Item 1. BUSINESS - ------ --------
Technology Funding Venture Partners IV, An Aggressive Growth Fund, L.P. (the "Partnership") is a limited partnership organized under the laws of the State of Delaware on December 4, 1986 and was inactive until it commenced the sale of Units on January 10, 1989. The purpose of the Partnership is to make venture capital investments in new and developing companies, as described in the "Introductory Statement" and "Business of the Partnership" sections of the Prospectus dated February 24, 1989. The Partnership has elected to be a business development company under the Investment Company Act of 1940, as amended (the "Act"), and operates as a nondiversified investment company as that term is defined in the Act. Additional characteristics of the Partnership's business are discussed in the "Risk Factors" and "Conflicts of Interest" sections of the Prospectus, which sections are also incorporated herein by reference. The Partnership's Amended and Restated Limited Partnership Agreement ("Partnership Agreement") provides that the Partnership will continue until December 31, 1997, subject to the right of the Management Committee to extend the term for up to two additional two-year periods.
Item 2.
Item 2. PROPERTIES - ------ ----------
The Registrant has no material physical properties.
Item 3.
Item 3. LEGAL PROCEEDINGS - ------ -----------------
There are no material pending legal proceedings to which the Registrant is party or of which any of its property is the subject, other than ordinary routine litigation incidental to the business of the Partnership.
Item 4.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS - ------ ---------------------------------------------------
The Annual Meeting of the Limited Partners of the Partnership was held on September 19, 1994 pursuant to a Notice of Meeting dated July 11, 1994. At that meeting, proxies submitted by limited partners, documented that the limited partners elected three individual general partners, elected the two Managing General Partners, and ratified the selection of KPMG Peat Marwick LLP as independent certified public accountants for the fiscal year ended December 31, 1994. In addition, proxies submitted by limited partners documented that a majority vote was received to pass a proposed amendment to the Partnership Agreement to add a new Section 14.10 which provides that the Management Committee shall be required to call a meeting only once every three years of Limited Partners if the only purpose of the meeting is to seek Limited Partner consent of existing Managing General Partners and the approval of existing independent certified public accountants for the Partnership; there were 200,028 Units voting in favor, 12,149 Units voting against, and 21,478 Units abstaining.
PART II
Item 5.
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER - ------ ------------------------------------------------------------- MATTERS -------
(a) There is no established public trading market for the Units.
(b) At December 31, 1994, there were 7,815 record holders of Units.
(c) The Registrant, being a partnership, does not pay dividends. Cash distributions, however, may be made to the partners in the Partnership pursuant to the Registrant's Partnership Agreement.
Item 6.
Item 6. SELECTED FINANCIAL DATA - ------ -----------------------
Refer to the financial statement notes entitled "Summary of Significant Accounting Policies" and "Allocation of Profits and Losses" for a description of the method of calculation of net realized (loss) income per Unit.
Item 7.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL - ------ ------------------------------------------------- CONDITION AND RESULTS OF OPERATIONS -----------------------------------
Liquidity and Capital Resources - -------------------------------
In 1994, net cash used by operations totaled $1,525,133. The Partnership paid management fees of $489,705 to the Managing General Partners and reimbursed related parties for operating expenses of $818,123 in 1994. In addition, $42,000 was paid to the individual general partners as compensation for their services. Other operating expenses of $267,943 were paid and interest income of $127,524 was received. The Partnership also paid interest of $34,886 on short-term borrowings.
In 1994, the Partnership funded equity investments of $3,758,976 mostly to portfolio companies in the medical/biotechnology, environmental, and computer systems and software industries. Repayments of notes receivable provided cash of $24,766. The Partnership also received $29,129 in cash distributions from venture capital limited partnership investments.
The Partnership has borrowing accounts with two financial institutions. The borrowing capacity of these accounts, which fluctuates based on collateral value, totaled $3,164,565 at December 31, 1994. The outstanding balance at December 31, 1994 was $2,167,868. The maximum and weighted average amounts during 1994 were $2,633,000 and $558,294, respectively. The Partnership's investments in SyStemix, Inc. and Shaman Pharmaceuticals, Inc. are pledged as collateral.
During 1994, IBIS Technology, Inc. completed its initial public offering (IPO). The IPO indicates potential future liquidity for this investment.
Cash and cash equivalents at December 31, 1994 were $10,501. As of December 31, 1994, the Partnership was committed to fund $728,650 in additional investments. Future interest income earned on notes receivable, remaining capacity on the borrowing accounts, proceeds from investment sales and General Partner support are expected to be adequate to fund Partnership operations through the next twelve months.
