<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, 2000
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,
2000 1999
------------ -----------
<S> <C> <C>
ASSETS
Equity investments, at fair value
(cost basis of $22,931,472 and
$19,844,552 at 2000 and 1999,
respectively) $21,122,651 39,181,437
Notes receivable, at fair value
(cost basis of $5,627,172 and
$2,569,534 at 2000 and 1999,
respectively) 180,643 2,569,534
---------- ----------
Total investments 21,303,294 41,750,971
Cash and cash equivalents 12,544,157 6,356,856
Other assets 9,862 3,097
---------- ----------
Total assets $33,857,313 48,110,924
========== ==========
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable and accrued expenses $ 49,064 56,565
Distributions payable to Limited and
General Partners -- 5,412,980
Due to related parties 87,988 27,609
---------- ----------
Total liabilities 137,052 5,497,154
Commitments and contingencies
Partners' capital:
Limited Partners
(400,000 units outstanding) 36,367,926 41,595,012
General Partners (2,647,665) 1,018,758
---------- ----------
Total partners' capital 33,720,261 42,613,770
---------- ----------
Total liabilities and partners'
capital $33,857,313 48,110,924
========== ==========
</TABLE>
See accompanying notes to unaudited financial statements.
<PAGE>
STATEMENTS OF OPERATIONS (unaudited)
-----------------------------------
<TABLE>
<CAPTION>
For the Three For the Nine
Months Ended Months Ended
September 30, September 30,
------------------------ ----------------------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Income:
Notes receivable interest $ 524,910 13,518 1,416,653 21,414
Short-term investment interest 155,745 53,533 327,105 102,883
--------- --------- ---------- ---------
Total income 680,655 67,051 1,743,758 124,297
Costs and expenses:
Management fees 61,972 68,170 185,916 206,470
Individual General Partners'
compensation 6,102 8,337 27,910 25,874
Operating expenses:
Investment operations 128,114 73,210 578,994 261,082
Administrative and investor services 183,227 171,071 517,882 507,807
Professional fees 43,741 14,314 78,344 83,978
Computer services 48,785 40,446 129,907 103,219
Interest expense -- -- -- 7,031
Expenses absorbed by General
Partners (246,410) (88,226) (552,809) (88,226)
--------- --------- ---------- ---------
Total operating expenses 157,457 210,815 752,318 874,891
--------- --------- ---------- ---------
Total costs and expenses 225,531 287,322 966,144 1,107,235
--------- --------- ---------- ---------
Net operating income (loss) 455,124 (220,271) 777,614 (982,938)
Net realized gain (loss) from
sales of equity investments 3,847,202 (1,665,091) 17,945,882 6,176,864
Realized losses from investment
write-downs -- -- -- (2,615)
Realized gain from venture capital
limited partnership investments 501,583 135,739 1,037,585 288,230
Net realized loss on foreign currency -- -- (126,781) --
--------- --------- ---------- ---------
Net realized income (loss) 4,803,909 (1,749,623) 19,634,300 5,479,541
Change in net unrealized
fair value:
Equity investments (8,425,592) 1,083,088 (21,145,706) 1,052,025
Notes receivable (3,775,477) -- (5,446,529) --
--------- --------- ---------- ---------
Net (loss) income $(7,397,160) (666,535) (6,957,935) 6,531,566
========= ========= ========== =========
Net (loss) income per unit $ (14.81) (1.21) (13.07) 13.21
========= ========= ========== =========
</TABLE>
See accompanying notes to unaudited financial statements
<PAGE>
STATEMENTS OF CASH FLOWS (unaudited)
-----------------------------------
<TABLE>
<CAPTION>
For the Nine Months
Ended September 30,
---------------------------
2000 1999
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Interest income received $ 356,021 103,024
Cash paid to vendors (370,857) (324,496)
Cash paid to related parties (549,174) (1,354,965)
Interest paid -- (7,031)
---------- ---------
Net cash used by
operating activities (564,010) (1,583,468)
---------- ---------
Cash flows from investing activities:
Proceeds from sales of equity
investments 20,458,593 9,194,975
Purchase of equity investments (4,609,956) (434,371)
Notes receivable issued (3,250,000) (211,763)
Repayments of notes receivable 1,110,465 --
Distributions from venture capital
limited partnership investments 517,544 200,511
---------- ---------
Net cash provided by
investing activities 14,226,646 8,749,352
---------- ---------
Cash flows from financing activities:
Repayment of short-term
borrowings, net -- (120,200)
Distribution to Limited and
General Partners (7,348,554) (1,244,602)
---------- ---------
Net cash used by financing
activities (7,348,554) (1,364,802)
---------- ---------
Effect of exchange rate changes on
cash and cash equivalents (126,781) --
---------- ---------
Net increase in cash and
cash equivalents 6,187,301 5,801,082
Cash and cash equivalents at
beginning of year 6,356,856 15,850
---------- ---------
Cash and cash equivalents
at September 30 $12,544,157 5,816,932
========== =========
</TABLE>
See accompanying notes to unaudited financial statements.
