<PAGE>
UNITED STATES
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 Year Ended December 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from N/A to N/A
--- ---
Commission File No. 814-55
TECHNOLOGY FUNDING VENTURE PARTNERS IV, AN AGGRESSIVE GROWTH FUND, L.P.
- -----------------------------------------------------------------------
(Exact name of Registrant as specified in its charter)
DELAWARE 94-3054600
- ------------------------------- ----------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
2000 Alameda de las Pulgas, Suite 250
San Mateo, California 94403
- --------------------------------------- --------
(Address of principal executive offices) (Zip Code)
(415) 345-2200
--------------------------------------------------
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Limited
Partnership Units
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 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. [ ]
No active market for the units of limited partnership interests
("Units") exists, and therefore the market value of such Units cannot
be determined.
Documents incorporated by reference: Portions of the Prospectus dated
February 24, 1989, forming a part of Registration Statement No. 33-
19201, filed pursuant to Rule 424(c) of the General Rules and
Regulations under the Securities Act of 1933, as modified by Post-
Effective Amendment No. 1 dated April 23, 1990, are incorporated by
reference in Parts I and III hereof. Portions of the Prospectus of
Technology Funding Medical Partners I, L.P., as modified by Cumulative
Supplement No. 4 dated January 4, 1995, forming a part of the May 3,
1993, Pre-Effective Amendment No. 3 to the Form N-2 Registration
Statement No. 33-54002 dated October 30, 1992, are incorporated by
reference in Part III hereof.
<PAGE>
PART I
Item 1. BUSINESS
- ------ --------
Technology Funding Venture Partners IV, An Aggressive Growth
Fund, L.P. (the "Partnership") is a limited partnership
organized under the laws of the State of Delaware on December
4, 1986, and was inactive until it commenced the sale of Units
on January 10, 1989. The purpose of the Partnership is to make
venture capital investments in new and developing companies, as
described in the "Introductory Statement" and "Business of the
Partnership" sections of the Prospectus dated February 24,
1989. The Partnership has elected to be a business development
company under the Investment Company Act of 1940, as amended
(the "Act"), and operates as a nondiversified investment
company as that term is defined in the Act. Additional
characteristics of the Partnership's business are discussed in
the "Risk Factors" and "Conflicts of Interest" sections of the
Prospectus, which sections are also incorporated herein by
reference. The Partnership's Amended and Restated Limited
Partnership Agreement ("Partnership Agreement") provides that
the Partnership will continue until December 31, 1997, subject
to the right of the Management Committee to extend the term for
up to two additional two-year periods.
Item 2. PROPERTIES
- ------ ----------
The Registrant has no material physical properties.
Item 3. LEGAL PROCEEDINGS
- ------ -----------------
There are no material pending legal proceedings to which the
Registrant is party or of which any of its property is the
subject, other than ordinary routine litigation incidental to
the business of the Partnership.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- ------ ---------------------------------------------------
No matter was submitted to a vote of the holders of units of
limited partnership interests ("Units") during 1996.
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
- ------ -------------------------------------------------------------
MATTERS
-------
(a) There is no established public trading market for the
Units.
(b) At December 31, 1996, there were 7,824 record holders of
Units.
(c) The Registrant, being a partnership, does not pay
dividends. Cash distributions, however, may be made to
the partners in the Partnership pursuant to the
Registrant's Partnership Agreement.
Item 6. SELECTED FINANCIAL DATA
- ------ -----------------------
<TABLE>
<CAPTION>
For the Years Ended and As of December 31,
------------------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Total income $ 99,272 130,779 296,948 678,321 555,324
Net operating loss (1,423,434) (2,106,285) (1,314,484) (1,514,788) (1,736,601)
Net realized gain (loss) from
venture capital limited
partnership investments 255,239 -- -- (15,402) (25,726)
Net realized gain (loss)
from sales of equity
investments 989,034 (80,764) -- 25,856,978 25,399,530
Recoveries from investments
previously written off -- 145,248 -- -- --
Realized losses from
investment write-downs (1,078,341) (2,532,447) (843,311) (1,377,494) (3,323,404)
Net realized (loss) income (1,257,502) (4,574,248) (2,157,795) 20,949,294 20,313,799
Change in net unrealized
fair value:
Equity investments (773,777) 4,065,995 (2,854,255) (9,857,060) 14,857,899
Notes receivable -- 49,000 5,000 94,000 (138,391)
Net (loss) income (2,031,279) (459,253) (5,007,050) 11,186,234 35,033,297
Net realized (loss) income
per Unit (2) (9) (4) 42 45
Total assets 37,025,188 43,065,771 40,606,795 43,520,755 63,032,147
Distributions declared 316,227 -- -- 24,514,748 17,433,949
Distributions declared
per Unit (1) -- -- -- 56 40
(1) Calculation is based on distributions declared to Limited Partners divided by the
weighted average number of Units outstanding during the year.
</TABLE>
Refer to the financial statement notes entitled "Summary
of Significant Accounting Policies" and "Allocation of
Profits and Losses" for a description of the method of
calculation of net realized income (loss) per Unit.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
- ------ -------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS
-----------------------------------
Liquidity and Capital Resources
- -------------------------------
In 1996, net cash used by operating activities totaled
$2,239,376. The Partnership paid management fees of
$416,956 to the Managing General Partners and reimbursed
related parties for operating expenses of $1,422,382 in
1996. In addition, $47,730 was paid to the Individual
General Partners as compensation for their services.
Other operating expenses of $206,686 were paid and
interest income of $69,250 was received. The
Partnership also paid interest of $214,872 on
borrowings.
In 1996, the Partnership funded equity investments of
$2,523,718 mostly to portfolio companies in the computer
systems and software and communications industries and
issued $640,000 in secured notes receivable to a
portfolio company in the computer systems and software
industry. Repayments of secured and convertible notes
receivable provided cash of $1,229,636. Proceeds from
sales of equity investments were $8,064,148 and the
Partnership received $139,624 in cash distributions from
venture capital limited partnership investments.
The Partnership has borrowing accounts with two
financial institutions. The combined borrowing capacity
of these accounts, which fluctuates based on collateral
value, totaled $3,139,048 at December 31, 1996. The
Partnership had no outstanding balance at December 31,
1996. The Partnership's investments in SyStemix, Inc.
and Shaman Pharmaceuticals, Inc. are pledged as
collateral. As disclosed in Note 5 to the financial
statements, subsequent to year end, the Partnership sold
its remaining investment in SyStemix, Inc., and 111,400
shares of Shaman Pharmaceuticals, Inc. which reduced the
borrowing capacity to $971,772 at March 20, 1997. The
Partnership also had a $1,363,332 promissory note
payable which matured and was fully repaid in February,
1997.
During 1996, CV Therapeutics, Inc., Physiometrix, Inc.,
and Thermatrix, Inc. completed their initial public
offerings ("IPOs"). Although the Partnership's holdings
are partially subject to selling restrictions, these
IPOs indicate future liquidity for the Partnership's
investments.
Cash and cash equivalents at December 31, 1996, were
$1,402,668. As of December 31, 1996, the Partnership
was committed to fund $737,861 in additional investments
and has an outstanding guarantee of $1,000,000 as
discussed in Note 10 to the financial statements.
Future proceeds from investment sales and the borrowing
capacity on borrowing accounts are expected to be
adequate to fund Partnership operations through the next
twelve months.
Results of Operations
- ---------------------
1996 compared to 1995
- ---------------------
Net loss was $2,031,279 in 1996 compared to $459,253 in
1995. The increase in net loss was substantially due to
a $4,839,772 decrease in the change in net unrealized
fair value of equity investments. The increase was
partially offset by a $1,454,106 decrease in realized
losses from investment write-downs, a $1,069,798
increase in net realized gain from sales of equity
investments, and a $693,702 decrease in total operating
expenses.
During 1996, the decrease in fair value of $773,777 was
primarily attributable to the sale of Shaman
Pharmaceuticals, Inc., common stock as the gain was
realized. This decrease was partially offset by an
increase in portfolio companies in the environmental
industry. In 1995, the increase in fair value of
$4,065,995 was primarily attributable to increases in
portfolio companies in the pharmaceuticals, computer
systems and software and communications industries,
partially offset by decreases in the
medical/biotechnology industry.
During 1996, the Partnership recorded realized losses
from investment write-downs of $1,078,341 mainly
attributable to equity investments in a portfolio
company in the computer systems and software industry.