Results of Operations - ---------------------
1994 compared to 1993 - ---------------------
Net loss was $5,007,050 in 1994 compared to a net income of $11,186,234 in 1993. The change was primarily due to a decrease in net realized gains from sale of investments of $23,856,978 and a $338,587 decrease in short-term investments interest income. These changes were partially offset by a $7,002,805 decrease in the change in net unrealized fair value of equity investments, a $534,183 decrease in realized losses from investment write-downs, a $343,881 decrease in management fees, and a $235,846 decrease in operating expenses.
There were no investment sales in 1994. Net realized gain from sale of investments for 1993 of $23,856,978 was mostly related to Pyxis Corporation.
Interest income from short-term investments totaled $21,380 and $359,967 during 1994 and 1993, respectively. The 1993 balance was primarily due to proceeds received from the sale of investments in Pyxis Corporation, which were subsequently distributed.
During 1994, the decrease in fair value of equity investments of $2,854,255 was primarily attributable to decreases in portfolio companies in the pharmaceuticals and microelectronics industries, partially offset by increases in communications and medical/biotechnology industries. During 1993, the decrease of $9,857,060 was primarily attributable to the realization of a $23,843,217 gain from the disposition of Pyxis Corporation investments, partially offset by increases in portfolio companies in the environmental, pharmaceuticals, microelectronics and retail/consumer products industries.
During 1994 and 1993, the Partnership realized losses from investments write-downs of $843,311 and $1,377,494, respectively. The write-downs in 1994 primarily related to equity investments in the medical/biotechnology and microelectronics industries. In 1993, write-downs primarily related to equity investments in the microelectronics, medical/biotechnology, and semiconductor industries.
The Partnership incurred management fees of $456,017 and $799,898 during 1994 and 1993, respectively. Pursuant to the Partnership Agreement, management fees were two percent per annum of total limited partners' capital contributions until February 15, 1994. Beginning on February 16, 1994, quarterly management fees are equal to one quarter of one percent of the fair value of Partnership assets.
Total operating expenses were $1,112,248 in 1994 compared to $1,348,094 in 1993. The decrease was primarily attributable to lower investment operations and administrative and investor services expenses due to an overall lower level of portfolio activities.
Given the inherent risk associated with the business of the Partnership, the future performance of the portfolio company investments may significantly impact future operations.
1993 compared to 1992 - ---------------------
Net income was $11,186,234 in 1993 compared to $35,033,297 in 1992. The decrease in income was primarily due to a $24,714,949 decrease in the change in net unrealized fair value of equity investments and a $1,542,552 decrease in net realized gain from sale of investments. These changes were partially offset by a $1,945,910 decrease in realized losses from investment write-downs, a $232,391 increase in the change in net unrealized fair value of secured notes receivable and a $125,856 increase in interest income.
In 1993, the decrease in fair value of equity investments of $9,857,060 was primarily attributable to the realization of a $23,843,217 gain from the disposition of Pyxis Corporation investments, partially offset by increases in portfolio companies in the environmental, pharmaceuticals, microelectronics and retail/consumer products industries. In 1992, the increase of $14,857,889 was primarily due to the initial public offering of Pyxis Corporation and an increase in a portfolio company in the pharmaceuticals industry, partially offset by decreases in the medical/biotechnology industry.
Net realized gain from sale of investments was $23,856,978 in 1993 compared to $25,399,530 in 1992. The net gain in 1993 mostly related to the sale of Pyxis Corporation. In 1992, the net gain predominately related to the sale of Pyxis Corporation and SyStemix, Inc.
In 1993 and 1992, the Partnership realized losses from investment write-downs of $1,377,494 and $3,323,404, respectively. Investment write-downs in 1993 primarily related to equity investments in portfolio companies in the microelectronics, medical/biotechnology, and semiconductor industries. Realized losses in 1992 related to portfolio companies in the computer systems and software, and semiconductor industries.
In 1993, the Partnership recorded a change in fair value of secured notes receivable of $94,000 based upon the level of loan loss reserves deemed adequate by the Managing General Partners. The 1993 increase was primarily due to a reduction in the loan loss reserve resulting from the conversion of $557,400 in notes receivable to equity investments. A $138,391 decrease was recorded for the same period in 1992.