<PAGE>
STATEMENTS OF CASH FLOWS (unaudited) (continued)
-----------------------------------------------
<TABLE>
<CAPTION>
For the Nine Months
Ended September 30,
---------------------------
2000 1999
--------- ---------
<S> <C> <C>
Reconciliation of net (loss)
income to net cash used by
operating activities:
Net (loss) income $ (6,957,935) 6,531,566
Adjustments to reconcile net (loss)
income to net cash used by
operating activities:
Net realized gain from sales of
equity investments (17,945,882) (6,176,864)
Realized losses from investment
write-downs -- 2,615
Realized gain from venture
capital limited partnership
investments (1,037,585) (288,230)
Change in net unrealized fair
value:
Equity investments 21,145,706 (1,052,025)
Notes receivable 5,446,529 --
Net realized loss on foreign
currency transaction 126,781 --
Changes in:
Accrued interest on notes receivable (1,387,737) (21,273)
Due to/from related parties 60,379 (634,607)
Other (14,266) 55,350
---------- ---------
Net cash used by operating activities $ (564,010) (1,583,468)
========== =========
</TABLE>
See accompanying notes to unaudited financial statements.
<PAGE>
NOTES TO FINANCIAL STATEMENTS (unaudited)
----------------------------------------
1. General
-------
Interim Financial Statements
----------------------------
In the opinion of the Managing General Partners, the accompanying interim
financial statements reflect all adjustments necessary for the 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, 1999. 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.
Valuation of Investments
------------------------
Investments are valued at fair value as required by the Investment Company
Act of 1940.
Under the direction and control of the Independent General Partners, the
Managing General Partners are delegated the authority to establish
valuation procedures and periodically apply such procedures to the
Partnership's venture capital investment portfolio. In fulfilling this
responsibility, the Managing General Partners periodically update and
revise the valuation procedures used to determine fair value in order to
reflect new events, changing market conditions, more experience with
investee companies, or additional information, any of which may require the
revision of previous estimating procedures. The valuation procedures were
revised and updated by the Managing General Partners in the quarter ended
June 30, 2000. A change in fair value of $24,340,376 was recognized during
the quarter ended June 30, 2000 to reflect the revisions to the valuation
methodology and is included in the "Change in net unrealized fair value" on
the Statement of Operations.
The fair value of investments in publicly traded securities is considered
to be the amount which the Partnership may reasonably expect to receive if
the investments were sold on the valuation date. Unrestricted securities
are valued at the five-day average closing sales price or bid/ask price
that is available on a national securities exchange or over-the-counter
market. Valuation discounts of 5% to 50% are applied to securities subject
to resale restrictions resulting from Rule 144, contractual lock-ups such
as those commonly associated with underwriting agreements, or knowledge of
material non-public information and also to unrestricted securities when
the number of shares held by the Partnership and its affiliates is
substantial in relation to the average trading volume.
The fair value of all other investments is determined in good faith by the
Managing General Partners under the delegated authority of the Independent
General Partners after consideration of available, relevant information.
There is no ready market for the Partnership's investments in private
companies or unregistered securities of public companies. Fair value is
generally defined as the amount the Partnership could reasonably expect to
receive for an investment in an orderly disposition on a current sale.
Other significant factors considered in the estimation of fair value
include the inherent illiquidity of and lack of marketability associated
with venture capital investments in private companies or unregistered
securities, the investee company's enterprise value established in the last
round of venture financing, changes in market conditions since the last
round of venture financing or since the last reporting period, the value of
a minority interest in the investee company, contractual restrictions on
resale typical of venture financing instruments, the investee company's
financial position and ability to obtain any necessary additional
financing, the investee company's performance as compared to its business
plan, and the investee company's progress towards initial public offering.
The values determined for the Partnership's investments in these securities
are based upon available information at the time the good faith valuations
are made and do not necessarily represent the amount which might ultimately
be realized which could be higher or lower than the reported fair value.
At September 30, 2000 and December 31, 1999, the investment portfolio
included investments totaling $12,763,409 and $26,910,090, respectively,
whose fair values were established in good faith by the Managing General
Partners in the absence of readily ascertainable market values. In
addition, investments in publicly traded securities which have been
subjected to a discount for legal, contractual or practical restrictions as
determined by the Managing General Partners amounted to $3,676,879 and
$3,649,757 at September 30, 2000 and December 31, 1999, respectively.
