Item 1. Business.
Formation
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 Partnership's management company. The Partnership began its principal operations on December 1, 1988.
The Partnership operates as a business development company under the Investment Company Act of 1940. The Partnership's investment 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 considers this activity to constitute the single industry segment of venture capital investing.
In 1988 and 1989, the Partnership publicly offered, through The Stuart-James Company, Incorporated (the "Selling Agent"), 35,000 units of limited partnership interest ("Units") at $1,000 per Unit. The Units were registered under the Securities Act of 1933 pursuant to a Registration Statement on Form N-2 (File No. 33-16891) which was declared effective on May 12, 1988. The Partnership held its initial and final closings on November 25, 1988 and January 31, 1989, respectively. A total of 11,217 Units were sold to limited partners (the "Limited Partners"). Gross capital contributions to the Partnership total $11,333,170, comprised of $11,217,000 from the Limited Partners, $112,170 from the Managing General Partner and $4,000 from the Individual General Partners.
The Partnership's originally scheduled termination date was December 31, 1998. In October 1998, the Individual General Partners voted to extend the term of the Partnership for an additional two-year period. The Partnership is now scheduled to terminate no later than December 31, 2000. The Individual General Partners have the right to extend the term of the Partnership for an additional two-year period if they determine that such extension is in the best interest of the Partnership.
The Venture Capital Investments
From its inception to December 31, 1998, the Partnership made investments in eight portfolio companies with an aggregate cost of $11,160,079. The Partnership has fully invested its original net proceeds and will not make additional investments in new portfolio companies. However, the Partnership may make additional follow-on investments in existing portfolio companies, if required. The venture capital investments made during 1998 and other events affecting the Partnership's portfolio investments during the year are listed below.
o In May 1998, the Partnership exercised its warrant to purchase 29,015 common shares of EIS International, Inc. for a total cost of $40,815. Subsequently, the Partnership sold 6,600 common shares of EIS for $40,832, realizing a loss of $68,190.
o In June 1998, the Partnership exercised its warrant to purchase 68,003 common shares of Inn-Room Systems, Inc. The cost to exercise such warrant, totaling $680, was paid by reducing the principal balance of the demand promissory note due from the company, from $103,620 to $102,940.
As of December 31, 1998, the Partnership had active investments in four portfolio companies with an aggregate cost of $10,460,214 and a fair value of $5,039,575. As of December 31, 1998, the Partnership had fully or partially liquidated investments with an aggregate cost of $3,864,669. These liquidated investments returned $5,590,139, resulting in a cumulative net realized gain of $1,725,470. Additionally, from its inception to December 31, 1998, the Partnership had earned $749,747 of interest and dividend income from its portfolio investments. As a result, from its inception to December 31, 1998, the Partnership had a cumulative net gain from its venture capital investments of $2,475,217.
Competition
The Partnership encounters competition from other entities having similar investment objectives. Primary competition for venture capital investments has been from venture capital partnerships and corporations, venture capital affiliates of large industrial and financial companies, small business investment companies and wealthy individuals. Competition also may develop from foreign investors and from large industrial and financial companies investing directly rather than through venture capital affiliates. The Partnership has been a co-investor with other professional venture capital investors and these relationships have generally expanded the Partnership's access to investment opportunities. As discussed above, the Partnership will not make investments in any new portfolio companies.
Employees
The Partnership has no employees. The Managing General Partner, subject to the supervision of the Individual General Partners, manages and controls the Partnership's venture capital investments. The Management Company performs, or arranges for others to perform, the management and administrative services necessary for the operation of the Partnership and is responsible for managing the Partnership's short-term investments.
Item 2.
Item 2. Properties.
The Partnership does not own or lease physical properties.
Item 3.
Item 3. Legal Proceedings.
The Partnership is not a party to any material pending legal proceedings.
Item 4.
Item 4. Submission of Matters to a Vote of Security Holders.
No matter was submitted to a vote of security holders during the fourth quarter of the calendar year covered by this report.
PART II
Item 5.
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
There is no established public trading market for the Units and it is not anticipated that any public market for the Units will develop. Consequently, Limited Partners cannot easily liquidate their investment. Several independent broker/dealers provide an informal secondary market for limited partnership interests. Transfers of Units are subject to certain restrictions pursuant to the Partnership Agreement and also may be affected by restrictions on resale imposed by the laws of certain states.
