<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1998
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)
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
--- ---
No active market for the units of limited partnership interests
("Units") exists, and therefore the market value of such Units cannot be
determined.
<PAGE>
I. FINANCIAL INFORMATION
Item 1. Financial Statements
BALANCE SHEETS
- --------------
<TABLE>
<CAPTION>
(unaudited)
June 30, December 31,
1998 1997
------------ -----------
<S> <C> <C>
ASSETS
Investments:
Equity investments (cost basis
of $12,860,300 and $12,492,981 for
1998 and 1997, respectively) $17,353,073 14,234,001
Notes receivable -- 4,501
---------- ----------
Total investments 17,353,073 14,238,502
Cash and cash equivalents 3,927,096 8,821,077
Due from related parties 17,025 --
Other assets 8,091 10,100
---------- ----------
Total assets $21,305,285 23,069,679
========== ==========
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable and accrued expenses $ 22,405 47,799
Due to related parties -- 119,285
Distributions payable -- 3,544,571
Other liabilities 16,763 3,736
---------- ----------
Total liabilities 39,168 3,715,391
Commitments and contingencies
(Notes 2 and 7)
Partners' capital:
Limited Partners
(Units outstanding of 400,000
for both 1998 and 1997) 15,616,142 16,288,081
Managing General Partners 1,157,202 1,325,187
Net unrealized fair value increase
from cost of equity investments 4,492,773 1,741,020
---------- ----------
Total partners' capital 21,266,117 19,354,288
---------- ----------
Total liabilities and
partners' capital $21,305,285 23,069,679
========== ==========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
STATEMENTS OF OPERATIONS (unaudited)
- -----------------------------------
<TABLE>
<CAPTION>
For the Three For the Six
Months Ended Months Ended
June 30, June 30,
------------------------- ----------------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Income:
Secured notes receivable interest $ -- 6,604 -- 15,345
Short-term investment interest 29,841 29,928 60,594 45,909
--------- --------- --------- ----------
Total income 29,841 36,532 60,594 61,254
Costs and expenses:
Management fees 49,425 78,801 107,099 171,364
Individual General Partners'
compensation 10,301 15,243 19,916 24,901
Operating expenses 242,206 257,817 668,392 536,590
--------- --------- --------- ----------
Total costs and expenses 301,932 351,861 795,407 732,855
--------- --------- --------- ----------
Net operating loss (272,091) (315,329) (734,813) (671,601)
Net realized gain (loss) from
sales of equity investments 73,410 1,804,280 (108,761) 3,448,542
Net realized gain from venture
capital limited partnership
investments -- -- -- 413,631
Recoveries from investments
previously written off 3,650 -- 3,650 --
--------- --------- --------- ----------
Net realized (loss) income (195,031) 1,488,951 (839,924) 3,190,572
Change in net unrealized
fair value of equity investments 1,771,262 (7,136,453) 2,751,753 (12,898,163)
--------- --------- --------- ----------
Net income (loss) $1,576,231 (5,647,502) 1,911,829 (9,707,591)
========= ========= ========= ==========
Net realized income (loss) per unit $ -- 3 (2) 7
========= ========= ========= ==========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
STATEMENTS OF CASH FLOWS (unaudited)
- -----------------------------------
<TABLE>
<CAPTION>
For the Six Months Ended June 30,
---------------------------------
1998 1997
---------- ----------
<S> <C> <C>
Cash flows from operating activities:
Interest received $ 60,902 57,263
Interest paid -- (42,976)
Cash paid to vendors (113,938) (174,129)
Cash paid to related parties (828,137) (627,263)
--------- ---------
Net cash used by operating activities (881,173) (787,105)
--------- ---------
Cash flows from investing activities:
Notes receivable issued (16,598) (150,500)
Purchase of equity investments (979,997) (1,389,501)
Repayments of equity investments
and notes receivable 204,848 10,157
Proceeds from sales of equity
investments 319,860 8,267,100
Recoveries from investments
previously written off 3,650 --
--------- ---------
Net cash (used) provided by
investing activities (468,237) 6,737,256
--------- ---------
Cash flows from financing activities:
Distribution to partners (3,544,571) --
Repayments of promissory notes -- (1,363,332)
--------- ---------
Net cash used by financing
activities (3,544,571) (1,363,332)
--------- ---------
Net (decrease) increase in cash
and cash equivalents (4,893,981) 4,586,819
Cash and cash equivalents at
beginning of year 8,821,077 1,402,668
--------- ---------
Cash and cash equivalents $3,927,096 5,989,487
at June 30 ========= =========
See accompanying notes to financial statements.
