<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the period ended September 30, 1995
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. 0-13554
TECHNOLOGY FUNDING PARTNERS I
------------------------------------------------------
(Exact name of Registrant as specified in its charter)
CALIFORNIA 77-0020778
----------------------------- ----------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
2000 Alameda de las Pulgas, Suite 250
San Mateo, California 94403
- --------------------------------------- --------
(Address of principal executive offices) (Zip Code)
(415) 345-2200
--------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes X No
--- ---
No active market for the units of limited partnership interests
("Units") exists, and therefore the market value of such Units cannot be
determined.
<PAGE>
I. FINANCIAL INFORMATION
Item 1. Financial Statements
BALANCE SHEETS
- --------------
<TABLE>
<CAPTION>
(unaudited)
September 30, December 31,
1995 1994
---------- -------------
<S> <C> <C>
ASSETS
Investments:
Equity investments (cost basis
of $3,173,422 and $2,768,651 at
1995 and 1994, respectively) $12,657,788 12,622,577
Secured notes receivable, net
(cost basis of $0 and
$592,026 at 1995 and 1994, -- 483,026
respectively) ---------- ----------
Total investments 12,657,788 13,105,603
Cash and cash equivalents 146,784 421
Prepaid management fees 83,190 83,190
Due from related parties -- 3,051
---------- ----------
Total $12,887,762 13,192,265
========== ==========
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable and accrued expenses $ 20,072 27,194
Due to related parties 723 --
Interest payable 20,854 17,580
Short-term borrowings 3,300,000 2,871,422
---------- ----------
Total liabilities 3,341,649 2,916,196
Commitments and subsequent events
(Notes 1, 3, and 7)
Partners' capital:
Limited Partners
(Units outstanding of
16,643 for both 1995 and 1994) -- 442,170
General Partners 61,747 88,973
Net unrealized fair value increase
(decrease) from cost:
Equity investments 9,484,366 9,853,926
Secured notes receivable -- (109,000)
---------- ----------
Total partners' capital 9,546,113 10,276,069
---------- ----------
Total $12,887,762 13,192,265
========== ==========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
STATEMENTS OF OPERATIONS (unaudited)
- ------------------------------------
<TABLE>
<CAPTION>
For the Three For the Nine
Months Ended Months Ended
September 30, September 30,
------------- ------------
1995 1994 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
Interest income $ 516 16,029 15,800 45,503
Costs and expenses:
Management fees 83,190 83,190 249,570 249,570
Operating expenses:
Administrative and investor services 17,541 32,574 57,418 104,955
Investment operations 1,184 3,733 4,397 17,301
Professional fees 5,470 5,412 22,086 18,057
Computer services 5,427 7,904 16,559 24,133
Interest expense 73,929 50,745 213,388 127,673
--------- --------- --------- ---------
Total operating expenses 103,551 100,368 313,848 292,119
--------- --------- --------- ---------
Total costs and expenses 186,741 183,558 563,418 541,689
--------- --------- --------- ---------
Net operating loss (186,225) (167,529) (547,618) (496,186)
Net realized gain from
sales of equity investments 104,209 -- 248,393 --
Realized losses from
investment write-downs -- -- (170,171) --
--------- --------- --------- ---------
Net realized loss (82,016) (167,529) (469,396) (496,186)
Change in net unrealized fair value:
Equity investments 1,003,088 2,161,194 (369,560) (1,837,557)
Secured notes receivable -- 25,000 109,000 (10,000)
--------- --------- --------- ---------
Net income (loss) $ 921,072 2,018,665 (729,956) (2,343,743)
========= ========= ========= =========
Net realized loss per Unit $ (4) (10) (27) (30)
========= ========= ========= =========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
STATEMENTS OF CASH FLOWS (unaudited)
- ------------------------------------
<TABLE>
<CAPTION>
For the Nine Months Ended September 30,
---------------------------------------
1995 1994
---- ----
<S> <C> <C>
Cash flows from operating activities:
Cash paid to related parties $(307,030) (369,019)
Cash paid to vendors (46,348) (46,937)
Interest received 2,984 1,464
Interest paid on short-term borrowings (210,114) (127,673)
------- ---------
Net cash used by operating
activities (560,508) (542,165)
