-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, CcRUqpaI81dcswR7dtMMXr83Q4YXKtONj1nMKehG9qorfE8MHh0IyH9xpMgUnJp3 dpyRJSLoIgwX3KiIl9Argw== 0001021408-02-013543.txt : 20021112 0001021408-02-013543.hdr.sgml : 20021111 20021112085151 ACCESSION NUMBER: 0001021408-02-013543 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20020930 FILED AS OF DATE: 20021112 FILER: COMPANY DATA: COMPANY CONFORMED NAME: WESTERN PENNSYLVANIA ADVENTURE CAPITAL FUND CENTRAL INDEX KEY: 0001023957 IRS NUMBER: 300046038 STATE OF INCORPORATION: PA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 814-00131 FILM NUMBER: 02815257 BUSINESS ADDRESS: STREET 1: C/O THE ENTERPRISE CORP STREET 2: 2000 TECHNOLOGY DR SUITE 150 CITY: PITTSBURGH STATE: PA ZIP: 15219 BUSINESS PHONE: 4122791760 MAIL ADDRESS: STREET 1: C/O THE ENTERPRISE CORP STREET 2: 2000 TECHNOLOGY DR SUITE 150 CITY: PITTSBURGH STATE: PA ZIP: 15219 10-Q 1 d10q.txt FORM 10Q FORM 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2002 OR [_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission file number 000-21593 --------- WESTERN PENNSYLVANIA ADVENTURE CAPITAL FUND, LLC (Exact Name of Registrant as Specified in its Charter) Pennsylvania 30-0046038 ------------ ---------- (State of Other Jurisdiction of (I.R.S. Employer Identification No.) Incorporation or Organization) Scott Towne Center, Suite A-113 2101 Greentree Road Pittsburgh, PA 15220-1400 (Address of Principal Executive Offices and Zip Code) (412) 279-1760 (Registrant's Telephone Number, Including Area Code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. X Yes ____ No - - Number of members units as of November 8, 2002: 4,222,870 Units. PART 1 - Financial Information
Page No. Item 1 Financial Statements Report on Review by Independent Certified Public Accountants 3 Statements of Assets and Liabilities as of September 30, 2002 (unaudited) and 4 December 31, 2001 Statements of Operations, for the Periods July 1, 2002 through September 5 30, 2002 (unaudited) and January 1, 2002 through September 30, 2002 (unaudited) Statements of Operations, for the Periods July 1, 2001 through September 6 30, 2001 (unaudited) and January 1, 2001 through September 30, 2001 (unaudited) Statements of Changes in Net Assets for the Periods July 1, 2002 through 7 September 30, 2002 (unaudited) and January 1, 2002 through September 30, 2002 (unaudited) Statements of Changes in Net Assets, for the Periods July 1, 2001 through 8 September 30, 2001 (unaudited) and January 1, 2001 through September 30, 2001 (unaudited) Statements of Cash Flows, for the Periods July 1, 2002 through September 9 30, 2002 (unaudited) and January 1, 2002 through September 30, 2002 (unaudited) Statements of Cash Flows, for the Periods July 1, 2001 through September 10 30, 2001 (unaudited) and January 1, 2001 through September 30, 2001 (unaudited) Notes to Financial Statements 11 Item 2 Management's Discussion and Analysis of Financial Condition and 20 Results of Operations Statement by Management Concerning Review of Interim Information by Independent 22 Certified Public Accountants Statement by Management Concerning the Fair Presentation of Interim Financial 23 Information
2 REPORT ON REVIEW BY INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS To the Board of Directors Western Pennsylvania Adventure Capital Fund, LLC We have reviewed the accompanying statement of assets and liabilities of Western Pennsylvania Adventure Capital Fund, LLC as of September 30, 2002, and the related statements of operations, changes in net assets, and cash flows for the three and nine month periods ended September 30, 2002 and 2001. These financial statements are the responsibility of the company's management. We conducted our reviews in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our reviews, we are not aware of any material modifications that should be made to the accompanying financial statements for them to be in conformity with generally accepted accounting principles. We have previously audited, in accordance with generally accepted auditing standards, the statement of assets and liabilities as of December 31, 2001 and the related statements of operations, changes in net assets, and cash flows for the year then ended (not presented herein), and in our report dated March 21, 2002, we expressed an unqualified opinion on those financial statements. Goff Backa Alfera & Company, LLC Pittsburgh, November 8, 2002 3 Statements of Assets and Liabilities As of
September 30, 2002 December 31, 2001 ------------------ ----------------- Assets (unaudited) ------ Cash and Cash Equivalents $ 258,753 $ 292,699 Short Term Investments, Net 201,432 546,888 Receivables 18,856 17,169 Investment in Portfolio Companies 3,015,157 2,947,083 Prepaid/Deferred Taxes 17,040 57,000 Organization Costs 0 3,040 ------------- ------------- Total Assets $ 3,511,238 $ 3,863,879 ============= ============= Liabilities ----------- Accounts Payable $ 0 $ 21,924 Accrued Liabilities 16,800 6,500 Accrued Income Taxes 0 9,701 ------------- ------------- Total Liabilities $ 16,800 $ 38,125 ============= ============= Net Assets ---------- Members' Equity Outstanding 4,222,870 Units $ 3,494,438 0 Common Stock, Par Value $.01 Per Share, Authorized 10,000,000 Shares, Issued and Outstanding 4,224,870 Shares at December 31, 2001 0 $ 44,749 Additional Paid in Capital 0 5,146,276 Syndication Costs 0 (149,220) Retained Earnings 0 (1,089,486) Treasury Stock - 250,000 Shares, at cost, 0 (126,565) ------------- ------------- At December 31, 2001 Net Assets Applicable to Shares/Units Outstanding $ 3,494,438 $ 3,825,754 ============= ============= Net Assets Value Per Share/Unit $ 0.83 $ 0.91 ============= =============
See Accountant's Report and accompanying notes to financial statements. 4 Western Pennsylvania Adventure Capital Fund, LLC Statements of Operations For the Periods