The approximate number of holders of Units as of March 16, 1999 is 1,792. The Managing General Partner and the four Individual General Partners of the Partnership also hold interests in the Partnership. Information contained in Item 12 of this report "Security Ownership of Certain Beneficial Owners and Management" is incorporated herein by reference.
The Partnership did not make any cash distributions to its Partners during the three year period ended December 31, 1998 and has not made any cash distributions to Partners since the inception of the Partnership.
Item 6.
Item 6. Selected Financial Data.
($ In Thousands, Except For Per Unit Information)
Item 7.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.
Liquidity and Capital Resources
As of December 31, 1998, the Partnership had $7,998 in an interest-bearing cash account. Interest earned on such cash balances and other short-term investments for the years ended December 31, 1998, 1997 and 1996 was $415, $11,692 and $56,377, respectively. Interest earned from cash balances and short-term investments in future periods is subject to fluctuations in short-term interest rates and changes in cash balances and amounts available for investment in short-term securities.
The Partnership has fully invested the net proceeds received from the offering of Units and will not make additional investments in new portfolio companies. However, the Partnership may make additional follow-on investments in existing portfolio companies, if required. As discussed below, during 1998, the Partnership completed a follow-on investment totaling $40,815 in EIS International, Inc.
As of December 31, 1998, the Partnership's current liabilities exceeded its cash balance by approximately $335,000. Current liabilities as of December 31, 1998 include $251,300 due to the Management Company. Funds needed to cover such current liabilities, future follow-on investments, if any, and operating expenses are expected to be obtained primarily from proceeds from the sale of the Partnership's remaining portfolio investments. As a result of the current cash shortage, payments to the Managing General Partner and Independent General Partners have been temporarily suspended.
The Partnership's originally scheduled termination date was December 31, 1998. In October 1998, the Individual General Partners voted to extend the term of the Partnership for an additional two-year period. The Partnership is now scheduled to terminate no later than December 31, 2000. The Individual General Partners have the right to extend the term of the Partnership for an additional two-year period if they determine that such extension is in the best interest of the Partnership.
Results of Operations
For the years ended December 31, 1998 and 1997, the Partnership had a net realized loss from operations of $264,993 and $254,578, respectively. For the year ended December 31, 1996, the Partnership had a net realized gain from operations of $2,666,326. 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 - For the year ended December 31, 1998, the Partnership had a net realized loss from its portfolio investments of $68,190 resulting from the sale of 6,600 common shares of EIS International, Inc. in June 1998. Such shares were sold for $40,832 compared to a cost of $109,022.
For the year ended December 31, 1997, the Partnership had a net realized loss from its portfolio investments of $31,655, relating to the final escrow payment received, during 1997, in connection with the 1996 merger of EIS International, Inc. with Cybernetics Systems, Inc. In June 1997, the Partnership received 16,682 common shares of EIS, representing 100% of the shares previously held in escrow. However, in connection with a settlement agreement among EIS and the former Cybernetics shareholders, the Partnership received $1,320, representing only a portion of the $32,985 cash balance previously held in escrow, resulting in the $31,655 realized loss for 1997.
For the year ended December 31, 1996, the Partnership had a net realized gain from its portfolio investments of $2,923,123. In May 1996, the Partnership sold its remaining 21,673 shares of Cincinnati Bell Inc. common stock in the public market for $1,082,314, realizing a gain of $657,115. In March 1996, EIS International, Inc., a public company, completed its merger with Cybernetics Systems International, Inc. In connection with the merger, the Partnership exchanged its Cybernetics holdings for $460,245 in cash, 206,267 shares of restricted EIS common stock and warrants to purchase 29,015 shares of EIS common stock at $1.41 per share. Of the total merger consideration, $32,985 of cash and 16,682 shares of EIS common stock were placed in escrow, the release of which was contingent upon certain events. Claims set forth by EIS International subsequent to the merger were resolved through arbitration, resulting in a loss to the Partnership in 1997, as discussed above. The Partnership recognized a $2,272,883 realized gain in 1996 in connection with the merger. Also during 1996, the Partnership had a realized loss of $6,875 resulting from the expiration, in April 1996, of the Partnership's option to purchase 5,000 shares of common stock of Spectix Corporation.
