<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 September 30, 2000
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)
September 30, December 31,
2000 1999
------------ -----------
<S> <C> <C>
ASSETS
Investments:
Equity investments, at fair value
(cost basis of $11,158,332 and
$11,915,314 for 2000 and 1999,
respectively) $12,647,429 15,419,719
Notes receivable, at fair value
(cost basis of $4,942,863 and
$221,307 for 2000 and 1999,
respectively) 219,253 221,307
---------- ----------
Total investments 12,866,682 15,641,026
Cash and cash equivalents 2,651,592 677,285
Other assets 4,384 1,454
---------- ----------
Total assets $15,522,658 16,319,765
========== ==========
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable and accrued expenses $ 45,030 54,345
Due to related parties 54,616 68,554
Other liabilities 5,048 9,789
---------- ----------
Total liabilities 104,694 132,688
Commitments and contingencies
Partners' capital:
Limited Partners (400,000 Units
outstanding) 16,655,902 15,915,048
General Partners (1,237,938) 272,029
---------- ----------
Total partners' capital 15,417,964 16,187,077
---------- ----------
Total liabilities and partners'
capital $15,522,658 16,319,765
========== ==========
</TABLE>
See accompanying notes to unaudited financial statements.
<PAGE>
STATEMENTS OF OPERATIONS (unaudited)
-----------------------------------
<TABLE>
<CAPTION>
For the Three For the Nine
Months Ended Months Ended
September 30, September 30,
------------------------- ----------------------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Income:
Notes receivable interest $ 442,732 6,368 733,710 27,488
Short-term investment interest 20,691 140 36,602 7,524
--------- --------- --------- ---------
Total income 463,423 6,508 770,312 35,012
Costs and expenses:
Management fees 41,941 43,205 158,992 126,275
Individual General Partners'
compensation 10,963 12,359 34,691 32,365
Operating expenses:
Administrative and investor services 137,500 154,343 396,861 473,484
Investment operations 59,769 58,956 339,202 203,325
Professional fees 41,394 13,949 94,119 75,698
Computer services 33,789 39,011 100,654 97,925
Interest expense -- 4,280 3,732 4,280
--------- --------- --------- ---------
Total operating expenses 272,452 270,539 934,568 854,712
--------- --------- --------- ---------
Total costs and expenses 325,356 326,103 1,128,251 1,013,352
--------- --------- --------- ---------
Net operating income (loss) 138,067 (319,595) (357,939) (978,340)
Realized gain (loss) from
sales of equity investments 3,427,177 (457,010) 6,829,775 (487,474)
Net realized gain from venture
capital limited partnership
investments 132,000 -- 812,264 126,968
Realized losses from investment
write-downs -- -- -- (2,615)
--------- --------- --------- ---------
Net realized income (loss) 3,697,244 (776,605) 7,284,100 (1,341,461)
Change in net unrealized
fair value:
Equity investments (1,250,275) (1,016,111) (2,015,308) (327,663)
Notes receivable (3,751,631) -- (4,723,610) --
--------- --------- --------- ---------
Net (loss) income $(1,304,662) (1,792,716) 545,182 (1,669,124)
========= ========= ========= =========
Net (loss) income per unit $ (2.58) (3.50) 1.85 (3.25)
========= ========= ========= =========
</TABLE>
See accompanying notes to unaudited financial statements.
