SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 1996
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.
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(Exact name of registrant as specified in its charter)
Delaware 13-3213176
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
World Financial Center, North Tower
New York, New York 10281-1326
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (212) 449-1000
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
None None
Securities registered pursuant to Section 12(g) of the Act:
Units of Limited Partnership Interest
===============================================================================
(Title of class)
<PAGE>
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K (229.405 of this chapter) is not contained herein, and
will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [X]
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the prospectus of the Registrant dated March 11, 1985, filed with
the Securities and Exchange Commission pursuant to Rule 424(b) under the
Securities Act of 1933, as supplemented by the supplement thereto dated May 28,
1985 filed pursuant to Rule 424(c) under the Securities Act of 1933,
(collectively the "Prospectus"), are incorporated by reference in Part I, Part
II and Part III hereof.
<PAGE>
PART I
Item 1. Business.
Formation
ML Technology Ventures, L.P., (the "Partnership" or the "Registrant") is a
Delaware limited partnership formed on April 23, 1984. ML R&D Co., L.P., the
general partner of the Partnership (the "General Partner"), is a Delaware
limited partnership formed on April 23, 1984, the general partner of which is
Merrill Lynch R&D Management Inc. (the "Management Company"), an indirect
subsidiary of Merrill Lynch & Co., Inc. DLJ Capital Management Corporation (the
"Sub-Manager") acts as the sub-manager for the Partnership pursuant to a
sub-management agreement, dated May 23, 1991, among the Partnership, the General
Partner, the Management Company and the Sub-Manager.
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, which is in the process of
liquidation, will terminate no later than January 31, 2005.
In 1985, the Partnership publicly offered, through Merrill Lynch, Pierce, Fenner
& Smith Incorporated, 100,000 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 S-1 (File No. 2-91941) which was
declared effective on March 11, 1985. On August 28, 1985, the offering of the
Units was completed. A total of 69,094 Units were sold and the General Partner
admitted the additional limited partners (the "Limited Partners") to the
Partnership. The total capital contributed to the Partnership by the Limited
Partners is $69,094,000. Additionally, the General Partner contributed $768,488,
representing 1.1% of the total capital contributions to the Partnership.
Research and Development Activities
The Partnership was formed to participate in research and development ventures
("R&D Ventures") for the development of new technology through contracts, joint
ventures and participation in other partnerships. Since its inception, the
Partnership entered into 16 R&D Ventures with 14 companies representing research
and development commitments of approximately $60 million. The Partnership
completed the funding of such research and development commitments during 1991
and will not enter into any new R&D Ventures.
As of December 31, 1996, the Partnership had terminated its activities or sold
its proprietary technology or joint venture interest in all 16 of its original
R&D Ventures. In exchange for each such sale or termination, the Partnership
received cash and/or equity securities of the acquiring company. In accordance
with the Partnership's intent to wind-up its affairs, it has been making cash
distributions to Partners toward its goal of liquidating all of its assets.
While the Partnership's R&D Ventures were active, its principal focus was
managing the progress of such ventures and monitoring the related royalty
arrangements. The General Partner and the Sub-Manager now are primarily focused
on monitoring the Partnership's remaining assets with the goal of liquidating
such assets in a manner that will maximize cash returns to the Partnership.
During January 1996, the Upjohn Company notified the Partnership that it was
discontinuing its development efforts on the rights that it previously had
purchased from Berlex Biosciences, Inc. Since these programs have been in
development for ten years and have no remaining value, the Partnership ceased
all ongoing activities related to these development programs. As a result of
this termination, as of December 31, 1996, the Partnership had active royalty
agreements remaining with development companies associated with two of the
original 16 R&D Ventures. The Partnership's two active royalty agreements as of
December 31, 1996 were with Bolt Beranek and Newman Inc. and Gen-Probe
Incorporated (R&D Venture #2).
Bolt Beranek and Newman Inc. and Gen-Probe Incorporated have commercialized the
technology developed through the respective R&D Venture with the Partnership.
During 1996, the Partnership received royalties from Gen-Probe totaling $134,022
and royalties from Bolt Beranek and Newman totaling $3,926.
The development companies of each of the Partnership's 16 R&D Ventures were U.S.
companies, the majority of which are publicly-held. No single R&D Venture
involved a commitment of more than 12.5% of the Partnership's original
contributed capital. The Partnership closely monitored the research and
development activities related to its R&D Ventures and negotiated and arranged
for modifications of research, budgets and other terms of its R&D Venture
contracts, where appropriate. Each R&D venture contract provided for regular
monitoring by the Partnership of the results from research and development
activities and subsequent commercial sales activities. The Partnership relies on
the technical and business expertise of the officers and employees of the
Sub-Manager for the continued monitoring and management of the Partnership's
royalty agreements, portfolio investments and remaining assets.
The Partnership may have entered into R&D Ventures with companies subject to
environmental legislation. Earnings from the developed technology and products
of such R&D Ventures with such companies may be affected in future periods.
Seasonality
There are no seasonal trends which affect the Partnership's activities.