July 1, 2002 January 1, 2002 through through September 30, 2002 September 30, 2002 ------------------ ------------------ (unaudited) (unaudited) Revenues: Interest $ 6,122 $ 21,547 Realized Gains 0 6,367 --------- --------- Total Revenues 6,122 27,914 --------- --------- Expenses: General and Administration 4,500 13,500 Other Operating Expenses 48,835 117,365 --------- --------- Total Expenses 53,335 130,865 --------- --------- Unrealized Appreciation (Depreciation) - Portfolio Companies (21,060) (185,685) --------- --------- Profit/(Loss) Before Income Tax (68,273) (288,636) Income Tax Expense 0 41,600 --------- --------- Net Income (Loss) $ (68,273) $(330,236) ========= ========= Earnings (Loss) Per Share/Unit $ (.02) $ (.08) ========= =========
See Accountant's Report and accompanying notes to financial statements. 5 Western Pennsylvania Adventure Capital Fund Statements of Operations For the Periods
July 1, 2001 January 1, 2001 through through September 30, 2001 September 30, 2001 ------------------ ------------------ (unaudited) (unaudited) Revenues: Interest $ 16,694 $ 52,714 Management Fees (6,250) 6,250 Realized Gains 0 189,195 ---------- ------------ Total Revenues 10,444 248,159 ---------- ------------ Expenses: General and Administration 4,500 13,500 Other Operating Expenses 58,693 106,227 ---------- ------------ Total Expenses 63,193 119,727 ---------- ------------ Unrealized depreciation - Portfolio companies (94,498) (1,880,195) Profit (Loss) Before Income Tax (147,247) (1,751,763) Income Tax Expense (Benefit) (8,332) (308,947) ---------- ------------ Net Income (Loss) $ (138,915) $ (1,442,816) ========== ============ Earnings (Loss) Per Share $ (0.03) $ (0.34) ========== ============
See Accountant's Report and accompanying notes to financial statements. 6 Western Pennsylvania Adventure Capital Fund, LLC Statements of Changes in Net Assets For the Periods
July 1, 2002 January 1, 2002 through through September 30, 2002 September 30, 2002 ------------------ ------------------ (unaudited) (unaudited) From Operations Net Income (Loss) $ (68,273) $ (330,236) Redemption of Dissenter's Shares 0 (1,080) ---------- ---------- Net Increase (Decrease) in Net Assets (68,273) (331,316) Net Assets: Beginning of Period 3,562,711 3,825,754 ---------- ---------- End of Period $3,494,438 $3,494,438 ========== ==========
See Accountant's Report and accompanying notes to financial statements. 7 Western Pennsylvania Adventure Capital Fund Statements of Changes in Net Assets For the Periods
July 1, 2001 January 1, 2001 through through September 30, 2001 September 30, 2001 ------------------ ------------------ (unaudited) (unaudited) From Operations Net Income (Loss) $ (138,915) $(1,442,816) From Share Transactions: Proceeds from Sale of Common Stock 0 36,400 ---------- ----------- Net Increase (Decrease) in Net Assets (138,915) (1,406,416) Net Assets: Beginning of Period 4,066,534 5,334,035 ---------- ----------- End of Period $3,927,619 $ 3,927,619 ========== ===========
See Accountant's Report and accompanying notes to financial statements. 8 Western Pennsylvania Adventure Capital Fund, LLC Statements of Cash Flows For the Periods
July 1, 2002 January 1, 2002 through through September 30, 2002 September 30, 2002 ------------------ ------------------ (unaudited) (unaudited) Cash Flow from Operating Activities: Income (Loss) $ (68,273) $(330,236) Change in Assets and Liabilities: Organization Costs - Amortization 0 3,040 Receivables - (Increase) Decrease 2,125 (1,687) Prepaid Taxes - (Increase) Decrease 0 39,960 Accounts Payable - Increase (Decrease) (3,062) (21,924) Accrued Liabilities - Increase (Decrease) 1,500 599 --------- --------- Net Cash Provided By (Used in) Operating Activities (67,710) (310,248) --------- --------- Cash Flow from Financing Activities: Purchase Member's Units 0 (1,080) --------- --------- Cash Flow from Investing Activities: Short Term Investments, Net of Redemptions (1,646) 345,456 Investment in Portfolio Companies (9,000) (68,074) --------- --------- Net Cash Provided by (Used in) Investing Activities (10,646) 277,382 --------- --------- Net Increase (Decrease) in Cash and Cash Equivalents (78,356) (33,946) Cash and Cash Equivalents at Beginning of Period 337,109 292,699 --------- --------- Cash and Cash Equivalents at End of Period $ 258,753 $ 258,753 ========= =========
See Accountant's Report and accompanying notes to financial statements. 9 Western Pennsylvania Adventure Capital Fund Statements of Cash Flows For the Periods
July 1, 2001 January 1, 2001 through through September 30, 2001 September 30, 2001 ------------------ ------------------ (unaudited) (unaudited) Cash Flow from Operating Activities: Income (Loss) $ (138,915) $(1,442,816) Change in Assets and Liabilities: Organization Costs - Amortization 760 2,280 Receivables - Decrease 28,376 10,894 Prepaid Taxes - (Increase) Decrease 0 (54,394) Accounts Payable - (Decrease) (405) (6,976) Accrued Liabilities - Increase (Decrease) (8,676) 40,156 Deferred Taxes - (Decrease) 0 (292,447) ----------- ----------- Net Cash Provided By (Used in) Operating Activities (118,860) (1,743,303) ----------- ----------- Cash Flow from Financing Activities: Proceeds from Sale of Common Stock 0 36,400 ----------- ----------- Cash Flow from Investing Activities: Short Term Investments, Net of Redemptions 296,414 67,526 Investment in Portfolio Companies (27,132) 1,138,973 ----------- ----------- Net Cash Provided by (Used in) Investing Activities 269,282 1,206,499 ----------- ----------- Net Increase (Decrease) in Cash and Cash Equivalents 150,422 (500,404) Cash and Cash Equivalents at Beginning of Period 233,995 884,821 ----------- ----------- Cash and Cash Equivalents at End of Period $ 384,417 $ 384,417 =========== =========== Income Taxes Paid (Refunded) $ 344 $ (5,093)