During 1995, realized losses from investment write-downs
of $2,532,447 was mainly attributable to equity
investments in portfolio companies in the
microelectronics, retail/consumer products and
communications industries.
In 1996, net realized gain from sales of equity
investments of $989,034 was mainly due to the sale of
Shaman Pharmaceuticals, Inc., partially offset by losses
from Cardiometrics, Inc., Pinterra Corporation and
Graham-Field Health Products, Inc. During 1995, the net
realized loss of $80,764 was mainly due to AG
Associates, Inc.
Total operating expenses were $1,065,940 and $1,759,642
in 1996 and 1995, respectively. As discussed in Note 3
to the financial statements, the 1995 total operating
expenses included additional administrative and investor
services expense of $812,580. If this amount had been
recorded in prior years, total operating expenses would
have been $1,018,228 in 1995, compared to $1,065,940 in
1996. The slight increase was primarily due to higher
investment operations and computer services expenses
from increased overall portfolio activities, partially
offset by lower interest expense.
Given the inherent risk associated with the business of
the Partnership, the future performance of the portfolio
company investments may significantly impact future
operations.
1995 compared to 1994
- ---------------------
Net loss was $459,253 in 1995 compared to $5,007,050 in
1994. The decrease in net loss was primarily due to a
$6,920,250 increase in the change in net unrealized fair
value of equity investments. The change was partially
offset by a $1,689,136 increase in realized losses from
investment write-downs, a $647,394 increase in total
operating expenses and a $166,169 decrease in total
income.
During 1995, the increase in fair value of $4,065,995
was primarily attributable to increases in portfolio
companies in the pharmaceuticals, computer systems and
software, and communications industries, partially
offset by decreases in the medical/biotechnology
industry. In 1994, the decrease of $2,845,255 was
primarily attributable to decreases in portfolio
companies in the pharmaceuticals and microelectronics
industries, partially offset by increases in the
communications and medical/biotechnology industries.
During 1995, the Partnership recorded realized losses
from investment write-downs of $2,532,447 mainly
attributable to portfolio companies in the
microelectronics, retail/consumer products and
communications industries. There were $843,311 in
investment write-downs in 1994 primarily related to
equity investments in the medical/biotechnology and
microelectronics industries.
Total operating expenses were $1,759,642 and $1,112,248
in 1995 and 1994, respectively. As discussed in Note 3
to the financial statements, the 1995 total operating
expenses included additional administrative and
investors services expense of $812,580. If this amount
had been recorded in prior years, total operating
expenses would have been $1,018,228 and $1,196,527 in
1995 and 1994, respectively. The decrease was primarily
due to lower administrative and investor services, and
investment operations expenses from lower overall
portfolio activities, partially offset by higher
interest expense from short-term borrowings.
Total income was $130,779 and $296,948 in 1995 and 1994,
respectively. The decrease was primarily due to lower
outstanding convertible and secured notes receivable
balances.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
- ------ -------------------------------------------
The financial statements of the Registrant are set forth
in Item 14.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
- ------ ------------------------------------------------
ACCOUNTING AND FINANCIAL DISCLOSURE
-----------------------------------
Registrant has reported no disagreements with its
accountants on matters of accounting principles or
practices or financial statement disclosure.
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
- ------- --------------------------------------------------
As a partnership, the Registrant has no directors or
executive officers. The Management Committee is
responsible for the management and administration of the
Partnership. The members of the Management Committee
consist of the three Individual General Partners and a
representative from each of Technology Funding Ltd., a
California limited partnership ("TFL"), and its wholly-
owned subsidiary, Technology Funding Inc., a California
corporation ("TFI"). TFL and TFI are the Managing
General Partners. Information concerning the ownership
of TFL and the business experience of the key officers
of TFI and the partners of TFL is incorporated by
reference from the sections entitled "Management of the
Partnership - The General Partners" and "Management of
the Partnership - Key Personnel of the Managing General
Partners" in the Prospectus. Changes in this
information that have occurred since the date of the
Prospectus are included in the Technology Funding
Medical Partners I, L.P. Prospectus, as modified by
Cumulative Supplement No. 4 dated January 4, 1995,
forming a part of the May 3, 1993, Pre-Effective
Amendment No. 3 to the Form N-2 Registration Statement
No. 33-54002 dated October 30, 1992, which are
incorporated herein by reference.
Item 11. EXECUTIVE COMPENSATION
- ------- ----------------------
As a partnership, the Registrant has no officers or
directors. In 1996, the Partnership incurred $409,036
in management fees. The fees are designed to compensate
the Managing General Partners for General Partner
Overhead incurred in performing management duties for
the Partnership through December 31, 1996. General
Partner Overhead (as defined in the Partnership
Agreement) includes the General Partners' share of rent
and utilities, and certain salaries and benefits paid by
the Managing General Partners in performing their
obligations to the Partnership. As compensation for
their services, the Individual General Partners each
receive $10,000 annually, plus $1,000 for each attended
meeting of the management committee and related
expenses. In 1996, $47,730 of such fees were paid.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
- ------- ---------------------------------------------------
MANAGEMENT
- ----------
Not applicable. No Limited Partner beneficially holds
more than 5% of the aggregate number of Units held by
all Limited Partners, and neither the Managing General
Partners nor any of their officers, directors or
partners own any Units. The three Individual General
Partners each own 20 Units. The General Partners
control the affairs of the Partnership pursuant to the
Partnership Agreement.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- ------- ----------------------------------------------
The Registrant, or its investee companies, have engaged
in no transactions with the Managing General Partners or
their officers and partners other than as described
above, in the notes to the financial statements, or in
the Partnership Agreement.
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
- ------- -------------------------------------------------------
FORM 8-K
--------
(a) List of Documents filed as part of this Annual
Report on Form 10-K
(1) Financial Statements - the following financial
statements are filed as a part of this Report:
Independent Auditors' Report
Balance Sheets as of December 31, 1996
and 1995
Statements of Operations for the years
ended December 31, 1996, 1995 and 1994
Statements of Partners' Capital for the years
ended December 31, 1996, 1995 and 1994
Statements of Cash Flows for the years
ended December 31, 1996, 1995 and 1994
Notes to Financial Statements
(2) Financial Statement Schedules
All schedules have been omitted because they
are not applicable or the required information
is included in the financial statements or the
notes thereto.
(3) Exhibits
Registrant's Amended and Restated Limited
Partnership Agreement (incorporated by
reference to Exhibit A to Registrant's
Prospectus dated February 24, 1989, included
in Registration Statement No. 33-19201 filed
pursuant to Rule 424(b) of the General Rules
and Regulations under the Securities Act of
1933).
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the Registrant
during the year ended December 31, 1996.
(c) Financial Data Schedule for the year ended and as
of December 31, 1996 (Exhibit 27).
<PAGE>
INDEPENDENT AUDITORS' REPORT
----------------------------
The Partners
Technology Funding Venture Partners IV, An Aggressive Growth
Fund, L.P.:
We have audited the accompanying balance sheets of Technology
Funding Venture Partners IV, An Aggressive Growth Fund, L.P. (a
Delaware limited partnership) as of December 31, 1996 and 1995,
and the related statements of operations, partners' capital, and
cash flows for each of the years in the three-year period ended
December 31, 1996. 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. Our
procedures included confirmation of certain securities and loans
owned, by correspondence with the individual investee and
borrowing companies, and a physical examination of those
securities held by a safeguarding agent as of December 31, 1996
and 1995. 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, the financial statements referred to above
present fairly, in all material respects, the financial position
of Technology Funding Venture Partners IV, An Aggressive Growth
Fund, L.P. as of December 31, 1996 and 1995, and the results of
its operations and its cash flows for each of the years in the
three-year period ended December 31, 1996, in conformity with
generally accepted accounting principles.
