SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the Quarterly Period Ended March 31, 1999
Or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from to
Commission file number 2-91941
ML TECHNOLOGY VENTURES, L.P.
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(Exact name of registrant as specified in its charter)
Delaware 13-3213176
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
World Financial Center, North Tower
New York, New York 10281-1326
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (212) 449-1000
Not applicable
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Former name, former address and former fiscal year, if changed since last report
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
<PAGE>
ML TECHNOLOGY VENTURES, L.P.
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
Balance Sheets as of March 31, 1999 (Unaudited) and December 31, 1998
Statements of Operations for the Three Months Ended March 31, 1999 and 1998
(Unaudited)
Statements of Cash Flows for the Three Months Ended March 31, 1999 and 1998
(Unaudited)
Statement of Changes in Partners' Capital for the Three Months Ended March 31,
1999 (Unaudited)
Notes to Financial Statements (Unaudited)
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Item 3. Quantitative and Qualitative Disclosures about Market Risk.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
Item 2. Changes in Securities.
Item 3. Defaults upon Senior Securities.
Item 4. Submission of Matters to a Vote of Security Holders.
Item 5. Other Information.
Item 6. Exhibits and Reports on Form 8-K.
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
ML TECHNOLOGY VENTURES, L.P.
BALANCE SHEETS
<TABLE>
March 31, 1999
December 31,
(Unaudited) 1998
ASSETS
Cash and cash equivalents $ 182,767 $ 105,543
Investments:
<S> <C> <C>
U.S. Government securities, at amortized cost 496,421 595,856
Publicly traded securities, at market value (cost $1,125,000
as of March 31, 1999 and December 31, 1998) 446,429 458,830
Subordinated promissory note 110,000 110,000
Accounts receivable 31,305 30,017
-------------- ---------------
TOTAL ASSETS $ 1,266,922 $ 1,300,246
============== ===============
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Accounts payable and accrued liabilities $ 19,800 $ 9,361
Due to Management Company 50,000 50,000
-------------- ---------------
Total liabilities 69,800 59,361
-------------- ---------------
Partners' Capital:
General Partner 187,570 190,706
Limited Partners (69,094 Units) 1,688,123 1,716,349
Accumulated unallocated other comprehensive loss
- unrealized depreciation of investments (678,571) (666,170)
-------------- ---------------
Total partners' capital 1,197,122 1,240,885
-------------- ---------------
TOTAL LIABILITIES AND PARTNERS' CAPITAL $ 1,266,922 $ 1,300,246
============== ===============
</TABLE>
See notes to financial statements.
<PAGE>
ML TECHNOLOGY VENTURES, L.P.
STATEMENTS OF OPERATIONS (Unaudited)
For the Three Months Ended March 31,
<TABLE>
1999 1998
----------- -----------
INCOME
<S> <C>
Royalty and licensing income $ 32,630
$ 34,914
Other interest income 6,880 8,713
----------- -----------
Total income 39,510 43,627
----------- -----------
EXPENSES
Management fee 50,000 50,000
Professional fees 9,068 20,459
Mailing and printing 11,804 13,166
Miscellaneous - 100
----------- -----------
Total expenses 70,872 83,725
----------- -----------
NET OPERATING LOSS (31,362) (40,098)
----------- -----------
Net realized gain from investments - -
----------- -----------
NET LOSS (31,362) (40,098)
----------- -----------
OTHER COMPREHENSIVE (LOSS) INCOME
Change in unrealized (depreciation) appreciation of investments (12,401) 99,206
----------- -----------
COMPREHENSIVE (LOSS) INCOME $ (43,763)
===========
$ 59,108
Net loss per unit of limited partnership interest $(0.41)
======
$ (0.52)
</TABLE>
See notes to financial statements.
<PAGE>
ML TECHNOLOGY VENTURES, L.P.
STATEMENTS OF CASH FLOWS (Unaudited)
For the Three Months Ended March 31,
<TABLE>
1999 1998
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CASH FLOWS USED FOR OPERATING ACTIVITIES
<S> <C> <C>
Interest and other income received $ 38,604 $ 46,408
Other operating expenses paid (60,433) (82,164)
------------ -------------
Cash used for operating activities (21,829) (35,756)
------------ -------------
CASH FLOWS PROVIDED FROM (USED FOR) INVESTING
ACTIVITIES
Net return (purchase of ) U.S. Government Securities 99,053 (98,303)
------------ -------------
Cash provided from (used for) investing activities 99,053 (98,303)
------------ -------------
Increase (decrease) in cash and cash equivalents 77,224 (134,059)
Cash and cash equivalents at beginning of period 105,543 343,250
------------ -------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 182,767 $ 209,191
============ =============
Reconciliation of net loss to cash used for operating activities:
Net loss $ (31,362) $ (40,098)
------------ -------------
Adjustments to reconcile net loss to cash used for
operating activities:
(Increase) decrease in accounts receivable and other assets (1,288) 4,169
Increase in accounts payable and accrued liabilities 10,439 1,561
Increase (decrease) in accrued interest on U.S. Government Securities 382 (1,388)
------------ -------------
Total adjustments 9,533 4,342
------------ -------------
Cash used for operating activities $ (21,829) $ (35,756)
============ =============
</TABLE>
See notes to financial statements.
