<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, 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)
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 (pages 23 to 25) of the
Prospectus of Technology Funding Venture Capital Fund VI, LLC, as
revised June 4, 1998 (accession number 0000950133-98-002220), 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 routine litigation incidental to the
business of the Partnership.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- ------ ---------------------------------------------------
No matter was submitted to a vote of the holders of units of
limited partnership interests (Units) during 1998.
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, 1998, there were 7,848 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,
---------------------------------------------------------------
1998 1997 1996 1995 1994
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Total income $ 119,497 148,931 99,272 130,779 296,948
Net operating loss (1,461,264) (1,320,606) (1,423,434) (2,106,285) (1,314,484)
Net realized gain from
venture capital limited
partnership investments -- 524,939 255,239 -- --
Net realized gain (loss) from
sales of equity investments 178,402 7,699,981 989,034 (80,764) --
Recoveries from investments
previously written off 3,650 -- -- 145,248 --
Realized losses from
investment write-downs (422,261) (3,768,897) (1,078,341) (2,532,447) (843,311)
Net realized (loss) income (1,701,473) 3,135,417 (1,257,502) (4,574,248) (2,157,795)
Change in net unrealized
fair value:
Equity investments 1,358,307 (15,263,861) (773,777) 4,065,995 (2,854,255)
Notes receivable -- -- -- 49,000 5,000
Net loss (343,166) (12,128,444) (2,031,279) (459,253) (5,007,050)
Net realized (loss) income
per Unit (3) 7 (2) (9) (4)
Total assets 17,073,958 23,069,679 37,025,188 43,065,771 40,606,795
Distributions declared 2,370,130 4,000,000 316,227 -- --
Distributions declared
per Unit (1) 4 9 -- -- --
(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 1998, net cash used by operating activities totaled
$1,608,121. The Partnership paid management fees of $235,436
to the Managing General Partners and reimbursed related
parties for operating expenses of $1,242,610 in 1998. In
addition, $38,731 was paid to the Individual General Partners
as compensation for their services. Other operating expenses
of $196,818 were paid and interest income of $105,474 was
received.
In 1998, the Partnership funded equity investments of
$1,085,068 and issued notes receivables of $215,442 primarily
to portfolio companies in the medical/ biotechnology and
communications industries. Proceeds from sales of equity
investments were $612,545 and repayments of equity
investments and notes receivable provided cash of $204,848.
The Partnership declared a $2,370,130 distribution in the
fourth quarter of 1998, of which $2,000,000 was paid in the
fourth quarter of 1998 and $370,130 will be paid in 1999. In
February 1998, the Partnership paid $3,544,571 in
distributions which had been declared in 1997.
Cash and cash equivalents at December 31, 1998, were
$1,188,918. As of December 31, 1998, the Partnership was
committed to fund $180,056 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
- ---------------------
1998 compared to 1997
- ---------------------
Net loss was $343,166 in 1998 compared to $12,128,444 in
1997. The decrease in net loss was substantially due to a
$16,622,168 increase in the change in net unrealized fair
value of equity investments and a $3,346,636 decrease in
realized losses from investment write-downs. The decrease
was partially offset by a $7,521,579 decrease in net realized
gain from sales of equity investments.
During 1998, the increase in fair value of $1,358,307 was
primarily attributable to an increase in a portfolio company
in the environmental industry, partially offset by a decrease
in portfolio companies in the computer systems and software
and medical/biotechnology industries. In 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 1998, the Partnership recorded realized losses from
investment write-downs of $422,261 attributable to equity
investments in ConjuChem, Inc. (formerly RedCell, Inc.) and
YES! Entertainment Corporation. During 1997, realized losses
from investment write-downs of $3,768,897 were mainly
attributable to equity investments in portfolio companies in
the computer systems and software and communications
industries.
In 1998, net realized gain from sales of equity investments
of $178,402 was mainly due to the receipt of proceeds
escrowed in the Quintar sale, partially offset by losses from
the sale of the Partnership's investment in NetChannel, Inc.
During 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.
Total operating expenses were $1,336,021 and $1,126,595 for
1998 and 1997, respectively. As disclosed in Note 2 to the
financial statements, the Managing General Partners
reevaluated allocations to the Partnership in 1998 and
determined that they had not fully recovered allocable
operating expenses, primarily salary, benefits, and
professional fees as permitted by the Partnership Agreement.
As a result, the Partnership was charged $193,391 of
additional operating expenses in 1998 of which $24,256 and
$169,135 related to 1997 and to prior years, respectively.
