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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2002
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from N/A to N/A
--- ---
Commission File No. 814-55
TECHNOLOGY FUNDING VENTURE PARTNERS IV, AN AGGRESSIVE GROWTH FUND, L.P.
- -----------------------------------------------------------------------
(Exact name of Registrant as specified in its charter)
Delaware 94-3054600
------------------------------ ---------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1107 Investment Boulevard, Suite 180
El Dorado Hills, California 95762
- ------------------------------------- ---------
(Address of principal executive offices) (Zip Code)
(916) 941-1400
--------------------------------------------------
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Limited
Partnership Units
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes X No
--- ---
No active market for the units of limited partnership interests
("Units") exists, and therefore the market value of such Units cannot be
determined.
Forward-Looking Statements
- --------------------------
The Private Securities Litigation Reform Act of 1995 (the Act) provides
a safe harbor for forward-looking statements made by or on behalf of the
Partnership. The Partnership and its representatives may from time to
time make written or oral statements that are "forward-looking",
including statements contained in this report and other filings with the
Securities and Exchange Commission, and reports to the Partnership's
shareholders and news releases. All statements that express
expectations, estimates, forecasts and projections are forward-looking
statements within the meaning of the Act. In addition, other written or
oral statements which constitute forward-looking statements may be made
by or on behalf of the Partnership. Words such as "expects",
"anticipates", "intends", "plans", "believes", "seeks", "estimates",
"projects", "forecasts", "may", "should", variations of such words and
similar expressions are intended to identify such forward-looking
statements. These statements are not guarantees of future performance
and involve certain risks, uncertainties and assumptions which are
difficult to predict. Therefore, actual outcomes and results may differ
materially from what is expressed or forecasted in or suggested by such
forward-looking statements. The Partnership undertakes no obligation to
update publicly any forward-looking statements, whether as a result of
new information, future events or otherwise.
I. FINANCIAL INFORMATION
Item 1. Financial Statements
BALANCE SHEETS
- --------------
(unaudited)
June 30, December 31,
2002 2001
---------- ------------
ASSETS
Investments:
Equity investments (cost of $5,493,031
and $5,411,903 for June 30, 2002
and December 31, 2001, respectively) $2,631,010 $ 3,869,183
Notes receivable (cost of $4,736,201
and $4,994,413 for June 30, 2002
and December 31, 2001, respectively) 6,296 109,551
--------- ----------
Total investments 2,637,306 3,978,734
Cash and cash equivalents 101,684 11,967
Other receivables 666,667 1,246
--------- ----------
Total assets $3,405,657 $ 3,991,947
========= ==========
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable and accrued expenses $ 64,064 $ 89,601
Due to related parties 28,985 237,830
Term borrowings 1,147,180 --
Other liabilities 79 --
--------- ----------
Total liabilities 1,240,308 327,431
Commitments and contingencies
See Note 9.
Partners' capital:
Limited Partners (400,000 Units outstanding) 5,862,960 7,095,208
General Partners (3,697,611) (3,430,692)
--------- ----------
Total partners' capital 2,165,349 3,664,516
--------- ----------
Total liabilities and partners' capital $3,405,657 $ 3,991,947
========= ==========
The accompanying notes are an integral part of these financial statements.
