<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, 1997
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)
(650) 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 Venture Capital Fund VI, LLC, as revised January 22,
1998, forming a part of the December 5, 1997, Pre-Effective Amendment
No. 1 to the Form N-2 Registration Statement No. 333-23913 dated July
11, 1997, 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 term was extended for a two-year
period to December 31, 1999 pursuant to unanimous approval by
the Management Committee on December 5, 1997. The
Partnership's Amended and Restated Limited Partnership
Agreement ("Partnership Agreement") provides that the
Partnership may be further continued, subject to the right of
the Management Committee, for an additional two-year period.
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
- ------ ---------------------------------------------------
The Annual Meeting of the Limited Partners of the Partnership
was held on December 5, 1997. At that meeting, proxies
submitted by Limited Partners documented that the Limited
Partners elected three individual general partners (231,043
Units voting for, 6,587 Units voting against or abstaining),
elected the two Managing General Partners (231,798 Units voting
for, 5,832 voting against or abstaining), and ratified the
selection of KPMG Peat Marwick LLP as independent certified
accountants (224,228 Units voting for, 1,593 Units voting
against, and 11,809 Units abstaining.)
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, 1997, there were 7,847 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,
---------------------------------------------------------
1997 1996 1995 1994 1993
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Total income $ 148,931 99,272 130,779 296,948 678,321
Net operating loss (1,320,606) (1,423,434) (2,106,285) (1,314,484) (1,514,788)
Net realized gain (loss) from
venture capital limited
partnership investments 524,939 255,239 -- -- (15,402)
Net realized gain (loss)
from sales of equity
investments 7,699,981 989,034 (80,764) -- 25,856,978
Recoveries from investments
previously written off -- -- 145,248 -- --
Realized losses from
investment write-downs (3,768,897) (1,078,341) (2,532,447) (843,311) (1,377,494)
Net realized income (loss) 3,135,417 (1,257,502) (4,574,248) (2,157,795) 20,949,294
Change in net unrealized
fair value:
Equity investments (15,263,861) (773,777) 4,065,995 (2,854,255) (9,857,060)
Notes receivable -- -- 49,000 5,000 94,000
Net (loss) income (12,128,444) (2,031,279) (459,253) (5,007,050) 11,186,234
Net realized income (loss)
per Unit 7 (2) (9) (4) 42
Total assets 23,069,679 37,025,188 43,065,771 40,606,795 43,520,755
Distributions declared 4,000,000 316,227 -- -- 24,514,748
Distributions declared
per Unit (1) 9 -- -- -- 56
(1) Calculation is based on distributions declared to Limited Partners divided by the
weighted average number of Units outstanding during the year.
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.
</TABLE>
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
- ------ -------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS
-----------------------------------
Liquidity and Capital Resources
- -------------------------------
In 1997, net cash used by operating activities totaled
$1,339,726. The Partnership paid management fees of
$286,714 to the Managing General Partners and reimbursed
related parties for operating expenses of $781,165 in
1997. In addition, $46,042 was paid to the Individual
General Partners as compensation for their services.
Other operating expenses and interest on borrowings of
$324,637 and $43,317, were paid, respectively. Interest
income of $142,149 was received.
In 1997, the Partnership funded equity investments of
$3,308,010 mostly to portfolio companies in the
medical/biotechnology, computer systems and software and
communications industries and issued $150,500 in secured
notes receivable to a portfolio company in the computer
systems and software industry. Repayments of secured
notes receivable provided cash of $164,463. Proceeds
from sales of equity investments were $13,828,070 and the
Partnership received $42,873 in cash distributions from
venture capital limited partnership investments.
In October 1997, the Managing General Partners declared a
partner distribution of $4,000,000; distributions of
$455,429 were paid prior to December 31, 1997 and the
balance of $3,544,571 was paid in February, 1998. The
Partnership repaid a $1,363,332 promissory note in
February, 1997.
Cash and cash equivalents at December 31, 1997, were
$8,821,077. As of December 31, 1997, the Partnership was
committed to fund $101,150 in additional investments.
Future proceeds from investment sales and interest income
on short-term investments are expected to be adequate to
fund Partnership operations through the next twelve
months.
Results of Operations
- ---------------------
1997 compared to 1996
- ---------------------
Net loss was $12,128,444 in 1997 compared to $2,031,279
in 1996. The increase in net loss was substantially due
to a $14,490,084 decrease in the change in net unrealized
fair value of equity investments and a $2,690,556
increase in realized losses from investment write-downs.
These decreases were partially offset by a $6,710,947
increase in net realized gain from sales of equity
investments and a $269,700 increase in net realized gains
from venture capital limited partnership investments.
During 1997, the $15,263,861 decrease in fair value of
equity investments included a $6,536,993 decrease
attributable to sales of equity investments, a $6,800,875
decrease attributable to a decline in the publicly-traded
market price of Thermatrix, Inc., a portfolio company in
the environmental industry, and a $1,608,431 decrease
attributable to investment write-downs. During 1996, the
decrease in fair value of $773,777 was primarily
attributable to the sales 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 industries.
In 1997, the $7,699,981 realized gain from sales of
equity investments was primarily attributable to the sale
and liquidation of investments in Shaman Pharmaceuticals,
Inc., Systemix, Inc., UTStarcom, Inc., Multiport Inc. and
Quintar Corporation. 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 1997 and 1996, the Partnership recorded realized
losses from investment write-downs of $3,768,897 and
$1,078,341, respectively, primarily attributable to
equity investments in portfolio companies in the computer
systems and software and communications industries.