If the additional expense had been recorded in prior years,
total operating expenses would have been $1,142,630 and
$1,150,851 for 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.
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.
YEAR 2000
- ---------
Widespread use of computer programs that use two digits
rather than four to store, calculate, and display year values
in dates may cause computer systems to malfunction in the
year 2000, resulting in significant business delays and
disruptions.
The Partnership's State of Readiness
- ------------------------------------
Computer services are provided to the Partnership by its
Managing General Partner, Technology Funding Inc. ("TFI".)
For several years, TFI has sought to use Year 2000 compliant
storage formats and algorithms in its internally-developed
and maintained systems. TFI has also completed initial
evaluations of computer systems, software, and embedded
technologies. Those evaluations confirmed that certain
components of its network server hardware and operating
systems, voice mail system, e-mail system, and accounting
software may have Year 2000 compliance issues. These
resources and several less-critical components of the systems
environment were all scheduled as part of normal maintenance
and replacement cycles to be replaced or upgraded as Year
2000 compatible components became available from vendors
during 1998 and 1999. That program remains on schedule to
provide Year 2000 capable systems timely without significant
expenditures or disruption of Partnership operations.
However, the risk remains that TFI may not be able to verify
whether Year 2000 compatibility claims by vendors are
accurate, or whether changes undertaken to achieve Year 2000
compatibility will create other undetected problems in
associated systems. Therefore, TFI anticipates that Year
2000 compliance testing and maintenance of these systems will
continue as needed into the first quarter of 2000.
As part of Year 2000 evaluation, TFI has also assembled a
database listing its significant suppliers to assess the
extent to which it needs to prepare for any of those parties'
potential failure to remediate their Year 2000 compliance
issues. TFI is reviewing public Year 2000 statements of
those suppliers and preparing questionnaires to be sent to
mission-critical vendors whose public statements were not
adequate for assessment. TFI will continue to monitor its
significant suppliers as part of its Year 2000 evaluation.
However, there can be no guarantee that the systems of other
companies on which TFI relies will be timely converted, or
that failure to convert will not have a material adverse
effect on the Partnership and its operations. TFI is also
working with the Partnership's portfolio companies to
determine the extent to which their operations are vulnerable
to Year 2000 issues. There can be no guarantee that the
systems of portfolio companies in which the Partnership has
invested will be timely converted, or that failure to convert
will not have a material adverse effect on the Partnership.
The Cost to Address Year 2000 Issues
- ------------------------------------
Expenditures in 1998 related to Year 2000 issues were not
material to the Partnership's financial statements. TFI
expects that additional expenditures for Year 2000 compliance
will not be material to the Partnership.
The Risks Associated with Year 2000 Issues
- ------------------------------------------
Any failure by the portfolio companies in which the
Partnership has invested, or by those portfolio companies'
key suppliers or customers, to anticipate and avoid Year 2000
related problems at reasonable cost could have a material
adverse effect on the value of and/or the timing of
realization of value from the Partnership's investments. If
Year 2000 compliance issues are not resolved by December 31,
1999, internal system failures or miscalculations could cause
a temporary inability to process transactions, loss of
ability to send or receive e-mail and voice mail messages, or
disruptions in other normal business activities.
Additionally, failure of third parties on whom TFI relies to
remediate their Year 2000 issues timely could result in
disruptions in the Partnership's relationship with its
financial institutions, temporary disruptions in processing
transactions, unanticipated costs, and problems related to
the Partnership's daily operations. While TFI continues to
address its internal Year 2000 issues, until TFI receives and
evaluates responses from a significant number of its
suppliers, the overall risks associated with the Year 2000
issue remain difficult to describe and quantify. There can
be no guarantee that the Year 2000 issue will not have a
material adverse effect on the Partnership and its
operations.
TFI's Contingency Plan
- ----------------------
As part of its normal efforts to assure business continuation
in the event of natural disasters, systems failures, or other
disruptions, TFI has prepared contingency plans including an
extensive Year 2000 contingency plan. Taken together with
TFI's Year 2000 remediation plan, it identifies potential
points of failure, approaches to correcting known Year 2000
problems, dates by which the preferred corrections are
anticipated to be made and tested, and alternative approaches
if the corrections are not completed timely or are later
found to be inadequate. Although backup systems and
contingency approaches have been identified for most mission-
critical systems and vendor dependencies, there remain some
systems for which no good alternative exists, and there may
be some problems that prove more intractable than currently
anticipated.