STATEMENTS OF INVESTMENTS
- -------------------------
Principal
Amount or June 30, 2002 December 31, 2001
Industry Shares at ----------------- -----------------
(1) Investment June 30, Cost Fair Cost Fair
Company Position Date 2002 Basis Value Basis Value
- ------------- -------- ---------- ----------- ----- ----- ----- -----
Equity Investments
- ------------------
Communication
- -------------
3.5% and 3.1% at June 30, 2002 and December 31, 2001, respectively
- -------------------------------------------------------------------
VOIS, Inc. Other 1999-
investment 2000 $7,966 $ 7,966 $ 0 $ 10,911 $ 0
iVillage, Inc. Common 1996-
shares 2000 60,848 411,165 76,669 411,165 115,611
---------- --------- ---------- ---------
419,131 76,669 422,076 115,611
---------- --------- ---------- ---------
Environmental
- -------------
48.1% and 28.4% at June 30, 2002 and December 31, 2001, respectively
- ---------------------------------------------------------------------
SunPower
Corporation Preferred 1990-
(a) (b) shares 1994 1,013,637 1,179,051 988,296 1,179,051 988,296
SunPower Common Share
Corporation warrant
(a) (b) at $.06;
expiring
2005 2000 469,455 0 0 0 0
SunPower
Corporation Convertible
(a) (b) note (2) 2001 $52,000 52,161 52,161 50,790 50,790
STATEMENTS OF INVESTMENTS (continued)
- ------------------------------------
Triangle
Biomedical Common
Sciences, Inc.(a) shares 1999 366 10,248 1,025 10,248 1,025
Triangle Common share
Biomedical warrant
Sciences, Inc.(a) at $28.00;
expiring
2009 1999 366 366 37 366 37
---------- --------- ---------- ---------
1,241,826 1,041,519 1,240,455 1,040,148
---------- --------- ---------- ---------
Information Technology
- ----------------------
10.1% and 5.1% at June 30, 2002 and December 31, 2001, respectively
- -------------------------------------------------------------------
WorldRes, Inc. Common 1997-
(a) (b) shares 1999 155,918 619,687 187,102 619,687 187,102
WorldRes, Inc. Convertible
(a) (b) note (2) 2002 $79,500 81,234 32,495 -- --
WorldRes, Inc. Common and
(a) (b) Preferred
share
warrants at
$3.00-3.70
expiring 1997-
2002-2007 2002 15,530 82 0 82 0
---------- --------- ---------- ---------
701,003 219,597 619,769 187,102
---------- --------- ---------- ---------
Medical/Biotechnology
- ---------------------
29.5% and 46.4% at June 30, 2002 and December 31, 2001, respectively
- ---------------------------------------------------------------------
Endocare, Inc. Common 1996-
(b) (c) shares 2000 49,764 163,874 328,692 163,874 446,135
STATEMENTS OF INVESTMENTS (continued)
- ------------------------------------
Genstar
Therapeutic
Corporation Common
(b) (c) share 1999 438,366 320,242 78,906 320,242 541,382
Genstar Common
Therapeutic share
Corporation warrants at
(b) $0.30-$0.74;
expiring 1998-
2005-2006 1999 291,667 0 5,000 0 288,959
Molecular
Geriatrics Common
Corporation (a) shares 1993 23,585 125,000 2,123 125,000 2,123
Periodontix, Preferred
Inc. (a) shares 1998 106,122 259,999 0 259,999 0
Periodontix, Convertible
Inc. (a) note (2) 1999 $37,000 46,562 947 45,094 24,494
Physiometrix, Common
Inc. shares 1996 126,791 53,793 103,969 53,793 276,404
Sanarus
Medical, Preferred 1999-
Inc. (a) (b) shares 2001 138,531 215,000 119,766 215,000 119,766
Sanarus Preferred
Medical, share
Inc. (a) (b) warrants
at exercise
price TBD;
expiring
2006 2001 55 54 27 54 27
---------- --------- ---------- ---------
1,184,524 639,430 1,183,056 1,699,290
---------- --------- ---------- ---------
STATEMENTS OF INVESTMENTS (continued)
- ------------------------------------
Microelectronics
- ----------------
2.0% and 1.2% at June 30, 2002 and December 31, 2001, respectively
- -------------------------------------------------------------------
KOR Electronics, Preferred 1989-
Inc. (a) (b) shares 1995 3,571,024 1,130,390 42,390 1,130,390 42,390
---------- --------- ---------- ---------
1,130,390 42,390 1,130,390 42,390
---------- --------- ---------- ---------
Venture Capital Limited Partnership Investments
- -----------------------------------------------
28.2% and 21.4% at June 30, 2002 and December 31, 2001, respectively
- ---------------------------------------------------------------------
El Dorado Ltd.
Ventures III, L.P.Partnership
(a) interests various $250,000 212,460 29,343 212,460 30,578
Medical Science Ltd.