San Francisco, California /S/KPMG Peat Marwick LLP
March 21, 1997
<PAGE>
BALANCE SHEETS
- --------------
<TABLE>
<CAPTION>
December 31,
----------------------
1996 1995
---- ----
<S> <C> <C>
ASSETS
Investments:
Equity investments (cost basis of
$18,522,217 and $24,932,960 for 1996
and 1995, respectively) $35,527,098 42,711,618
Secured notes receivable, net
(cost basis of $29,137 and
$67,826 for 1996 and 1995,
respectively) 29,137 67,826
---------- ----------
Total investments 35,556,235 42,779,444
Cash and cash equivalents 1,402,668 274,980
Other assets 66,285 11,347
---------- ----------
Total $37,025,188 43,065,771
========== ==========
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable and accrued expenses $ 38,429 22,993
Due to related parties 90,890 856,733
Short-term borrowings -- 2,902,626
Promissory note 1,363,332 1,363,332
Interest payable 28,350 29,209
Other liabilities 21,455 60,640
---------- ----------
Total liabilities 1,542,456 5,235,533
Commitments, contingencies and
subsequent events
(Notes 3, 5, 8, 9 and 10)
Partners' capital:
Limited Partners
(Units outstanding of 400,000
for both 1996 and 1995) 17,224,580 18,182,086
Managing General Partners 1,253,271 1,869,494
Net unrealized fair value increase
from cost of equity investments 17,004,881 17,778,658
---------- ----------
Total partners' capital 35,482,732 37,830,238
---------- ----------
Total $37,025,188 43,065,771
========== ==========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
STATEMENTS OF OPERATIONS
- ------------------------
<TABLE>
<CAPTION>
For the Years Ended December 31,
------------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Income:
Secured notes receivable
interest $ 90,508 117,677 271,361
Short-term investments
interest 2,999 11,935 21,380
Other income 5,765 1,167 4,207
--------- --------- ---------
Total income 99,272 130,779 296,948
Costs and expenses:
Management fees 409,036 429,523 456,017
Individual General
Partners' compensation 47,730 47,899 42,000
Amortization of
organizational costs -- -- 1,167
Operating expenses:
Investment operations 254,854 132,665 433,926
Administrative and
investor services 383,059 1,106,796 445,707
Computer services 128,227 88,742 108,310
Professional fees 85,787 84,105 89,419
Interest expense 214,013 347,334 34,886
--------- --------- ---------
Total operating
expenses 1,065,940 1,759,642 1,112,248
--------- --------- ---------
Total costs and expenses 1,522,706 2,237,064 1,611,432
--------- --------- ---------
Net operating loss (1,423,434) (2,106,285) (1,314,484)
Net realized gain
from venture
capital limited
partnership investments 255,239 -- --
Net realized gain (loss)
from sales of equity
investments 989,034 (80,764) --
Recoveries from
investments previously
written off -- 145,248 --
Realized losses from
investment write-downs (1,078,341) (2,532,447) (843,311)
--------- --------- ---------
Net realized loss (1,257,502) (4,574,248) (2,157,795)
Change in net unrealized
fair value:
Equity investments (773,777) 4,065,995 (2,854,255)
Secured notes receivable -- 49,000 5,000
--------- --------- ---------
Net loss $(2,031,279) (459,253) (5,007,050)
========= ========= =========
Net realized loss
per Unit $ (2) (9) (4)
========= ========= =========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
STATEMENTS OF PARTNERS' CAPITAL
- -------------------------------
<TABLE>
<CAPTION>
For the years ended December 31, 1996, 1995 and 1994:
Net Unrealized Fair Value
Increase (Decrease) From Cost
-----------------------------
Managing
Limited General Equity Notes
Partners Partners Investments Receivable Total
-------- -------- ----------- ---------- -----
<S> <C> <C> <C> <C> <C>
Partners' capital,
December 31, 1993 $23,567,720 3,215,903 16,566,918 (54,000) 43,296,541
Net realized loss (1,726,236) (431,559) -- -- (2,157,795)
Change in net unrealized
fair value:
Equity investments -- -- (2,854,255) -- (2,854,255)
Secured notes receivable -- -- -- 5,000 5,000
---------- --------- ---------- ------- ----------
Partners' capital,
December 31, 1994 21,841,484 2,784,344 13,712,663 (49,000) 38,289,491
Net realized loss (3,659,398) (914,850) -- -- (4,574,248)
Change in net unrealized
fair value:
Equity investments -- -- 4,065,995 -- 4,065,995
Secured notes receivable -- -- -- 49,000 49,000
---------- --------- ---------- ------- ----------
Partners' capital,
December 31, 1995 18,182,086 1,869,494 17,778,658 -- 37,830,238
Net realized loss (957,506) (299,996) -- -- (1,257,502)
Distributions -- (316,227) -- -- (316,227)
Change in net unrealized
fair value of
equity investments -- -- (773,777) -- (773,777)
---------- --------- ---------- ------- ----------
Partners' capital,
December 31, 1996 $17,224,580 1,253,271 17,004,881 -- 35,482,732
========== ========= ========== ======= ==========
See accompanying notes to financial statements.
</TABLE>
<PAGE>
STATEMENTS OF CASH FLOWS
- ------------------------
<TABLE>
<CAPTION>
For The Years Ended December 31,
------------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating
activities:
Interest received $ 69,250 97,362 127,524
Cash paid to vendors (206,686) (210,162) (267,943)
Cash paid to related
parties (1,887,068) (963,722) (1,349,828)
Interest paid on short-
term borrowings (214,872) (318,125) (34,886)
Reimbursement of
collection expenses
received from portfolio
companies -- 89,715 --
--------- --------- ---------
Net cash used by
operating activities (2,239,376) (1,304,932) (1,525,133)
--------- --------- ---------
Cash flows from investing
activities:
Notes receivable issued (640,000) (62,500) --
Purchase of equity
investments (2,523,718) (1,331,665) (3,758,976)
Repayment of notes
receivable 35,186 290,269 24,766
Repayment of equity
investments 1,194,450 193,500 --
Recoveries from
investments previously
written off -- 100,000 --
Proceeds from sales of
equity investments 8,064,148 1,272,527 --
Distributions from
venture capital limited
partnership investments 139,624 372,522 29,129
--------- --------- ---------
Net cash provided
(used) by investing
activities 6,269,690 834,653 (3,705,081)
--------- --------- ---------
Cash flows from financing
activities:
(Repayments of) proceeds
from short-term
borrowings, net (2,902,626) 734,758 2,167,868
--------- --------- ---------
Net cash (used) provided
by financing activities (2,902,626) 734,758 2,167,868
--------- --------- ---------
Net increase (decrease) in
cash and cash equivalents 1,127,688 264,479 (3,062,346)
Cash and cash equivalents
at beginning of year 274,980 10,501 3,072,847
--------- --------- ---------
Cash and cash equivalents
at end of year $ 1,402,668 274,980 10,501
========= ========= =========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
STATEMENTS OF CASH FLOWS (continued)
- -----------------------------------
<TABLE>
<CAPTION>
For the Years Ended December 31,
--------------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Reconciliation of net
loss to net cash used by
operating activities:
Net loss $(2,031,279) (459,253) (5,007,050)
Adjustments to reconcile
net loss to net cash
used by operating activities:
Net realized gain
from venture capital
limited partnership
investments (255,239) -- --
Net realized (gain) loss
from sales of equity
investments (989,034) 80,764 --
Realized losses from
investment write-downs 1,078,341 2,532,447 843,311
Recoveries from
investments previously
written off -- (145,248) --
Change in net unrealized
fair value:
Equity investments 773,777 (4,065,995) 2,854,255
Secured notes receivable -- (49,000) (5,000)
Other, net -- (1,292) 667
Changes in:
Accrued interest on
notes receivable (30,022) (32,125) (168,924)
Accounts payable and
accrued expenses 14,686 (1,986) (37,701)
Due to/from related
parties (765,843) 827,098 (56,112)
Other, net (34,763) 9,658 51,421
--------- --------- ---------
Net cash used by
operating activities $(2,239,376) (1,304,932) (1,525,133)
========= ========= =========
Non-cash investing
activities:
Purchase of equity
investments financed
by a promissory note $ -- 1,363,332 --
========= ========= =========
Reclassification of secured
notes to equity investments
(subordinated notes
receivable) $ 640,000 -- --
========= ========== ==========
Stock distributions to
General Partners (see
Note 3) $ 316,227 -- --
========= ========== ==========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
NOTES TO FINANCIAL STATEMENTS
- -----------------------------
1. Summary of Significant Accounting Policies
------------------------------------------
Organization
- ------------
Technology Funding Venture Partners IV, An Aggressive Growth
Fund, L.P. (the "Partnership") is a limited partnership organized
under the laws of the State of Delaware on December 4, 1986. The
purpose of the Partnership is to make venture capital investments
in new and developing companies. The Partnership elected to be a
business development company under the Investment Company Act of
1940, as amended (the "Act"), and operates as a nondiversified
investment company as that term is defined in the Act. The
Managing General Partners are Technology Funding Ltd. ("TFL") and
Technology Funding Inc. ("TFI"), a wholly-owned subsidiary of
TFL. There are also three Individual General Partners.