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 on
pages 23 to 25 in the Technology Funding Venture Capital Fund
VI, LLC, Prospectus, revised June 4, 1998 (accession number
0000950133-98002220), 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 1998, the Partnership incurred $206,009 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, 1998. 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 1998, $38,731 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 were 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, 1998
and 1997
Statements of Operations for the years
ended December 31, 1998, 1997 and 1996
Statements of Partners' Capital for the years
ended December 31, 1998 1997 and 1996
Statements of Cash Flows for the years
ended December 31, 1998, 1997 and 1996
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, 1998.
(c) Financial Data Schedule for the year ended and as of
December 31, 1998 (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, 1998 and 1997,
and the related statements of operations, partners' capital, and
cash flows for each of the years in the three-year period ended
December 31, 1998. 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, 1998
and 1997. 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, 1998 and 1997, and the results of its
operations and its cash flows for each of the years in the three-
year period ended December 31, 1998, in conformity with generally
accepted accounting principles.
Albuquerque, New Mexico /S/KPMG LLP
March 26, 1999
<PAGE>
BALANCE SHEETS
- --------------
<TABLE>
<CAPTION>
December 31,
------------------------
1998 1997
------ ------
<S> <C> <C>
ASSETS
Investments:
Equity investments (cost basis of
$12,547,986 and $12,492,981 for
1998 and 1997, respectively) $15,647,313 14,234,001
Secured notes receivable, net
(cost basis of $202,777 and
$4,501 for 1998 and 1997,
respectively) 202,777 4,501
---------- ----------
Total investments 15,850,090 14,238,502
Cash and cash equivalents 1,188,918 8,821,077
Due from related parties 29,771 --
Other assets 5,179 10,100
---------- ----------
Total assets $17,073,958 23,069,679
========== ==========
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable and accrued expenses $ 48,922 47,799
Due to related parties -- 119,285
Distributions payable
to Limited Partners 370,130 3,544,571
Other liabilities 13,914 3,736
---------- ----------
Total liabilities 432,966 3,715,391
Commitments, contingencies and
subsequent event (Notes 2, 4, 9,
and 10)
Partners' capital:
Limited Partners (Units outstanding
of 400,000 for both 1998 and 1997) 13,170,018 16,288,081
Managing General Partners 371,647 1,325,187
Net unrealized fair value increase
from cost of equity investments 3,099,327 1,741,020
---------- ----------
Total partners' capital 16,640,992 19,354,288
---------- ----------
Total liabilities and
partners' capital $17,073,958 23,069,679
========== ==========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
STATEMENTS OF OPERATIONS
- ------------------------
<TABLE>
<CAPTION>
For the Years Ended December 31,
-----------------------------------
1998 1997 1996
------ ------ ------
<S> <C> <C> <C>
Income:
Notes receivable
interest $ 14,139 27,713 90,508
Short-term investment
interest 105,358 121,218 2,999
Other income -- -- 5,765
--------- ---------- ---------
Total income 119,497 148,931 99,272
Costs and expenses:
Management fees 206,009 296,900 409,036
Individual General
Partners' compensation 38,731 46,042 47,730
Operating expenses:
Investment operations 320,893 335,178 254,854
Administrative and
investor services 710,741 565,290 383,059
Computer services 207,921 126,586 128,227
Professional fees 96,466 84,574 85,787
Interest expense -- 14,967 214,013
--------- ---------- ---------
Total operating
expenses 1,336,021 1,126,595 1,065,940
--------- ---------- ---------
Total costs and
expenses 1,580,761 1,469,537 1,522,706
--------- ---------- ---------
Net operating loss (1,461,264) (1,320,606) (1,423,434)
Net realized gain from
venture capital limited
partnership investments -- 524,939 255,239
Net realized gain from
sales of equity
investments 178,402 7,699,981 989,034
Recoveries from
investments previously
written off 3,650 -- --
Realized losses from
investment write-downs (422,261) (3,768,897) (1,078,341)
--------- ---------- ---------
Net realized (loss) income (1,701,473) 3,135,417 (1,257,502)
Change in net unrealized
fair value of equity
investments 1,358,307 (15,263,861) (773,777)
--------- ---------- ---------
Net loss $ (343,166) (12,128,444) (2,031,279)
========= ========== =========
Net realized (loss) income
per Unit $ (3) 7 (2)
========= ========== =========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
STATEMENTS OF PARTNERS' CAPITAL
- -------------------------------
<TABLE>
<CAPTION>
For the years ended December 31, 1998, 1997 and 1996:
Net Unrealized Fair
Managing Value Increase (Decrease)
Limited General From Cost of Equity
Partners Partners Investments Total
-------- -------- ------------------------ -------
<S> <C> <C> <C> <C> <C>
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 income 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
Net realized loss (1,361,178) (340,295) -- (1,701,473)
Distributions (1,756,885) (613,245) -- (2,370,130)
Change in net unrealized fair
value of equity investments -- -- 1,358,307 1,358,307
---------- --------- ---------- ----------
Partners' capital,
December 31, 1998 $13,170,018 371,647 3,099,327 16,640,992
========== ========= ========== ==========
See accompanying notes to financial statements.