<PAGE>
STATEMENTS OF CASH FLOWS (unaudited)
-----------------------------------
<TABLE>
<CAPTION>
For the Nine Months
Ended September 30,
-----------------------------
2000 1999
---------- ----------
<S> <C> <C>
Cash flows from operating activities:
Interest received $ 52,257 16,155
Cash paid to vendors (317,092) (284,358)
Cash paid to related parties (838,351) (645,741)
Interest paid for short-term borrowings (3,732) (4,280)
--------- ---------
Net cash used by operating activities (1,106,918) (918,224)
--------- ---------
Cash flows from investing activities:
Purchase of equity investments (350,617) (698,868)
Notes receivable issued (4,013,615) (183,333)
Repayments of notes receivable 7,892 198,844
Proceeds from sales of equity
investments 8,401,041 347,267
Distributions from venture capital
limited partnership investments 350,819 --
--------- ---------
Net cash provided (used) by
investing activities 4,395,520 (336,090)
--------- ---------
Cash flows from financing activities:
Distribution to General Partners (1,314,295) --
Proceeds from short-term
borrowings, net -- 82,291
--------- ---------
Net cash (used) provided by
financing activities (1,314,295) 82,291
--------- ---------
Net increase (decrease) in cash
and cash equivalents 1,974,307 (1,172,023)
Cash and cash equivalents at
beginning of year 677,285 1,188,918
--------- ---------
Cash and cash equivalents $2,651,592 16,895
at September 30 ========= =========
See accompanying notes to unaudited financial statements.
</TABLE>
<PAGE>
STATEMENTS OF CASH FLOWS (unaudited)(continued)
-----------------------------------------------
<TABLE>
<CAPTION>
For the Nine Months
Ended September 30,
-----------------------------
2000 1999
---------- ----------
<S> <C> <C>
Reconciliation of net income (loss) to net
cash used by operating activities:
Net income (loss) $ 545,182 (1,669,124)
Adjustments to reconcile net income
(loss) to net cash used by operating
activities:
Net realized (gain) loss from sales
of equity investments (6,829,775) 487,474
Realized gain from venture
capital limited partnership
investments (812,264) (126,968)
Realized losses from investment
write-downs -- 2,615
Change in net unrealized fair value:
Equity investments 2,015,308 327,663
Notes receivable 4,723,610 --
Changes in:
Due to/from related parties (13,938) 28,108
Accrued interest on notes receivable (718,055) (18,857)
Accounts payable and accrued expenses (9,315) 51,848
Other changes, net (7,671) (983)
--------- ---------
Net cash used by operating activities $(1,106,918) (918,224)
========= =========
</TABLE>
See accompanying notes to unaudited financial statements.
<PAGE>
NOTES TO FINANCIAL STATEMENTS (unaudited)
----------------------------------------
1. General
-------
Interim Financial Statements
----------------------------
In the opinion of the Managing General Partners, the accompanying interim
financial statements reflect all adjustments necessary for the 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, 1999. 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.
Valuation of Investments
------------------------
Investments are valued at fair value as required by the Investment Company
Act of 1940.
The Management Committee has the authority to establish valuation
procedures and periodically apply such procedures to the Partnership's
venture capital investment portfolio. In fulfilling this responsibility,
the Managing General Partners under the direction of the Management
Committee periodically update and revise the valuation procedures used to
determine fair value in order to reflect new events, changing market
conditions, more experience with investee companies, or additional
information, any of which may require the revision of previous estimating
procedures. The valuation procedures were revised and approved by the
Management Committee in the quarter ended June 30, 2000. A change in fair
value of $10,114,792 was recognized during the quarter ended June 30, 2000
to reflect the revisions to the valuation methodology and is included in
the "Change in net unrealized fair value of investments" on the Statement
of Operations.
The fair value of investments in publicly traded securities is considered
to be the amount which the Partnership may reasonably expect to receive if
the investments were sold on the valuation date. Unrestricted securities
are valued at the five-day average closing sales price or bid/ask price
that is available on a national securities exchange or over-the-counter
market. Valuation discounts of 5% to 50% are applied to securities subject
to resale restrictions resulting from Rule 144, contractual lock-ups such
as those commonly associated with underwriting agreements, or knowledge of
material non-public information and also to unrestricted securities when
the number of shares held by the Partnership and its affiliates is
substantial in relation to the average trading volume.