Patents, Trademarks, Licenses
As of December 31, 1996, the Partnership owned certain patents, trademarks or
trade names and owns a number of patent applications. The Partnership obtains
licenses or sublicenses of both patented and unpatented background technology
for purposes of developing new technology through its R&D Ventures. Access to
this background technology may be important to the Partnership's ability to
develop or commercialize its technology. The Partnership believes that its
technology licenses are adequate for its purposes. If patentable technology is
developed by the Partnership, whether the Partnership is able to obtain patents
on such technology could affect the income or value the Partnership will be able
to derive from such technology.
<PAGE>
Competition
The information set forth under the heading "Substantial Competition, Technical
Advances of Others and Technological Obsolescence" of the section of the
Prospectus entitled "Risk and Other Important Factors" on pages 12 and 13 is
incorporated herein by reference.
Employees
The Partnership has no employees. The Partnership Agreement provides that the
General Partner manages and controls the Partnership's R&D Ventures and
investment activities. The Sub-Manager, subject to the supervision of the
Management Company, provides the management services in connection with the
Partnership's R&D Ventures and investment activities under a sub-management
agreement. The Management Company is responsible for the management and
administrative services necessary for the operation of the Partnership and is
responsible for managing the Partnership's short-term investments in U.S.
Government securities ("Permitted Temporary Investments").
Item 2. Properties.
The Partnership does not own or lease physical properties.
Item 3. Legal Proceedings.
The Partnership is not a party to any material pending legal proceedings.
Item 4. Submission of Matters to a Vote of Security Holders.
Not applicable.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
The information with respect to the market for the Units set forth under the
caption "Transferability of Units" on pages 50 and 51 of the Prospectus is
incorporated herein by reference. There is no established public trading market
for the Units. There are approximately 6,422 Unit holders as of March 21, 1997.
Effective November 9, 1992, Registrant was advised that Merrill Lynch, Pierce,
Fenner & Smith Incorporated ("Merrill Lynch") introduced a new limited
partnership secondary service available to its clients through Merrill Lynch's
Limited Partnership Secondary Transaction Department.
Beginning with the December 1994 client account statements, Merrill Lynch
implemented new guidelines for providing estimated values of limited
partnerships and other direct investments reported on client account statements.
Pursuant to the guidelines, estimated values for limited partnership interests
originally sold by Merrill Lynch (such as Registrant's Units) will be provided
two times per year to Merrill Lynch by independent valuation services. These
estimated values will be based on financial and other information available to
the independent services on (i) the prior August 15th for reporting on December
year-end client and subsequent account statements through the following May's
month-end client account statement, and on (ii) March 31st for reporting on June
month-end and subsequent client account statements through the November
month-end client account statement of the same year.
Merrill Lynch clients may contact their Merrill Lynch Financial Consultants or
telephone the number provided to them on their account statements to obtain a
general description of the methodology used by the independent valuation
services to determine their estimates of value. The estimated values provided by
the independent services are not market values and Unit holders may not be able
to sell their Units or realize the amounts upon a sale of their Units. In
addition, Unit holders may not realize the independent estimated value upon the
liquidation of the Registrant's assets over its remaining life.
The Partnership makes cash distributions to its Partners as soon as practicable
after proceeds are received. Cash distributions paid to Partners during the
years ended December 31, 1996, 1995 and 1994 and cumulative cash distributions
paid from inception to December 31, 1996 are set forth below:
<TABLE>
General Limited Per
Distribution Date Partner Partners $1,000 Unit
- ----------------- ------------- ---------------- -------------
<S> <C> <C> <C> <C> <C>
Cumulative as of December 31, 1993 $ 552,545 $ 49,678,586 $ 719
January 21, 1994 38,424 3,454,700 50
January 19, 1996 42,267 3,800,170 55
July 23, 1996 38,424 3,454,700 50
------------- ---------------- ---------
Cumulative as of December 31, 1996 $ 671,660 $ 60,388,156 $ 874
============= ================ =========
</TABLE>
<PAGE>
Item 6. Selected Financial Data.
($ In Thousands, Except For Per Unit Information)
<TABLE>
Years Ended December 31,
1996 1995 1994 1993 1992
---------- ----------- ----------- ----------- -------
<S> <C> <C> <C> <C> <C>
Net income $ 206 $ 1,374 $ 222 $ 2,417 $ 20,825
Royalty and licensing income 138 762 1,300 1,193 1,002
Net realized gain from research and
development ventures 619 1,321 335 1,117 1,599
Net realized gain (loss) from investments (324) (317) (952) 492 17,971
Total assets 1,842 8,974 7,943 11,992 18,378
Cash distributions paid to Partners 7,336 - 3,493 7,685 27,596
Cumulative cash distributions paid to Partners 61,060 53,724 53,724 50,231 42,546
PER UNIT OF LIMITED
PARTNERSHIP INTEREST:
Net income $ 3 $ 20 $ 3 $ 35 $ 298
Net realized gain from research and
development ventures 9 19 5 16 23
Net realized gain (loss) from investments (5) (5) (14) 7 257
Cash distributions paid to Partners 105 - 50 110 395
Cumulative cash distributions paid to Partners 874 769 769 719 609
</TABLE>
<PAGE>
Item 7. 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.
