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, 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.
- - -------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 13-3213176
- - -------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
World Financial Center, North Tower
New York, New York 10281-1326
- - ------------------------------------------------------------------------------
(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 also formed on April 23, 1984. Merrill Lynch R&D Management
Inc. (the "Management Company"), an indirect subsidiary of Merrill Lynch & Co.,
Inc., is the general partner of ML R&D Co., L.P. DLJ Capital Management
Corporation (the "Sub-Manager"), an indirect subsidiary of Donaldson, Lufkin &
Jenrette, Inc., is 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.
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 contributed to the Partnership.
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 ventures ("R&D Ventures") for the development of new technology
through contracts, joint ventures and participation in other partnerships.
Although the Partnership Agreement provides that the Partnership will terminate
no later than January 31, 2005, the General Partner is working toward the
termination of the Partnership, with an emphasis on liquidating the remaining
assets as soon as practical, consistent with the goal of maximizing returns. In
addition to the liquid assets held as of December 31, 1998, the Partnership also
holds 396,825 common shares of Photon Technology International Inc. and a
promissory note due from Photon Technology with a face value of $110,000. As
described below, the Partnership is party to active royalty agreements in
connection with its R&D Ventures with Gen Probe, Inc. and Bolt Beranek and
Newman, Inc. The timing of the liquidation of these remaining assets is
contingent upon, among other things, market conditions and securities laws
restrictions. Therefore, although it is anticipated that the Partnership will
terminate during calendar year 1999, no assurances can be given that the
Partnership will be able to complete all steps necessary to liquidate the
remaining assets in such time frame.
Research and Development Activities
Since its inception, the Partnership entered into 16 R&D Ventures with 14
companies, thereby funding 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, 1998, 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, resulting in
cash distributions to partners.
While the Partnership's R&D Ventures were active, the General Partner's and
Sub-Manager's principal focus was managing the progress of such ventures and
monitoring the related royalty arrangements. As of December 31, 1998, the
General Partner and the Sub-Manager are primarily focused on monitoring the
Partnership's remaining assets comprised of two active royalty agreements with
development companies associated with two of the original R&D Ventures. The two
active royalty agreements are its second R&D Venture with Gen-Probe Inc.
("Gen-Probe") and Bolt Beranek and Newman, Inc. ("BBN"). Both of these companies
have commercialized the technology developed through their respective R&D
Venture with the Partnership. During 1998, the Partnership received royalties
totaling $127,269 from Gen-Probe and received no payments from BBN.
The development companies of each of the Partnership's 16 R&D Ventures were U.S.
companies, the majority of which were publicly-held at the time the R&D Venture
was formed. No single R&D Venture involved a commitment of more than 12.5% of
the Partnership's total 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.
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. As mentioned above, the
Partnership will not enter into any new R&D Ventures.
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.
<PAGE>
Item 2. Properties.
The Partnership does not own or lease physical properties.
Item 3. Legal Proceedings.
The Partnership is not a party to any 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 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 were approximately 6,209 Unit holders as
of March 16, 1999.
Merrill Lynch has implemented guidelines pursuant to which it reports 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) the prior 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. 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.
The Partnership makes cash distributions to its partners, as soon as
practicable, after proceeds are received. There were no cash distributions paid
to partners during the year ended December 31, 1998. Cash distributions paid to
partners during the three years ended December 31, 1998 and cumulative cash
distributions paid from inception to December 31, 1998 are set forth in the
following table:
<TABLE>
General Limited Per
Distribution Date Partner Partners $1,000 Unit
- - ----------------- ------------- ---------------- -------------
<S> <C> <C> <C> <C> <C>
Cumulative as of December 31, 1995 $ 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, 1998 $ 1,144,666 $ 72,479,606 $ 1,049
============= ================ =========
Item 6. Selected Financial Data.