The fair value of all other investments is determined in good faith by the
Managing General Partners under the direction of the Management Committee
after consideration of available, relevant information. There is no ready
market for the Partnership's investments in private companies or
unregistered securities of public companies. Fair value is generally
defined as the amount the Partnership could reasonably expect to receive
for an investment in an orderly disposition on a current sale. Other
significant factors considered in the estimation of fair value include the
inherent illiquidity of and lack of marketability associated with venture
capital investments in private companies or unregistered securities, the
investee company's enterprise value established in the last round of
venture financing, changes in market conditions since the last round of
venture financing or since the last reporting period, the value of a
minority interest in the investee company, contractual restrictions on
resale typical of venture financing instruments, the investee company's
financial position and ability to obtain any necessary additional
financing, the investee company's performance as compared to its business
plan, and the investee company's progress towards initial public offering.
The values determined for the Partnership's investments in these securities
are based upon available information at the time the good faith valuations
are made and do not necessarily represent the amount which might ultimately
be realized which could be higher or lower than the reported fair value.
At September 30, 2000 and December 31, 1999, the investment portfolio
included investments totaling $3,414,741 and $9,113,523, respectively,
whose fair values were established in good faith by the Managing General
Partners under the direction of the Management Committee in the absence of
readily ascertainable market values. In addition, investments in publicly
traded securities which have been subjected to a discount for legal,
contractual or practical restrictions as determined by the Management
Committee amounted to $7,153,127 and $3,154,600 at September 30, 2000 and
December 31, 1999, respectively. Because of the inherent uncertainty in
the valuation, the values may differ significantly from the values that
would have been used had a ready market for the securities existed, and the
differences could be material.
2. Related Party Transactions
--------------------------
Related party costs are included in costs and expenses shown on the
Statements of Operations. Related party costs for the nine months ended
September 30, 2000 and 1999, were as follows:
<TABLE>
<CAPTION>
2000 1999
-------- --------
<S> <C <C>
Management fees $158,992 126,275
Individual General Partners' compensation 34,691 32,365
Reimbursable operating expenses 630,730 515,209
</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 $40,636 and $55,605 due to related parties
at September 30, 2000 and December 31, 1999, respectively, related to such
expenses.
Amounts payable for management fees were $13,980 and $12,949 at September,
2000, and December 31, 1999, 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. 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. Any such profit is allocated amongst the Partnership and
affiliated partnerships based upon their proportionate investment in the
portfolio company. At September 30, 2000, the Partnership had an indirect
interest in non-transferable Thermatrix Inc. options at an exercise price
higher than the current market value. At September 30, 2000, the
Partnership and affiliated partnerships had an indirect interest in non-
transferable Physiometrix, Inc., Endocare, Inc. and Genstar Therapeutics
Corporation options with a fair value of $278,369.