As of December 31, 1996, the Partnership had $218,000 in an interest-bearing
cash account. As of December 31, 1996, the Partnership had no investments in
Permitted Temporary Investments ("PTI"), as such term is defined in the
Partnership Agreement. However, the Partnership held such investments during
1996, primarily in U.S. Treasury Bills with maturities of less than six months.
For the years ended December 31, 1996, 1995 and 1994, the Partnership earned
interest from its cash balances and PTI totaling $79,000, $154,000 and $33,000,
respectively. Interest earned in future periods is subject to fluctuations in
short-term interest rates and changes in the Partnership's cash balances and its
investments in PTI.
During 1996, the Partnership made cash distributions to Partners totaling $7.3
million; $7.25 million to Limited Partners and $80,691 to the General Partner.
Cumulative cash distributions to Partners as of December 31, 1996 total $61.1
million; $60.4 million, or $874 per Unit, to the Limited Partners and $672,000
to the General Partner.
It is anticipated that funds needed to cover future operating expenses will
primarily be obtained from the Partnership's existing cash reserves, future
royalty and licensing income, and proceeds received by the Partnership from the
sale of its remaining assets.
The Partnership is working toward the final liquidation of its remaining assets
and subsequent termination in 1998 or earlier, if possible. The timing of such
liquidation and termination is contingent upon, among other things, market
conditions and contractual and securities laws restrictions and no assurances
can be given that the Partnership will be able to complete all steps necessary
to liquidate its assets and terminate in the time-frame mentioned above.
As was provided in the Partnership's prospectus delivered to Limited Partners in
connection with their investment, and as disclosed in subsequent filings and
reports, the Partnership is obligated to pay, and has paid accordingly, an
annual management fee equal to 2% of aggregate capital contributions during the
four years subsequent to its closing ($1,397,250 annually) and, thereafter, 1%
of aggregate capital contributions ($698,624 annually). The original objectives
of the Partnership anticipated that the bulk of the Partnership's revenues would
be earned between 1988 and 1996. Therefore, in consideration of the
Partnership's originally contemplated objectives, the reduction of assets under
management and the anticipated termination of the Partnership, the General
Partner and the Management Company, while not required to do so, have reduced
the annual management fee payable by the Partnership from $698,624 to $200,000,
commencing with the management fee payment due for the first quarter of 1996.
<PAGE>
Results of Operations
For the years ended December 31, 1996, 1995 and 1994, the Partnership had net
income of $206,000, $1.4 million and $222,000, respectively. Net income or loss
is comprised of net operating income or loss and net realized gain or loss.
Net Operating Income or Loss - For the year ended December 31, 1996, the
Partnership had a net operating loss of $89,000. For the years ended December
31, 1995 and 1994 the Partnership had net operating income of $369,000 and
$840,000, respectively.
The decrease in net operating income for 1996 compared to 1995 was due to a
$960,000 decline in total income partially offset by a $502,000 decline in
operating expenses, primarily related to the reduction in the management fee as
discussed above. The decrease in total income for 1996 resulted from a $624,000
decrease in royalty and licensing income primarily due to the expiration of the
Partnership's first R&D Venture with Gen-Probe Incorporated (Gen-Probe R&D
Venture #1) during 1995. The $261,000 decline in interest earned from accounts
receivable resulted from the collection of the final payment from United
AgriSeeds in March 1996. Other interest income for 1996 declined by $75,000 due
to a reduced amount of funds available for investment in PTI during the 1996
period. Investments in PTI declined during the 1996 period due to cash
distributions paid to Partners in January 1996 and July 1996.
The decrease in net operating income for 1995 compared to 1994 was due to a
$526,000 decline in total income partially offset by a $55,000 decline in
operating expenses, primarily mailing and printing costs. The decrease in total
income for 1995 primarily was due to a $538,000 reduction in royalty income
earned from the first research and development venture with Gen-Probe
Incorporated (R&D Venture #1). During the June 1995 quarter, the Partnership
reached the maximum cumulative royalties to be paid under the agreement with
Gen-Probe relating to R&D Venture #1 and will not receive any future royalties
from Gen-Probe relating to this venture. Additionally, a $121,000 increase in
other interest income was mostly offset by a $109,000 decrease in interest
earned on the receivable due from United AgriSeeds. The decrease in interest
earned on accounts receivable for 1995 compared to 1994 resulted from the lower
outstanding receivable balance due from United AgriSeeds during 1995 compared to
1994. The increase in other interest income was due to an increase in amounts
invested in PTI and higher short-term interest rates during 1995 compared to
1994.
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 year ended December 31, 1996, the Partnership had a net realized gain of
$295,000. During 1996, the Partnership received the final $2.4 million
installment payment due from United AgriSeeds, resulting in the recognition of a
$619,000 realized gain. Partially offsetting this gain was the sale of the
Partnership's remaining common shares of Ecogen, Inc. for $322,000, resulting in
a realized loss of $324,000.