The Partnership's registration statement was declared effective
by the Securities and Exchange Commission on November 14, 1988,
and the Partnership commenced selling units of limited
partnership interests ("Units") on January 10, 1989.
On February 16, 1989, the minimum number of Units required to
commence Partnership operations (15,000) were sold. The offering
terminated with 400,000 Units sold on September 14, 1990. The
Partnership Agreement provides that the Partnership will continue
until December 31, 1997, unless further extended for up to two
additional two-year periods from such date if the Managing
General Partners so determine or unless sooner dissolved.
Preparation of Financial Statements and Use of Estimates
- --------------------------------------------------------
These financial statements have been prepared on the accrual
basis of accounting in accordance with the generally accepted
accounting principles. This required management to make
estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
The financial statements included marketable and non-marketable
investments of $35,556,235 and $42,779,444 (100% and 113% of
partners' capital) as of December 31, 1996 and 1995. For the
non-marketable investments, the Managing General Partners have
estimated the fair value of such investments in the absence of
readily ascertainable market values. Because of the inherent
uncertainty of valuation, those estimated values may differ
significantly from the values that would have been used had a
ready market for investments existed, and the differences could
be material. In addition, for certain publicly traded
investments that may not be marketable due to selling
restrictions, the Managing General Partners have applied an
illiquidity discount of up to 33% in determining fair value as
discussed below.
Cash and Cash Equivalents
- -------------------------
Cash and cash equivalents are principally comprised of cash
invested in demand accounts and money market instruments and are
stated at cost plus accrued interest. The Partnership considers
all money market and short-term investments with an original
maturity of three months or less to be cash equivalents.
Organizational Costs
- --------------------
Organizational costs of $35,000 were amortized over 60 months
using the straight-line method.
Provision for Income Taxes
- --------------------------
No provision for income taxes has been made by the Partnership as
the Partnership is not directly subject to taxation. The
partners are to report their respective shares of Partnership
income or loss on their individual tax returns.
Since the accompanying financial statements are prepared using
generally accepted accounting principles which may not equate to
tax accounting, the Partnership's total tax basis in investments
was higher than the reported total cost basis of $18,551,354 by
$4,462,106 as of December 31, 1996.
Net Realized Income (Loss) Per Unit
- -----------------------------------
Net realized income (loss) per Unit is calculated by dividing the
number of Units outstanding (400,000) as of December 31, 1996,
1995 and 1994 into the total net realized income (loss) allocated
to the Limited Partners. The Managing General Partners
contributed an amount equal to 0.1% of total Limited Partner
capital contributions and did not receive any Partnership Units.
Investments:
- -----------
In accordance with generally accepted accounting principles, the
Partnership's method of accounting for investments is the fair
value basis used for investment companies. The fair value of
Partnership investments is their initial cost basis with changes
as noted below:
Equity Investments
------------------
The fair value for publicly-traded equity investments (marketable
equity securities) is based upon the five-day-average closing
sales price or bid/ask price that is available on a national
securities exchange or over-the-counter market. Certain
publicly-traded equity investments may not be marketable due to
selling restrictions. For publicly-traded equity investments
with selling restrictions, an illiquidity discount of up to 33%
is applied when determining fair value; the actual discount
percentage is based on the type and length of the restrictions.
Sales of equity investments are recorded on the trade date. The
basis on which cost is determined in computing realized gains or
losses is generally specific identification.
Other equity investments, which are not publicly traded, are
generally valued utilizing pricing obtained from the most recent
round of third-party financings. Valuation is determined
quarterly by the Managing General Partners. Included in equity
investments are convertible and subordinated notes receivable as
repayment of these notes generally occur through conversion into
equity investments.
Venture capital limited partnership investments are initially
recorded at cost and reduced for distributions that are a return
of capital. Distributions from limited partnership cumulative
earnings are reflected as realized gains by the Partnership.
Equity and venture capital limited partnership investments with
temporary changes in fair value result in increases or decreases
to the unrealized fair value of equity investments. The cost
basis does not change. In the case of an other than temporary
decline below cost basis, an appropriate reduction in the cost
basis is recognized as a realized loss with the fair value being
adjusted to match the new cost basis. Adjustments to fair value
basis are reflected as "Change in net unrealized fair value of
equity investments." Cost basis adjustments are reflected as
"Realized losses from investment write-downs" or "Net realized
gain (loss) from venture capital limited partnership investments"
in the Statements of Operations.
Secured Notes Receivable, Net
-----------------------------
The secured notes receivable portfolio includes accrued interest
less the discount related to warrants and the allowance for loan
losses. The portfolio approximates fair value through inclusion
of an allowance for loan losses. Allowance for loan losses is
reviewed quarterly by the Managing General Partners and is
adjusted to a level deemed adequate to cover possible losses
inherent in notes and unfunded commitments. Secured notes
receivable are placed on nonaccrual status when, in the opinion
of the Managing General Partners, the future collectibility of
interest or principal is in doubt.
In conjunction with the notes issued to portfolio companies, the
Partnership has received warrants to purchase certain shares of
capital stock of the borrowing companies. The cost basis of the
warrants and the resulting discount has been estimated by the
Managing General Partners to be 1% of the principal balance of
the original notes made to the borrowing companies. The discount
is amortized to interest income on a straight-line basis over the
term of the loan. Warrants received in conjunction with
convertible notes are not assigned any additional costs. These
warrants are included in the equity investment portfolio.
Non-cash Exercise of Warrants
- -----------------------------
Periodically, the Partnership may acquire stock through the non-
cash exercise of warrants. Upon the non-cash exercise of
warrants, the Partnership recorded a net realized loss of $3,124
in 1996, as a result of the underlying stock prices at the date
of exercise. This amount is included in net realized gain from
sales of equity investments. During 1995 and 1994, there were no
such transactions.
2. Change in Net Unrealized Fair Value of Equity Investments
---------------------------------------------------------
In accordance with the accounting policy as stated in Note 1, the
Statements of Operations include a line item entitled "Change in
net unrealized fair value of equity investments." The table
below discloses details of the changes:
<TABLE>
<CAPTION>
For the Years Ended December 31,
--------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Increase in fair value
from cost of marketable
equity securities $ 5,609,313 5,167,115 1,592,683
Increase in fair value
from cost of non-marketable
equity securities 11,395,568 12,611,543 12,119,980
---------- ---------- ----------
Net unrealized fair
value increase from
cost at end of year 17,004,881 17,778,658 13,712,663
Net unrealized fair
value increase
from cost at
beginning of year 17,778,658 13,712,663 16,566,918
---------- ---------- ----------
Change in net unrealized
fair value of equity
investments $ (773,777) 4,065,995 (2,854,255)
========== ========== ==========
</TABLE>
3. Related Party Transactions
--------------------------
Related party costs are included in costs and expenses shown on
the Statements of Operations. Related party costs in 1996, 1995
and 1994 were as follows:
<TABLE>
<CAPTION>
For the Years Ended December 31,
-------------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Management fees $409,036 429,523 456,017
Individual General
Partners' compensation 47,730 47,899 42,000
Amortization of
organizational costs -- -- 1,167
Reimbursable operating
expenses:
Investment operations 238,851 117,397 398,855
Administrative and
investor services 297,381 1,017,544 288,534
Computer services 128,227 88,742 108,310
</TABLE>
Management fees are equal to two percent for the fifth year of
Partnership operations, and one quarter of one percent of the
fair value of Partnership assets for each quarter in the sixth
and subsequent years. The Partnership's sixth year began in mid-
February of 1994. Management fees compensate the Managing
General Partners solely for General Partner Overhead (as defined
in the Partnership Agreement) incurred in supervising the
operation and management of the Partnership and the Partnership's
investments. Management fees due to the Managing General
Partners were $30,427 and $38,347 at December 31, 1996 and 1995,
respectively.
As compensation for their services, each of the Individual
General Partners receives $10,000 annually, plus $1,000 for each
attended meeting of the Management Committee and related
expenses. The three Individual General Partners each own 20
Units.
The Partnership reimburses the Managing General Partners for
operating expenses incurred in connection with the business of
the Partnership. Reimbursable operating expenses include
expenses (other than Organizational and Offering expenses and
General Partner Overhead) such as investment operations,
administrative and investor services and computer services.
