Item 1. BUSINESS - ------ --------
Technology Funding Venture Partners V, An Aggressive Growth Fund, L.P. (the "Partnership") is a limited partnership organized under the laws of the State of Delaware in June 1989 and was inactive until it commenced the sale of Units in May 1990. The purpose of the Partnership is to make venture capital investments in emerging growth companies as described in the "Introductory Statement" and "Business of the Partnership" sections of the Prospectus dated January 22, 1992. The Partnership has elected to be a business development company under the Investment Company Act of 1940, as amended (the "Act"), and operates as a nondiversified investment company as that term is defined in the Act. Additional characteristics of the Partnership's business are discussed in the "Risk Factors" and "Conflicts of Interest" sections of the Prospectus, which sections are also incorporated herein by reference. The Partnership's Amended and Restated Limited Partnership Agreement ("Partnership Agreement") provides that the Partnership will continue until December 31, 1998, subject to the right of the individual general partners to extend the term for up to two additional two-year periods.
Item 2.
Item 2. PROPERTIES - ------ ----------
The Registrant has no material physical properties.
Item 3.
Item 3. LEGAL PROCEEDINGS - ------ -----------------
There are no material pending legal proceedings to which the Registrant is party or of which any of its property is the subject, other than ordinary routine litigation incidental to the business of the Partnership.
Item 4.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS - ------ ---------------------------------------------------
The Annual Meeting of the Limited Partners of the Partnership was held on September 9, 1994 pursuant to a Notice of Meeting dated July 11, 1994. At that meeting, proxies submitted by Limited Partners documented that the Limited Partners elected three individual general partners, elected the two Managing General Partners, and ratified the selection of KPMG Peat Marwick LLP as independent certified public accountants for the fiscal year ended December 31, 1994. In addition, proxies submitted by Limited Partners documented that a majority vote was not received to pass a proposed amendment to the Partnership Agreement to add a new Section 14.10 which provides that the individual general partners shall be required to call a meeting only once every three years of Limited Partners if the only purpose of the meeting is to seek Limited Partner consent of existing Managing General Partners and the approval of existing independent certified public accountants for the partnership; there were 187,157 Units voted in favor, 12,419 Units voted against, and 26,374 Units abstained.
PART II
Item 5.
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER - ------ ------------------------------------------------------------- MATTERS -------
(a) There is no established public trading market for the Units.
(b) At December 31, 1994, there were 6,553 record holders of Units.
(c) The Registrant, being a partnership, does not pay dividends. Cash distributions, however, may be made to the partners pursuant to the Registrant's Partnership Agreement.
Item 6.
Item 6. SELECTED FINANCIAL DATA - ------ -----------------------
Refer to the financial statement notes entitled "Summary of Significant Accounting Policies" and "Allocation of Profits and Losses" for a description of the method of calculation of net realized income (loss) per Unit.
Item 7.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL - ------ -------------------------------------------------------- CONDITION AND RESULTS OF OPERATIONS -----------------------------------
Liquidity and Capital Resources - -------------------------------
During 1994, net cash used by operations totaled $743,381. The Partnership paid management fees of $795,579 to the Managing General Partners and reimbursed related parties for operating expenses of $574,227. In addition, $30,000 was paid to the individual general partners as compensation for their services. Other operating expenses of $246,871 were paid. The Partnership received $903,296 in interest income.
In 1994, the Partnership issued $128,812 in secured notes receivable mostly to a portfolio company in the medical industry. Equity investments of $8,513,620 were funded primarily to portfolio companies in the medical, biotechnology, computer systems and software, and communications industries. Repayments of secured and convertible notes receivable during 1994 provided cash of $1,247,037. Proceeds from the sale of investments were $3,287,569. The Partnership also received $35,451 in cash distributions from venture capital limited partnerships. At December 31, 1994, the Partnership had commitments to fund additional investments totaling $898,895.
During 1994, UroMed Corporation and TheraTx, Incorporated completed their initial public offerings (IPOs). The IPO's indicate liquidity for these investments.
Cash and cash equivalents at December 31, 1994 were $11,371,533. Future interest income on short-term investments and notes receivable, and operating cash reserves are expected to be adequate to fund Partnership operations through the next twelve months.
Results of Operations - ---------------------
1994 compared to 1993 - ---------------------
Net income was $1,221,882 and $1,261,084 in 1994 and 1993, respectively. The slight decrease was primarily due to a $2,248,075 decrease in the change in fair value of equity investments, a $399,000 decrease in the change in fair value of secured notes receivable, and a $353,238 increase in realized losses from investment write-downs. These changes were partially offset by a $3,144,165 increase in net realized gain from the sale of equity investments.