For the year ended December 31, 1995, the Partnership had a net realized gain of
$1.0 million comprised of a $1.3 million gain from the termination of certain
R&D ventures and a $317,000 loss from the sale of equity securities. In December
1995, the Partnership sold its interest in its R&D venture with Photon
Technology International, Inc. for 1,000,000 shares of Photon common stock,
resulting in a realized gain of $875,000. In October 1995, the Partnership
realized a $446,000 gain resulting from the receipt of an installment payment
relating to the receivable due from United AgriSeeds. Additionally during 1995,
the Partnership sold its 72,368 shares of Interleaf, Inc. common stock for
$373,000, realizing a loss of $222,000. The Interleaf shares were received as a
result of a cashless exercise of the Partnership's warrant to purchase 275,000
shares of the company's common stock. Also during 1995, the Partnership sold
66,682 shares of Ecogen, Inc. common stock for $99,000, realizing a loss of
$95,000.
For the year ended December 31, 1994, the Partnership had a net realized loss of
$618,000 comprised of a $335,000 gain from the termination of certain R&D
Ventures and a $952,000 loss from the write-off of certain portfolio securities.
During the year, the Partnership realized a $228,000 loss from the write-off of
its warrants to purchase common shares of IDEC Pharmaceuticals Corporation,
which expired in February 1995. Also on December 31, 1994, the Partnership
wrote-off $250,000 of its $500,000 subordinated note due from Photon Technology
International due to uncertainty regarding repayment of the note. Additionally
during 1994, the Partnership realized a $474,000 loss due to the expiration of
its warrants to purchase common shares of Photon Technology International, Inc.
and Bolt Beranek and Newman Inc. Also during 1994, the Partnership realized a
gain of $335,000 from the installment sale of proprietary technology to United
AgriSeeds.
<PAGE>
Item 8. Financial Statements and Supplementary Data.
ML TECHNOLOGY VENTURES, L.P.
INDEX
Independent Auditors' Report
Balance Sheets as of December 31, 1996 and 1995
Statements of Operations for the years ended December 31, 1996, 1995 and 1994
Statements of Cash Flows for the years ended December 31, 1996, 1995 and 1994
Statements of Changes in Partners' Capital for the years ended December 31,
1994, 1995 and 1996
Notes to Financial Statements
NOTE - All other 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.
<PAGE>
INDEPENDENT AUDITORS' REPORT
ML Technology Ventures, L.P.:
We have audited the accompanying balance sheets of ML Technology Ventures, L.P.
(the "Partnership") as of December 31, 1996 and 1995, and the related statements
of operations, cash flows, and changes in partners' capital for each of the
three years in the period ended December 31, 1996. 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 financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of ML Technology Ventures, L.P. as of December
31, 1996 and 1995, and the results of its operations, its cash flows and the
changes in its partners' capital for each of the three years in the period ended
December 31, 1996 in conformity with generally accepted accounting principles.
As discussed in Notes 2 and 6 to the financial statements, the Partnership
changed its method of accounting for certain investments in debt and equity
securities as of January 1, 1994 to conform with Statement of Financial
Accounting Standard No.
115.
Deloitte & Touche LLP
New York, New York
February 13, 1997, except for Note 13, as to which the date is March 24, 1997
<PAGE>
ML TECHNOLOGY VENTURES, L.P.
BALANCE SHEETS
December 31,
<TABLE>
1996 1995
-------------- ---------
ASSETS
<S> <C> <C>
Cash and cash equivalents $ 218,215 $ 243,366
Investments - Notes 2, 6 and 11
U.S. Government securities, at amortized cost - 4,594,416
Publicly traded securities, at market value (cost $1,125,000 as of
December 31, 1996 and $1,770,581 as of December 31, 1995) 1,388,888 1,409,795
Other equity investments, at cost 73,043 73,043
Subordinated Promissory Note - Note 12 130,000 250,000
Accounts receivable (less unamortized discount of $0 as of
December 31, 1996 and $133,270 as of December 31, 1995) - Note 7 32,105 2,304,772
Receivable from securities sold - 99,020
Other assets 140 -
-------------- ---------------
TOTAL ASSETS $ 1,842,391 $ 8,974,412
============== ===============
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Accounts payable $ 70,027 $ 37,464
Due to Management Company - Note 5 50,000 174,656
Deferred gain on sale of technology - Note 7 - 535,289
-------------- ---------------
Total liabilities 120,027 747,409
-------------- ---------------
Partners' Capital:
General Partner 16,042 94,464
Limited Partners (69,094 Units) 1,442,434 8,493,325
Unallocated net unrealized appreciation (depreciation)
of investments - Note 2 263,888 (360,786)
-------------- ---------------
Total partners' capital 1,722,364 8,227,003
-------------- ---------------
TOTAL LIABILITIES AND PARTNERS' CAPITAL $ 1,842,391 $ 8,974,412
============== ===============
</TABLE>
See notes to financial statements.