During late 1995, operating cost allocations to the Partnership
were reevaluated. The Managing General Partners determined that
they had not fully recovered allocable overhead as permitted by
the Partnership Agreement. As a result, the Partnership was
charged additional administrative and investor services costs of
$812,580, which was not previously recognized by the Partnership;
this charge consisted of $71,166, $84,279 and $657,135 related to
1995, 1994 and prior years, respectively. If this charge had
been recorded in prior years, total operating expenses would have
been $1,018,228 and $1,196,527 for 1995 and 1994, respectively,
compared to $1,065,940 for 1996. At December 31, 1996, there was
$60,463 of such reimbursable expenses due to related parties
compared to $818,386 due to related parties at December 31, 1995.
In September of 1996, the Partnership made a tax distribution of
57,917 Thermatrix, Inc., common shares to the General Partners
(based on estimated annual taxable income); the shares had a fair
value of $316,227 resulting in a realized gain of $12,163 being
recognized by the Partnership.
Under the terms of a computer service agreement, the Partnership
recognized charges from Technology Administrative Management, a
division of TFL, for its share of computer support costs. These
amounts are included in computer services expense.
See Note 5 to the financial statements regarding 1996
transactions between the Partnership and Multiport, Inc., a
wholly owned corporation of the Partnership.
4. Allocation of Profits and Losses
--------------------------------
Net realized profit and loss of the Partnership are allocated
based on the beginning of year partners' capital balances as
follows:
(a) Profits:
(i) First, to those partners with deficit capital
account balances until such deficits have been
eliminated; then
(ii) Second, to the partners as necessary to offset the
net loss and sales commissions previously
allocated under (b)(ii) below; then
(iii)75% to the Limited Partners as a group in
proportion to the number of Units held, 5% to the
Limited Partners in proportion to the Unit Months
of each Limited Partner, and 20% to the Managing
General Partners. Unit months are the number of
half months a Unit would be outstanding if held
from the date the original holder of such Unit was
deemed admitted into the Partnership until the
termination of the offering of Units.
(b) Losses:
(i) First, to the partners as necessary to offset the
net profit previously allocated to the partners
under (a)(iii) above; then
(ii) 99% to the Limited Partners and 1% to the Managing
General Partners.
Losses allocable to Limited Partners in excess of their capital
account balances will be allocated to the Managing General
Partners, with net profit thereafter otherwise allocable to those
Limited Partners being allocated to the Managing General Partners
to the extent of such losses.
Losses from unaffiliated venture capital limited partnership
investments are allocated pursuant to section (b) above. Gains
are allocated first to offset previously allocated losses
pursuant to (b)(i) above, and then 99% to the Limited Partners
and 1% to the Managing General Partners.
Given the inherent risk associated with the business of the
Partnership, the future performance of the portfolio company
investments may significantly impact future operations.
5. Equity Investments
------------------
December 31, 1996 and 1995, equity investments consisted of:
<TABLE>
<CAPTION>
Original December 31, 1996 December 31, 1995
Principal ------------------ -----------------
Investment Amount or Cost Fair Cost Fair
Industry/Company Position Date Shares Basis Value Basis Value
- ---------------- -------- ---- ------ ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Communications
- --------------
Coded Common
Communications shares
Corporation 04/93 145,454 $ -- -- 149,818 143,999
NetChannel, Inc. Series B
Preferred
shares 10/96 136,363 148,499 148,499 -- --
NetChannel, Inc. Series B
Preferred
share warrant
at $1.10;
expiring
10/99 10/96 136,363 1,500 1,500 -- --
Pinterra Convertible
Corporation note (1)
(formerly
Terrapin, Inc.) 05/95 $125,000 -- -- 131,000 131,000
Pinterra Convertible
Corporation note (1)
(formerly
Terrapin, Inc.) 08/95 $125,000 -- -- 128,448 128,448
Pinterra Convertible
Corporation note (1)
(formerly
Terrapin, Inc.) 12/95 $125,000 -- -- 125,586 125,586
UT Starcom, Inc. Common
(formerly share
Unitech Telecom, warrant
Inc.) at $0.6875;
expiring
05/99 05/94 145,456 0 900,736 0 502,187
UT Starcom, Inc. Series A
(formerly Preferred
Unitech Telecom, shares
Inc.) 03/95 187,500 375,000 1,290,000 375,000 776,250
VOIS, Inc. Common
shares 08/96 300,000 0 30,000 -- --
VOIS, Inc. Series A
Preferred
shares 08/96 100,000 100,000 100,000 -- --
VOIS, Inc. Series A
Preferred
shares 09/96 150,000 150,000 150,000 -- --
Wire Networks, Series A
Inc. Preferred
shares 02/96 6,098 8,232 8,232 -- --
Wire Networks, Series B
Inc. Preferred
shares 02/96 7,452 16,767 16,767 -- --
Wire Networks, Convertible
Inc. note (1) 11/96 $101,973 102,908 102,908 -- --
Computer Systems and Software
- -----------------------------
Ascent Logic Common
Corporation share
warrant
at $.94;
expiring
03/97 03/92 31,915 2,500 0 2,500 0
Ascent Logic Series C
Corporation Preferred
shares 10/92 106,383 99,000 37,234 99,000 37,234
Multiport, Inc. Series A
Preferred 05/93-
shares 08/93 2,440,000 797,400 1,828,383 797,400 2,528,905
Quintar Series A
Corporation Convertible
Preferred
shares 11/89 1,200,000 1,200,000 1,800,000 1,200,000 1,800,000
Quintar Common
Corporation share
warrant
at $1.00;
expiring
10/98 10/93 145,000 0 72,500 0 72,500
Quintar Series A
Corporation Preferred
shares 05/95 384,178 576,267 576,267 576,267 576,267
Reflection Series F
Technology, Inc. Preferred
shares 01/94 28,572 50,001 58,573 50,001 88,573
Reflection Common
Technology, Inc. shares 05/94 19,567 22,502 40,112 22,502 60,658
Reflection Series D
Technology, Inc. Preferred
shares 11/94 869,565 1,000,000 1,782,608 1,000,000 2,695,652
Reflection Series G
Technology, Inc. Preferred
shares 11/94 172,877 312,500 377,788 312,500 535,918
Reflection Series D
Technology, Inc. Preferred
shares 11/94 163,043 187,498 334,238 187,498 505,433
Reflection Series I
Technology, Inc. Preferred
shares 11/95 40,322 -- -- 124,998 124,998
Reflection Common
Technology, Inc. share
warrant
at $.50;
expiring
04/01 04/96 359,750 0 557,613 -- --
Reflection Series J
Technology, Inc. Preferred
shares 04/96 547,918 1,123,232 1,123,232 -- --
Velocity Series A
Incorporated Preferred
shares 10/94 6,286,325 -- -- 1,034,337 1,034,337
Velocity Common
Incorporated share
warrant
at $1.00;
expiring
03/00 03/95 12,500 -- -- 0 0
Velocity Subordinated 08/95-
Incorporated notes (1) 10/95 $125,000 -- -- 125,000 125,000
Environmental
- -------------
Naiad Technologies,Series A
Inc. (formerly Preferred
TMC, Inc.) shares 12/95 50,000 25,000 100,000 25,000 25,000
Naiad Technologies,Series B
Inc. (formerly Preferred
TMC, Inc.) shares 11/96 62,602 125,204 125,204 -- --
SunPower Series A
Corporation Preferred
shares 09/90 210,000 210,000 682,500 210,000 323,400
SunPower Series B
Corporation Redeemable
Preferred
shares 06/91 420,000 457,800 1,365,000 457,800 646,800
SunPower Series B1
Corporation Preferred
shares 06/93 270,000 337,500 877,500 337,500 415,800
SunPower Series C
Corporation Preferred
shares 06/93 32,468 50,001 105,521 50,001 50,001
SunPower Series D
Corporation Preferred
shares 11/94 81,169 123,750 263,799 123,750 123,750
SunPower Series D
Corporation Preferred
share
warrant
at $1.54;
expired
11/96 11/94 81,169 -- -- 1,250 1,250
Thermatrix, Inc. Series B
Preferred
shares 04/91 1,756,204 -- -- 1,318,453 4,390,510
Thermatrix, Inc. Common
shares 04/91 387 -- -- 347 968
Thermatrix, Inc. Series B
Preferred
shares 12/92 1,272,967 -- -- 1,272,967 3,182,418
Thermatrix, Inc. Common
shares 07/94 120 -- -- 30 300
Thermatrix, Inc. Series D
Preferred
shares 11/94 323,120 -- -- 807,800 807,800
Thermatrix, Inc. Common
shares 06/96 1,105,847 3,095,533 8,142,369 -- --
Medical/Biotechnology
- ---------------------
Biex, Inc. Series A
Preferred
shares 07/93 128,205 83,333 192,308 83,333 128,205
Biex, Inc. Series B
Preferred
shares 10/94 63,907 63,907 95,861 63,907 63,907
Biex, Inc. Series B
Preferred
share
warrant
at $1.00;
expiring
10/99 10/94 23,540 8 11,770 8 0
Biex, Inc. Series C
Preferred
shares 06/95 83,334 83,334 125,001 83,334 83,334
Biex, Inc. Series C
Preferred
shares 12/95 83,333 83,333 125,000 83,333 83,333
Biex, Inc. Series C
Preferred
shares 04/96 83,333 83,333 125,000 -- --
Biex, Inc. Series D
Preferred
shares 08/96 111,115 166,673 166,673 -- --
Cardiometrics, Common
Incorporated shares 11/95 359,748 -- -- 2,665,750 2,023,577
CV Therapeutics, Series D
Inc. Preferred
shares 03/94 312,500 -- -- 625,000 625,000
CV Therapeutics, Common
Inc. shares 11/96 37,693 685,320 179,015 -- --
Endocare, Inc. Common
shares 08/96 250 750 603 -- --
Endocare, Inc. Common
share
warrant
at $3.00
expiring
08/01 08/96 3,750 0 1,508 -- --
Endocare, Inc. Convertible
note (1) 08/96 $18,750 19,817 19,817 -- --
Graham-Field Common
Health Products, shares
Inc. (formerly
Everest &
Jennings
Interventional
Ltd.) 01/94 592,720 -- -- 637,519 325,996
Inhale Therapeutic Common
Systems, Inc. shares 12/95 4,125 46,922 61,826 46,922 43,519
Inhale Therapeutic Common
Systems, Inc. shares 03/96 6,270 105,023 93,975 -- --
Intella Common
Interventional shares
Systems, Inc.