During 1994, the decrease in fair value of equity investments of $314,082 was primarily due to decreases in portfolio companies in the biomedical, retail/consumer products and communications industries, partially offset by increases in portfolio companies in the medical industry. In 1993, the increase of $1,933,993 was primarily due to increases in portfolio companies in the medical and communications industries, partially offset by decreases in the retail/consumer products industry.
During 1994, the Partnership recorded a decrease in fair value of secured notes receivable of $443,000 based upon the level of loan loss reserves deemed adequate by the Managing General Partners. A $44,000 decrease was recorded for 1993.
During 1994, the Partnership realized losses from investment write-downs of $541,125 related to portfolio companies in the medical and environmental industries. During 1993, the Partnership realized losses of $187,887 related to a portfolio company in the biotechnology industry as the company sold its assets.
Realized gains from sale of equity investments was $3,209,979 for the year ended December 31, 1994, related to the sales of TheraTx, Incorporated, UroMed Corporation, Erox Corporation, and Orthologic Corporation. During 1993, realized gains of $65,814 mostly related to partial sales of Erox Corporation.
During 1994, total interest income was $943,311 compared to $1,130,936 in 1993. The decrease was primarily due to a reduction in notes receivable interest income as loans to a portfolio company in the environmental industry were placed on nonaccrual status.
Total operating expenses were $800,000 in both 1994 and 1993. Pursuant to the Partnership Agreement, the Partnership may not reimburse the General Partners for expenses that aggregate more than 2% of total limited partner contributions. As a result, operating expenses of $287,129 and $228,813 were absorbed by the General Partners in 1994 and 1993, respectively. Had the limitation not been in effect, total operating expenses in 1994 and 1993 would have been $1,087,129 and $1,028,813, respectively. The increase was primarily due to higher overall portfolio 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.
1993 compared to 1992 - ---------------------
Net income was $1,261,084 in 1993 compared to a net loss of $2,292,606 in 1992. The change was primarily due to a $2,344,691 decrease in management fees, a $636,957 increase in the change in net unrealized fair value of equity investments, a $395,906 increase in notes receivable interest income, and a $263,685 decrease in total operating expenses. These changes were partially offset by a $187,887 increase in realized losses from investment write- downs.
Management fees were $799,060 in 1993 compared to $3,143,751 in 1992. In 1992, as Limited Partners were admitted to the Partnership, a full first year fee was paid in this final year of Unit sales. Also contributing to the decrease was a change in the management fee rate from four percent of Adjusted Capital Contributions to two percent. Management fees are expected to be at this level until 1995 and will decrease thereafter as discussed in the financial statements note entitled "Related Party Transactions."
The change in fair value of equity investments reflected a net increase in the fair value of the Partnership's holdings. In 1993, the increase of $1,933,993 was primarily attributable to increases in portfolio companies in the medical and communications industries, partially offset by decreases in the retail/consumer products industry. In 1992, the increase of $1,297,036 was primarily due to portfolio companies in the medical and retail/consumer products industries.
Notes receivable interest income was $531,039 and $135,133 for the years ended December 31, 1993 and 1992, respectively. The increase was primarily due to higher average outstanding balances on interest-bearing notes in 1993 as more funds were being invested.
Total operating expenses were $800,000 in 1993 compared to $1,063,685 in 1992. The decrease is due to the Partnership recognizing all of the 1991 contingent liabilities totaling $263,685 in 1992 as new Units were sold. As previously disclosed, the Partnership may not reimburse the General Partners for expenses that aggregate more than 2% of total limited partner contributions. As a result, operating expenses of $228,813 and $187,161 were absorbed by the General Partners in 1993 and 1992, respectively.
During 1993, the Partnership realized losses from investment write-downs of $187,887 related to a portfolio company in the biotechnology industry as the company sold its assets and the Managing General Partners do not believe the Partnership will receive any value for its investment. No such losses were realized in the same period in 1992.
Realized gains from sale of equity investments were $65,814 for the year ended December 31, 1993, mostly related to sales of EROX Corporation. No such gains were recorded in 1992.
Item 8.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - ------ -------------------------------------------
The financial statements of the Registrant are set forth in Item 14.
Item 9.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON - ------ ------------------------------------------------ ACCOUNTING AND FINANCIAL DISCLOSURE -----------------------------------
Registrant has reported no disagreements with its accountants on matters of accounting principles or practices or financial statement disclosure.
PART III
Item 10.
