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, 1997
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)
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
================================================================================
(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, 1997, the Partnership had terminated its activities or sold
its proprietary technology or joint venture interest in all of its 16 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 an orderly manner in order to maximize cash returns to the
Partnership.
As of December 31, 1997, the Partnership had active royalty agreements remaining
with development companies associated with two of the original 16 R&D Ventures.
The two active royalty agreements as of December 31, 1997 were with Gen-Probe
Incorporated (R&D Venture #2) and Bolt Baranek and Newman Inc. Both of these
companies have commercialized the technology developed through their respective
R&D Venture with the Partnership. During 1997, the Partnership received
royalties totaling $131,931 and $789 from Gen-Probe and Bolt Beranek and Newman,
respectively.
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.
Seasonality
There are no seasonal trends which affect the Partnership's remaining
activities.
Patents, Trademarks, Licenses
As of December 31, 1997, 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.
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 of the
Prospectus is incorporated herein by reference.
<PAGE>
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. An established public market for Registrant's
Units does not now exist, and it is not anticipated that such a market will
develop in the future. Accordingly, accurate information as to the market value
of a Unit at any given date is not available. There is no established public
trading market for the Units. There are approximately 6,210 Unit holders as of
March 16, 1998.
Beginning with the December 1994 client account statements, Merrill Lynch
implemented new guidelines for reporting estimated values of limited
partnerships and other direct investments on client account statements. Pursuant
to the guidelines, Merrill Lynch will report estimated values for limited
partnership interests originally sold by Merrill Lynch (such as Registrant's
Units) two times per year. Such estimated values will be provided to Merrill
Lynch by independent valuation services based on financial and other information
available to the independent services on (i) the prior August 15th for reporting
on December year-end and subsequent client account statements through the
following May's month-end client account statements, and on (ii) March 31st for
reporting on June month-end and subsequent client account statements through the
November month-end client account statements 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 estimated 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 amount 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, 1997, 1996 and 1995 and cumulative cash distributions
paid from inception to December 31, 1997 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, 1994 $ 590,969 $ 53,133,286 $ 769
January 19, 1996 42,267 3,800,170 55
July 23, 1996 38,424 3,454,700 50
July 8, 1997 52,344 5,182,050 75
October 17, 1997 420,662 6,909,400 100
------------- ---------------- ---------
Cumulative as of December 31, 1997 $ 1,144,666 $ 72,479,606 $ 1,049
============= ================ =========
</TABLE>
<PAGE>
Item 6. Selected Financial Data.
($ In Thousands, Except For Per Unit Information)
<TABLE>
Years Ended December 31,
1997 1996 1995 1994 1993
---------- ----------- ----------- ----------- -------
<S> <C> <C> <C> <C> <C>
Net income $ 13,153 $ 206 $ 1,374 $ 222 $ 2,417
Royalty and licensing income 133 138 762 1,300 1,193
Net realized gain from research and
development ventures - 619 1,321 335 1,117
Net realized gain (loss) from investments 13,184 (324) (317) (952) 492
Total assets 1,884 1,842 8,974 7,943 11,992
Cash distributions paid to Partners 12,564 7,336 - 3,493 7,685
Cumulative cash distributions paid to Partners 73,624 61,060 53,724 53,724 50,231
PER UNIT OF LIMITED
PARTNERSHIP INTEREST:
Net income $ 181 $ 3 $ 20 $ 3 $ 35
Net realized gain from research and
development ventures - 9 19 5 16
Net realized gain (loss) from investments 181 (5) (5) (14) 7
Cash distributions paid to Partners 175 105 - 50 110
Cumulative cash distributions paid to Partners 1,049 874 769 769 719
</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 (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, 1997, the Partnership had $498,981 invested in U.S. Treasury
bills, with maturities of less than one year and $343,250 in an interest-bearing
cash account. For the years ended December 31, 1997, 1996 and 1995, the
Partnership earned interest from its cash balances and short-term investments
totaling $140,562, $79,178 and $153,993, respectively. Interest earned in future
periods is subject to fluctuations in short-term interest rates and amounts
available for investment in such securities.
