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 Fiscal 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 to
Commission file number 0-17198
ML OKLAHOMA VENTURE PARTNERS, LIMITED PARTNERSHIP
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(Exact name of registrant as specified in its charter)
Oklahoma 73-1329487
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
10830 E. 45th Street, Suite 307
Tulsa, Oklahoma 74146
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (918) 663-2500
Securities registered pursuant to Section 12(b) of the Act:
itle of each class Name of each exchange on which registered
None None
Securities registered pursuant to Section 12(g) of the Act:
Units of Limited Partnership Interest
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(Title of class)
<PAGE>
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. [X]
As of March 16, 1999, 10,243 units of limited partnership interest ("Units")
were held by non-affiliates of the Registrant. There is no established public
trading market for such Units.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Prospectus of the Registrant dated December 1, 1988, filed with
the Securities and Exchange Commission, as supplemented by a supplement dated
April 25, 1989, are incorporated by reference in Part I, Part II and Part III
hereof.
<PAGE>
PART I
Item 1. Business.
Formation
ML Oklahoma Venture Partners, Limited Partnership (the "Partnership") was formed
on July 15, 1988 under the Revised Uniform Limited Partnership Act of the State
of Oklahoma. The Partnership's operations commenced on August 14, 1989. MLOK
Co., Limited Partnership, the managing general partner of the Partnership (the
"Managing General Partner"), is an Oklahoma limited partnership formed on July
15, 1988, the general partner of which is Merrill Lynch Venture Capital Inc.
(the "Management Company"), an indirect subsidiary of Merrill Lynch & Co., Inc.
The Managing General Partner and four individuals (the "Individual General
Partners") are the general partners of the Partnership.
The Partnership's objective is to achieve long-term capital appreciation by
making venture capital investments in new or developing companies, primarily
Oklahoma companies, and other special investment situations. The Partnership
does not engage in any other business or activity. The Partnership considers
this activity to constitute the single industry segment of venture capital
investing.
The Partnership was organized as a "qualified venture capital company" under
Oklahoma law and, therefore, was required to invest over 55% of its
capitalization in companies which constitute "Oklahoma business ventures", as
that term is defined under Oklahoma law. Accordingly, the Partnership's limited
partners (the "Limited Partners") were entitled to an income tax credit against
their 1989 Oklahoma state income tax in an amount equal to 20% of their original
investment in the Partnership. From its inception through December 31, 1998, the
Partnership had invested $9,973,054 in portfolio investments, of which
$6,532,260, or 65.5%, represents investments in Oklahoma business ventures.
The Partnership publicly offered, through Merrill Lynch, 25,000 units of limited
partnership interest at $1,000 per unit (the "Units"). The Units were registered
under the Securities Act of 1933 pursuant to a Registration Statement on Form
N-2 (File No. 33-24547), which was declared effective on December 1, 1988. The
Partnership completed its offering on August 14, 1989. A total of 10,248 Units
were sold to the Limited Partners. Gross capital contributions to the
Partnership total $10,355,556; including $10,248,000 from the Limited Partners,
$103,556 from the Managing General Partner and $4,000 from the Individual
General Partners.
The information set forth under the captions "Risk and Other Important Factors"
(pages 11 through 18), "Investment Objective and Policies" (pages 21 through 26)
and "Oklahoma Considerations" (pages 26 through 28) in the Prospectus of the
Partnership dated December 1, 1988 filed with the Securities and Exchange
Commission pursuant to Rule 497(b) under the Securities Act of 1933, as
supplemented by a supplement dated April 25, 1989 filed pursuant to Rule 497(d)
under the Securities Act of 1933 (the "Prospectus"), is incorporated herein by
reference.
The Venture Capital Investments
From August 14, 1989 (commencement of operations) to December 31, 1998, the
Partnership had invested $9,973,054 in 18 portfolio companies. The Partnership
has fully invested its original net proceeds from the offering of Units and will
not make investments in any new portfolio companies. However, the Partnership
may make additional follow-on investments in existing portfolio companies, if
required. During 1998, the Partnership completed one follow-on investment
totaling $53,918 resulting from the exercise of warrants to purchase additional
common shares of UroCor, Inc., as discussed below. As of December 31, 1998, the
Partnership's investment portfolio consisted of four remaining investments with
a cost of $2,625,384 and a fair value of $6,367,148. From its inception to
December 31, 1998, the Partnership had liquidated investments with an aggregate
cost of $7,347,670. These liquidated investments returned $8,184,184 for a
cumulative net realized gain of $836,514 as of December 31, 1998. The
Partnership also has earned interest and other income from its portfolio
investments totaling $427,534 from its inception to December 31, 1998. Following
is a detail of portfolio activity completed during 1998:
o In December 1998, the Partnership sold 25,000 common shares of
ZymeTx, Inc. for $100,467, realizing a gain of $100,174.
o In December 1998, the Partnership wrote-off its investment in Americo
Publishing, Inc., realizing a loss of $364,000.
o In October 1998, the Partnership sold 30,000 common shares of UroCor, Inc.
for $180,299, realizing a gain of $60,702. Also, in October 1998, the
Partnership exercised its warrant to purchase 12,539 shares of UroCor
common stock for $53,918.
o In June 1998, the Partnership sold its investment in Excel Energy
Technologies, Ltd. for $16,723, realizing a loss of $649,684. Additionally,
the $50,000 note due from Excel Energy was repaid in full along with
interest totaling $3,607.
o In April 1998, the Partnership sold its remaining interest in QuanTEM
Laboratories L.L.C. for $2,500.
o In March 1998, the Partnership received $62,139, representing a payment in
connection with the February 1995 sale of its investment in Bace
Manufacturing, Inc., realizing a gain of $54,908 and interest income of
$7,231.
o In February 1998, the Partnership received a $25,000 payment from
Silverado Foods, Inc., representing a $21,260 loan
repayment and $3,740 of interest.
o During 1998, the Partnership sold its remaining investment of 118,000
shares of Envirogen, Inc. common stock for $160,708, realizing a loss of
$252,292.
o During 1998, the Partnership sold its investment in Independent Gas
Company Holdings, Inc. for $1,278,800, realizing a gain of $811,464.
Termination
The Managing General Partner is working toward the ultimate termination of the
Partnership, with an emphasis on liquidating the remaining assets as soon as
practical with the goal of maximizing returns. The Partnership's originally
scheduled termination date was December 31, 1998. In November 1998, the
Individual General Partners voted to extend the term of the Partnership for an
additional two-year period. The Partnership is now scheduled to terminate no
later than December 31, 2000. The Individual General Partners have the right to
extend the term of the Partnership for an additional two-year period if they
determine that such extension is in the best interest of the Partnership.
Competition
The Partnership encounters competition from other entities having similar
investment objectives, including other entities affiliated with Merrill Lynch &
Co., Inc. Primary competition for venture capital investments has been from
venture capital partnerships, venture capital affiliates of large industrial and
financial companies, small business investment companies and wealthy
individuals. As discussed above, the Partnership will not make any new portfolio
investments.
Employees
The Partnership has no employees. The Managing General Partner, subject to the
supervision of the Individual General Partners, manages and controls the
Partnership's venture capital investments. The Management Company performs, or
arranges for others to perform, the management and administrative services
necessary for the operation of the Partnership and is responsible for managing
the Partnership's short-term investments.
Item 2. Properties.
The Partnership does not own or lease physical properties.
Item 3. Legal Proceedings.
The Partnership is not a party to any material pending legal proceedings.
Item 4. Submission of Matters to a Vote of Security Holders.
No matter was submitted during the fourth quarter of the fiscal year covered by
this report to a vote of security holders.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
The information with respect to the market for the Units set forth under the
subcaption "Substituted Limited Partners" on page 40 of the Prospectus, is
incorporated herein by reference. An established public market for Registrant's
Units does not now exist, and it is not anticipated that such a market will
develop in the future. Accordingly, accurate information as to the market value
of a Unit at any given date is not available. The approximate number of holders
of Units as of March 16, 1999 is 1,061. The Managing General Partner and the
four Individual General Partners of the Partnership also hold interests in the
Partnership.
Merrill Lynch has implemented guidelines pursuant to which it reports estimated
values for limited partnership interests originally sold by Merrill Lynch (such
as the Registrant's Units) two times per year. Such estimated values will be
provided to Merrill Lynch by independent valuation services based on financial
and other information available to the independent services on (i) the prior
August 15th for reporting on December year-end and subsequent client account
statements through the following May's Month-End client account statements, and
on (ii) the prior March 31st for reporting on June month-end and subsequent
client account statements through the November month-end client account
statements of the same year.