Investment Income and Expenses - Net investment loss for the years ended December 31, 1998, 1997 and 1996 was $196,803, $221,913 and $256,797, respectively. The $25,110 favorable change in net investment loss for 1998 compared to 1997 resulted from an $18,520 increase in investment income and a $6,590 decrease in operating expenses. The increase in investment income for 1998 is comprised of a $29,797 increase in income from portfolio investments partially offset by an $11,277 decrease in interest from short-term investments. The increase in income from portfolio investments primarily resulted from the additional promissory notes of Spectrix Corporation held by the Partnership during 1998 as compared to 1997. The decrease in interest from short-term investments during 1998 as compared to 1997 primarily is due to a reduction of funds available for investment in such securities during 1998. The decrease in operating expenses for 1998 as compared 1997 primarily resulted from a decline in professional fees of $9,006, primarily attributable to an unfavorable accrual adjustment made during the first quarter of 1997. This decrease was partially offset by a $5,939 increase in mailing and printing expenses primarily due to additional charges related to the proxy tabulation for the Partnership's 1998 Annual Meeting of Limited Partners.
The $34,884 decrease in net investment loss for 1997 compared to 1996 resulted from a $37,736 increase in investment income offset by a slight increase of $2,852 in operating expenses. The increase in investment income primarily resulted from an $82,421 increase in interest income from portfolio investments partially offset by a $44,685 decrease in interest from short-term investments. The increase in income from portfolio investments primarily resulted from the additional promissory notes of Spectrix Corporation held by the Partnership during 1997 compared to 1996. The decrease in interest from short-term investments for 1997 compared to 1996 primarily is due to a reduction of funds available for investment in such securities during 1997.
The Management Company is responsible for the management and administrative services necessary for the operation of the Partnership. The Management Company receives a management fee 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 annual fee of $200,000. The management fee for the years ended December 31, 1998, 1997 and 1996 was $222,302, $223,586 and $223,784, respectively. The Management Company agreed to reduce the management fee payable by the Partnership to the minimum annual fee of $200,000 effective January 1, 1999. To the extent possible, the management fee and other expenses incurred 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 or Appreciation of Portfolio Investments - For the year ended December 31, 1998, the Partnership had a $1,259,082 unfavorable net change in unrealized depreciation of investments, primarily resulting from a $1,312,829 net downward revaluation of the Partnership's investment in EIS International, Inc. and Inn-Room Systems, Inc. during 1998. Partially offsetting this unfavorable change was a $53,747 transfer from unrealized loss to realized loss resulting from the sale of 6,600 common shares of EIS, as discussed above.
For the year ended December 31, 1997, the Partnership had a $2,181,401 unfavorable net change in unrealized depreciation of investments from the net downward revaluation of its investments in EIS International, Inc. and Spectrix Corporation during 1997.
For the year ended December 31, 1996, the Partnership had a $4,428,010 unfavorable net change in unrealized depreciation of investments, primarily resulting from the net downward revaluation of the Partnership's investment in EIS International, Inc. during 1996. Additionally during 1996, $2,805,258 was transferred from unrealized gain to realized gain relating to investments sold during 1996, 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 portfolio investments. As of December 31, 1998, the Partnership's net assets were $5,054,041, reflecting a decrease of $1,524,075 from net assets of $6,578,116 as of December 31, 1997. This decline reflects the decrease in net assets resulting from operations, comprised of the $1,259,082 unfavorable change in net unrealized depreciation and the $264,993 net realized loss from operations for 1998.
As of December 31, 1997, the Partnership's net assets were $6,578,116, reflecting a decrease of $2,434,979 from net assets of $9,013,095 as of December 31, 1996. This decline reflects the decrease in net assets resulting from operations, comprised of the $2,181,401 unfavorable change in net unrealized depreciation and the $253,578 net realized loss from operations for 1997.
As of December 31, 1996, the Partnership's net assets were $9,013,095, reflecting a decrease of $1,761,684 from net assets of $10,774,779 as of December 31, 1995. This decline reflects the decrease in net assets resulting from operations, comprised of the $4,428,010 unfavorable change in net unrealized depreciation partially offset by the $2,666,326 net realized gain from operations for 1996.
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 as of December 31, 1998, 1997 and 1996 was $446, $580, and $790, respectively.
Year 2000 Issue - The Year 2000 ("Y2K") concern arose because many existing computer programs use only the last two digits to refer to a year. Therefore, these computer programs do not properly recognize a year that begins with "20" instead of "19". If not corrected, many computer applications could fail or create erroneous results. The impact of the Y2K concern on the Partnership's operations is currently being assessed.