Partners, L.P. Partnership
(a) interests various $500,000 187,246 194,394 187,246 194,394
Newtek Ltd.
Ventures II, L.P. Partnership
(a) interests various $859,914 330,328 333,320 330,328 510,285
Onset Enterprises Ltd.
Associates, L.P. Partnership
(a) interests various $500,000 45,000 32,670 45,000 38,460
Utah Ventures Ltd.
Limited Partnership
Partnership (a) interests various $250,000 41,123 21,678 41,123 10,925
---------- --------- ---------- ---------
816,157 611,405 816,157 784,642
---------- --------- ---------- ---------
Total equity investments 121.4% and 105.6% at
June 30, 2002 and December 31, 2001,
respectively 5,493,031 2,631,010 5,411,903 3,869,183
---------- --------- ---------- ---------
STATEMENTS OF INVESTMENTS (continued)
- ------------------------------------
Notes Receivable, Net
- ---------------------
Avalon Vision Secured
Solutions, Inc. note, 16%,
due 2004 1999 $11,676 12,591 6,296 12,303 6,151
Sutmyn Secured
Storage note, 50%,
Corporation due on
(b) demand 2000 $4,000,000 4,723,610 0 4,723,610 0
Thermatrix Inc Unsecured
note, 12%
due on
demand 2001 -- -- -- 258,500 103,400
---------- --------- ---------- ---------
Total notes receivable 0.0% and 3.0% at
June 30, 2002 and December 31, 2001,
respectively 4,736,201 6,296 4,994,413 109,551
---------- --------- ---------- ---------
Total investments 121.4% and 108.6% at
June 30, 2002 and December 31, 2001,
respectively $10,229,232 $2,637,306 $10,406,316 $3,978,734
========== ========= ========== =========
Legends and footnotes:
- -- No investment held at end of period.
0 Investment active with a cost basis or fair value of zero.
(a) Equity security acquired in a private placement transaction; resale may be subject to certain
selling restrictions.
(b) Portfolio company is an affiliate of the Partnership; resale may be subject to certain
selling restrictions.
(c) Security pledged as collateral for borrowing. (See Note 7.)
(1) Represents the total fair value of a particular industry segment as a percentage of partners'
capital at 06/30/02 and 12/31/01.
(2) The Partnership has no income-producing equity investments except for convertible notes which
include accrued interest. Interest rates on such notes are 3.21 to 8.75 percent.
The accompanying notes are an integral part of these financial statements.
STATEMENTS OF OPERATIONS (unaudited)
- -----------------------------------
For the Three Months For the Six Months
Ended June 30, Ended June 30,
-------------------- ------------------
2002 2001 2002 2001
------ ------ ------ ------
Investment income:
Notes receivable interest $ 10,534 $ 14,801 $ 20,192 $ 27,355
Short-term investment interest 875 5,143 2,243 32,231
--------- --------- --------- ---------
Total investment income 11,409 19,944 22,435 59,586
Investment expenses:
Management fees 9,980 15,561 19,960 43,933
Individual General Partners' compensation 3,967 19,496 16,000 38,631
Investment operations 23,284 63,270 107,657 86,659
Administrative and investor services 281,433 222,461 609,836 330,314
Professional fees 38,357 103,622 74,511 148,863
Computer services 29,983 35,729 60,477 65,097
Interest expense 30 -- 10,484 24,842
--------- --------- --------- ---------
Total investment expenses 387,034 460,139 898,925 738,339
--------- --------- --------- ---------
Net investment loss (375,625) (440,195) (876,490) (678,753)
--------- --------- --------- ---------
Net realized gain (loss) from
sales of equity investments -- 3,395 -- (306,759)
Realized gain from venture capital
limited partnership investments -- 96,616 -- 295,343
Realized loss from write-off
of note receivable (125,000) -- (125,000) --
--------- --------- --------- ---------
Net realized (loss) income (125,000) 100,011 (125,000) (11,416)
--------- --------- --------- ---------
(Increase) decrease in unrealized
depreciation:
Equity investments (568,033) 1,259,462 (1,319,301) (2,247,700)
Notes receivable 91 (2,960) 154,957 (152,343)
--------- --------- --------- ---------
Net (increase) decrease in
unrealized depreciation (567,942) 1,256,502 (1,164,344) (2,400,043)
--------- --------- --------- ---------
Other income -- -- 666,667 --
--------- --------- --------- ---------
Net (decrease) increase in partners'
capital resulting from operations $(1,068,567) $ 916,318 $(1,499,167) $(3,090,212)
========= ========= ========= =========
Net (decrease) increase in partners'
capital resulting from
operations per Unit $ (2.14) $ 1.83 $ (3.08) $ (6.19)
========= ========= ========= =========
The accompanying notes are an integral part of these financial statements.