The Managing General Partner's estimate of net asset value of the Partnership as
of December 31, 1998 is $668 per Unit, including an assumed allocation of net
unrealized appreciation of investments. The Managing General Partner's estimate
of net asset value as set forth above reflects the value of the Partnership's
underlying assets remaining at year end, whereas the value provided by the
independent services reflects the estimated value of the Partnership Units
themselves based on information that was available on the prior August 15th, as
stated above. The estimated values provided by the independent services and
Registrant's current net asset value are not market values and Unit holders may
not be able to sell their Units or realize either amount upon a sale of their
Units. In addition, Unit holders may not realize the independent estimated value
or Registrant's current net asset value amount upon the liquidation of
Registrant.
Cash Distributions
Cash distributions paid during the periods presented and cumulative cash
distributions to Partners from the inception of the Partnership through December
31, 1998 are listed below:
<TABLE>
Managing Independent
General General Limited Per $1,000
Distribution Date Partner Partners Partners Unit
<S> <C> <C> <C> <C> <C> <C>
Inception to December 31, 1995 $ 25,889 $ 1,000 $ 2,562,000 $ 250
January 21, 1997 4,984 192 512,400 50
July 1, 1997 5,370 208 512,400 50
October 22, 1997 12,945 500 1,281,000 125
October 28, 1998 8,802 340 871,080 85
------------ ----------- -------------- --------
Cumulative as of December 31, 1998 $ 57,990 $ 2,240 $ 5,738,880 $ 560
============ =========== ================ ========
</TABLE>
<PAGE>
<TABLE>
Item 6. Selected Financial Data.
($ in thousands, except for per Unit information)
Years ended December 31,
1998 1997 1996 1995 1994
-------- ---------- --------- -------- ---------
<S> <C> <C> <C> <C> <C>
Net investment loss $ (287) $ (251) $ (373) $ (289) $ (143)
Net realized (loss) gain on investments (236) 939 370 1,651 (272)
Change in unrealized appreciation of
investments 717 (1,995) 2,046 (950) 3,424
Total assets 7,128 7,784 11,427 9,317 11,472
Net unrealized appreciation of investments 3,742 3,025 5,020 2,974 3,924
Cash distributions to Partners 880 1,812 518 2,589 -
Cumulative cash distributions to Partners 5,799 4,919 3,107 2,589 -
Cost of portfolio investments purchased 54 650 151 213 1,121
Cumulative cost of portfolio investments
purchased 9,973 9,919 9,269 9,118 8,905
PER UNIT OF LIMITED
PARTNERSHIP INTEREST:
Net investment loss $ (28) $ (24) $ (37) $ (28) $ (14)
Net realized (loss) gain on investments (23) 91 36 159 (26)
Net increase (decrease) in net assets
resulting from operations 19 (126) 197 40 291
Cash distributions to Partners 85 175 50 250 -
Cumulative cash distributions to Partners 560 475 300 250 -
Net unrealized appreciation of investments 361 292 485 287 379
Net asset value, including net unrealized
appreciation of investments 668 734 1,035 888 1,098
</TABLE>
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Liquidity and Capital Resources
As of December 31, 1998, the Partnership held $731,956 in an interest-bearing
cash account. Interest earned on such cash balances and other short-term
investments for the years ended December 31, 1998, 1997 and 1996 was $25,886,
$67,561, and $36,435, respectively. Interest earned from short-term investments
in future periods is subject to fluctuations in short-term interest rates and
changes in amounts available for investment in such securities.
The Managing General Partner is working toward the termination of the
Partnership, with an emphasis on liquidating the remaining assets as soon as
practical with the goal of maximizing returns. The Partnership's originally
scheduled termination date was December 31, 1998. In November 1998, the
Individual General Partners voted to extend the term of the Partnership for an
additional two-year period. The Partnership is now scheduled to terminate no
later than December 31, 2000. The Individual General Partners have the right to
extend the term of the Partnership for an additional two-year period if they
determine that such extension is in the best interest of the Partnership.
In October 1998, the Partnership made one follow-on investment totaling $53,918
in an existing portfolio company. The Partnership has fully invested its
original net proceeds and will not make investments in new portfolio companies.
Generally, the Partnership will distribute to Partners all proceeds received
from the sale of its portfolio investments, as soon as practicable after
establishing an adequate reserve for operating expenses or follow-on investments
in existing portfolio companies. Funds needed to cover the Partnership's future
operating expenses and follow-on investments are expected to be obtained from
existing cash reserves, interest and other investment income and proceeds from
the sale of portfolio investments.
In October 1998, the Partnership made a cash distribution to Partners totaling
$880,222. Limited Partners of record on September 30, 1998 received $871,080, or
$85 per Unit, the Individual General Partners received $340, and the Managing
General Partner received $8,802. Cumulative cash distributions to Partners from
inception to December 31, 1998 total $5,799,110, consisting of $5,738,880, or
$560 per Unit, to the Limited Partners, $2,240 to the Individual General
Partners and $57,990 to the Managing General Partner.
Results of Operations
For the year ended December 31, 1998, the Partnership had a net realized loss
from operations of $523,607. For the years ended December 31, 1997 and 1996, the
Partnership had a net realized gain from operations of $688,367 and a net
realized loss from operations of $2,389, respectively. Net realized gain or loss
from operations is comprised of (1) net realized gain or loss from portfolio
investments and (2) net investment income or loss (interest and dividend income
less operating expenses).
Realized Gains and Losses from Portfolio Investments - For the year ended
December 31, 1998, the Partnership had a net realized loss of $236,228 from the
liquidation of several of its portfolio investments. In connection with a
recapitalization of Independent Gas Company Holdings, Inc. completed during
1998, the Partnership sold its investment back to Independent Gas for
$1,278,800, realizing a gain of $811,464. Also during 1998, the Partnership sold
certain publicly traded portfolio securities including: its remaining 118,000
common shares of Envirogen, Inc., for $160,708, realizing a loss of $252,292;
30,000 common shares of UroCor, Inc. for $180,299, realizing a gain of $60,702;
and 25,000 common shares of ZymeTx, Inc. for $100,467, realizing a gain of
$100,174. In a private transaction completed during the year, the Partnership
sold its investment in Excel Energy Technologies, Inc., realizing a loss of
$649,684. In December 1998, the Partnership wrote-off the remaining cost of its
investment in Americo Publishing Inc., due to continuing operating and financial
difficulties at the company, resulting in a realized loss of $364,000. Finally,
during 1998, the Partnership realized a gain of $2,500 from the sale of its
interest in QuanTEM Laboratories L.L.C., an investment that had previously been
written-off, and also realized gain of $54,908 from an escrow payment received
in March 1998 in connection with the February 1995 sale of the Partnership's
investment in Bace Manufacturing, Inc.
For the year ended December 31, 1997, the Partnership had a net realized gain
from portfolio investments of $939,317. During 1997, the Partnership sold
275,317 shares of C.R. Anthony Company common stock in the public market for
$2,184,292, realizing a gain of $1,584,101. In December 1997, the Partnership
sold 100,000 shares of Data Critical Corp. common stock in a private transaction
for $100,000, realizing a gain of $60,000. In June 1997, Diagnetics, Inc. sold
its assets and liquidated, resulting in a return of $87,001 to the Partnership
and a realized loss of $726,609. Finally, during 1997, the Partnership
recognized a gain of $21,825, upon the receipt of the final escrow release in
connection with the 1996 acquisition of Enerpro International, Inc. by Energy
Ventures, Inc. ("EVI"), as discussed below.
For the year ended December 31, 1996, the Partnership had a net realized gain
from portfolio investments of $370,161. In May 1996, Enerpro International, Inc.
merged with EVI, a public company. In connection with the merger, the
Partnership received 24,500 shares of EVI common stock for its Enerpro holdings.
The Partnership sold such shares in the public market during 1996 for $737,967.
Additionally, pursuant to the merger agreement, $72,353 of such proceeds were
held in escrow and released in 1997, as discussed above. In 1996, the
Partnership had recorded a contingency reserve of $21,825 relating to the escrow
holdings and, therefore, recognized a $366,212 realized gain on a net basis in
connection with this transaction. Additionally during 1996, the Partnership sold
32,000 shares of Envirogen, Inc. in the public market for $115,949, realizing a
gain of $3,949.