See Accountant's Report and accompanying notes to financial statements. 10 Western Pennsylvania Adventure Capital Fund, LLC Notes to Financial Statements September 30, 2002 Note 1 - Summary of Significant Accounting Policies: This summary of significant accounting policies of Western Pennsylvania Adventure Capital Fund, LLC and its predecessor organization, the Western Pennsylvania Adventure Capital Fund, a C Corporation (collectively and/or individually the "Fund") is presented to assist in understanding the Fund's financial statements. These accounting policies conform with generally accepted accounting principles and have been consistently applied in the preparation of the financial statements. Nature of Operations The Fund was incorporated on May 23, 1996, as Western Pennsylvania Adventure Capital Fund (a C Corporation) and began its primary business activities in November, 1997. The Fund has been formed to become a Business Development Company ("BDC") and to be subject to the applicable provisions of the Investment Company Act of 1940, as amended (the "1940 Act"). The Fund invests primarily in the equity and/or debt securities of development stage companies located in western Pennsylvania. The Fund seeks to make its investments in conjunction with a consortium of investment partners such as individual investors, other venture capital firms, private non-profit or for-profit companies or foundations, and federal, state or local public, quasi-public or publicly-supported economic development organizations, agencies or authorities which provide investment capital or low interest or other financing for economic development. As of February 28, 2002, the Western Pennsylvania Adventure Capital Fund (a C Corporation) was merged into its wholly owned and heretofore inactive subsidiary, the Western Pennsylvania Adventure Capital Fund, LLC (an LLC organization). The Western Pennsylvania Adventure Capital Fund, LLC has continued all of the operations of the Western Pennsylvania Adventure Capital Fund (a C Corporation). The Fund's Board of Directors, which is elected by the members (previously by the shareholders) annually, has responsibility for management of the Fund, including authority to select portfolio securities for investment by the Fund. The Board is advised by the officers of the Fund and, through December 31, 1998, had been advised by The Enterprise Corporation of Pittsburgh ("Enterprise"), which served as the Fund's investment advisor. Enterprise screened potential Portfolio Companies and presented them to the Fund's Board for investment consideration, conducted due diligence reviews of investment candidates and managed the day-to-day operations of the Fund including, portfolio management, preparing reports to shareholders and performing administrative services. The recommendations of Enterprise as to investments were advisory only and were not binding on the Fund or its Board of Directors. Enterprise was a private, non-profit consulting firm founded in 1983 for the purpose of assisting entrepreneurs in developing new businesses in western Pennsylvania. As of December 31, 1998, Enterprise ceased operations and is no longer serving as the Fund's investment advisor. The Fund's Board of Directors now performs these activities. 11 Enterprise received a fee equal to 5% of the aggregate amount of assets invested by the Fund in portfolio securities for providing investment advisory and administrative services to the Fund. Enterprise may also have received compensation from investment partners or members of any investment consortium that invested with the Fund in portfolio securities, all on such basis as such other parties and Enterprise may have agreed. Basis of Presentation - Interim Financial Statements The financial information included herein has been prepared from the books and records without audit. The accompanying financial statements have been prepared in accordance with the instructions to Form 10-Q and do not include all of the information and the footnotes required by generally accepted accounting principles for statements. In the opinion of management, all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the financial condition, results of operations, changes in net assets, and cash flows, have been included. 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 revenue and expenses during the reporting period. Actual results could differ from those estimates. These financial statements should be read in conjunction with the financial statements and notes thereto for the period January 1, 2001 to December 31, 2001, contained in the Fund's 2001 Annual Report on Form 10-K. Basis of Presentation - Net Assets During 1996, the Fund began offering a total of 5,000,000 shares of its common stock, par value $.01, at a price of $1.00 per share under Regulation E of the Securities Act of 1933 (the "First Offering"). In connection with its services in organizing the formation and development of the Fund, Enterprise purchased 250,000 shares of common stock for $.01 per share, which represented 4.8% of the total potential outstanding shares of the Fund. The shares purchased by Enterprise represented founder's shares. If less than 5,000,000 shares were sold in the First Offering, the Fund had the right to repurchase from Enterprise for $.01 per share such number of shares as would result in Enterprise's ownership percentage in the Fund immediately following the First Offering being 4.8%. During 1997, the Fund sold 2,104,333 shares of its common stock and closed the First Offering. As of December 31, 1997, the Fund repurchased 143,899 shares of its common stock from Enterprise, thereby reducing Enterprise's ownership to 106,101 shares, which represented 4.8% of the then total shares issued and outstanding (2,210,434 shares). The repurchased shares are presented as Treasury Stock, at cost. On September 10, 1999, the Fund began offering a total of 2,750,000 shares of its common stock, par value $.01, at a price of $1.45 per share under Regulation E of the Securities Act of 1933 (the "Second Offering"). The Second Offering was extended through January 31, 2000. The Fund sold 2,057,787 shares of its common stock and closed the Second Offering. 