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 September 30, 2000
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)
4 World Financial Center, 26th Floor
New York, New York 10080
--------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (212) 449-1000
Not applicable
--------------------------------------------------------------------------------
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 September 30, 2000 (Unaudited) and December 31, 1999
Statements of Operations for the Three and Nine Months Ended September 30, 2000
and 1999 (Unaudited)
Statements of Cash Flows for the Nine Months Ended September 30, 2000 and 1999
(Unaudited)
Statement of Changes in Partners' Capital for the Nine Months Ended
September 30, 2000 (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 and Use of Proceeds.
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>
<S> <C> <C> <C> <C> <C> <C>
September 30,
2000 December 31,
(Unaudited) 1999
----------------- ----------------
Assets
Cash and cash equivalents $ 108,351 $ 108,819
Investments:
Publicly traded securities, at market value (cost of $1,125,000 as of
September 30, 2000 and December 31, 1999) 744,049 103,175
Subordinated promissory note 110,000 110,000
Accrued royalty receivable - 31,386
---------------- ---------------
Total Assets $ 962,400 $ 353,380
================ ===============
Liabilities and Partners' Capital
Liabilities:
Accounts payable and accrued expenses $ 20,476 $ 16,365
Due to Management Company 200,000 50,000
---------------- ---------------
Total liabilities 220,476 66,365
---------------- ---------------
Partners' Capital:
General Partner 112,287 130,884
Limited Partners (69,094 Units) 1,010,588 1,177,956
Accumulated unallocated other comprehensive loss
- unrealized depreciation of investments (380,951) (1,021,825)
---------------- ---------------
Total partners' capital 741,924 287,015
---------------- ---------------
Total Liabilities and Partners' Capital $ 962,400 $ 353,380
================ ===============
</TABLE>
See notes to financial statements.
<PAGE>
ML TECHNOLOGY VENTURES, L.P.
STATEMENTS OF OPERATIONS (Unaudited)
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Three Months Ended Nine Months Ended
September 30, September 30,
2000 1999 2000 1999
------------- --------------- -------------- -------------
INCOME
Royalty and licensing income $ 163 $ 29,641 $ 43,738 $ 95,393
Interest income 588 5,991 1,643 19,223
------------- ------------- ------------- --------------
Total income 751 35,632 45,381 114,616
------------- ------------- ------------- --------------
EXPENSES
Management fee 50,000 50,000 150,000 150,000
Professional fees 6,325 2,022 48,852 46,465
Mailing and printing 9,040 9,311 31,407 31,455
Miscellaneous 187 179 1,087 1,079
------------- ------------- ------------- --------------
Total expenses 65,552 61,512 231,346 228,999
------------- ------------- ------------- --------------
NET OPERATING LOSS (64,801) (25,880) (185,965) (114,383)
Net realized gain from investments - - - 1,645
------------- ------------- ------------- --------------
NET LOSS (64,801) (25,880) (185,965) (112,738)
OTHER COMPREHENSIVE (LOSS) INCOME
Change in unrealized depreciation
of investments (49,600) (62,004) 640,874 (347,223)
------------- ------------- ------------- --------------
COMPREHENSIVE (LOSS) INCOME $ (114,401) $ (87,884) $ 454,909 $ (459,961)
============= ============= ============= ==============
Net loss per unit of limited partnership interest $ (.84) $ (.34) $ (2.42) $ (1.47)
========= ========== ========= ==========
</TABLE>
See notes to financial statements.
<PAGE>
ML TECHNOLOGY VENTURES, L.P.