Investment Income and Expenses - For the years ended December 31, 1998, 1997 and
1996, the Partnership had a net investment loss of $287,379, $250,950 and
$372,550, respectively. The $36,429 increase in net investment loss for 1998
compared to 1997 resulted from a $29,919 increase in operating expenses and a
$6,510 decrease in investment income. The increase in operating expenses for
1998 compared to 1997 primarily resulted from a $23,976 increase in professional
fees. Professional fees for the 1998 period include legal expenses incurred in
connection with the liquidation of the Partnership's investment in Americo
Publishing, Inc. Additionally, certain favorable accrual adjustments were made
to professional fees during the 1997 period. Mailing and printing expenses
increased by $3,463 primarily due to a general increase in such expenses during
1998. The decrease in investment income included a $41,675 decline in interest
from short-term investments, primarily due to a decrease in funds available for
such investments during 1998 compared to 1997. The Partnership invests proceeds
received from the sale of portfolio investments in short-term securities until
such funds are used for operations or distributed to Partners. The decrease in
interest from short-term investments was partially offset by a $35,165 net
increase in interest and other income from portfolio investments, primarily
resulting from interest accrued on the bridge loan due from Silverado Foods,
Inc. during 1998.
The $121,600 decrease in net investment loss for 1997 compared to 1996 resulted
from a $73,315 increase in investment income and a $48,285 decline in operating
expenses. The increase in investment income primarily resulted from an increase
of $31,126 in interest from short-term investments due to an increase in funds
available for such investments during 1997 compared to 1996. Also contributing
to the increase in investment income was a $42,189 positive change in income
from portfolio investments, primarily due to the 1996 write-off of a $51,106
accrued interest receivable relating to promissory notes due from Americo
Publishing, Inc., which were fully reserved for in 1996. The decrease in
operating expenses for 1997 compared to 1996 primarily resulted from a $39,404
reduction in professional fees. This reduction primarily was due to the reversal
in 1997 of excess professional fee accruals made in prior periods. Custodial
fees also declined primarily due to the reversal of excess accruals made in
prior periods.
The Management Company is responsible for the management and administrative
services necessary for the operation of the Partnership. The Management Company
receives a management fee of 2.5% of the gross capital contributions to the
Partnership, reduced by selling commissions and organizational and offering
expenses paid by the Partnership, capital distributed and realized losses, with
a minimum fee of $200,000 annually. Such fee is determined and paid quarterly.
The management fee for each year ended December 31, 1998, 1997 and 1996, was
$200,000. In connection with the extension of the term of the Partnership, the
Partnership and the Management Company agreed to reduce the minimum management
fee by the Partnership from $200,000 to $160,000, effective January 1, 1999. To
the extent possible, the management fee and other expenses incurred directly by
the Partnership are paid with funds provided from operations, including proceeds
from the sale of portfolio investments.
Unrealized Gains and Losses and Changes in Unrealized Appreciation of Portfolio
Investments - During the year ended December 31, 1998, the Partnership reduced
the fair value of its portfolio investments on a net basis by $435,460,
resulting from the net downward revaluation of certain portfolio investments.
These downward revaluations primarily were due to declines in the public market
prices of Silverado Foods, Inc. and ZymeTx, Inc., partially offset by an upward
revaluation of Data Critical Corp., a privately-held company. Offsetting the
reduction to fair value for 1998 was the net transfer of $1,152,656 from
unrealized loss to realized loss resulting from portfolio investments sold or
written-off during the year, as discussed above.
As a result, net unrealized appreciation of investments increased $717,196 for
1998.
For the year ended December 31, 1997, the Partnership reduced the fair value of
its portfolio investments on a net basis by $1,679,349, resulting from the net
downward revaluation of certain portfolio investments. These downward
revaluations primarily were due to declines in the public market prices of
Silverado Foods, Inc. and UroCor, Inc., partially offset by an upward
revaluation of ZymeTx, Inc., which completed its initial public offering in
November 1997. Additionally, during 1997 there was a net transfer of $315,767
from unrealized gain to realized gain resulting from the liquidations of C.R.
Anthony, Data Critical and Diagnetics, as discussed above. As a result, net
unrealized appreciation of investments decreased $1,995,116 for 1997.
For the year ended December 31, 1996, the Partnership increased the fair value
of its portfolio investments on a net basis by $2,239,648, resulting from the
net upward revaluation of certain portfolio investments, primarily UroCor, Inc.,
which completed its initial public offering in May 1996. Offsetting the increase
to fair value for 1996 was the net transfer of $194,016 from unrealized gain to
realized gain resulting from the sale of Enerpro and Envirogen, as discussed
above. As a result, net unrealized appreciation of investments increased
$2,045,632 for 1996.
Net Assets - Changes to net assets resulting from operations are comprised of
(1) net realized gain or loss from operations and (2) changes to net unrealized
appreciation of portfolio investments. For the year ended December 31, 1998, the
Partnership had a $193,589 increase in net assets resulting from operations,
comprised of the $717,196 increase in net unrealized appreciation partially
offset by the $523,607 net realized loss from operations for 1998. As of
December 31, 1998, the Partnership's net assets were $6,913,388, down $686,633
from $7,600,021 as of December 31, 1997. This decrease reflects the cash
distribution of $880,222 paid to Partners in 1998 exceeding the $193,589
increase in net assets from operations for 1998.
For the year ended December 31, 1997, the Partnership had a $1,306,749 decrease
in net assets resulting from operations, comprised of the $1,995,116 decrease in
net unrealized appreciation partially offset by the $688,367 realized gain from
operations for 1997. As of December 31, 1997, the Partnership's net assets were
$7,600,021, down $3,119,172 from $10,719,193 as of December 31, 1996. This
decrease reflects the $1,306,749 decrease in net assets from operations and the
cash distributions of $1,812,423 paid to Partners during 1997.
For the year ended December 31, 1996, the Partnership had a $2,043,243 increase
in net assets resulting from operations, comprised of the $2,045,632 increase in
net unrealized appreciation partially offset by the $2,389 realized loss from
operations for 1996. As of December 31, 1996, the Partnership's net assets were
$10,719,193, up $1,525,667 from $9,193,526 as of December 31, 1995. This
increase reflects the $2,043,243 increase in net assets from operations
exceeding the accrued cash distribution of $517,576 paid to Partners in January
1997.
Gains or losses from investments are allocated to the Partners' capital accounts
when realized in accordance with the Partnership Agreement (see Note 3 of Notes
to Financial Statements). However, for purposes of calculating the net asset
value per unit of limited partnership interest, net unrealized appreciation or
depreciation of investments has been included as if the net appreciation or
depreciation had been realized and allocated to the Limited Partners in
accordance with the Partnership Agreement. Pursuant to such calculation, the net
asset value per $1,000 Unit at December 31, 1998, 1997 and 1996 was $668, $734
and $1,035, respectively.
Year 2000 Issue - The Year 2000 ("Y2K") concern arose because many existing
computer programs use only the last two digits to refer to a year. Therefore,
these computer programs do not properly recognize a year that begins with "20"
instead of "19". If not corrected, many computer applications could fail or
create erroneous results. The impact of the Y2K concern on the Partnership's
operations is currently being assessed.
The Management Company is responsible to provide or arrange for the provision of
administrative services necessary to support the Partnership's operations. The
Management Company has arranged for Palmeri Fund Administrators, Inc. (the
"Administrator") to provide certain administrative and accounting services for
the Partnership, including maintenance of the books and records of the
Partnership, maintenance of the limited partner database, issuance of financial
reports and tax information to limited partners and processing distribution
payments to limited partners. Fees charged by the Administrator are paid
directly by the Management Company.
The Administrator is currently assessing its computer hardware and software
systems, specifically as they relate to the operations of the Partnership. As
part of this investigation of potential Y2K problems, the Administrator has
contracted with an outside computer service provider to examine all of the
Administrator's computer hardware and software applications, to identify any Y2K
concerns. This review and evaluation is in process and is expected to be
completed by May 1999. If Y2K problems are identified, the Administrator will
purchase, install and test the necessary software patches and new computer
hardware to ensure that all of its computer systems are Y2K compliant. This
correction phase, if required, is expected to be completed by September 1999.
Additionally, the Administrator has contacted the outside service providers used
to assist the Administrator or the Management Company with the administration of
the Partnership's operations to ascertain whether these entities are addressing
the Y2K issue within their own operation. There can be no guarantee that the
Administrator's systems or that systems of other companies providing services to
the Partnership will be corrected in a timely manner.
Since the Partnership does not own any equipment and all of its administrative
needs are provided by the Management Company, any costs relating to the
investigation and correction of potential Y2K problems affecting the
Partnership's operations will be incurred by the Administrator, the Management
Company or the outside service providers. Therefore, the Management Company and
the Managing General Partner do not expect the Partnership to incur any costs
relating to the investigation or correction of Y2K concerns.