During 1997, the Partnership made cash distributions to Partners totaling
$12,564,456; $12,091,450 to the Limited Partners and $473,006 to the General
Partner. Cumulative cash distributions to Partners as of December 31, 1997 total
$73,624,272, including $72,479,606, or $1,049 per Unit, to the Limited Partners
and $1,144,666 to the General Partner.
It is anticipated that funds needed to cover future operating expenses primarily
will be obtained from the Partnership's existing cash reserves, future royalty
and licensing income, and proceeds received from the sale of the Partnership's
remaining assets.
The Partnership is working toward a final liquidation of its 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, 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. As
a result, the Partnership was charged the reduced management fee of $200,000 for
each of the calendar years ended December 31, 1997 and 1996.
<PAGE>
Results of Operations
For the years ended December 31, 1997, 1996 and 1995, the Partnership had net
income of $13,152,922, $206,248 and $1,373,592, 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 years ended December 31, 1997 and 1996,
the Partnership had a net operating loss of $31,354 and $88,902, respectively.
For the year ended December 31, 1995, the Partnership had net operating income
of $369,448.
The lower net operating loss for 1997 compared to 1996 was primarily due to a
$51,108 decline in operating expenses. The decrease in operating expenses for
the 1997 period compared to the 1996 period primarily resulted from reduced
professional fees and mailing and printing expenses. Such expenses have declined
as the Partnership's operating activity has declined during its liquidation
period. The increase in operating income primarily resulted from an increase in
interest from short-term investments due to an increase in funds available for
such investments during the 1997 period compared to the same period in 1996. The
increase in amounts invested in short-term securities during the 1997 period
resulted primarily from proceeds received by the Partnership from the sale of
IDEC Pharmaceuticals Corporation during 1997, as discussed below. Generally,
such proceeds are invested in short-term securities until such funds are
distributed to Partners or used for operations.
The change to a net operating loss for 1996 compared to net operating income in
1995 was due to a $959,884 decline in operating income partially offset by a
$501,534 decline in operating expenses, primarily related to the reduction in
the management fee as discussed above. The decrease in operating income for 1996
resulted from a $624,177 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 $260,892 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 $74,815 due to a reduced amount of funds available for
investment in short-term securities during the 1996 period. The decrease in
amounts invested in short-term securities resulted from cash distributions paid
to Partners in January 1996 and July 1996.
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, 1997, the Partnership had a net realized gain of
$13,184,276. In March 1997 and in May 1997, the Partnership received 365,217 and
135,879 common shares of IDEC Pharmaceuticals Corporation, respectively, from
ML/MS Associates, L.P. and its general partner, MLMS Cancer Research, Inc.
("MLMS"), representing the final liquidating distribution from MLMS. The
Partnership liquidated its entire position in IDEC during the year ended
December 31, 1997. The receipt and subsequent sale of the Partnership's IDEC
shares resulted in a return of $13,318,234 and a realized gain of $13,184,276
for the year ended December 31, 1997.
For the year ended December 31, 1996, the Partnership had a net realized gain of
$295,150. During 1996, the Partnership received the final $2,350,284 installment
payment due from United AgriSeeds, resulting in the recognition of a $618,843
realized gain. Partially offsetting this gain was the sale of the Partnership's
remaining common shares of Ecogen, Inc. for $321,888, resulting in a realized
loss of $323,693.
For the year ended December 31, 1995, the Partnership had a net realized gain of
$1,004,144 comprised of a $1,321,074 gain from the termination of certain R&D
Ventures and a $316,930 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 $446,074 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
$372,754, realizing a loss of $221,681. The Interleaf shares were received in
exchange for 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 $99,020, realizing a loss of $95,249.
