10-Q 1 wtvq301.txt FORM 10 Q 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, 2001 Or [ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from to Commission file number 0-16208 WESTFORD TECHNOLOGY VENTURES, L.P. -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Delaware 13-3423417 -------------------------------------------------------------------------------- (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 17 Academy Street, 5th Floor Newark, New Jersey 07102-2905 -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (973) 624-2131 Not applicable -------------------------------------------------------------------------------- Former name, former address and former fiscal year, if changed since last report 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 ------------------ ------------------ WESTFORD TECHNOLOGY VENTURES, L.P. INDEX PART I. FINANCIAL INFORMATION Item 1. Financial Statements. Balance Sheets as of September 30, 2001 (Unaudited) and December 31, 2000 Schedule of Portfolio Investments as of September 30, 2001 (Unaudited) Statements of Operations for the Three and Nine Months Ended September 30, 2001 and 2000 (Unaudited) Statements of Cash Flows for the Nine Months Ended September 30, 2001 and 2000 (Unaudited) Statement of Changes in Partners' Capital for the Nine Months Ended September 30, 2001 (Unaudited) Notes to Financial Statements (Unaudited) Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. Item 3. Quantitative and Qualitative Disclosure about Market Risk PART II. OTHER INFORMATION Item 1. Legal Proceedings. Item 2. Changes in Securities. Item 3. Defaults upon Senior Securities. Item 4. Submission of Matters to a Vote of Security Holders. Item 5. Other Information. Item 6. Exhibits and Reports on Form 8-K. PART I - FINANCIAL INFORMATION Item 1. Financial Statements. WESTFORD TECHNOLOGY VENTURES, L.P. BALANCE SHEETS September 30, 2001 December 31, (Unaudited) 2000 ASSETS --------------- ---------------- Portfolio investments at fair value (cost of $7,733,952 as of September 30, 2001 and December 31, 2000) $ 5,553,955 $ 4,065,739 Cash and cash equivalents 555,052 919,613 Accrued interest receivable 76,341 61,901 -------------- ---------------- TOTAL ASSETS $ 6,185,348 $ 5,047,253 ============== ================ LIABILITIES AND PARTNERS' CAPITAL Liabilities: Accounts payable and accrued expenses $ 44,208 $ 36,667 Due to Management Company 213,804 401,304 Due to Independent General Partners 3,750 - -------------- ---------------- Total liabilities 261,762 437,971 -------------- ---------------- Partners' Capital: Managing General Partner 240,091 238,751 Individual General Partners 2,758 2,821 Limited Partners (11,217 Units) 7,860,734 8,035,923 Unallocated net unrealized depreciation of investments (2,179,997) (3,668,213) -------------- ---------------- Total partners' capital 5,923,586 4,609,282 -------------- ---------------- TOTAL LIABILITIES AND PARTNERS' CAPITAL $ 6,185,348 $ 5,047,253 ============== ================

See notes to financial statements. WESTFORD TECHNOLOGY VENTURES, L.P. SCHEDULE OF PORTFOLIO INVESTMENTS (Unaudited) September 30, 2001 Initial Investment Investment Description Date Cost Fair Value ------------------------------------------------------------------------------------------------------------------------------- Inn-Room Systems, Inc.* Automated in-room vending units for the lodging industry 15,485 shares of Common Stock Oct. 1989 $ 1,320,349 $ 76,805 Convertible Demand Note at prime plus 1% 102,940 102,940 -------------- ---------------- 1,423,289 179,745 -------------------------------------------------------------------------------------------------------------------------------- Spectrix Corporation* Infrared data transfer technology for networks 60,547 shares of Series A Preferred Stock June 1989 784,319 90,821 2,216,626 shares of Series B Preferred Stock 4,261,901 3,324,940 699,256 shares of Common Stock 354,878 1,048,884 Warrants to purchase 50,000 shares of Common Stock at $4.00 per share, expiring 04/30/03 0 0 -------------- ---------------- 5,401,098 4,464,645 -------------------------------------------------------------------------------------------------------------------------------- Thunderbird Technologies, Inc. Designer of high performance, low power integrated circuit products 788,796 shares of Series A Preferred Stock Oct. 1992 788,796 788,796 Convertible Demand Notes at prime 120,769 120,769 -------------- ---------------- 909,565 909,565 -------------------------------------------------------------------------------------------------------------------------------- TOTAL PORTFOLIO INVESTMENTS $ 7,733,952 $ 5,553,955 ============== ================

