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, 1994
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 2-91941
ML TECHNOLOGY VENTURES, L.P.
(Exact name of registrant as specified in its charter)
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<S> <C>
Delaware 13-3213176
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
World Financial Center, North Tower
New York, New York 10281-1327
(Address of principal executive offices) (Zip Code)
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Registrant's telephone number, including area code: (212) 449-1000
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
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INDEX
ML TECHNOLOGY VENTURES, L.P.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
Balance Sheets as of September 30, 1994 (Unaudited) and December 31, 1993
Statements of Operations for the Three and Nine Months Ended September 30, 1994
and 1993 (Unaudited)
Statements of Cash Flows for the Nine Months Ended September 30, 1994
(Unaudited)
Statement of Changes in Partners' Capital for the Nine Months Ended September
30, 1994 (Unaudited)
Notes to Financial Statements (Unaudited)
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
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.
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
ML TECHNOLOGY VENTURES, L.P.
BALANCE SHEETS
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September 30, 1994 December 31,
(Unaudited) 1993
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ASSETS
Cash and cash equivalents $ 467,524 $ 461,955
Investments - Notes 2 and 6
Publicly traded securities (cost $1,089,850 at
September 30, 1994) 1,547,307 1,139,154
Non-publicly traded securities (cost $872,040 at
September 30, 1994) 872,040 1,296,586
Convertible subordinated note at 13%, due October 1, 1995 500,000 500,000
U.S. Government securities, at amortized cost - 3,246,547
Accounts receivable (less unamortized discount of $531,614 at September 30, 1994
and $863,099 at December 31, 1993)
- Note 7 5,706,561 5,347,469
--------- ---------
TOTAL ASSETS $ 9,093,432 $ 11,991,711
= ========= = ==========
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Accounts payable $ 18,399 $ 15,968
Due to Management Company - Note 5 174,656 174,656
Deferred gain on sale of technology - Note 7 1,315,919 1,315,919
--------- ---------
Total liabilities 1,508,974 1,506,543
--------- ---------
Partners' Capital:
General Partner 78,395 115,334
Limited Partners (69,094 Units) 7,048,606 10,369,834
Unallocated net unrealized appreciation of investments - Note 2 457,457 -
------- -
Total partners' capital 7,584,458 10,485,168
--------- ----------
TOTAL LIABILITIES AND PARTNERS' CAPITAL $ 9,093,432 $ 11,991,711
= ========= = ==========
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See notes to financial statements.
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ML TECHNOLOGY VENTURES, L.P.
STATEMENTS OF OPERATIONS (UNAUDITED)
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Three Months Ended Nine Months Ended
September 30, September 30,
1994 1993 1994 1993
---- ---- ---- ----
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INCOME
Royalty and licensing income $ 322,223 $ 288,884 $ 976,146 $ 889,997
Interest on accounts receivable 111,709 133,026 331,485 409,095
Other interest income 1,971 26,583 10,525 125,297
----- ------ ------ -------
Total income 435,903 448,493 1,318,156 1,424,389
------- ------- --------- ---------
EXPENSES
Management fee - Note 5 174,656 174,656 523,968 523,968
Professional fees 11,167 12,132 99,526 107,952
Mailing and printing 5,630 6,094 84,805 91,081
Miscellaneous - - 1,050 171
- - ----- ---
Total expenses 191,453 192,882 709,349 723,172
------- ------- ------- -------
NET OPERATING INCOME 244,450 255,611 608,807 701,217
------- ------- ------- -------
Net realized gain from the sale or termination of
research and development ventures - 220,031 - 646,587
Net realized loss from the sale or write off of
investments in stock and warrants - - (473,850) -
- - -------- -
NET REALIZED GAIN (LOSS) - 220,031 (473,850) 646,587
- ------- -------- -------
NET INCOME (allocable to Partners) - Note 3 $ 244,450 $ 475,642 $ 134,957 $ 1,347,804
= ======= = ======= = ======= = =========
Net income per unit of limited partnership interest $ 3.50 $ 6.81 $ 1.93 $ 19.29
= ==== = ==== = ==== = =====
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See notes to financial statements.
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ML TECHNOLOGY VENTURES, L.P.
STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30,
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1994 1993
---- ----
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CASH FLOWS PROVIDED FROM OPERATING ACTIVITIES
Interest and other income received $ 976,983 $ 958,276
Other operating expenses paid (706,918) (701,800)
-------- --------
Cash provided from operating activities 270,065 256,476
------- -------
CASH FLOWS PROVIDED FROM INVESTING ACTIVITIES
Purchase of equity investments - (7,304)
Net return (purchase) of investments in U.S. Government securities 3,228,628 7,197,544
Proceeds from the sale or termination of research and development
ventures - 687,501
- -------
Cash provided from investing activities 3,228,628 7,877,741
--------- ---------
CASH FLOWS FOR FINANCING ACTIVITIES
Cash distributions:
General Partner (38,424) (84,534)
Limited Partners (3,454,700) (7,600,340)
---------- ----------
Cash used for financing activities (3,493,124) (7,684,874)
---------- ----------
Increase in cash and cash equivalents 5,569 449,343
Cash and cash equivalents at beginning of period 461,955 316,941
------- -------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 467,524 $ 766,284
= ======= = =======
Reconciliation of net income to cash provided from operating activities:
Net income $ 134,957 $ 1,347,804
- ------- - ---------
Adjustments to reconcile net income to cash provided from operating
activities:
Net realized (gain) loss 473,850 (646,587)
Increase in receivables (341,173) (451,331)
Increase in payables 2,431 6,590
----- -----
Total adjustments 135,108 (1,091,328)
------- ----------
Cash provided from operating activities $ 270,065 $ 256,476
- ------- - -------
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See notes to financial statements.
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ML TECHNOLOGY VENTURES, L.P.
STATEMENT OF CHANGES IN PARTNERS' CAPITAL (UNAUDITED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1994
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Unallocated
Net Unrealized
General Limited Appreciation
Partner Partners of Investments Total
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Balance at beginning of period $ 115,334 $ 10,369,834 $ 0 $ 10,485,168
Valuation adjustment - Note 6 - - 1,188,818 1,188,818
Cash distribution paid:
January 21, 1994 - Note 8 (38,424) (3,454,700) - (3,493,124)
Allocation of net income - Note 3 1,485 133,472 - 134,957
Change in net unrealized
appreciation of investments - - (731,361) (731,361)
- - -------- --------
Balance at end of period $ 78,395 $ 7,048,606 $ 457,457 $ 7,584,458
= ====== = ========= = ======= = =========
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See notes to financial statements.
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ML TECHNOLOGY VENTURES, L.P.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
1. Organization and Purpose
ML Technology Ventures, L.P. (the "Partnership") is a Delaware limited
partnership formed in April 1984. ML R&D Co., L.P., the general partner of the
Partnership (the "General Partner"), is also a Delaware limited partnership
formed in April 1984, the general partner of which is Merrill Lynch R&D
Management Inc. (the "Management Company"), an indirect subsidiary of Merrill
Lynch & Co., Inc.
The objective of the Partnership is to achieve cash flow from the
commercialization of a broad range of technologies developed and owned by, or on
behalf of, the Partnership. The Partnership engages in research and development
activities for the development of new technology through contracts, joint
ventures and investments in other partnerships. The Partnership will terminate
no later than January 31, 2005.
2. Significant Accounting Policies
Research and Development Costs - In prior periods, the Partnership incurred
costs in connection with its research and development ventures, including patent
application costs, which were expensed in the period incurred. Research and
development expenses were shown net of value received for the granting of
options to purchase technology being developed.
Valuation of Investments - In accordance with the statement of financial
accounting standards No. 115, investments in publicly traded securities are
recorded at market value based on the closing public market price on the last
day of the quarter. Non-publicly traded securities are recorded at the lower of
aggregate cost or fair market value as determined in good faith by the General
Partner.
Investment Transactions - Investment transactions are recorded on the accrual
method. Realized gains and losses on investments sold are computed on a specific
identification basis.
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 tax
returns.
Statements of Cash Flows - The Partnership considers cash held in its
interest-bearing cash account to be cash equivalents.
3. Allocation of Partnership Profits and Losses
The Partnership Agreement provides that profits shall be allocated to all
Partners in proportion to their capital contributions until there have been
distributions to the Limited Partners equal to their capital contributions,
after which time 90% will be allocated to the Limited Partners and 10% to the
General Partner until there has been distributed to the Limited Partners an
aggregate amount, since the inception of the Partnership, equal to twice their
capital contributions and thereafter 80% will be allocated to the Limited
Partners and 20% to the General Partner. Losses shall be allocated to all
Partners in proportion to their capital contributions provided, however, that to
the extent profits have been credited in the 90-10 or 80-20 ratio, losses shall
be charged in such ratios in reverse order in which profits were credited.
