<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 March 31, 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)
March 31, December 31,
1998 1997
------------ -----------
<S> <C> <C>
ASSETS
Investments:
Equity investments (cost basis
of $12,508,837 and $12,492,981 for
1998 and 1997, respectively) $15,230,348 14,234,001
Notes receivable 16,598 4,501
---------- ----------
Total investments 15,246,946 14,238,502
Cash and cash equivalents 4,516,960 8,821,077
Other assets 6,172 10,100
---------- ----------
Total assets $19,770,078 23,069,679
========== ==========
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable and accrued expenses $ 35,756 47,799
Due to related parties 31,689 119,285
Distributions payable -- 3,544,571
Other liabilities 12,747 3,736
---------- ----------
Total liabilities 80,192 3,715,391
Commitments, contingencies and
subsequent event (Notes 2, 3 and 7)
Partners' capital:
Limited Partners
(Units outstanding of 400,000
for both 1998 and 1997) 15,772,166 16,288,081
Managing General Partners 1,196,209 1,325,187
Net unrealized fair value increase
from cost of equity investments 2,721,511 1,741,020
---------- ----------
Total partners' capital 19,689,886 19,354,288
---------- ----------
Total liabilities and
partners' capital $19,770,078 23,069,679
========== ==========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
STATEMENTS OF OPERATIONS (unaudited)
- -----------------------------------
<TABLE>
<CAPTION>
For the Three Months Ended March 31,
------------------------------------
1998 1997
-------- --------
<S> <C> <C>
Income:
Notes receivable interest $ -- 8,741
Short-term investment interest 30,753 15,981
--------- ---------
Total income 30,753 24,722
Costs and expenses:
Management fees 57,674 92,563
Individual General Partners'
compensation 9,615 9,658
Operating expenses 426,186 276,273
--------- ---------
Total costs and expenses 493,475 378,494
--------- ---------
Net operating loss (462,722) (353,772)
Net realized (loss) gain from
sales of equity investments (182,171) 1,644,262
Net realized gain from venture
capital limited partnership
investments -- 413,631
Realized losses from
investment write-downs -- (2,500)
--------- ---------
Net realized (loss) income (644,893) 1,701,621
Change in net unrealized
fair value of equity
investments 980,491 (5,761,710)
--------- ---------
Net income (loss) $ 335,598 (4,060,089)
========= =========
Net realized (loss)
income per Unit $ (1) 4
========= =========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
STATEMENTS OF CASH FLOWS (unaudited)
- -----------------------------------
<TABLE>
<CAPTION>
For the Three Months Ended March 31,
-----------------------------------
1998 1997
---------- ----------
<S> <C> <C>
Cash flows from operating activities:
Interest received $ 32,130 21,608
Interest paid -- (42,976)
Cash paid to vendors (106,780) (52,355)
Cash paid to related parties (473,395) (367,401)
--------- ---------
Net cash used by operating activities (548,045) (441,124)
--------- ---------
Cash flows from investing activities:
Notes receivable issued (16,598) (150,500)
Purchase of equity investments (289,999) (888,118)
Repayments of equity investments
and notes receivable -- 6,635
Proceeds from sales of equity
investments 95,096 3,416,447
--------- ---------
Net cash (used) provided by
investing activities (211,501) 2,384,464
--------- ---------
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 (4,304,117) 580,008
Cash and cash equivalents at
beginning of year 8,821,077 1,402,668
--------- ---------
Cash and cash equivalents $4,516,960 1,982,676
at March 31 ========= =========
See accompanying notes to financial statements.
</TABLE>
<PAGE>
STATEMENTS OF CASH FLOWS (unaudited)(continued)
- -----------------------------------------------
<TABLE>
<CAPTION>
For the Three Months Ended March 31,
------------------------------------
1998 1997
----------- -----------
<S> <C> <C>
Reconciliation of net income (loss) to
net cash used by operating activities:
Net income (loss) $ 335,598 (4,060,089)
Adjustments to reconcile net income
(loss) to net cash used by operating
activities:
Realized losses from investment
write-downs -- 2,500
Net realized loss (gain) from sales
of equity investments 182,171 (1,644,262)
Net realized gain from venture
capital limited partnership
investments -- (413,631)
Change in net unrealized fair value
of equity investments (980,491) 5,761,710
Changes in:
Due to/from related parties (87,596) (47,386)
Other changes, net 2,273 (39,966)
--------- ---------
Net cash used by operating activities $ (548,045) (441,124)
========= =========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
NOTES TO FINANCIAL STATEMENTS (unaudited)
- ----------------------------------------
1. General
-------
In the opinion of the Managing General Partners, the Balance Sheets as of
March 31, 1998, and December 31, 1997, and the related Statements of
Operations and Statements of Cash Flows for the three months ended March
31, 1998 and 1997, reflect all adjustments which are necessary for a fair
presentation of the financial position, results of operations and cash
flows for such period. These statements should be read in conjunction with
the Annual Report on Form 10-K for the year ended December 31, 1997. The
following notes to financial statements for activity through March 31,
1998, supplement those included in the Annual Report on Form 10-K.
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 three months ended
March 31, 1998 and 1997, were as follows:
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Management fees $ 57,674 92,563
Individual General Partners' compensation 9,615 9,658
Reimbursable operating expenses 318,510 217,794
</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 $19,693 and $78,672 due to related parties
at March 31, 1998 and December 31, 1997 respectively, related to such
expenses.
Amounts payable for management fees were $11,996 and $40,613 at March 31,
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.