* May be deemed an affiliated person of the Partnership as defined by the Investment Company Act of 1940. See notes to financial statements. WESTFORD TECHNOLOGY VENTURES, L.P. STATEMENTS OF OPERATIONS (Unaudited) Three Months Ended Nine Months Ended September 30, September 30, 2001 2000 2001 2000 ------------- ------------ -------------- -------------- INVESTMENT INCOME AND EXPENSES Income: Interest from short-term investments $ 2,726 $ 5,851 $ 10,517 $ 17,392 Interest from portfolio investments 4,949 4,005 15,461 11,714 --------------- ------------ -------------- ------------- Total income 7,675 9,856 25,978 29,106 --------------- ------------ -------------- ------------- Expenses: Management fee 37,500 37,500 112,500 112,500 Professional fees 17,431 15,518 46,957 43,734 Mailing and printing 13,383 14,185 23,912 25,033 Independent General Partners' fees 3,750 3,750 11,250 11,250 Custodial fees 1,500 1,500 4,500 4,500 Other expenses 691 563 771 838 --------------- ------------ -------------- ------------- Total expenses 74,255 73,016 199,890 197,855 --------------- ------------ -------------- ------------- NET INVESTMENT LOSS (66,580) (63,160) (173,912) (168,749) Net realized loss from portfolio investments - - - (1,667,334) --------------- ------------ -------------- ------------- NET REALIZED LOSS FROM OPERATIONS (66,580) (63,160) (173,912) (1,836,083) Change in unrealized depreciation of investments - - 1,488,216 1,774,541 --------------- ------------ -------------- ------------- NET (DECREASE) INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ (66,580) $ (63,160) $ 1,314,304 $ (61,542) =============== ============ ============== =============

See notes to financial statements. WESTFORD TECHNOLOGY VENTURES, L.P. STATEMENTS OF CASH FLOWS (Unaudited) For the Nine Months Ended September 30, 2001 2000 -------------- ------------- CASH FLOWS FROM OPERATING ACTIVITIES Net increase (decrease) in net assets from operations $ 1,314,304 $ (61,542) Adjustments to reconcile net increase in net assets from operations to cash used for operating activities: Net realized loss from portfolio investments - 1,667,334 Change in unrealized depreciation of investments (1,488,216) (1,774,541) Increase in accrued interest receivable (14,440) (13,500) Decrease in payables (176,209) (197,002) ------------- ------------- Cash used for operating activities (364,561) (379,251) ------------- ------------- CASH FLOWS FROM INVESTING ACTIVITIES Cost of portfolio investments purchased - (60,769) Proceeds from the sale of portfolio investments - 1,429,263 ------------- ------------- Cash provided from investing activities - 1,368,494 ------------- ------------- (Decrease) increase in cash and cash equivalents (364,561) 989,243 Cash and cash equivalents at beginning of period 919,613 603 ------------- ------------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 555,052 $ 989,846 ============= =============

See notes to financial statements. WESTFORD TECHNOLOGY VENTURES, L.P. STATEMENT OF CHANGES IN PARTNERS' CAPITAL (Unaudited) For the Nine Months Ended September 30, 2001 Unallocated Managing Individual Net Unrealized General General Limited Depreciation of Partner Partners Partners Investments Total ------------ ---------- --------------- --------------- --------------- Balance at beginning of period $ 238,751 $ 2,821 $ 8,035,923 $ (3,668,213) $ 4,609,282 Net investment loss 1,340 (63) (175,189) - (173,912) Change in net unrealized depreciation of investments - - - 1,488,216 1,488,216 ------------ --------- --------------- --------------- --------------- Balance at end of period $ 240,091 $ 2,758 $ 7,860,734(A) $ (2,179,997) $ 5,923,586 ============ ========= =============== =============== ===============

(A) The net asset value per $1,000 unit of limited partnership interest, including an assumed allocation of net unrealized depreciation of investments, is $523. See notes to financial statements. WESTFORD TECHNOLOGY VENTURES, L.P. NOTES TO FINANCIAL STATEMENTS (Unaudited) 1. Organization and Purpose Westford Technology Ventures, L.P. (the "Partnership") is a Delaware limited partnership formed on September 3, 1987. WTVI Co., L.P., the managing general partner of the Partnership (the "Managing General Partner") and four individuals (the "Individual General Partners") are the general partners of the Partnership. Hamilton Capital Management Inc. (the "Management Company") is the general partner of the Managing General Partner and the management company of the Partnership. The Partnership began its principal operations on December 1, 1988. The Partnership's objective is to achieve long-term capital appreciation by making venture capital investments in new and developing companies and other special investment situations. The Partnership will not engage in any other business or activity. The Partnership is scheduled to terminate no later than December 31, 2002. 