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT - ------- --------------------------------------------------
As a partnership, the Registrant has no directors or executive officers. Subject to the supervision of the individual general partners, the Managing General Partners (Technology Funding Ltd., a California limited partnership ("TFL") and Technology Funding Inc., a California corporation ("TFI"), a wholly-owned subsidiary of TFL), are responsible for management of the Partnership, negotiation and structuring of financing arrangements, overseeing activities of the portfolio companies, and day-to-day administration of the Partnership affairs. Information concerning the ownership of TFL and the business experience of the key officers of TFI and the partners of TFL is incorporated by reference from the sections entitled "Management of the Partnership - The Managing General Partners" and "Management of the Partnership - Key Personnel of the Managing General Partners" in the Prospectus, which are incorporated herein by reference. Changes in this information that have occurred since the date of the Prospectus are included in the Technology Funding Medical Partners I, L.P. Prospectus, as modified by Cumulative Supplement No. 4 dated January 4, 1995, forming a part of the May 3, 1993, Pre-Effective Amendment No. 3 to the Form N-2 Registration Statement No. 33-54002 dated October 30, 1992 which is incorporated herein by reference.
Item 11.
Item 11. EXECUTIVE COMPENSATION - ------- ----------------------
As a partnership, the Registrant has no officers or directors. In 1994, the Partnership incurred $796,201 in management fees. The fees are designed to compensate the Managing General Partners for General Partner Overhead incurred in performing management duties for the Partnership through December 31, 1994. General Partner Overhead (as defined in the Partnership Agreement) includes rent, utilities, and certain salaries and benefits paid by the Managing General Partners. As compensation for their services, the individual general partners receive $6,000 annually plus $1,000 for each attended meeting of the individual general partners. For the year ended December 31, 1994, $30,000 of such fees were incurred.
Item 12.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND - ------- --------------------------------------------------- MANAGEMENT ----------
Not applicable. No Limited Partner beneficially holds more than 5% of the aggregate number of Units held by all Limited Partners, and neither the Managing General Partners nor any of their officers, directors or partners own any Units. Two of the three individual general partners each own 20 Units and the third owns 70 Units. The General Partners control the affairs of the Partnership pursuant to the Partnership Agreement.
Item 13.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS - ------- ----------------------------------------------
The Registrant has engaged in no transactions with the Managing General Partners or their officers and partners other than as described above, in the notes to the financial statements, or in the Prospectus.
PART IV
Item 14.
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON - ------- ------------------------------------------------------ FORM 8-K --------
(a) List of Documents filed as part of this Annual Report on Form 10-K
(1) Financial Statements - the following financial statements are filed as a part of this Report:
Independent Auditors' Report Balance Sheets as of December 31, 1994 and 1993 Statements of Operations for the years ended December 31, 1994, 1993 and 1992 Statements of Partners' Capital for the years ended December 31, 1994, 1993 and 1992 Statements of Cash Flows for the years ended December 31, 1994, 1993 and 1992 Notes to Financial Statements
(2) Financial Statement Schedules
All schedules have been omitted because they are not applicable or the required information is included in the financial statements or the notes thereto.
(3) Exhibits
Registrant's Amended and Restated Limited Partnership Agreement (incorporated by reference to Exhibit A to Registrant's Prospectus dated January 22, 1992 included in Registration Statement No. 33-31237 filed pursuant to Rule 424(b) of the General Rules and Regulations under the Securities Act of 1933).
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the Registrant during the year ended December 31, 1994.
(c) Financial Data Schedule for the year ended and as of December 31, 1994 (Exhibit 27).
INDEPENDENT AUDITORS' REPORT ----------------------------
The Partners Technology Funding Venture Partners V, An Aggressive Growth Fund, L.P.:
We have audited the accompanying balance sheets of Technology Funding Venture Partners V, An Aggressive Growth Fund, L.P. (a Delaware limited partnership) as of December 31, 1994 and 1993, and the related statements of operations, partners' capital, and cash flows for each of the years in the three-year period ended December 31, 1994. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of certain securities owned by correspondence with the individual investee companies and a physical examination of those securities held by a safeguarding agent as of December 31, 1994 and 1993. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Technology Funding Venture Partners V, An Aggressive Growth Fund, L.P. as of December 31, 1994 and 1993, and the results of its operations and its cash flows for each of the years in the three- year period ended December 31, 1994 in conformity with generally accepted accounting principles.