12 On July 14, 2000, the Fund began offering a total of 875,000 shares of its common stock, par value $0.01, at a price of $1.60 per share under Regulation E of the Securities Act of 1933 (the "Third Offering"). The Third Offering was extended through March 31, 2001. The Fund sold 62,750 shares of its common stock and closed the Third Offering. Syndication Costs Legal, accounting and other costs of $149,220 ($85,507 in 1998) incurred in connection with the Fund's First Offering, Second Offering and Third Offering have been capitalized and reported as a permanent reduction of net assets in accordance with generally accepted accounting principles. There were no syndication costs incurred in the three and nine month periods ended September 30, 2002 and September 30, 2001. Cash and Cash Equivalents Cash and Cash Equivalents consist of cash in checking accounts and high quality money market instruments having or deemed to have remaining maturities of thirteen months or less. Short Term Investments The Fund's short term investments consist of high quality commercial paper and U.S. Government securities. These investments generally are purchased at a discount or premium from face value and are redeemed at maturity at face value. The difference represents interest income (expense) which will accrue over the period from date of acquisition to date of maturity. The Fund uses the effective yield to maturity method to recognize the accretion of interest income (expense) over the life of each individual short term investment. This method produces a rate of return which is constant over the period from acquisition to maturity. Using this method, the interest income (expense) recognized on each individual investment will increase over time as the carrying value of that investment increases (decreases). The Fund records these investments net of remaining unearned interest income (expense). In accordance with Statement of Financial Accounting Standards ("SFAS") No. 115, "Accounting for Certain Investments in Debt and Equity Securities," the Fund has classified all short term investments as held-to-maturity ("HTM") as of September 30, 2002 and December 31, 2001. Investments in Portfolio Companies Investments are stated at value. Investments for which market quotations are readily available are valued at the last trade price on or within one local business day of the date of determination as obtained from a pricing source. If no such trade price is available, such investments are valued at the quoted bid price or the mean between the quoted bid and asked price on the date of determination as obtained from a pricing source. Securities for which market quotations are not readily available are valued at fair value in good faith using methods determined by or under the direction of the Fund's Board of Directors. 13 Start-Up and Organization Costs Costs incurred in connection with the start-up and organization of the Fund had been deferred through March 31, 2002 and were being amortized ratably over a period of 60 months beginning January 1, 1998. During the three month period ended June 30, 2002, the Fund, as a result of the recent merger (See Note 2), wrote off the remaining balance of $2,280 of deferred Start-Up and Organization Costs. The balance of $3,040 at December 31, 2001 represents the remaining portion of these costs subject to amortization at that time. Earnings Per Share/Unit During 1997, the Fund adopted SFAS No. 128, "Earnings Per Share". Its application is not expected to affect the calculations of basic and diluted earnings per share/unit. Earnings per share/unit is computed using the weighted average number of shares/units outstanding during the respective periods, adjusted for outstanding stock options, if any. There are no other outstanding warrants, or other contingently issuable shares/units. The Fund's shareholders, at the annual meeting of shareholders held on November 17, 1999, approved a stock option plan which authorizes the granting of options to purchase the Fund's common stock to directors, officers, employees, and members of the advisory board of the Fund. Options to purchase 250,000 shares of the Fund's common stock have been granted to directors of the Fund under the terms of this stock option plan. On December 20, 2001, all of the directors returned their options to the Fund. The Fund may grant options to the directors at a future date. Income Taxes The Fund has adopted the SFAS Standard No. 109, "Accounting for Income Taxes", from its inception. SFAS 109 requires an asset and liability approach that recognizes deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in the Fund's financial statements or tax returns. In estimating future tax consequences, SFAS 109 generally considers all expected future events other than enactments of changes in the tax law or rates. During the quarter ended December 31, 1999, the Fund recognized unrealized appreciation on its portfolio companies, and accordingly, began recognizing deferred taxes due to temporary timing differences in accordance with SFAS 109. During the three month period ended June 30, 2001, the Fund revalued a number of its investments in portfolio companies based on current economic conditions and certain unfavorable developments at