Because of the inherent uncertainty in the valuation, the values may differ
significantly from the values that would have been used had a ready market
for the securities existed, and the differences could be material.
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, 2000 and 1999, were as follows:
<TABLE>
<CAPTION>
2000 1999
-------- --------
<S> <C> <C>
Management fees $185,916 206,470
Reimbursable operating expenses 948,536 576,240
Individual General Partners' compensation 27,910 25,874
Expenses absorbed by General Partners (552,809) (88,226)
</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 was $67,331 due to related parties for
such reimbursable expenses at September 30, 2000, compared to $71,170 due
from related parties at December 31, 1999.
Amounts payable for management fees were $20,657 and $26,283 at September
30, 2000, and December 31, 1999, respectively. Management fees are 1% per
annum of adjusted capital contributions.
At December 31, 1999, the Partnership had a payable of $72,496 for
investment sales proceeds due to an affiliated partnership. These monies
were paid in the first quarter of 2000. There were no amounts due to
affiliated partnerships at September 30, 2000.
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 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, 2000, operating expenses absorbed
by the Managing General Partners totaled $552,809. In the corresponding
period in 1999, operating expenses absorbed totaled $88,226.
Officers of the Managing General Partners occasionally receive stock
options as compensation for serving on the Boards of Directors of portfolio
companies. It is the Managing General Partners' policy that all such
compensation be transferred to the investing partnerships. If the options
are non-transferable, they are not recorded as an asset of the Partnership.
Any profit from the exercise of such options will be transferred if and
when the options are exercised and the underlying stock is sold by the
officers. Any such profit is allocated amongst the Partnership and
affiliated partnerships based upon their proportionate investments in the
portfolio company. At September 30, 2000, the Partnership and affiliated
partnerships had an indirect interest in non-transferable Endocare, Inc.
and Physiometrix, Inc. options with a fair value of $252,149.
<PAGE>
3. Equity Investments
------------------
<TABLE>
At September 30, 2000, equity investments consisted of:
<CAPTION>
September 30, 2000
Principal ------------------
Amount or
Industry (1)/ Investment Shares as of Cost Fair
Company Position Date September 30, 2000 Basis Value
---------------- -------- ---------- ------------------ ----- -----
<S> <C> <C> <C> <C> <C>
Biomedical--0.7%
----------------
Axys
Pharmaceuticals,Common
Inc. shares 1995 37,855 $ 500,000 244,884
ConjuChem Inc. Preferred
(a) share warrants aggregate
at exercise purchase
price TBD; price
expiring 2001 1996 $29,689 0 0
---------- ----------
500,000 244,884
---------- ----------
Biotechnology--7.7%
-------------------
CV Therapeutics, Common
Inc. shares 2000 1,200 24,007 89,737
Molecular
Geriatrics Common
Corporation (a) shares 1993 47,170 250,000 33,019
Prolinx, Inc.(a) Preferred 1995-
shares 2000 1,888,287 2,514,022 2,265,945
Prolinx, Inc. Common and
(a) Preferred share
warrants at
$.0001-$.05; 1998-
expiring 2004 1999 TBD 247,949 201,595
---------- ----------
3,035,978 2,590,296
---------- ----------
Communications--2.3%
--------------------
Efficient Common
Networks, Inc. shares 2000 1,901 315,257 69,577
eoSports, Preferred
Incorporated(a) shares 2000 652,000 652,000 163,000
Illuminet Common
Holdings, Inc. shares 2000 3,591 178,667 99,112
Positive
Communications, Preferred
Inc.(a) shares 1999 200,801 253,008 37,951
Positive
Communications, Common
Inc.(a) shares 1999 303,599 1,076,011 57,380
Positive Common share
Communications, warrants at
Inc.(a) $.50; expiring
2001 1996 9,246 10 1,054
SpectraSite Common
Holdings, Inc. shares 2000 2,356 51,017 39,964
Women.com Common 1996-
Networks, Inc. shares 1999 204,384 499,457 311,603
---------- ----------
3,025,427 779,641