<PAGE>
ML TECHNOLOGY VENTURES, L.P.
STATEMENT OF CHANGES IN PARTNERS' CAPITAL (Unaudited)
For the Three Months Ended March 31, 1999
<TABLE>
Accumulated
Unallocated
Other
General Limited Comprehensive
Partner Partners Loss Total
<S> <C> <C> <C> <C>
Balance at beginning of period $ 190,706 $ 1,716,349 $ (666,170) $ 1,240,885
Allocation of net loss (3,136) (28,226) - (31,362)
Change in other comprehensive loss -
unrealized depreciation of investments - - (12,401) (12,401)
------------ ---------------- -------------- ----------------
Balance at end of period $ 187,570 $ 1,688,123 $ (678,571) $ 1,197,122
============ ================ ============== ================
</TABLE>
See notes to financial statements.
<PAGE>
ML TECHNOLOGY VENTURES, L.P.
NOTES TO FINANCIAL STATEMENTS (Unaudited)
1. Organization and Purpose
ML Technology Ventures, L.P. (the "Partnership") is a Delaware limited
partnership formed in April 1984. ML R&D Co., L.P., the general partner of the
Partnership (the "General Partner"), is also a Delaware limited partnership
formed in April 1984, the general partner of which is Merrill Lynch R&D
Management Inc. (the "Management Company"), an indirect subsidiary of Merrill
Lynch & Co., Inc. DLJ Capital Management Corporation (the "Sub-Manager"), an
indirect subsidiary of Donaldson, Lufkin & Jenrette, Inc., is the sub-manager of
the Partnership, pursuant to a sub-management agreement among the Partnership,
the Management Company, the General Partner and the Sub-Manager.
The objective of the Partnership has been to achieve cash flow from the
commercialization of a broad range of technologies developed and owned by, or on
behalf of, the Partnership. The Partnership has been engaged in research and
development 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 statement of operations
for the three months ended March 31, 1998 include certain reclassifications to
reflect adoption of SFAS No. 130.
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
<PAGE>
ML TECHNOLOGY VENTURES, L.P.
NOTES TO FINANCIAL STATEMENTS (Unaudited), continued
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 March 31, 1999, 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 $446,429 as of March 31, 1999.
6. Interim Financial Statements
In the opinion of ML R&D Co., L.P., the managing general partner of the
Partnership, the unaudited financial statements as of March 31, 1999, and for
the three month period then ended, reflect all adjustments necessary for the
fair presentation of the results of the interim period.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Liquidity and Capital Resources
From 1985 to 1991, the Partnership funded $59.6 million of research and
development commitments to 16 individual research and development ventures (the
"R&D Ventures"). This amount represents 95% of the original $62.5 million of net
proceeds to the Partnership. The Partnership has no unfunded research and
development commitments and will not enter into new R&D Ventures in the future.
As of March 31, 1999, the Partnership had $496,421 invested in U.S. Government
securities with maturities of less than one year, and $181,624 in an
interest-bearing cash account. The Partnership earned $6,880 of interest from
its U.S. Government securities and cash account for the quarter ended March 31,
1999. 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 March 31, 1999,
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. The Partnership is also 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 delivered to Limited Partners in
connection with their investment, and as disclosed in subsequent filings and
reports, the Partnership is obligated to pay, and has paid accordingly, an
annual management fee equal to 2% of aggregate capital contributions during the
four years subsequent to its closing ($1,397,250 annually) and, thereafter, 1%
of aggregate capital contributions ($698,624 annually). The original objectives
of the Partnership anticipated that the bulk of the Partnership's revenues would
be earned between 1988 and 1996. Therefore, in consideration of the
Partnership's originally contemplated objectives, the reduction of assets under
management and the anticipated termination of the Partnership, the General
Partner and the Management Company, while not required to do so, reduced the
annual management fee from $698,624 to $200,000, commencing with the management
fee for the first quarter of 1996. As a result, the Partnership incurred a
management fee of $50,000 for the three months ended March 31, 1999 and 1998.
Results of Operations
For the three months ended March 31, 1999 and 1998, the Partnership had a
net loss of $31,362 and $40,098, respectively. Net income or loss is comprised
of 1) net operating income or loss and 2) net realized gain or loss.
Net Operating Income or Loss - For the three months ended March 31, 1999 and
1998, the Partnership had a net operating loss of $31,362 and $40,098,
respectively. The $8,736 favorable change in net operating loss for the 1999
period compared to the 1998 period was the result of a $12,853 decrease in
operating expenses, partially offset by a $4,117 decrease in total income. The
decline in operating expenses for the 1999 period compared to the 1998 period
primarily resulted from an $11,391 decrease in professional fees. Such reduced
expenses reflect the Partnership's declining operating activity. The decrease in
total income is attributable to decreases in interest from short-term
investments and royalty and licensing income during the 1999 period compared to
the same period in 1998.