specific portfolio companies. Accordingly, a previously recognized deferred tax liability of $292,447 on previously recorded unrealized appreciation was reversed in the three month period ended June 30, 2001, and a deferred tax asset of $57,000 was recorded. There were no deferred taxes recognized in either the three month period ended March 31, 2001, or the three month period ended September 30, 2001. Deferred taxes of $39,960 recognized during the three month period ended March 31, 2002 relate to the partial reversal of the deferred tax asset recorded at December 31, 2001, which will not be realized as a result of the merger discussed in Note 2. There were no deferred taxes recognized during either the three month period ended June 30, 2002, or the three month period ended September 30, 2002. The Fund, as a result of becoming an LLC as of February 28, 2002, is treated as a "pass through" entity for income tax purposes. Any income tax liabilities incurred by the Fund are allocated to members of the Fund annually for inclusion in the members' individual income tax returns. The Fund remains responsible for any Pennsylvania Capital Stock and Franchise Tax. 14 Note 2 - Merger As of February 28, 2002, the Fund converted from the C Corporation to an LLC Organization via merger of the C Corporation into its wholly owned and previously inactive subsidiary - an LLC Organization. As a consequence, the LLC assumed all assets and liabilities of the C Corporation and is continuing all operations of the C Corporation. Shareholders of the C Corporation have become members of the LLC, and hold the same number of ownership units in the LLC equal to the number of shares that they held in the C Corporation, with no change in ownership percentage of the respective organizations. Note 3 - Sale of Securities During 1997, the Fund sold 2,104,333 shares of its common stock at $1.00 per share, under an Offering Circular dated November 7, 1996 ("First Offering Circular"). The proceeds were required to be deposited in an escrow account with the Fund's escrow agent, PNC Bank, until such time as the escrow account reached $1 million. At that time, the Fund was permitted to withdraw the funds from the escrow account and begin to invest in portfolio securities. As of July 11, 1997, the proceeds in the escrow account totaled $1,860,100. On that date, the Fund withdrew substantially all of the funds from the escrow account. The funds released from escrow have been temporarily invested, pending investment in Portfolio Securities, in cash equivalents, government securities, and high quality debt securities. A portion of the funds released from escrow were disbursed to pay accumulated obligations whose payment was deferred until funds were released from escrow. The Fund began offering for sale up to 2,750,000 shares of its Common Stock at $1.45 per share, or a maximum of $3,987,500, under an Offering Circular dated September 10, 1999 ("Second Offering Circular"). The Fund intends to use the proceeds from this sale of securities primarily to invest in the equity and/or debt securities of additional development stage companies located in western Pennsylvania, and to make follow on investments, as appropriate, in existing portfolio companies. The proceeds from this sale of securities have been temporarily invested, pending investments in portfolio companies, in cash equivalents, government securities, and high quality debt securities. A portion of these proceeds may be used for normal operating expenses. The Fund sold 2,057,787 shares ($2,983,792) of its Common Stock under this Second Offering Circular. The Fund began offering for sale up to 875,000 shares of its Common Stock at $1.60 per share, or a maximum of $1,400,000, under an Offering Circular dated July 14, 2000 ("Third Offering Circular"). The Fund intends to use the proceeds from this sale of securities primarily to invest in the equity and/or debt securities of additional development stage companies located in western Pennsylvania, and to make follow on investments, as appropriate, in existing portfolio companies. The proceeds from this sale of securities will be temporarily invested, pending investments in portfolio companies, in cash equivalents, government securities, and high quality debt securities. A portion of these proceeds may be used for normal operating expenses. As of December 31, 2000, the Fund had received subscriptions to purchase 40,000 shares ($64,000). The Fund sold 62,750 shares of its Common Stock at $1.60 per share under the Third Offering Circular, and closed the Third Offering as of March 31, 2001. As of March 31, 2002, and December 31, 2001, $3,122,083 and $2,947,083, respectively, were invested in Portfolio Securities, and the balance of the funds remained invested in cash equivalents, government securities, and high quality debt securities. 15 Note 4 - Investments in Portfolio Companies On September 3, 2002, the Fund purchased $19,500 of GamesParlor, Inc. 12 percent Promissory Notes (12% Notes) due June 30, 2004 and 156,000 shares of GamesParlor, Inc. Common Stock at $0.01 per share or an investment of $1,560, for a total investment of $21,060. In conjunction with this investment, the Fund received 210,526 shares of Series A2 Preferred Stock which has similar preferences to the Series A held by the Fund with the exception of the absence of any liquidation preference included in the Series A Preferred Stock. Note 5 - Co-Investor Agreement On June 30, 1998, the Fund and the Urban Redevelopment Authority of Pittsburgh ("URA") entered into a co-investment agreement ("Agreement"). Under the terms of this Agreement, the URA will create an escrow account of $1,000,000 to be used for direct investment in certain select Fund's Portfolio Companies, located within the City of