2. Significant Accounting Policies Valuation of Investments - Short-term investments are carried at amortized cost, which approximates market. Portfolio investments are carried at fair value, as determined quarterly by the Managing General Partner under the supervision of the Individual General Partners. Publicly held portfolio securities are valued at the closing public market price on the valuation date discounted by a factor of 0% to 50% for sales restrictions. Factors considered in the determination of an appropriate discount include, underwriter lock-up or Rule 144 trading restrictions, insider status where the Partnership either has a representative serving on the Board of Directors or is greater than a 10% shareholder, and other liquidity factors such as the size of the Partnership's position in a given company compared to the trading history of the public security. Privately held portfolio securities are valued at cost until significant developments affecting the portfolio company provide a basis for change in valuation. The fair value of private securities is adjusted to reflect 1) meaningful third-party transactions in the private market or 2) significant progress or slippage in the development of the company's business such that cost is no longer reflective of fair value. As a venture capital investment fund, the Partnership's portfolio investments involve a high degree of business and financial risk that can result in substantial losses. The Managing General Partner considers such risks in determining the fair value of the Partnership's portfolio investments. Use of Estimates - The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Investment Transactions - Investment transactions are recorded on the accrual method. Portfolio investments are recorded on the trade date, the date the Partnership obtains an enforceable right to demand the securities or payment therefore. Realized gains and losses on investments sold are computed on a specific identification basis. WESTFORD TECHNOLOGY VENTURES, L.P. NOTES TO FINANCIAL STATEMENTS (Unaudited), continued Income Taxes - No provision for income taxes has been made since all income and losses are allocable to the Partners for inclusion in their respective income tax returns. The Partnership's net assets for financial reporting purposes differ from its net assets for tax purposes. Net unrealized depreciation of $2.2 million as of September 30, 2001, was recorded for financial statement purposes but has not been recognized for tax purposes. Additionally, from inception to September 30, 2001, other timing differences relating to the sale of Units totaling $1.2 million were charged to partners' capital on the financial statements but have not been deducted or charged against partners' capital for tax purposes. Cash Equivalents - The Partnership considers all highly liquid debt instruments (primarily money market funds) to be cash equivalents. Reclassifications -Certain reclassifications were made to the prior period financial statements in order to conform to the current period presentation. 3. Allocation of Partnership Profits and Losses The Partnership Agreement provides that the Managing General Partner will be allocated, on a cumulative basis over the life of the Partnership, 20% of the Partnership's aggregate investment income and net realized gains from venture capital investments, provided that such amount is positive. All other gains and losses of the Partnership are allocated among all the Partners, including the Managing General Partner, in proportion to their respective capital contributions to the Partnership. 