Total interest income earned was $678,097 and $552,241 in 1993 and 1992, respectively. The increase was primarily due to higher short-term investment interest from higher cash and cash equivalent balances resulting from the sale of Pyxis Corporation investments, partially offset by a decrease in notes receivable interest due to lower average outstanding balances on interest-bearing convertible and promissory notes.
Total operating expenses were $1,348,094 in 1993 compared to $1,443,027 in 1992. The decrease was primarily attributable to lower investment operations and computer services expenses due to an overall lower level of portfolio activities, partially offset by higher expenses related to efforts to increase investment returns for one portfolio company.
Item 8.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - ------ -------------------------------------------
The financial statements of the Registrant are set forth in Item 14.
Item 9.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON - ------ ------------------------------------------------ ACCOUNTING AND FINANCIAL DISCLOSURE -----------------------------------
Registrant has reported no disagreements with its accountants on matters of accounting principles or practices or financial statement disclosure.
PART III
Item 10.
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT - ------- --------------------------------------------------
As a partnership, the Registrant has no directors or executive officers. The Management Committee is responsible for the management and administration of the Partnership. The members of the Management Committee consist of three individual general partners and a representative from each of Technology Funding Ltd., a California limited partnership ("TFL") and Technology Funding Inc., a California corporation ("TFI"), a wholly-owned subsidiary of TFL. TFI and TFL are the Managing General Partners. Information concerning the ownership of TFL and the business experience of the key officers of TFI and the partners of TFL is incorporated by reference from the sections entitled "Management of the Partnership - The General Partners" and "Management of the Partnership - Key Personnel of the Managing General Partners" in the Prospectus. Changes in this information that have occurred since the date of the Prospectus are included in the Technology Funding Medical Partners I, L.P. Prospectus, as modified by Cumulative Supplement No. 4 dated January 4, 1995, forming a part of the May 3, 1993, Pre-Effective Amendment No. 3 to the Form N-2 Registration Statement No. 33-54002 dated October 30, 1992 which is incorporated herein by reference.
Item 11.
Item 11. EXECUTIVE COMPENSATION - ------- ----------------------
As a partnership, the Registrant has no officers or directors. In 1994, the Partnership incurred $456,017 in management fees. The fees are designed to compensate the Managing General Partners for General Partner Overhead incurred in performing management duties for the Partnership through December 31, 1994. General Partner Overhead (as defined in the Partnership Agreement) includes rent, utilities, and certain salaries and benefits paid by the Managing General Partners. As compensation for their services, the individual general partners each receive $10,000 annually plus $1,000 for each attended meeting of the management committee. In 1994, $42,000 of such fees were paid.
Item 12.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND - ------- --------------------------------------------------- MANAGEMENT - ----------
Not applicable. No limited partner beneficially holds more than 5% of the aggregate number of Units held by all limited partners, and neither the Managing General Partners nor any of their officers, directors or partners own any Units. The three individual general partners each own 20 Units. The General Partners control the affairs of the Partnership pursuant to the Partnership Agreement.
Item 13.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS - ------- ----------------------------------------------
The Registrant has engaged in no transactions with the Managing General Partners or their officers and partners other than as described above, in the notes to the financial statements, or in the Prospectus.
PART IV
Item 14.
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON - ------- ------------------------------------------------------- FORM 8-K --------
(a) List of Documents filed as part of this Annual Report on Form 10-K
(1) Financial Statements - the following financial statements are filed as a part of this Report:
Independent Auditors' Report Balance Sheets as of December 31, 1994 and 1993 Statements of Operations for the years ended December 31, 1994, 1993 and 1992 Statements of Partners' Capital for the years ended December 31, 1994, 1993 and 1992 Statements of Cash Flows for the years ended December 31, 1994, 1993 and 1992 Notes to Financial Statements
(2) Financial Statement Schedules
All schedules have been omitted because they are not applicable or the required information is included in the financial statements or the notes thereto.
(3) Exhibits
Registrant's Amended and Restated Limited Partnership Agreement (incorporated by reference to Exhibit A to Registrant's Prospectus dated February 24, 1989, included in Registration Statement No. 33-19201 filed pursuant to Rule 424(b) of the General Rules and Regulations under the Securities Act of 1933).
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the Registrant during the year ended December 31, 1994.
(c) Financial Data Schedule for the year ended and as of December 31, 1994 (Exhibit 27).