($ In Thousands, Except For Per Unit Information)
Years Ended December 31,
1998 1997 1996 1995 1994
--------- ----------- ----------- ----------- ----------
Net (loss) income $ (140) $ 13,153 $ 206 $ 1,374 $ 222
Royalty and licensing income 127 133 138 762 1,300
Net realized gain from research and
development ventures - - 619 1,321 335
Net realized gain (loss) from
investments - 13,184 (324) (317) (952)
Total assets 1,300 1,884 1,842 8,974 7,943
Cash distributions paid - 12,564 7,336 - 3,493
Cumulative cash distributions paid 73,624 73,624 61,060 53,724 53,724
PER UNIT OF LIMITED PARTNERSHIP INTEREST:
Net (loss) income $ (2) $ 181 $ 3 $ 20 $ 3
Net realized gain from research
and development ventures - - 9 19 5
Net realized gain (loss) from
investments - 181 (5) (5) (14)
Cash distributions paid - 175 105 - 50
Cumulative cash distributions paid 1,049 1,049 874 769 769
</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
capital contributed 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, 1998, the Partnership had $595,856 invested in U.S.
Government securities, with maturities of less than one year, and also held
$105,543 in an interest-bearing cash account. For the years ended December 31,
1998, 1997 and 1996, the Partnership earned interest from its U.S. Government
securities and an interest-bearing cash account totaling $33,520, $140,562 and
$79,178, 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 will be
obtained from the Partnership's existing cash reserves, future royalty income,
and proceeds from the sale of its remaining assets.
Although the Partnership Agreement provides that the Partnership will terminate
no later than January 31, 2005, the General Partner is working toward the
termination of the Partnership, as soon as practical consistent with the goal of
maximizing returns. In addition to the liquid assets held as of December 31,
1998, the Partnership also holds 396,825 common shares of Photon Technology
International Inc. and a promissory note due from Photon Technology with a face
value of $110,000. As described below, the Partnership is party to active
royalty agreements in connection with its R&D Ventures with Gen Probe, Inc. and
Bolt Beranek and Newman, Inc. The timing of the liquidation of these remaining
assets is contingent upon, among other things, market conditions and securities
laws restrictions. Therefore, although it is anticipated that the Partnership
will terminate during calendar year 1999, no assurances can be given that the
Partnership will be able to complete all steps necessary to liquidate the
remaining assets in such time frame.
As was provided in the Partnership's prospectus, the Partnership is obligated to
pay, and has paid, 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 from $698,624 to $200,000,
commencing with the management fee for the first calendar quarter of 1996. As a
result, the Partnership incurred management fees of $200,000 for the calendar
years ended December 31, 1998, 1997 and 1996.
There were no cash distributions paid to partners during the year ended December
31, 1998. Cumulative cash distributions paid to partners from inception to
December 31, 1998 total $73,624,272. Limited partners have received $72,479,606,
or $1,049 per $1,000 Unit, and the General Partner has received $1,144,666.
Results of Operations
For the year ended December 31, 1998, the Partnership had a net loss of
$139,887, as compared to net income of $13,152,922 and $206,248 for the years
ended December 31, 1997 and 1996, 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 years ended December 31, 1998, 1997 and
1996, the Partnership had a net operating loss of $139,887, $31,354 and $88,902,
respectively.
The increase in net operating loss for 1998 period compared to 1997 primarily
was due to a $112,493 decrease in operating income. 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 U.S. government
securities during the 1998 period compared to the same period in 1997. Operating
expenses declined slightly, by $3,960 during 1998 as compared to 1997. Such
reduced expenses primarily resulted from reduced professional fees which were
partially offset by increased mailing and printing expenses. The $16,775
decrease in professional fees reflects the Partnership's declining operating
activity. The $13,674 increase in mailing and printing expense primarily
resulted from increased mailings to limited partners and a general increase in
mailing and printing fees during 1998.
The lower net operating loss for 1997 compared to 1996 primarily was 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. Operating income increased
slightly by $6,440 during 1997 as compared to 1996. Such increased income
primarily resulted from an increase in interest from U.S. Government securities
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
U.S. government securities during the 1997 period resulted primarily from
proceeds received by the Partnership from the sale of IDEC Pharmaceuticals
Corporation ("IDEC") during 1997, as discussed below. Generally, such proceeds
are invested in U.S. government securities until such funds are distributed to
Partners or used for operations.
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.
The Partnership had no realized gains or losses for the year ended December 31,
1998.