<PAGE>
3. Equity Investments
------------------
<TABLE>
At September 30, 2000, equity investments consisted of:
<CAPTION>
September 30, 2000
Principal ----------------------
Amount or
Investment Shares as of Cost Fair
Industry (1)/Company Position Date September 30, 2000 Basis Value
-------------------- -------- ---------- ------------------ ------- -------
<S> <C> <C> <C> <C> <C>
Communications--1.9%
--------------------
Efficient Networks, Common
Inc. shares 2000 1,901 $ 315,257 69,577
VOIS, Other
Inc. investment 1999 $7,966 7,966 0
Women.com Networks, Common 1996-
Inc. shares 1999 148,696 518,955 226,702
---------- ----------
842,178 296,279
---------- ----------
Computer Equipment, Systems and Software--0.0%
----------------------------------------------
Ascent Logic Preferred
Corporation (a) shares 1992 106,383 99,000 3,723
Ascent Logic Common
Corporation (a) shares 1997 36,443 23,795 1,276
Reflection Common share
Technology, warrant
Inc. (a) at $0.50;
expiring
2001 1996 359,750 0 0
---------- ----------
122,795 4,999
---------- ----------
Environmental--10.7%
--------------------
SunPower Preferred 1990-
Corporation (a) shares 1994 1,013,637 1,179,051 1,647,161
Thermatrix Inc. Common
(b) shares 1996 1,105,847 3,095,533 0
Triangle
Biomedical Common
Sciences, Inc.(a) shares 1999 366 10,248 4,099
Triangle Common share
Biomedical warrant
Sciences, Inc.(a) at $28.00;
expiring
2009 1999 366 366 146
---------- ----------
4,285,198 1,651,406
---------- ----------
Information Technology--4.9%
----------------------------
WorldRes, Inc. Preferred 1997-
(a) (b) shares 1999 155,918 619,687 724,706
WorldRes, Inc. Preferred
(a) (b) share
warrants
at $3.70-
$4.63;
expiring 1997-
2002-2003 1998 9,721 82 28,028
---------- ----------
619,769 752,734
---------- ----------
Medical/Biotechnology--50.7%
----------------------------
ADESSO Specialty
Services
Organization Preferred 1997-
Inc. (a) (b) shares 2000 131,265 1,205,257 551,313
Biex, Inc. (a) (b) Preferred 1993-
shares 1999 777,021 1,023,540 204,707
Biex, Inc. (a) (b) Preferred
share
warrants
at $2.50;
expiring 1998-
2003 1999 59,653 0 0
ConjuChem Inc. (a) Preferred
share
warrants
at exercise aggregate
price TBD; purchase
expiring price
2001 1996 $13,495 0 0
Endocare, Inc. (b) Common 1996-
shares 1998 46,014 152,624 428,805
Endocare, Inc. (b) Common
share
warrant
at $3.00;
expiring
2001 1996 3,750 0 29,321
Genstar
Therapeutics Common
Corporation (b) share 1999 438,366 320,242 2,364,546
Genstar Common
Therapeutics share
Corporation (b) warrants at
$0.30-$0.74;
expiring 1998-
2005-2006 1999 291,667 0 1,502,002
Intella
Interventional Common
Systems, Inc. (a) shares 1993 584 0 0
Molecular
Geriatrics Common
Corporation (a) shares 1993 23,585 125,000 16,510
Periodontix, Preferred
Inc. (a) shares 1998 106,122 259,999 47,755
Periodontix, Convertible
Inc. (a) note (2) 1999 $37,000 41,390 8,280
Periodontix, Common
Inc. (a) share
warrants
at $2.25;
expiring 1999-
2004-2006 2000 6,167 0 0
Physiometrix, Common
Inc. shares 1996 126,791 53,793 2,601,751
Sanarus
Medical, Preferred 1999-
Inc. (a) (b) shares 2000 106,666 160,000 64,000
---------- ----------
3,341,845 7,818,990
---------- ----------
Microelectronics--0.7%
----------------------
KOR Electronics, Preferred 1989-
Inc. (a) shares 1995 3,571,024 1,130,390 113,039
KOR Electronics, Common
Inc. (a) Shares 1994 670,036 0 0
---------- ----------
1,130,390 113,039
---------- ----------
Retail/Consumer Products--0.0%
------------------------------
Yes! Entertainment Common
Corporation shares 1995 66,666 0 0
---------- ----------
0 0
---------- ----------
Venture Capital Limited Partnership Investments--13.0%
------------------------------------------------------
El Dorado Ltd.
Ventures III, L.P. Partnership
(a) interests various $250,000 212,460 864,250
Medical Science Ltd.
Partners, L.P. Partnership
(a) interests various $500,000 187,246 135,900
Newtek Ltd.
Ventures II, L.P. Partnership
(a) interests various $859,914 330,328 725,437
Onset Enterprises Ltd.
Associates, L.P. Partnership
(a) interests various $500,000 45,000 92,302
Utah Ventures Ltd.