INDEPENDENT AUDITORS' REPORT ----------------------------
The Partners Technology Funding Venture Partners IV, An Aggressive Growth Fund, L.P.:
We have audited the accompanying balance sheets of Technology Funding Venture Partners IV, An Aggressive Growth Fund, L.P. (a Delaware limited partnership) as of December 31, 1994 and 1993, and the related statements of operations, partners' capital, and cash flows for each of the years in the three-year period ended December 31, 1994. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of certain securities owned by correspondence with the individual investee companies and a physical examination of those securities held by a safeguarding agent as of December 31, 1994 and 1993. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Technology Funding Venture Partners IV, An Aggressive Growth Fund, L.P. as of December 31, 1994 and 1993, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 1994 in conformity with generally accepted accounting principles.
As explained in Notes 1, 6 and 7, the financial statements include investments of $40,570,316 and $40,388,377 (106% and 93% of partners' capital) as of December 31, 1994 and 1993, respectively, whose values, in certain circumstances, have been estimated by the Managing General Partners in the absence of readily ascertainable market values. We have reviewed the procedures used by the Managing General Partners in arriving at their estimate of value of such investments 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 investments existed, and the differences could be material.
San Francisco, California KPMG Peat Marwick LLP March 17, 1995
BALANCE SHEETS - --------------
See accompanying notes to financial statements.
STATEMENTS OF OPERATIONS - ------------------------
See accompanying notes to financial statements.
STATEMENTS OF PARTNERS' CAPITAL - -------------------------------
STATEMENTS OF CASH FLOWS - ------------------------
See accompanying notes to financial statements.
STATEMENTS OF CASH FLOWS (continued) - -----------------------------------
See accompanying notes to financial statements.
NOTES TO FINANCIAL STATEMENTS - -----------------------------
1. Summary of Significant Accounting Policies ------------------------------------------
Organization - ------------
Technology Funding Venture Partners IV, An Aggressive Growth Fund, L.P. (the "Partnership") is a limited partnership organized under the laws of the State of Delaware on December 4, 1986. The purpose of the Partnership is to make venture capital investments in new and developing companies. The Partnership elected to be a business development company under the Investment Company Act of 1940, as amended (the "Act"), and operates as a nondiversified investment company as that term is defined in the Act. The Managing General Partners are Technology Funding Ltd. ("TFL") and Technology Funding Inc. ("TFI"), a wholly-owned subsidiary of TFL. There are also three individual general partners.
For the period from December 4, 1986 through January 10, 1989, the Partnership was inactive. The Partnership's registration statement was declared effective by the Securities and Exchange Commission on November 14, 1988, and the Partnership commenced selling units of limited partnership interests ("Units") on January 10, 1989.
On February 16, 1989, the minimum number of Units required to commence Partnership operations (15,000) had been sold. On September 14, 1990, the offering terminated with 400,000 Units sold. The Partnership Agreement provides that the Partnership will continue until December 31, 1997, unless further extended for up to two additional two-year periods from such date if the Managing General Partners so determine or unless sooner dissolved.
Cash and Cash Equivalents - -------------------------
Cash and cash equivalents are principally comprised of cash invested in demand accounts and money market instruments and are stated at cost plus accrued interest. The Partnership considers all money market and short-term investments with an original maturity of three months or less to be cash equivalents.
Organizational Costs - --------------------
Organizational costs of $35,000 are amortized over 60 months, using the straight-line method.
Provision for Income Taxes - --------------------------
No provision for income taxes has been made by the Partnership, as the Partnership is not directly subject to taxation. The partners are to report their respective shares of Partnership income or loss on their individual tax returns.
Since the accompanying financial statements are prepared using generally accepted accounting principles which may not equate to tax accounting, the Partnership's total tax basis in investments was higher than the reported total cost basis of $26,906,653 by $2,333,376 as of December 31, 1994.
Net Realized Income (Loss) Per Unit - -----------------------------------
Net realized income (loss) per Unit is calculated by dividing the number of Units outstanding (400,000) as of December 31, 1994, 1993 and 1992 into the total net realized income (loss) allocated to the Limited Partners. The Managing General Partners contributed an amount equal to 0.1% of total limited partner capital contributions and did not receive any Partnership Units.
Investments: - -----------
The Partnership's method of accounting for investments, in accordance with generally accepted accounting principles, is the fair value basis used for investment companies. The fair value of Partnership investments is their initial cost basis with changes as noted below:
Equity Investments ------------------
The fair value for publicly-traded equity investments (marketable equity securities) is based upon the five day average closing sales price or bid/ask price that is available on a national securities exchange or over-the-counter market. Certain publicly- traded equity investments may not be marketable due to selling restrictions. For publicly-traded equity investments with selling restrictions, an illiquidity discount of 25% is applied when determining fair value. Sales of equity investments are recorded on the trade date. The basis on which cost is determined in computing realized gains or losses is generally specific identification.