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ML TECHNOLOGY VENTURES, L.P.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
4. Commitment
The Partnership has a $412,696 non-interest bearing obligation payable on demand
to MLMS Cancer Research, Inc., the general partner of ML/MS Associates, L.P., a
joint venture with IDEC Pharmaceuticals Corporation.
5. Related Party Transactions
The Management Company performs, or arranges for others to perform,
the management and administrative services necessary for the operation of the
Partnership. The Management Company receives a management fee at an annual rate
of 1% of the aggregate capital contributions to the Partnership payable
quarterly in arrears.
6. Investments in Equity Securities at September 30, 1994
As of January 1, 1994, the Partnership adopted Financial Accounting Standards
Board No. 115 ("FASB" 115) ("Accounting for Certain Investments in Debt and
Equity Securities"). The effect on partners' capital of initially applying this
FASB is a change in accounting principle, and the unrealized gain for securities
available for sale is reflected as a separate component of partners' capital. In
accordance with this statement, debt and equity securities which do not have
readily determinable market values are not marked to market and the market
values of these securities are not reflected in the accompanying balance sheet.
However, based on other disclosure requirements, the fair market value of all
investments has been estimated by the General Partner and has been disclosed as
follows. There were no sales or purchases of securities in the current period.
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Number of Expiration Market Value
Shares or Date/Strike or Lower of
Warrants Price Cost Cost or Market
<S> <C> <C> <C> <C>
Publicly Traded Securities at
Market Value:
Ecogen Inc. 322,682 Stock $ 839,850 $ 1,452,069
Photon Technology International, Inc. 190,476 Stock 250,000 95,238
------- ------
Total $ 1,089,850 $ 1,547,307
= ========= = =========
Non-Publicly Traded Securities at
Lower of Cost or Fair Market Value:
IDEC Pharmaceuticals Corporation 399,000 2/95 $ 7.25 $ 228,261 $ 228,261
Interleaf, Inc. 275,000 12/95 $ 3.50 594,475 594,475
MLMS Cancer Research, Inc. 420,000 Stock 49,304 49,304
------ ------
Total $ 872,040 $ 872,040
= ======= = =======
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ML TECHNOLOGY VENTURES, L.P.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
7. Accounts Receivable
In June 1988, the Partnership terminated its research and development joint
venture with United AgriSeeds, Inc. Under the terms of the termination
agreement, accounted for as an installment sale, the Partnership will receive
$10 million over an eight-year period which began in January 1989. The $10
million payment will result in a $4.1 million return of capital, a $2.2 million
gain from the sale of technology and $3.7 million of interest income to be
recorded over the payment period. At September 30, 1994, the balance due from
United AgriSeeds, net of unamortized discount, was $5.4 million and the deferred
gain from the sale was $1.3 million. The cash payments due from United AgriSeeds
total $5.9 million at September 30, 1994. Subsequent to the end of the quarter,
on October 3, 1994, the Partnership received a $1.5 million installment sale
payment from United AgriSeeds.
8. Cash Distributions
Cash distributions paid during
the nine months ended September 30, 1994 and 1993 and cumulative cash
distributions paid from inception through September 30, 1994 are listed
below:
Distribution General Limited Per $1,000
Date Partner Partners Unit
- - ----------------------------- ----------- ----------- -----------
March 26, 1993 $ 85,000 $ 7,600,000 $ 110
January 21, 1994 $ 38,000 $ 3,455,000 $ 50
Cumulative totals $ 591,000 $53,133,000 $ 769
9. Interim Financial Statements
In the opinion of the General Partner of the Partnership, the
unaudited interim financial statements as of September 30, 1994, and for the
three and nine month periods then ended, reflect all adjustments necessary for
the fair presentation of the results of the interim periods.
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Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Liquidity and Capital Resources
From 1985 to 1991, the Partnership funded $59.6 million of research and
development commitments to 16 individual research and development ventures (the
"R&D Ventures"). This amount represents 95% of the original $62.5 million of net
proceeds to the Partnership. The Partnership has no remaining research and
development commitments and will not enter into new R&D Ventures in the future.