Total operating expenses were $1,126,595 and $1,065,940
in 1997 and 1996, respectively. The increase was
primarily due to higher investment operations and
administrative and investor services expenses as a result
of increased overall portfolio activities, partially
offset by lower interest expense. Included in 1997
operating expenses are the costs of the Partnership's
relocation of its administrative and investor service
operations to Santa Fe, New Mexico.
Given the inherent risk associated with the business of
the Partnership, the future performance of the portfolio
company investments may significantly impact future
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 were 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 2
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.
The Year 2000
- -------------
The Managing General Partner is currently reviewing the
Partnership's information systems in anticipation of the
potential computer software problems associated with the
Year 2000. The Year 2000 issue exists because many
computer software programs use only two digits to
identify a year in the date field and were developed
without considering the impact of the upcoming change in
the century. The Managing General Partner currently
expects to complete the necessary critical software
conversion modifications in 1999, and does not anticipate
any material adverse impact on the financial position or
results of operations of the Partnership, as a result of
the Year 2000 issue.
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
-----------------------------------
None
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 Venture Capital Fund
VI, LLC, Prospectus, revised January 22, 1998, forming a
part of the December 5, 1997, Pre-Effective Amendment No.
1 to the Form N-2 Registration Statement No. 333-23913
dated July 11, 1997, which are incorporated herein by
reference.
Item 11. EXECUTIVE COMPENSATION
- ------- ----------------------
As a partnership, the Registrant has no officers or
directors. In 1997, the Partnership incurred $296,900 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, 1997. 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 1997,
$46,042 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; on March 20, 1998, one of the three
Individual General Partners resigned his position and his
Units will be transferred to his successor. The
Management Committee controls 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, 1997
and 1996
Statements of Operations for the years
ended December 31, 1997, 1996 and 1995
Statements of Partners' Capital for the years
ended December 31, 1997, 1996 and 1995
Statements of Cash Flows for the years
ended December 31, 1997, 1996 and 1995
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, 1997.
(c) Financial Data Schedule for the year ended and as of
December 31, 1997 (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, 1997 and 1996,
and the related statements of operations, partners' capital, and
cash flows for each of the years in the three-year period ended
December 31, 1997. These financial statements are the
responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. 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, 1997
and 1996. 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, 1997 and 1996, and the results of its
operations and its cash flows for each of the years in the three-
year period ended December 31, 1997, in conformity with generally
accepted accounting principles.
Albuquerque, New Mexico /S/KPMG Peat Marwick LLP
March 25, 1998
<PAGE>
BALANCE SHEETS
- --------------
<TABLE>
<CAPTION>
December 31,
----------------------
1997 1996
-------- --------
<S> <C> <C>
ASSETS
Investments:
Equity investments (cost basis of
$12,492,981 and $18,522,217 for
1997 and 1996, respectively) $14,234,001 35,527,098
Secured notes receivable, net
(cost basis of $4,501 and
$29,137 for 1997 and 1996,
respectively) 4,501 29,137
---------- ----------
Total investments 14,238,502 35,556,235
Cash and cash equivalents 8,821,077 1,402,668
Other assets 10,100 66,285
---------- ----------
Total assets $23,069,679 37,025,188
========== ==========
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable and accrued expenses $ 47,799 38,429
Due to related parties 119,285 90,890
Distributions payable
to Limited Partners 3,544,571 --
Promissory note -- 1,363,332
Interest payable -- 28,350
Other liabilities 3,736 21,455
---------- ----------
Total liabilities 3,715,391 1,542,456
Commitments, contingencies and
subsequent events
(Notes 1, 2, 4, 10 and 11)
Partners' capital:
Limited Partners
(Units outstanding of 400,000
for both 1997 and 1996) 16,288,081 17,224,580
Managing General Partners 1,325,187 1,253,271
Net unrealized fair value
increase from cost of equity
investments 1,741,020 17,004,881
---------- ----------
Total partners' capital 19,354,288 35,482,732
---------- ----------
Total liabilities and
partners' capital $ 23,069,679 37,025,188
========== ==========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
STATEMENTS OF OPERATIONS
- ------------------------
<TABLE>
<CAPTION>
For the Years Ended December 31,
------------------------------------
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Income:
Secured notes receivable
interest $ 27,713 90,508 117,677
Short-term investment
interest 121,218 2,999 11,935
Other income -- 5,765 1,167
---------- --------- ---------
Total income 148,931 99,272 130,779
Costs and expenses:
Management fees 296,900 409,036 429,523
Individual General
Partners' compensation 46,042 47,730 47,899
Operating expenses:
Investment operations 335,178 254,854 132,665
Administrative and
investor services 565,290 383,059 1,106,796
Computer services 126,586 128,227 88,742
Professional fees 84,574 85,787 84,105
Interest expense 14,967 214,013 347,334
---------- --------- ---------
Total operating
expenses 1,126,595 1,065,940 1,759,642
---------- --------- ---------
Total costs and expenses 1,469,537 1,522,706 2,237,064
---------- --------- ---------
Net operating loss (1,320,606) (1,423,434) (2,106,285)
Net realized gain
from venture
capital limited
partnership investments 524,939 255,239 --
Net realized gain (loss)
from sales of equity
investments 7,699,981 989,034 (80,764)
Recoveries from
investments previously
written off -- -- 145,248
Realized losses from
investment write-downs (3,768,897) (1,078,341) (2,532,447)
---------- --------- ---------
Net realized gain (loss) 3,135,417 (1,257,502) (4,574,248)
Change in net unrealized
fair value:
Equity investments (15,263,861) (773,777) 4,065,995
Secured notes receivable -- -- 49,000
---------- --------- ---------
Net loss $(12,128,444) (2,031,279) (459,253)
========== ========= =========
Net realized gain (loss)
per Unit $ 7 (2) (9)
========== ========= =========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
STATEMENTS OF PARTNERS' CAPITAL
- -------------------------------
<TABLE>
<CAPTION>
For the years ended December 31, 1997, 1996 and 1995:
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, 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
Net realized gain 2,608,072 527,345 -- -- 3,135,417
Distributions (3,544,571) (455,429) -- -- (4,000,000)
Change in net unrealized
fair value of
equity investments -- -- (15,263,861) -- (15,263,861)
---------- --------- ---------- ------- ----------
Partners' capital,
December 31, 1997 $16,288,081 1,325,187 1,741,020 -- 19,354,288
========== ========= ========== ======= ==========
See accompanying notes to financial statements.