Limited Partnership
Partnership (a) interests various $250,000 41,123 192,093
---------- ----------
816,157 2,009,982
---------- ----------
Total equity investments--81.9% $11,158,332 12,647,429
========== ==========
Legends and footnotes:
-- No investment held at end of period.
0 Investment active with a carrying value or fair value of zero.
(a) Equity security acquired in a private placement transaction; resale may be subject to certain
selling restrictions.
(b) Portfolio company is an affiliate of the Partnership; resale may be subject to certain
selling restrictions.
(1) Represents the total fair value of a particular industry segment as a percentage of Partners'
Capital at 09/30/00.
(2) The Partnership has no income-producing equity investments except for convertible and
subordinated notes which include accrued interest. Interest rates on such notes are 8%.
</TABLE>
All investments are valued at fair value as determined in good faith by the
Managing General Partners. See Note 1--Valuation of Investments.
Significant purchases and sales of investments during the nine months ended
September 30, 2000 are as follows:
ADESSO Specialty Services Organization, Inc.
--------------------------------------------
In March 2000, the Partnership purchased 12,218 Series E Preferred shares
for $205,262.
CV Therapeutics, Inc.
---------------------
In January 2000, the Partnership sold its entire investment in the company
for proceeds of $239,383 and realized a gain of $130,603.
Efficient Networks, Inc.
------------------------
In February 2000, the Partnership sold 951 shares in the company for
proceeds of $109,365 and realized a gain of $34,111.
Genstar Therapeutics Corporation
--------------------------------
In March 2000, the company changed its name from UroGen Corp. to Genstar
Therapeutics Corporation.
Subsequent to September 30, 2000, the fair value of the Partnership's
investment in Genstar Therapeutics Corporation increased by $670,535 as a
result of an increase in the publicly traded market price on November 9,
2000.
Inhale Therapeutic Systems, Inc.
--------------------------------
In March 2000, the Partnership sold its entire investment in the company
for proceeds of $3,450,754 and realized a gain of $2,840,756.
Pharmos Corporation
-------------------
In January 2000, the Partnership sold its entire investment in the company
for proceeds of $191,382 and realized a gain of $146,134.
Physiometrix, Inc.
------------------
In July 2000, the Partnership sold 144,000 common shares in the company for
proceeds of $3,851,872 and realized a gain of 3,415,640.
In July 2000, an officer of the Managing General Partners exercised options
for 1,875 common shares which were immediately sold. (See Note 2.) The
Partnership's proportionate share of the realized gain was $11,192.
Pilot Network Services, Inc.
----------------------------
In February 2000, the Partnership sold its entire investment in the company
for proceeds of $298,760 and realized a gain of $181,379.
Sanarus Medical, Inc.
---------------------
In February 2000, the Partnership purchased an additional 73,333 Series A
Preferred shares for $110,000.
Venture Capital Limited Partnerships
------------------------------------
The Partnership made an additional investment of $26,150 in venture capital
limited partnerships in January 2000. The Partnership received cash
distributions totaling $350,819 from El Dorado Ventures III, L.P., Medical
Sciences Partners, L.P., Newtek Ventures II, L.P. and Utah Ventures Limited
Partnership, $28,182 of which were recorded as returns of capital and the
remaining recorded as realized gains. The Partnership received stock
distributions of Efficient Networks, Inc. and Medarex, Inc. with fair
values of $315,257 and $174,370, respectively. These distributions were
recorded as realized gains. The Partnership recorded a $791,459 net
increase in fair value as a result of increases in the fair value of the
underlying investments of the partnerships.
Marketable Equity Securities
----------------------------
At September 30, 2000, marketable equity securities had aggregate costs of
$888,005 and aggregate market values of $2,898,030. The net unrealized
gains at September 30, 2000 included gross gains of $2,549,023.