------- ---------
Cash flows from investing activities:
Proceeds from sales of equity investments 278,293 --
------- ---------
Net cash provided by investing
activities 278,293 --
------- ---------
Cash flows from financing activities:
Proceeds from short-term borrowings,
net 428,578 474,076
------- ---------
Net cash provided by financing
activities 428,578 474,076
------- ---------
Net increase (decrease) in cash and
cash equivalents 146,363 (68,089)
Cash and cash equivalents at beginning
of year 421 68,512
------- ---------
Cash and cash equivalents at September 30 $ 146,784 423
======= =========
Reconciliation of net loss to net
cash used by operating activities:
Net loss $(729,956) (2,343,743)
Adjustments to reconcile net loss to net
cash used by operating activities:
Net realized gain from sales
of equity investments (248,393) --
Realized losses from investment
write-downs 170,171 --
Change in net unrealized fair value:
Equity investments 369,560 1,837,557
Secured notes receivable (109,000) 10,000
Changes in:
Accrued interest on subordinated and
secured notes receivable -- (42,943)
Other, net (12,890) (3,036)
------- ---------
Net cash used by operating activities $(560,508) (542,165)
======= =========
Non-cash investing activities:
Conversion of secured notes receivable
to equity investments $ 475,000 125,000
======= =========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
NOTES TO FINANCIAL STATEMENTS (unaudited)
- -----------------------------------------
1. General
-------
In the opinion of the Managing General Partner, the Balance Sheets as of
September 30, 1995 and December 31, 1994 and the related Statements of
Operations for the three and nine months ended September 30, 1995 and
1994, and Statements of Cash Flows for the nine months ended September
30, 1995 and 1994, reflect all adjustments which are necessary for a
fair presentation of the financial position, results of operations and
cash flows for such periods. These statements should be read in
conjunction with the Annual Report on Form 10-K for the year ended
December 31, 1994. The following notes to financial statements for
activity through September 30, 1995 supplement those included in the
Annual Report on Form 10-K. Certain 1994 balances have been
reclassified to conform with the 1995 financial statement presentation.
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.
Dissolution of the Partnership
- ------------------------------
The Managing General Partner decided to seek approval from Limited
Partners to terminate the Partnership by the end of 1995. The decision
was made because the future potential of the assets is outweighed by the
costs of continuing Partnership operations. Subsequent to quarter end,
a Consent to Dissolve and Terminate the Partnership was sent to each
Limited Partner for voting purposes. A majority in interest of the
Limited Partners is required for dissolution.
2. Financing of Partnership Operations
-----------------------------------
The Managing General Partner expects existing cash and cash received
from the liquidation of Partnership investments 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
Partner to fund operations. The Managing General Partner has committed
to support the Partnership's working capital requirements through
advances as necessary.
3. Related Party Transactions
--------------------------
Related party costs are included in costs and expenses shown on the
Statements of Operations. Related party expenses for the nine months
ended September 30, 1995 and 1994 were as follows:
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Management fees $249,570 249,570
Reimbursable operating expenses 61,234 122,206
</TABLE>
Certain reimbursable expenses have been accrued based upon interim
estimates prepared by the Managing General Partner and are adjusted to
actual costs periodically. At September 30, 1995 due to related parties
for such costs was $723 compared to due from related parties of $3,051
at December 31, 1994.
Officers of the General Partners occasionally receive stock options as
compensation for serving on the Boards of Directors of portfolio
companies. At September 30, 1995, the Partnership had an indirect
interest in such options, worth approximately $13,816, in non-
transferable Viewlogic Systems, Inc. and Medstone International Inc.
options.