---------- ----------
Computer Systems and Software--1.4%
-----------------------------------
Ascent Logic Preferred
Corporation(a) shares 1992 425,532 396,000 14,894
Ascent Logic Common
Corporation(a) shares 1997 36,443 23,795 1,276
AudioBasket.com, Preferred
Inc. (a) shares 2000 632,912 1,000,000 400,000
Lynk Systems, Common
Inc.(a) shares 1998 105,000 38,500 47,250
---------- ----------
1,458,295 463,420
---------- ----------
Environmental--0.1%
-------------------
Triangle
Biomedical
Sciences, Common
Inc.(a) shares 1999 1,806 35,560 20,227
Triangle Common
Biomedical share warrants
Sciences, at $28.00;
Inc.(a) expiring 2009 1999 1,806 1,806 723
---------- ----------
37,366 20,950
---------- ----------
Industrial/Business Automation--1.8%
------------------------------------
Portable Energy
Products, Inc. Preferred 1995-
(a) (b) shares 2000 7,269,056 2,678,636 581,524
Portable Energy Common and
Products, Inc. Preferred share
(a) (b) warrants at
$.06-$1.00;
expiring 1996-
2001-2004 1999 1,139,118 4,186 23,906
PRI Automation, Common
Inc. shares 1999 10 451 190
---------- ----------
2,683,273 605,620
---------- ----------
Information Technology--1.7%
----------------------------
WorldRes, Inc. Preferred 1997-
(a) (b) shares 1999 117,127 819,652 544,411
WorldRes, Inc. Preferred
(a) (b) share warrants
at $3.70-$4.63;
expiring 1997-
2002-2003 1998 6,479 62 18,210
---------- ----------
819,714 562,621
---------- ----------
Medical--36.2%
--------------
Acusphere, Inc. Preferred 1995-
(a) shares 1997 377,531 762,499 1,075,963
ADESSO Specialty
Services
Organization Preferred 1995-
Inc.(a) (b) shares 2000 808,543 2,024,445 3,395,880
ADESSO Specialty Preferred
Services share warrant
Organization at $1.00;
Inc.(a)(b) expiring 2001 1996 68,704 0 271,381
Atherotech, Preferred
Inc.(a)(b) shares 2000 587,500 1,175,000 587,500
Biex, Inc. Preferred 1993-
(a) (b) shares 2000 650,187 693,770 138,753
Biex, Inc. Preferred
(a) (b) share warrant
at $0.01;
expiring
2005 2000 10,642 15 3
Endocare, Inc. Common 1996-
(b) shares 1999 49,764 163,874 463,751
Intella
Interventional Common
Systems, Inc. shares 1993 584 0 0
Periodontix, Preferred 1993-
Inc.(a) shares 1999 339,253 556,001 152,664
Periodontix, Common share
Inc.(a) warrants
at $2.25;
expiring 1999-
2004-2006 2000 24,667 0 0
Periodontix, Convertible 1999-
Inc.(a) notes (2) 2000 $273,000 295,047 59,012
Pharmadigm, Preferred 1993-
Inc.(a) shares 1998 733,815 1,079,396 293,526
Pharmadigm, Preferred
Inc.(a) share warrants
at $2.00-$2.50;
expiring 2000- 1995-
2001 1996 21,083 0 0
Pherin
Pharmaceuticals,Preferred
Inc.(a) shares 1991 200,000 200,000 371,000
Physiometrix, Common 1996-
Inc. shares 2000 139,769 285,023 2,868,060
R2 Technology, Preferred 1994-
Inc.(a) shares 1996 468,541 537,080 342,891
R2 Technology, Preferred
Inc.(a) share warrant
at $2.00;
expiring 2000 1995 9,667 0 2,929
Resolution
Sciences Preferred
Corporation (a) shares 2000 485,000 970,000 388,000
Sanarus Medical, Preferred
Inc.(a)(b) shares 1999 260,000 390,000 156,000
Simione Central
Holdings, Inc. Common
(a) shares 1999 13,715 206,718 33,465
Valentis, Inc. Common 1994-
shares 1995 196,274 762,234 1,607,092
---------- ----------
10,101,102 12,207,870
---------- ----------
Microelectronics--5.1%
----------------------
Tessera, Inc.(a) Preferred
shares 1992 666,666 500,000 1,666,665
Tessera, Inc.(a) Common
shares 1997 72,754 56,500 36,377
---------- ----------
556,500 1,703,042
---------- ----------
Retail/Consumer Products--0.0%
------------------------------
YES!
Entertainment Common
Corporation shares 1995 55,555 0 0
--------- ----------
0 0
--------- ----------
Venture Capital Limited Partnership Investments--5.8%
-----------------------------------------------------
CVM Equity Ltd.
Fund IV, Ltd(a) Partnership
interests various $150,000 76,436 58,806
El Dorado Ltd.
Ventures III, Partnership
L.P. (a) interests various $250,000 212,460 864,250
O,W&W Pacrim Ltd.
Investments Partnership
Limited (a) interests various 400 1,000 263,115
Spectrum Equity Ltd.
Investors, Partnership
L.P.(a) interests various $478,025 376,107 690,973
Trinity Ventures Ltd.