</TABLE>
PAGE>
STATEMENTS OF CASH FLOWS
- ------------------------
<TABLE>
<CAPTION>
For The Years Ended December 31,
---------------------------------
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Cash flows from operating
activities:
Interest received $ 105,474 142,149 69,250
Cash paid to vendors (196,818) (324,637) (206,686)
Cash paid to related parties (1,516,777) (1,113,921) (1,887,068)
Interest paid on short-
term borrowings -- (43,317) (214,872)
--------- ---------- ---------
Net cash used by
operating activities (1,608,121) (1,339,726) (2,239,376)
--------- ---------- ---------
Cash flows from investing
activities:
Notes receivable issued (215,442) (150,500) (640,000)
Purchase of equity
investments (1,085,068) (3,308,010) (2,523,718)
Repayment of secured
notes receivable 16,598 164,463 35,186
Repayment of convertible
notes receivable 188,250 -- 1,194,450
Recoveries from
investments previously
written off 3,650 -- --
Proceeds from sales of
equity investments 612,545 13,828,070 8,064,148
Distributions from
venture capital limited
partnership investments -- 42,873 139,624
--------- ---------- ---------
Net cash (used) provided
by investing activities (479,467) 10,576,896 6,269,690
--------- ---------- ---------
Cash flows from financing
activities:
Distributions to partners (5,544,571) (455,429) --
Repayments of short-term
borrowings, net -- (1,363,332) (2,902,626)
--------- ---------- ---------
STATEMENTS OF CASH FLOWS (continued)
- -----------------------------------
</TABLE>
<TABLE>
<CAPTION>
For The Years Ended December 31,
---------------------------------
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Net cash used by
financing activities (5,544,571) (1,818,761) (2,902,626)
--------- ---------- ---------
Net (decrease) increase
in cash and cash equivalents (7,632,159) 7,418,409 1,127,688
Cash and cash equivalents
at beginning of year 8,821,077 1,402,668 274,980
--------- ---------- ---------
Cash and cash equivalents
at end of year $ 1,188,918 8,821,077 1,402,668
========= ========== =========
Reconciliation of net
loss to net cash used by
operating activities:
Net loss $ (343,166)(12,128,444) (2,031,279)
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 from sales
of equity investments (178,402) (7,699,981) (989,034)
Realized losses from
investment write-downs 422,261 3,768,897 1,078,341
Recoveries from
investments previously
written off (3,650) -- --
Change in net unrealized fair
value of equity investments (1,358,307) 15,263,861 773,777
Changes in:
Accrued interest on
notes receivable (14,023) (6,782) (30,022)
Accounts payable and
accrued expenses 1,123 9,370 14,686
Due to/from related parties (149,056) 28,395 (765,843)
Other, net 15,099 (50,103) (34,763)
--------- ---------- ---------
Net cash used by
operating activities $(1,608,121) (1,339,726) (2,239,376)
========= ========== =========
STATEMENTS OF CASH FLOWS (continued)
- -----------------------------------
</TABLE>
<TABLE>
<CAPTION>
For The Years Ended December 31,
---------------------------------
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Non-cash investing
activities:
Reclassification of
secured notes to equity
investments (subordinated
notes receivable) $ -- -- 640,000
========= ========== =========
Non-cash financing
activities:
Distributions payable
to Limited Partners $ 370,130 3,544,571 --
========= ========== =========
Stock distributions to
General Partners $ -- -- 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 was 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 $2,967,543 and $2,414,032
at December 31, 1998 and 1997, 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 $12,679,770 and $11,819,969 at
December 31, 1998 and 1997, 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.
Notes Receivable
----------------
The secured and unsecured notes receivable portfolio includes
accrued interest less 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.