Other equity investments, which are not publicly traded, are generally valued utilizing pricing obtained from the most recent round of third-party financings. Valuation is determined quarterly by the Managing General Partners. Included in equity investments are convertible or subordinated notes receivable as repayment of these notes may occur through conversion into equity investments.
Venture capital limited partnership investments are initially recorded at cost and reduced for distributions that are a return of capital. Distributions from limited partnership cumulative earnings are reflected as realized gains by the Partnership.
Equity and venture capital limited partnership investments with temporary changes in fair value result in increases or decreases to the unrealized fair value of equity investments. The cost basis does not change. In the case of an other than temporary decline below cost basis, an appropriate reduction in the cost basis is recognized as a realized loss with the fair value being adjusted to match the new cost basis. Adjustments to fair value basis are reflected as "Change in net unrealized fair value of equity investments." Cost basis adjustments are reflected as "Realized losses from investment write-downs" or "Net realized gain (loss) from venture capital limited partnership investments" in the Statements of Operations.
Notes Receivable, Net ---------------------
The notes receivable portfolio includes accrued interest less the discount related to warrants and the allowance for loan losses. The portfolio approximates fair value through inclusion of an allowance for loan losses. Allowance for loan losses is reviewed quarterly by the Managing General Partners and is adjusted to a level deemed adequate to cover possible losses inherent in notes and unfunded commitments. Notes receivable are placed on nonaccrual status when, in the opinion of the Managing General Partners, the future collectibility of interest or principal is in doubt.
In conjunction with the notes granted to portfolio companies, the Partnership has received warrants to purchase certain shares of capital stock of the borrowing companies. The cost basis of the warrants and the resulting discount has been estimated by the Managing General Partners to be 1% of the principal balance of the original notes made to the borrowing companies. The discount is amortized to interest income on a straight-line basis over the term of the loan. Warrants received in conjunction with convertible notes are not assigned any additional costs. These warrants are included in the equity investment portfolio.
Nonrefundable fees received in connection with loan fundings are deferred and amortized to interest income over the contractual life of the loan using the effective interest method or the straight-line method if it is not materially different. Direct loan origination costs mainly consist of third-party costs and generally are reimbursed by portfolio companies.
2. Change in Net Unrealized Fair Value of Equity Investments ---------------------------------------------------------
In accordance with the accounting policy as stated in Note 1, the Statements of Operations include a line item entitled "Change in net unrealized fair value of equity investments." The table below discloses details of the changes:
3. Related Party Transactions --------------------------
Included in costs and expenses are related party costs as follows:
Management fees are equal to two percent for the third, fourth, and fifth years of Partnership operations, and one quarter of one percent of the fair value of Partnership assets for each quarter in the sixth and subsequent years. The Partnership's sixth year began in mid-February 1994. Management fees compensate the Managing General Partners solely for General Partner Overhead (as defined in the Partnership Agreement) incurred in supervising the operation and management of the Partnership and the Partnership's investments. Management fees due to the Managing General Partners were $32,970 and $66,658 at December 31, 1994 and 1993, respectively.
As compensation for their services, each of the individual general partners receive $10,000 annually plus $1,000 for each attended meeting of the Management Committee. In 1994, 1993, and 1992, $42,000, $38,117 and $42,000, respectively, of such fees were incurred and paid. The three individual general partners each own 20 Units.
The Partnership reimburses the Managing General Partners for operating expenses incurred by them in connection with the business of the Partnership. Reimbursable operating expenses include all expenses other than Organizational and Offering Expenses and General Partner Overhead. At December 31, 1994, there were $3,335 due from related parties compared to $19,089 due to related parties at December 31, 1993.
Under the terms of a computer service agreement, the Partnership recognized charges from Technology Administrative Management, a division of TFL, for its share of computer support costs. These amounts are included in computer services expense.
4. Financing of Partnership Operations -----------------------------------
The Managing General Partners expect cash received from the liquidation of Partnership investments and the collection of notes receivable will provide the necessary liquidity to service Partnership debt and fund Partnership operations. Until such future proceeds are received, the Partnership may be dependent upon the financial support of the Managing General Partners to fund operations. The Managing General Partners have committed to support the Partnership's working capital requirements through advances as necessary.
