, $22,500 of this amount
had been advanced for which the Partnership received 1,164 Triangle shares.
Women.com Networks
- ------------------
In May 1999, the Partnership purchased 11,912 Series E Preferred shares for
$119,120. The pricing of this round, in which third parties participated,
indicated a $1,291,487 increase in the fair value of the Partnership's
existing investment.
In October 1999, the Company completed an initial public offering priced at
$10 per common share and the Partnership's Preferred shares were converted
into 148,696 common shares. Based on the publicly-traded market price, the
fair value of the Partnership's investment increased from $2,043,840 at
September 30, 1999 to $3,959,940 on November 11, 1999.
WorldRes, Inc.
- --------------
In March 1999, the Partnership made an additional investment in the company
by purchasing 12,397 Series D Preferred shares for $75,002. The pricing of
this round, in which third parties participated, indicated a $148,819
increase in the fair value of the Partnership's Preferred shares and
warrants.
In November 1999, the Partnership made an additional investment in the
company by purchasing 35,377 Series E Preferred shares for $527,466. The
pricing of this round, in which third parties participated, indicated an
increase in the fair value of the Partnership's existing investment at
September 30, 1999 from $443,433 to $1,136,410.
Venture Capital Limited Partnerships
- ------------------------------------
The Partnership made additional investments totaling $33,438 in venture
capital limited partnerships during the nine months ended September 30,
1999. The Partnership received stock distributions of Pilot Network
Services, Inc., Tut Systems, Inc., Horizon Organic Holding Corporation,
Rogue Wave Software, Inc. and Informix Software, Inc. with fair values
totaling $237,119. The Partnership received cash distributions of $200,511
from CVM Equity Fund IV, Ltd., OW & W Pacrim Investments Limited and
Spectrum Equity Investors, L.P. Distributions totaling $288,230 were
recorded as realized gains and distributions of $149,400 were recorded as
returns of capital.
The Partnership recorded a $54,023 net decrease in fair value as a result
of distributions from the partnerships which were partially offset by an
increase in the fair value of the underlying investments of the
partnerships.
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. Portions of the
Partnership's Conversion Technologies International, Inc., Physiometrix,
Inc. and Simione Central Holdings, Inc. investments are restricted.
4. Notes Receivable
----------------
Activity from January 1 through September 30, 1999 consisted of:
Balance at January 1, 1999 $ --
Notes issued 211,763
Notes converted to equity investments (36,763)
Change in accrued interest 6,197
-------
Balance at September 30, 1999 $181,197
=======
The interest rate on notes issued in 1999 ranges from 5% to 8.5%.
5. Cash and Cash Equivalents
-------------------------
Cash and cash equivalents at September 30, 1999, and December 31, 1998
consisted of:
<TABLE>
<CAPTION>
1999 1998
------ ------
<S> <C> <C>
Demand accounts $ 5,095 14,093
Money-market accounts 5,811,837 1,757
--------- ------
Total $5,816,932 15,850
========= ======
</TABLE>
6. Short-Term Borrowings
---------------------
The Partnership has a borrowing account with a financial institution. At
September 30, 1999, the borrowing capacity of this account, which
fluctuates based on collateral value, was $2,678,217 and there were no
outstanding borrowings. Interest is charged at the prime rate plus one-
half percent. The weighted-average interest rate for the nine months ended
September 30, 1999 was 8.25% and interest expense was $7,031. The
Partnership's investments in Valentis, Inc. (formerly Megabios Corp.), CV
Therapeutics, Inc., Axys Pharmaceuticals, Inc., and Pilot Network Services,
Inc. are pledged as collateral.
7. Distributions
-------------
During the nine months ended September 30, 1999, the Partnership declared
and paid tax distributions to the General Partners totaling $1,244,602.