IV, L.P.(a) Partnership
interests various $175,006 47,814 67,163
---------- ----------
713,817 1,944,307
---------- ----------
Total equity investments--62.8% $22,931,472 21,122,651
========== ==========
Legend and footnotes:
-- No investment held at end of period.
0 Investment active with a carrying value or fair value of zero.
(a) Equity security acquired in a private placement transaction; resale may be subject to certain
selling restrictions.
(b) Portfolio company is an affiliate of the Partnership; resale may be subject to certain selling
restrictions.
(1) Represents the total fair value of a particular industry segment as a percentage of partners'
capital at 09/30/00.
(2) The Partnership has no income-producing equity investments except for convertible notes which
include accrued interest. Interest rates on such notes range from 8% to 12%.
</TABLE>
All investments are valued at fair value as determined in good faith by the
Managing General Partners. See Note 1--Valuation of Investments.
Significant purchases and sales of investments during the nine months ended
September 30, 2000 are as follows:
Acusphere, Inc.
---------------
In April 2000, the company completed a new round of financing at a higher
valuation. The Partnership did not participate in this round.
ADESSO Specialty Services Organization, Inc.
--------------------------------------------
In March 2000, the Partnership purchased 11,217 Series E Preferred shares
for $188,446.
Atherotech, Inc.
----------------
In August 2000, the Partnership purchased 587,500 Series B Preferred shares
for $1,175,000.
AudioBasket.com, Inc.
---------------------
In June 2000, the Partnership purchased 632,912 Series B Preferred shares
for $1,000,000.
CV Therapeutics, Inc.
---------------------
In January 2000, the Partnership sold 16,204 common shares in the company
for proceeds of $437,508 and realized a gain of $114,708.
In September 2000, the Partnership net exercised a common share warrant for
3,200 shares at $20.00 each and received 2,194 common shares with a cost
basis of $43,887. The Partnership realized a gain of $43,887 on the
warrant exercise.
In September 2000, the Partnership sold 994 common shares for proceeds of
$79,517 and realized a gain of $59,637.
In October 2000, the Partnership sold the remaining 1,200 common shares for
proceeds of $95,997 and realized a gain of $71,990.
Efficient Networks, Inc.
------------------------
In February, 2000, the Partnership sold 951 common shares in the company
for proceeds of $109,365 and realized a gain of $34,111.
eoSports, Incorporated
----------------------
In March 2000, the Partnership purchased 652,000 Series A Preferred shares
in the company for $652,000.
Oxford GlycoSciences Plc
------------------------
During the first quarter of 2000, the Partnership sold its entire
investment in the company for proceeds of $8,108,374 and realized a gain of
$7,108,447.
Periodontix, Inc.
-----------------
In July 2000, the Partnership funded a convertible note to the company in
the amount of $100,000, with an interest rate of 8% and a maturity date of
July 26, 2001.
Pharmadigm, Inc.
----------------
In March 2000, the company completed a new round of financing at a lower
valuation. The Partnership did not participate in this round.
Pharmos Corporation
-------------------
In January 2000, the Partnership sold its entire investment in the company
for proceeds of $191,382 and realized a gain of $146,134.
Physiometrix, Inc.
------------------
In March 2000, the Partnership net exercised a common share warrant for
13,525 shares at $6.60 each and received 8,748 common shares with a cost
basis of $57,858. The Partnership realized a gain of $57,679 on the
warrant exercise.
In July 2000, the Partnership sold 156,000 common shares in the company for
proceeds of $4,172,861 and realized a gain of $3,731,468.
In July 2000, an officer of the Managing General Partners exercised options
for 1,875 common shares which were immediately sold. (See Note 2.) The
Partnership's proportionate share of the realized gain was $11,863.
Pilot Network Services, Inc.
----------------------------
During the first quarter of 2000, the Partnership sold its entire
investment in the company for proceeds of $5,324,389 and realized a gain of
$5,039,836.
Prolinx, Inc.
-------------
In June 2000, the Partnership purchased 86,378 Series E Preferred shares
for $259,134.
Portable Energy Products, Inc.
------------------------------
In May 2000, the company converted a line of credit extended by the
Partnership totaling $261,298, including principal and interest, into
1,306,445 Series C Preferred shares. In addition, the Partnership
purchased 1,250,000 Series C Preferred shares for $250,000.
In August 2000, the company converted unsecured notes funded by the
Partnership totaling $194,818, including principal and interest, into
974,089 Series C Preferred shares.
Resolution Sciences Corporation
-------------------------------
In February 2000, the Partnership purchased 485,000 Series C Preferred
shares for $970,000.
Simione Central Holdings, Inc.