Finally the Y2K issue is a global concern that may affect all business entities,
including the Partnership's portfolio companies. The General Partner is
continuing to assess the impact of Y2K concerns affecting its portfolio
companies. However, the extent to which any potential Y2K problems could affect
the valuations of these companies is presently unknown. At the time that
specific Y2K problems are identified, if any, the Managing General Partner will
take such issues into consideration in adjusting the fair value of the
Partnership's portfolio investments.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
The Partnership is subject to market risk arising from changes in the value of
its portfolio investments, short-term investments and interest-bearing cash
equivalents, which may result from fluctuations in interest rates and equity
prices. The Partnership has calculated its market risk related to its holdings
of these investments based on changes in interest rates and equity prices
utilizing a sensitivity analysis. The sensitivity analysis estimates the
hypothetical change in fair values, cash flows and earnings based on an assumed
10% change (increase or decrease) in interest rates and equity prices. To
perform the sensitivity analysis, the assumed 10% change is applied to market
rates and prices on investments held by the Partnership at the end of the
accounting period.
The Partnership's portfolio investments had an aggregate fair value of
$6,367,148 as of December 31, 1998. An assumed 10% decline from this December
31, 1998 fair value, including an assumed 10% decline of the per share market
prices of the Partnership's publicly-traded securities, would result in a
reduction to the fair value of such investments and an unrealized loss of
$636,715.
The Partnership had no short-term investments as of December 31, 1998. Market
risk relating to the Partnership's interest-bearing cash equivalents held as of
December 31, 1998 is considered to be immaterial.
<PAGE>
Item 8. Financial Statements and Supplementary Data.
ML OKLAHOMA VENTURE PARTNERS, LIMITED PARTNERSHIP
INDEX
Independent Auditors' Report
Balance Sheets as of December 31, 1998 and 1997
Schedule of Portfolio Investments as of December 31, 1998
Schedule of Portfolio Investments as of December 31, 1997
Statements of Operations for the years ended December 31, 1998, 1997 and 1996
Statements of Cash Flows for the years ended December 31, 1998, 1997 and 1996
Statements of Changes in Partners' Capital for the years ended December 31,
1996, 1997 and 1998
Notes to Financial Statements
NOTE - All other schedules are omitted because of the absence of conditions
under which they are required or because the required information is included in
the financial statements or the notes thereto.
<PAGE>
INDEPENDENT AUDITORS' REPORT
ML Oklahoma Venture Partners, Limited Partnership:
We have audited the accompanying balance sheets of ML Oklahoma Venture Partners,
Limited Partnership (the "Partnership"), including the schedules of portfolio
investments, as of December 31, 1998 and 1997, and the related statements of
operations, cash flows, and changes in partners' capital for each of the three
years in the 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 securities owned at December 31, 1998 and 1997 by correspondence
with the custodian; where confirmation was not possible, we performed other
audit procedures. 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, such financial statements present fairly, in all material
respects, the financial position of the Partnership as of December 31, 1998 and
1997, and the results of its operations, its cash flows and the changes in its
partners' capital for each of the three years in the period ended December 31,
1998 in conformity with generally accepted accounting principles.
As explained in Note 2, the financial statements include securities valued at
$6,367,148 and $4,424,331 as of December 31, 1998 and 1997, respectively,
representing 92.1% and 58.2% of net assets, respectively, whose values have been
estimated by the Managing General Partner in the absence of readily
ascertainable market values. We have reviewed the procedures used by the
Managing General Partner in arriving at its estimate of value of such securities
and have inspected underlying documentation, and, in the circumstances, we
believe the procedures are reasonable and the documentation appropriate.
However, because of the inherent uncertainty of valuation, those estimated
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.
Deloitte & Touche LLP
New York, New York
March 10, 1999
<PAGE>
ML OKLAHOMA VENTURE PARTNERS, LIMITED PARTNERSHIP
BALANCE SHEETS
As of December 31, 1998 and 1997
<TABLE>
1998 1997
-------------- ----------------
ASSETS
Investments
Portfolio investments, at fair value (cost $2,625,384 as of
<S> <C> <C> <C> <C> <C> <C> <C>
December 31, 1998 and $4,673,359 as of December 31, 1997) $ 6,367,148 $ 7,697,927
Cash and cash equivalents 731,956 85,653
Accrued interest receivable 28,778 480
---------------- -----------------
TOTAL ASSETS $ 7,127,882 $ 7,784,060
================ =================
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Accounts payable and accrued expenses $ 61,845 $ 60,068
Due to Management Company 137,649 108,971
Due to Independent General Partners 15,000 15,000
---------------- -----------------
Total liabilities 214,494 184,039
---------------- -----------------
Partners' Capital:
Managing General Partner 31,716 45,754
Individual General Partners 1,229 1,771
Limited Partners (10,248 Units) 3,138,679 4,527,928
Unallocated net unrealized appreciation of investments 3,741,764 3,024,568
---------------- -----------------
Total partners' capital 6,913,388 7,600,021
---------------- -----------------
TOTAL LIABILITIES AND PARTNERS' CAPITAL $ 7,127,882 $ 7,784,060
================ =================
</TABLE>
See notes to financial statements.
<PAGE>
ML OKLAHOMA VENTURE PARTNERS, LIMITED PARTNERSHIP
SCHEDULE OF PORTFOLIO INVESTMENTS
As of December 31, 1998
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Initial Investment
Investment Date Cost Fair Value
Data Critical Corp.*(B)
Wireless data transmission
<C> <C> <C> <C>
762,500 shares of Preferred Stock April 1993 $ 700,000 $ 1,437,500
775,000 shares of Common Stock 310,000 775,000
- - -------------------------------------------------------------------------------------------------------------------------------
Silverado Foods, Inc.(A)(B)
Gourmet snacks and food products
705,681 shares of Common Stock June 1992 529,900 0
Warrant to purchase 12,121 shares of Common Stock
at $8.25 per share, expiring 6/2/99 0 0
Warrant to purchase 35,000 shares of Common Stock
at $.625 per share, expiring 12/19/02 0 0
14% Bridge Loan 228,740 228,740
- - -------------------------------------------------------------------------------------------------------------------------------
UroCor, Inc. (A)(B)(C)
Urological disease management
479,174 shares of Common Stock May 1991 855,626 3,034,750
- - -------------------------------------------------------------------------------------------------------------------------------
ZymeTx, Inc.(A)(B)(D)
Viral diagnostics and therapeutics
279,579 shares of Common Stock July 1994 1,118 891,158
- - -------------------------------------------------------------------------------------------------------------------------------
Totals from Active Portfolio Investments $ 2,625,384 $ 6,367,148
============== ==============
Supplemental Information - Liquidated Portfolio Investments: (L)
Liquidation Realized
Company Date Cost Gain (Loss) Return
- - -------------------------------------------------------------------------------------------------------------------------------
Americo Publishing, Inc. (E) 1998 $ 364,000 $ (364,000) $ 0
Bace Manufacturing, Inc. (F) 1995 539,000 1,654,383 2,193,383
C.R. Anthony Company 1994-1997 602,366 1,581,926 2,184,292
Data Critical Corp. 1997 40,000 60,000 100,000
Diagnetics, Inc. 1997 813,610 (726,609) 87,001
- - -------------------------------------------------------------------------------------------------------------------------------
Eckerd Corporation 1995 142,992 336,919 479,911
- - -------------------------------------------------------------------------------------------------------------------------------
Energy Ventures, Inc./Enerpro International, Inc. 1996 350,000 388,037 738,037
Envirogen, Inc. (G) 1994-1998 525,000 (203,002) 321,998
Excel Energy Technologies, Ltd.(H) 1998 716,407 (649,684) 66,723
- - -------------------------------------------------------------------------------------------------------------------------------
Great Outdoors Publishing, Inc. 1995 325,000 (325,000) 0
Independent Gas Company Holdings, Inc.(I) 1995-1998 467,436 811,464 1,278,900
QuanTEM Laboratories, Inc.(J) 1990-1998 89,000 (46,213) 42,787
- - -------------------------------------------------------------------------------------------------------------------------------
Silverado Foods, Inc.(K) 1994 301,260 0 301,260
Sports Tactics International, Inc. 1993-1994 450,000 (430,884) 19,116
</TABLE>
<PAGE>
ML OKLAHOMA VENTURE PARTNERS, LIMITED PARTNERSHIP
SCHEDULE OF PORTFOLIO INVESTMENTS, continued
As of December 31, 1998
<TABLE>
Liquidation Realized
Company Date Cost Gain (Loss) Return
- - -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Tricon America Corporation 1990-1991 $ 662,810 $ (572,800) $ 90,010
UroCor, Inc. (C) 1998 119,597 60,702 180,299
ZymeTx, Inc./Symex Corporation (D) 1993-1998 839,192 (738,725) 100,467
Totals from Liquidated Portfolio Investments $ 7,347,670 $ 836,514 $ 8,184,184
============== ============ ==============
Combined Combined
Unrealized and Fair Value
Cost Realized Gain and Return
Totals from Active & Liquidated Portfolio Investments $ 9,973,054 $ 4,578,278 $ 14,551,332
======================= ================== ================
</TABLE>
(A) Public company
(B) Qualifies as an "Oklahoma business venture" under Oklahoma law.