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 of 400,000 as of December 31, 1998, 1997
and 1996 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 $12,750,763 by
$3,315,876 as of December 31, 1998.
2. Related Party Transactions
--------------------------
Related party costs are included in costs and expenses shown on the
Statements of Operations. Related party costs in 1998, 1997 and
1996 were as follows:
<TABLE>
<CAPTION>
For the Years Ended December 31,
-------------------------------------
1998 1997 1996
------ ------ ------
<S> <C> <C> <C>
Management fees $206,009 296,900 409,036
Individual General
Partners' compensation 38,731 46,042 47,730
Reimbursable operating
expenses:
Investment operations 300,503 316,342 238,851
Administrative and
investor services 614,557 367,404 297,381
Computer services 207,921 115,628 128,227
</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 $11,186 and $40,613 at
December 31, 1998 and 1997, 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 were 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, 1998, there were
$40,957 of such reimbursable expenses due from related parties,
compared to $78,672 due to related parties at December 31, 1997.
The Managing General Partners allocate operating expenses incurred
in connection with the business of the Partnership based on employee
hours incurred. In 1998, operating cost allocations to the
Partnership were re-evaluated. The Managing General Partners
determined that they had not fully recovered allocable operating
expenses, primarily salary, benefits, and professional fees, as
permitted by the Partnership Agreement. As a result, the
Partnership was charged additional operating expenses of $193,391
consisting of $24,256, $36,058, and $133,077 for 1997, 1996, and
prior years, respectively. Had the additional expenses been
recorded in prior years, operating expenses would have been
$1,142,630, $1,150,851, and $1,101,998 for 1998, 1997, and 1996,
respectively.
In 1997, Multiport, Inc., which was wholly owned by the Partnership,
ceased operations and was liquidated, resulting in a cash
distribution to the Partnership of $1,929,078 and a realized gain of
$1,131,678.
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.
In September of 1996, the Partnership made a tax distribution of
57,917 Thermatrix Inc. common shares to the General Partners (based
on estimated annual taxable income); the shares had a fair value of
$316,227 resulting in a realized gain of $12,163 being recognized by
the Partnership.
Under the terms of a computer service agreement, 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, 1998, the Partnership had an indirect interest in non-
transferable Physiometrix, Inc., Endocare, Inc., and UroGen Corp.
options at an exercise price higher than the current market value.
At December 31, 1998, the Partnership had an indirect interest in
non-transferable Thermatrix Inc. options with a fair market value of
$8,000.
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, 1998, and December 31, 1997, equity investments consisted of:
<TABLE>
<CAPTION>
Original December 31, 1998 December 31, 1997
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. Escrowed
sales
proceeds 06/98 $74,761 $74,761 74,761 -- --
NetChannel, Inc. Series B
Preferred
shares 10/96 284,044 -- -- 148,499 149,999
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
VOIS, Inc. Common
shares 08/96 300,000 0 0 0 0
VOIS, Inc. Preferred 08/96-
shares 05/97 432,500 0 0 0 0
Women.com Networks Series A
(formerly Wire Preferred
Networks, Inc.) shares 02/96 6,098 8,232 20,062 8,232 18,538
Women.com Networks Series B
(formerly Wire Preferred
Networks, Inc.) shares 02/96 7,452 16,767 24,517 16,767 22,654
Women.com Networks Series C
(formerly Wire Preferred
Networks, Inc.) shares 07/97 35,295 107,298 116,121 107,298 107,298
Women.com Networks Series D
(formerly Wire Preferred
Networks, Inc.) shares 06/98 91,185 299,999 299,999 -- --
Computer Equipment, Systems and Software
- ----------------------------------------
Adept Technology, Common
Inc. shares 10/97 14,328 227,464 91,885 227,464 134,397
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 23,795 12,755
Reflection Preferred 01/94-
Technology, Inc. shares 04/96 1,781,975 0 0 0 0
Reflection Common
Technology, Inc. shares 05/94 19,567 0 0 0 0
Reflection Common
Technology, Inc. share
warrant
at $.50;
expiring
04/01 04/96 359,750 0 0 0 0
Reflection Convertible 01/97-
Technology, Inc. notes (1) 07/97 $448,333 0 0 0 0
Splash Technology Common
Holdings, Inc. shares 11/97 5,000 198,812 37,250 198,812 106,250
