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 June 30, 1998
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
Not applicable
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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
<PAGE>
ML TECHNOLOGY VENTURES, L.P.
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
Balance Sheets as of June 30, 1998 (Unaudited) and December 31, 1997
Statements of Operations for the Three and Six Months Ended June 30, 1998
and 1997 (Unaudited)
Statements of Cash Flows for the Six Months Ended June 30, 1998 and 1997
(Unaudited)
Statement of Changes in Partners' Capital for the Six Months Ended June 30,
1998 (Unaudited)
Notes to Financial Statements (Unaudited)
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
Item 2. Changes in Securities.
Item 3. Defaults upon Senior Securities.
Item 4. Submission of Matters to a Vote of Security Holders.
Item 5. Other Information.
Item 6. Exhibits and Reports on Form 8-K.
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
ML TECHNOLOGY VENTURES, L.P.
BALANCE SHEETS
<TABLE>
June 30, 1998 December 31,
(Unaudited) 1997
ASSETS
<S> <C> <C>
Cash and cash equivalents $ 153,413 $ 343,250
Investments
U.S. Treasury bills, at amortized cost 595,177 498,981
Publicly traded securities, at market value (cost $1,125,000
as of June 30, 1998 and December 31, 1997) 1,140,872 892,856
Subordinated promissory note 110,000 110,000
Accounts receivable 29,783 34,507
Other assets - 4,576
---------------- ----------------
TOTAL ASSETS $ 2,029,245 $ 1,884,170
================ ================
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Accounts payable $ 16,986 $ 19,372
Due to Management Company 50,000 50,000
---------------- ----------------
Total liabilities 66,986 69,372
---------------- ----------------
Partners' Capital:
General Partner 194,639 204,695
Limited Partners (69,094 Units) 1,751,748 1,842,247
Accumulated unallocated other comprehensive income (loss)
- unrealized appreciation (depreciation) of investments 15,872 (232,144)
---------------- ----------------
Total partners' capital 1,962,259 1,814,798
---------------- ----------------
TOTAL LIABILITIES AND PARTNERS' CAPITAL $ 2,029,245 $ 1,884,170
================ ================
</TABLE>
See notes to financial statements.
<PAGE>
ML TECHNOLOGY VENTURES, L.P.
STATEMENTS OF OPERATIONS (Unaudited)
<TABLE>
Three Months Ended Six Months Ended
June 30, June 30,
1998 1997 1998 1997
--------------- ------------ -------------- --------
INCOME
<S> <C> <C> <C> <C>
Royalty and licensing income $ 29,783 $ 32,788 $ 64,697 $ 69,975
Other interest income 8,678 48,785 17,391 49,882
------------- --------------- ------------- ----------------
Total income 38,461 81,573 82,088 119,857
------------- --------------- ------------- ----------------
EXPENSES
Management fee 50,000 50,000 100,000 100,000
Professional fees 33,983 4,206 54,442 69,706
Mailing and printing 14,135 4,853 27,301 16,547
Miscellaneous 800 442 900 1,493
------------- --------------- ------------- ----------------
Total expenses 98,918 59,501 182,643 187,746
------------- --------------- ------------- ----------------
NET OPERATING (LOSS) INCOME (60,457) 22,072 (100,555) (67,889)
------------- --------------- ------------- ----------------
Net realized gain from investments - 2,457,339 - 12,074,845
------------- --------------- ------------- ----------------
NET (LOSS) INCOME (60,457) 2,479,411 (100,555) 12,006,956
---------- ------------ ----------- -------------
OTHER COMPREHENSIVE INCOME
Change in net unrealized appreciation
of investments 148,810 1,873,596 248,016 1,689,140
------------- --------------- ------------- ----------------
COMPREHENSIVE INCOME $ 88,353 $ 4,353,007 $ 147,461 $ 13,696,096
============= =============== ============= ================
Net (loss) income per unit of limited partnership
interest $ (.79) $ 32.30 $ (1.31) $ 167.74
========= ========== ========== ===========
</TABLE>
See notes to financial statements.