</TABLE>
PAGE>
STATEMENTS OF CASH FLOWS
- ------------------------
<TABLE>
<CAPTION>
For The Years Ended December 31,
------------------------------------
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Cash flows from operating
activities:
Interest received $ 142,149 69,250 97,362
Cash paid to vendors (324,637) (206,686) (210,162)
Cash paid to related
parties (1,113,921) (1,887,068) (963,722)
Interest paid on short-
term borrowings (43,317) (214,872) (318,125)
Reimbursement of
collection expenses
received from portfolio
companies -- -- 89,715
---------- --------- ---------
Net cash used by
operating activities (1,339,726) (2,239,376) (1,304,932)
---------- --------- ---------
Cash flows from investing
activities:
Secured notes receivable
issued (150,500) (640,000) (62,500)
Purchase of equity
investments (3,308,010) (2,523,718) (1,331,665)
Repayment of secured
notes receivable 164,463 35,186 290,269
Repayment of convertible
notes receivable -- 1,194,450 193,500
Recoveries from
investments previously
written off -- -- 100,000
Proceeds from sales of
equity investments 13,828,070 8,064,148 1,272,527
Distributions from
venture capital limited
partnership investments 42,873 139,624 372,522
---------- --------- ---------
Net cash provided
by investing
activities 10,576,896 6,269,690 834,653
---------- --------- ---------
Cash flows from financing
activities:
Distributions to partners (455,429) -- --
(Repayments of) proceeds
from short-term
borrowings, net (1,363,332) (2,902,626) 734,758
---------- --------- ---------
STATEMENTS OF CASH FLOWS (continued)
- -----------------------------------
</TABLE>
<TABLE>
<CAPTION>
For the Years Ended December 31,
------------------------------------
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Net cash (used) provided
by financing activities (1,818,761) (2,902,626) 734,758
---------- --------- ---------
Net increase in cash and
cash equivalents 7,418,409 1,127,688 264,479
Cash and cash equivalents
at beginning of year 1,402,668 274,980 10,501
---------- --------- ---------
Cash and cash equivalents
at end of year $ 8,821,077 1,402,668 274,980
========== ========= =========
Reconciliation of net
loss to net cash used by
operating activities:
Net loss $(12,128,444) (2,031,279) (459,253)
Adjustments to reconcile
net loss to net cash
used by operating activities:
Net realized gain
from venture capital
limited partnership
investments (524,939) (255,239) --
Net realized (gain) loss
from sales of equity
investments (7,699,981) (989,034) 80,764
Realized losses from
investment write-downs 3,768,897 1,078,341 2,532,447
Recoveries from
investments previously
written off -- -- (145,248)
Change in net unrealized
fair value:
Equity investments 15,263,861 773,777 (4,065,995)
Secured notes
receivable -- -- (49,000)
Other, net -- -- (1,292)
Changes in:
Accrued interest on
notes receivable (6,782) (30,022) (32,125)
Accounts payable and
accrued expenses 9,370 14,686 (1,986)
Due to/from related
parties 28,395 (765,843) 827,098
Other, net (50,103) (34,763) 9,658
---------- --------- ---------
STATEMENTS OF CASH FLOWS (continued)
- -----------------------------------
</TABLE>
<TABLE>
<CAPTION>
For the Years Ended December 31,
------------------------------------
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Net cash used by
operating activities $(1,339,726) (2,239,376) (1,304,932)
========= ========= =========
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 --
========= ========== ==========
Non-cash financing
activities:
Distributions payable
to Limited Partners $ 3,544,571 -- --
========= ========== ==========
Stock distributions to
General Partners (see
Note 2) $ -- 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 generally three Individual General Partners;
effective March 20, 1998, an Individual General partner resigned,
and a successor is to be appointed.
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's term was extended for a two-year period to December
31, 1999 pursuant to unanimous approval by the Management
Committee on December 5, 1997. The Partnership Agreement
provides that the Partnership may be further extended for an
additional two-year period from such date if the Management
Committee so determines or unless sooner dissolved.
Preparation of Financial Statements and Use of Estimates
- --------------------------------------------------------
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the amounts reported
in the financial statements and accompanying notes. Actual
results could differ from those estimates. Estimates are used
when accounting for investments, change in unrealized fair value
of investments, liabilities and contingencies. Because of the
inherent uncertainty of valuation, the estimated fair value of
investments may differ significantly from the values that would
have been used had a ready market for investments existed, and
the differences could be material.