Splash Technology Sales
Holdings, Inc. proceeds 05/97 $95,000 0 20,000 0 300,000
Environmental
- -------------
Naiad Technologies,Series A
Inc. Preferred
shares 12/95 50,000 25,000 162,500 25,000 162,500
Naiad Technologies,Series B
Inc. Preferred
shares 11/96 62,602 125,204 203,457 125,204 203,457
Naiad Technologies,Series C
Inc. Preferred
shares 11/97 49,230 159,998 159,998 159,998 159,998
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 3,417,285 3,095,533 1,341,494
Velocity Inc. Subordinated
notes (1) 08/97 $10,050 0 0 0 0
Information Technology
- ----------------------
WorldRes, Inc. Series B
Preferred
shares 01/97 66,568 225,000 246,302 225,000 246,302
WorldRes, Inc. Series X
warrant at
price TBD;
expiring Aggregate
10/02 10/97 $8,438 8 0 8 0
WorldRes, Inc. Series C
Preferred
shares 12/97 62,077 229,685 229,685 229,685 229,685
WorldRes, Inc. Interest 10/97 $851 -- -- 851 851
Medical/Biotechnology
- ---------------------
ADESSO Specialty Series D
Services Preferred
Organization Inc. shares 12/97 119,047 999,995 999,995 999,995 999,995
Avalon Imaging, Series D
Inc. Preferred
shares 12/98 75,690 90,071 90,071 -- --
Biex, Inc. Series A
Preferred
shares 07/93 128,205 83,333 320,513 83,333 320,513
Biex, Inc. Series B
Preferred
shares 10/94 63,907 63,907 159,768 63,907 159,768
Biex, Inc. Series B
Preferred
share
warrant
at $1.00;
expiring
10/99 10/94 23,540 8 35,310 8 35,310
Biex, Inc. Series C
Preferred
shares 06/95 83,334 83,334 208,335 83,334 208,335
Biex, Inc. Series C
Preferred
shares 12/95 83,333 83,333 208,333 83,333 208,333
Biex, Inc. Series C
Preferred
shares 04/96 83,333 83,333 208,333 83,333 208,333
Biex, Inc. Series D
Preferred
shares 08/96 111,115 166,673 277,788 166,673 277,788
Biex, Inc. Series D
Preferred
shares 03/97 44,446 66,669 111,115 66,669 111,115
Biex, Inc. Series E
Preferred
shares 08/97 13,333 33,334 33,332 33,334 33,332
Biex, Inc. Series E
Preferred
share
warrant
at $2.50;
expiring
10/03 10/98 35,250 0 0 -- --
ConjuChem, Inc. Series B
(formerly RedCell, Preferred
Inc.) shares 12/94 132,979 0 0 125,000 0
ConjuChem, Inc. Series C
(formerly RedCell, Preferred
Inc.) share
warrant at
an exercise
price to be $13,495
determined; aggregate
expiring purchase
07/01 07/96 price 0 0 0 0
ConjuChem, Inc.
(formerly RedCell, Convertible
Inc.) note (1) 07/96 $89,966 0 0 95,170 95,170
CV Therapeutics, Common 03/94 &
Inc. shares 03/96 37,693 685,320 178,099 685,320 342,252
Endocare, Inc. Common
shares 08/96 250 750 497 750 895
Endocare, Inc. Common
share
warrant
at $3.00;
expiring
08/01 08/96 3,750 0 0 0 1,631
Endocare, Inc. Common
shares 01/97 1,750 6,125 3,479 6,125 6,265
Endocare, Inc. Common
shares 01/97 8,300 20,750 16,500 20,750 28,142
Endocare, Inc. Common
shares 04/98 35,714 124,999 70,999 -- --
Endocardial Common
Solutions, Inc. shares 09/97 5,714 80,710 58,140 80,710 57,140
Hybridon, Inc. Common
shares 03/98 1,204 42,161 1,821 -- --
Inhale Therapeutic Common
Systems, Inc. shares 12/95 4,125 46,922 134,941 46,922 106,631
Inhale Therapeutic Common
Systems, Inc. shares 03/96 6,270 105,023 205,111 105,023 162,080
Inhale Therapeutic Common
Systems, Inc. shares 01/97 10,470 202,856 342,505 202,856 270,650
Inhale Therapeutic Common
Systems, Inc. shares 03/97 8,087 162,751 264,550 162,751 209,049
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
Penederm, Inc. Common
shares 02/97 2,784 -- -- 48,024 27,422
Periodontix, Series A
Inc. Preferred
shares 02/98 106,122 259,999 259,999 -- --
Pharmos Common 04/95 &
Corporation shares 11/95 60,331 45,248 95,444 45,248 121,266
Physiometrix, Common
Inc. shares 04/96 270,791 490,025 144,185 490,025 490,792
UroGen Corp. Convertible
note (1) 06/98 $250,000 260,407 260,407 -- --
UroGen Corp. Series B
Common
share
warrant
at $0.74;
expiring
06/03 06/98 125,000 0 0 -- --
Microelectronics
- ----------------
KOR Electronics, Series C
Inc. Convertible
Preferred
shares 11/89 177,778 0 0 0 0
KOR Electronics, Series D
Inc. Preferred
shares 02/91 1,285,714 0 0 0 0
KOR Electronics, Common
Inc. shares 01/94 670,036 0 0 0 0
KOR Electronic, Series E
Inc. Preferred
shares 01/94 1,130,390 1,130,390 847,793 1,130,390 847,793
KOR Electronics, Common share
Inc. warrant at
$.35;
expiring
08/99 08/94 257,143 0 0 0 0
KOR Electronics, Series D
Inc. Preferred
shares 07/95 977,142 0 0 0 0
Retail/Consumer Products
- ------------------------
Yes! Entertainment Common
Corporation shares 06/95 66,666 0 3,067 199,998 110,399
Venture Capital Limited Partnership Investments
- -----------------------------------------------
El Dorado Ltd.