------------------------------
In March 2000, the company's shareholders approved a one-for-five reverse
stock split in order to meet requirements to maintain the company's listing
on the Nasdaq National Market.
Valentis, Inc.
--------------
In March 2000, the Partnership sold 105,000 common shares in the company
for proceeds of $2,013,434 and realized a gain of $1,605,667.
Venture Capital Limited Partnerships
------------------------------------
The Partnership received cash distributions totaling $517,544 from El
Dorado Ventures III, L.P., Colorado Venture Management IV, O,W&W Pacrim
Investments Limited and Spectrum Equity Investors, $24,900 of which were
recorded as returns of capital and the remaining recorded as realized
gains. The Partnership received stock distributions of Efficient Networks,
Inc., Illuminet Holdings, Inc. and SpectraSite Holdings, Inc. with fair
values totaling $544,941. These distributions were recorded as realized
gains. The Partnership recorded a $748,006 increase in fair value as a
result of a net increase in the fair value of the underlying investments of
the partnerships.
Marketable Equity Securities
----------------------------
At September 30, 2000, marketable equity securities had aggregate costs of
$2,616,113 and aggregate market values of $5,330,219. The net unrealized
gain at September 30, 2000 included gross gains of $3,507,340.
4. Notes Receivable
----------------
Activity from January 1 through September 30 consisted of:
<TABLE>
<CAPTION>
2000 1999
-------- --------
<S> <C> <C>
Balance at January 1 $2,569,534 --
Notes receivable issued 3,250,000 211,763
Repayments of notes receivable (1,110,465) --
Notes and interest converted to
equity investments (456,116) (36,763)
Change in interest receivable 1,374,219 6,197
Change in allowance for loan losses (5,446,529) --
--------- -------
Total notes receivable, net
at September 30 $ 180,643 181,197
========= =======
The interest rate on notes receivable at September 30, 2000 ranged from 16%
to 50%. All notes are due on demand.
During 2000, the Partnership issued notes receivable totaling $3,000,000 to
a portfolio company in the computer equipment industry in addition to the
notes receivable totaling $2,000,000 issued to the same company in the
fourth quarter of 1999. In the second quarter of 2000, the company repaid
$1,000,000 of this amount. Interest income on these notes for the nine
months ended September 30, 2000 totals $1,354,861 and interest receivable,
which is due on demand, totals $1,446,529 at September 30, 2000. In
determining fair value as of September 30, 2000, the Managing General
Partners gave consideration to deterioration in the company's performance
during the quarter ended September 30, 2000 as a result of business,
technical, financing and legal challenges, the company's financial position
at September 30, 2000 and its ability to obtain critical additional
financing, and, as a result, recorded a $5,446,529 decrease in the fair
value of notes and interest receivable. The company is actively exploring
opportunities for additional financing and should they ultimately be
successful, the impact on the Partnership's fair value would likely be
positive. Because of the inherent uncertainties involved in predicting the
outcome of the company's ability to obtain additional financing, the
estimated fair value at September 30, 2000 may differ significantly from a
value that would have been used had the outcome of the company's efforts
been known, and the difference could be material.
5. Cash and Cash Equivalents
-------------------------
Cash and cash equivalents at September 30, 2000, and December 31, 1999
consisted of:
</TABLE>
<TABLE>
2000 1999
-------- ------
<S> <C> <C>
Demand accounts $ 85,599 3,419,708
Money-market accounts 12,458,558 2,937,148
---------- ---------
Total $12,544,157 6,356,856
========== =========
</TABLE>
6. Distributions
-------------
In the quarter ended June 30, 2000, a tax distribution totaling $1,935,574
was declared and paid to the General Partners.
7. 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, 2000 the Partnership had the following
unfunded commitments:
<TABLE>
<CAPTION>
TYPE
----
<S> <C>
Equity investments $ 68,704
Equipment lease guarantees 737,000
Venture capital limited partnership investments 21,975
-------
Total $827,679
=======
</TABLE>
8. Subsequent Events
-----------------
On November 8, 2000, a proxy statement and ballot were mailed to the
Limited Partners of record on the close of business October 31, 2000 along
with a notice of the tri-annual meeting of Limited Partners to be held on
December 8, 2000. Items to be voted upon include the following:
(1) The election of three Individual General Partners to serve each for a
three-year term;
(2) The election of two Managing General Partners to serve each for a
three-year term;
(3) Ratification of the Individual General Partners' appointment of Arthur
Andersen LLP as independent certified public accountants of the
Partnership;
(4) The amendment of Article 2, Section (n) of the Partnership Agreement
to delete references to "Controlling Person" in the definition of
"General Partner Overhead" so that the salary and fringe benefits of a
Controlling Person of a Managing General Partner directly involved in
carrying out the business of the Partnership are expenses of the
Partnership;
(5) The amendment of Article 4.01(c) of the Partnership Agreement to
remove the limit on reimbursement of operational costs to the
Managing General Partners or their affiliates;
(6) The amendment of Article 1.03 of the Partnership Agreement to clarify
the Partnership's investment objective;
(7) The amendment of Article 5.04 of the Partnership Agreement to clarify
the Limited Partners' right to vote under the Investment Company Act
of 1940, as amended (the "Act");
(8) Such other matters as may properly come before the Meeting or any
adjournment thereof.