As explained in Notes 1, 5 and 6, the financial statements include investments of $20,420,915 and $15,180,488 (63% and 49% of partners' capital) as of December 31, 1994 and 1993, respectively, whose values, in certain circumstances, have been estimated by the Managing General Partners in the absence of readily ascertainable market values. We have reviewed the procedures used by the Managing General Partners in arriving at their estimate of value of such securities and have inspected underlying documentation, and, in the circumstances, we believe the procedures are reasonable and the documentation appropriate. However, because of the inherent uncertainty of valuation, those estimated values may differ significantly from the values that would have been used had a ready market for the investments existed, and the difference could be material.
San Francisco, California KPMG Peat Marwick LLP March 17, 1995
BALANCE SHEETS - --------------
See accompanying notes to financial statements.
STATEMENTS OF OPERATIONS - -----------------------
See accompanying notes to financial statements.
STATEMENTS OF PARTNERS' CAPITAL - -------------------------------
STATEMENTS OF CASH FLOWS - ------------------------
See accompanying notes to financial statements.
STATEMENTS OF CASH FLOWS (continued) - -----------------------------------
See accompanying notes to financial statements.
NOTES TO FINANCIAL STATEMENTS - -----------------------------
1. Summary of Significant Accounting Policies ------------------------------------------
Organization - ------------
Technology Funding Venture Partners V, An Aggressive Growth Fund, L.P. (the "Partnership") is a limited partnership organized under the laws of the State of Delaware in June 1989. The purpose of the Partnership is to make venture capital investments in emerging growth companies. The Partnership elected to be a business development company under the Investment Company Act of 1940, as amended (the "Act"), and operates as a nondiversified investment company as that term is defined in the Act. The Managing General Partners are Technology Funding Ltd. ("TFL") and Technology Funding Inc. ("TFI"), a wholly-owned subsidiary of TFL. There are also three individual general partners. A wholly-owned subsidiary of TFI, Technology Funding Securities Corporation ("TFSC"), was the dealer-manager for the offering.
The Partnership offering commenced in May 1990. On January 2, 1991, the minimum number of Units required to commence Partnership operations (15,000) had been sold. On December 31, 1992, the offering terminated with 400,000 Units sold. The Partnership Agreement provides that the Partnership will continue until December 31, 1998, unless further extended for up to two additional two-year periods from such date if the Managing General Partners so determine or unless sooner dissolved.
Cash and Cash Equivalents - -------------------------
Cash and cash equivalents are principally comprised of cash invested in demand accounts, money market instruments and commercial paper and are stated at cost plus accrued interest. The Partnership considers all money market and short-term investments with an original maturity of three months or less to be cash equivalents.
Syndication Fees - ----------------
Syndication fees, which consist of commissions and organizational and offering costs, are deducted from the partners' capital accounts. Pursuant to the Partnership Agreement, selling commissions are allocated solely to the Limited Partners. All other syndication fees are allocated 99% to the Limited Partners and 1% to the Managing General Partners. Syndication fees are not deductible for income tax purposes. Such fees may result in a reduction of any gain (or an increase in any loss) realized for tax purposes by the partners upon dissolution of the Partnership or a transfer of their interests.
Organizational Costs - --------------------
Organizational costs of $35,000 are amortized over 60 months, using the straight-line method.
Provision for Income Taxes - --------------------------
No provision for income taxes has been made by the Partnership, as the Partnership is not directly subject to taxation. The partners are to report their respective shares of Partnership income or loss on their individual tax returns.
The accompanying financial statements are prepared using generally accepted accounting principles which may not equate to tax accounting, however, the difference in the total book and tax cost basis as of December 31, 1994 is not material.
Net Realized Income (Loss) Per Unit - -----------------------------------
Net realized income (loss) per Unit is calculated by dividing the weighted average number of Units outstanding for the years ended December 31, 1994, 1993 and 1992 of 400,000, 400,000, and 219,481, respectively, into total net realized income (loss) allocated to the Limited Partners. The Managing General Partners contributed an amount equal to 0.1% of total limited partner capital contributions and did not receive any Partnership Units.
Investments: - -----------
The Partnership's method of accounting for investments, in accordance with generally accepted accounting principles, is the fair value basis used for investment companies. The fair value of Partnership investments is their initial cost basis with changes as noted below:
Equity Investments ------------------
The fair value for publicly-traded equity investments (marketable equity securities) is based upon the five day average closing sales price or bid/ask price that is available on a national securities exchange or over-the-counter market. Certain publicly-traded equity investments may not be marketable due to selling restrictions. For publicly-traded equity investments with selling restrictions, an illiquidity discount of 25% is applied when determining the fair value. Sales of equity investments are recorded on the trade date. The basis on which cost is determined in computing realized gains or losses is generally specific identification.