<PAGE>
Item 8. Financial Statements and Supplementary Data.
ML TECHNOLOGY VENTURES, L.P.
INDEX
Independent Auditors' Report
Balance Sheets as of December 31, 1997 and 1996
Statements of Operations for the years ended December 31, 1997, 1996 and 1995
Statements of Cash Flows for the years ended December 31, 1997, 1996 and 1995
Statements of Changes in Partners' Capital for the years ended December 31,
1995, 1996 and 1997
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, 1997 and 1996, 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, 1997. 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, 1997 and 1996, 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, 1997 in conformity with generally accepted accounting principles.
Deloitte & Touche LLP
New York, New York
February 24, 1998
<PAGE>
ML TECHNOLOGY VENTURES, L.P.
BALANCE SHEETS
December 31,
<TABLE>
1997 1996
ASSETS
<S> <C> <C>
Cash and cash equivalents $ 343,250 $ 218,215
Investments
U.S. Government securities, at amortized cost 498,981 -
Publicly traded securities, at market value (cost $1,125,000 as of
December 31, 1997 and December 31, 1996) 892,856 1,388,888
Other equity investments, at cost - 73,043
Subordinated promissory note 110,000 130,000
Accounts receivable 34,507 32,105
Other assets 4,576 140
-------------- ---------------
TOTAL ASSETS $ 1,884,170 $ 1,842,391
============== ===============
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Accounts payable $ 19,372 $ 70,027
Due to Management Company 50,000 50,000
-------------- ---------------
Total liabilities 69,372 120,027
-------------- ---------------
Partners' Capital:
General Partner 204,695 16,042
Limited Partners (69,094 Units) 1,842,247 1,442,434
Unallocated net unrealized (depreciation) appreciation of investments (232,144) 263,888
-------------- ---------------
Total partners' capital 1,814,798 1,722,364
-------------- ---------------
TOTAL LIABILITIES AND PARTNERS' CAPITAL $ 1,884,170 $ 1,842,391
</TABLE>
See notes to financial statements.
<PAGE>
ML TECHNOLOGY VENTURES, L.P.
STATEMENTS OF OPERATIONS
For the Years Ended December 31,
<TABLE>
1997 1996 1995
-------------- -------------- ----------
INCOME
<S> <C> <C> <C>
Royalty and licensing income $ 132,720 $ 137,948 $ 762,125
Interest on accounts receivable - 49,716 310,608
Other interest income 140,562 79,178 153,993
--------------- -------------- ---------------
Total operating income 273,282 266,842 1,226,726
--------------- -------------- ---------------
EXPENSES
Management fee 200,000 200,000 698,624
Professional fees 75,001 116,302 110,313
Mailing and printing 27,647 38,162 47,160
Miscellaneous 1,988 1,280 1,181
--------------- -------------- ---------------
Total operating expenses 304,636 355,744 857,278
--------------- -------------- ---------------
NET OPERATING INCOME (LOSS) (31,354) (88,902) 369,448
--------------- -------------- ---------------
Net realized gain from research and development ventures - 618,843 1,321,074
Net realized gain (loss) from investments 13,184,276 (323,693) (316,930)
--------------- -------------- ---------------
NET REALIZED GAIN 13,184,276 295,150 1,004,144
--------------- -------------- ---------------
NET INCOME $ 13,152,922 $ 206,248 $ 1,373,592
=============== ============== ===============
Net income per unit of limited partnership interest $ 180.79 $ 2.95 $ 19.66
========== ======== ========
</TABLE>
See notes to financial statements.
<PAGE>
ML TECHNOLOGY VENTURES, L.P.