At September 30, 1994, the Partnership had $468,000 in an interest-bearing cash
account. This qualifies as a Permitted Temporary Investment ("PTI") as defined
in the Partnership Agreement. For the three and nine months ended September 30,
1994, the Partnership earned interest of $2,000 and $11,000 from its PTI's,
respectively. Interest earned from PTI's in future periods will be subject to
fluctuations in short-term interest rates and changes in amounts available for
investment in PTI's.
In June 1988, the Partnership terminated its interest in its R&D Venture with
United AgriSeeds, Inc. The Partnership has been receiving cash payments related
to this transaction in installments. At September 30, 1994, the Partnership was
entitled to additional cash payments totaling $5.9 million from United
AgriSeeds, which the Partnership expects to receive in annual installments until
1997. Subsequent to the end of the quarter, on October 3, 1994, the Partnership
received a $1.5 million installment sale payment from United AgriSeeds. See Note
7 of Notes to Financial Statements.
It is anticipated that funds needed to cover future operating expenses will be
obtained first from existing cash reserves, then from future royalty and
licensing income, interest income, installment sale payments and future asset
sales.
The Partnership, through the authority of its General Partner, has the ability
to borrow funds. Such borrowing may be used for any Partnership purpose,
including working capital, follow-on expenditures for research and development
ventures or to exercise warrants. The Partnership is not permitted to borrow
more than 10% of the aggregate capital contributions to the Partnership. The
Partnership has made no such borrowings to date and does not expect to borrow
funds in the future.
Results of Operations
For the three and nine months ended September 30, 1994, the Partnership had net
income of $244,000 and $135,000, respectively. For the three and nine months
ended September 30, 1993, the Partnership had net income of $476,000 and $1.3
million, respectively. Net income or loss is comprised of 1) net operating
income or loss and 2) net realized gain or loss.
Net Operating Income or Loss - For the three months ended September 30, 1994 and
1993, the Partnership had net operating income of $244,000 and $256,000,
respectively. For the nine months ended September 30, 1994 and 1993, the
Partnership had net operating income of $609,000 and $701,000, respectively. The
decrease in net operating income for the 1994 periods compared to the 1993
periods primarily resulted from a reduction in interest earned from PTI's and a
decrease in interest earned on accounts receivable partially offset by an
increase in royalty income. Other interest income was $2,000 and $27,000 for the
three months ended September 30, 1994 and 1993, respectively, and $11,000 and
$125,000 for the nine months ended September 30, 1994 and 1993, respectively.
These decreases are a result of a decrease in funds invested in PTI's during the
1994 periods. Generally, investments in PTI's increase when proceeds are
received from receivable and royalty payments and from the sale of Partnership
assets and decrease when cash distributions are made to Partners. Interest
earned on accounts receivable was $112,000 and $133,000 for the three months
ended September 30, 1994 and 1993, respectively, and $331,000 and $409,000 for
the nine months ended September 30, 1994 and 1993, respectively. The decrease in
interest earned on accounts receivable for the 1994 periods compared to the 1993
periods resulted from the receipt of final installment payments related to the
sale of proprietary technology to Interleaf, Inc. during the 1993 periods and a
reduced amount of interest earned during the 1994 periods on the outstanding
receivable balance due from United AgriSeeds. Royalty income was $322,000 and
$289,000 for the three months ended September 30, 1994 and 1993, respectively,
and $976,000 and $890,000 for the nine months ended September 30, 1994 and 1993,
respectively. The increases in royalty income for the 1994 periods compared to
the 1993 periods primarily was due to an increase in royalty income earned from
the Partnership's two R&D Ventures with Gen-Probe Incorporated.
Realized Gains and Losses - The Partnership realizes gains and losses from the
sale of its joint venture interests or proprietary technology in R&D Ventures
and from the sale of its equity securities. For the three months ended September
30, 1994, the Partnership had no realized gains or losses. For the nine months
ended September 30, 1994, the Partnership had a net realized loss of $474,000
resulting from the expiration of warrants to purchase shares of Photon
Technology International, Inc. and Bolt Beranek and Newman, Inc.
During the three and nine months ended September 30, 1993, the Partnership had a
net realized gain of $220,000 and $647,000, respectively, relating to the
installment sale of proprietary technology to Interleaf, Inc.