4. Notes Receivable, net
---------------------
Activity from January 1 through September 30 consisted of:
<TABLE>
2000 1999
-------- --------
<S> <C> <C>
Balance at January 1 $ 221,307 202,777
Notes receivable issued 4,013,615 183,333
Repayments of notes receivable (7,892) (198,844)
Change in interest receivable 715,833 7,595
Change in allowance for loan losses (4,723,610) --
--------- -------
Total notes receivable,
net at September 30 $ 219,253 194,861
========= =======
</TABLE>
The interest rate on notes receivable at September 30, 2000 ranged from 8%
to 50%. All notes are due on demand.
During 2000, the Partnership issued notes receivable totaling $4,000,000 to
a portfolio company in the computer equipment industry. Interest income on
these notes for the nine months ended September 30, 2000 totals $723,610
and is payable on demand. In determining fair value as of September 30,
2000, the Managing General Partners gave consideration to deterioration in
the company's performance during the quarter ended September 30, 2000 as a
result of business, technical, financing and legal challenges, the
company's financial position at September 30, 2000 and its ability to
obtain critical additional financing, and, as a result, recorded a
$4,723,610 decrease in the fair value of notes and interest receivable.
The company is actively exploring opportunities for additional financing
and should they ultimately be successful, the impact on the Partnership's
fair value would likely be positive. Because of the inherent uncertainties
involved in predicting the outcome of the company's ability to obtain
additional financing, the estimated fair value at September 30, 2000 may
differ significantly from a value that would have been used had the outcome
of the company's efforts been known, and the difference could be material.
5. Cash and Cash Equivalents
-------------------------
Cash and cash equivalents at September 30, 2000 and December 31, 1999
consisted of:
<TABLE>
2000 1999
------ ------
<S> <C> <C>
Demand accounts $ 46,738 151,868
Money-Market accounts 2,604,854 525,417
--------- -------
Total $2,651,592 677,285
========= =======
</TABLE>
6. Distributions
-------------
In the quarter ended June 30, 2000, a quarterly tax distribution totaling
$1,314,295 was declared and paid to the General Partners.
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 September 30, 2000, unfunded commitments to portfolio
companies totaled $600,000.
8. Subsequent Events
-----------------
On November 8, 2000, a proxy statement and ballot were mailed to the
Limited Partners of record on the close of business October 31, 2000 along
with a notice of the tri-annual meeting of Limited Partners to be held on
December 8, 2000. Items to be voted upon include the following:
(1) The election of three Individual General Partners to serve as members
of the Partnership's Management Committee each for a three-year term;
(2) The election of two Managing General Partners to serve as members of
the Partnership's Management Committee each for a three-year term;
(3) Ratification of the Management Committee's appointment of Arthur
Andersen LLP as independent certified public accountants of the
Partnership;
(4) The amendment of Article 2, Section (m) of the Partnership Agreement
to delete references to "Controlling Person" in the definition of
"General Partner Overhead" so that the salary and fringe benefits of a
Controlling Person of a Managing General Partner directly involved in
carrying out the business of the Partnership are expenses of the
Partnership;
(5) The amendment of Article 1.03 of the Partnership Agreement to clarify
the Partnership's investment objective;
(6) The amendment of Article 5.04 of the Partnership Agreement to clarify
the Limited Partners' right to vote under the Investment Company Act
of 1940, as amended (the "Act");
(7) Such other matters as may properly come before the Meeting or any
adjournment thereof.
If approved, the change proposed in Item 4 would become effective as of
January 1, 2000 and would result in additional expense to the Partnership
of approximately $69,425 for the year ending December 31, 2000.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Financial Condition, Liquidity and Capital Resources
----------------------------------------------------
The Partnership operates as a business development company under the
Investment Company Act of 1940 and makes venture capital investments in new
and developing companies. The Partnership's financial condition is
dependent upon on the success of the portfolio companies. There is no
ready market for many of the Partnership's investments. It is possible
that some of its venture capital investments may be a complete loss or may
be unprofitable and that others will appear likely to become successful,
but may never realize their potential. The valuation of the Partnership's
investments in securities for which there are no available market quotes is
subject to the estimate of the Managing General Partners in accordance with
the valuation guidance described in Note 1 to the financial statements. In
the absence of readily obtainable market values, the estimated fair value
of the Partnership's investments may differ significantly from the values
that would have been used had a ready market existed.