Realized Gains and Losses - The Partnership realizes gains and losses from the
sale of its joint venture interests or proprietary technology in R&D Ventures
and from the sale of its equity securities.
For the three months ended March 31, 1999 and 1998, the Partnership had no
realized gains or losses from such investments.
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 has assessed its computer hardware and software systems,
specifically as they relate to the operations of the Partnership. As part of
this investigation of potential Y2K concerns, the Administrator contracted with
an outside computer service provider to examine all of the Administrator's
computer hardware and software applications. This review and evaluation has been
completed and certain Y2K concerns have been identified. The Administrator is in
the process of purchasing, installing and testing the necessary software patches
and new computer hardware required to ensure that all of its computer systems
are Y2K compliant. This correction phase 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 3. 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. Government securities, 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 as of 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 March 31, 1999. The per share market
price of this security was $1.125 as of March 31, 1999 and the fair value of the
Partnership's holdings was $446,429. An assumed 10% decline from the March 31,
1999 market price of this security would result in a reduction to the fair value
of the Partnership's holdings in Photon Technology and a corresponding
unrealized loss of $44,643.
Market risk associated with the Partnership's interest-bearing cash equivalents
and investments in U.S. Government securities is considered to be immaterial.
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
The Partnership is not a party to any legal proceedings.
Item 2. Changes in Securities.
Not applicable.
Item 3. Defaults Upon Senior Securities.
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders.
Not applicable.
Item 5. Other Information.
None.
<PAGE>
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
(4) (A) Amended and Restated Certificate and
Agreement of Limited Partnership of the
Partnership dated as of April 23, 1984, as
amended through February 22, 1985, included
as Exhibit A to the Prospectus of the
Partnership dated March 11, 1985.(a)
(B) (i) Amendment dated August 20, 1985 to the
Amended and Restated Certificate and
Agreement of Limited Partnership of the
Partnership.(b)
(B) (ii) Amendment dated August 28, 1985 to the
Amended and Restated Certificate and
Agreement of Limited Partnership of the
Partnership.(c)
(10) (a) Management Agreement dated as of May 23,
1991 among the Partnership, Management
Company and the Managing General Partner.(d)
(10) (b) Sub-Management Agreement dated as of May
23, 1991 among the Partnership, Management
Company, the Managing General Partner and
the Sub-Manager.(d)
(10) (c) Amendment dated March 27, 1996 to the
Management Agreement among the Partnership,
Management Company and the Managing General
Partner.(e)
(10) (d) Amendment dated March 27, 1996 to the
Sub-Management Agreement among the
Partnership, Management Company, the
Managing General Partner and the
Sub-Manager.(e)
(27) Financial Data Schedule.
(b) No reports on Form 8-K have been filed since the beginning
of the period covered by this report.
- ------------------------------
(a) Incorporated by reference to the Partnership's Annual Report on Form
10-K for the fiscal year ended December 31, 1984 filed with the
Securities and Exchange Commission on August 12, 1985.
(b) Incorporated by reference to the Partnership's Quarterly Report on Form
10-Q for the quarter ended September 30, 1985 filed with the Securities
and Exchange Commission on November 12, 1985.
(c) Incorporated by reference to the Partnership's Quarterly Report on Form
10-Q for the quarter ended March 31, 1986 filed with the Securities and
Exchange Commission on May 14, 1986.
(d) Incorporated by reference to the Partnership's Annual Report on Form
10-K for the fiscal year ended December 31, 1991 filed with the
Securities and Exchange Commission on March 30, 1992.
(e) Incorporated by reference to the Partnership's Quarterly Report on Form
10-Q for the quarter ended March 31, 1996 filed with the Securities and
Exchange Commission on May 14, 1996.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ML TECHNOLOGY VENTURES, L.P.
By: ML R&D Co., L.P.,
its General Partner
By: Merrill Lynch R&D Management Inc.,
its General Partner
By: /s/ Kevin K. Albert
Kevin K. Albert
President
(Principal Executive Officer)
By: /s/ David G. Cohen
David G. Cohen
Vice President
By: /s/ Diane T. Herte
Diane T. Herte
Vice President and Treasurer
(Principal Financial and Accounting Officer)
Date: May 14, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM ML
TECHNOLOGY VENTURES, L.P.'S QUARTERLY REPORT ON FORM 10-Q FOR THE PERIOD ENDED
MARCH 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS. </LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-1-1999
<PERIOD-END> MAR-31-1999
<CASH> 182,767
<SECURITIES> 1,052,850
<RECEIVABLES> 31,305
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 1,266,922
<CURRENT-LIABILITIES> 69,800
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 1,197,122
<TOTAL-LIABILITY-AND-EQUITY> 1,266,922
<SALES> 0
<TOTAL-REVENUES> 39,510
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 70,872
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (31,362)
<EPS-PRIMARY> (0.41)
<EPS-DILUTED> (0.41)
</TABLE>