Pittsburgh and meeting other criteria established by the URA. The escrow account also will be used for payment of the Fund's investment and management fees related to such investments. The URA will match, on a dollar-for-dollar basis, the Fund's investment in Portfolio Companies, subject to the limitations of the Portfolio Companies' location within the City of Pittsburgh and such companies meeting the URA's criteria for funding. The annual management fee payable to the Fund is $25,000. Further, the URA will pay the Fund's investment advisor a transaction fee of five percent (5%) of the URA's portion of its investment. All fees will be paid from the escrow account. In addition, the URA, as part of the Agreement, has agreed to subordinate its rights to any return on its investment until the private equity participants, investing in each of the contemplated transactions, including the Fund, have recovered their original investments in the portfolio companies. Thereafter, the URA and all equity participants, including the Fund, will participate in all future distributions in accordance with their investment. As of June 30, 2001, the URA notified the fund of its decision to terminate the Agreement, effective as of July 31, 2001. Through June 30, 2001, the URA had invested a total of $100,000, on its dollar-for-dollar matching basis in one portfolio company. Note 6 - Short Term Investments The Fund, pending investments in Portfolio Securities, temporarily invests its excess funds in short term high quality commercial paper and U.S. Government securities. These investments generally are purchased at a discount or premium from face value and are redeemed at maturity at face value. The discount/premium from face value represents unearned interest income/expense and is recognized over the remaining term of the security using the effective yield to maturity method. All of the short term investments are classified as HTM in accordance with SFAS No. 115. The face value, carrying value, and market value for HTM investments were as follows at September 30, 2002 and December 31, 2001: 16 As of September 30, 2002 ------------------------ Investment Face Value Carrying Value Market Value - ---------- ---------- -------------- ------------ U.S. Government Securities $ 200,000 $ 201,432 $ 201,376 ========== ============== ============ As of December 31, 2001 ----------------------- Investment Face Value Carrying Value Market Value - ---------- ---------- -------------- ------------ U.S. Government Securities $ 550,000 $ 546,888 $ 548,965 ========== ============== ============ Note 7 - Unrealized Appreciation The Fund recognizes unrealized appreciation (depreciation) on its portfolio companies when significant and material events have occurred that clearly indicate that an adjustment to the carrying value of those investments is appropriate. Unrealized appreciation (depreciation) was $(1,369,541) as of September 30, 2002 and $(1,183,856) as of December 31, 2001. Unrealized appreciation (depreciation) recognized in the three and nine month periods ended September 30, 2002 was $(21,060) and $(185,685), respectively. Unrealized appreciation (depreciation) recognized in the three and nine month periods ended September 30, 2001 was $(94,498) and $(1,880,195), respectively. Note 8 - Related Party Transactions Accrued liabilities at September 30, 2002 and December 31, 2001 include $4,500 for Board of Directors fees and $2,000 for accounting services payable to a consulting firm in which one of the Fund's officers is a significant shareholder. Note 9 - Stock Option Plan The shareholders, at the annual meeting of shareholders held on November 17, 1999, approved a stock option plan authorizing the granting of options to purchase the Fund's common stock to directors, officers, employees and members of the advisory board of the Fund. Under the terms of the plan, the stock option committee has authority to award options to eligible persons on the basis of the nature of their duties, their present and potential contributions to the success of the Fund and like factors. The maximum number of options that may be granted under the plan is 500,000. The exercise price is determined by the stock option committee at the time the option is granted, but cannot be less than the fair market value of the Fund's common stock on the date of grant. Each option will have a term, not in excess of 10 years, as determined by the stock option committee. In general, each option will become exercisable in 25 percent increments beginning on the first, second, third and fourth anniversaries of the date of grant. Options may be granted as either incentive stock options or nonqualified stock options. 17 The stock option committee granted options to purchase 50,000 shares of its common stock at an exercise price of $1.45 per share to each of the Fund's five directors (250,000 shares in the aggregate), effective as of October 11, 1999. These options vest 50% upon issuance, and 25% in equal increments on the first and second anniversary dates of issuance. On December 20, 2001, all of the directors returned their options to the Fund. The Fund may grant options to the directors at a future date. The stock option committee on July 12, 2002 granted options to purchase 50,000 units of its members' equity at an exercise price equal to the net asset value per unit as of June 30, 2002 to each of the Fund's five directors (250,000 units in the aggregate). These options vest immediately. The net asset value per unit as of June 30, 2002 was $0.84 per unit. Note 10 - Income Taxes The following table summarizes the provision for Federal and state taxes on income. Current: 2002 2001 ---- ---- Federal $(2,725) $ 33,000 State 4,365 7,500 ------- --------- 1,640 40,500 ======= ========= Deferred: Federal 33,960 (281,901) State 6,000 ( 67,546) ------- --------- 39,960 (349,447) ======= ========= Total $41,600 $(308,947) ======= ========= Deferred taxes of $39,960 recognized during the three month period ended March 31, 2002 relate to the partial reversal of the deferred tax asset recorded at December 31, 2001, which will not be realized as a result of the merger discussed in Note 2. There were no deferred taxes recognized during either the three month period ended June 30, 2002 or the three month period ended September 30, 2002. Note 11 - Realized Gains In February, 2002, the Fund received $6,367, which represented the final distribution of funds from the escrow account created from the acquisition of the Fund's portfolio company, Applied Electro-Optics Corporation by AcceLight Networks, Inc. These funds had been held in escrow for settlement of any claims resulting from the transaction. The $6,367 has been recognized as realized gains during the three month period ended March 31, 2002. 18 In January, 2000, the Fund sold its investment in Medtrex Incorporated ("Medtrex"), one of the Fund's portfolio companies. The proceeds of sale were placed in escrow pending claims against the escrow by the purchaser. On July 26, 2000, the Fund received its first distribution from its sale of its investment in Medtrex. The excess of the proceeds received ($234,604) on July 26, 2000, over the Fund's investment ($152,477) was recognized as realized gains during the year ended December 31, 2000. On February 7, 2001, the Fund received its second and final distribution from its sale of Medtrex on January 19, 2000. This second distribution, which amounted to $189,195, has been recognized as realized gains during the three month period ended March 31, 2001, and results in a total return to the Fund of $423,799 on an investment of $152,477. Note 12 - Treasury Stock On June 7, 2000, the Fund purchased 106,101 shares of its common stock previously owned by Innovation Works, Inc. for $125,126. These shares are shown as treasury stock as of December 31, 2001 and are included as part of members equity as of September 30, 2002. As of December 31, 1997, the Fund repurchased 143,899 shares of its common stock from Enterprise at $0.01 per share. These shares also are shown as treasury stock as of December 31, 2001 and as a part of members equity as of September 30, 2002. Note 13 - Subsequent Events On October 21, 2002, the Fund purchased 106,666 shares of WorldDealer, Inc. ("WorldDealer") Series B Convertible Preferred Stock ("Series B") at $0.1875 per share and 53,333 warrants to purchase WorldDealer common stock at $0.1875 per share for a total investment of $20,000. The warrants expire as of December 31, 2005. The Series B is convertible into common stock on a 1:1 basis, and has voting rights, liquidation preference, anti-dilution protection and pre-emptive rights. This offering is continuing at this time. WorldDealer develops web-based software for automotive retailers using an application service provider delivery model. On October 30, 2002, Webmedx, Inc., ("Webmedx") one of the Fund's portfolio companies, held a meeting of its shareholders. At that meeting, the Webmedx shareholders approved a new $12,000,000 financing round that included a restructuring of the company's equity. Under the terms of this financing round; (1) all outstanding Common Stock and outstanding options to purchase Common Stock are converted into a reduced number of warrants to purchase Common Stock; (2) all outstanding shares of Series A, B and C Preferred Stock are converted into a reduced number of warrants to purchase Common Stock; (3) all outstanding shares of Series D Preferred Stock are converted into a new class of Redeemable Preferred Stock; and (4) 12,000,000 shares of new Series A Convertible Preferred Stock are being offered for sale at $1.00 per share. The warrants are exercisable at $3.50 per share for a five year period. The financing round is continuing at this time. At this time, the Fund anticipates recognizing a decline in the value of its investments in Webmedx Series B and C Preferred Stock of $95,756 as unrealized depreciation during the three month period ending December 31, 2002. The Fund anticipates continuing to carry its investment in Webmedx Series D Preferred Stock at historical cost, $50,000. The Fund did not make an investment in new Series A Convertible Preferred Stock. Webmedx provides software and services to diagnostic imaging segments of the healthcare industries. 19 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Results of Operations Revenues for the three and nine month periods ending September 30, 2002 amounted to $6,122 and $27,914, respectively. Interest income for the three and nine month periods ending September 30, 2002 was $6,122 and $21,547, respectively. The realized gains ($6,367), recognized in the three month period ending March 31, 2002, resulted from the receipt of funds released from the escrow account created from the acquisition of Applied Electro-Optics Corporation, a portfolio company, by AcceLight Networks, Inc. Revenues for the three month and nine month periods ending September 30, 2001 amounted to $10,444 and $248,159, respectively. The $248,159 includes $189,195 realized gain from the sale of Medtrex Incorporated, one of the Fund's portfolio companies, which was recognized in the three month period ended March 31, 2001. Interest income for the three and nine month periods ending September 30, 2001 was $16,694 and $52,714, respectively. The decline in interest income reflects both lower interest rates and a reduction in short term investments due to additional investments in portfolio companies. General and administrative expenses for the three and nine month periods ending September 30, 2002 