8. Commitments and Contingencies
-----------------------------
The Partnership is a party to financial instruments with off-balance-sheet
risk in the normal course of its business. Generally, these instruments
are commitments for future equity fundings, venture capital limited
partnership investments, equipment financing commitments, or accounts
receivable lines of credit that are outstanding but not currently fully
utilized. As they do not represent current outstanding balances, these
unfunded commitments are properly not recognized in the financial
statements. At September 30, 1999 the Partnership had the following
unfunded commitments:
<TABLE>
<CAPTION>
TYPE
- ----
<S> <C>
Notes receivable $ 250,000
Equity investments 1,881,966
Equipment lease guarantees 237,000
Line of credit guarantees 221,294
Venture capital limited partnership investments 52,975
---------
Total $2,643,235
=========
</TABLE>
The Partnership has pledged 50,000 common shares of Pilot Network Services,
Inc. as collateral for its guarantee of a portfolio company's line of
credit.
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, 1999, net cash used by operating
activities totaled $1,583,468. The Partnership paid management fees of
$184,399 to the Managing General Partners and reimbursed related parties
for operating expenses of $1,144,692. In addition, $25,874 was paid to the
Individual General Partners as compensation for their services. Other
operating expenses of $324,496 and interest expense of $7,031 were paid.
Interest income of $103,024 was received.
During the nine months ended September 30, 1999, the Partnership funded
equity investments of $434,371 primarily to portfolio companies in the
communications, information technology and medical industries. The
Partnership issued notes totaling $211,763 to portfolio companies in the
environmental and medical industries. Proceeds from sales of equity
investments, primarily Pilot Network Services, Inc. ("Pilot") common
shares, provided cash of $9,194,975. Net short-term borrowings of $120,200
were repaid and tax distributions of $1,244,602 were paid during the nine
months ended September 30, 1999. As of September 30, 1999, the
Partnership's unfunded commitments totaled $2,643,235 as discussed in Note
8 to the financial statements.
The Partnership has a borrowing account with a financial institution. The
borrowing capacity of this account, which fluctuates based on collateral
value, was $2,678,217 at September 30, 1999 and there were no outstanding
borrowings. The Partnership's investments in CV Therapeutics, Inc.,
Valentis, Inc. (formerly Megabios Corp.), Axys Pharmaceuticals, Inc., and
Pilot are pledged as collateral.
Cash and cash equivalents at September 30, 1999, were $5,816,932. Cash
reserves, future interest income on short-term investments and proceeds
from investment sales 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 losses were $666,535 and $1,414,891 for the quarters ended September
30, 1999 and 1998, respectively. The improvement is primarily due to a
$2,310,794 increase in the net unrealized fair value of equity investments,
a $135,219 increase in net realized gain from venture capital limited
partnerships and a $64,957 increase in interest income. These increases
were partially offset by a $1,665,091 increase in net realized loss from
sales of equity investments and a $131,538 increase in operating expenses.
During the quarter ended September 30, 1999, the increase in fair value of
equity investments of $1,083,088 was primarily due to increases in
portfolio companies in the biotechnology and medical industries. During
the same period in 1998, the decrease in fair value of equity investments
of $1,227,706 was primarily due to decreases in portfolio companies in the
medical industry.
Net realized gain from venture capital limited partnerships totaled
$135,739 and $520 in the quarters ended September 30, 1999 and 1998,
respectively. The 1999 gain primarily resulted from the distribution to
the Partnership of Tut Systems, Inc. common shares.
Interest income of $67,051 for the quarter ended September 30, 1999
increased significantly over interest income of $2,094 for the comparative
quarter of 1998 due to the interest earned on the Partnership's increased
cash balance.
For the quarter ended September 30, 1999, net realized loss from equity
investment sales of $1,665,091 primarily related to the sales of the
Partnership's investments in Avalon, Inc., CV Therapeutics, Inc. and Naiad
Technology, Inc. There were no sales of investments in the quarter ended
September 30, 1998.
Total operating expenses were $210,815 and $79,277 for the quarters ended
September 30, 1999 and 1998, respectively. As explained in Note 2 to the
financial statements, the Managing General Partners absorbed $88,226 and
$421,041 for the quarters ended September 30, 1999 and 1998, respectively.
The decrease in operating expenses absorbed by the General Partners is
attributable to the re-evaluation of expense limitation provisions of the
Partnership agreement which occurred in the fourth quarter of 1998. This
re-evaluation effectively lowered the total amount of operating expenses
subject to the expense limitation. Had the limitation not been in effect,
operating expenses would have been $299,041 and $500,318 during the
quarters ended September 30, 1999 and 1998, respectively. The decrease is
primarily attributable to decreased investment monitoring, administrative
overhead and computer costs.