<PAGE>
ML TECHNOLOGY VENTURES, L.P.
STATEMENTS OF CASH FLOWS (Unaudited)
For the Six Months Ended June 30,
<TABLE>
1998 1997
-------------- ---------
CASH FLOWS USED FOR OPERATING ACTIVITIES
<S> <C> <C>
Interest and other income received $ 89,904 $ 117,278
Other operating expenses paid (185,029) (211,072)
-------------- ---------------
Cash used for operating activities (95,125) (93,794)
-------------- ---------------
CASH FLOWS (USED FOR) PROVIDED FROM INVESTING
ACTIVITIES
Net purchase of investments in U.S. Treasury bills (94,712) (4,996,208)
Proceeds from the sale of investments in equity securities - 5,456,077
-------------- ---------------
Cash (used for) provided from investing activities (94,712) 459,869
-------------- ---------------
(Decrease) increase in cash and cash equivalents (189,837) 366,075
Cash and cash equivalents at beginning of period 343,250 218,215
-------------- ---------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 153,413 $ 584,290
============== ===============
Reconciliation of net (loss) income to cash used for operating activities:
Net (loss) income $ (100,555) $ 12,006,956
-------------- ---------------
Adjustments to reconcile net (loss) income to cash used for
operating activities:
Net realized gain - (12,074,845)
Decrease (increase) in receivables and other assets 9,300 (14,001)
Decrease in payables (2,386) (11,904)
Increase in accrued interest on U.S. Treasury bills (1,484) -
-------------- ---------------
Total adjustments 5,430 (12,100,750)
-------------- ---------------
Cash used for operating activities $ (95,125) $ (93,794)
============== ===============
</TABLE>
See notes to financial statements.
<PAGE>
ML TECHNOLOGY VENTURES, L.P.
STATEMENT OF CHANGES IN PARTNERS' CAPITAL (Unaudited)
For the Six Months Ended June 30, 1998
<TABLE>
Accumulated
Unallocated
Other
General Limited Comprehensive
Partner Partners Income (Loss) Total
<S> <C> <C> <C> <C>
Balance at beginning of period $ 204,695 $ 1,842,247 $ (232,144) $ 1,814,798
Allocation of net loss (10,056) (90,499) (100,555)
Change in other comprehensive income
-unrealized appreciation (depreciation)
of investments - - 248,016 248,016
------------ ---------------- -------------- ----------------
Balance at end of period $ 194,639 $ 1,751,748 $ 15,872 $ 1,962,259
============ ================ ============== ================
</TABLE>
See notes to financial statements.
<PAGE>
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. 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 has been 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 has been engaged in research and
development activities for the development of new technology through contracts,
joint ventures and investments in other partnerships. The Partnership is in the
process of liquidation and will terminate no later than January 31, 2005;
however, the Partnership is working toward the final liquidation of its
remaining assets and subsequent termination by the end of the calendar year
1998, if possible.
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 Statement of Financial Accounting
Standard 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. The related unrealized appreciation or
depreciation of such securities is included in other comprehensive income (loss)
and reflected as a separate component of Partners' capital. 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.
Comprehensive Income - In accordance with Statement of Financial Accounting
Standard (SFAS) No. 130, "Reporting Comprehensive Income", the statements of
operations include an amount for other comprehensive income. Other comprehensive
income consists of revenues, expenses, gains and losses that have affected
partners' capital but which are excluded from net income (loss). Other
comprehensive income in the accompanying statements of operations resulted from
a net unrealized gain on investments on equity securities. Accumulated other
comprehensive income (loss) in the accompanying balance sheets reflects the
cumulative net unrealized appreciation (depreciation) of investments in equity
securities. The balance sheet as of December 31, 1997 and the statements of
operations for the three and six months ended June 30, 1997 include certain
reclassifications to reflect such adoption of SFAS No. 130. ML TECHNOLOGY
VENTURES, L.P. NOTES TO FINANCIAL STATEMENTS (Unaudited), continued
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.