STATEMENTS OF CASH FLOWS (Unaudited)
For the Nine Months Ended September 30,
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
2000 1999
-------------- ---------------
CASH FLOWS USED FOR OPERATING ACTIVITIES
Interest and other income received $ 76,767 $ 118,336
Other operating expenses paid (77,235) (217,364)
-------------- ---------------
Cash used for operating activities (468) (99,028)
-------------- ---------------
CASH FLOWS PROVIDED FROM INVESTING ACTIVITIES
Net return on U.S. Government Securities - 94,973
-------------- ---------------
Cash provided from investing activities - 94,973
-------------- ---------------
Decrease in cash and cash equivalents (468) (4,055)
Cash and cash equivalents at beginning of period 108,819 105,543
-------------- ---------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 108,351 $ 101,488
============== ===============
Reconciliation of net operating loss to cash used for operating activities:
Net operating loss $ (185,965) $ (114,383)
-------------- ---------------
Adjustments to reconcile net operating loss to cash used for operating
activities:
Net realized gain from investments - 1,645
Decrease in accrued royalty receivable 31,386 376
Increase in accounts payable and accrued liabilities 4,111 11,635
Increase in due to Management Company 150,000 -
Decrease in accrued interest on U.S. Government Securities - 1,699
-------------- ---------------
Total adjustments 185,497 15,355
-------------- ---------------
Cash used for operating activities $ (468) $ (99,028)
============== ===============
</TABLE>
See notes to financial statements.
<PAGE>
ML TECHNOLOGY VENTURES, L.P.
STATEMENT OF CHANGES IN PARTNERS' CAPITAL (Unaudited)
For the Nine Months Ended September 30, 2000
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Accumulated
Unallocated
Other
General Limited Comprehensive
Partner Partners Income (Loss) Total
Balance as of beginning of period $ 130,884 $ 1,177,956 $ (1,021,825) $ 287,015
Allocation of net loss (18,597) (167,368) - (185,965)
Change in other comprehensive income -
change in unrealized depreciation
of investments - - 640,874 640,874
------------ ---------------- ---------------- ---------------
Balance as of end of period $ 112,287 $ 1,010,588 $ (380,951) $ 741,924
============ ================ ================ ===============
</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.
2. Significant Accounting Policies
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 valuation date. The related unrealized
appreciation (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
appreciation (depreciation) on investments. Accumulated other comprehensive
income (loss) in the accompanying balance sheets reflects the cumulative net
unrealized appreciation (depreciation) of investments in equity securities.
Use of Estimates - The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of America
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.
<PAGE>
ML TECHNOLOGY VENTURES, L.P.
NOTES TO FINANCIAL STATEMENTS (Unaudited), continued
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. Cumulative cash distributions paid to partners through September
30, 2000 total $74,084,899, representing approximately 106% of capital
contributed to the Partnership.
4. Related Party Transactions
The Management Company is responsible for the management and administrative
services necessary for the operation of the Partnership. The Management Company
had 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 due 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 September 30, 2000 and December 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 $744,049 and $103,175
as of September 30, 2000 and December 31,1999, respectively.
6. Interim Financial Statements
In the opinion of the General Partner, the unaudited financial statements as of
September 30, 2000, and for the nine 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
As of September 30, 2000, the Partnership held $108,351 in an interest-bearing
cash account. The Partnership earned $588 and $1,643 of interest from its cash
balances for the three and nine months ended September 30, 2000, respectively.
Interest earned in future periods is subject to fluctuations in short-term
interest rates and interest bearing cash balances on hand.
As of September 30, 2000, the Partnership's current liabilities exceeded its
cash balance by approximately $112,000. Current liabilities as of September 30,
2000 include $200,000 due to the Management Company. It is anticipated that
funds needed to cover future operating expenses primarily will be obtained from
the Partnership's existing cash reserves and proceeds from the sale of its
remaining assets. As a result of the current cash shortage, payments to the
Management Company have been temporarily suspended with the consent of the
Management Company.
Although the Partnership Agreement provides that the Partnership will terminate
no later than January 31, 2005, the General Partner is working toward the
liquidation of the Partnership's remaining assets and termination of the
Partnership as soon as practical, consistent with the goal of maximizing returns
to partners. In May 2000, the Partnership's royalty agreement with Gen Probe,
Inc. terminated, leaving only one remaining active royalty agreement with Bolt
Beranek and Newman, Inc. The Partnership continues to hold its 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 timing of the liquidation
of these remaining assets is contingent upon, among other things, market
conditions and securities laws restrictions. The Sub-Manager is continuing to
pursue the termination of the Partnership by the end of calendar year 2000.