(formerly
Intelliwire, Inc.) 02/93 8,715 436 13,944 436 6,536
Intella Series A
Interventional Preferred
Systems, Inc. shares
(formerly
Intelliwire, Inc.) 02/93 4,358 2,179 6,973 2,179 3,269
Molecular Series B
Geriatrics Preferred
Corporation shares 09/93 250,000 -- -- 125,000 125,000
Molecular Common
Geriatrics shares
Corporation 01/96 23,585 125,000 47,170 -- --
Neurex Corporation Common
shares 09/96 3,379 70,959 53,304 -- --
Pharmos Common
Corporation shares 04/95 60,331 45,248 85,791 45,248 88,083
Physiometrix, Common
Inc. share
warrant
at $1,750;
expiring
06/97 06/92 16 -- -- 0 0
Physiometrix, Common 01/94-
Inc. shares 05/94 338 -- -- 375,054 1,690
Physiometrix, Series D
Inc. Preferred 01/94 &
shares 02/94 338,150 -- -- 114,971 1,690,750
Physiometrix, Common
Inc. shares 04/96 270,791 490,025 1,069,624 -- --
RedCell, Inc. Series B
Preferred
shares 12/94 132,979 125,000 125,000 125,000 125,000
RedCell, Inc. Series C
Preferred
share
warrant at
an exercise
price to be $13,495
determined; aggregate
expiring purchase
07/01 07/96 price 0 0 -- --
RedCell, Inc. Convertible
note (1) 07/96 $89,966 93,369 93,369 -- --
SyStemix, Inc. Common 1991-
shares 1992 115,173 771,504 1,761,801 1,013,068 2,069,867
SyStemix, Inc. Common
shares 09/96 660 10,352 10,096 -- --
SyStemix, Inc. Common
shares 10/96 6,665 106,779 101,955 -- --
Microelectronics
- ----------------
Euphonix, Inc. Common
shares 02/96 3,300 37,125 13,375 -- --
KOR Electronics Series C
Convertible
Preferred
shares 11/89 177,778 0 0 0 0
KOR Electronics Convertible
secured
note (1) 11/89 $348,000 -- -- 313,393 313,393
KOR Electronics Series D
Preferred
shares 02/91 1,285,714 0 0 0 0
KOR Electronics Common
shares 01/94 670,036 0 0 0 0
KOR Electronics Series E
Preferred
shares 01/94 1,130,390 1,130,390 847,793 1,130,390 847,793
KOR Electronics Series E
Preferred
share
warrant
at $1.00;
expiring
01/98 01/94 55,000 0 0 0 0
KOR Electronics Common share
warrant at
$.35;
expiring
08/99 08/94 257,143 0 0 0 0
KOR Electronics Series D
Preferred
shares 07/95 977,142 0 0 0 0
Pharmaceuticals
- ---------------
Shaman Common
Pharmaceuticals shares
Inc. 01/93 409,167 751,401 2,434,544 3,440,739 7,687,222
Shaman Common
Pharmaceuticals shares
Inc. 02/95 340,833 1,363,332 2,027,956 1,363,332 2,147,248
Retail/Consumer Products
- ------------------------
Yes! Entertainment Common
Corporation shares 06/95 66,666 199,998 335,647 199,998 325,497
Venture Capital Limited Partnership Investments
- -----------------------------------------------
El Dorado Ltd.
Ventures III Partnership
interests various $225,000 187,460 240,661 149,960 189,689
Medical Science Ltd.
Partners Partnership
interests various $500,000 366,266 640,593 437,225 601,028
Newtek Ventures II Ltd.
Partnership
interests various $773,764 483,924 657,123 423,924 473,368
Onset Enterprises Ltd.
Associates Partnership
interests various $455,000 0 491,182 296,061 490,664
Utah Ventures Ltd.
Partnership
interests various $250,000 41,123 271,757 41,123 187,708
---------- ---------- ---------- ----------
Total equity investments $18,522,217 35,527,098 24,932,960 42,711,618
=========== ========== ========== ==========
- -- No investment held at end of period.
0 Investment active with a carrying value or fair value of zero.
(1) Convertible and subordinated notes include accrued interest.
Interest rates on such notes range from 8% to 18%.
</TABLE>
Marketable Equity Securities
- ----------------------------
At December 31, 1996 and 1995, marketable equity securities had
aggregate costs of $5,552,176 and $9,362,396, respectively, and
aggregate market values of $11,161,489 and $14,529,511, respectively.
The net unrealized gains at December 31, 1996 and 1995, included gross
gains of $6,140,674 and $6,130,033, respectively.
Biex, Inc.
- ----------
In April of 1996, the Partnership purchased an additional 83,333
Series C Preferred shares for $83,333. Then in August of 1996, the
Partnership purchased 111,115 Series D Preferred shares for $166,673.
The pricing of the Series D financing round, in which third parties
participated, indicated an increase in the change in fair value of
$232,828 for the Partnership's prior investments.
Cardiometrics, Inc.
- -------------------
In December of 1996, the Partnership sold all of its holdings in the
company for total proceeds of $1,628,147 and realized a loss of
$1,037,603.
Coded Communications Corporation
- --------------------------------
During the first quarter of 1996, the Managing General Partners
determined that there had been an other than temporary decline in
value of the Partnership's investment. As a result, the investment
was written down by $77,091.
In December of 1996, the Partnership sold all of its holdings in the
company for total proceeds of $56,580 and realized a loss of $16,147.
CV Therapeutics, Inc.
- ---------------------
In March of 1996, the Partnership made an additional investment in the
company by purchasing 31,722 Series G Preferred shares and a warrant
for 47,583 common shares for a total cost of $63,444.
Then in November of 1996, the company completed its initial public
offering ("IPO"). Prior to the IPO, the company effected a 1-for-10
reverse stock split resulting in the Partnerships Preferred shares
being converted into 34,422 common shares. In addition, the
Partnership exercised its common share warrant mentioned above without
cash and received 3,271 shares of common stock and realized a loss
upon exercise of $3,124.
At December 31, 1996, the Partnership recorded a decrease in the
change in fair value of $506,305 to reflect the publicly-traded market
price of its investments; a portion of the fair value was adjusted to
reflect a discount for restricted securities.