</TABLE>
<PAGE>
STATEMENTS OF CASH FLOWS (unaudited)(continued)
- -----------------------------------------------
<TABLE>
<CAPTION>
For the Six Months Ended June 30,
---------------------------------
1998 1997
----------- -----------
<S> <C> <C>
Reconciliation of net income (loss) to
net cash used by operating activities:
Net income (loss) $1,911,829 (9,707,591)
Adjustments to reconcile net income
(loss) to net cash used by operating
activities:
Net realized loss (gain) from sales
of equity investments 108,761 (3,448,542)
Net realized gain from venture
capital limited partnership
investments -- (413,631)
Recoveries from investments
previously written off (3,650) --
Change in net unrealized fair value
of equity investments (2,751,753) 12,898,163
Changes in:
Due to/from related parties (136,310) (57,590)
Other changes, net (10,050) (57,914)
--------- ---------
Net cash used by operating activities $ (881,173) (787,105)
========= =========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
NOTES TO FINANCIAL STATEMENTS (unaudited)
- ----------------------------------------
1. General
-------
In the opinion of the Managing General Partners, the accompanying interim
financial statements reflect all adjustments necessary for a fair
presentation of the financial position, results of operations, and cash
flows for the interim periods presented. These statements should be read
in conjunction with the Annual Report on Form 10-K for the year ended
December 31, 1997. Allocation of income and loss to Limited and General
Partners is based on cumulative income and loss. Adjustments, if any, are
reflected in the current quarter balances.
2. Related Party Transactions
--------------------------
Related party costs are included in costs and expenses shown on the
Statements of Operations. Related party costs for the six months ended
June 30, 1998 and 1997, were as follows:
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Management fees $107,099 171,364
Individual General Partners' compensation 19,916 24,901
Reimbursable operating expenses 564,812 373,408
</TABLE>
Certain reimbursable expenses have been accrued based upon interim
estimates prepared by the Managing General Partners and are adjusted to
actual periodically. There were $30,750 due from related parties at June
30, 1998 and $78,672 due to related parties at December 31, 1997, for such
expenses.
Amounts payable for management fees were $13,725 and $40,613 at June 30,
1998, and December 31, 1997, respectively. Pursuant to the Partnership
Agreement, quarterly management fees are equal to one quarter of one
percent of the fair value of Partnership assets.
Officers of the Managing General Partners occasionally receive stock
options as compensation for serving on the Boards of Directors of portfolio
companies. At June 30, 1998, the Partnership had an indirect interest in
Endocare, Inc. and Physiometrix, Inc. non-transferable options at an
exercise price higher than the current market value.
<PAGE>
3. Equity Investments
------------------
<TABLE>
A full listing of the Partnership's equity investments at December 31, 1997 is in the 1997 Annual
Report. Activity from January 1 through June 30, 1998 consisted of:
<CAPTION>
January 1
through June 30, 1998
--------------------------
Principal
Investment Amount or Cost Fair
Industry/Company Position Date Shares Basis Value
- ---------------- -------- ---------- --------- ------- -------
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1998 $12,492,981 14,234,001
---------- ----------
Significant changes:
Communications
- --------------
NetChannel, Series B
Inc. Preferred 10/96-
shares 05/97 1,100,757 (384,398) (581,293)
NetChannel, Convertible
Inc. notes various $180,172 (185,309) (185,309)
NetChannel, Escrowed sales
Inc. proceeds 06/98 $74,761 74,761 74,761
Women.com Series D
Networks Preferred
shares 06/98 91,185 299,999 299,999
Environmental
- -------------
Thermatrix, Inc. Common shares 06/96 1,105,847 0 2,822,072
Medical/Biotechnology
- ---------------------
Endocare, Common
Inc. shares 04/98 35,714 124,999 107,356
Neurex Common
Corporation shares 09/96 3,379 (70,959) (45,448)
Periodontix, Series C
Inc. Preferred shares 02/98 106,122 259,999 259,999
Urogen Convertible
Corporation note (1) 06/98 $250,000 250,000 250,000
Venture Capital Limited Partnership Investments
- -----------------------------------------------
Various Limited
Partnership
Interests various $2,303,764 (2,683) 242,161
---------- ----------
Total significant changes during the six
months ended June 30, 1998 366,409 3,244,298
Other changes, net 910 (125,226)
---------- ----------
Total equity investments at June 30, 1998 $12,860,300 17,353,073
========== ==========
(1) Convertible notes include accrued interest. The interest rate on notes issued in 1998 was 8%.