<PAGE>
ML TECHNOLOGY VENTURES, L.P.
STATEMENTS OF OPERATIONS
For the Years Ended December 31,
<TABLE>
1996 1995 1994
-------------- -------------- ----------
INCOME
<S> <C> <C> <C>
Royalty and licensing income $ 137,948 $ 762,125 $ 1,300,178
Interest on accounts receivable 49,716 310,608 419,221
Other interest income 79,178 153,993 33,059
-------------- -------------- ---------------
Total income 266,842 1,226,726 1,752,458
-------------- -------------- ---------------
EXPENSES
Management fee - Note 5 200,000 698,624 698,624
Professional fees 116,302 110,313 122,124
Mailing and printing 38,162 47,160 90,952
Miscellaneous 1,280 1,181 1,050
-------------- -------------- ---------------
Total expenses 355,744 857,278 912,750
-------------- -------------- ---------------
NET OPERATING INCOME (LOSS) (88,902) 369,448 839,708
--------------- -------------- ---------------
Net realized gain from research and development
ventures - Note 9 618,843 1,321,074 334,556
Net realized loss from investments - Note 10 (323,693) (316,930) (952,111)
--------------- -------------- ---------------
NET REALIZED GAIN (LOSS) 295,150 1,004,144 (617,555)
-------------- -------------- ---------------
NET INCOME (allocable to Partners) - Note 3 $ 206,248 $ 1,373,592 $ 222,153
============== ============== ===============
Net income per unit of limited partnership interest $ 2.95 $ 19.66 $ 3.18
======== ======== ========
</TABLE>
See notes to financial statements.
<PAGE>
ML TECHNOLOGY VENTURES, L.P.
STATEMENTS OF CASH FLOWS
For the Years Ended December 31,
<TABLE>
1996 1995 1994
--------------- -------------- ---------
CASH FLOWS (USED FOR) PROVIDED FROM
OPERATING ACTIVITIES
<S> <C> <C> <C>
Interest and other income received $ 283,989 $ 1,567,186 $ 1,748,825
Other operating expenses paid (442,289) (834,305) (916,060)
--------------- -------------- ---------------
Cash (used for) provided from operating activities (158,300) 732,881 832,765
--------------- -------------- ---------------
CASH FLOWS PROVIDED FROM (USED FOR)
INVESTING ACTIVITIES
Net return (purchase) of investments in U.S.
Government securities 4,577,518 (2,849,489) 1,500,599
Proceeds from the sale or termination of research
and development ventures 2,350,284 1,651,918 1,056,806
Purchase of equity investments - (23,739) -
Proceeds from repayment of Subordinated Promissory Note 120,000 - -
Proceeds from the sale of investments in equity securities 420,908 372,794 -
--------------- -------------- ---------------
Cash provided from (used for) investing activities 7,468,710 (848,516) 2,557,405
--------------- -------------- ---------------
CASH FLOWS FOR FINANCING ACTIVITIES
Cash distributions:
General Partner (80,691) - (38,424)
Limited Partners (7,254,870) - (3,454,700)
--------------- -------------- ---------------
Cash used for financing activities (7,335,561) - (3,493,124)
--------------- -------------- ---------------
Decrease in cash and cash equivalents (25,151) (115,635) (102,954)
Cash and cash equivalents at beginning of period 243,366 359,001 461,955
--------------- -------------- ---------------
CASH AND CASH EQUIVALENTS AT END
OF PERIOD $ 218,215 $ 243,366 $ 359,001
=============== ============== ===============
Reconciliation of net income to cash (used for) provided from operating
activities:
Net income $ 206,248 $ 1,373,592 $ 222,153
--------------- -------------- ---------------
Adjustments to reconcile net income to cash
(used for) provided from operating activities:
Net realized (gain) loss (295,150) (1,004,144) 617,555
Decrease (increase) in receivables 22,695 338,627 (3,633)
(Decrease) increase in payables (92,093) 24,806 (3,310)
--------------- -------------- ---------------
Total adjustments (364,548) (640,711) 610,612
--------------- -------------- ---------------
Cash (used for) provided from operating activities $ (158,300) $ 732,881 $ 832,765
=============== ============== ===============
</TABLE>
See notes to financial statements.
<PAGE>
ML TECHNOLOGY VENTURES, L.P.
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
For the Years Ended December 31, 1994, 1995 and 1996
<TABLE>
Unallocated
Net Unrealized
Appreciation
General Limited (Depreciation)
Partner Partners of Investments Total
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1993 $ 115,334 $ 10,369,834 $ 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 2,444 219,709 - 222,153
Change in net unrealized appreciation
or depreciation of investments - - (1,628,189) (1,628,189)
------------ ---------------- --------------- ----------------
Balance at December 31, 1994 79,354 7,134,843 (439,371) 6,774,826
Allocation of net income 15,110 1,358,482 - 1,373,592
Change in net unrealized appreciation
or depreciation of investments - - 78,585 78,585
------------ ---------------- --------------- ----------------
Balance at December 31, 1995 94,464 8,493,325 (360,786) 8,227,003
January 1996 cash distribution (42,267) (3,800,170) - (3,842,437)
July 1996 cash distribution (38,424) (3,454,700) - (3,493,124)
Allocation of net income 2,269 203,979 - 206,248
Change in net unrealized appreciation
or depreciation of investments - - 624,674 624,674
------------ ---------------- --------------- ----------------
Balance at December 31, 1996 $ 16,042 $ 1,442,434 $ 263,888 $ 1,722,364
============ ================ =============== ================
</TABLE>
See notes to financial statements.