Investments
- -----------
Equity Investments
------------------
The Partnership's method of accounting for investments, in
accordance with generally accepted accounting principles, is the
fair value basis used for investment companies. The fair value
of Partnership equity investments is their initial cost basis
with changes as noted below:
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 and for those securities, an illiquidity
discount of up to 33% is applied when determining the fair value;
the actual discount percentage is based on the type and length of
the restrictions. Investments valued under this method were
$2,414,032 and $11,161,489 at December 31, 1997 and 1996,
respectively.
All investments which are not publicly traded are valued at fair
market value as determined by the Managing General Partners in
the absence of readily ascertainable market values. Equity
investments valued under this method were $11,819,969 and
$24,365,609 at December 31, 1997 and 1996, respectively.
Generally, investments in privately held companies are valued at
original cost unless there is clear evidence of a change in fair
value, such as a recent round of third-party financings or events
that, in the opinion of the Managing General Partners, indicate a
change in value.
Convertible and subordinated notes receivable are stated at cost
plus accrued interest, which is equivalent to fair value, and are
included in equity investments as repayment of these notes
generally occurs through conversion into equity investments.
Venture capital limited partnership investments are initially
recorded at cost and are valued based on the fair value of the
underlying investments. Limited partnership distributions that
are a return of capital reduce the cost basis of the
Partnership's investment. Distributions from limited partnership
cumulative earnings are reflected as realized gains by the
Partnership.
Where, in the opinion of the Managing General Partner, events
indicate that the fair value of equity and venture capital
investments and convertible and subordinated notes receivable may
not be recoverable, a write down to estimated fair value is
recorded. Temporary changes in fair value result in increases or
decreases to the unrealized fair value of equity investments.
Adjustments to fair value basis are reflected as "Change in net
unrealized fair value of equity investments." In the case of an
other than temporary decline in value 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. Cost basis adjustments are reflected as "Realized
losses from investment write-downs" or "Net realized loss from
venture capital limited partnership investments" on the
Statements of Operations.
Sales of equity investments are recorded on the trade date. The
basis on which cost is determined in computing realized gains or
losses is specific identification.
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.
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.
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, 1997,
1996 and 1995 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.
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 $12,497,482 by
$2,913,005 as of December 31, 1997.
2. Related Party Transactions
--------------------------
Related party costs are included in costs and expenses shown on
the Statements of Operations. Related party costs in 1997, 1996
and 1995 were as follows:
<TABLE>
<CAPTION>
For the Years Ended December 31,
--------------------------------------
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Management fees $296,900 409,036 429,523
Individual General
Partners' compensation 46,042 47,730 47,899
Reimbursable operating
expenses:
Investment operations 316,342 238,851 117,397
Administrative and
investor services 367,404 297,381 1,017,544
Computer services 115,628 128,227 88,742
</TABLE>
Effective February 1994, management fees are equal to one quarter
of one percent of the fair value of Partnership assets for each
quarter. 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 $40,613
and $30,427 at December 31, 1997 and 1996, 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; on March 20, 1998, one of the three Individual General
Partners resigned his position and his Units will be transferred
to his successor.
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. At
December 31, 1997, there was $78,672 of such reimbursable
expenses due to related parties compared to $60,463 due to
related parties at December 31, 1996. 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 and $741,414 related to 1995 and prior
years, respectively. If this charge had been recorded in prior
years, total operating expenses would have been $1,018,228 for
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.
Effective November 1, 1997, TFL assigned its California office
lease to Technology Funding Property Management LLC (TFPM), an
entity that is affiliated to the Managing General Partner. Under
the terms of a rent agreement, TFPM charges the Partnership for
its share of office rent and related overhead costs. These
amounts are included in administrative and investor service
costs.
Under the terms of a computer service agreement, Technology
Administrative Management, a division of TFL, charges the
Partnership for its share of computer support costs. These
amounts are included in computer services expenses.
Officers of the Managing General Partners occasionally receive
stock options as compensation for serving on the Boards of
Directors of portfolio companies. It is the Managing General
Partners' policy that all such compensation be transferred to the
investing partnerships. If the options are non-transferable,
they are not recorded as an asset of the Partnership. Any profit
from the exercise of such options will be transferred if and when
the options are exercised and the underlying stock is sold by the
officers. At December 31, 1997, the Partnership had an indirect
interest in non-transferable Physiometrix, Inc., options at an
exercise price higher than the current market value.
See Note 4 to the financial statements regarding transactions
between the Partnership and Multiport, Inc., a wholly owned
corporation of the Partnership.
3. 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.