STATEMENTS OF CASH FLOWS (unaudited)
- -----------------------------------
For the Six Months Ended June 30,
-----------------------------------
2002 2001
---------- -----------
Net decrease in partners' capital
resulting from operations $(1,499,167) $(3,090,212)
Adjustments to reconcile decrease
in partners' capital resulting
from operations to net cash used
by operating activities:
Net realized loss from sales
of equity investments -- 306,759
Realized gain from venture capital
limited partnership investments -- (295,343)
Realized loss from write off of
note receivable 125,000 --
Increase in other receivable (666,667) --
Net increase (decrease) in unrealized
depreciation:
Equity investments 1,319,301 2,247,700
Notes receivable (154,957) 152,343
Decrease (increase) in accrued
interest on notes receivable 5,639 (8,002)
Decrease in due to related parties (208,845) (140,969)
Decrease in accounts payable and
accrued expenses (25,537) (9,086)
Other changes, net 4,270 (2,816)
--------- ---------
Net cash used by operating activities (1,100,963) (839,626)
--------- ---------
Cash flows from investing activities:
Purchase of equity investments (81,500) (55,055)
Notes receivable issued -- (250,000)
Repayments of notes receivable 125,000 197,281
Proceeds from sales of equity
investments -- 305,985
Distributions from venture capital
limited partnership investments -- 4,888
--------- ---------
Net cash provided by investing
activities 43,500 203,099
--------- ---------
Cash flows from financing activities:
Repayment of short-term borrowings -- (1,100,000)
Proceeds from term borrowing 1,147,180 --
--------- ---------
Net cash provided (used) by financing
activities 1,147,180 (1,100,000)
--------- ---------
STATEMENTS OF CASH FLOWS (unaudited)(continued)
- -----------------------------------------------
Net increase (decrease) in cash
and cash equivalents 89,717 (1,736,527)
Cash and cash equivalents at
beginning of year 11,967 2,182,634
--------- ---------
Cash and cash equivalents $ 101,684 $ 446,107
at June 30 ========= =========
The accompanying notes are an integral part of these financial statements.
NOTES TO FINANCIAL STATEMENTS (unaudited)
- ----------------------------------------
1. Interim Financial Statements
----------------------------
The accompanying unaudited financial statements included herein have been
prepared in accordance with the requirements of Form 10-Q and, therefore,
do not include all information and footnotes which would be presented were
such financial statements prepared in accordance with generally accepted
accounting principles. These statements should be read in conjunction with
the Annual Report on Form 10-K for the year ended December 31, 2001. In
the opinion of the Managing General Partners, the accompanying interim
financial statements reflect all adjustments necessary for the fair
presentation of the financial position, results of operations, and cash
flows for the interim periods presented. Allocation of income and loss to
Limited and General Partners is based on cumulative income and loss.
Adjustments, if any, are reflected in the current quarter balances. The
results of operations for such interim periods are not necessarily
indicative of results of operations to be expected for the full year.
2. Uncertain Future of the Partnership
-----------------------------------
The uncertainties arising from the uncertain timing of future liquidation
events raise substantial doubt about the Partnership's ability to continue
as a going concern. The accompanying interim financial statements do not
include any adjustments that might result from the outcome of these
uncertainties. The Partnership has been advised by its independent public
accountants that should the uncertainties surrounding the Partnership's
future operations remain unresolved at year-end, their report on those
financial statements will be modified for that contingency.