<PAGE>
ML TECHNOLOGY VENTURES, L.P.
NOTES TO FINANCIAL STATEMENTS
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. DLJ Capital Management Corporation (the "Sub-Manager"), an
indirect subsidiary of Donaldson, Lufkin & Jenrette, Inc., is the sub-manager of
the Partnership, pursuant to a sub-management agreement among the Partnership,
the Management Company, the General Partner and the Sub-Manager.
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, which is in the
process of liquidation, 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 available-for-sale securities
(publicly traded securities) are accounted for at market value based on the
closing public market price on the last day of the quarter. Non-publicly traded
securities are accounted for at cost. The cost of an investment is written down
to its fair value when the investment is determined to be other than temporarily
impaired.
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. 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.
<PAGE>
ML TECHNOLOGY VENTURES, L.P.
NOTES TO FINANCIAL STATEMENTS
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.
4. Commitment
The Partnership has a $388,957 commitment to fund MLMS Cancer Research, Inc. The
Partnership is a shareholder of MLMS Cancer Research which is the general
partner of ML/MS Associates, L.P., a research and development 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. On March 27, 1996, the General Partner and the Management
Company agreed to reduce the management fee payable by the Partnership from 1%
of the aggregate capital contributions to the Partnership, or $698,624 per
annum, to $200,000 per annum. The reduction commenced with the quarterly
management fee paid for the quarter ending March 31, 1996.
6. Investments in Equity Securities
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 was 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 balance sheet.
As of December 31, 1996, the Partnership held 396,825 common shares of Photon
Technology International, Inc., a publicly traded security. As of December 31,
1996, such investment had a cost of $1,125,000 and a market value of $1,388,888.
As of December 31, 1995, the Partnership's 396,825 common shares of Photon
Technology (after adjustment for a 1 for 3 reverse stock split effective in
1996) had a market value of $1,041,667. Also, at December 31, 1995, the
Partnership held 51,200 common shares of Ecogen, Inc. (after adjustment for a 1
for 5 reverse stock split effective in 1996) with a cost of $645,581 and a
market value of $368,128. Such shares were sold in 1996 for $321,888.
<PAGE>
ML TECHNOLOGY VENTURES, L.P.
NOTES TO FINANCIAL STATEMENTS
On March 16, 1995, the research and development joint venture between IDEC
Pharmaceuticals Corporation ("IDEC") and ML/MS Associates, L.P. was terminated.
In connection with the termination and cancellation of all future rights to
royalties from the sale of commercialized products, ML/MS Associates received
1,000,000 shares of unregistered IDEC common stock and 69,375 shares of 10%
dividend accumulating preferred stock of IDEC. On March 15, 1997, the preferred
stock of IDEC held by ML/MS Associates converted into 305,873 shares of IDEC
common stock and the accumulated dividend receivable converted into an
additional 61,175 common shares of IDEC. See Note 13 below. The Partnership owns
a 36.2% limited partnership interest in ML/MS Associates and 420,000 shares of
MLMS Cancer Research, Inc. ("CRI") common stock, the general partner of ML/MS
Associates, representing a 36.5% ownership of CRI. CRI has a 1% ownership
interest in ML/MS Associates.
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 received $10
million over an eight-year period, which began in January 1989. In March 1996,
the Partnership received a $2.4 million payment from United AgriSeeds, which
represented the total amount due from United AgriSeeds. Such final payment was
received prior to its due date, resulting in an additional gain of $83,554 and a
corresponding lower interest amount recorded during 1996. As of December 31,
1995, the balance due from United AgriSeeds, net of unamortized discount, was
$2.3 million and the deferred gain from the sale was $535,289. See Note 9 below.
8. Cash Distributions
Cash distributions paid to Partners during 1996, 1995 and 1994 and cumulative
cash distributions paid from inception of the Partnership through December 31,
1996 are listed below:
<TABLE>
General Limited Per $1,000
Distribution Date Partner Partners Unit
- ---------------------------------------------------- ------------ --------------- ---------
<S> <C> <C> <C> <C> <C>
Inception to December 31, 1993 $ 552,545 $ 49,678,586 $ 719
January 21, 1994 38,424 3,454,700 50
January 19,1996 42,267 3,800,170 55
July 23, 1996 38,424 3,454,700 50
------------ --------------- ------
Cumulative totals as of December 31, 1996 $ 671,660 $ 60,388,156 $ 874
============ =============== ======
</TABLE>
9. Net Realized Gains from Research and Development Ventures
For the year ended December 31, 1996, the Partnership realized a $619,000 gain
relating to the receipt of the final installment sale payment from United
AgriSeeds, Inc. For the year ended December 31, 1995, the Partnership realized a
$446,000 gain relating to the receipt of an installment sale payment from United
AgriSeeds, Inc. and also realized an $875,000 gain relating to the termination
of its R&D venture with Photon
<PAGE>
ML TECHNOLOGY VENTURES, L.P.