5. Allocation of Profits and Losses --------------------------------
Net realized profit and loss of the Partnership are allocated based on the beginning of year partners' capital balances as follows:
(a). Profits:
(i) First, to those partners with deficit capital account balances until such deficits have been eliminated;
(ii) Second, to the partners as necessary to offset the net loss and sales commissions previously allocated under (b)(ii) below; then
(iii)75% to the Limited Partners as a group in proportion to the number of Units held, 5% to the Limited Partners in proportion to the Unit Months of each Limited Partner, and 20% to the Managing General Partners.
(b). Losses:
(i) First, to the partners as necessary to offset the net profits previously allocated to the partners under (a)(iii) above; then
(ii) 99% to the Limited Partners and 1% to the Managing General Partners.
Losses allocable to Limited Partners in excess of their capital account balances will be allocated to the Managing General Partners, with net profits thereafter otherwise allocable to those Limited Partners being allocated to the Managing General Partners to the extent of such losses.
Losses from unaffiliated venture capital limited partnership investments are allocated pursuant to section (b) above. Gains are allocated first to offset previously allocated losses pursuant to (b)(i) above, and then 99% to the Limited Partners and 1% to the Managing General Partners.
Beginning in 1992, a portion of the net realized profit was allocated 80% to the Limited Partners and 20% to the General Partners pursuant to (a)(iii) above as all previously allocated net realized loss and sales commissions had been offset by profit.
6. Equity Investments ------------------
At December 31, 1994 and 1993, equity investments consisted of:
Marketable Equity Securities - ----------------------------
At December 31, 1994 and 1993, marketable equity securities had aggregate costs of $3,238,190 and $2,252,298, respectively, and aggregate market values of $4,830,873 and $8,242,407, respectively. The net unrealized gain at December 31, 1994 and 1993 included gross gains of $2,153,132 and $5,990,109, respectively.
Aprex Corporation - -----------------
Based on the Managing General Partners' opinion, there has been a decline in the Partnership's investment value. Accordingly, a write- down of $366,993 was recorded in late 1994.
Biex, Inc. - ----------
In October 1994, the Partnership purchased 63,907 Series B Preferred shares in the company at a total cost of $63,907. The purchase price consisted of $31,395 in cash and the conversion of a note issued in June 1994, including interest, of $32,512. The Partnership also received warrants to purchase 23,540 Series B Preferred shares at an exercise price of $1.00 per share. The pricing of the Series B financing in which other investors participated indicated an increase in fair value of $44,872 for the Partnership's existing investments.
Cardiometrics, Incorporated - ---------------------------
During the fourth quarter of 1994, the company had a new round of financing in which the Partnership did not participate. The pricing of this round which included new investors indicated a fair value increase of $1,129,324 for the Partnership's existing investment.
CV Therapeutics, Inc. - ---------------------
In March 1994, the Partnership invested in CV Therapeutics, Inc. by purchasing 312,500 Series D Preferred shares at a total cost of $625,000.
Everest & Jennings International Ltd./Medical Composite - -------------------------------------------------------- Technology, Inc. - ----------------
In January 1994, Medical Composite Technology, Inc. ("MCT") was acquired by Everest & Jennings International Ltd. ("E & J"). The Partnership's Series C Preferred shares in MCT as well as convertible notes including accrued interest were exchanged for 592,720 shares of unrestricted E & J common stock while the warrants for the Series C Preferred shares were canceled. The Partnership recorded a decrease in fair value of $318,636 to reflect the market value at December 31, 1994.
IBIS Technology, Inc. - ---------------------
In May 1994, IBIS Technology, Inc. completed its initial public offering. As a result, the Partnership's preferred stock holdings were converted into 46,718 shares of unrestricted common stock. The Partnership recorded a decrease in fair value of $11,521 to reflect the market value at December 31, 1994.
KOR Electronics/Terrapin, Inc. - ------------------------------
In January 1994, KOR acquired Terrapin, Inc. The Partnership received 670,036 common shares of KOR in exchange for its Terrapin, Inc. Series A Preferred shares. In addition, the Partnership invested $550,000 and converted Terrapin and KOR convertible secured notes and interest, net of repayments, totaling $580,390 for 1,130,390 Series E Preferred shares of KOR. These transactions were recorded at cost.
In late 1994, the Partnership recorded a fair value decrease of $282,597 pursuant to the conversion agreement to reflect a downward adjustment in Series E Preferred price per share. The agreement provided for a downward adjustment in Series E Preferred price per share if another financing round had not taken place by year end.