3. 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.
The accompanying financial statements are prepared using accounting
principles generally accepted in the United States which may not equate to
tax accounting. The cost of investments on a tax basis at June 30, 2002
and December 31, 2001, was $8,113,227 and $8,399,984, respectively. At
June 30, 2002 and December 31, 2001, gross unrealized depreciation on
investments based on cost for federal income tax purposes was as follows:
June 30, December 31,
2002 2001
------------ ------------
Unrealized appreciation $ 280,898 $ 1,241,560
Unrealized depreciation (5,756,819) (5,662,810)
--------- ---------
Net unrealized depreciation $(5,475,921) $(4,421,250)
========= =========
4. Related Party Transactions
--------------------------
Related party costs are included in investment expenses shown on the
Statements of Operations. Related party costs for the six months ended
June 30, 2002 and 2001, were as follows:
2002 2001
-------- --------
Management fees $ 19,960 $ 43,933
Individual General Partners' compensation 16,000 38,631
Reimbursable operating expenses 655,827 409,454
Certain reimbursable expenses have been accrued based upon interim
estimates prepared by the Managing General Partners and are adjusted to
actual periodically. There was $25,659 due to related parties at June 30,
2002, compared to $230,828 due to related parties at December 31, 2001,
related to such expenses.
Management fees due to the Managing General Partners were $3,326 and $7,002
at June 30, 2002 and December 31, 2001, respectively, and were included in
due to related parties.
Officers of the Managing General Partners occasionally receive stock
options as compensation for serving on the Boards of Directors of portfolio
companies. It is the Managing General Partners' policy that all such
compensation be transferred to the investing partnerships. If the options
are non-transferable, they are not recorded as an asset of the Partnership.
Any profit from the exercise of such options will be transferred if and
when the options are exercised and the underlying stock is sold by the
officers. Any such profit is allocated amongst the Partnership and
affiliated partnerships based upon their proportionate investment in the
portfolio company. At June 30, 2002, the Partnership and affiliated
partnerships had an indirect interest in non-transferable Physiometrix,
Inc., Endocare, Inc. and Genstar Therapeutics Corporation options with a
fair value of $145,231.
5. Equity Investments
------------------
All investments are valued at fair value as determined in good faith by the
Managing General Partners.
Marketable Equity Securities
- ----------------------------
At June 30, 2002 and December 31, 2001, marketable equity securities had
aggregate costs of $464,958, and aggregate market values of $180,638 and
$392,015, respectively. The net unrealized loss at June 30, 2002 and
December 31, 2001, included gross gains of $50,176 and $234,990,
respectively.
Restricted Securities
- ---------------------
At June 30, 2002 and December 31, 2001, restricted securities had aggregate
fair values of $2,450,372 and $3,477,168, respectively, representing 113.2
percent and 94.9 percent, respectively, of the net assets of the
Partnership.
Significant purchases and sales of equity investments during the six months
ended June 30, 2002, are as follows:
WorldRes, Inc.
- --------------
In April 2002, the Partnership issued a convertible note for $79,500 to the
company with an interest rate equal to prime plus 4 percent. The note and
accrued interest are due in April 2003.
Other Equity Investments
- ------------------------
Other significant changes reflected in the Statements of Investments relate
to market value fluctuations for publicly-traded portfolio companies or
changes in the fair value of private companies as determined in accordance
with the policy described in Note 1 to the financial statements included in
the Partnership's December 31, 2001 Form 10-K.
6. Notes Receivable
----------------
Activity from January 1 through June 30 consisted of:
2002 2001
-------- --------
Balance at January 1 $ 109,551 $ 220,252
Notes receivable issued -- 250,000
Repayments of notes receivable (125,000) (197,281)
Write-off of notes receivable (125,000) --
Change in accrued interest receivable (8,212) (5,353)
Net decrease (increase) in unrealized
depreciation of notes receivable 154,957 (152,343)
------- -------
Balance at June 30 $ 6,296 $ 115,275
======= =======
The interest rate on notes receivable at June 30, 2002 ranged from 16
percent to 50 percent. All notes are due on demand with the exception of
$12,591, due 2004.