4. Equity Investments
------------------
At December 31, 1997, and December 31, 1996, equity investments consisted of:
<TABLE>
<CAPTION>
Original December 31, 1997 December 31, 1996
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
- --------------
NetChannel, Inc. Series B
Preferred
shares 10/96 284,044 $ 148,499 149,999 148,499 148,499
NetChannel, Inc. Series B
Preferred
share warrant
at $1.10;
exercised
01/97 10/96 136,363 -- -- 1,500 1,500
NetChannel, Inc. Series B
Preferred
shares 01/97 284,044 68,863 149,999 -- --
NetChannel, Inc. Series B
Preferred
shares 03/97 340,852 82,636 179,999 -- --
NetChannel, Inc. Convertible
note (1) 05/97 $67,671 70,132 70,132 -- --
NetChannel, Inc. Series B
Preferred
shares 05/97 191,817 84,400 101,296 -- --
NetChannel, Inc. Convertible
note (1) 09/97 $56,250 57,632 57,632 -- --
NetChannel, Inc. Convertible
note (1) 09/97 $56,250 57,545 57,545 -- --
NetChannel, Inc. Series X
Preferred
warrant E
exercise price
TBD, Aggregate
expiration Purchase price
TBD 09/97 $14,063 0 0 -- --
NetChannel, Inc. Series X
Preferred
warrant E
exercise price
TBD, Aggregate
expiration Purchase price
TBD 09/97 $14,063 0 0 -- --
UT Starcom, Inc. Common
share
warrant
at $0.6875;
expiring
05/99 03/95 145,456 -- -- 0 900,736
UT Starcom, Inc. Series A
Preferred
shares 03/95 187,500 -- -- 375,000 1,290,000
VOIS, Inc. Common
shares 08/96 300,000 0 0 0 30,000
VOIS, Inc. Series A
Preferred
shares 08/96 100,000 0 0 100,000 100,000
VOIS, Inc. Series A
Preferred
shares 09/96 150,000 0 0 150,000 150,000
VOIS, Inc. Series A
Preferred
shares 02/97 62,500 0 0 -- --
VOIS, Inc. Series B
Preferred
shares 05/97 120,000 0 0 -- --
Wire Networks, Series A
Inc. Preferred
shares 02/96 6,098 8,232 18,538 8,232 8,232
Wire Networks, Series B
Inc. Preferred
shares 02/96 7,452 16,767 22,654 16,767 16,767
Wire Networks, Convertible
Inc. note (1) 11/96 $101,973 -- -- 102,908 102,908
Wire Networks, Series C
Inc. Preferred
shares 07/97 35,295 107,298 107,298 -- --
Computer Equipment, Systems and Software
- ----------------------------------------
Adept Technology, Common
Inc. shares 10/97 14,328 227,464 134,397 -- --
Ascent Logic Common
Corporation share
warrant
at $.94;
exercised
03/97 03/92 31,915 -- -- 2,500 0
Ascent Logic Series C
Corporation Preferred
shares 10/92 106,383 99,000 37,234 99,000 37,234
Ascent Logic Common
Corporation shares 03/97 36,443 23,795 12,755 -- --
Multiport, Inc. Series A
Preferred 05/93-
shares 08/93 2,440,000 -- -- 797,400 1,828,383
Quintar Series A
Corporation Convertible
Preferred
shares 11/89 1,200,000 -- -- 1,200,000 1,800,000
Quintar Common
Corporation share
warrant
at $1.00;
expiring
10/98 10/93 145,000 -- -- 0 72,500
Quintar Series A
Corporation Preferred
shares 05/95 384,178 -- -- 576,267 576,267
Reflection Series F
Technology, Inc. Preferred
shares 01/94 28,572 0 0 50,001 58,573
Reflection Common
Technology, Inc. shares 05/94 19,567 0 0 22,502 40,112
Reflection Series D
Technology, Inc. Preferred
shares 11/94 869,565 0 0 1,000,000 1,782,608
Reflection Series G
Technology, Inc. Preferred
shares 11/94 172,877 0 0 312,500 377,788
Reflection Series D
Technology, Inc. Preferred
shares 11/94 163,043 0 0 187,498 334,238
Reflection Common
Technology, Inc. share
warrant
at $.50;
expiring
04/01 04/96 359,750 0 0 0 557,613
Reflection Series J
Technology, Inc. Preferred
shares 04/96 547,918 0 0 1,123,232 1,123,232
Reflection Convertible 01/97 -
Technology, Inc. notes (1) 07/97 $448,333 0 0 -- --
Splash Technology Common
Holdings, Inc. shares 11/97 5,000 198,812 106,250 -- --
Splash Technology Sales
Holdings, Inc. proceeds (2) 05/97 $375,000 0 300,000 -- --
Environmental
- -------------
Naiad Technologies,Series A
Inc. Preferred
shares 12/95 50,000 25,000 162,500 25,000 100,000
Naiad Technologies,Series B
Inc. Preferred
shares 11/96 62,602 125,204 203,457 125,204 125,204
Naiad Technologies,Series C
Inc. Preferred
shares 11/97 49,230 159,998 159,998 -- --
SunPower Series A
Corporation Preferred
shares 09/90 210,000 210,000 682,500 210,000 682,500
SunPower Series B
Corporation Redeemable
Preferred
shares 06/91 420,000 457,800 1,365,000 457,800 1,365,000
SunPower Series B1
Corporation Preferred
shares 06/93 270,000 337,500 877,500 337,500 877,500
SunPower Series C
Corporation Preferred
shares 06/93 32,468 50,001 105,521 50,001 105,521
SunPower Series D
Corporation Preferred
shares 11/94 81,169 123,750 263,799 123,750 263,799
Thermatrix, Inc. Common
shares 06/96 1,105,847 3,095,533 1,341,494 3,095,533 8,142,369
Velocity, Inc. Subordinated
Notes (1) 08/97 $10,050 0 0 -- --
Information Technology
- ----------------------
WorldRes, Inc. Series B
Preferred
shares 01/97 66,568 225,000 246,302 -- --
WorldRes, Inc. Series X
warrant at
price TBD,
expiring Aggregate
10/02 10/97 $8,438 8 0 -- --
WorldRes, Inc. Series C
Preferred
shares 12/97 62,077 229,685 229,685 -- --
WorldRes, Inc. Interest 10/97 $851 851 851 -- --