(C) In October 1998, the Partnership sold 30,000 common shares of UroCor, Inc.
for $180,299, realizing a gain of $60,702. Also, in October 1998, the
Partnership exercised its warrant to purchase 12,539 shares of UroCor
common stock for $53,918.
(D) In December 1998, the Partnership sold 25,000 common shares of ZymeTx, Inc.
for $100,467, realizing a gain of $100,174.
(E) In December 1998, the Partnership wrote-off its investment in Americo
Publishing, Inc., realizing a loss of $364,000.
(F) In March 1998, the Partnership received $62,139, representing a payment in
connection with the February 1995 sale of its investment in Bace
Manufacturing, Inc., realizing a gain of $54,908 and interest income of
$7,231.
(G) During 1998, the Partnership sold its remaining investment of 118,000
shares of Envirogen, Inc. common stock for $160,708,
realizing a loss of $252,292.
(H) In June 1998, the Partnership sold its investment in Excel Energy
Technologies, Ltd. for $16,723, realizing a loss of $649,684. Additionally,
the $50,000 note due from Excel Energy was repaid in full along with
interest totaling $3,607.
(I) During 1998, the Partnership sold its investment in Independent Gas Company
Holdings, Inc. for $1,278,800, realizing a gain of $811,464.
(J) In April 1998, the Partnership sold its remaining interest in QuanTEM
Laboratories L.L.C. for $2,500.
(K) In February 1998, the Partnership received a $25,000 payment from
Silverado Foods, Inc., representing a $21,260 loan
repayment and $3,740 of interest.
(L) Amounts provided for "Supplemental Information: Liquidated Portfolio
Investments" are cumulative from inception through December 31, 1998.
o May be deemed an affiliated person of the Partnership as defined in the
Investment Company Act of 1940.
See notes to Financial Statements.
<PAGE>
ML OKLAHOMA VENTURE PARTNERS, LIMITED PARTNERSHIP
SCHEDULE OF PORTFOLIO INVESTMENTS
As of December 31, 1997
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Initial Investment
Company / Position Date Cost Fair Value
Americo Publishing, Inc.
<C> <C> <C> <C>
8%-10% Demand Promissory Notes Feb. 1994 $ 364,000 $ 0
- - -------------------------------------------------------------------------------------------------------------------------------
Data Critical Corp.*(B)
762,500 shares of Preferred Stock April 1993 700,000 1,150,000
775,000 shares of Common Stock 310,000 620,000
- - -------------------------------------------------------------------------------------------------------------------------------
Envirogen, Inc.(A)
118,000 shares of Common Stock Sept. 1991 413,000 177,000
- - -------------------------------------------------------------------------------------------------------------------------------
Excel Energy Technologies, Ltd.*(B)
3,492 shares of Preferred Stock Oct. 1993 663,907 66,391
17 shares of Common Stock 2,500 0
15% Promissory Note 50,000 50,000
- - -------------------------------------------------------------------------------------------------------------------------------
Independent Gas Company Holdings, Inc.
464 shares of Preferred Stock June 1993 464,000 464,000
5,192 shares of Common Stock 3,336 3,336
- - -------------------------------------------------------------------------------------------------------------------------------
Silverado Foods, Inc.*(A)(B)
705,681 shares of Common Stock June 1992 529,900 297,709
Warrant to purchase 12,121 shares of Common Stock
at $8.25 per share, expiring 6/2/99 0 0
Warrant to purchase 35,000 shares of Common Stock
at $.625 per share, expiring 12/19/02 0 0
14% Bridge Loan 250,000 250,000
- - -------------------------------------------------------------------------------------------------------------------------------
UroCor, Inc. (A)(B)
496,635 shares of Common Stock May 1991 921,305 3,072,929
Warrant to purchase 12,539 shares of Common Stock
at $4.30 per share, expiring 10/18/98 0 23,667
- - -------------------------------------------------------------------------------------------------------------------------------
ZymeTx, Inc.(A)(B)
304,579 shares of Common Stock July 1994 1,411 1,522,895
- - -------------------------------------------------------------------------------------------------------------------------------
Total from Active Portfolio Investments $ 4,673,359 $ 7,697,927
===================================
</TABLE>
(A) Public company
(B) Qualifies as an "Oklahoma business venture" under Oklahoma law.
* May be deemed an affiliated person of the Partnership as defined in the
Investment Company Act of 1940.
See notes to financial statements.
<PAGE>
ML OKLAHOMA VENTURE PARTNERS, LIMITED PARTNERSHIP
STATEMENTS OF OPERATIONS
For the Years Ended December 31,
<TABLE>
1998 1997 1996
------------- -------------- ---------------
INVESTMENT INCOME AND EXPENSES
Income:
<S> <C> <C> <C>
Interest from short-term investments $ 25,886 $ 67,561 $ 36,435
Interest and other income (loss) from portfolio investments 35,645 480 (41,709)
------------- ---------------- ---------------
Total investment income 61,531 68,041 (5,274)
------------- ---------------- ---------------
Expenses:
Management fee 200,000 200,000 200,000
Professional fees 66,765 42,789 82,193
Independent General Partners' fees 60,000 60,000 59,000
Mailing and printing 17,949 14,486 16,392
Custodial fees 1,565 (1,638) 5,735
Miscellaneous 2,631 3,354 3,956
------------- ---------------- ---------------
Total expenses 348,910 318,991 367,276
------------- ---------------- ---------------
NET INVESTMENT LOSS (287,379) (250,950) (372,550)
Net realized (loss) gain from investments (236,228) 939,317 370,161
------------- ---------------- ---------------
NET REALIZED (LOSS) GAIN FROM OPERATIONS (523,607) 688,367 (2,389)
Change in unrealized appreciation of investments 717,196 (1,995,116) 2,045,632
------------- ---------------- ---------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS $ 193,589 $ (1,306,749) $ 2,043,243
============= ================ ===============
</TABLE>
See notes to financial statements.
<PAGE>
ML OKLAHOMA VENTURE PARTNERS, LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
For the Years Ended December 31,
<TABLE>
1998 1997 1996
-------------- ------------- -------------
CASH FLOWS USED FOR OPERATING ACTIVITIES
<S> <C> <C> <C>
Net investment loss $ (287,379) $ (250,950) $ (372,550)
Adjustments to reconcile net investment loss to cash
used for operating activities:
Increase (decrease) in payables 30,455 (5,986) 66,249
Decrease (increase) in accrued interest on short-term investments - 5,276 (4,880)
(Increase) decrease in receivables (28,298) (480) 44,653
-------------- ------------- -------------
Cash used for operating activities (285,222) (252,140) (266,528)
-------------- ------------- -------------
CASH FLOWS PROVIDED FROM INVESTING ACTIVITIES
Cost of portfolio investments purchased (53,918) (650,000) (151,200)
Proceeds from the sale of portfolio investments 1,794,405 2,443,646 781,633
Proceeds from the repayment of notes and bridge loan 71,260 - -
Net return from (purchase of) short-term investments - 493,461 (244,530)
-------------- ------------- -------------
Cash provided from investing activities 1,811,747 2,287,107 385,903
-------------- ------------- -------------
CASH FLOWS USED FOR FINANCING ACTIVITIES
Cash distributions paid to Partners (880,222) (2,329,999) -
-------------- ------------- -------------
Increase (decrease) in cash and cash equivalents 646,303 (295,032) 119,375
Cash and cash equivalents at beginning of year 85,653 380,685 261,310
-------------- ------------- -------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 731,956 $ 85,653 $ 380,685
============== ============= =============
</TABLE>
See notes to financial statements.