Cash Distributions - Cash distributions paid during the nine months ended
September 30, 1994 and 1993 and cumulative cash distributions paid to Partners
from inception to September 30, 1994 are listed below.
Distribution General Limited Per $1,000
Date Partner Partners Unit
March 26, 1993 $ 85,000 $ 7,600,000 $ 110
January 21, 1994 $ 38,000 $ 3,455,000 $ 50
Cumulative totals $ 591,000 $53,133,000 $ 769
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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.
Not applicable.
Item 3. Defaults Upon Senior Securities.
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders.
Not applicable.
Item 5. Other Information.
None.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
(4) (A) Amended and Restated Certificate and Agreement of Limited Partnership of
the Partnership dated as of April 23, 1984, as amended through February 22,
1985, included as Exhibit A to the Prospectus of the Partnership dated March 11,
1985.*
(B) (i) Amendment dated August 20, 1985 to the Amended and
Restated Certificate and Agreement of Limited Partnership of the Partnership.**
(B) (ii) Amendment dated August 28, 1985 to the Amended and Restated Certificate
and Agreement of Limited Partnership of the Partnership.***
(10) (a) Management Agreement dated as of May 23, 1991 among the Partnership,
Management Company and the Managing General Partner.****
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(10) (b) Sub-Management Agreement dated as of May 23, 1991 among the
Partnership, Management Company, the Managing General Partner and the
Sub-Manager.****
(b) No reports on Form 8-K have been filed since the beginning of the period
covered by this report.
- - ------------------------------
* Incorporated by reference to the Partnership's Annual Report on Form
10-K for the fiscal year ended December 31, 1984 filed with the
Securities and Exchange Commission on August 12, 1985.
** Incorporated by reference to the Partnership's Quarterly Report on Form
10-Q for the quarter ended September 30, 1985 filed with the Securities
and Exchange Commission on November 12, 1985.
*** Incorporated by reference to the Partnership's Quarterly Report on Form
10-Q for the quarter ended March 31, 1986 filed with the Securities and
Exchange Commission on May 14, 1986.
**** Incorporated by reference to the Partnership's Annual Report on Form
10-K for the fiscal year ended December 31, 1991 filed with the
Securities and Exchange Commission on March 30, 1992.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ML TECHNOLOGY VENTURES, L.P.
By: ML R&D Co., L.P.
its General Partner
By: Merrill Lynch R&D Management Inc.
its General Partner
By: /s/ Kevin K. Albert
Kevin K. Albert
President
(Principal Executive Officer)
By: /s/ Joseph W. Sullivan
Joseph W. Sullivan
Treasurer
(Principal Financial and Accounting Officer)
Date: November 11, 1994
<PAGE>
Exhibit Index
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Exhibits Page
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(4) (A) Amended and Restated Certificate and Agreement of Limited Partnership of
the Partnership dated as of April 23, 1984, as amended through February 22,
1985, included as Exhibit A to the Prospectus of the Partnership dated March 11,
1985.*
(4) (B) (i) Amendment dated August 20, 1985 to the Amended and Restated
Certificate and Agreement of Limited Partnership of the Partnership.**
(4) (B) (ii) Amendment dated August 28, 1985 to the Amended and Restated
Certificate and Agreement of Limited Partnership of the Partnership.***
(10) (a) Management Agreement dated as of May 23, 1991 among the Partnership,
Management Company and the Managing General Partner.****
(10) (b) Sub-Management Agreement dated as of May 23, 1991 among the
Partnership, Management Company, the Managing General Partner and the
Sub-Manager.****
- - ------------------------------
* Incorporated by reference to the Partnership's Annual Report on Form
10-K for the fiscal year ended December 31, 1984 filed with the
Securities and Exchange Commission on August 12, 1985.
** Incorporated by reference to the Partnership's Quarterly Report on Form
10-Q for the quarter ended September 30, 1985 filed with the Securities
and Exchange Commission on November 12, 1985.
*** Incorporated by reference to the Partnership's Quarterly Report on Form
10-Q for the quarter ended March 31, 1986 filed with the Securities and
Exchange Commission on May 14, 1986.
**** Incorporated by reference to the Partnership's Annual Report on Form
10-K for the fiscal year ended December 31, 1991 filed with the
Securities and Exchange Commission on March 30, 1992.