Medical/Biotechnology
- ---------------------
ADESSO Specialty Series D
Services Preferred
Organization, Inc.shares 12/97 119,047 999,995 999,995 -- --
Biex, Inc. Series A
Preferred
shares 07/93 128,205 83,333 320,513 83,333 192,308
Biex, Inc. Series B
Preferred
shares 10/94 63,907 63,907 159,768 63,907 95,861
Biex, Inc. Series B
Preferred
share
warrant
at $1.00;
expiring
10/99 10/94 23,540 8 35,310 8 11,770
Biex, Inc. Series C
Preferred
shares 06/95 83,334 83,334 208,335 83,334 125,001
Biex, Inc. Series C
Preferred
shares 12/95 83,333 83,333 208,333 83,333 125,000
Biex, Inc. Series C
Preferred
shares 04/96 83,333 83,333 208,333 83,333 125,000
Biex, Inc. Series D
Preferred
shares 08/96 111,115 166,673 277,788 166,673 166,673
Biex, Inc. Series D
Preferred
shares 03/97 44,446 66,669 111,115 -- --
Biex, Inc. Series E
Preferred
shares 08/97 13,333 33,334 33,332 -- --
CV Therapeutics, Common 03/94 &
Inc. shares 03/96 37,693 685,320 342,252 685,320 179,015
Endocare, Inc. Common
shares 08/96 250 750 895 750 603
Endocare, Inc. Common
share
warrant
at $3.00
expiring
08/01 08/96 3,750 0 1,631 0 1,508
Endocare, Inc. Convertible
note (1) 08/96 $18,750 -- -- 19,817 19,817
Endocare, Inc. Common
shares 01/97 1,750 6,125 6,265 -- --
Endocare, Inc. Common
shares 01/97 8,300 20,750 28,142 -- --
Endocardial Common
Solutions shares 09/97 5,714 80,710 57,140 -- --
Inhale Therapeutic Common
Systems, Inc. shares 12/95 4,125 46,922 106,631 46,922 61,826
Inhale Therapeutic Common
Systems, Inc. shares 03/96 6,270 105,023 162,080 105,023 93,975
Inhale Therapeutic Common
Systems, Inc. shares 01/97 10,470 202,856 270,650 -- --
Inhale Therapeutic Common
Systems, Inc. shares 03/97 8,087 162,751 209,049 -- --
Intella Common
Interventional shares
Systems, Inc. 02/93 8,715 436 13,944 436 13,944
Intella Series A
Interventional Preferred
Systems, Inc. shares 02/93 4,358 2,179 6,973 2,179 6,973
Molecular Common
Geriatrics shares
Corporation 09/93 23,585 125,000 47,170 125,000 47,170
Neurex Corporation Common
shares 09/96 3,379 70,959 45,448 70,959 53,304
Penederm, Inc. Common
shares 02/97 2,784 48,024 27,422 -- --
Pharmos Common 04/95 &
Corporation shares 11/95 60,331 45,248 121,266 45,248 85,791
Physiometrix, Common
Inc. shares 04/96 270,791 490,025 490,792 490,025 1,069,624
RedCell, Inc. Series B
Preferred
shares 12/94 132,979 125,000 0 125,000 125,000
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 0 0
RedCell, Inc. Convertible
note (1) 07/96 $89,966 95,170 95,170 93,369 93,369
SyStemix, Inc. Common 1991-
shares 1992 115,173 -- -- 771,504 1,761,801
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 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
Shaman Common
Pharmaceuticals shares
Inc. 02/95 135,000 -- -- 1,363,332 2,027,956
Retail/Consumer Products
- ------------------------
Yes! Entertainment Common
Corporation shares 06/95 66,666 199,998 110,399 199,998 335,647
Venture Capital Limited Partnership Investments
- -----------------------------------------------
El Dorado Ltd.
Ventures III Partnership
interests various $250,000 212,460 331,186 187,460 240,661
Medical Science Ltd.
Partners Partnership
interests various $500,000 366,266 542,834 366,266 640,593
Newtek Ventures II Ltd.
Partnership
interests various $803,764 274,178 472,201 483,924 657,123
Onset Enterprises Ltd.
Associates Partnership
interests various $455,000 0 89,614 0 491,182
Utah Ventures Ltd.
Partnership
interests various $250,000 41,117 99,897 41,123 271,757
---------- ---------- ---------- ----------
Total equity investments $12,492,981 14,234,001 18,522,217 35,527,098
========== ========== ========== ==========
- -- 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 16%.
(2) Sales proceeds represent funds escrowed upon partnership's sale of Quintar Corporation to
Splash Technology Holdings, Inc. Release of funds is contingent upon certain events and is
not expected prior to August, 1998.
</TABLE>
Marketable Equity Securities
- ----------------------------
At December 31, 1997, and 1996, marketable equity securities had
aggregate costs of $3,157,615 and $5,552,176, respectively, and
aggregate market values of $2,414,032 and $11,161,489, respectively.
The net unrealized loss and gain at December 31, 1997 and 1996
included gross gains of $350,879 and $6,140,674, respectively.
Adesso Specialty Services Organization, Inc.
- --------------------------------------------
In December 1997, the Partnership purchased 119,047 Series D Preferred
shares for $999,995.
Biex, Inc.
- ----------
In March of 1997, the Partnership made an additional investment in the
company by purchasing 44,446 Series D Preferred shares for $66,669.
In August of 1997, the Partnership purchased 13,333 Series E Preferred
shares for $33,334. The pricing of this round, in which third parties
participated, indicated a fair value increase of $621,211 for the
Partnership's existing investment.