Other equity investments, which are not publicly traded, are generally valued utilizing pricing obtained from the most recent round of third-party financings. Valuation is estimated quarterly by the Managing General Partners. Included in equity investments are convertible or subordinated notes receivable as repayment of these notes may occur through conversion into equity investments.
Venture capital limited partnership investments are initially recorded at cost and reduced for distributions that are a return of capital. Distributions from limited partnership cumulative earnings are reflected as realized gains by the Partnership.
Equity and venture capital limited partnership investments with temporary changes in fair value result in increases or decreases to the unrealized fair value of equity investments. The cost basis does not change. In the case of an other than temporary decline in value below cost basis, an appropriate reduction in the cost basis is recognized as a realized loss with the fair value being adjusted to match the new cost basis. Adjustments to fair value basis are reflected as "Change in net unrealized fair value of equity investments." Cost basis adjustments are reflected as "Realized losses from investment write-downs" or "Net realized loss from venture capital limited partnership investments" on the Statements of Operations.
Secured Notes Receivable, net -----------------------------
The secured notes receivable portfolio includes accrued interest less the discount related to warrants and the allowance for loan losses. The portfolio approximates fair value through inclusion of an allowance for loan losses. Allowance for loan losses is reviewed quarterly by the Managing General Partners and is adjusted to a level deemed adequate to cover possible losses inherent in notes and unfunded commitments. Notes receivable are placed on nonaccrual status when, in the opinion of the Managing General Partners, the future collectibility of interest or principal is in doubt.
In conjunction with the secured notes granted to portfolio companies, the Partnership has received warrants to purchase certain shares of capital stock of the borrowing companies. The cost basis of the warrants and the resulting discount has been estimated by the Managing General Partners to be 1% of the principal balance of the original notes made to the borrowing companies. The discount is amortized to interest income on a straight-line basis over the term of the loan. Warrants received in conjunction with convertible notes are not assigned any additional costs. These warrants are included in the equity investment portfolio.
Nonrefundable fees received in connection with loan fundings are deferred and amortized to interest income over the contractual life of the loan using the effective interest method or the straight-line method if it is not materially different. Direct loan origination costs mainly consist of third-party costs and generally are reimbursed by portfolio companies.
2. Change in Net Unrealized Fair Value of Equity Investments ---------------------------------------------------------
In accordance with the accounting policy as stated in Note 1, the Statements of Operations include a line item entitled "Change in net unrealized fair value of equity investments." The table below discloses details of the changes:
3. Related Party Transactions --------------------------
Related party costs are included in costs and expenses shown on the Statements of Operations and Partners' Capital. For the years ended December 31, 1994, 1993 and 1992, related party costs were as follows:
Management fees are equal to six percent of the total limited partners' capital contributions for the first year of Partnership operations, four percent of Adjusted Capital Contributions (as defined in the Partnership Agreement) for the second year, two percent of Adjusted Capital Contributions for the third, fourth, and fifth years, and one percent of Adjusted Capital Contributions in the sixth and subsequent years. Management fees compensate the Managing General Partners solely for General Partner Overhead (as defined in the Partnership Agreement) incurred in supervising the operation and management of the Partnership and the Partnership's investments. Pursuant to the Partnership Agreement, a full first year fee was paid to the Managing General Partners as each additional Limited Partner was admitted to the Partnership, regardless of the date the Limited Partner was admitted. Such amounts due to related parties were $66,349 and $65,727 at December 31, 1994 and 1993, respectively.
The Partnership reimburses the Managing General Partners for organizational and offering expenses (up to five percent of the total limited partners' capital contributions) incurred in connection with organizing the Partnership and the offering of Units thereof. Such reimbursements have been reflected in the Statements of Partners' Capital as syndication fees except for $35,000 of organizational costs capitalized in 1991.
Also included in the syndication fees are commissions and fees paid to Technology Funding Securities Corporation, the dealer-manager. There were no such fees paid in 1994 and 1993. During the year ended December 31, 1992, the Partnership paid commissions and fees of $2,572,920, of which $2,403,903 was reallowed to participating broker-dealers.
As compensation for their services, the individual general partners each receive $6,000 annually plus $1,000 for each attended meeting of the Management Committee. In 1994, 1993 and 1992, $30,000, $28,000, and $29,000 of such fees were paid, respectively, and are included in the Statements of Operations. Two of the three individual general partners each own 20 Units and the third owns 70 Units.
The Partnership reimburses the Managing General Partners for operating expenses paid by the Managing General Partners incurred in connection with the business of the Partnership. Reimbursable operating expenses paid by the Managing General Partners include costs (other than Organizational and Offering Expenses and General Partner Overhead) such as administrative and investor services, investment operations, and computer services. Amounts due from related parties related to such expenses were $10,568 compared to $8,202 due to related parties at December 31, 1994 and 1993, respectively.