<PAGE>
ML OKLAHOMA VENTURE PARTNERS, LIMITED PARTNERSHIP
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
For the Years Ended December 31, 1996, 1997 and 1998
<TABLE>
Unallocated
Managing Individual Net Unrealized
General General Limited Appreciation
Partner Partners Partners of Investments Total
<S> <C> <C> <C> <C> <C> <C> <C>
Balance as of December 31, 1995 $ 62,194 $ 2,405 $ 6,154,875 $ 2,974,052 $ 9,193,526
Accrued cash distribution, paid
January 21, 1997 (4,984) (192) (512,400) - (517,576)
Net investment loss (3,726) (143) (368,681) - (372,550)
Net realized gain from investments 3,702 143 366,316 - 370,161
Change in unrealized
appreciation of investments - - - 2,045,632 2,045,632
---------- -------- ------------- ------------- --------------
Balance as of December 31, 1996 57,186 2,213 5,640,110(A) 5,019,684 10,719,193
Cash distributions, paid
July 1, 1997 and October 22, 1997 (18,315) (708) (1,793,400) - (1,812,423)
Net investment loss (2,510) (97) (248,343) - (250,950)
Net realized gain from investments 9,393 363 929,561 - 939,317
Change in unrealized
appreciation of investments - - - (1,995,116) (1,995,116)
---------- -------- ------------- ------------- --------------
Balance as of December 31, 1997 45,754 1,771 4,527,928(A) 3,024,568 7,600,021
Cash distribution, paid
October 28, 1998 (8,802) (340) (871,080) - (880,222)
Net investment loss (2,874) (111) (284,394) - (287,379)
Net realized loss from investments (2,362) (91) (233,775) - (236,228)
Change in unrealized
appreciation of investments - - - 717,196 717,196
---------- -------- ------------- ------------- -------------
Balance as of December 31, 1998 $ 31,716 $ 1,229 $ 3,138,679(A) $ 3,741,764 $ 6,913,388
========== ======== ============= ============= ===========
</TABLE>
(A) The net asset value per unit of limited partnership interest, including an
assumed allocation of net unrealized appreciation of investments, was $668,
$734, and $1,035 as of December 31, 1998, 1997 and 1996, respectively.
Cumulative cash distributions paid to Limited Partners totaled $560 per
Unit as of December 31, 1998.
See notes to financial statements.
<PAGE>
ML OKLAHOMA VENTURE PARTNERS, LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
1. Organization and Purpose
ML Oklahoma Venture Partners, Limited Partnership (the "Partnership") was formed
on July 15, 1988 under the Revised Uniform Limited Partnership Act of the State
of Oklahoma. The Partnership's operations commenced on August 14, 1989. MLOK
Co., Limited Partnership, the managing general partner of the Partnership (the
"Managing General Partner"), is an Oklahoma limited partnership formed on July
15, 1988, the general partner of which is Merrill Lynch Venture Capital Inc.
(the "Management Company"), an indirect subsidiary of Merrill Lynch & Co., Inc.
The Partnership's objective is to achieve long-term capital appreciation by
making venture capital investments in new or developing companies, primarily
Oklahoma companies, and other special investment situations. The Partnership
does not engage in any other business or activity. The Managing General Partner
is working toward the ultimate termination of the Partnership, with an emphasis
on liquidating the remaining assets as soon as practical with the goal of
maximizing returns. The Partnership's originally scheduled termination date was
December 31, 1998. In November 1998, the Individual General Partners voted to
extend the term of the Partnership for an additional two-year period. The
Partnership is now scheduled to terminate no later than December 31, 2000. The
Individual General Partners have the right to extend the term of the Partnership
for an additional two-year period if they determine that such extension is in
the best interest of the Partnership.
2. Significant Accounting Policies
Valuation of Investments - Short-term investments are carried at amortized cost
which approximates market. Portfolio investments are carried at fair value as
determined quarterly by the Managing General Partner under the supervision of
the Individual General Partners. The Managing General Partner determines the
fair value of its portfolio investments by applying consistent guidelines. The
fair value of public securities is adjusted to the closing public market price
for the last trading day of the accounting period less an appropriate discount
for sales restrictions, the size of the Partnership's holdings and the public
market trading volume. Private securities are carried at cost until significant
developments affecting a portfolio investment provide a basis for change in
valuation. The fair value of private securities is adjusted 1) to reflect
meaningful third-party transactions in the private market or 2) to reflect
significant progress or slippage in the development of the company's business
such that cost is no longer reflective of fair value. As a venture capital
investment fund, the Partnership's portfolio investments involve a high degree
of business and financial risk that can result in substantial losses. The
Managing General Partner considers such risks in determining the fair value of
the Partnership's portfolio investments.
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 reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
<PAGE>
ML OKLAHOMA VENTURE PARTNERS, LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS, continued
Investment Transactions - Investment transactions are recorded on the accrual
method. Portfolio investments are recorded on the trade date, the date the
Partnership obtains an enforceable right to demand the securities or payment
thereof. Realized gains and losses on investments sold are computed on a
specific identification basis.
Income Taxes - No provision for income taxes has been made since all income and
losses are allocable to the Partners for inclusion in their respective tax
returns. The Partnership's net assets for financial reporting purposes differ
from its net assets for tax purposes. Net unrealized appreciation of
approximately $3.7 million as of December 31, 1998, which was recorded for
financial statement purposes, has not been recognized for tax purposes.
Additionally, from inception to December 31, 1998, other timing differences
totaling $1.5 million, including the original sales commissions paid and other
costs of selling the Units have been recorded on the Partnership's financial
statements but have not yet been deducted for tax purposes.
Statements of Cash Flows - The Partnership considers its interest-bearing cash
account to be cash equivalents.
Reclassifications - Certain reclassifications have been made to the prior year's
financial statements to conform with the current year's presentation.
3. Allocation of Partnership Profits and Losses
Pursuant to the Partnership Agreement, profits from venture capital investments
are allocated to all Partners in proportion to their capital contributions until
all Partners have been allocated a 10% Priority Return from liquidated
investments. Profits in excess of this amount are allocated 30% to the Managing
General Partner and 70% to all Partners in proportion to their capital
contributions until the Managing General Partner has been allocated 20% of the
total profits from venture capital investments. Thereafter, profits from venture
capital investments are allocated 20% to the Managing General Partner and 80% to
all Partners in proportion to their capital contributions. Profits from other
sources are allocated to all Partners in proportion to their capital
contributions.
Losses are allocated to all Partners in proportion to their capital
contributions. However, if profits had been previously allocated in the 70-30 or
80-20 ratios as discussed above, then losses will be allocated in the reverse
order in which profits were allocated.
4. Related Party Transactions
The Management Company is responsible for the management and administrative
services necessary for the operation of the Partnership. The Management Company
receives a management fee at an annual rate of 2.5% of the gross capital
contributions to the Partnership, reduced by selling commissions and
organizational and offering expenses paid by the Partnership, capital
distributed and realized losses, with a minimum annual fee of $200,000. In
connection with the extension of term of the Partnership, the Partnership and
the Management Company agreed to reduce the minimum management fee payable by
the Partnership from $200,000 to $160,000 per annum effective as of January 1,
1999. Such fee is determined and paid quarterly.
<PAGE>
ML OKLAHOMA VENTURE PARTNERS, LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS, continued
5. Independent General Partners' Fees
As compensation for services rendered to the Partnership, each of the three
Independent General Partners have received $16,000 annually in quarterly
installments, $1,000 for each meeting of the General Partners attended, $1,000
for each committee meeting attended ($500 if a committee meeting is held on the
same day as a meeting of the General Partners) and $500 for meetings held by
telephone conference. In connection with the extension of the term of the
Partnership, the Individual General Partners have agreed to reduce the annual
fee paid by the Partnership to each Independent General Partner from $16,000 to
$12,000 effective as of January 1, 1999. The meeting fees paid to the
Independent General Partners will remain unchanged.
6. Limitation on Operating Expenses
The Management Company has undertaken to the Partnership that it will reduce its
management fee or otherwise reimburse the Partnership in order to limit the
annual operating expenses of the Partnership, exclusive of the management fee,
to an amount not to exceed $203,720.
7. Cash Distributions
Cash distributions paid during the periods presented and cumulative cash
distributions to Partners from the inception of the Partnership through December
31, 1998 are listed below:
<TABLE>
Managing Independent
General General Limited Per $1,000
Distribution Date Partner Partners Partners Unit
<S> <C> <C> <C> <C> <C> <C>
Inception to December 31, 1995 $ 25,889 $ 1,000 $ 2,562,000 $ 250
January 21, 1997 4,984 192 512,400 50
July 1, 1997 5,370 208 512,400 50
October 22, 1997 12,945 500 1,281,000 125
October 28, 1998 8,802 340 871,080 85
------------ ----------- -------------- --------
Cumulative as of December 31, 1998 $ 57,990 $ 2,240 $ 5,738,880 $ 560
============ =========== ================ ========
</TABLE>
8. Portfolio Investments
As of December 31, 1998, the Partnership's portfolio investments, all of which
are located in the state of Oklahoma, were categorized as follows:
<TABLE>
Type of Investments Cost Fair Value Net Assets*
- - ------------------- ---------------- --------------- -----------
<S> <C> <C> <C>
Common Stock $ 1,696,644 $ 4,700,908 68.00%
Preferred Stock 700,000 1,437,500 20.79%
Debt Securities 228,740 228,740 3.31%
---------------- --------------- ----------
$ 2,625,384 $ 6,367,148 92.10%
================ =============== ==========
Industry
Healthcare/Biotechnology $ 856,744 $ 3,925,908 56.79%
Data Communications 1,010,000 2,212,500 32.00%
Food Manufacturing & Distribution 758,640 228,740 3.31%
---------------- --------------- -----------
$ 2,625,384 $ 6,367,148 92.10%
================ =============== ==========
</TABLE>
* Represents fair value as a percentage of net assets.