In April 2002, the Partnership received $125,000 as payment in full on a
$250,000 note receivable from Thermatrix Inc. The remaining $125,000 was
written off. Accrued interest of $23,178 was paid in full.
7. Cash and Cash Equivalents
-------------------------
Cash and cash equivalents at June 30, 2002 and December 31, 2001 consisted
of:
2002 2001
------ ------
Demand accounts $ 16,882 $10,009
Money-Market accounts 84,802 1,958
------- ------
Total $101,684 $11,967
======= ======
8. Term Borrowings
---------------
In January 2002, the Partnership borrowed $1,147,180 from a financial
institution and pledged its shares in Endocare, Inc. and Genstar
Therapeutic Corporation as collateral. The note bears interest at the
London Interbank Offered Rate plus 1.5 percent, which is payable quarterly.
The outstanding principal and any remaining accrued interest are due
December 30, 2004.
9. Commitments and Contingencies
-----------------------------
From time to time the Partnership becomes 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 investment
fundings, equipment financing commitments, or accounts receivable lines of
credit that are outstanding but not currently fully utilized by a borrowing
company. As they do not represent current outstanding balances, these
unfunded commitments are not recognized in the financial statements. At
June 30, 2002, unfunded commitments totaled $79,500.
In October 2000, Kanematsu Corporation, a creditor of one of the
Partnership's portfolio companies, initiated an arbitration proceeding
against the Partnership, two affiliated partnerships, and a fourth co-
investor. Kanematsu was seeking to recover $2,000,000, the purchase price
in a contract by which the Partnership and the other entities were alleged
to have agreed to purchase certain debt securities of the portfolio company
from Kanematsu. The Partnership and affiliated partnerships asserted
counterclaims against Kanematsu. On February 12, 2002, the Partnership,
affiliated partnerships and the co-investor were awarded $4,000,000 and all
of Kanematsu's claims were denied. The award is in full settlement of all
claims and counterclaims. Kanematsu has filed a complaint in federal
district court regarding the arbitration; however, Kanematsu has not filed
a motion to vacate the award. A ruling on the complaint is still pending.
The Partnership has recognized revenue and a receivable of $666,667 as of
February 12, 2002, for its proportionate share of the award.
From time to time, the Partnership is subject to routine litigation
incidental to the business of the Partnership. Although there can be no
assurances as to the ultimate disposition of these matters and the
proceeding disclosed above, it is the opinion of the Managing General
Partners, based upon the information available at this time, that the
expected outcome of these matters, individually or in the aggregate, will
not have a material adverse effect on the results of operations and
financial condition of the Partnership.
10. Financial Highlights
--------------------
For The Six Months Ended June 30,
---------------------------------
2002 2001
------ ------
(all amounts on a per Unit basis)
Net asset value,
beginning of period $6.91 $16.62
Loss from investment operations:
Net investment loss (1.75) (1.36)
Net realized and unrealized
loss on investments (1.33) (4.83)
---- ------
Total from investment
operations (3.08) (6.19)
---- ------
Net asset value, end of period $3.83 $10.43
==== ======
Total Return (44.58)% (37.25)%
Ratios to average net assets:
Net investment loss (32.65)% (10.04)%
Expenses 41.85% 13.65%
Pursuant to the Partnership Agreement, net profit shall be allocated first
to those Partners with deficit capital account balances until such deficits
have been eliminated. The Partnership Agreement also requires the General
Partners to contribute capital in the amount equal to any remaining capital
deficit upon liquidation. As of June 30, 2002, the General Partners have a
negative capital balance of $3,697,611. Net asset value has been calculated
in accordance with these provisions of the Partnership Agreement.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
The uncertainties arising from the uncertain timing of future liquidation
events raise substantial doubt about the Partnership's ability to continue
as a going concern. The accompanying interim financial statements do not
include any adjustments that might result from the outcome of these
uncertainties. The Partnership has been advised by its independent public
accountants that should the uncertainties surrounding the Partnership's
future operations remain unresolved at year-end, their report on those
financial statements will be modified for that contingency.