NOTES TO FINANCIAL STATEMENTS
Technology International, Inc. For the year ended December 31, 1994, the
Partnership realized a gain of $335,000 relating to the receipt of an
installment sale payment from United AgriSeeds. See Note 7 above.
10. Net Realized Gains or Losses from Investments
During the year ended December 31, 1996, the Partnership realized a $324,000
loss from the sale of its remaining shares of Ecogen, Inc. During the year ended
December 31, 1995, the Partnership realized a $222,000 loss from the sale of its
investment in Interleaf, Inc. and realized an additional $95,000 loss from the
sale of 66,682 shares of Ecogen, Inc. common stock. For the year ended December
31, 1994, the Partnership realized a $702,000 loss from the expiration and
write-off of warrants to purchase common stock of Photon Technology
International, Inc., IDEC Pharmaceuticals Corporation and Bolt Beranek and
Newman, Inc. Additionally during 1994, the Partnership wrote-off $250,000 of its
$500,000 subordinated note due from Photon Technology International, Inc.
11. Investments in U.S. Government Securities
The Partnership had no investments in U.S. Government securities as of
December 31, 1996, however, the Partnership held investments in two U. S.
Treasury Bills as of December 31, 1995 as follows:
<TABLE>
Maturity Purchase Amortized
Yield Date Price Cost Face Value
<S> <C> <C> <C> <C> <C> <C>
U.S. Treasury Bill 5.29% 1/4/96 $ 3,883,381 $ 3,897,708 $ 3,900,000
U.S. Treasury Bill 5.29% 2/1/96 694,137 696,708 700,000
-------------- -------------- ---------------
Total at December 31, 1995 $ 4,577,518 $ 4,594,416 $ 4,600,000
============== ============== ===============
</TABLE>
12. Subordinated Promissory Note
In December 1995, the R&D venture between the Partnership and Photon Technology
International, Inc. was terminated. In connection with the termination, Photon
agreed to pay the Partnership $770,761 to satisfy its $500,000 subordinated note
obligation and related accrued interest. The $770,761 was scheduled to be paid
in installments through December 1997. Such installment payments were suspended
in June 1996 and had not resumed as of December 31, 1996. During the year ended
December 31, 1996, the Partnership received payments totaling $120,000. Since
the Partnership had written-off $250,000 of the principal amount of such note in
1994, the first $250,000 paid under the new arrangement is being recorded as a
return of principal on the note.
13. Subsequent Event
On March 17, 1997, ML/MS Associates distributed 1,000,000 shares of IDEC
Pharmaceuticals Corporation common stock to its partners. The Partnership
received 365,217 common shares of IDEC. As of March 21, 1997, the Partnership
had sold 151,098 of such shares for $3.4 million.
<PAGE>
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
None
PART III
Item 10. Directors and Executive Officers of the Registrant.
The Partnership
The information set forth under the subcaption "The General Partner" on page 23
of the section of the Prospectus entitled "Management of the Partnership" is
incorporated herein by reference.
The Management Company
Merrill Lynch R&D Management Inc. (the "Management Company") performs, or
arranges for others to perform, the management and administrative services
necessary for the operation of the Partnership pursuant to a Management
Agreement, dated as of October 15, 1984, between the Partnership and the
Management Company. As of March 21, 1997, the directors of the Management
Company and the officers of the Management Company involved in the
administrative and operational support of the Partnership are:
<TABLE>
Served in Present
Name and Age Position Held Capacity Since
<S> <C> <C>
Kevin K. Albert (44) Director April 2, 1990
President July 5, 1991
Robert F. Aufenanger (43) Director April 2, 1990
Executive Vice President February 2, 1993
Michael E. Lurie (53) Director August 10, 1995
Vice President August 11, 1995
Diane T. Herte (36) Treasurer August 11, 1995
Vice President August 11, 1995
</TABLE>
The directors of the Management Company will serve as directors until their
successors are elected and qualify at the next annual meeting of stockholders.
The executive officers of the Management Company will hold office until their
successors are elected and qualify at the next annual meeting of the Board of
Directors of the Management Company.
<PAGE>
On May 23, 1991, the Management Company entered into a sub-management agreement
with DLJ Capital Management Corporation (the "Sub-Manager") pursuant to which
the Sub-Manager, an indirect wholly-owned subsidiary of Donaldson, Lufkin &
Jenrette, Inc., provides management and advisory services in connection with the
research and development activities (the "R&D Activities") and investments of
the Partnership.