Multiport, Inc.
- ---------------
On December 31, 1997, Multiport, Inc., which was wholly owned by the
Partnership, ceased operations, began the process of final liquidation
and distributed $1,929,078 in cash to the Partnership. This resulted
in a realized gain of $1,131,678.
Naiad Technologies, Inc.
- ------------------------
In November of 1997, the Partnership made an additional investment in
the company by purchasing 49,230 Series C Preferred shares for
$159,998. The pricing of this round, in which third parties
participated, indicated an increase in fair value of $140,753 for the
Partnership's existing investment.
NetChannel, Inc.
- ----------------
In January of 1997, the Partnership cash exercised its Series B
Preferred share warrant for $149,999 and received 136,363 Series B
Preferred shares. In March of 1997, the Partnership issued a $150,000
convertible note receivable to the company. The Partnership also
received an additional 163,635 Series B Preferred shares as a result
of an adjustment to the warrant exercise price.
In May of 1997, the company effected a 1-to-2.083 stock split. As a
result, the Partnership received an additional 472,579 Series B
Preferred shares. The Partnership also purchased 191,817 Series B
Preferred shares by converting $82,329 of the notes receivable
discussed above including accrued interest of $2,071 for a total cost
of $84,400. The remaining note principal of $67,671 was reissued as a
new note.
In September of 1997 the Partnership funded bridge notes amounting to
$112,908 which includes $408 of accrued interest.
The Partnership is entitled to receive warrants to purchase 25% of the
number of shares issued upon conversion at an exercise price equal to
the conversion price. At December 31, 1997, the Partnership recorded
an increase in fair value of $196,895 for the above transactions.
Quintar Corporation
- -------------------
In May of 1997, Splash Technology Holdings, Inc., acquired Quintar
Corporation. The Partnership received total proceeds of $2,147,372
for its preferred share and warrant investments and realized a gain of
$371,105. The Partnership expects to receive additional escrowed
proceeds of approximately $300,000 in 1998.
RedCell, Inc.
- -------------
During 1997, the company had a new round of financing in which the
Partnership did not participate. The pricing of this round indicated
a decrease in fair value of $125,000 for the Partnership's existing
investment.
Reflection Technology, Inc.
- ---------------------------
In December 1997, the Partnership wrote off the fair value and cost
basis of its investment and realized a loss of $3,146,347 based on the
opinion of the Managing General Partner that the operating status of
the company indicated a permanent decline in value.
Shaman Pharmaceuticals, Inc.
- ----------------------------
During the first half of 1997, the Partnership sold its entire
investment in the company for total proceeds of $3,702,853 and
realized a gain of $1,588,120.
Splash Technology Holdings, Inc.
- --------------------------------
In November 1997, the Partnership purchased 5,000 common shares on the
open market for $198,812. At December 31, 1997, the Partnership
recorded a $92,562 decrease in fair value based on the publicly-traded
market price of the shares.
SyStemix Inc.
- -------------
In January of 1997, the Partnership sold its entire investment in the
company for total proceeds of $2,356,657 and realized a gain of
$1,468,022.
Thermatrix, Inc.
- ----------------
At December 31, 1997, the Partnership recorded a $6,800,875 decrease
in the fair value of its investment in the company based on the
publicly traded market price of the company's common shares.
Subsequent to year end, the fair value of the Partnership's investment
increased by $1,151,147 as a result of an increase in the publicly
traded market price at March 23, 1998.
UT Starcom, Inc.
- ----------------
In October 1997, the Partnership exercised its common shares warrant
for $100,001 and received 145,456 common shares. The Partnership then
sold its entire investment in the company for total proceeds of
$3,625,891 and realized a gain of $3,150,890.
VOIS, Inc.
- ----------
In February of 1997, the Partnership made an additional investment in
the company by purchasing 62,500 Series A Preferred shares for
$62,500. Then in May of 1997, the Partnership purchased 120,000
Series B Preferred shares for $300,000.
In December 1997, the Partnership wrote off the fair value and cost
basis of its investment and realized a loss of $612,500 based on the
opinion of the Managing General Partner that the operating status of
the company indicated a permanent decline in value.
Wire Networks, Inc.
- -------------------
In July of 1997, the Partnership converted its $101,973 note
receivable, including accrued interest of $5,325, into 35,295 Series C
Preferred shares, at a total cost of $107,298. At December 31, 1997,
the Partnership recorded an increase in fair value of $16,193.
WorldRes, Inc.
- --------------
In January of 1997, the Partnership invested in the company by
purchasing 66,568 Series B Preferred shares for $225,000.
In October 1997, the Partnership issued $42,188 in convertible notes
receivable to the company and purchased Series X Preferred shares
warrants with an aggregate exercise price of $8,438 for $8. In
December 1997, the Partnership converted the October 1997 note into
11,402 Series C Preferred shares and purchased 50,675 additional
Series C Preferred shares for $187,497. At December 31, 1997, the
Partnership recorded an increase in fair value of $21,294 for the
above transactions.
Venture Capital Limited Partnership Investments
- -----------------------------------------------
The Partnership made an additional investment of $55,000 in venture
capital limited partnerships during the year ended December 31, 1997.
The Partnership recorded a fair value decrease of $580,832 as a result
of stock distributions from venture capital limited partnership
investments and a net decrease in fair value of the underlying
investments.