Liquidity and Capital Resources
- -------------------------------
The Partnership operates as a business development company under the
Investment Company Act of 1940 and makes venture capital investments in new
and developing companies. The Partnership's financial condition is
dependent upon the success of the portfolio companies. There is no ready
market for many of the Partnership's investments. It is possible that some
of its venture capital investments may be a complete loss or may be
unprofitable and that others will appear likely to become successful, but
may never realize their potential. The valuation of the Partnership's
investments in securities for which there are no available market quotes is
subject to the estimate of the Managing General Partners in accordance with
the valuation guidance described in Note 1 to the financial statements
included in the Partnership's December 31, 2001 Form 10-K. In the absence
of readily obtainable market values, the estimated fair value of the
Partnership's investments may differ significantly from the values that
would have been used had a ready market existed.
During the six months ended June 30, 2002, net cash used by operating
activities totaled $1,100,963. The Partnership paid management fees of
$23,636 to the Managing General Partners and reimbursed related parties for
other investment expenses of $860,996. In addition, $16,000 was paid to
the Individual General Partners as compensation for their services. The
Partnership paid other investment expenses and interest expense of $217,921
and $10,484, respectively. Interest income of $28,074 was received.
During the six months ended June 30, 2002, the Partnership funded equity
investments of $81,500 primarily to a company in the information technology
industry. Repayments of notes receivable were $125,000. Proceeds from
term borrowings totaled $1,147,180. At June 30, 2002, there were unfunded
commitments of $79,500.
Cash and cash equivalents at June 30, 2002, were $101,684. Future proceeds
from investment sales along with Managing General Partner support are
expected to be adequate to fund partnership operations through the next
twelve months.
Results of Operations
- ---------------------
Current quarter compared to corresponding quarter in the preceding year
- -----------------------------------------------------------------------
Net decrease in partners' capital resulting from operations was $1,068,567
for the quarter ended June 30, 2002, compared to a net increase in
partners' capital resulting from operations of $916,318 for the same period
in 2001.
Net unrealized depreciation on equity investments was $2,862,021 at June
30, 2002, compared to net unrealized depreciation of $2,293,988 at March
31, 2002. During the quarter ended June 30, 2002, the Partnership recorded
an increase in net unrealized depreciation on equity investments of
$568,033 compared to a decrease in net unrealized depreciation of
$1,259,462 during 2001. In 2002, the increase in unrealized depreciation
was primarily attributable to decreases in the market prices of
publicly-traded portfolio companies in the medical/biotechnology industry.
The change in 2001 was primarily attributable to increases in the market
prices of publicly-traded portfolio companies in the medical/biotechnology
industry.
During the quarter ended June 30, 2002, realized loss from the write-off of
notes receivable totaled $125,000 and related to notes receivable from
Thermatrix Inc. which were partially repaid and the remainder written off.
There were no amounts written off in the corresponding quarter of 2001.
During the quarter ended June 30, 2002, the Partnership recorded no
realized gains from venture capital limited partnership investments.
During the same period in 2001, there were gains of $96,616. The gains
represent distributions from profits of venture capital limited partnership
investments.
Total investment expenses were $387,034 and $460,139 for the quarters ended
June 30, 2002 and 2001, respectively. The decrease is primarily
attributable to decreased professional fees.
Given the inherent risk associated with the business of the Partnership,
the future performance of the portfolio company investments may
significantly impact future operations.
Current six months compared to corresponding six months in the preceding
- -----------------------------------------------------------------------
year
- ----
Net decrease in partners' capital resulting from operations was $1,499,167
for the six months ended June 30, 2002, compared to a net decrease in
partners' capital resulting from operations of $3,090,212 for the same
period in 2001.