</TABLE>
Marketable Equity Securities
- ----------------------------
At June 30, 1998, and December 31, 1997, marketable equity securities had
aggregate costs of $4,945,481 and $3,157,615, respectively, and aggregate
market values of $5,532,384 and $2,414,032, respectively. The net
unrealized gain at June 30, 1998 and the net unrealized loss at December
31, 1997 included gross gains of $1,394,865 and $350,879, respectively.
Endocare, Inc.
- --------------
In April 1998, the Partnership purchased 35,714 common shares for $124,999
in a private placement. At June 30, 1998, the Partnership recorded a
$23,591 decrease in the fair value of its investment based on the publicly-
traded market price of the company's common shares.
NetChannel, Inc.
- ----------------
In June 1998, America Online, Inc., completed its acquisition of the
company. Based on the expected sales proceeds, the Partnership recorded a
realized loss of $158,284 at March 31, 1998. This loss was later adjusted
to $89,873 on the completion of the sale transaction. In June 1998,
proceeds of $219,762 and $204,848 were received from the sale of the
Partnership's preferred shares and repayment of convertible and other notes
receivable. An amount of $74,761 in future sale proceeds will remain in
escrow through December 1999 pending final resolution of the sale.
Neurex, Inc.
- ------------
In February 1998, the Partnership sold 3,379 common shares for total
proceeds of $61,884 and realized a loss of $9,075.
Periodontix, Inc.
- -----------------
In February 1998, the Partnership purchased 106,122 Series C Preferred
shares for $259,999.
Urogen Corporation
- ------------------
In June 1998, the Partnership issued $250,000 in convertible notes
receivable to the company and received a warrant to purchase 125,000 common
shares at $0.74 per share prior to June, 2005.
Women.com Networks (formerly Wire Networks, Inc.)
- -----------------------------------------------
In February 1998, the company changed its name from Wire Networks, Inc. to
Women.com Networks. In June 1998, the Partnership made an additional
investment in the company by purchasing 91,185 Series D Preferred shares
for $299,999. The pricing of this round, in which third parties
participated, indicated a $12,210 increase in the fair value of the
Partnership's existing investment.
Venture Capital Limited Partnerships
- ------------------------------------
The Partnership made additional investments totaling $45,000 in venture
capital limited partnerships during the six months ended June 30, 1998.
The Partnership also received stock distributions of Hybridon, Inc. and
Neurex Corporation with fair values of $42,161 and $5,522, respectively,
which were recorded as returns of capital.
The Partnership recorded a $242,161 increase in fair value as a result of a
net increase in the fair value of the underlying investments.
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 Physiometrix, Inc. and Thermatrix, Inc. shares are
restricted.
4. Notes Receivable
----------------
Activity from January 1, 1998, through June 30, 1998, consisted of:
<TABLE>
<S> <C>
Balance at January 1, 1998 $ 4,501
1998 activity:
Notes receivable issued 16,598
Repayment of notes receivable (16,598)
Change in interest receivable (4,501)
------
Total notes receivable
at June 30, 1998 $ --
======
</TABLE>
5. Cash and Cash Equivalents
-------------------------
Cash and cash equivalents at June 30, 1998 and December 31, 1997 consisted
of:
<TABLE>
1998 1997
------ ------
<S> <C> <C>
Demand accounts $ 35,063 5,543,116
Money-Market accounts 3,892,033 3,277,961
--------- ---------
Total $3,927,096 8,821,077
========= =========
At June 30, 1998, the majority of the money market funds were on deposit at
a single financial institution.
</TABLE>
6. Distributions
-------------
In October 1997, the Managing General Partners declared distributions ($9
per unit) for Unit holders as of September 30, 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.
7. 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 June 30, 1998, the Partnership had unfunded commitments for
venture capital limited partnership investments of $56,150.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Liquidity and Capital Resources
- -------------------------------
During the six months ended June 30, 1998, net cash used by operating
activities totaled $881,173. The Partnership paid management fees of
$133,987 to the Managing General Partners and reimbursed related parties
for operating expenses of $674,234 in 1998. In addition, $19,916 was paid
to the Individual General Partners as compensation for their services.
Other operating expenses of $113,938 were paid and interest income of
$60,902 was received.