Graham-Field Health Products, Inc. (formerly Everest & Jennings
- ---------------------------------------------------------------
International, Ltd.)
- -------------------
In November of 1996, Everest & Jennings International, Ltd. (E&J) was
acquired by Graham-Field Health Products, Inc. (GFI). The
Partnership's 592,720 E&J common shares were converted into 20,745
common shares of GFI. These shares were then sold in December of 1996
for total proceeds of $179,135 and a realized loss of $458,384.
$60,219 of the sales price was an unsettled trade at December 31,
1996, and was included in "Other Assets" on the Balance Sheet.
KOR Electronics
- ---------------
In 1996, the company repaid in full the $348,000 convertible secured
note receivable.
Molecular Geriatrics Corporation
- --------------------------------
In January of 1996, the company converted its Series B Preferred
shares into common shares and then effected a reverse stock split.
Consequently, the Partnership's Series B investment became 23,585
common shares.
In June of 1996, the company completed a Series C Preferred round of
financing in which the Partnership did not participate. The pricing
of this round indicated that the fair value of the Partnership's
investment had declined by $77,830.
Multiport, Inc.
- ---------------
In September of 1996, Multiport, Inc., ("Multiport"), which is wholly
owned by the Partnership, purchased all of the Partnership's Velocity
Incorporated ("Velocity") notes receivable and the related common
share warrant for $900,000, and assumed the first $500,000 of the
Partnership's $2,000,000 guarantee on Velocity's line of credit with a
financial institution. In October, 1996, Multiport paid the financial
institution $500,000 and assumed the note. See Note 10 for additional
discussion.
Based on the fair value of Multiport's underlying net assets at
December 31, 1996, the Partnership recorded a fair value decrease of
$700,522 for its investments. Multiport's assets consist of remaining
net proceeds to be received from a 1994 asset sale agreement, cash and
notes receivable from Velocity.
Naiad Technologies, Inc. (formerly TMC, Inc.)
- ---------------------------------------------
In July of 1996, the Partnership issued a $6,250 convertible note to
the company.
Then in November of 1996, the Partnership purchased 62,602 Series B
Preferred shares with $118,750 in cash and by converting the note
discussed above including accrued interest of $204, for a total cost
of $125,204. The pricing of this round, in which third parties
participated, indicated an increase in the change in fair value of
$75,000 for the Partnership's existing investment.
NetChannel, Inc.
- ----------------
In October of 1996, the Partnership made an investment in the company
by purchasing 136,363 Series B Preferred shares and a warrant to
purchase 136,363 Series B Preferred shares for $149,999.
Physiometrix, Inc.
- ------------------
In April of 1996, the company completed its IPO. Prior to the IPO,
the company effected a reverse stock split resulting in the
Partnership's common and Preferred shares being converted into 270,791
common shares while the common share warrant was canceled. At
December 31, 1996, the Partnership recorded a decrease in the change
in fair value of $622,816 to reflect the publicly-traded market price
of its investments; the fair value was adjusted to reflect a discount
for restricted securities.
Pinterra Corporation (formerly Terrapin, Inc.)
- ----------------------------------------------
During 1996, the Partnership issued an additional convertible note to
the company, which was converted along with the Partnership's existing
investments into equity securities.
The company ceased operations in late 1996. Based on this development
and the Managing General Partners' judgment, the Partnership sold its
investment to KOR Electronics, another investee company, for a nominal
amount and realized a loss of $533,607.
RedCell, Inc.
- -------------
In July of 1996, the Partnership issued $89,966 in convertible notes
receivable to the company. The note bears interest at 8% and matures
in October of 1997.
Reflection Technology, Inc.
- ---------------------------
During the first half of 1996, the Partnership issued $961,500 in
convertible notes receivable to the company and received a warrant to
purchase 359,750 common shares at $.50 per share.
In April of 1996, the Partnership purchased 486,943 Series J Preferred
shares with $23,500 in cash and by converting the notes discussed
above including accrued interest of $13,234, for a total cost of
$998,234. The Partnership's Series I Preferred shares were also
exchanged for 60,975 Series J Preferred shares.
The pricing of the Series J Preferred round resulted in a $735,302
decrease in the change in fair value of the Partnership's investments.
Shaman Pharmaceuticals, Inc.
- ----------------------------
During the first half of 1996, the Partnership sold 811,027 common
shares of Shaman Pharmaceuticals, Inc., for total proceeds of
$5,635,825 and realized a gain of $2,946,487. The Partnership
recorded a decrease in the change in fair value of $2,682,632. The
change included a decrease of approximately $2.4 million due to the
sale mentioned above, as well as a decrease in market price for the
remaining unrestricted shares.
Subsequent to year end, the Partnership sold 111,400 common shares of
the company for total proceeds of $528,416 and a realized gain of
$81,713. In addition , the fair value of the Partnership's remaining
investment decreased by $1,165,445 as a result of a decrease in the
publicly-traded market price at March 20, 1997.
SunPower Corporation
- --------------------
During the fourth quarter of 1996, the company had a Series E
Preferred financing round in which the Partnership did not
participate. The pricing of this round indicated an increase in the
fair value of $1,734,569 for the Partnership's existing investment.
Also in November of 1996, the Partnership's Series D Preferred share
warrant expired without being exercised.
SyStemix, Inc.
- --------------
In 1996, the Partnership sold 18,799 common shares of SyStemix, Inc.,
for total proceeds of $332,916 and a realized gain of $91,352. In
September and October of 1996, the Partnership purchased an additional
7,325 common shares for $117,131. The Partnership also recorded a
decrease in the change in fair value of $71,582 at December 31, 1996,
mainly due to the sale mentioned above. Subsequent to year end the
Partnership sold its remaining investments in the company for total
proceeds of $2,356,657 and a realized gain of $1,468,022.
Thermatrix, Inc.
- ----------------
In June of 1996, the company completed its IPO. Prior to the IPO, the
company effected a reverse stock split resulting in the Partnership's
common and Preferred shares being converted into 1,163,764 common
shares. Then in September of 1996, as disclosed in Note 3 to the
financial statements, the Partnership distributed 57,917 common shares
to the General Partners. At December 31, 1996, the Partnership
recorded a decrease in the change in fair value of $64,437 to reflect
the publicly-traded market price of its remaining investments; the
fair value of which was adjusted to reflect a discount for restricted
securities.
Subsequent to year end, the fair value of the Partnership's investment
decreased by $3,204,448 as a result of a decrease in the publicly-
traded market price at March 20, 1997.
UT Starcom, Inc. (formerly Unitech Telecom, Inc.)
- ------------------------------------------------
During the fourth quarter of 1996, the company had a Series C
Preferred financing round in which the Partnership did not
participate. The pricing of this round indicated an increase in the
fair value of $912,299 for the Partnership's existing investment.
Velocity Incorporated
- ---------------------
During 1996, the Partnership issued $124,950 in subordinated notes to
continue company operations and reclassified secured notes receivable
of $640,000 to subordinated notes. Subsequently in 1996, all of the
Partnership's notes and related warrant in the company were acquired
by Multiport, Inc., for $900,000. See "Multiport, Inc." paragraph
above for additional disclosure.
During 1996, the Managing General Partners determined that there had
been an other than temporary decline in value for the Partnership's
preferred stock investment. As a result, the Partnership wrote down
its preferred stock investment by $1,000,000. In December, 1996, the
Partnership sold its preferred stock investment for a nominal amount
and realized a loss on sale of $34,331.
VOIS, Inc.
- ----------
During the third quarter of 1996, the Partnership invested in the
company by purchasing 250,000 Series A Preferred shares for $250,000.
As a result of the above investment, an affiliate of the Managing
General Partners received 300,000 common shares which were
subsequently assigned to the Partnership.
Wire Networks, Inc.
- -------------------
In February of 1996, the Partnership invested in the company by
purchasing 6,098 Series A Preferred shares and 7,452 Series B
Preferred shares for $8,232 and $16,767, respectively.
Then in November of 1996, the Partnership issued $101,973 in
convertible notes to the company.
Venture Capital Limited Partnership Investments
- -----------------------------------------------
The Partnership recorded a cost basis decrease of $269,520 in venture
capital limited partnership investments during 1996. The decrease was
a result of returns of capital in the form of stock and cash
distributions of $347,878 and $19,142, respectively, partially offset
by additional contributions of $97,500. The Partnership recorded a
fair value increase of $358,859 as a result of a net increase in the
fair value of the underlying investments, partially offset by the
effects of the transactions described above.