<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 March 31, 1998, consisted of:
<CAPTION>
January 1 through March 31, 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 1,417,292 (158,284) (355,185)
Environmental
- -------------
Thermatrix, Inc. Common shares 06/96 1,105,847 0 1,208,212
Medical/Biotechnology
- ---------------------
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
Pharmos Corporation Common shares 04/95 60,331 0 66,906
Physiometrix, Common
Inc. shares 04/96 270,791 0 (191,006)
---------- ----------
Total significant changes during the three
months ended March 31, 1998 30,756 943,478
Other changes, net (14,900) 52,869
---------- ----------
Total equity investments at March 31, 1998 $12,508,837 15,230,348
========== ==========
</TABLE>
Marketable Equity Securities
- ----------------------------
At March 31, 1998, and December 31, 1997, marketable equity securities had
aggregate costs of $3,868,695 and $3,157,615, respectively, and aggregate
market values of $3,248,447 and $2,414,032, respectively. The net
unrealized losses at March 31, 1998, and December 31, 1997, included gross
gains of $427,618 and $350,879, respectively.
NetChannel, Inc.
- ----------------
In May 1998, the company was acquired by America Online, Inc. The
Partnership realized a loss of $158,284 based on expected sales proceeds of
$429,891 from the sale of this investment.
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.
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 March 31, 1998, consisted of:
<TABLE>
<S> <C>
Balance at January 1, 1998 $ 4,501
1998 activity:
Notes receivable issued 16,598
Change in interest receivable (4,501)
------
Total notes receivable
at March 31, 1998 $16,598
======
</TABLE>
There was no allowance for loan losses at March 31, 1998 and December 31,
1997.
The Partnership had accrued interest of $4,501 at December 31, 1997. There
was no accrued interest at March 31, 1998.
5. Cash and Cash Equivalents
-------------------------
Cash and cash equivalents at March 31, 1998 and December 31, 1997 consisted
of:
<TABLE>
1998 1997
------ ------
<S> <C> <C>
Demand accounts $ 9,687 5,543,116
Money-Market accounts 4,507,273 3,277,961
--------- ---------
Total $4,516,960 8,821,077
========= =========
</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 March 31, 1998, the Partnership had unfunded commitments
for venture capital limited partnership investments of $71,150.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Liquidity and Capital Resources
- -------------------------------
During the three months ended March 31, 1998, net cash used by operating
activities totaled $548,045. The Partnership paid management fees of
$86,291 to the Managing General Partners and reimbursed related parties for
operating expenses of $377,489 in 1998. In addition, $9,615 was paid to
the Individual General Partners as compensation for their services. Other
operating expenses of $106,780 were paid and interest income of $32,130 was
received.
During the three months ended March 31, 1998, the Partnership funded equity
investments of $289,999 mostly to portfolio companies in the
medical/biotechnology industry and issued $16,598 in notes receivable to a
portfolio company in the communications industry. Proceeds from the sales
of equity investments were $95,096. Distributions to partners declared in
1997, of $3,544,571, were paid in February, 1998. At March 31, 1998, the
Partnership was committed to fund $71,150 in additional investments.
Cash and cash equivalents at March 31, 1998, were $4,516,960. 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 $335,598 for the quarter ended March 31, 1998, compared to a
net loss of $4,060,089 during the same period in 1997. The change was
primarily due to an increase of $6,742,201 in the change in net unrealized
fair value of equity investments. This change was partially offset by a
$1,826,433 decrease in realized gains from sales of equity investments.
During the quarter ended March 31, 1998, the increase in equity investment
fair value of $980,491 was primarily attributable to increases in portfolio
companies in the environmental industry, partially offset by decreases in
the communications industry. During the same period in 1997, the decrease
in fair value of equity investments of $5,761,710 was primarily
attributable to portfolio companies in the environmental, computer systems
and software and medical/biotechnology industries.
Net realized loss from sales of equity investments was $182,171 for the
quarter ended March 31, 1998, as compared to a net realized gain of
$1,644,262 for the quarter ended March 31, 1997. The loss in 1998
primarily related to the sale of NetChannel, Inc.
Total operating expenses were $426,186 and $276,273 for the quarter ended
March 31, 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.
Given the inherent risk associated with the business of the Partnership,
the future performance of the portfolio company investments may
significantly impact future operations.
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 March 31, 1998.
(b) Financial Data Schedule for the three months ended and as of
March 31, 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: May 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 MARCH 31, 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> MAR-31-1998
<PERIOD-TYPE> 3-MOS
<INVESTMENTS-AT-COST> 12,525,435
<INVESTMENTS-AT-VALUE> 15,246,946
<RECEIVABLES> 0
<ASSETS-OTHER> 6,172
<OTHER-ITEMS-ASSETS> 4,516,960
<TOTAL-ASSETS> 19,770,078
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 80,192
<TOTAL-LIABILITIES> 80,192
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 16,968,375
<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> 2,721,511
<NET-ASSETS> 19,689,886
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 30,753
<OTHER-INCOME> 0
<EXPENSES-NET> (493,475)
<NET-INVESTMENT-INCOME> (462,722)
<REALIZED-GAINS-CURRENT> (182,171)
<APPREC-INCREASE-CURRENT> 980,491
<NET-CHANGE-FROM-OPS> 335,598
<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> 335,598
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 57,674
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 496,724
<AVERAGE-NET-ASSETS> 19,522,087
<PER-SHARE-NAV-BEGIN> 41
<PER-SHARE-NII> (1)
<PER-SHARE-GAIN-APPREC> 0 <F1>
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 40
<EXPENSE-RATIO> 2.5
<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>