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 income was $6,531,566 for the nine months ended September 30, 1999, as
compared to net loss of $4,483,102 for the nine months ended September 30,
1998. The increase was primarily due to a $6,171,559 increase in net
realized gain from sales of equity investments, a $4,423,549 increase in
the net unrealized fair value of equity investments and a $661,684 decrease
in realized losses from investment write-downs, partially offset by a
$227,623 increase in operating expenses.
For the nine months ended September 30, 1999, realized gains from sales of
equity investments of $6,176,864 are primarily due to the gain on the sale
of 510,000 common shares of Pilot. This gain was partially offset by
losses on the sale of the Partnership's investments in Avalon, Inc., CV
Therapeutics, Inc., CareCentric Solutions, Inc. and Naiad Technologies,
Inc. During the same period in 1998, realized gains were $5,305.
During the nine months ended September 30, 1999, the increase in fair value
of equity investments of $1,052,025 was primarily due to increases in
portfolio companies in the biotechnology, communications and medical
industries, partially offset by a decrease due to the sale of Pilot shares.
During the same period in 1998, the decrease of $3,371,524 was primarily
due to decreases in portfolio companies in the medical and
industrial/business automation industries.
Realized losses from investment write-downs totaled $2,615 and $664,299 in
the nine months ended September 30, 1999 and 1998, respectively. The
write-down in 1998 related to a portfolio company in the environmental
industry.
Total operating expenses were $874,891 and $647,268 for the nine months
ended September 30, 1999 and 1998, respectively. As explained in Note 2 to
the financial statements, the Managing General Partners absorbed $88,226
and $545,365 in operating expenses for the nine months ended September 30,
1999 and 1998, respectively. The decrease in operating expenses absorbed
by the General Partners is attributable to the re-evaluation of expense
limitation provisions of the Partnership agreement which occurred in the
fourth quarter of 1998. This re-evaluation effectively lowered the total
amount of operating expenses subject to the expense limitation. Had the
limitation not been in effect, operating expenses would have been $963,117
and $1,192,633 during the nine months ended September 30, 1999 and 1998,
respectively. The decrease is primarily attributable to decreased
investment monitoring, administrative overhead and computer costs.
YEAR 2000
- ---------
Widespread use of computer programs that use two digits rather than four to
store, calculate, and display year values in dates may cause computer
systems to malfunction in the year 2000, resulting in significant business
delays and disruptions.
The Partnership's State of Readiness
------------------------------------
Computer services are provided to the Partnership by its Managing General
Partner, Technology Funding Inc. ("TFI"). For several years, TFI has
sought to use Year 2000 compliant storage formats and algorithms in its
internally-developed and maintained systems. TFI has also completed
initial evaluations of computer systems, software, and embedded
technologies. Those evaluations confirmed that certain components of its
network server hardware and operating systems, voice mail system, e-mail
system, and accounting software may have Year 2000 compliance issues.
These resources and several less-critical components of the systems
environment were all scheduled as part of normal maintenance and
replacement cycles to be replaced or upgraded as Year 2000 compatible
components became available from vendors during 1998 and 1999. That
program remains on schedule to provide Year 2000 capable systems timely
without significant expenditures or disruption of Partnership operations.
TFI has implemented and tested Year 2000 capable versions of all its
mission-critical systems. However, the risk remains that TFI may not be
able to verify whether Year 2000 compatibility claims by vendors are
accurate, or whether changes undertaken to achieve Year 2000 compatibility
will create other undetected problems in associated systems. Therefore,
TFI anticipates that Year 2000 compliance testing and maintenance of these
systems will continue as needed into the first quarter of 2000.