If approved, the changes proposed in Items 4 and 5 would become effective
as of January 1, 2000 and would result in additional expense to the
Partnership of approximately $144,764 and $620,000, respectively, for the
year ending December 31, 2000.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Financial Condition, Liquidity and Capital Resources
----------------------------------------------------
The Partnership operates as a business development company under the
Investment Company Act of 1940 and makes venture capital investments in new
and developing companies. The Partnership's financial condition is
dependent upon on the success of the portfolio companies. There is no
ready market for many of the Partnership's investments. It is possible
that some of its venture capital investments may be a complete loss or may
be unprofitable and that others will appear likely to become successful,
but may never realize their potential. The valuation of the Partnership's
investments in securities for which there are no available market quotes is
subject to the estimate of the Managing General Partners in accordance with
the valuation guidance described in Note 1 to the financial statements. In
the absence of readily obtainable market values, the estimated fair value
of the Partnership's investments may differ significantly from the values
that would have been used had a ready market existed.
During the nine months ended September 30, 2000, net cash used by operating
activities totaled $564,010. The Partnership paid management fees of
$191,542 to the Managing General Partners and reimbursed related parties
for operating expenses of $257,226. The Partnership also paid investment
sales proceeds of $72,496 to an affiliated partnership. In addition,
$27,910 was paid to the Individual General Partners as compensation for
their services and other operating expenses of $370,857 were paid. Interest
income of $356,021 was received.
During the nine months ended September 30, 2000, the Partnership funded
equity investments of $4,609,956 primarily to portfolio companies in the
computer systems and software, communications and medical industries.
Proceeds from sales of equity investments provided cash of $20,458,593.
The Partnership funded $3,250,000 in notes receivable to portfolio
companies in the computer systems and software and industrial/business
automation industries. Repayments of notes receivable were $1,110,465.
The Partnership received cash distributions from venture capital limited
partnerships totaling $517,544. As of September 30, 2000, the
Partnership's unfunded commitments totaled $827,679 as discussed in Note 7
to the financial statements. Tax distributions totaling $7,348,554 were
paid to General and Limited Partners.
Cash and cash equivalents at September 30, 2000, were $12,544,157. 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 $7,397,160 and $666,535 for the quarters ended September
30, 2000 and 1999, respectively. The decrease was primarily due to a
$9,508,680 decrease in the change in net unrealized fair value of equity
investments and a $3,775,477 decrease in the change in net unrealized fair
value of notes receivable, partially offset by a $5,512,293 increase in net
realized gain from sales of equity investments, a $613,604 increase in
interest income and a $365,844 increase in net realized gain from venture
capital limited partnerships.
During the quarter ended September 30, 2000, the decrease in fair value of
equity investments of $8,425,592 was primarily due to decreases in
portfolio companies in the communications and medical industries along with
decreases in the venture capital limited partnership investments and a
decrease due to the sale of Physiometrix, Inc. common shares. During the
same period in 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 quarter ended September 30, 2000, the Partnership recorded a
decrease in the fair value of notes receivable of $3,775,477 which
primarily related to a decrease in a portfolio company in the computer
equipment, systems and software industry. There was no change in fair
value for the corresponding period in 1999.
For the quarter ended September 30, 2000, net realized gain from equity
investment sales of $3,847,202 primarily related to the sale of
Physiometrix, Inc. (See Note 3.). During the same period in 1999, net
realized loss from equity investment sales of $1,665,091 primarily related
to the sales of the Partnership's investments in Avalon Imaging, Inc., CV
Therapeutics, Inc. and Naiad Technology, Inc.
For the quarter ended September 30, 2000, interest income of $680,655 was
primarily the result of interest earned on secured notes receivable and
higher cash balances. During the same period in 1999, interest income was
$67,051.
Net realized gain from venture capital limited partnerships totaled
$501,583 and $135,739 in the quarters ended September 30, 2000 and 1999,
respectively. The gain represented distributions from profits of venture
capital limited partnerships.
Total operating expenses were $157,457 and $210,815 for the quarters ended
September 30, 2000 and 1999, respectively. As explained in Note 2 to the
financial statements, the Managing General Partners absorbed $246,410 and
$88,226 for the quarters ended September 30, 2000 and 1999, respectively.