<PAGE>
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.
The Partnership
GENERAL PARTNERS
The General Partners of the Partnership consist of the four Individual General
Partners and the Managing General Partner. The five General Partners are
responsible for the management and administration of the Partnership. As
required by the Investment Company Act of 1940 (the "1940 Act"), a majority of
the General Partners are individuals who are not "interested persons" of the
Partnership as defined in the 1940 Act. In 1989, the Securities and Exchange
Commission issued an order declaring that the independent general partners of
the Partnership (the "Independent General Partners") are not "interested
persons" of the Partnership as defined in the 1940 Act solely by reason of their
being general partners of the Partnership. The Managing General Partner and the
four Individual General Partners will serve as the General Partners of the
Partnership until their successors have been elected or until their earlier
resignation or removal.
The Individual General Partners have full authority over the management of the
Partnership and provide overall guidance and supervision with respect to the
operations of the Partnership and perform the various duties imposed on the
directors of business development companies under the 1940 Act. In addition to
general fiduciary duties, the Individual General Partners, among other things,
supervise the management arrangements of the Partnership and the activities of
the Managing General Partner.
The Managing General Partner has exclusive power and authority to manage and
control the Partnership's venture capital investments, subject to the
supervision of the Individual General Partners. Additionally, subject to the
supervision of the Individual General Partners, the Managing General Partner is
authorized to make all decisions regarding the Partnership's venture capital
investment portfolio including, among other things, find, evaluate, structure,
monitor and liquidate such investments and to provide, or arrange for the
provision of, managerial assistance to the portfolio companies in which the
Partnership invests.
Individual General Partners
William C. Liedtke, III (1)
P.O. Box 54369
Oklahoma City, OK 73154
Age 47
Individual General Partner since 1988
0 Units of the Partnership beneficially owned as of March 16, 1999 (3)
Since the beginning of 1999, Vice President of Costillo Redeco Energy, L.L.C.,
a wholly owned subsidiary of Costillo Energy,Inc.; 1997 to 1999,
Chief Executive Officer of Redeco Energy, Inc.; from
1996 to 1997, Chief Operating Officer of Redex Co. Ventures, Ltd.; from
1991 to 1996, Energy consultant; from 1989 to 1991, Assistant to the
Governor of the State of Oklahoma; since 1984, an independent natural gas
marketing consultant; an oil and gas marketing manager for Trigg Drilling
Company, Inc.; a member of the State Bar of Texas.
Richard P. Miller (1)
7500 N. Mockingbird Lane
Paradise Valley, AZ 85253
Age 71
Individual General Partner since 1988
0 Units of the Partnership beneficially owned as of March 16, 1999 (3)
Since1988 Director of Techlaw, Inc.; since 1995, President of Paice Corp.; from
1983 to 1990, Executive Vice President of Private Sector Counsel; in 1983
and 1984, Vice President, Corporate Finance, Union Bank of California; from
1968 to 1983, founder and Chief Executive Officer of Systems Control Inc.
George A. Singer (1)
2222 E. 25th Place
Tulsa, OK 74114
Age 51
Individual General Partner since 1995
0 Units of the Partnership beneficially owned as of March 16, 1999 (3)
Since 1978, Manager and Principal of Singer Bros. and General Partner of several
related family entities; since 1978, Executive Vice President,
Pedestal Oil Company, Inc.; since 1981, Director of Manchester
Pipeline Corporation; a member of the Independent Petroleum
Association of America.
Bruce W. Shewmaker (2)
12 Briarwood Drive
Short Hills, NJ 07078
Age 53
Individual General Partner since 1988
0 Units of the Partnership beneficially owned as of March 16, 1999 (3)
Sincethe beginning of 1999, Director and Advisor to Direct Stock Market, Inc.
and E*Offering Corp.; from 1997 to December 1998, President, Director and
Senior Advisor of the U.S. Russia Investment Fund; from 1991 to 1996,
President of New Century Management, Inc., a venture capital management and
advisory firm; from 1990 to 1991, venture investment advisor with Vector
Securities International, Inc.; from 1984 to 1990, President of Merrill
Lynch R&D Management, Inc.
(1) Independent General Partner and Member of Audit Committee.
(2) Interested person of the Partnership as defined in the Investment Company
Act.
(3) Each Individual General Partner has contributed $1,000 to the capital of
the Partnership. Mr. Shewmaker is a limited partner of the Managing General
Partner of the Partnership. The Managing General Partner contributed
$103,556 to the capital of the Partnership. George A. Singer succeeded to
the interest of a prior Independent General Partner who contributed $1,000
to the capital of the Partnership.
The Managing General Partner
MLOK Co., Limited Partnership (the "Managing General Partner") is a limited
partnership organized on July 15, 1988 under the laws of the State of Oklahoma.
The Managing General Partner maintains its legal address at Meridian Tower,
10830 E. 45th Street, Suite 307, Tulsa, OK 74146. The Managing General Partner
has acted as the managing general partner of the Partnership since the
Partnership commenced operations on August 14, 1989. The Managing General
Partner is engaged in no other activity. The Managing General Partner has
contributed $103,556 to the capital of the Partnership, equal to 1% of the
aggregate capital contributions of all Partners of the Partnership.
The general partner of the Managing General Partner is Merrill Lynch Venture
Capital Inc. (the "Management Company") and the limited partners of the Managing
General Partner include Joe D. Tippens, C. James Bode and John Frick,
independent contractors to the Management Company. Information concerning the
Management Company is set forth below.
The Management Company
Merrill Lynch Venture Capital Inc. (the "Management Company") has served as the
management company for the Partnership since the Partnership commenced
operations. The Management Company performs, or arranges for others to perform,
the management and administrative services necessary for the operation of the
Partnership pursuant to a Management Agreement between the Partnership and the
Management Company. The Management Company is a wholly-owned subsidiary of ML
Leasing Equipment Corp., which is an indirect subsidiary of Merrill Lynch & Co.,
Inc. The Management Company, which was incorporated under Delaware law on
January 25, 1982, maintains its principal office at North Tower, World Financial
Center, New York, New York 10281-1326.
The Management Company has arranged for Palmeri Fund Administrators, Inc., an
independent administrative services company, to provide administrative services
to the Partnership. Fees for such services are paid directly by the Management
Company.
The following table sets forth information concerning the directors of the
Management Company and the executive officers of the Management Company involved
with the Partnership. The address of Mr. Albert is North Tower, World Financial
Center, New York, NY 10281-1326. The address of Mr. Caruso, Mr. Cohen and Ms.
Herte is South Tower, World Financial Center, New York, NY 10080.
Kevin K. Albert, Age 46, Director and President
Officer or Director since 1990
Director and President of the Management Company; Managing Director of Merrill
Lynch & Co. Investment Banking Division ("MLIBK") since 1988; Vice
President of MLIBK from 1983 to 1988.
<PAGE>
James V. Caruso
Executive Vice President and Director
Age 47
Officer or Director since 1998
Director of MLIBK, joined Merrill Lynch in January 1975. Mr. Caruso
manages the Investment Banking Group Corporate Accounting, master
Leases and off Balance Sheet accounting functions as well as the
Controller's area of the Partnership Analysis and Finance Group.
David G. Cohen
Vice President and Director
Age 36
Officer or Director since 1997
Vice President of MLIBK, joined Merrill Lynch in 1987.
Diane T. Herte
Vice President and Treasurer
Age 38
Officer or Director since 1995
Vice President of MLIBK since 1996 and previously an Assistant Vice
President of Merrill Lynch & Co. Corporate Credit Group since 1992,
joined Merrill Lynch in 1984. Ms. Herte's responsibilities include
controllership and financial management functions for certain
partnerships and other entities for which subsidiaries of Merrill Lynch
are the general partner, manager or administrator
The directors of the Management Company will serve as directors until the next
annual meeting of stockholders and until their successors are elected and
qualify. The officers of the Management Company will hold office until the next
annual meeting of the Board of Directors of the Management Company and until
their successors are elected and qualify.