During the nine months ended September 30, 2000, net cash used by operating
activities totaled $1,106,918. The Partnership paid management fees of
$157,961 to the Managing General Partners and reimbursed related parties
for operating expenses of $645,699 in 2000. In addition, $34,691 was paid
to the Individual General Partners as compensation for their services.
Other operating expenses of $317,092 were paid, interest paid on short-term
borrowings was $3,732 and interest income of $52,257 was received.
During the nine months ended September 30, 2000, the Partnership funded
equity investments of $350,617 primarily to portfolio companies in the
medical/biotechnology industry and issued $4,013,615 in notes receivable
primarily to a portfolio company in the computer equipment, systems and
software industry. Proceeds from the sales of equity investments were
$8,401,041 and repayments of notes receivable were $7,892. The Partnership
received cash distributions from venture capital limited partnership
investments totaling $350,819. At September 30, 2000, the Partnership's
unfunded commitments totaled $600,000.
In the quarter ended June 30, 2000, the Partnership declared and paid
$1,314,295 in General Partner tax distributions.
Cash and cash equivalents at September 30, 2000, were $2,651,592. Interest
income on short-term investments and future proceeds from investment sales
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 loss was $1,304,662 for the quarter ended September 30, 2000, compared
to net loss of $1,792,716 during the same period in 1999. The change was
primarily due to an increase of $3,884,187 in the realized gain from sales
of equity investments, an increase of $456,915 in interest income and a
$132,000 increase in net realized gain from venture capital limited
partnerships, partially offset by a decrease of $3,751,631 in the change in
net unrealized fair value of notes receivable and a $234,164 decrease in
the change in net unrealized fair value of equity investments.
Realized gains from equity sales totaled $3,427,177 in the quarter ended
September 30, 2000 compared to a loss of $457,010 for the same period in
1999. The 2000 gain primarily relates to the sale of Physiometrix, Inc.
(See Note 3.) The 1999 loss relates to the sale of the Partnership's
investments in Naiad Technologies, Inc., CV Therapeutics, Inc. and Avalon
Imaging, Inc.
For the quarter ended September 30, 2000, interest income of $463,423 was
primarily the result of interest earned on secured notes receivable and
higher cash balances. During the same period in 1999, interest income was
$6,508.
Net realized gains from venture capital limited partnership investments
totaled $132,000 in the quarter ended September 30, 2000. During the same
period in 1999, there was no such gains.
During the quarter ended September 30, 2000, the Partnership recorded a
decrease in the fair value of notes receivable of $3,751,631 which related
to a decrease in a portfolio company in the computer equipment, systems and
software industry. There was no such amount recorded for the same period
in 1999.
During the quarter ended September 30, 2000, the decrease in equity
investment fair value of $1,250,275 was primarily attributable to a
decrease in portfolio companies in the medical/biotechnology industry,
partially offset by increases in the environmental industry. During the
same period in 1999, the decrease in equity investment fair value of
$1,016,111 was primarily attributable to a decrease in a portfolio company
in the environmental industry, partially offset by increases in the
medical/biotechnology industry.
Total operating expenses were $272,452 and $270,539 for the quarters ended
September 30, 2000 and 1999, respectively. In the second quarter of 2000,
the Managing General Partners billed the Partnership an additional $170,464
for investment management expenses incurred by the General Partners in 1998
and 1999, but not previously billed to the Partnership. If these expenses
had been billed in prior years, operating expenses for the three months
ended September 30, 2000 and 1999 would have been $272,452 and $285,828,
respectively. The decrease is attributable to decreased investment
activity and the related administrative costs.