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, 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 sold all of its IDEC shares
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. Other Comprehensive Income (Loss) - The Partnership has
adopted Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting
Comprehensive Income." SFAS No. 130 establishes standards for reporting
comprehensive income (loss), 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 (depreciation) of its investments in equity
securities. For the year ended December 31, 1998, the Partnership's other
comprehensive loss was $434,026. Such amount represents the change in unrealized
depreciation of the Partnership's investment in Photon for 1998. For the years
ended December 31, 1997 and 1996, the Partnership had other comprehensive (loss)
income of ($496,032) and $624,674, respectively. Such amounts represent the
change in the unrealized appreciation (depreciation) of the Partnership's equity
securities for the respective periods.
Year 2000 Issue - The Year 2000 ("Y2K") concern arose because many existing
computer programs use only the last two digits to refer to a year. Therefore,
these computer programs may not properly recognize a year that begins with "20"
instead of "19". If not corrected, many computer applications could fail or
create erroneous results. The impact of the Y2K concern on the Partnership's
operations is currently being assessed.
The Management Company is responsible to provide or arrange for the provision of
administrative services necessary to support the Partnership's operations. The
Management Company has arranged for Palmeri Fund Administrators, Inc. (the
"Administrator") to provide certain administrative and accounting services for
the Partnership, including maintenance of the books and records of the
Partnership, maintenance of the limited partner database, issuance of financial
reports and tax information to limited partners and processing distribution
payments to limited partners. Fees charged by the Administrator are paid
directly by the Management Company.
The Administrator is currently assessing its computer hardware and software
systems, specifically as they relate to the operations of the Partnership. As
part of this investigation of potential Y2K problems, the Administrator has
contracted with an outside computer service provider to examine all of the
Administrator's computer hardware and software applications, to identify any Y2K
concerns. This review and evaluation is in process and is expected to be
completed by May 1999. If Y2K problems are identified, the Administrator will
purchase, install and test the necessary software patches and new computer
hardware to ensure that all of its computer systems are Y2K compliant. This
correction phase, if required, is expected to be completed by September 1999.
Additionally, the Administrator has contacted the outside service providers used
to assist the Administrator or the Management Company with the administration of
the Partnership's operations to ascertain whether these entities are addressing
the Y2K issue within their own operation. There can be no guarantee that the
Administrator's systems or that systems of other companies providing services to
the Partnership will be corrected in a timely manner.
Since the Partnership does not own any equipment and all of its administrative
needs are provided by the Management Company, any costs relating to the
investigation and correction of potential Y2K problems affecting the
Partnership's operations will be incurred by the Administrator, the Management
Company or the outside service providers. Therefore, the Management Company and
the General Partner do not expect the Partnership to incur any costs relating to
the investigation or correction of Y2K concerns.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
The Partnership is subject to market risk arising from changes in the value of
its equity investments, interest-bearing cash equivalents and investments in
U.S. Treasury Bills, which may result from fluctuations in interest rates and
equity prices. The Partnership has calculated its market risk related to its
holdings of these investments based on changes in interest rates and equity
prices utilizing a sensitivity analysis. The sensitivity analysis estimates the
hypothetical change in fair values, cash flows and earnings based on an assumed
10% change (increase or decrease) in interest rates and equity prices. To
perform the sensitivity analysis, the assumed 10% change is applied to market
rates and prices on investments held by the Partnership at the end of the
accounting period.
The Partnership's 396,825 common shares of Photon Technology International, Inc.
was the only equity investment held as of December 31, 1998. The per share
market price of this security was $1.15625 as of December 31, 1998 and the fair
value of the Partnership's holdings was $458,830. An assumed 10% decline from
the December 31, 1998 market price of this security would result in a reduction
to the fair value of the Partnership's holdings in Photon Technology and an
unrealized loss of $45,883.
Market risk on the Partnership's interest-bearing cash equivalents and
investments in U.S. Treasury Bills is considered to be immaterial.
<PAGE>
Item 8. Financial Statements and Supplementary Data.
ML TECHNOLOGY VENTURES, L.P.
INDEX
Independent Auditors' Report
Balance Sheets as of December 31, 1998 and 1997
Statements of Operations for the years ended December 31, 1998, 1997 and 1996
Statements of Cash Flows for the years ended December 31, 1998, 1997 and 1996
Statements of Changes in Partners' Capital for the years ended December 31,
1996, 1997 and 1998
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 notes thereto.
