10-Q 1 p5q204.txt 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 June 30, 2004 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) 1107 Investment Blvd., Suite 180 El Dorado Hills, California 95762 --------------------------------------- -------- (Address of principal executive offices) (Zip Code) (916) 941-1400 ------------------------------- (Registrant's telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Limited Partnership Units 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 --- --- Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12B-2 of the Act). Yes No X --- --- No active market for the units of limited partnership interests ("Units") exists, and therefore the market value of such Units cannot be determined. Forward-Looking Statements -------------------------- The Private Securities Litigation Reform Act of 1995 (the Act) provides a safe harbor for forward-looking statements made by or on behalf of the Partnership. The Partnership and its representatives may from time to time make written or oral statements that are "forward-looking," including statements contained in this report and other filings with the Securities and Exchange Commission, and reports to the Partnership's shareholders and news releases. All statements that express expectations, estimates, forecasts and projections are forward-looking statements within the meaning of the Act. In addition, other written or oral statements, which constitute forward-looking statements, may be made by or on behalf of the Partnership. Words such as "expects," "anticipates," "intends," "plans," "believes," "seeks," "estimates," "projects," "forecasts," "may," "should," variations of such words and similar expressions are intended to identify such forward-looking statements. These statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions, which are difficult to predict. Therefore, actual outcomes and results may differ materially from what is expressed or forecasted in or suggested by such forward-looking statements. The Partnership undertakes no obligation to update publicly any forward-looking statements, whether as a result of new information, future events or otherwise. I. FINANCIAL INFORMATION Item 1. Financial Statements BALANCE SHEETS --------------

See accompanying notes are an integral part of these financial statements. STATEMENTS OF INVESTMENTS -------------------------

STATEMENTS OF INVESTMENTS (continued) ------------------------------------- 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 06/30/04 and 12/31/03. (2) The Partnership has no income-producing equity investments except for convertible notes, which include accrued interest. Interest rates on such notes range from 8.0 percent to 10.0 percent. The accompanying notes are an integral part of these financial statements. STATEMENTS OF OPERATIONS (unaudited) -----------------------------------

See accompanying notes are an integral part of these financial statements. STATEMENTS OF CASH FLOWS (unaudited) -----------------------------------

See accompanying notes are an integral part of these financial statements. NOTES TO FINANCIAL STATEMENTS (unaudited) ---------------------------------------- 1. Interim Financial Statements ---------------------------- The accompanying unaudited financial statements included herein have been prepared in accordance with the requirements of Form 10-Q and, therefore, do not include all information and footnotes, which would be presented, were such financial statements prepared in accordance with generally accepted accounting principles in the United States of America. These statements should be read in conjunction with the Annual Report on Form 10- K for the year ended December 31, 2003. 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. 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. The results of operations for such interim periods are not necessarily indicative of results of operations to be expected for the full year. 2. 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 accounting principles generally accepted in the United States of America, which may not equate to tax accounting. The cost of investments on a tax basis at June 30, 2004, and December 31, 2003, was $14,084,130 and $15,338,777, respectively. At June 30, 2004, and December 31, 2003, gross unrealized depreciation on investments based on cost for federal income tax purposes was as follows:

New Accounting Pronouncements ----------------------------- In November 2002, the FASB issued FASB Interpretation No. 45 (FIN 45), "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others." FIN 45 requires a guarantor to recognize a liability at the inception of the guarantee for the fair value of obligations it has assumed under that guarantee and also requires more detailed disclosure in its financial statements with respect to such guarantees. FIN 45 is effective for guarantees issued or modified after December 31, 2002, and requires additional disclosure for existing guarantees. The adoption of FIN 45 did not have a material effect on the Partnership's results of operation or financial position. The Partnership has provided additional disclosure with respect to a guarantee by the Partnership in Note 11 to the Financial Statements. In December 2003, the American Institute of Certified Public Accountants (AICPA) issued Statement of Position 03-4 (SOP 03-4), "Reporting Financial Highlights and Schedule of Investments by Nonregistered Investment Partnerships: An Amendment to the Audit and Accounting Guide 'Audits of Investment Companies' (the Guide) and AICPA Statement of Position 95-2 (SOP 95-2), 'Financial Reporting by Nonpublic Investment Partnerships.'" SOP 03-4 provides guidance on the application of certain provisions in the Accounting Guide and SOP 95-2 that are directed to the reporting by nonregistered investment partnerships of financial highlights and the schedule of investments. It amends certain provisions of the Guide and SOP 95-2 by adapting those provisions to nonregistered investment partnerships based on their differences in organizational structures from registered investment companies. SOP 03-4 is effective for annual financial statements issued for fiscal years ending after December 15, 2003. The adoption of SOP 03-4 did not have a material effect on the Partnership. 3. Related Party Transactions -------------------------- Related party costs are included in investment expenses shown on the Statements of Operations. Related party costs for the six months ended June 30, 2004 and 2003, were as follows:

The Partnership reimburses the Managing General Partners for certain operating expenses incurred in connection with the business of the Partnership. Reimbursable operating expenses paid by the Managing General Partners include expenses (other than organizational and offering expenses and general partner overhead) such as administrative and investor services, investment operations, and computer services. 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 $52,637 due to related parties at June 30, 2004, and $618,929 due to related parties at December 31, 2003, respectively, for such reimbursable expenses. Management fees due to the Managing General Partners were $8,371 and $78,622 at June 30, 2004, and December 31, 2003, respectively, which are included in due from related parties, net. As of June 30, 2004 and December 31, 2003, the Partnership has a due from related party receivable of $1,200,926 and $0, respectively, related to its investment in Dakota Holdings, LLC. The Partnership has advanced funds to the company for operations. It is the Managing General Partners' expectation that this receivable will be converted into additional equity investments in Dakota Holdings. 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 June 30, 2004, the Partnership and affiliated partnerships had an indirect interest in non-transferable Endocare, Inc., Sanarus Medical, Inc. and Physiometrix, Inc. options with a fair value of $3,869. Retention bonuses were offered to and accepted by key employees of the Managing General Partners in late 2002. The bonuses, incremented by annual salary increases, will be paid to those individuals who are still full-time employees of the Managing General Partners in April 2007. The expense for the bonus is recognized ratably over the beneficial period, October 2002 to April 2007. As of June 30, 2004, the Partnership has recognized expense of $118,162. Upon the resignation of personnel, no adjustment to the retention bonus amount previously paid by the Partnership to the Managing General Partners shall occur until a replacement person is hired. 4. Equity Investments ------------------ All investments are valued at fair value as determined in good faith by the Managing General Partners. Marketable Equity Securities ---------------------------- At June 30, 2004, and December 31, 2003, marketable equity securities had aggregate costs of $3,267,325 and $1,843,114, respectively, and aggregate market values of $1,592,101 and $727,973, respectively. The net unrealized losses at June 30, 2004, and December 31, 2003, included gross gains of $17,940 and $102,754, respectively. Restricted Securities --------------------- At June 30, 2004, and December 31, 2003, restricted securities had aggregate costs of $11,546,846 and $13,028,196, respectively, and aggregate fair values of $5,000,703 and $5,425,851, respectively, representing 58.2 percent and 47.5 percent, respectively, of the total assets of the Partnership. Significant purchases, sales and write-offs of equity investments during the quarter ended June 30, 2004, are as follows: Dakota Arms, Inc. ----------------- In April 2004, the Partnership purchased 1,000,000 shares of Series B Preferred at a cost of $1,000,000. Dakota Holdings, LLC -------------------- In June 2004, the Partnership purchased 200,000 LLC Units at a cost of $200,000. CheckTech Financial Corporation ------------------------------- In February 2004, the Partnership purchased 50,000 common Units at a cost of $50,000 and 200,000 Series A Preferred shares at a cost of $200,000. Endocare, Inc. -------------- In May 2004, the Partnership exercised a common stock warrant and purchased 1,350 common shares at a cost of $4,125. iVillage Inc. ------------- In March 2004, the Partnership sold its entire investment in the company for proceeds of $544,913, realizing a gain of $243,510. In May 2004, the Partnership repurchased 20,000 common shares at a cost of $110,776. KeyEye Communications, Inc. --------------------------- In May 2004, the Partnership purchased 2,223,309 Series B Preferred shares at a cost of $500,000. RedCell, Inc. (subsequently ConjuChem, Inc.) -------------------------------------------- In February 2004, the Partnership received $222,513 for payment of notes receivable from the company that had been written off in 1998. The payment was recorded as a realized gain. Prior to 1998, RedCell was acquired by another company, and the new entity was renamed ConjuChem, Inc. However, the notes receivable remained in RedCell's name. In February 2004, the remaining RedCell entity sold ConjuChem shares it had acquired in the acquisition to repay its remaining notes in full. VenCore Solutions, LLC ---------------------- In March 2004, the Partnership issued a $150,000 convertible unsecured notes receivable with an interest rate of 10%. The note is due in October 2004. In conjunction with the Notes Receivable purchase, a Series A Warrant was also issued. WorldRes.com, Inc. ------------------ In June 2004, the Partnership wrote off its entire investment in WorldRes.com for a realized loss of $1,059,653. In 2003, WorldRes.com and three large European hotel chains created a joint venture, WorldRes Europe, to market European hotels online. WorldRes.com and WorldRes Europe are in the process of selling the consumer Web site, PlacestoStay.com, and most of the company's operations will now be based in Europe. Proceeds from the transaction are expected to be used to restructure the company and pay its vendors and existing noteholders. The Partnership expects no return in its investment. Other Equity Investments ------------------------ Other significant changes reflected in the Statements of Investments relate to market value fluctuations for publicly traded portfolio companies or changes in the fair value of private companies as determined in accordance with the policy described in Note 1 to the financial statements included in the Partnership's December 31, 2003, Form 10-K. 5. Subsequent Events ----------------- In August, 2004 the Partnership sold 42,058 shares of Acusphere Inc., for total gross proceeds of $254,602, with an expected realized gain of $43,639. 6. Notes Receivable ---------------- Activity from January 1 through June 30 consisted of:

The interest rate on the note receivable at June 30, 2004, was 4.28 percent. The note is due in October 2004. 7. Cash and Cash Equivalents ------------------------- Cash and cash equivalents at June 30, 2004, and December 31, 2003, consisted of:

8. Commitments and Contingencies ----------------------------- From time to time, 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 not recognized in the financial statements. At June 30, 2004, the Partnership had unfunded equity commitments of $501,250. From time to time, the Partnership is subject to routine litigation incidental to the business of the Partnership. Although there can be no assurances as to the ultimate disposition of these matters and the proceeding disclosed above, it is the opinion of the Managing General Partners, based upon the information available at this time, that the expected outcome of these matters, individually or in the aggregate, will not have a material adverse effect on the results of operations and financial condition of the Partnership. 9. Financial Highlights --------------------

Pursuant to the Partnership Agreement, net profit shall be allocated first to those Partners with deficit capital account balances until such deficits have been eliminated. The net asset values shown above assume the Partnership is in liquidation. Upon liquidation, the General Partners would contribute capital equal to the amount of the Limited Partners' deficit. As of June 30, 2004 and 2003, the General Partners had a negative capital balance of $2,705,375 and $3,434,912, respectively. Upon liquidation, the General Partners would not be required to contribute cash to the Partnership, as the net asset value is greater than the General Partners' negative capital balance. Net asset value has been calculated in accordance with this provision of the Partnership Agreement. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 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 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 included in the Partnership's December 31, 2003, Form 10-K. 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 six months ended June 30, 2004, net cash used by operating activities totaled $2,973,755. The Partnership paid management fees of $121,230 to the Managing General Partners and reimbursed related parties for other investment expenses of $2,310,023. In addition, $23,625 was paid to the Individual General Partners as compensation for their services. The Partnership paid other investment expenses of $557,210. The Partnership received interest income of $38,333. During the six months ended June 30, 2004, the Partnership funded equity investments of $2,214,901. At June 30, 2004, the Partnership had commitments to fund additional investments totaling $501,250. Cash and cash equivalents at June 30, 2004, were $511,007. Cash reserves, interest income on short-term investments and future 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 decrease in partners' capital resulting from operations was $1,977,021 for the quarter ended June 30, 2004, compared to a net increase in partners' capital resulting from operations of $935,101 for the same period in 2003. During the quarter ending June 30, 2003, the Partnership recorded a gain of $2,353,809 as a result of filing dissenters' rights. In January 2003, Tessera, Inc., closed a corporate reorganization under which Tessera, Inc., became a wholly owned subsidiary of Tessera Technologies. The reorganization was intended to position the company for an initial public offering when favorable market conditions return. The dissenters' rights provision of the California General Corporation Law allows any shareholder who does not wish to accept the consideration offered through a merger to have the "fair market value" of the investment determined by a state court. The Partnership filed a Summons and Complaint claiming dissenters' rights against Tessera in May 2003. As a result, the Partnership recorded a receivable of $2,910,308, representing the $556,499 cost of the investment and the gain of $2,353,809. There were no similar gains recorded during the quarter ending June 30, 2004. Net unrealized depreciation on equity investments was $8,221,367 and $8,717,486 at June 30, 2004, and December 31, 2003, respectively. During the quarter ended June 30, 2004, and June 30, 2003, the Partnership recorded decreases in net unrealized depreciation on equity investments of $410,658 and $993,624, respectively. The decrease in depreciation in 2004 was primarily attributable to the write-off of WorldRes.com Inc. The change in 2003 was primarily attributable to the write-off of the Partnership's investments in Pherin Pharmaceuticals, Inc., Prolinx, Inc. and Resolution Sciences Corporation. Total investment expenses were $565,653 for the quarter ended June 30, 2004, compared to $575,398 for the same period in 2003. Decreased administrative and investor services related to a investment monitoring which was partially offset by increased management fees and computer service costs. Net unrealized depreciation on notes receivable was $62,187 and $60,896 at June 30, 2004, and December 31, 2003, respectively. During the quarter ended June 30, 2004, there was an increase in unrealized depreciation of notes receivable of $646. During the same period in 2003, the Partnership recorded an decrease in unrealized depreciation of $1,077. 