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 nine months compared to corresponding nine months in the
--------------------------------------------------------------
preceding year
--------------
Net income was $545,182 for the nine months ended September 30, 2000,
compared to net loss of $1,669,124 during the same period in 1999. The
change was primarily due to an increase of $7,317,249 in the realized gain
from sales of equity investments, an increase of $735,300 in interest
income and a $685,296 increase in net realized gain from venture capital
limited partnerships, partially offset by a decrease of $4,723,610 in the
change in net unrealized fair value of notes receivable and a $1,687,645
decrease in the change in net unrealized fair value of equity investments.
Realized gain from equity sales totaled $6,829,775 for the nine months
ended September 30, 2000 as compared to a loss of $487,474 for the same
period in 1999. The 2000 gain primarily relates to the sale of Inhale
Therapeutic Systems, Inc. and Physiometrix, Inc. (See Note 3.) The 1999
loss primarily relates to the sale of the Partnership's investments in
Naiad Technologies, Inc., CV Therapeutics, Inc. and Avalon Imaging, Inc.
For the nine months ended September 30, 2000, interest income of $770,312
was primarily the result of interest earned on secured notes receivable and
higher cash balances. During the same period in 1999, interest income was
$35,012.
During the nine months ended September 30, 2000, the Partnership recorded
net realized gains from venture capital limited partnership investments of
$812,264. During the same period in 1999, there were gains of $126,968.
The gains represented distributions from profits of venture capital limited
partnerships.
During the nine months ended September 30, 2000, the decrease in equity
investment fair value of $2,015,308 was mainly attributable to a $9,142,813
decrease in fair value of equity investments as discussed in Note 1 to the
financial statements and decreases in portfolio companies in the
communications and environmental industries. This decrease was partially
offset by increases in portfolio companies in the medical/biotechnology
industry and the venture capital limited partnerships. During the same
period in 1999, the decrease in equity investment fair value of $327,663
was mainly attributable to portfolio companies in the environmental and
microelectronics industries, partially offset by increases in the
communications and medical/biotechnology industries.
During the nine months ended September 30, 2000, the Partnership recorded a
decrease in the fair value of notes receivable of $4,723,610 of which
$971,979 related to the change in valuation methodology discussed in Note 1
to the financial statements and the remainder related to a decrease in a
portfolio company in the computer equipment, systems and software industry.
There was no such amount recorded for the same period in 1999.
Total operating expenses were $934,568 and $854,712 for the nine months
ended September 30, 2000 and 1999, respectively. In the second quarter of
2000, the Managing General Partners billed the Partnership an additional
$170,464 for investment management expenses incurred by the General
Partners in 1998 and 1999, but not previously billed to the Partnership.
If these expenses had been billed in prior years, operating expenses for
the nine months ended September 30, 2000 and 1999 would have been $764,104
and $914,854, respectively. The decrease is attributable to decreased
investment activity and the related administrative costs.
II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) A Form 8-K was filed by the Partnership on September 12, 2000 to
report the resignation of KPMG LLP as the Partnership's independent
accountants. A Form 8-K/A was filed by the Partnership on September
25, 2000 with KPMG LLP's letter in response to the Form 8-K.
A Form 8-K was filed by the Partnership on November 13, 2000 to
report the appointment of Arthur Andersen LLP as the Partnership's
independent public accountants.
(b) Financial Data Schedule for the nine months ended and as of
September 30, 2000 (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.
TECHNOLOGY FUNDING LTD.
Managing General Partners
Date: November 14, 2000 By: /s/Charles R. Kokesh
-----------------------------------
Charles R. Kokesh
President, Chief Executive
Officer, Chief Financial
Officer and Chairman of
Technology Funding Inc. and
Managing General Partner of
Technology Funding Limited