Net unrealized depreciation on equity investments was $2,862,021 at June
30, 2002, compared to net unrealized depreciation of $1,542,720 at December
31, 2001. During the six months ended June 30, 2002, the Partnership
recorded an increase in net unrealized depreciation on equity investments
of $1,319,301 compared to an increase in net unrealized depreciation of
$2,247,700 during 2001. The increases in 2002 and 2001 were primarily
attributable to decreases in the market prices of publicly-traded portfolio
companies in the medical/biotechnology industry.
Other income was $666,667 for the six months ended June 30, 2002. In
October 2000, Kanematsu Corporation, a creditor of one of the Partnership's
portfolio companies, initiated an arbitration proceeding against the
Partnership, two affiliated partnerships, and a fourth co-investor.
Kanematsu was seeking to recover $2,000,000, the purchase price in a
contract by which the Partnership and the other entities were alleged to
have agreed to purchase certain debt securities of the portfolio company
from Kanematsu. The Partnership and affiliated partnerships asserted
counterclaims against Kanematsu. On February 12, 2002, the Partnership,
affiliated partnerships and the co-investor were awarded $4,000,000 and all
of Kanematsu's claims were denied. The award is in full settlement of all
claims and counterclaims. Kanematsu has filed a complaint in federal
district court regarding the arbitration; however, Kanematsu has not filed
a motion to vacate the award. A ruling on the complaint is still pending.
The Partnership has recognized revenue and a receivable of $666,667 as of
February 12, 2002, for its proportionate share of the award. There was no
such income in the corresponding period of 2001.
Net unrealized depreciation on notes receivable was $4,729,905 and
$4,884,862 at June 30, 2002 and December 31, 2001, respectively. During
the six months ended June 30, 2002, the net decrease in unrealized
depreciation of notes receivable of $154,957 was primarily due to the
partial payment and subsequent write-off of notes receivable from
Thermatrix Inc. During the six months ended June 30, 2001, the Partnership
recorded a $152,343 decrease primarily attributable to a decrease in the
fair value of notes receivable issued to Thermatrix Inc.
For the six months ended June 30, 2002, there were equity investment sales.
For the six months ended June 30, 2001, net realized loss from sales of
equity investments of $306,759 primarily related to the sale of Efficient
Networks, Inc.
During the six months ended June 30, 2002, the Partnership recorded no
realized gains from venture capital limited partnership investments.
During the same period in 2001, there were gains of $295,343. The gains
represented distributions from profits of venture capital limited
partnership investments.
During the six months ended June 30, 2002, realized loss from the write-off
of notes receivable totaled $125,000 and related to notes receivable from
Thermatrix Inc. which were partially repaid and the remainder written off.
There were no amounts written off in the corresponding period of 2001.
Total investment expenses were $898,925 and $738,339 for the six months
ended June 30, 2002 and 2001, respectively. The increase is primarily
attributable to increased investment monitoring activity and increased
administrative and investor services costs, partially offset by decreased
professional fees.
II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) A report on Form 8-K was filed by the Registrant on June 28, 2002, to
report the appointment of Grant Thornton LLP as the Partnership's
public accountants. No financial statements were filed.
CERTIFICATION
-------------
The undersigned hereby certifies, to such officer's knowledge, that this
report fully complies with the requirements of Section 15(d) of the
Securities Exchange Act of 1934 and that the information contained in the
report fairly presents, in all material respects, the financial condition
and results of operation of the Partnership.
Date: August 14, 2002 By: /s/Charles R. Kokesh
--------------------------------
Charles R. Kokesh
President, Chief Executive
Officer, Chief Financial
Officer and Chairman of
Technology Funding Inc. and
Managing General Partner of
Technology Funding Limited
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be
signed on its behalf by the undersigned, thereunto duly authorized.
TECHNOLOGY FUNDING VENTURE PARTNERS IV,
AN AGGRESSIVE GROWTH FUND, L.P.
By: TECHNOLOGY FUNDING INC.
TECHNOLOGY FUNDING LTD.
Managing General Partners
Date: August 14, 2002 By: /s/Charles R. Kokesh
--------------------------------
Charles R. Kokesh
President, Chief Executive
Officer, Chief Financial
Officer and Chairman of
Technology Funding Inc. and
Managing General Partner of
Technology Funding Limited