As part of Year 2000 evaluation, TFI has also assembled a database listing
its significant suppliers to assess the extent to which it needs to prepare
for any of those parties' potential failure to remediate their Year 2000
compliance issues. TFI reviewed public Year 2000 statements of those
suppliers and sent questionnaires to vendors whose public statements were
not adequate for assessment. All mission-critical vendors have responded
that they expect to be Year 2000 compliant barring any unforeseen
circumstances. TFI will continue to monitor its significant suppliers as
part of its Year 2000 evaluation. However, there can be no guarantee that
the systems of other companies on which TFI relies will be timely
converted, or that failure to convert will not have a material adverse
effect on the Partnership and its operations. TFI is also working with the
Partnership's portfolio companies to determine the extent to which their
operations are vulnerable to Year 2000 issues, and maintaining their
responses in the vendor database. There can be no guarantee that the
systems of portfolio companies in which the Partnership has invested will
be timely converted, or that their failure to convert will not have a
material adverse effect on the Partnership.
The Cost to Address Year 2000 Issues
------------------------------------
Expenditures in 1999 to date related to Year 2000 issues were not material
to the Partnership's financial statements. TFI expects that additional
expenditures for Year 2000 compliance will not be material to the
Partnership.
The Risks Associated with Year 2000 Issues
------------------------------------------
Any failure by the portfolio companies in which the Partnership has
invested, or by those portfolio companies' key suppliers or customers, to
anticipate and avoid Year 2000 related problems at reasonable cost could
have a material adverse effect on the value of and/or the timing of
realization of value from the Partnership's investments. If TFI's Year
2000 compliance issues have not been resolved correctly, internal system
failures or miscalculations could cause a temporary inability to process
transactions, loss of ability to send or receive e-mail and voice mail
messages, or disruptions in other normal business activities.
Additionally, failure of third parties on whom TFI relies to remediate
their Year 2000 issues timely could result in disruptions in the
Partnership's relationship with its financial institutions, temporary
disruptions in processing transactions, unanticipated costs, and problems
related to the Partnership's daily operations. While TFI continues to
address its internal Year 2000 issues, the overall risks associated with
the Year 2000 issue remain difficult to describe and quantify. There can
be no guarantee that the Year 2000 issue will not have a material adverse
effect on the Partnership and its operations.
TFI's Contingency Plan
----------------------
As part of its normal efforts to assure business continuation in the event
of natural disasters, systems failures, or other disruptions, TFI has
prepared contingency plans including an extensive Year 2000 contingency
plan. Taken together with TFI's Year 2000 remediation plan, it identifies
potential points of failure, approaches to correcting known Year 2000
problems, dates by which the preferred corrections are anticipated to be
made and tested, and alternative approaches if the corrections are not
completed timely or are later found to be inadequate. Although backup
systems and contingency approaches have been identified for most systems
and vendor dependencies, there remain some systems for which no good
alternative exists, and there may be some problems that prove more
intractable than currently anticipated.
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, 1999.
(b) Financial Data Schedule for the nine months ended and as of
September 30, 1999 (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 12, 1999 By: /s/Michael R. Brenner
------------------------------------
Michael R. Brenner
Controller
<TABLE> <S> <C>
<ARTICLE>6
<LEGEND>THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
THE FORM 10-Q AS OF SEPTEMBER 30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
<MULTIPLIER>1
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<PERIOD-TYPE> 9-MOS
<INVESTMENTS-AT-COST> 19,003,072
<INVESTMENTS-AT-VALUE> 36,468,603
<RECEIVABLES> 0
<ASSETS-OTHER> 4,879
<OTHER-ITEMS-ASSETS> 5,816,932
<TOTAL-ASSETS> 42,290,414
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 152,983
<TOTAL-LIABILITIES> 152,983
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 24,671,900
<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> 17,465,531
<NET-ASSETS> 42,137,431
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 124,297
<OTHER-INCOME> 0
<EXPENSES-NET> 1,107,235
<NET-INVESTMENT-INCOME> (982,938)
<REALIZED-GAINS-CURRENT> 6,462,479
<APPREC-INCREASE-CURRENT> 1,052,025
<NET-CHANGE-FROM-OPS> 6,531,566
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> (1,244,602)
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 5,286,964
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 206,470
<INTEREST-EXPENSE> 7,031
<GROSS-EXPENSE> 1,110,935
<AVERAGE-NET-ASSETS> 39,493,949
<PER-SHARE-NAV-BEGIN> 51
<PER-SHARE-NII> 14
<PER-SHARE-GAIN-APPREC> 0 <F1>
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 65
<EXPENSE-RATIO> 2.8
<FN>
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.
</FN>
</TABLE>