The Management Company is responsible to provide or arrange for the provision of administrative services necessary to support the Partnership's operations. The Management Company has arranged for Palmeri Fund Administrators, Inc. (the "Administrator") to provide the administrative and accounting services for the Partnership, including maintenance of the books and records of the Partnership, maintenance of the Limited Partner database, issuance of financial reports and tax information to Limited Partners and processing distribution payments to Limited Partners. Fees charged by the Administrator are paid directly by the Management Company.
The Administrator is currently assessing its computer hardware and software systems, specifically as they relate to the operations of the Partnership. As part of its investigation of potential Y2K problems, the Administrator has contracted with an outside computer service provider to examine all of the Administrator's computer hardware and software applications, to identify any Y2K concerns. This review and evaluation is in process and is expected to be completed by May 1999. If Y2K problems are identified, the Administrator will purchase, install and test the necessary software patches and new computer hardware to ensure that all of its computer systems are Y2K compliant. This correction phase, if required, is expected to be completed by September 1999.
Additionally, the Administrator has contacted the outside service providers used to assist the Administrator or the Management Company with the administration of the Partnership's operations to ascertain whether these entities are addressing the Y2K issue within their own operation. There can be no guarantee that the Administrator's systems or that systems of other companies providing services to the Partnership will be corrected in a timely manner. The estimated costs to the Partnership, relating to the investigation or correction of Y2K problems affecting the Partnership's operations, are expected to be nominal.
Finally, the Y2K issue is a global concern that may affect all business entities, including the Partnership's portfolio companies. The Managing General Partner is continuing to assess the impact of Y2K concerns on its portfolio companies. However, the extent to which any potential Y2K problems could affect the valuations of these companies is unknown. At the time that specific Y2K problems are identified, if any, the Managing General Partner will take such issues into consideration in adjusting the fair value of the Partnership's portfolio investments.
Item 7A.
Item 7A. 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 $5,039,575 as of December 31, 1998. An assumed 10% decline from this December 31, 1998 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 an unrealized loss of $503,958.
The Partnership had no short-term investments as of December 31, 1998. Market risk relating to the Partnership's interest-bearing cash equivalents held as of December 31, 1998 is considered to be immaterial.
Item 8.
Item 8. Financial Statements and Supplementary Data.
WESTFORD TECHNOLOGY VENTURES, L.P. INDEX
Report of Independent Certified Public Accountants - BDO Seidman, LLP
Balance Sheets as of December 31, 1998 and 1997
Schedule of Portfolio Investments as of December 31, 1998
Schedule of Portfolio Investments as of December 31, 1997
Statements of Operations for the years ended December 31, 1998, 1997 and 1996
Statements of Cash Flows for the years ended December 31, 1998, 1997 and 1996
Statements of Changes in Partners' Capital for the years ended December 31, 1996, 1997 and 1998
Notes to Financial Statements
NOTE - All schedules are omitted because of the absence of conditions under which they are required or because the required information is included in the financial statements or the notes thereto.
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Partners Westford Technology Ventures, L.P. Newark, New Jersey
We have audited the accompanying balance sheets of Westford Technology Ventures, L.P. (the "Partnership"), including the schedule of portfolio investments, as of December 31, 1998 and 1997, and the related statements of operations, changes in partners' capital, and cash flows for each of the three years in the period ended December 31, 1998. 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. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. 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 Westford Technology Ventures, L.P. at December 31, 1998 and 1997, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1998 in conformity with generally accepted accounting principles.
As explained in Note 2, the financial statements include investments valued at $4,639,381 and $6,366,864, at December 31, 1998 and 1997, respectively, representing 92% and 97% of partners' capital, respectively, whose values have been estimated by the managing general partner in the absence of readily ascertainable market values. We have reviewed the procedures used by the managing general partner in arriving at its estimates or value of such investments and have inspected underlying documentation and, in the circumstances, we believe the procedures are reasonable and the documentation appropriate. However, those estimated values may differ significantly from the values that would have been used had a ready market for the investments existed, and the differences could be material.
BDO Seidman, LLP
New York, New York March 15, 1999
WESTFORD TECHNOLOGY VENTURES, L.P. BALANCE SHEETS December 31,
See notes to financial statements.