4. Related Party Transactions The Management Company is responsible for the management and administrative services necessary for the operation of the Partnership. For these services, the Management Company received a management fee through December 31, 1999 at an annual rate of 2.5% of the gross capital contributions to the Partnership (net of selling commissions and organizational expenses paid by the Partnership), reduced by capital distributed and realized losses, with a minimum fee of $200,000 per annum. The Management Company voluntarily agreed to reduce the minimum management fee payable by the Partnership to $150,000 per annum, effective January 1, 2000. The Management Company also directly provides certain shareholder services and database management support for the Limited Partners of the Partnership. For such services, the Management Company had charged the Partnership an additional fee of $8,500 per quarter through December 31, 1998. This amount was paid to the Management Company in addition to the regular management fee discussed above. Effective January 1, 1999, however, the Management Company agreed to provide such services for no additional fee. From inception of the Partnership to December 31, 1998, each of the three Independent General Partners received an annual fee of $10,000 and $1,000 for each meeting of the Independent General Partners attended, plus out-of-pocket expenses. Effective January 1, 1999, the annual fee paid to each Independent General Partner was reduced to $5,000. Additionally, effective January 1, 2000, the Independent General Partners voluntarily waived all future meeting fees. WESTFORD TECHNOLOGY VENTURES, L.P. NOTES TO FINANCIAL STATEMENTS (Unaudited), continued 5. Classification of Portfolio Investments As of September 30, 2001 the Partnership's portfolio investments were categorized as follows: As of September 30, 2001: ------------------------ Percentage of Investment Type Cost Fair Value Net Assets* --------------- --------------- --------------- ----------- Preferred Stock $ 5,835,016 $ 4,204,557 70.98% Common Stock 1,675,227 1,125,689 19.00% Debt Securities 223,709 223,709 3.78% ---------------- -------------- ------ Total $ 7,733,952 $ 5,553,955 93.76% ================ ============== ====== Country/Geographic Region Midwestern U.S. $ 6,824,387 $ 4,644,390 78.41% Eastern U.S. 909,565 909,565 15.35% ---------------- -------------- ------ Total $ 7,733,952 $ 5,553,955 93.76% ================ ============== ====== Industry Wireless Communications $ 5,401,098 $ 4,464,645 75.38% Vending Equipment 1,423,289 179,745 3.03% Semiconductors 909,565 909,565 15.35% ---------------- -------------- ------ Total $ 7,733,952 $ 5,553,955 93.76% ================ ============== ======

* Fair value as a percentage of net assets. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. --------------------------------------------------------------- Liquidity and Capital Resources As of September 30, 2001, the Partnership had $550,052 in an interest-bearing cash account. The Partnership earned $2,726 and $10,517 of interest from such cash account for the three and nine months ended September 30, 2001. Interest earned from the Partnership's cash balances and short-term investments, if any, in future periods is subject to fluctuations in short-term interest rates and changes in amounts available for investment in such securities. The Partnership is in its liquidation phase and will not make investments in any new portfolio companies. However, the Partnership may make additional follow-on investments in existing portfolio companies, if required. No follow-on investments were made during the nine months ended September 30, 2001. As of September 30, 2001, the Partnership's current liabilities of $261,762, included $213,804 due to the Management Company and $3,750 due to the Independent General Partners. Funds needed to cover such current liabilities, future follow-on investments, if any, and operating expenses will be obtained primarily from existing cash reserves and proceeds from the sale of the Partnership's remaining portfolio investments. Results of Operations For the three and nine months ended September 30, 2001, the Partnership had a net realized loss from operations of $66,580 and $173,912, respectively. For the three and nine months ended September 30, 2000, the Partnership had a net realized loss from operations of $63,160 and $1,836,083, respectively. Net realized gain or loss from operations is comprised of (i) net realized gain or loss from portfolio investments and (ii) net investment income or loss (interest and dividend income less operating expenses). Realized Gains and Losses from Portfolio Investments - The Partnership had no realized gains or losses from its portfolio investments for the three or nine months ended September 30, 2001. The Partnership also had no realized gains or losses from its portfolio investments for the three months ended September 30, 2000. However, for the nine months ended September 30, 2000, the Partnership had a $1,667,334 net realized loss from its portfolio investments. In January 2000, SER Systems AG