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 six months compared to corresponding six months in the preceding ------------------------------------------------------------------------ year ---- Net decrease in partners' capital resulting from operations was $2,146,622 for the six months ended June 30, 2004, compared to a net decrease in partners' capital resulting from operations of $367,197 for the same period in 2003. During the six months ended June 30, 2003, the Partnership wrote off its investments in Pherin Pharmaceuticals, Inc., Prolinx, Inc. and Resolution Sciences Corporation. These totaled $200,000, $3,761,101 and $1,188,393, respectively. During the same period in 2004, the Partnership wrote off its investment in WorldRes.com, Inc., that totaled $1,059,653. During the six months ending June 30, 2003, the Partnership recorded a gain of $2,353,809 as a result of filing dissenters' rights. In January 2003, Tessera, Inc., closed a corporate reorganization under which Tessera, Inc., became a wholly owned subsidiary of Tessera Technologies. The reorganization was intended to position the company for an initial public offering when favorable market conditions return. The dissenters' rights provision of the California General Corporation Law allows any shareholder who does not wish to accept the consideration offered through a merger to have the "fair market value" of the investment determined by a state court. The Partnership filed a Summons and Complaint claiming dissenters' rights against Tessera in May 2003. As a result, the Partnership recorded a receivable of $2,910,308, representing the $556,499 cost of the investment and the gain of $2,353,809. There were no similar gains recorded during the six months ending June 30, 2004. Net unrealized depreciation on equity investments was $8,221,367 and $8,717,486 at June 30, 2004, and December 31, 2003, respectively. During the six months ended June 30, 2004, the Partnership recorded a decrease in net unrealized depreciation on equity investments and notes receivable of $494,828 compared to an increase in unrealized depreciation of $3,825,845 during 2003. The change in 2004 was primarily attributable to a net increase in the fair value of portfolio companies in the medical and biotechnology industries The decrease in depreciation in 2003 was primarily attributable to the write-off of the Partnership's investments in Pherin Pharmaceuticals, Inc., Prolinx, Inc. and Resolution Sciences Corporation. Other income of $193,830 was recognized during the six months ended June 30, 2003. This was the result of a settlement between Kanematsu Corporation, a creditor of one of the Partnership's portfolio companies, and the Partnership. There was no such income in 2004. Total investment expenses were $1,305,216 for the six months ended June 30, 2004, compared to $1,766,906 for the same period in 2003. Decreased administrative and investor service costs were offset by increased professional fees related to the Kanematsu legal proceeding. During the six months ended June 30, 2004, the Partnership recorded no realized gains from venture capital limited partnership investments. During the same period in 2003, there were gains of $113,263. During the six months ended June 30, 2004 and 2003, interest income was $38,467 and $62,456, respectively. The decrease was primarily the result of reduced cash balances. Given the inherent risk associated with the business of the Partnership, the future performance of the portfolio company investments may significantly impact future operations. Item 4. Controls and Procedures The undersigned is responsible for establishing and maintaining disclosure controls and procedures for Technology Funding Venture Partners V, An Aggressive Growth Fund, L.P. Such officer has concluded (based upon his evaluation of these controls and procedures as of a date within 90 days of the filing of this report) that Technology Funding Venture Partners V, An Aggressive Growth Fund, L.P.'s disclosure controls and procedures are effective to ensure that information required to be disclosed by Technology Funding Venture Partners V, An Aggressive Growth Fund, L.P. in this report is accumulated and communicated to Technology Funding Venture Partners V, An Aggressive Growth Fund, L.P.'s management, including its principal executive officers as appropriate, to allow timely decisions regarding required disclosure. The certifying officer also has indicated that there were no significant changes in Technology Funding Venture Partners V, An Aggressive Growth Fund, L.P.'s internal controls or other factors that could significantly affect such controls subsequent to the date of their evaluation other than changes needed to maintain adequate separation of duties and responsibilities of personnel in the ordinary course of business, and there were no corrective actions with regard to significant deficiencies and material weaknesses. II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K (a) A report on Form 8-K was filed by the Partnership during the quarter ended June 30, 2004. Pursuant to the Securities and Exchange Commission's Release No. 34-43069, "Commission Guidance on Mini-Tender Offers and Limited Partnership Tender Offers," effective July 31, 2000, the Partnership is obligated to respond to such offers with a recommendation to the Limited Partners. On July 2, 2004, the Partnership filed the letter sent to Limited Partners regarding a mini-tender offer for Limited Partnership units under Item 5, Other Events. 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: August 12, 2004 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 Ltd. Technology Funding Venture Partners V, An Aggressive Growth Fund, L.P. (a Delaware limited partnership) Page 1 of 30

TECHNOLOGY FUNDING VENTURE PARTNERS V 10-Q