Pursuant to the Partnership Agreement, the Partnership may not pay or reimburse the Managing General Partners for operational costs that aggregate more than 2% of total limited partner capital contributions of the Partnership. In 1994, 1993 and 1992, the Managing General Partners absorbed Partnership operating costs of $287,129, $228,813, and $187,161 respectively, as a result of this 2% limitation.
Under the terms of a computer service agreement, the Partnership recognized charges from Technology Administrative Management, a division of TFL, for its share of computer support costs. These amounts are included in computer services expense.
4. Allocation of Profits and Losses --------------------------------
Net realized profits and losses of the Partnership are allocated based on the beginning of year partners' capital balances as follows:
(a) Profits:
(i) First, to those partners with deficit capital account balances until such deficits have been eliminated;
(ii) Second, to the partners as necessary to offset net loss and sales commissions previously allocated under (b)(ii) below; then
(iii)75% to the Limited Partners as a group in proportion to the number of Units, 5% to the Limited Partners in proportion to the Unit Months of each Limited Partner, and 20% to the Managing General Partners.
(b) Losses:
(i) First, to the partners as necessary to offset the net profits previously allocated to the partners under (a)(iii) above; then
(ii) 99% to the Limited Partners and 1% to the Managing General Partners.
Losses allocable to Limited Partners in excess of their capital account balances will be allocated to the Managing General Partners, with net profits thereafter otherwise allocable to those Limited Partners being allocated to the Managing General Partners to the extent of such losses. For allocation purposes, the Units held by the individual general partners will be treated as Units held by Limited Partners.
Interest income earned on funds held in escrow was allocated 100% to the Limited Partners. Income earned on short-term investments during the Offering Period was allocated monthly 99% to the Limited Partners and 1% to the Managing General Partners.
Losses from unaffiliated venture capital limited partnership investments are allocated pursuant to section (b) above. Gains are allocated first to offset previously allocated losses pursuant to (b)(i) above, and then 99% to the Limited Partners and 1% to the Managing General Partners.
5. Equity Investments ------------------
At December 31, 1994 and 1993, equity investments consisted of:
Marketable Equity Securities - ----------------------------
At December 31, 1994 and 1993, marketable equity securities had aggregate costs of $1,445,315 and $520,501, respectively, and aggregate market values of $2,910,791 and $1,058,146, respectively. The gross unrealized gains at December 31, 1994 and 1993 included gross gains of $2,012,329 and $537,645, respectively.
Ascent Logic Corporation - ------------------------
During the third quarter of 1994, the company had a new round of equity financing in which the Partnership did not participate. Based upon the Managing General Partners' opinion, the Partnership recorded a decrease of $253,564 in the fair value of its existing investments.
Avalon Imaging, Inc. - --------------------
In December 1994, the Partnership invested in Avalon Imaging, Inc. by purchasing 144,509 Redeemable Series A Preferred shares at a total cost of $250,001.
Biex, Inc. - ----------
In October 1994, the Partnership purchased 63,907 Series B Preferred shares at a total cost of $63,907. The purchase price consisted of $31,395 in cash and the conversion of a note issued in June 1994, including interest, of $32,512. The Partnership also received warrants to purchase 23,540 Series B Preferred shares at an exercise price of $1.00 per share. The pricing of the Series B financing in which other investors participated indicated an increase in fair value of $44,872 in the Partnership's existing investments.
Bolder Technologies Corporation - -------------------------------
In September 1994, the Partnership invested in Bolder Technologies Corporation by purchasing 250,000 Series C Preferred shares at $2.00 per share, or $500,000. Then, in October 1994, the Partnership purchased 50,001 Series B Preferred shares at $1.00 per share from another investor. The Series B Preferred shares are valued similar to the Series C Preferred shares.
Coded Communication Corporation - -------------------------------
The Partnership recorded a decrease in fair value of $705,669 to reflect the publicly-traded market price at December 31, 1994. CV Therapeutics, Inc. - ---------------------
In March 1994, the Partnership invested in CV Therapeutics, Inc. by purchasing 625,000 Series D Preferred shares at a total cost of $1,250,000.
EROX Corporation - ----------------
During the first quarter of 1994, the Partnership sold all of its holdings in the company for total proceeds of $193,437 and a realized gain of $83,437.