However, no assurances can be given that the liquidation of the Partnership's
remaining assets can be completed within such time frame.
As provided in the Partnership's prospectus delivered to limited partners in
connection with their initial investment in the Partnership, and as disclosed in
subsequent Partnership 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). In consideration of the Partnership's originally
contemplated objectives, the reduction of assets under management and the
anticipated termination of the Partnership, the General Partner and the
Management Company, while not required to do so, reduced the annual management
fee payable by the Partnership from $698,624 to $200,000, commencing with the
management fee payment due for the first quarter of 1996. As a result, the
Partnership incurred a management fee of $150,000 for the nine months ended
September 30, 2000 and 1999.
Results of Operations
For the three and nine months ended September 30, 2000, the Partnership had a
net loss of $64,801 and $185,965 respectively, as compared to a net loss of
$25,880 and $112,738 for the three and nine months ended September 30, 1999,
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 September 30, 2000 and
1999, the Partnership had a net operating loss of $64,801 and $25,880,
respectively. The $38,921 unfavorable change in net operating loss for the 2000
period compared to the same period in 1999 was the result of a $34,881 decrease
in operating income and a $4,040 increase in operating expenses. The decline in
operating income included a $29,478 decrease in royalty income, primarily
resulting from the May 2000 expiration of the Partnership's royalty agreement
with Gen-Probe, Inc. Additionally, interest income declined by $5,403 for the
three months ended September 30, 2000 compared to the same period in 1999. The
decline in interest income primarily resulted from the lower cash balances held
by the Partnership during the three months ended September 30, 2000 compared to
the same period in 1999. Operating expenses for the 2000 period included an
increase in professional fees primarily due to an increase in outside accounting
fees relating to the review of the Partnership's quarterly financial report, in
accordance with new requirements of the Securities Exchange Commission.
For the nine months ended September 30, 2000 and 1999, the Partnership had a net
operating loss of $185,965 and $114,383, respectively. The $71,582 unfavorable
change in net operating loss for the 2000 period compared to the 1999 period
resulted from a $69,235 decrease in operating income and a $2,347 increase in
operating expenses. The decline in operating income included a $51,655 decrease
in royalty income resulting from the May 2000 expiration of the Partnership's
royalty agreement with Gen-Probe, Inc., as noted above. Additionally, interest
income declined by $17,580 for the nine months ended September 30, 2000 compared
to the same period in 1999, primarily due to the lower cash balances held by the
Partnership during the nine months ended September 30, 2000 compared to the same
period in 1999. The slight increase in operating expenses primarily was
attributable to a small increase in professional fees reflecting increased
accounting fees, as noted above.
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 three months ended
September 30, 2000 and 1999.
The Partnership had no realized gains or losses for the nine months ended
September 30, 2000. For the nine months ended September 30, 1999, the
Partnership had a net realized gain of $1,645 resulting from the receipt of a
final liquidating distribution from MLMS Cancer Research Inc.
Other Comprehensive Income (Loss) - In accordance with the Statement of
Financial Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive
Income", the Partnership's other comprehensive income (loss) consists of changes
to unrealized appreciation (depreciation) of its investments in equity
securities. For the three months ended September 30, 2000 and 1999, the
Partnership had other comprehensive (loss) of ($49,600) and ($62,004),
respectively. For the nine months ended September 30, 2000 and 1999, the
Partnership had other comprehensive income (loss) of $640,874 and ($347,223),
respectively. Such amounts represent the change in the fair market value of the
Partnership's investment in Photon Technology International, Inc. for the
respective periods.
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, if any, 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 September 30, 2000. The per share
market price of this security was $1.875 as of September 30, 2000 and the fair
value of the Partnership's holdings was $744,049. An assumed 10% decline from
the September 30, 2000 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 $74,405.
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 and Use of Proceeds.
-----------------------------------------
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/ James V. Bruno
----------------------------------------------------
James V. Bruno
Vice President and Treasurer
(Principal Financial and Accounting Officer)
By: /s/ Diane T. Herte
----------------------------------------------------
Diane T. Herte
Vice President
Date: November 14, 2000