During 1997, the Partnership received common stock distributions of
Adept Technology, Inc., Inhale Therapeutics Systems, Inc., Penederm,
Inc., and Endocardial Solutions with fair values of $227,464,
$365,607, $48,024 and $80,710 respectively. The Partnership also
received cash distributions from El Dorado Ventures III , Utah
Ventures and Network Ventures II totaling $42,873 during 1997.
Distributions totaling $524,939 were recorded as realized gains from
venture capital limited partnership investments and distributions
totaling $239,747 were recorded as returns of capital.
Other Equity Investments
- ------------------------
Other significant changes reflected above relate to market value
fluctuations or the elimination of a discount relating to selling
restrictions for publicly-traded portfolio companies. Portions of the
Partnership's Endocare, Inc., Physiometrix, Inc., and Thermatrix, Inc.
shares are restricted.
5. 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,
----------------------------------
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
(Decrease) increase in
fair value from cost of
marketable equity
securities $ (743,583) 5,609,313 5,167,115
Increase in fair value
from cost of non-
marketable equity
securities 2,484,603 11,395,568 12,611,543
---------- ---------- ----------
Net unrealized fair
value increase from
cost at end of year 1,741,020 17,004,881 17,778,658
Net unrealized fair
value increase
from cost at
beginning of year 17,004,881 17,778,658 13,712,663
---------- ---------- ----------
Change in net unrealized
fair value of equity
investments $(15,263,861) (773,777) 4,065,995
========== ========== ==========
</TABLE>
6. Secured Notes Receivable, Net
-----------------------------
Activity from January 1 through December 31 consisted of:
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Balance, beginning of year $ 29,137 67,826
Secured notes receivable issued 150,500 640,000
Conversion of secured notes to
equity investments -- (640,000)
Repayments of secured notes
receivable (164,463) (35,186)
Decrease in accrued interest (10,673) (3,503)
------- -------
Balance, end of year $ 4,501 29,137
======= =======
</TABLE>
The interest rate on secured notes receivable at December 31, 1997,
was 12.5%.
7. Cash and Cash Equivalents
-------------------------
Cash and cash equivalents at December 31, 1997 and 1996, consisted of:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Demand accounts $5,543,116 1,713
Money-market and brokerage accounts 3,277,961 1,400,955
--------- ---------
Total $8,821,077 1,402,668
========= =========
</TABLE>
8. Short-Term Borrowings
---------------------
In 1996, the Partnership had borrowing accounts with two financial
institutions. At December 31, 1997, these credit facilities were
unused. In 1996, the combined weighted-average interest rates for the
two accounts was 7.12%. Interest expense of $341 and $90,768 was
recorded in 1997 and 1996, respectively.
9. Promissory notes
----------------
In February 1997, the Partnership repaid a promissory note issued in
1995 totaling $1,363,332 to an unaffiliated third party. Interest
expense of $14,626 and $123,245 was recorded in 1997 and 1996,
respectively.
10. Distributions Payable to Limited Partners
-----------------------------------------
In October 1997, the Managing General Partners declared distributions
($9 per unit) for Unit holders as of September 30, 1997, based upon
Partnership performance during 1997. Distributions of $455,429 were
paid prior to December 31, 1997 and the balance of $3,544,571 was paid
in February 1998. Unnegotiated distribution checks, if any after a
reasonable amount of time, are recorded as other liabilities.
11. 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,
1997, unfunded investment commitments to venture capital limited
partnerships totaled $101,150.
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 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 was $500,000.
In October 1996, the $2,000,000 guarantee mentioned above was reduced
to $1,000,000 as Multiport, Inc., which was wholly owned by the
Partnership, and an affiliated partnership assumed $1,000,000 of the
financial institution's line of credit. The Partnership remained a
joint guarantor of the remaining $1,000,000. In November 1997, the
portfolio company failed to repay the line of credit and an affiliated
partnership repaid the entire obligation at no cost to the
Partnership.
<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 25, 1998 By: /s/Michael Brenner
----------------------------------
Michael Brenner
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 25, 1998
- ------------------------ 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 25, 1998
- -------------------------- 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, 1997, AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
<MULTIPLIER>1
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<PERIOD-TYPE> YEAR
<INVESTMENTS-AT-COST> 12,497,482
<INVESTMENTS-AT-VALUE> 14,238,502
<RECEIVABLES> 0
<ASSETS-OTHER> 10,100
<OTHER-ITEMS-ASSETS> 8,821,077
<TOTAL-ASSETS> 23,069,679
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 3,715,391
<TOTAL-LIABILITIES> 3,715,391
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 17,613,268
<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> 1,741,020
<NET-ASSETS> 19,354,288
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 148,931
<OTHER-INCOME> 0
<EXPENSES-NET> (1,469,537)
<NET-INVESTMENT-INCOME> (1,320,606)
<REALIZED-GAINS-CURRENT> 4,456,023
<APPREC-INCREASE-CURRENT> (15,263,861)
<NET-CHANGE-FROM-OPS> (12,128,444)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 4,000,000
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> (16,128,444)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 296,900
<INTEREST-EXPENSE> 14,967
<GROSS-EXPENSE> 1,477,247
<AVERAGE-NET-ASSETS> 27,418,510
<PER-SHARE-NAV-BEGIN> 43
<PER-SHARE-NII> 7
<PER-SHARE-GAIN-APPREC> 0 <F1>
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> (9)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 41
<EXPENSE-RATIO> 5.36
<AVG-DEBT-OUTSTANDING> 681,666
<AVG-DEBT-PER-SHARE> 2
<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>