Multiport, Inc. - ---------------
In May 1994, Multiport, Inc. and the Partnership entered into an agreement with a third party to sell the assets of Multiport, Inc. The company will receive a stream of payments beginning May 1995 through July 1997. The year end estimated fair value of $2,629,636 represents the present value of the net proceeds to be received.
Oculon Corporation - ------------------
In late 1994, the company suspended its clinical trials due to unexpected negative test results on its lead compound. As a result of this outcome, the Managing General Partners have determined that there has been a decline in value of the Partnership's investment. Accordingly, the Partnership has written off its investment of $460,000 of which $350,000 was outstanding as of January 1, 1994.
Physiometrix, Incorporated - --------------------------
In January 1994, the company had a 1,000 to 1 reverse stock split followed by a conversion of its preferred shares to common shares. During the six months ended June 30, 1994, the Partnership's existing preferred share holdings were converted to 182 common shares and the Partnership purchased an additional 156 common shares from other investors at a nominal price. The Partnership's common warrants were written off due to a decline in value. In early 1994, the Partnership participated in an equity financing by purchasing 338,150 Series D Preferred shares at a total cost of $114,971.
In June 1994, the company had a Series E Preferred round of equity financing in which the Partnership did not participate. The pricing of this round indicated a change in fair value increase of $1,579,907 for the Partnership's existing investment.
Quintar Corporation - -------------------
In October 1994, the company had a new round of equity financing in which the Partnership did not participate. This round of financing resulted in a $672,500 increase in fair value for the Partnership's existing investment.
RedCell, Inc. - -------------
In December 1994, the Partnership deposited $125,000 into an escrow fund to purchase 132,979 Series B Preferred shares upon the final close of the financing round, which occurred in late February 1995.
Reflection Technology, Inc. - ---------------------------
In January 1994, the Partnership made an additional investment by purchasing 28,572 Series F Preferred shares at a total cost of $50,001. In May 1994, the Partnership cash exercised a warrant for $22,502 and received 19,567 shares of common stock. Related to a Series G Preferred share round of financing with a new investor at $2.10 per share in November 1994, the Partnership converted its existing $1,000,000 convertible note into 869,565 Series D Preferred shares at $1.15 per share and received 59,523 Series G Preferred shares at $2.10 per share in lieu of interest totaling $125,000. In addition, half of the existing redeemable convertible Series D Preferred shares (with investment dates of July 1991, 1992, and 1993) were converted into 113,354 Series G Preferred shares while the remaining half was exchanged for 163,043 newly issued Series D Preferred shares.
The Series G round of financing resulted in an increase in the fair value of $1,060,109 for the Partnership's investments.
Shaman Pharmaceuticals, Inc. - ----------------------------
At December 31, 1994, the fair value of this investment decreased to $3,924,237. The fair value reflected a 25% discount on shares which were restricted. The Managing General Partners continue to believe the company is capable of a higher future value and, subsequent to year end, purchased 340,833 common shares in a private transaction for $1,363,332. The purchase price was financed by a two-year promissory note from the seller.
SunPower Corporation - --------------------
In September 1994, the Partnership issued a convertible note of $25,000 to SunPower Corporation. Subsequently, in November 1994, the Partnership purchased 81,169 Series D Preferred shares at a total cost of $123,750, which consisted of $100,000 in cash and the conversion of the September 1994 note principal (interest will be repaid by the company). The Partnership also received warrants to purchase 81,169 Series D Preferred shares at $1.54 per share, expiring November 1996. The Partnership's existing investment fair value did not change as a result of the November 1994 purchase as the price per share remained unchanged.
Thermatrix, Inc. - ----------------
In August and September 1994, the Partnership issued convertible notes totaling $395,800 to Thermatrix, Inc. Then in November 1994, the Partnership converted these notes, including interest, and paid $405,333 in cash to receive 323,120 Series D Preferred shares for a total cost of $807,800. The Partnership's existing investment fair value did not change as a result of the November 1994 purchase as the price per share remained unchanged.
Unitech Telecom, Inc. - ---------------------
In May 1994, the Partnership issued a $100,000 convertible note receivable to the company. As a result of this transaction, the Partnership received warrants to purchase 36,364 common shares at an exercise price of $2.75 per share, expiring in May 1999.
Velocity Incorporated - ---------------------
During the first nine months of 1994, the Partnership issued $250,000 in convertible notes to the company and received various warrants to purchase common shares of the company. Then, in late 1994, the Partnership made an additional $500,000 investment. This investment, together with all the existing convertible notes, including interest, were used to purchase 6,286,325 Series A Preferred shares with a total cost basis of $1,034,337. All existing warrants were canceled as part of the conversion.