Everest & Jennings International Ltd./ Medical Composite Technology, - --------------------------------------------------------------------- Inc. - ----
In January 1994, Medical Composite Technology, Inc. ("MCT") was acquired by Everest & Jennings International Ltd. ("E & J"). The Partnership's Series C Preferred shares in MCT as well as convertible notes including accrued interest were exchanged for 592,717 shares of unrestricted E & J common stock while the warrants for the Series C Preferred shares were canceled. The Partnership recorded a decrease in fair value of $318,634 to reflect the market value at December 31, 1994.
Khepri Pharmaceuticals, Inc. - ----------------------------
In November 1994, the Partnership invested in Khepri Pharmaceuticals, Inc. by purchasing 333,333 Series C Preferred shares at a total cost of $500,000.
Megabios Corp. - --------------
In September and December 1994, the Partnership invested in Megabios Corp. by purchasing 753,187 Series C Preferred shares at a total cost of $975,001.
Oculon Corporation - ------------------
In late 1994, the company suspended its clinical trials due to unexpected negative test results on its lead compound. As a result of this outcome, the Managing General Partners have determined that there has been a decline in value of the Partnership's investment. Accordingly, the Partnership has written off its investment of $460,000 of which $350,000 was outstanding as of January 1, 1994.
OrthoLogic Corporation - ----------------------
In January 1994, the Partnership sold all its holdings in the company for total proceeds of $19,079 and a realized gain of $8,578.
Paradigm Biosciences, Inc. - --------------------------
In December 1994, the Partnership exercised its warrants to purchase 215,054 Series A Preferred shares. The total recorded cost basis and fair value of $270,667 included the cash exercise price of $266,667 at $1.24 per share and the warrant cost basis of $4,000.
PHERIN Corporation - ------------------
Based upon the Managing General Partners' assessment of a prior round of financing, the Partnership has valued the investment at cost resulting in a fair value decrease of $500,000.
Physiometrix, Incorporated - --------------------------
In January 1994, the company had a 1,000 to 1 reverse stock split followed by a conversion of the Partnership's existing preferred share holdings to 181 common shares. The Partnership purchased an additional 156 common shares from other investors at a nominal price. The Partnership's common warrants were written off due to a decline in value. In early 1994, the Partnership participated in an equity financing by purchasing 338,151 Series D Preferred shares at a total cost of $114,971.
In June 1994, the company had a Series E preferred round of equity financing in which the Partnership did not participate. The pricing of this round indicated a change in fair value increase of $1,579,912 for the Partnership's existing investments.
Positive Communications, Inc. - -----------------------------
In September 1994, the Partnership invested in Positive Communications, Inc. by purchasing 285,714 Series E Preferred shares at a total cost of $1,000,000.
R2 Technology, Inc. - -------------------
In May 1994, the Partnership invested in R2 Technology, Inc. by purchasing 400,000 Series A-1 Preferred shares at a total cost of $400,000.
Redcell, Inc. - -------------
In December 1994, the Partnership deposited $750,000 into an escrow fund to purchase 797,872 Series B Preferred shares upon the final close of the financing round, which occurred in late February 1995.
SRG Holdings, Inc. - ------------------
In 1994, the Partnership issued convertible notes receivable totaling $173,141 to the company.
Tessera, Inc. - -------------
In early 1994, the company completed a new, lower valuation, round of financing in which the Partnership did not participate. In late 1994, another round of financing was completed with a new investor; this financing was at a higher valuation than the prior round, but equal to the Partnership's cost basis.
TheraTx, Incorporated - ---------------------
During 1994, the Partnership sold a portion of its investment in the company for $3,096,863 resulting in total realized gains of $2,594,804. The Partnership also recorded a fair value increase of $770,902 primarily related to the increase in value of the remaining unrestricted, marketable shares at December 31, 1994, partially offset by a decrease due to the sale of shares.
In May 1994, the Partnership received 19,116 common warrants in conjunction with a note receivable funding. During the same month, the company announced a common stock three-for-one reverse split. In June 1994, TheraTx, Incorporated completed its initial public offering (IPO). Immediately prior to the IPO, the Partnership cash exercised both its common and preferred warrants and received 46,372 common shares; a cost basis of $123,623 was recorded for these shares. The Partnership's existing preferred stock holdings were converted into 217,774 shares of common stock. The Partnership sold 54,104 common shares into the offering for total proceeds of $603,801 resulting in a realized gain of $442,355. Then, in December 1994, the Partnership sold an additional 129,000 common shares for $2,493,063 resulting in a realized gain of $2,152,449. Approximately $128,000 of the sales price was an unsettled trade at December 31, 1994 and was included in "Other Assets" on the Balance Sheet.