WESTFORD TECHNOLOGY VENTURES, L.P. SCHEDULE OF PORTFOLIO INVESTMENTS December 31, 1998
(A) Public company
(B) In May 1998, the Partnership exercised its warrant to purchase 29,015 common shares of EIS International, Inc. for a total cost of $40,815. Subsequently, the Partnership sold 6,600 common shares of EIS for $40,832, realizing a loss of $68,190.
(C) In June 1998, the Partnership exercised its warrant to purchase 68,003 common shares of Inn-Room Systems, Inc. The cost to exercise such warrants, totaling $680, was paid by reducing the principal balance of the demand promissory note due from the company, from $103,620 to $102,940.
* 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. SCHEDULE OF PORTFOLIO INVESTMENTS December 31, 1997
(A) Public company
* 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 For the Years Ended December 31,
See notes to financial statements.
WESTFORD TECHNOLOGY VENTURES, L.P. STATEMENTS OF CASH FLOWS For the Years Ended December 31,
See notes to financial statements.
WESTFORD TECHNOLOGY VENTURES, L.P. STATEMENTS OF CHANGES IN PARTNERS' CAPITAL For the Years Ended December 31, 1996, 1997 and 1998
(A) The net asset value per unit of limited partnership interest, including an assumed allocation of net unrealized depreciation of investments, was $44 nnn6, $580 and $790 as of December 31, 1998, 1997 and 1996, respectively.
See notes to financial statements.
WESTFORD TECHNOLOGY VENTURES, L.P. NOTES TO FINANCIAL STATEMENTS
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's originally scheduled termination date was December 31, 1998. In October 1998, the Individual General Partners voted to extend the term of the Partnership for an additional two-year period. The Partnership is now scheduled to terminate no later than December 31, 2000. The Individual General Partners have the right to extend the term of the Partnership for an additional two-year period if they determine that such extension is in the best interest of the Partnership.
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. The fair value of publicly-held portfolio securities is adjusted to the closing public market price for the last trading day of each quarter 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 carried at cost until significant developments affecting the portfolio company provide a basis for change in valuation. The fair value of private securities is adjusted 1) to reflect meaningful third-party transactions in the private market or 2) to reflect 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 therefor. Realized gains and losses on investments sold are computed on a specific identification basis.
WESTFORD TECHNOLOGY VENTURES, L.P. NOTES TO FINANCIAL STATEMENTS, 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 $5.4 million at December 31, 1998, which was recorded for financial statement purposes, has not been recognized for tax purposes. Additionally, from inception to December 31, 1998, other timing differences relating to net realized gains totaling $1.0 million have been recorded on the Partnership's financial statements but have not yet been recorded on the Partnership's tax return and syndication costs relating to the selling 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 have been made to the prior year's financial statements to conform with the current year's 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 receives a management fee 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. Such fee is determined quarterly and paid monthly. The Management Company agreed to reduce the management fee payable by the Partnership to the minimum annual fee of $200,000 effective January 1, 1999.
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 charges the Partnership $8,500 per quarter. This amount is paid to the Management Company in addition to the regular management fee discussed above.
5. Independent General Partners' Fees
As compensation for services rendered to the Partnership, each of the three Independent General Partners receives $10,000 annually in quarterly installments and $1,000 for each meeting of the Independent General Partners attended, plus out-of-pocket expenses. Beginning in January 1999, the annual fee of $10,000 will be reduced to $5,000 for each Independent General Partner.
WESTFORD TECHNOLOGY VENTURES, L.P. NOTES TO FINANCIAL STATEMENTS, continued
6. Classification of Portfolio Investments
As of December 31, 1998 and 1997, the Partnership's investments were categorized as follows:
* Fair value as a percentage of net assets.
Item 9.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
None.
PART III
Item 10.
Item 10. Directors and Executive Officers of the Registrant.
The Partnership
The information set forth under the caption "Election of General Partners" in the Annual Meeting Proxy Statement is incorporated herein by reference.