completed its acquisition of EIS International, Inc. at $6.25 per share. The Partnership received $1,429,623 for its EIS shares, resulting in a realized loss of $1,667,334. Investment Income and Expenses - Net investment loss for the three months ended September 30, 2001 and 2000 was $66,580 and $63,160, respectively. The unfavorable change in net investment loss for the 2001 period compared to the same period in 2000 is comprised of a $2,181 decrease in investment income and a $1,239 increase in operating expenses. The decrease in investment income included a decrease in interest from short-term investments of $3,125, reflecting a decrease in the amount of the Partnership's interest earning cash balances held and a decline in short-term interest rates during the three months ended September 30, 2001 compared to the same period in 2000. The decline in short-term interest income was partially offset by a slight increase of $944 in interest from portfolio investments for the 2001 period. The slight increase in operating expenses for the three months ended September 30, 2001 compared to the same period in 2000 primarily resulted from small increases in professional fees for the 2001 period. Net investment loss for the nine months ended September 30, 2001 and 2000 was $173,912 and $168,749, respectively. The unfavorable change in net investment loss for the 2001 period as compared to the same period in 2000 is comprised of a $3,128 decrease in investment income and a $2,035 increase in operating expenses. The decline in investment income resulted from reduced interest from short-term investments partially offset by an increase in interest from portfolio investments, as discussed above. Also as discussed above, the slight increase in operating expenses for the nine months ended September 30, 2001 compared to the same period in 2000 primarily resulted from small increases in professional fees for the 2001 period. The Management Company is responsible for the management and administrative services necessary for the operation of the Partnership. For these services, the Management Company received a management fee through December 31, 1999 at an annual rate of 2.5% of the gross capital contributions to the Partnership (net of selling commissions and organizational expenses paid by the Partnership), reduced by capital distributed and realized losses, with a minimum fee of $200,000 per annum. The Management Company voluntarily agreed to reduce the minimum management fee payable by the Partnership to $150,000 per annum, effective January 1, 2000. The management fee for the three months ended September 30, 2001 and 2000 was $37,500. The management fee for the nine months ended September 30, 2001 and 2000 was $112,500. To the extent possible, the management fee and other expenses incurred directly by the Partnership are paid with funds provided from operations. Funds provided from operations primarily are obtained from interest received from short-term investments, income earned from portfolio investments and proceeds received from the sale of portfolio investments. Unrealized Gains and Losses and Changes in Unrealized Depreciation of Portfolio Investments - For the nine months ended September 30, 2001, the Partnership had a $1,488,216 favorable change in net unrealized depreciation of investments, resulting from the upward revaluation of its investment in Spectrix Corporation. For the nine months ended September 30, 2000, the Partnership had a $1,774,541 favorable change in net unrealized depreciation of investments, resulting from the transfer of $1,774,541 from unrealized loss to realized loss relating to the sale of the Partnership's holdings of EIS, as discussed above. Net Assets - Changes in net assets resulting from operations are comprised of 1) net realized gain or loss from operations and 2) changes in net unrealized appreciation or depreciation of investments. As of September 30, 2001, the Partnership's net assets were $5,923,586, reflecting an increase of $1,314,304 from net assets of $4,609,282 as of December 31, 2000. This change represents the increase in net assets resulting from operations for the nine-month period, comprised of the $1,488,216 favorable change in net unrealized depreciation of investments exceeding the $173,912 net realized loss from operations for the nine months ended September 30, 2001. As of September 30, 2000, the Partnership's net assets were $4,873,881, reflecting a decrease of $61,542 from net assets of $4,935,423 as of December 31, 1999. This change represents the decrease in net assets resulting