During 1996, the common stock distributions consisted of Clarify,
Inc., Conceptus, Inc., Euphonix, Inc., Inhale Therapeutic Systems,
Inc., Mylex, Inc., and Neurex Corporation with a total fair value of
$347,878. These distributions represented returns of capital. In
addition, the Partnership received stock and cash distributions of
$134,757 and $120,482, respectively, which are from profits and are
recorded as net realized gain from venture capital limited partnership
investments. The stock distribution was for Sonus Pharmaceuticals,
Inc.
In 1996, the Partnership sold its positions in Clarify, Inc.,
Conceptus, Inc., Mylex Inc., and Sonus Pharmaceuticals, Inc. for total
proceeds of $291,757.
Other Equity Investments
- ------------------------
Other significant changes reflected above generally relate to market
value fluctuations or the elimination of a discount relating to
selling restrictions for publicly-traded portfolio companies. The
Partnership's Endocare, Inc., shares are restricted. Yes!
Entertainment Corporation and Pharmos Corporation are publicly traded
companies.
6. Secured Notes Receivable, Net
-----------------------------
At December 31, 1996 and 1995, secured notes receivable consisted of:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Secured notes receivable $ 13,963 49,149
Accrued interest 15,174 18,677
------- -------
Total secured notes receivable,
net (fair value) 29,137 67,826
======= =======
</TABLE>
Changes in the allowance for loan losses were as follows:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Balance, beginning of year $ -- 49,000
------- -------
Decrease in provision
for loan losses -- (149,000)
Recoveries of previous write offs:
Computer systems and software -- 100,000
------- -------
Change in net unrealized fair value of
secured notes receivable -- (49,000)
------- -------
Balance, end of year $ -- --
======= =======
</TABLE>
The provision for loan losses is generally comprised of realized loan
losses, net of recognized recoveries, and a change in net unrealized
fair value based upon the level of loan loss reserves deemed adequate
by the Managing General Partners at the respective year ends.
The interest rate on secured notes receivable at December 31, 1996,
was 12.5%.
The principal balance of $13,963 is scheduled to be repaid in 1997.
7. Cash and Cash Equivalents
-------------------------
Cash and cash equivalents at December 31, 1996 and 1995, consisted of:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Demand accounts $ 1,713 105,621
Money-market and brokerage accounts 1,400,955 169,359
--------- ---------
Total $ 1,402,668 274,980
========= =========
</TABLE>
8. Short-Term Borrowings
---------------------
The Partnership has borrowing accounts with two financial
institutions. At December 31, 1996, the Partnership had no
outstanding balance; the combined borrowing capacity, which fluctuates
based on collateral value, totaled $3,139,048. In 1996 and 1995, the
combined weighted-average interest rates for the two accounts were
7.12% and 8.82%, respectively. Interest expense of $90,768 was
recorded in 1996. The Partnership's investments in Shaman
Pharmaceuticals, Inc., and SyStemix, Inc., are pledged as collateral.
As disclosed in Note 5 to the financial statements, subsequent to year
end the Partnership sold its remaining investment in Systemix, Inc.,
and 111,400 common shares of Shaman Pharmaceuticals, Inc., which
reduced the borrowing capacity to $971,772 at March 20, 1997.
9. Promissory notes
----------------
The Partnership has a $1,363,332 promissory note to an unaffiliated
third party, which matures in February of 1997. This note is
subordinated to the Partnership's short-term borrowings and is
collateralized by Partnership assets. The weighted-average interest
rates for the years ended December 31, 1996 and 1995, were 7.99% and
8.25%, respectively. Interest expense of $123,245 was recorded in
1996. This note was fully repaid in February of 1997.
10. Commitments and Contingencies
------------------------------
The Partnership is a party to financial instruments with off-balance-
sheet risk in the normal course of its business. Generally, these
instruments are commitments for future equity fundings, venture
capital limited partnership investments, equipment financing
commitments, or accounts receivable lines of credit that are
outstanding but not currently fully utilized. As they do not
represent current outstanding balances, these unfunded commitments are
properly not recognized in the financial statements. At December 31,
1996, the Partnership has unfunded commitments as follows:
<TABLE>
<CAPTION>
Type
- ----
<S> <C>
Equity investments $ 462,911
Venture capital limited partnership investments 156,150
Term notes 118,800
---------
Total $ 737,861
=========
</TABLE>
The Partnership uses the same credit policies in making these
commitments and conditional obligations as it does for on-balance-
sheet instruments. Commitments to extend financing are agreements to
lend to a company as long as there are no violations of any conditions
established in the contract. The credit lines generally have fixed
termination dates or other termination clauses. Since many of the
commitments are expected to expire without being fully drawn upon, the
total commitment amounts do not necessarily represent future cash
requirements.
In September of 1995, the Partnership jointly guaranteed with two
affiliated partnerships a $2,000,000 line of credit between a
financial institution and a portfolio company in the computer systems
and software industry of which the Partnership's share is $500,000.
In October of 1996, the $2,000,000 guarantee mentioned above was
reduced to $1,000,000 as Multiport, Inc., which is wholly owned by the
Partnership, and an affiliated partnership assumed $1,000,000 of the
financial institution's line of credit. The Partnership remains a
joint guarantor of the remaining $1,000,000. If the portfolio company
fails to repay the line of credit and the affiliated partnerships are
unable to finance their portion of the guarantee, the Partnership may
be liable up to the remaining guarantee amount.
<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.
TECHNOLOGY FUNDING VENTURE PARTNERS IV,
AN AGGRESSIVE GROWTH FUND, L.P.
By: TECHNOLOGY FUNDING INC.
Managing General Partner
Date: March 21, 1997 By: /s/Debbie A. Wong
----------------------------------
Debbie A. Wong
Vice President and Controller
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 and in the capacities and on the dates indicated:
Signature Capacity Date
--------- -------- ----
/s/Charles R. Kokesh President, Chief March 21, 1997
- ------------------------ Executive Officer,
Charles R. Kokesh Chief Financial Officer,
and Chairman of
Technology Funding Inc.
and Managing General
Partner of Technology
Funding Ltd.
/s/Gregory T. George Group Vice President March 21, 1997
- -------------------------- of Technology Funding
Gregory T. George Inc. and a General
Partner of Technology
Funding Ltd.
The above represents the Board of Directors of Technology Funding Inc.
and the General Partners of Technology Funding Ltd.
<TABLE> <S> <C>
<ARTICLE>6
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM THE FORM 10-K AS OF DECEMBER 31, 1996, AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
<MULTIPLIER>1
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<PERIOD-TYPE> YEAR
<INVESTMENTS-AT-COST> 18,551,354
<INVESTMENTS-AT-VALUE> 35,556,235
<RECEIVABLES> 0
<ASSETS-OTHER> 66,285
<OTHER-ITEMS-ASSETS> 1,402,668
<TOTAL-ASSETS> 37,025,188
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,542,456
<TOTAL-LIABILITIES> 1,542,456
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 18,477,851
<SHARES-COMMON-STOCK> 400,000
<SHARES-COMMON-PRIOR> 400,000
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 17,004,881
<NET-ASSETS> 35,482,732
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 93,507
<OTHER-INCOME> 5,765
<EXPENSES-NET> (1,522,706)
<NET-INVESTMENT-INCOME> (1,423,434)
<REALIZED-GAINS-CURRENT> 165,932
<APPREC-INCREASE-CURRENT> (773,777)
<NET-CHANGE-FROM-OPS> (2,031,279)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 316,227
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> (2,347,506)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 409,036
<INTEREST-EXPENSE> 214,013
<GROSS-EXPENSE> 1,528,253
<AVERAGE-NET-ASSETS> 36,656,485
<PER-SHARE-NAV-BEGIN> 46
<PER-SHARE-NII> (2)
<PER-SHARE-GAIN-APPREC> 0 <F1>
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 43
<EXPENSE-RATIO> 4.15
<AVG-DEBT-OUTSTANDING> 2,814,645
<AVG-DEBT-PER-SHARE> 7
<FN>
<F1>
A zero value is used since the change in net unrealized fair value is
not allocated to General Partners and Limited Partners as it is not
taxable. Only taxable gains or losses are allocated in accordance
with the Partnership Agreement.
</FN>
</TABLE>