Unitech Telecom, Inc. - ---------------------
In May 1994, the partnership invested in Unitech Telecom, Inc. by issuing a $100,000 convertible note receivable. As a result of this investment, the Partnership received warrants to purchase 36,364 common shares at an exercise price of $2.75, expiring in May 1999.
UroMed Corporation - ------------------
In March 1994, UroMed Corporation completed its IPO. As a result, the Partnership's preferred stock holdings were converted into 329,828 shares of unrestricted common stock at a cost basis of $524,994. In December 1994, the Partnership sold 150,000 common shares for $761,918 resulting in a realized gain of $523,160. Approximately $656,000 of the sales price was an unsettled trade at December 31, 1994 and was included in "Other Assets" on the Balance Sheet. The Partnership recorded a decrease in fair value of $432,395, a portion of which was realized from the sale mentioned above, with the remainder related to the decrease in value of the remaining unrestricted, marketable shares at December 31, 1994.
Velocity Incorporated - ---------------------
During the first nine months of 1994, the Partnership issued $500,000 in convertible notes to the company and received various warrants to purchase common shares. Then in late 1994, the Partnership made an additional $1,000,000 investment. This investment, together with all the existing convertible notes, including interest, were used to purchase 12,572,652 Series A Preferred shares at a total cost basis of $2,068,674. All existing warrants were canceled as part of the conversion.
YES! Entertainment Corporation - ------------------------------
In May 1994, the company had a new round of equity financing in which the Partnership did not participate. The investment fair value has been adjusted to reflect the valuation from this round of financing.
Venture Capital Limited Partnership Investments - -----------------------------------------------
The Partnership recorded a cost basis increase of $254,863 in venture capital limited partnership investments during 1994. The increase consisted of additional contributions of $290,314, partially offset by cash distributions of $35,451. These transactions increased fair values accordingly.
6. Secured Notes Receivable, Net -----------------------------
At December 31, 1994 and 1993, secured notes receivable consisted of:
Changes in the allowance for loan losses were as follows:
These notes are secured by specific assets of the borrowing companies. Interest rates on secured notes receivable at December 31, 1994 ranged from 11.75% to 13.7%.
The allowance for loan losses is evaluated quarterly by the Managing General Partners and is adjusted based upon changes to the portfolio size and risk profile. There were no write-offs during 1994 or 1993. Although the allowance for loan losses is established by evaluating individual debtor repayment ability, the allowance represents the Managing General Partners' assessment of the portfolio taken as a whole.
Notes with a total cost basis of $1,366,767 were on nonaccrual status due to uncertainties related to a borrower's financial condition at December 31, 1994. Placement on nonaccrual status resulted in a reversal of approximately $144,000 in accrued interest receivable of which approximately $94,000 was accrued during the current year. The Managing General Partners continue to monitor the progress of this company. The fair value at December 31, 1994 is based on the Managing General Partners' estimate of collectibility of these notes.
The scheduled principal repayments remaining over the next five years are:
7. Cash and Cash Equivalents -------------------------
Cash and cash equivalents at December 31, 1994 and 1993 consisted of:
8. Commitments -----------
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 by a borrowing company. As they do not represent current outstanding balances, these unfunded commitments are properly not recognized in the financial statements. As of December 31, 1994, the Partnership had unfunded commitments as follows:
The Partnership uses the same credit policies in making these commitments and conditional obligations as it does for on-balance- sheet instruments. Commitments to extend financing are agreements to lend to a company as long as there are no violations of any conditions established in the contract. The credit lines generally have fixed termination dates or other termination clauses. Since many of the commitments are expected to expire without being fully drawn upon, the total commitment amounts do not necessarily represent future cash requirements. All convertible and secured note commitments funded require collateral specified in the agreements.
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: March 17, 1995 By: /s/Frank R. Pope ---------------------------------- Frank R. Pope Executive Vice President and Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated:
Signature Capacity Date --------- -------- ----
/s/Charles R. Kokesh President, Chief March 17, 1995 - ------------------------ Executive Officer Charles R. Kokesh and Chairman of Technology Funding Inc. and Managing General Partner of Technology Funding Ltd.
/s/Frank R. Pope Executive Vice March 17, 1995 - ------------------------ President, Chief Frank R. Pope Financial Officer, Secretary and a Director of Technology Funding Inc. and a General Partner of Technology Funding Ltd.
/s/Gregory T. George Group Vice President March 17, 1995 - -------------------------- of Technology Funding Gregory T. George Inc. and a General Partner of Technology Funding Ltd.
The above represents a majority of the Board of Directors of Technology Funding Inc. and a majority of the General Partners of Technology Funding Ltd.