<PAGE>
INDEPENDENT AUDITORS' REPORT
ML Technology Ventures, L.P.:
We have audited the accompanying balance sheets of ML Technology Ventures, L.P.
as of December 31, 1998 and 1997, 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, 1998. 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, 1998 and 1997, 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, 1998 in conformity with generally accepted accounting principles.
Deloitte & Touche LLP
New York, New York
February 22, 1999
<PAGE>
ML TECHNOLOGY VENTURES, L.P.
BALANCE SHEETS
December 31,
<TABLE>
1998 1997
-------------- ---------------
ASSETS
Cash and cash equivalents $ 105,543 $ 343,250
Investments
<S> <C> <C>
U.S. Government securities, at amortized cost 595,856 498,981
Publicly traded securities, at market value (cost $1,125,000 as of
December 31, 1998 and 1997) 458,830 892,856
Subordinated promissory note 110,000 110,000
Accounts receivable 30,017 34,507
Other assets - 4,576
-------------- ---------------
TOTAL ASSETS $ 1,300,246 $ 1,884,170
============== ===============
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Accounts payable and accrued liabilities $ 9,361 $ 19,372
Due to Management Company 50,000 50,000
-------------- ---------------
Total liabilities 59,361 69,372
-------------- ---------------
Partners' Capital:
General Partner 190,706 204,695
Limited Partners (69,094 Units) 1,716,349 1,842,247
Accumulated unallocated other comprehensive loss
- unrealized depreciation of investments (666,170) (232,144)
-------------- ---------------
Total partners' capital 1,240,885 1,814,798
-------------- ---------------
TOTAL LIABILITIES AND PARTNERS' CAPITAL $ 1,300,246 $ 1,884,170
============== ===============
</TABLE>
See notes to financial statements.
<PAGE>
ML TECHNOLOGY VENTURES, L.P.
STATEMENTS OF OPERATIONS
For the Years Ended December 31,
<TABLE>
1998 1997 1996
-------------- -------------- ---------------
INCOME
<S> <C> <C> <C>
Royalty and licensing income $ 127,269 $ 132,720 $ 137,948
Interest on accounts receivable - - 49,716
Other interest income 33,520 140,562 79,178
--------------- --------------- ---------------
Total operating income 160,789 273,282 266,842
--------------- --------------- ---------------
EXPENSES
Management fee 200,000 200,000 200,000
Professional fees 58,226 75,001 116,302
Mailing and printing 41,321 27,647 38,162
Miscellaneous 1,129 1,988 1,280
--------------- --------------- ---------------
Total operating expenses 300,676 304,636 355,744
--------------- --------------- ---------------
NET OPERATING LOSS (139,887) (31,354) (88,902)
--------------- --------------- ---------------
Net realized gain from research and development ventures - - 618,843
Net realized gain (loss) from investments - 13,184,276 (323,693)
--------------- --------------- ---------------
NET REALIZED GAIN - 13,184,276 295,150
--------------- --------------- ---------------
NET (LOSS) INCOME $ (139,887) $ 13,152,922 $ 206,248
=============== =============== ===============
OTHER COMPREHENSIVE (LOSS) INCOME
Change in unrealized (depreciation) appreciation of
investments (434,026) (496,032) 624,674
--------------- --------------- ---------------
COMPREHENSIVE (LOSS) INCOME $ (573,913) $ 12,656,890 $ 830,922
=============== =============== ===============
Net (loss) income per unit of limited partnership interest $ (1.82) $ 180.79 $ 2.95
======= ======== =======
</TABLE>
See notes to financial statements.
<PAGE>
ML TECHNOLOGY VENTURES, L.P.