There are no family relationships among any of the Individual General Partners
of the Partnership and the officers and directors of the Management Company.
Item 11. Executive Compensation.
Compensation - The Partnership pays each Independent General Partner an annual
fee of $12,000 in quarterly installments, $1,000 per meeting of the Individual
General Partners attended and $500 for participating in each special meeting of
the Individual General Partners conducted by telephone conference call and pays
all non-interested Individual General Partners' actual out-of-pocket expenses
relating to attendance at meetings. Additionally, the Independent General
Partners receive $1,000 for each meeting of the Audit Committee attended unless
such committee meeting is held on the same day as a meeting of the Individual
General Partners. In such case, the Independent General Partners receive $500
for each meeting of the Audit Committee attended. The aggregate fees paid by the
Partnership to the Independent General Partners for the years ended December 31,
1998, 1997, and 1996, totaled $60,000, $60,000 and $59,000, respectively. During
1998, the annual fee paid to each Independent General Partner was $16,000. The
meeting fees paid to the Independent General Partners will remain unchanged.
Allocations and Distributions - The information with respect to the allocation
and distribution of the Partnership's profits and losses to the Managing General
Partner set forth under the caption "Partnership Distributions and Allocations"
on pages 35 - 37 of the Prospectus is incorporated herein by reference.
For the year ended December 31, 1998, the Partnership had a net realized loss
from operations of $523,607. For the years ended December 31, 1997 and 1996 the
Partnership had a net realized gain from operations of $688,367 and a net
realized loss from operations of $2,389, respectively. In accordance with the
Partnership's allocation procedure, the Managing General Partner was allocated
($5,236), $6,883 and ($24) of such gains (losses) for the years ended December
31, 1998, 1997 and 1996, respectively.
During 1998, the Partnership made a cash distribution to Partners totaling
$880,222. Limited Partners received $871,080, or $85 per Unit, the Individual
General Partners received $340, and the Managing General Partner received
$8,802. During 1997, the Partnership made cash distributions to Partners
totaling $1,812,423. Limited Partners received $1,793,400, or $175 per Unit, the
Individual General Partners received $708 and the Managing General Partner
received $18,315. During 1996, the Partnership made cash distributions to
Partners totaling $517,576. Limited Partners received $512,400, or $50 per Unit,
the Individual General Partners received $192 and the Managing General Partner
received $4,984. Cumulative cash distributions to Partners from inception to
December 31, 1998 total $5,799,110; consisting of $5,738,880, or $560 per Unit,
to the Limited Partners, $2,240 to the Individual General Partners and $57,990
to the Managing General Partner.
Management Fee - Pursuant to the Management Agreement, the Management Company
receives a management fee at the annual rate of 2.5% of the amount of the
Partners' gross capital contributions (net of selling commissions and
organizational and offering expenses paid by the Partnership), reduced by
capital distributed and realized capital losses, with a minimum annual fee of
$200,000. Such fee is determined and paid quarterly in arrears. The management
fee was $200,000 for each of the years ended December 31, 1998, 1997 and 1996.
In connection with the extension of the term of the Partnership, the Partnership
and the Management Company agreed to reduce the minimum management fee payable
by the Partnership from $200,000 to $160,000, effective January 1, 1999. To the
extent possible, the management fee and other expenses incurred directly by the
Partnership are paid with funds provided from operations, including proceeds
from the sale of portfolio investments.
The Management Company has agreed to reduce its management fee, or otherwise
reimburse the Partnership in order to limit the annual operating expenses of the
Partnership, exclusive of the management fee, to an amount equal to $203,720.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
The information concerning the security ownership of the Individual General
Partners set forth in Item 10 under the subcaption "Individual General Partners"
is incorporated herein by reference. As of March 16, 1999, no person or group is
known by the Partnership to be the beneficial owner of more than 5 percent of
the Units. Merrill Lynch, Pierce, Fenner & Smith Incorporated owned 5 Units as
of December 31, 1998.
The Partnership is not aware of any arrangement which may, at a subsequent date,
result in a change of control of the Partnership.
Item 13. Certain Relationships and Related Transactions.
Kevin K. Albert, a Director and President of the Management Company and a
Managing Director of Merrill Lynch Investment Banking Group ("ML Investment
Banking"), joined Merrill Lynch in 1981. James V. Caruso, a Director and
Executive Vice President of the Management Company and a Director of ML
Investment Banking, joined Merrill Lynch in 1975. David G. Cohen, Director and
Vice President of the Management Company and a Vice President of ML Investment
Banking, joined Merrill Lynch in 1987. Diane T. Herte, a Vice President and
Treasurer of the Management Company and a Vice President of ML Investment
Banking, joined Merrill Lynch in 1984. Messrs. Albert, Caruso, Cohen and Ms.
Herte are involved with certain other entities affiliated with Merrill Lynch or
its affiliates.
PART IV
Item 14. Exhibits, Financial Statements, Schedules and Reports on Form 8-K.
(a) 1. Financial Statements
Independent Auditors' Report
Balance Sheets as of December 31, 1998 and 1997
Schedule of Portfolio Investments as of December 31, 1998
Schedule of Portfolio Investments as of December 31, 1997
Statements of Operations for the years ended December 31,
1998, 1997 and 1996
Statements of Cash Flows for the years ended December 31,
1998, 1997 and 1996
Statements of Changes in Partners' Capital for the years
ended December 31, 1996, 1997 and 1998
Notes to Financial Statements
2. (a) Exhibits
(3) (a) Amended and Restated Certificate of Limited
Partnership of the Partnership dated as of
November 29, 1988.*
(b) Amended and Restated Agreement of Limited
Partnership of the Partnership dated as of
November 29, 1988.*
(c) Amended and Restated Agreement of Limited
Partnership of the Partnership dated as of
August 14, 1989.**
(10) Management Agreement dated as of November 29,
1988 between the Partnership and the Management
Company.*
(27) Financial Data Schedule.
(28) (a) Prospectus of the Partnership dated
December 1, 1988 filed with the Securities and
Exchange Commission pursuant to Rule 497 (b)
under the Securities Act of 1933, as
supplemented by a supplement dated April 25,
1989 filed pursuant to Rule 497 (d) under the
Securities Act of 1933.***
(b) No reports on Form 8-K have been filed during the quarter for
which this report is filed.
* Incorporated by reference to the Partnership's Annual Report on Form 10-K
for the fiscal year ended December 31, 1988 filed with the Securities and
Exchange Commission on April 3, 1989.
** Incorporated by reference to the Partnership's Quarterly Report on Form
10-Q for the quarter ended September 30, 1989 filed with the Securities
and Exchange Commission on November 14, 1989.
*** Incorporated by reference to the Partnership's Quarterly Report on Form
10-Q for the quarter ended March 31, 1989 filed with the Securities and
Exchange Commission on May 15, 1989.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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 on the 31st day of March 1999.
ML OKLAHOMA VENTURE PARTNERS, LIMITED PARTNERSHIP
By: MLOK Co. Limited Partnership
its Managing General Partner
By: Merrill Lynch Venture Capital Inc.
its General Partner
By: /s/ Kevin K. Albert
Kevin K. Albert
President
(Principal Executive Officer)
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 indicated on the 31st day of March 1999.
By: MLOK Co., Limited Partnership By: /s/ William C. Liedtke, III
its Managing General Partner William C. Liedtke, III
General Partner
By: Merrill Lynch Venture Capital Inc. ML Oklahoma Venture Partners,
its General Partner Limited Partnership
By: /s/ Kevin K. Albert By: /s/ Richard P. Miller
Kevin K. Albert Richard P. Miller
President of Merrill Lynch
Venture Capital, Inc. General Partner
(Principal Executive Officer) ML Oklahoma Venture Partners,
Limitd Partnership
By: /s/ Diane T. Herte By: /s/ George A. Singer
Diane T. Herte George A. Singer
V. P. & Treasurer of Merrill Lynch
Venture Capital, Inc. General Partner
(Principal Financial and
Accounting Officer) ML Oklahoma Venture Partners,
Limited Partnership
By: /s/ David G. Cohen By: /s/ Bruce W. Shewmaker
David G. Cohen Bruce W. Shewmaker
Vice President of Merrill Lynch
Venture Capital Inc. General Partner
ML Oklahoma Venture Partners, Limited Partnership
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM ML
OKLAHOMA VENTURE PARTNERS, LIMITED PARTNERSHIP'S ANNUAL REPORT ON FORM 10-K FOR
THE PERIOD ENDED DECEMBER 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 2,625,384
<INVESTMENTS-AT-VALUE> 6,367,148
<RECEIVABLES> 28,778
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 731,956
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<OTHER-ITEMS-LIABILITIES> 214,494
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