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 (90/10 ratio) 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 (80/20 ratio). 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. 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 received a management fee at an annual rate
of 2% of the aggregate capital contributions to the Partnership for its first
four years of operations and 1% of the aggregate capital contributions
thereafter, through December 31, 1995. On March 27, 1996, the General Partner
and the Management Company agreed to reduce the management fee payable by the
Partnership to $200,000 per annum. The reduction commenced with the management
fee for the quarter ended March 31, 1996. The management fee is payable
quarterly in arrears.
5. Investments in Equity Securities
As of June 30, 1998, the Partnership held 396,825 common shares of Photon
Technology International, Inc., a public company, with a cost of $1,125,000.
Such securities had a market value of $1,140,872 as of June 30, 1998.
<PAGE>
ML TECHNOLOGY VENTURES, L.P.
NOTES TO FINANCIAL STATEMENTS (Unaudited), continued
6. Net Realized Gains or Losses from Investments
There were no realized gains or losses from portfolio investments for the six
months ended June 30, 1998. During the six months ended June 30, 1997, the
Partnership realized a gain of $12,074,845 from the receipt of 501,096 common
shares of IDEC Pharmaceuticals Corporation and the subsequent sale of 340,610 of
such shares.
7. Interim Financial Statements
In the opinion of ML R&D Co., L.P., the managing general partner of the
Partnership, the unaudited financial statements as of June 30, 1998, and for the
three and six month periods then ended, reflect all adjustments necessary for
the fair presentation of the results of the interim period.
<PAGE>
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 funded all of its research and
development commitments and will not enter into new R&D Ventures in the future.
As of June 30, 1998, the Partnership had $595,177 invested in U.S. Treasury
bills with maturities of less than one year, and $153,413 in an interest bearing
cash account. For the three and six months ended June 30, 1998, the Partnership
earned interest from its U.S. Treasury bills and interest bearing cash account
of $8,678 and $17,391, respectively. Interest earned in future periods is
subject to fluctuations in short-term interest rates and amounts available for
investment.
It is anticipated that funds needed to cover future operating expenses primarily
will be obtained from the Partnership's existing cash reserves, future royalty
income, and proceeds from the sale of its remaining assets.
The Partnership is working toward a final liquidation of its remaining assets
and termination of the Partnership by the end of calendar year 1998, if
possible. The Partnership's Photon Technology International, Inc. equity
holdings and promissory note and the Gen-Probe II royalties are its only
remaining assets. The timing of the liquidation of the Partnership's assets and
its termination is contingent upon, among other things, market conditions 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 such time frame.
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, 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. As
a result, the Partnership incurred a management fee of $100,000 for the six
months ended June 30, 1998.
Results of Operations
For the three and six months ended June 30, 1998, the Partnership had a net loss
of $60,457 and $100,555, respectively, as compared to net income of $2,479,411
and $12,006,956 for the three and six months ended June 30, 1997, 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 June 30, 1998 and
1997, the Partnership had a net operating loss of $60,457 and net operating
income of $22,072, respectively. Operating income declined $43,112 and operating
expenses increased $39,417 for the three months ended June 30, 1998 compared to
the same period in 1997. The decline in operating income primarily was
attributable to a decrease in other interest income which resulted from a
decrease in funds available for investment in short-term securities during the
1998 period compared to the same period in 1997. The increase in operating
expenses for the three months ended June 30, 1998 compared to the same period in
1997, primarily was attributable to an increase in professional fees and mailing
and printing expenses. The $29,777 increase in professional fees primarily
resulted from adjustments to current and prior period accruals. The $9,282
increase in mailing and printing expenses primarily resulted from increased
mailings to Limited Partners and a general increase in mailing and printing
charges during the three months ended June 30,1998.
For the six months ended June 30, 1998 and 1997, the Partnership had a net
operating loss of $100,555 and $67,889, respectively. The increase in net
operating loss for the 1998 period compared to the 1997 period primarily
resulted from a $37,769 decrease in operating income. The decline in operating
income primarily was attributable to a decrease in other interest income which
resulted primarily from a decrease in funds available for investment in
short-term securities during the 1998 period compared to the same period in
1997.