STATEMENTS OF CASH FLOWS
For the Years Ended December 31,
<TABLE>
1998 1997 1996
--------------- --------------- ---------------
CASH FLOWS USED FOR OPERATING ACTIVITIES
<S> <C> <C> <C>
Interest and other income received $ 172,093 $ 274,679 $ 283,989
Other operating expenses paid (310,687) (368,280) (442,289)
--------------- --------------- --------------
Cash used for operating activities (138,594) (93,601) (158,300)
---------------- --------------- --------------
CASH FLOWS (USED FOR) PROVIDED FROM
INVESTING ACTIVITIES
Net (purchase) return of investments in U.S. Government
securities (99,113) (494,227) 4,577,518
Proceeds from the sale or termination of research
and development ventures - - 2,350,284
Purchase of equity investments - (60,915) -
Proceeds from repayment of subordinated promissory note - 20,000 120,000
Proceeds from the sale of investments - 13,318,234 420,908
--------------- --------------- --------------
Cash (used for) provided from investing activities (99,113) 12,783,092 7,468,710
--------------- --------------- --------------
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)
--------------- --------------- --------------
(Decrease) increase in cash and cash equivalents (237,707) 125,035 (25,151)
Cash and cash equivalents at beginning of year 343,250 218,215 243,366
--------------- --------------- --------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 105,543 $ 343,250 $ 218,215
=============== =============== ==============
Reconciliation of net (loss) income to cash used for operating activities:
Net (loss) income $ (139,887) $ 13,152,922 $ 206,248
--------------- --------------- --------------
Adjustments to reconcile net (loss) income to cash
used for operating activities:
Net realized gain - (13,184,276) (295,150)
Decrease (increase) in receivables and other assets 11,304 (11,592) 22,695
Decrease in payables (10,011) (50,655) (92,093)
--------------- --------------- --------------
Total adjustments 1,293 (13,246,523) (364,548)
--------------- --------------- --------------
Cash used for operating activities $ (138,594) $ (93,601) $ (158,300)
=============== =============== ==============
</TABLE>
See notes to financial statements.
<PAGE>
ML TECHNOLOGY VENTURES, L.P.
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
For the Years Ended December 31, 1996, 1997, and 1998
<TABLE>
Accumulated
Unallocated
Other
General Limited Comprehensive
Partner Partners Income (Loss) Total
<S> <C> <C> <C> <C> <C> <C>
Balance as of 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 other comprehensive income
- unrealized appreciation of investments - - 624,674 624,674
------------- ---------------- --------------- ----------------
Balance as of 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 other comprehensive loss
- unrealized depreciation of investments - - (496,032) (496,032)
------------- ---------------- --------------- ----------------
Balance as of December 31, 1997 204,695 1,842,247 (232,144) 1,814,798
Allocation of net loss (13,989) (125,898) - (139,887)
Change in other comprehensive loss
- unrealized depreciation of investments - - (434,026) (434,026)
------------ ---------------- -------------- ----------------
Balance as of December 31, 1998 $ 190,706 $ 1,716,349 $ (666,170) $ 1,240,885
============ ================ ============== ================
</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 ventures for the development of new technology through contracts,
joint ventures and participation in other partnerships.
Although the Partnership Agreement provides that the Partnership will terminate
no later than January 31, 2005, the General Partner is working toward the
termination of the Partnership, as soon as practical consistent with the goal of
maximizing returns.
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 ("SFAS") 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 accounting period. 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 (Loss) - In accordance with SFAS No. 130, "Reporting
Comprehensive Income", the statements of operations include an amount for other
comprehensive income (loss). Other comprehensive income (loss) consists of
revenues, expenses, gains and losses that have affected partners' capital but
which are excluded from net income (loss). Other comprehensive income (loss) in
the accompanying statements of operations resulted from a net unrealized gain
(loss) on investments. 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 years ended December
31, 1997 and 1996, include certain reclassifications to reflect adoption of SFAS
No. 130.
<PAGE>
ML TECHNOLOGY VENTURES, L.P.
NOTES TO FINANCIAL STATEMENTS, 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 as of 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. Commencing with the management fee for
the quarter ended March 31, 1996, the General Partner and the Management Company
agreed to reduce the management fee payable by the Partnership to $200,000 per
annum. The management fee is payable quarterly in arrears.
5. Investments in Equity Securities
As of December 31, 1998 and 1997, 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 $458,830 and $892,856 as of
December 31, 1998 and 1997, respectively.
<PAGE>
ML TECHNOLOGY VENTURES, L.P.