YES! Entertainment - ------------------
In May 1994, the company had a new round of equity financing in which the Partnership did not participate. The investment fair value has been adjusted to reflect the valuation from this round of financing.
Venture Capital Limited Partnership Investments - -----------------------------------------------
The Partnership recorded a cost basis increase of $261,129 in venture capital limited partnership investments in 1994. The increase consisted of additional contributions of $322,500, partially offset by cash distributions of $29,129 and stock distributions of $32,242. The Partnership also recorded a fair value increase of $540,152 based on the above transactions and a net increase in the fair value of the underlying investments of certain venture capital limited partnerships.
Other Equity Investments - ------------------------
Other significant changes during the year ended December 31, 1994 reflected above relate to market value fluctuations and the elimination of a discount relating to selling restrictions for publicly-traded portfolio companies.
7. Notes Receivable, Net ---------------------
At December 31, 1994 and 1993, notes receivable consisted of:
Changes in the allowance for loan losses were as follows:
The increase (decrease) in provision for loan losses is generally comprised of realized loan losses, net of recognized recoveries, and a change in net unrealized fair value based upon the level of loan loss reserves deemed adequate by the Managing General Partners at the respective year ends.
The allowance for loan losses is adjusted based upon changes to the portfolio size and risk profile. Although the allowance for loan losses is established by evaluating individual debtor repayment ability, the allowance represents the Managing General Partners' assessment of the portfolio as a whole.
Interest rates on secured notes receivable at December 31, 1994 ranged from 10% to 12.5%.
The scheduled principal repayments remaining are:
8. Cash and Cash Equivalents -------------------------
Cash and cash equivalents at December 31, 1994 and 1993 consisted of:
9. Short-Term Borrowings ---------------------
The Partnership has borrowing accounts with two financial institutions. At December 31, 1994, the borrowing capacity of these accounts, which fluctuate based on collateral value, totaled $3,164,565. The outstanding balance at December 31, 1994 was $2,167,868. The maximum and weighted-average amounts outstanding during 1994 were $2,633,000 and $558,294, respectively. The interest rates for the two accounts at December 31, 1994 were 8% and 9%. In 1994, the weighted-average interest rate was 6.24%; interest expense of $34,886 was recorded. The Partnership's investments in Shaman Pharmaceuticals, Inc. and Systemix, Inc. are pledged as collateral.
10. Commitments -----------
The Partnership is a party to financial instruments with off-balance- sheet risk in the normal course of its business. Generally, these instruments are commitments for future equity fundings, venture capital limited partnership investments, equipment financing commitments, or accounts receivable lines of credit that are outstanding but not currently fully utilized. As they do not represent current outstanding balances, these unfunded commitments are properly not recognized in the financial statements. At December 31, 1994, the Partnership has unfunded commitments as follows:
The Partnership uses the same credit policies in making these commitments and conditional obligations as it does for on-balance- sheet instruments. Commitments to extend financing are agreements to lend to a company as long as there are no violations of any conditions established in the contract. The credit lines generally have fixed termination dates or other termination clauses. Since many of the commitments are expected to expire without being fully drawn upon, the total commitment amounts do not necessarily represent future cash requirements.
SIGNATURES ----------
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.
TECHNOLOGY FUNDING VENTURE PARTNERS IV, AN AGGRESSIVE GROWTH FUND, L.P.
By: TECHNOLOGY FUNDING INC. Managing General Partner
Date: March 17, 1995 By: /s/Frank R. Pope ---------------------------------- Frank R. Pope Executive Vice President and Chief Financial 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 and on the dates indicated:
Signature Capacity Date --------- -------- ----
/s/Charles R. Kokesh President, Chief March 17, 1995 - ------------------------ Executive Officer Charles R. Kokesh and Chairman of Technology Funding Inc. and Managing General Partner of Technology Funding Ltd.
/s/Frank R. Pope Executive Vice March 17, 1995 - ------------------------ President, Chief Frank R. Pope Financial Officer, Secretary and a Director of Technology Funding Inc. and a General Partner of Technology Funding Ltd.
/s/Gregory T. George Group Vice President March 17, 1995 - -------------------------- of Technology Funding Gregory T. George Inc. and a General Partner of Technology Funding Ltd.
The above represents a majority of the Board of Directors of Technology Funding Inc. and a majority of the General Partners of Technology Funding Ltd.