amounted to $4,500 and $13,500, respectively, and consisted of directors fees. These amounts are the same as the comparable periods of 2001. Other operating expenses for the three and nine month periods ending September 30, 2002 amounted to $48,835 and $117,365101, respectively. Other operating expenses for the three and nine month periods ended September 30, 2001 amounted to $58,693 and $106,227, respectively. The increase in other operating expenses in the nine month period ended September 30, 2002 compared with the nine month period ended September 30, 2001 resulted from higher printing costs required in connection with the merger (See Footnote 2 to the Financial Statements) and the inclusion of Pennsylvania Capital Stock and Franchise Tax as other operating expenses due to the Fund's status as a "pass-through" tax entity. The decrease in other operating expenses in the three month period ended September 30, 2002 compared with the three month period ended September 30, 2001 resulted from lower professional fees, legal and accounting. Professional fees for the three and nine month periods ending September 30, 2002, amounted to $11,555 and $45,606, respectively, compared with $26,486 and $49,974 respectively, for the comparable periods of 2001. The income tax expense for the three and nine month periods ending September 30, 2002 amounted to $0 and $41,600, respectively, primarily due to the elimination of the previously recognized deferred tax asset partially offset by the current recognition of a probable tax refund from a net operating loss carryback. Income tax expense (benefit) for the three and nine month periods ending September 30, 2001 was ($8,332) and ($308,947), respectively. The (benefit) recognized in the three and nine month periods ending September 30, 2001 reflects the recognition of a portion of unrealized depreciation on investments in portfolio companies during the three month period ending June 30, 2001. A tax benefit has been recognized only to the extent of available net operating loss carrybacks and previously recorded unrealized appreciation on investments in portfolio companies since realization of additional tax benefits is not sufficiently assured as to warrant recognition in the financial statements. 20 Financial Condition, Liquidity and Capital Resources The Registrant, through its sale of Common Stock under the First Offering Circular, raised $2,104,333 in 1997. The Registrant, through the sale of its Common Stock under the Second Offering Circular, raised $2,983,792 in 1999 - 2000. The Registrant, through the sale of its Common Stock under the Third Offering Circular, raised $100,400 in 2000-2001. As of September 30, 2002, the Registrant held cash, cash equivalents, and short-term investments in high quality commercial paper and U.S. Government securities of $460,185. Most of this amount, except for normal operating expenses, is available for investment in Portfolio Securities. 21 Statement by Management Concerning Review of Interim Financial Information by Independent Certified Public Accountants The September 30, 2002 financial statements included in this filing on Form 10-Q have been reviewed by Goff Backa Alfera & Company, LLC, independent certified public accountants, in accordance with established professional standards and procedures for such review. The report of Goff Backa Alfera & Company, LLC commenting on their review accompanies the financial statements included in Item 1 of Part I. 22 Statement by Management Concerning the Fair Presentation Of Interim Financial Information The financial information included herein is unaudited; however, such information reflects all adjustments (consisting solely of normal recurring adjustments), which are, in the opinion of management, necessary to a fair statement of the results for the interim periods. The report of Goff Backa Alfera & Company, LLC commenting upon their review accompanies the financial statements included in Item 1 of Part I. 23 Part II - Other Information Item 6. Exhibits and Reports on Form 8-K (a) List of Exhibits 11 Computation of earnings per share/unit for the three and nine month periods ended September 30, 2002 and September 30, 2001 (b) Reports on Form 8-K No reports were filed on Form 8-K by the Registrant during the quarter covered by this report. 24 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Western Pennsylvania Adventure Capital Fund has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized: Western Pennsylvania Adventure Capital Fund, LLC (Registrant) Date: November 8, 2002 /s/ G. Richard Patton --------------------- G. Richard Patton President and Chief Executive Officer and Director Date: November 8, 2002 /s/ Alvin J. Catz ------------------ Alvin J. Catz Chief Financial Officer, Treasurer and Director 25 EX-11 3 dex11.txt COMPUTATION OF EARNINGS PER COMMON SHARE Item 6 (a), Exhibit 11 Western Pennsylvania Adventure Capital Fund, LLC Schedule of Computation of Earnings Per Common Share/Unit For the Periods
July 1, 2002 January 1, 2002 through through September 30, 2002 September 30, 2002 ------------------ ------------------ (unaudited) (unaudited) Net Income (Loss) $( 68,273) $ (330,236) ========== =========== Weighted Average Number of Units Outstanding 4,222,870 4,223,639 ========= =========== Earnings (Loss) per Unit $ (0.02) $ (0.08) ========== =========== July 1, 2001 January 1, 2001 through through September 30, 2001 September 30, 2001 ------------------ ------------------ (unaudited) (unaudited) Net Income (Loss) $ (138,915) $(1,442,186) ========== =========== Weighted Average Number of Common Shares Outstanding 4,224,870 4,217,756 ========== =========== Earnings (Loss) per Common Share $ (0.03) $ (0.34) ========== ===========
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