STATEMENTS OF CASH FLOWS
For the Years Ended December 31,
<TABLE>
1997 1996 1995
--------------- -------------- ---------
CASH FLOWS (USED FOR) PROVIDED FROM
OPERATING ACTIVITIES
<S> <C> <C> <C>
Interest and other income received $ 274,679 $ 283,989 $ 1,567,186
Other operating expenses paid (368,280) (442,289) (834,305)
--------------- -------------- ---------------
Cash (used for) provided from operating activities (93,601) (158,300) 732,881
--------------- -------------- ---------------
CASH FLOWS PROVIDED FROM (USED FOR)
INVESTING ACTIVITIES
Net return (purchase) of investments in U.S.
Government securities (494,227) 4,577,518 (2,849,489)
Proceeds from the sale or termination of research
and development ventures - 2,350,284 1,651,918
Purchase of equity investments (60,915) - (23,739)
Proceeds from repayment of subordinated promissory note 20,000 120,000 -
Proceeds from the sale of investments in equity securities 13,318,234 420,908 372,794
--------------- -------------- ---------------
Cash provided from (used for) investing activities 12,783,092 7,468,710 (848,516)
--------------- -------------- ---------------
CASH FLOWS USED FOR FINANCING ACTIVITIES
Cash distributions:
General Partner (473,006) (80,691) -
Limited Partners (12,091,450) (7,254,870) -
--------------- -------------- ---------------
Cash used for financing activities (12,564,456) (7,335,561) -
--------------- -------------- ---------------
Increase (decrease) in cash and cash equivalents 125,035 (25,151) (115,635)
Cash and cash equivalents at beginning of year 218,215 243,366 359,001
--------------- -------------- ---------------
CASH AND CASH EQUIVALENTS AT END
OF YEAR $ 343,250 $ 218,215 $ 243,366
=============== ============== ===============
Reconciliation of net income to cash (used for) provided from operating
activities:
Net income $ 13,152,922 $ 206,248 $ 1,373,592
--------------- -------------- ---------------
Adjustments to reconcile net income to cash
(used for) provided from operating activities:
Net realized gain (13,184,276) (295,150) (1,004,144)
(Increase) decrease in receivables (11,592) 22,695 338,627
(Decrease) increase in payables (50,655) (92,093) 24,806
--------------- -------------- ---------------
Total adjustments (13,246,523) (364,548) (640,711)
--------------- -------------- ---------------
Cash (used for) provided from operating activities $ (93,601) $ (158,300) $ 732,881
=============== ============== ===============
</TABLE>
See notes to financial statements.
<PAGE>
ML TECHNOLOGY VENTURES, L.P.
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
For the Years Ended December 31, 1995, 1996 and 1997
<TABLE>
Unallocated
Net Unrealized
Appreciation
General Limited (Depreciation)
Partner Partners of Investments Total
<S> <C> <C> <C> <C> <C> <C>
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
July 1997 cash distribution (52,344) (5,182,050) - (5,234,394)
October 1997 cash distribution (420,662) (6,909,400) - (7,330,062)
Allocation of net income 661,659 12,491,263 - 13,152,922
Change in net unrealized appreciation
or depreciation of investments - - (496,032) (496,032)
------------- ---------------- --------------- ----------------
Balance at December 31, 1997 $ 204,695 $ 1,842,247 $ (232,144) $ 1,814,798
============= ================ =============== ================
</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 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
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. The related unrealized appreciation or
depreciation of such securities is 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.
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.
<PAGE>
ML TECHNOLOGY VENTURES, L.P.
NOTES TO FINANCIAL STATEMENTS, continued
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. Commitments
The Partnership had a $388,957 non-interest obligation payable on demand to MLMS
Cancer Research, Inc., the general partner of ML/MS Associates, L.P. This
obligation was satisfied in November 1997 by making a final payment of $14,783
to MLMS Cancer Research, Inc.
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 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.
6. Investments in Equity Securities
As of December 31, 1997 and December 31, 1996, the Partnership held 396,825
shares of common stock of Photon Technology International, Inc., a public
company, with a cost of $1,125,000. Such securities had a market value of
$892,856 and $1,388,888 as of December 31, 1997 and 1996, respectively.