Ventures III, L.P.Partnership
interests various $250,000 212,460 329,520 212,460 331,186
Medical Science Ltd.
Partners, L.P. Partnership
interests various $500,000 318,583 383,845 366,266 542,834
Newtek Ltd.
Ventures II, L.P. Partnership
interests various $833,764 304,178 739,207 274,178 472,201
Onset Enterprises Ltd.
Associates, L.P. Partnership
interests various $485,000 30,000 66,243 0 89,614
Utah Ventures Ltd.
Limited Partnership
Partnership interests various $250,000 41,117 71,850 41,117 99,897
---------- ---------- ---------- ----------
Total equity investments $12,547,986 15,647,313 12,492,981 14,234,001
========== ========== ========== ==========
- -- 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 are 8%.
</TABLE>
Marketable Equity Securities
- ----------------------------
At December 31, 1998, and 1997, marketable equity securities had aggregate
costs of $3,204,508 and $3,157,615, respectively, and aggregate market
values of $2,967,543 and $2,414,032, respectively. The net unrealized
losses at December 31, 1998 and 1997 included gross gains of $819,176 and
$350,879, respectively.
Avalon Imaging, Inc.
- --------------------
In December 1998, the Partnership purchased 75,690 Series D Preferred
shares for $90,071.
ConjuChem, Inc. (formerly RedCell, Inc.)
- ----------------------------------------
In December 1998, the Partnership wrote off the cost basis and fair market
value of its investment in the company and realized a loss of $222,263.
This was based upon the opinion of the Managing General Partners that the
operating status of the company indicated a permanent decline in value.
Endocare, Inc.
- --------------
In April 1998, the Partnership purchased 35,714 common shares for $124,999
in a private placement. At December 31, 1998, the Partnership recorded a
$70,457 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. The Partnership realized a loss of $89,873 on the completion of
the sale transaction. 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 Corporation
- ------------------
In 1998, the Partnership sold its entire investment for total proceeds of
$72,944 and realized a loss of $3,537.
Periodontix, Inc.
- -----------------
In February 1998, the Partnership purchased 106,122 Series C Preferred
shares for $259,999.
Splash Technology Holdings, Inc.
- --------------------------------
In August 1998, the Partnership realized a gain of $281,625 on receipt of
previously escrowed sales proceeds which arose from the sale of its
investment in Quintar Corporation to the company.
UroGen Corp.
- ------------
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.
In January 1999, the company and Hearst New Media & Technology, a wholly
owned unit of the Hearst Corporation, announced the formation of a joint
venture which will be a leading online community for women on the Web.
Yes! Entertainment Corporation
- ------------------------------
In December 1998, the Partnership wrote off the cost basis of its
investment in the company and realized a loss of $199,998. This was based
upon the opinion of the Managing General Partners that the operating status
of the company indicated a permanent decline in value.
Venture Capital Limited Partnership Investments
- -----------------------------------------------
The Partnership made additional investments totaling $60,000 in venture
capital limited partnerships during the year ended December 31, 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 $42,616 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.