During the six months ended June 30, 1998, the Partnership funded equity
investments of $979,997 mostly to portfolio companies in the medical/
biotechnology and communications industries. Proceeds from the sales of
equity investments were $319,860. Distributions to partners declared in
1997, of $3,544,571, were paid in February, 1998. At June 30, 1998, the
Partnership was committed to fund $56,150 in additional investments.
Cash and cash equivalents at June 30, 1998, were $3,927,096. 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
- ---------------------
Current quarter compared to corresponding quarter in the preceding year
- -----------------------------------------------------------------------
Net income was $1,576,231 for the quarter ended June 30, 1998, compared to
a net loss of $5,647,502 during the same period in 1997. The change was
primarily due to an increase of $8,907,715 in the change in net unrealized
fair value of equity investments, partially offset by a $1,730,870 decrease
in realized gains from sales of equity investments.
During the quarter ended June 30, 1998, the increase in equity investment
fair value of $1,771,262 was primarily attributable to an increase in a
portfolio company in the environmental industry. During the same period in
1997, the decrease in fair value of equity investments of $7,136,453 was
primarily attributable to portfolio companies in the environmental,
computer systems and software and pharmaceuticals industries.
Net realized gain from sales of equity investments was $73,410 for the
quarter ended June 30, 1998, as compared to a net realized gain of
$1,804,280 for the quarter ended June 30, 1997. The net gains in 1998 and
1997 primarily related to the sales of NetChannel, Inc. and Shaman
Pharmaceuticals, Inc., respectively.
Total operating expenses were $242,206 and $257,817 for the quarters ended
June 30, 1998 and 1997, respectively.
Given the inherent risk associated with the business of the Partnership,
the future performance of the portfolio company investments may
significantly impact future operations.
Current six months compared to corresponding six months in the preceding
- ------------------------------------------------------------------------
year
- ----
Net income was $1,911,829 for the six months ended June 30, 1998, compared
to a net loss of $9,707,591 during the same period in 1997. The change was
primarily due to an increase of $15,649,916 in the change in net unrealized
fair value of equity investments, partially offset by a $3,557,303 decrease
in realized gains from the sales of equity investments.
During the six months ended June 30, 1998, the increase in equity
investment fair value of $2,751,753 was mainly attributable to a portfolio
company in the environmental industry. During the same period in 1997, the
decrease of $12,898,163 was primarily attributable to portfolio companies
in the environmental, computer systems and software, and pharmaceuticals
industries, partially offset by increases in portfolio companies in the
communications industries.
During the six months ended June 30, 1998, net realized loss on sales of
equity investments was $108,761 primarily related to the sale of
NetChannel, Inc. A net realized gain due from sales of equity investments
of $3,448,542 during the same period in 1997 was primarily due to the
common stock sales of SyStemix, Inc., and Shaman Pharmaceuticals, Inc.
Total operating expenses were $668,392 and $536,590 for the six months
ended June 30, 1998 and 1997, respectively. The increase is attributable
to increased investment monitoring activities, administrative costs and
development costs associated with enabling investors to access on-line
account information.
II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
a) No reports on Form 8-K were filed by the Partnership during the
quarter ended June 30, 1998.
b) Financial Data Schedule for the six months ended and as of June 30,
1998 (Exhibit 27).
<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: August 14, 1998 By: /s/Michael R. Brenner
-------------------------------------------
Michael R. Brenner
Controller
<TABLE> <S> <C>
<ARTICLE>6
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE FORM 10-Q AS OF JUNE 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
<MULTIPLIER>1
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<PERIOD-TYPE> 6-MOS
<INVESTMENTS-AT-COST> 12,860,300
<INVESTMENTS-AT-VALUE> 17,353,073
<RECEIVABLES> 0
<ASSETS-OTHER> 25,116
<OTHER-ITEMS-ASSETS> 3,927,096
<TOTAL-ASSETS> 21,305,285
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 39,168
<TOTAL-LIABILITIES> 39,168
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 16,773,344
<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> 4,492,773
<NET-ASSETS> 21,266,117
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 60,594
<OTHER-INCOME> 0
<EXPENSES-NET> 795,407
<NET-INVESTMENT-INCOME> (734,813)
<REALIZED-GAINS-CURRENT> (105,111)
<APPREC-INCREASE-CURRENT> 2,751,753
<NET-CHANGE-FROM-OPS> 1,911,829
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 1,911,829
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 107,099
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 800,200
<AVERAGE-NET-ASSETS> 20,310,202
<PER-SHARE-NAV-BEGIN> 41
<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> 39
<EXPENSE-RATIO> 3.9
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<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>