<PAGE>
ML TECHNOLOGY VENTURES, L.P.
NOTES TO FINANCIAL STATEMENTS, continued
7. Cash Distributions
Cash distributions paid to Partners during the years ended December 31, 1997,
1996 and 1995 and cumulative cash distributions
paid from inception to December 31, 1997 are listed below:
<TABLE>
General Limited Per
Distribution Date Partner Partners $1,000 Unit
- ----------------- ------------- ---------------- -------------
<S> <C> <C> <C> <C> <C>
Cumulative as of December 31, 1994 $ 590,969 $ 53,133,286 $ 769
January 19, 1996 42,267 3,800,170 55
July 23, 1996 38,424 3,454,700 50
July 8, 1997 52,344 5,182,050 75
October 17, 1997 420,662 6,909,400 100
------------- ---------------- ---------
Cumulative as of December 31, 1997 $ 1,144,666 $ 72,479,606 $ 1,049
============= ================ =========
</TABLE>
8. Net Realized Gains from Research and Development Ventures
There were no realized gains or losses from research and development ventures
for the year ended December 31, 1997. For the year ended December 31, 1996, the
Partnership realized a $618,843 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 $446,074 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
Technology International, Inc.
9. Net Realized Gains or Losses from Investments
During 1997, the Partnership received 501,096 common shares of IDEC
Pharmaceuticals Corporation in two final liquidating distribution payments from
ML/MS Associates, L.P. and its general partner, MLMS Cancer Research, Inc.
Subsequently, during 1997, the Partnership liquidated all of its IDEC shares for
$13,318,234. The receipt and subsequent sale of the Partnership's IDEC shares
resulted in a net realized gain of $13,184,276 for the year ended December 31,
1997. During the year ended December 31, 1996, the Partnership realized a
$323,693 loss from the sale of its remaining common shares of Ecogen, Inc.
During the year ended December 31, 1995, the Partnership realized a $221,681
loss from the sale of its investment in Interleaf, Inc. and realized an
additional $95,249 loss from the sale of 66,682 common shares of Ecogen.
10. Investments in U.S. Government Securities
The Partnership had an investment in a U. S. Treasury Bill as of December 31,
1997 as detailed below. The Partnership had no
investments in U.S. Government securities as of December 31, 1996.
<TABLE>
Maturity Purchase Amortized
Yield Date Price Cost Face Value
<S> <C> <C> <C> <C> <C> <C>
U.S. Treasury Bill 4.89% 1/15/98 $ 494,227 $ 498,981 $ 500,000
</TABLE>
<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 16, 1998, 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
<S> <C> <C> <C> <C> <C> <C>
Name and Age Position Held Capacity Since
Kevin K. Albert (45) Director April 2, 1990
President July 5, 1991
Robert F. Aufenanger (44) Director April 2, 1990
Executive Vice President February 2, 1993
Michael E. Lurie (54) Director August 10, 1995
Vice President August 11, 1995
Diane T. Herte (37) 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 by 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 16, 1998, 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, 1997 and 1996
Statements of Operations for the years ended December 31,
1997, 1996 and 1995
Statements of Cash Flows for the years ended December 31,
1997, 1996 and 1995
Statements of Changes in Partners' Capital for the years ended
December 31, 1995, 1996 and 1997
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
1998.
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 1998.
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)
<PAGE>
<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, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 343,250
<SECURITIES> 1,501,837
<RECEIVABLES> 39,083
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 1,884,170
<CURRENT-LIABILITIES> 69,372
<BONDS> 0
<COMMON> 0
0
0
<OTHER-SE> 1,814,798
<TOTAL-LIABILITY-AND-EQUITY> 1,884,170
<SALES> 0
<TOTAL-REVENUES> 13,457,558
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 304,636
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 13,152,922
<EPS-PRIMARY> 180.79
<EPS-DILUTED> 0
</TABLE>