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,
----------------------------------
1998 1997 1996
------ ------ ------
<S> <C> <C> <C>
(Decrease) increase in fair value
from cost of marketable equity
securities $ (236,965) (743,583) 5,609,313
Increase in fair value from cost
of non-marketable equity
securities 3,336,292 2,484,603 11,395,568
--------- ---------- ----------
Net unrealized fair value increase
from cost at end of year 3,099,327 1,741,020 17,004,881
Net unrealized fair value increase
from cost at beginning of year 1,741,020 17,004,881 17,778,658
--------- ---------- ----------
Change in net unrealized fair
value of equity investments $1,358,307 (15,263,861) (773,777)
========= ========== ==========
</TABLE>
6. Notes Receivable
----------------
Activity from January 1 through December 31 consisted of:
<TABLE>
<CAPTION>
1998 1997
------ ------
<S> <C> <C>
Balance, beginning of year $ 4,501 29,137
Secured notes receivable issued 16,598 150,500
Unsecured notes receivable issued 198,844 --
Repayments of notes receivable (16,598) (164,463)
Decrease in accrued interest (568) (10,673)
------- -------
Balance, end of year $202,777 4,501
======= =======
</TABLE>
The interest rate on notes receivable at December 31, 1998, was 9.5%.
There was no activity in the loan loss allowance in 1998 or 1997.
7. Cash and Cash Equivalents
-------------------------
Cash and cash equivalents at December 31, 1998 and 1997, consisted of:
<TABLE>
<CAPTION>
1998 1997
------ ------
<S> <C> <C>
Demand accounts $ 30,009 5,543,116
Money-market and brokerage accounts 1,158,909 3,277,961
--------- ---------
Total $1,188,918 8,821,077
========= =========
</TABLE>
At December 31, 1998, the majority of the Partnership's funds were on
deposit at a single financial institution.
8. Promissory note
---------------
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.
9. Distributions
-------------
In 1998, the Managing General Partners declared a distribution for Unit
holders as of July 2, 1998 totaling $2,370,130 (payable to each partner
based on their proportionate share of partner capital including unrealized
gains and losses), of which $613,245 and $1,386,755 ($3.47 per unit) was
paid to the General Partners and Limited Partner, respectively, in 1998.
The remaining $370,130 ($0.93 per Unit) will be paid to the Limited
Partners in 1999.
In 1997, the Managing General Partners declared a distribution for Unit
holders as of September 30, 1977 totaling $4,000,000, of which $455,429 was
paid to the General Partners in 1997 and $3,544,571 ($8.86 per Unit) was
paid to the Limited Partners in 1998.
10. Commitments and Contingencies
-----------------------------
The Partnership is a party to financial instruments with off-balance-sheet
risk in the normal course of its business. Generally, these instruments
are commitments for future equity fundings, venture capital limited
partnership investments, equipment financing commitments, or accounts
receivable lines of credit that are outstanding but not currently fully
utilized. As they do not represent current outstanding balances, these
unfunded commitments are properly not recognized in the financial
statements. At December 31, 1998, unfunded investment commitments to
portfolio companies and venture capital limited partnerships totaled
$180,056.
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 29, 1999 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 29, 1999
- ------------------------ Executive Officer,
Charles R. Kokesh Chief Financial Officer,
and Chairman of
Technology Funding Inc.
and Managing 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, 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> DEC-31-1998
<PERIOD-TYPE> YEAR
<INVESTMENTS-AT-COST> 12,750,763
<INVESTMENTS-AT-VALUE> 15,850,090
<RECEIVABLES> 0
<ASSETS-OTHER> 34,950
<OTHER-ITEMS-ASSETS> 1,188,918
<TOTAL-ASSETS> 17,073,958
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 432,966
<TOTAL-LIABILITIES> 432,966
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 13,541,665
<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> 3,099,327
<NET-ASSETS> 16,640,992
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 119,497
<OTHER-INCOME> 0
<EXPENSES-NET> 1,580,761
<NET-INVESTMENT-INCOME> (1,461,264)
<REALIZED-GAINS-CURRENT> (240,209)
<APPREC-INCREASE-CURRENT> 1,358,307
<NET-CHANGE-FROM-OPS> (343,166)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 2,370,130
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> (2,713,296)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 206,009
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,586,854
<AVERAGE-NET-ASSETS> 17,997,640
<PER-SHARE-NAV-BEGIN> 41
<PER-SHARE-NII> (3)
<PER-SHARE-GAIN-APPREC> 0 <F1>
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> (4)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 33
<EXPENSE-RATIO> 8.69
<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.
</FN>
</TABLE>