Such arrangements provide that the Sub-Manager, subject to the overall
responsibility and control of the Management Company and the Partnership, will
make all decisions regarding the Partnership's R&D Activities and investments
and, among other things, structure, negotiate and monitor the status of the
Partnership's joint ventures and portfolio limited partnerships and exercise the
rights and fulfill the responsibilities of the Partnership under direct
development contracts or joint ventures and exercise any rights the Partnership
may have as a limited partner in portfolio limited partnerships. The Management
Company continues to serve as the management company for the Partnership. Fees
of the Sub-Manager are paid directly by the Management Company.
The Management Company has arranged for Palmeri Fund Administrators, Inc., an
independent administrative services company, to provide administrative services
to the Partnership. Fees for such services are paid directly by the Management
Company.
Item 11. Executive Compensation.
The information set forth under the heading "Allocations of Profits and Loss" of
Section 3.3 of Article 3 of the Restated Certificate and Agreement of Limited
Partnership attached as Exhibit A to the Prospectus is incorporated herein by
reference.
The information set forth in the fourth paragraph of the section of the
Prospectus entitled "The Management Company Fees" on page 23 is incorporated
herein by reference.
On March 27, 1996, the General Partner and the Management Company agreed to
reduce the management fee payable by the Partnership from 1% of the aggregate
capital contributions to the Partnership, or $698,624 per annum, to $200,000 per
annum. The reduction commenced with the quarterly management fee paid for the
quarter ending March 31, 1996.
Under the sub-management agreement, as amended, with the Sub-Manager, the
Management Company pays the Sub-Manager 95% of the compensation which it
receives under its management agreement with the Partnership. In addition,
effective with the quarterly management fee paid for the quarter ending March
31, 1996, the Management Company paid the Sub-Manager an annual fee of $225,000.
The Sub-Manager and an affiliated entity, DLJ Associates VI L.P., are limited
partners of ML R&D Co., L.P., the general partner of the Partnership. Pursuant
to the sub-management agreement, the Sub-Manager and DLJ Associates VI L.P. will
be allocated profits, if any, that otherwise would have been allocated to the
Management Company as the general partner of ML R&D Co., L.P.
<PAGE>
Item 12. Security Ownership of Certain Beneficial Owners and Management.
As of March 21, 1997, no person or group is known by the Partnership to be the
beneficial owner of more than 5 percent of the Units. In addition, no director
or officer of the Management Company is known by the Partnership to be the
beneficial owner of any Units.
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. Certain Relationships and Related Transactions.
Kevin K. Albert, a Director and President of the Management Company and a
Managing Director of Merrill Lynch Investment Banking Group ("ML Investment
Banking"), joined Merrill Lynch in 1981. Robert F. Aufenanger, a Director
and Executive Vice President of the Management Company, a Vice President
of Merrill Lynch & Co. Corporate Credit and a Director of the Partnership
Management Department, joined Merrill Lynch in 1980. Michael E. Lurie, a
Director and Vice President of the Management Company, a First Vice
President of Merrill Lynch & Co. Corporate Credit and the Director of the
Asset Recovery Management Department, joined Merrill Lynch in 1970.
Diane T. Herte, a Vice President and Treasurer of the Management Company and
a Vice President of Merrill Lynch & Co. Investment Banking Group, joined Merrill
Lynch in 1984. Messrs. Albert, Aufenanger, Lurie and Ms. Herte are involved
with certain other entities affiliated with Merrill Lynch or its affiliates.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
(a) 1. Independent Auditors' Report
Balance Sheets as of December 31, 1996 and 1995
Statements of Operations for the years ended December 31,
1996, 1995 and 1994
Statements of Cash Flows for the years ended December 31,
1996, 1995 and 1994
Statements of Changes in Partners' Capital for the years ended
December 31, 1994, 1995 and 1996
Notes to Financial Statements
2. 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.
(10) (b) Sub-Management Agreement dated as of May 23, 1991
among the Partnership, Management Company, the
Managing General Partner and the Sub-Manager.
(27) Financial Data Schedule.
(b) No reports on Form 8-K have been filed since the beginning of the last
quarter 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.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized on the 27th day of March
1997.
ML TECHNOLOGY VENTURES, L.P.
By: ML R&D CO., L.P.
General Partner
By: MERRILL LYNCH R&D MANAGEMENT INC.
its General Partner
By: /s/ Kevin K. Albert
Kevin K. Albert
President
(Principal Executive Officer)
Pursuant to the requirements 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 27th day of March 1997.
By: /s/ Kevin K. Albert
Kevin K. Albert
President
(Principal Executive Officer and Director)
By: /s/ Diane T. Herte
Diane T. Herte
Vice President & Treasurer
(Principal Financial and Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM ML
TECHNOLOGY VENTURES, L.P.'S ANNUAL REPORT ON FORM 10-K FOR THE PERIOD ENDED
DECEMBER 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 218,215
<SECURITIES> 1,591,931
<RECEIVABLES> 32,245
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 1,842,391
<CURRENT-LIABILITIES> 120,027
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 1,842,391
<SALES> 0
<TOTAL-REVENUES> 266,842
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 355,744
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 206,248
<EPS-PRIMARY> 2.95
<EPS-DILUTED> 0
</TABLE>