The Management Company
The Management Company performs, or arranges for others to perform, the management and administrative services necessary for the operation of the Partnership pursuant to the Management Agreement between the Partnership and the Management Company. As of March 16, 1999, the directors and executive officers of the Management Company are:
Name and Age Position Held Director Since
Jeffrey T. Hamilton (61)President, Secretary and September 3, 1987 Chairman of the Board of Directors
Louise M. Hamilton (58) Director August 23, 1991
Susan J. Trammell (44) Treasurer and Director February 27, 1991
The directors of the Management Company will serve as directors until the next annual meeting of stockholders and until their successors are elected and qualified. The officers of the Management Company will hold office until the next annual meeting of the Board of Directors of the Management Company and until their successors are elected and qualified.
The information with respect to Mr. Hamilton, the sole shareholder of the Management Company, set forth under the subcaption "Election of Individual General Partners" in the Annual Meeting Proxy Statement is incorporated herein by reference.
There are no family relationships among any of the Individual General Partners of the Partnership. Jeffrey T. Hamilton and Louise M. Hamilton, President, Secretary and Chairman of the Board of Directors and Director of the Management Company, respectively, are husband and wife.
Item 11.
Item 11. Executive Compensation.
The information with respect to the compensation of the Individual General Partners set forth under the subcaption "Election of Individual General Partners" in the Annual Meeting Proxy Statement is incorporated herein by reference.
The information with respect to the allocation and distribution of the Partnership's profits and losses to the Managing General Partner set forth under the subcaption "Election of Managing General Partner" in the Annual Meeting Proxy Statement is incorporated herein by reference.
The information with respect to the management fee payable to the Management Company set forth under the caption "The Terms of the Current Management Agreement and the Proposed Management Agreement" in the Annual Meeting Proxy Statement is incorporated herein by reference.
Item 12.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
The information concerning the security ownership of the Individual General Partners set forth under the subcaption "Election of Individual General Partners" in the Annual Meeting Proxy Statement is incorporated herein by reference.
As of March 16, 1999, no person or group is known by the Partnership to be the beneficial owner of more than 5 percent of the Units. Mr. Ames, an Individual General Partner of the Partnership, owns 10 Units and Ms. Trammell, the Treasurer and Director of the Management Company, owns 3 Units. The Individual General Partners and the directors and officers of the Management Company as a group own 13 Units or less than one percent of the total Units outstanding.
The Partnership is not aware of any arrangement which may, at a subsequent date, result in a change of control of the Partnership.
Item 13.
Item 13. Certain Relationships and Related Transactions.
Not applicable.
PART IV
Item 14.
Item 14. Exhibits, Financial Statements, Schedules and Reports on Form 8-K.
(a) 1. Financial Statements
Report of Independent Certified Public Accountants - BDO Seidman, LLP
Balance Sheets as of December 31, 1998 and 1997
Schedule of Portfolio Investments as of December 31, 1998
Schedule of Portfolio Investments as of December 31, 1997
Statements of Operations for the years ended December 31, 1998, 1997 and 1996
Statements of Cash Flows for the years ended December 31, 1998, 1997 and 1996
Statements of Changes in Partners' Capital for the years ended December 31, 1996, 1997 and 1998
Notes to Financial Statements
2. Exhibits
3.1 Amended and Restated Certificate of Limited Partnership of the Registrant (filed as Exhibit 3.1 to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1991 and incorporated herein by reference).
3.2 Amended and Restated Agreement of Limited Partnership of the Registrant (filed as Exhibit 1(c) to the Registrant's Registration Statement on Form N-2 (No. 33-16891) and incorporated herein by reference).
10 Management Agreement dated as of February 28, 1991 between the Registrant and the Management Company (filed as Exhibit A to the Registrant's definitive proxy statement in connection with the 1991 Annual Meeting of Limited Partners and incorporated herein by reference).
27 Financial Data Schedule.
(b) No reports on Form 8-K have been filed during the fourth quarter of the fiscal year covered by this report.
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 indicated on the 15th day of April 1999.
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 (Principal Jeffrey T. Hamilton Executive Officer) of Hamilton Capital Management Inc. and Individual General Partner of Westford Technology Ventures, L.P.
By: /s/ Susan J. Trammell Treasurer and Director (Principal Financial Susan J. Trammell and Accounting Officer) of Hamilton Capital Management Inc.
By: /s/ Robert S. Ames Individual General Partner of Robert S. Ames Westford Technology Ventures, L.P.
By: /s/ Alfred M. Bertocchi Individual General Partner of Alfred M. Bertocchi Westford Technology Ventures, L.P.
By: /s/ George M. Weimer Individual General Partner of George M. Weimer Westford Technology Ventures, L.P.