Had the limitation not been in effect, operating expenses would have been
$403,867 and $299,041 during the quarters ended September 30, 2000 and
1999, respectively. In the second quarter of 2000, the Managing General
Partners billed the Partnership an additional $196,035 for investment
management expenses incurred by the General Partners in 1998 and 1999, but
not previously billed to the Partnership. If these expenses had been
billed in prior years and had the expense limitation not been in effect,
operating expenses for the quarter ended September 30, 2000 and 1999 would
have been $403,867 and $317,130, respectively. The increase is primarily
attributable to increased investment monitoring activity.
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 $6,957,935 for the nine months ended September 30, 2000, as
compared to net income of $6,531,566 for the nine months ended September
30, 1999. The decrease was primarily due to a $22,197,731 decrease in the
change in net unrealized fair value of equity investments and a $5,446,529
decrease in the change in net unrealized fair value of notes receivable,
partially offset by a $11,769,018 increase in net realized gain from sales
of equity investments, a $1,619,461 increase in interest income and a
$749,355 increase in net realized gain from venture capital limited
partnerships.
During the nine months ended September 30, 2000, the decrease in fair value
of equity investments of $21,145,706 was primarily due to decrease in fair
value of equity investments of $22,669,324 as discussed in Note 1 to the
financial statements. In addition, there were decreases in portfolio
companies in the communications industry and a decrease due to the sale of
Pilot Network Services, Inc. (Pilot) and Physiometrix, Inc. common shares,
partially offset by increases in the biotechnology and medical industries
along with increases in the venture capital limited partnership
investments. During the same period in 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 nine months ended September 30, 2000, the Partnership recorded a
decrease in the fair value of notes receivable of $5,446,529, of which
$1,671,052 related to the change in valuation methodology discussed in Note
1 to the financial statements and the remainder primarily related to a
decrease in a portfolio company in the computer equipment, systems and
software industry. There was no change in fair value for the same period
in 1999.
For the nine months ended September 30, 2000, realized gains from sales of
equity investments of $17,945,882 primarily related to sales of shares in
Pilot, Oxford GlycoSciences Plc, Physiometrix, Inc. and Valentis, Inc.
(See Note 3.) During the same period in 1999, realized gains from sales of
equity investments of $6,176,864 were 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 Imaging,
Inc., CV Therapeutics, Inc., CareCentric Solutions, Inc. and Naiad
Technologies, Inc.
For the nine months ended September 30, 2000, interest income of $1,743,758
was primarily the result of interest earned on secured notes receivable and
higher cash balances. During the same period in 1999, interest income was
$124,297.
During the nine months ended September 30, 2000, the Partnership recorded
net realized gains from venture capital limited partnership investments of
$1,037,585. During the same period in 1999, there were gains of $288,230.
The gains represented distributions from profits of venture capital limited
partnerships.
Total operating expenses were $752,318 and $874,891 for the nine months
ended September 30, 2000 and 1999, respectively. As explained in Note 2 to
the financial statements, the Managing General Partners absorbed $552,809
and $88,226 for the nine months ended September 30, 2000 and 1999,
respectively. Had the limitation not been in effect, operating expenses
would have been $1,305,127 and $963,117 during the nine months ended
September 30, 2000 and 1999, respectively. In the second quarter of 2000,
the Managing General Partners billed the Partnership an additional $196,035
for investment management expenses incurred by the General Partners in 1998
and 1999, but not previously billed to the Partnership. If these expenses
had been billed in prior years and had the expense limitation not been in
effect, operating expenses for the nine months ended September 30, 2000 and
1999 would have been $1,109,092 and $1,034,653, respectively. The increase
is primarily attributable to increased investment monitoring activity and
the related administrative costs.
II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) A Form 8-K was filed by the Partnership on September 12, 2000 to
report the resignation of KPMG LLP as the Partnership's independent
accountants. A Form 8-K/A was filed by the Partnership on September
25, 2000 with KPMG LLP's letter in response to the Form 8-K.
A Form 8-K was filed by the Partnership on November 13, 2000 to
report the appointment of Arthur Andersen LLP as the Partnership's
independent public accountants.
(b) Financial Data Schedule for the nine months ended and as of
September 30, 2000 (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.
TECHNOLOGY FUNDING LTD.
Managing General Partners
Date: November 14, 2000 By: /s/Charles R. Kokesh
-----------------------------------
Charles R. Kokesh
President, Chief Executive
Officer, Chief Financial
Officer and Chairman of
Technology Funding Inc. and
Managing General Partner of
Technology Funding Limited