NOTES TO FINANCIAL STATEMENTS, continued
6. Net Realized Gain from Research and Development Ventures
There were no realized gains or losses from research and development ventures
for the years ended December 31, 1998 and 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.
7. Net Realized Gain (Loss) from Investments
The Partnership had no realized gains or losses from investments for the year
ended December 31, 1998. During the year ended December 31, 1997, the
Partnership realized a gain of $13,184,276 from the receipt and subsequent sale
of 501,096 common shares of IDEC Pharmaceuticals Corporation. 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.
8. Cash Distributions
There were no cash distributions paid to partners during the year ended December
31, 1998. Cash distributions paid to partners during the three years ended
December 31, 1998 and cumulative cash distributions paid from inception to
December 31, 1998 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, 1995 $ 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, 1998 $ 1,144,666 $ 72,479,606 $ 1,049
=============== =============== =========
9. Investments in U.S. Government Securities
The Partnership had investments in U.S. Treasury Bills as of December 31, 1998 and 1997 as detailed below.
Maturity Purchase Amortized
Yield Date Price Cost Face Value
December 31, 1998 4.44% 2/25/99 $ 593,340 $ 595,856 $ 600,000
December 31, 1997 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, 1999, 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>
<S> <C> <C> <C> <C> <C> <C>
Served in Present
Name and Age Position Held Capacity Since
Kevin K. Albert (46) Director
April 2, 1990
President July 5, 1991
James V. Caruso (47) Director November 20, 1998
Executive Vice President December 30, 1998
David G. Cohen (36) Director November 20, 1998
Vice President October 20, 1997
Diane T. Herte (38) 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.
<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 ended March 31, 1996.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
As of March 16, 1999, 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. James V. Caruso, a Director and
Executive Vice President of the Management Company and a Director of ML
Investment Banking, joined Merrill Lynch in 1975. David G. Cohen, a Director and
Vice President of the Management Company and a Vice President of the ML
Investment Banking, joined Merrill Lynch in 1987. Diane T. Herte, a Vice
President and Treasurer of the Management Company and a Vice President of ML
Investment Banking, joined Merrill Lynch in 1984. Messrs. Albert, Caruso, Cohen,
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, 1998 and 1997
Statements of Operations for the years ended December 31,
1998, 1997 and 1996
Statements of Cash Flows for the years ended December 31,
1998, 1997 and 1996
Statements of Changes in Partners' Capital for the years
ended December 31, 1996, 1997 and 1998
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. (1)
(b) (i) Amendment dated August 20, 1985 to the
Amended and Restated Certificate and Agreement of
Limited Partnership of the Partnership. (2)
(b) (ii)Amendment dated August 28, 1985 to the Amended and
Restated Certificate and Agreement of Limited
Partnership of the Partnership. (3)
(10) (a) Management Agreement dated as of May 23, 1991 among
the Partnership, Management Company and the
Managing General Partner. (4)
(10) (b) Sub-Management Agreement dated as of May 23, 1991
among the Partnership, Management Company,
the Managing General Partner and the Sub-Manager. (4)
(10) (c) Amendment dated March 27, 1996 to the Management
Agreement among the Partnership, Management Company
and the Managing General Partner. (5)
(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. (5)
(27) Financial Data Schedule.
(b) No reports on Form 8-K have been filed since the beginning of the las
quarter of the period covered by this report.
(1) 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.
(2) 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.
(3) 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.
(4) Incorporated by references 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.
(5) Incorporated by references 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 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 31st day of March
1999.
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 31st day of March 1999.
By: /s/ Kevin K. Albert
Kevin K. Albert
President
(Principal Executive Officer)
By: /s/ David G. Cohen
David G. Cohen
Vice President
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, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 105,543
<SECURITIES> 1,164,686
<RECEIVABLES> 30,017
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 1,300,246
<CURRENT-LIABILITIES> 59,361
<BONDS> 0
<COMMON> 0
0
0
<OTHER-SE> 1,240,885
<TOTAL-LIABILITY-AND-EQUITY> 1,300,246
<SALES> 0
<TOTAL-REVENUES> 160,789
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 300,676
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (139,887)
<EPS-PRIMARY> (1.82)
<EPS-DILUTED> (1.82)
</TABLE>