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 six months ended June 30, 1998, the Partnership had no realized gains or
losses from investments.
For the three and six months ended June 30, 1997, the Partnership had a net
realized gain of $2,457,339 and $12,074,845, respectively. These gains resulted
from the receipt of 365,217 common shares of IDEC Pharmaceuticals Corporation
and the subsequent sale of 207,438 of such shares during the three months ended
March 31, 1997 and the receipt of an additional 135,879 IDEC shares and
subsequent sale of an additional 133,172 of such shares during the three months
ended June 30, 1997.
Other Comprehensive Income - The Partnership has adopted Statement of Financial
Accounting Standard (SFAS) No. 130, "Reporting Comprehensive Income." SFAS No.
130 establishes standards for reporting comprehensive income, which consists of
revenues, expenses, gains and losses that have affected partners' capital but
are excluded from net income (loss). The Partnership's other comprehensive
income (loss) consists of changes to unrealized appreciation of its investments
in equity securities. For the three and six months ended June 30, 1998, the
Partnership's other comprehensive income was $148,810 and $248,016,
respectively. Such amounts represent the increase in unrealized appreciation of
the Partnership's investment in Photon Technology International, Inc. for the
respective periods. For the three and six months ended June 30, 1997, the
Partnership's other comprehensive income was $1,873,596 and $1,689,140,
respectively. Such amounts represent the net increase in unrealized appreciation
of the Partnership's investments in IDEC Pharmaceuticals Corporation and Photon
Technology for the respective periods.
Item 3. Quantitative and Qualitative Disclosures about Market Risk.
None
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
The Partnership is not a party to any 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.
<PAGE>
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.(a)
(B) (i) Amendment dated August 20, 1985 to the
Amended and Restated Certificate and
Agreement of Limited Partnership of the
Partnership.(b)
(B) (ii) Amendment dated August 28, 1985 to the
Amended and Restated Certificate and
Agreement of Limited Partnership of the
Partnership.(c)
(10) (a) Management Agreement dated as of May 23, 1991 among the
Partnership, Management Company and the Managing General Partner.(d)
(10) (b) Sub-Management Agreement dated as of May
23, 1991 among the Partnership, Management
Company, the Managing General Partner and
the Sub-Manager.(d)
(10) (c) Amendment dated March 27, 1996 to the
Management Agreement among the Partnership,
Management Company and the Managing General
Partner.(e)
(10) (d) Amendment dated March 27, 1996 to the
Sub-Management Agreement among the
Partnership, Management Company, the
Managing General Partner and the
Sub-Manager.(e)
(27) Financial Data Schedule.
(b) No reports on Form 8-K have been filed since the beginning of
the period covered by this report.
- ------------------------------
(a) 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.
(b) 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.
(c) 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.
(d) 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.
(e) Incorporated by reference to the Partnership's Quarterly Report on Form
10-Q for the quarter ended March 31, 1996 filed with the Securities and
Exchange Commission on May 14, 1996.
<PAGE>
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/ Robert Aufenanger
Robert Aufenanger
Executive Vice President and Director
By: /s/ Diane T. Herte
Diane T. Herte
Vice President and Treasurer
(Principal Financial and Accounting Officer)
Date: August 14, 1998
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM ML
TECHNOLOGY VENTURES, L.P.'S QUARTERLY REPORT ON FORM 10-Q FOR THE PERIOD ENDED
JUNE 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-1-1998
<PERIOD-END> JUN-30-1998
<CASH> 153,413
<SECURITIES> 1,846,049
<RECEIVABLES> 29,783
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 2,029,245
<CURRENT-LIABILITIES> 66,986
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 1,962,259
<TOTAL-LIABILITY-AND-EQUITY> 2,029,245
<SALES> 0
<TOTAL-REVENUES> 82,088
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 182,643
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (100,555)
<EPS-PRIMARY> (1.31)
<EPS-DILUTED> (1.31)
</TABLE>