from operations for the nine-month period, comprised of the $1,836,083 net realized loss from operations exceeding the $1,774,541 favorable change in net unrealized depreciation of investments for the nine months ended September 30, 2000. Gains and losses from investments are allocated to the Partners' capital accounts when realized in accordance with the Partnership Agreement (see Note 3 of Notes to Financial Statements). However, for purposes of calculating the net asset value per unit of limited partnership interest ("Unit"), net unrealized appreciation or depreciation of investments has been included as if it had been realized and allocated to the Limited Partners in accordance with the Partnership Agreement. Pursuant to such calculation, the net asset value per $1,000 Unit at September 30, 2001 and December 31, 2000 was $523 and $407, respectively. Item 3. Quantitative and Qualitative Disclosures about Market Risk. ----------------------------------------------------------- The Partnership is subject to market risk arising from changes in the value of its portfolio investments, short-term investments and interest-bearing cash equivalents, which may result from fluctuations in interest rates and equity prices. The Partnership has calculated its market risk related to its holdings of these investments based on changes in interest rates and equity prices utilizing a sensitivity analysis. The sensitivity analysis estimates the hypothetical change in fair values, cash flows and earnings based on an assumed 10% change (increase or decrease) in interest rates and equity prices. To perform the sensitivity analysis, the assumed 10% change is applied to market rates and prices on investments held by the Partnership at the end of the accounting period. The Partnership's portfolio investments had an aggregate fair value of $5,553,955 as of September 30, 2001. An assumed 10% decline from this fair value, including an assumed 10% decline of the per share market prices of the Partnership's publicly-traded securities, would result in a reduction to the fair value of such investments and a corresponding unrealized loss of $555,396. The Partnership had no short-term investments as of September 30, 2001. Market risk relating to the Partnership's interest-bearing cash equivalents held as of September 30, 2001 is considered to be immaterial. PART II - OTHER INFORMATION Item 1. Legal Proceedings. ----------------- The Partnership is not a party to any material pending legal proceedings. Item 2. Changes in Securities. --------------------- None. Item 3. Defaults Upon Senior Securities. ------------------------------- None. Item 4. Submission of Matters to a Vote of Security Holders. --------------------------------------------------- The 2001 Annual Meeting of Limited Partners, originally scheduled for June 29, 2001, was held on August 14, 2001. At the meeting, the following matters were voted on and approved: Affirmative Votes Withheld ----------- -------- Election of the four Individual General Partners, to serve for the ensuing year: Jeffrey T. Hamilton 4,733 1,955 ----- ----- Robert S. Ames 4,733 1,955 ----- ----- Alfred M. Bertocchi 4,733 1,955 ----- ----- George M. Weimer 4,733 1,955 ----- ----- Affirmative Negative Votes Votes Abstentions Election of the General Partner, WTVI Co., L.P. --------- ------- ----------- to serve as Managing General Partner for the ensuing year. 4,802 1,912 n/a ----- ----- Approval of the continuance of the Management Agreement between the Partnership and the Management Company 4,494 1,804 416 ----- ----- --- Ratification of the selection of BDO Seidman LLP as independent auditors for the Partnership's fiscal year ending December 31, 2001 5,578 756 380 ----- ------- ---

Item 5. Other Information. ----------------- None. Item 6. Exhibits and Reports on Form 8-K. -------------------------------- None. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant, in the capacities, and on the date indicated. WESTFORD TECHNOLOGY VENTURES, L.P. By: WTVI Co., L.P. its managing general partner By: Hamilton Capital Management Inc. its general partner By: /s/ Jeffrey T. Hamilton President, Secretary and Director ----------------------------- (PrincipalExecutive Officer)of Jeffrey T. Hamilton Hamilton Capital Management Inc. and Individual General Partner of Westford Technology Ventures, L.P. By: /s/ Susan J. Trammell Treasurer and Director (Principal ----------------------------- Financial and Accounting Officer) Susan J. Trammell of Hamilton Capital Management Inc. Date: November 14, 2001

WESTFORD TECHNOLOGY VENTURES LP 10-Q