4. Equity Investments
------------------
A complete listing of the Partnership's equity investments at December
31, 1994 is in the 1994 Annual Report. Activity from January 1, 1995
through September 30, 1995 consisted of
<TABLE>
<CAPTION>
January 1 -
September 30, 1995
Principal ------------------
Investment Amount or Cost Fair
Industry/Company Position Date Shares Basis Value
- ---------------- -------- ---------- --------- ----- -----
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1995 $2,768,651 12,622,577
--------- ----------
Significant changes:
Computer Systems and Software
- -----------------------------
Wasatch Education Series C
Systems Preferred
Corporation shares 06/95 475,000 475,000 475,000
Electronic Design Automation
- ----------------------------
Viewlogic Systems, Common
Inc. shares 12/91 555,460 0 (1,851,458)
Industrial/Business Automation
- ------------------------------
Acuity Imaging, Common
Inc. shares 03/88 24,916 (29,900) (175,037)
CogniSense Series A
Preferred
shares 09/92 26,723 (40,329) 0
Medical
- -------
Cardiac Science, Common 07/91-
Inc. shares 09/94 1,157,574 0 34,728
CEMAX, Inc. Common shares 06/86 6,242 0 (9,363)
CEMAX, Inc. Redeemable
Convertible
Series A,B,C,D
Preferred 05/92-
shares 10/94 398,479 (290,339) (283,795)
CEMAX-ICON, Inc. Common shares 06/95 169,819 290,339 594,366
Medstone Common shares
International
Inc. (formerly
Cytocare, Inc.) 06/88 211,351 0 1,250,471
--------- ----------
Total significant changes during the
nine months ended September 30, 1995 404,771 34,912
Other changes, net 0 299
--------- ----------
Total equity investments at September 30, 1995 $3,173,422 12,657,788
========= ==========
</TABLE>
Marketable Equity Securities
- ----------------------------
At September 30, 1995 and December 31, 1994, marketable equity
securities had aggregate costs of $998,316 and $656,330, respectively,
and aggregate fair values of $10,116,606 and $9,204,804, respectively.
The net unrealized gains at September 30, 1995 and December 31, 1994
included gross gains of $9,118,290 and $8,548,474, respectively.
Acuity Imaging, Inc.
- --------------------
In June 1995, the Partnership sold 13,074 common shares of Acuity
Imaging, Inc. for total proceeds of $159,873 and realized a gain of
$144,184. Then in July and August 1995, the Partnership sold its
remaining 11,842 common shares for total proceeds of $118,420 and
realized a gain of $104,209.
CEMAX-ICON, Inc./CEMAX, Inc.
- ----------------------------
In June 1995, CEMAX, Inc. merged with ICON Medical Systems creating a
new entity named CEMAX-ICON, Inc. The Partnership's CEMAX, Inc.
investment holdings were exchanged for 169,819 shares of CEMAX-ICON,
Inc. common stock. Subsequent to the merger, the company completed a
new round of financing at a higher valuation resulting in an increase in
the change in fair value of $301,208 for the Partnership's investment.
CogniSense
- ----------
The company has sold its technology and will cease operations. Based on
the Managing General Partner's opinion, a write-off of $40,329 was
recorded in June 1995.
Wasatch Education Systems Corporation
- -------------------------------------
In June 1995, the Partnership converted its secured notes receivable
totaling $475,000 into 475,000 Series C Preferred shares at $1.00 per
share. As part of the conversion, the Partnership wrote off or reversed
accrued interest totaling $139,499. In addition, the Partnership's
existing common warrants were replaced with new five-year warrants with
similar exercise prices. New warrants were also received as a result of
previous maturity extensions.
Other Equity Investments
- ------------------------
Other significant changes reflected above relate to market value
fluctuations and the elimination of a discount relating to selling
restrictions for publicly-traded portfolio companies. The Partnership's
investment in Cardiac Science, Inc. is partially restricted.
5. Secured Notes Receivable, Net
-----------------------------
Activity from January 1, 1995 through September 30, 1995 consisted of:
<TABLE>
<S> <C>
Balance at January 1, 1995 $ 483,026
1995 Activity:
Conversion of secured notes receivable
to equity investment (475,000)
Write-off of accrued interest (129,842)
Decrease in allowance for loan losses 109,000
Other, net 12,816
-------
Total secured notes receivable, net
at September 30, 1995 $ --
=======
</TABLE>
Refer to Note 4, Equity Investments, for disclosure regarding the note
conversion and interest write-off. The Partnership holds no other note
receivable.
There was no accrued interest at September 30, 1995, compared to
$117,814 at December 31, 1994. Also, the beginning of year allowance
for loan losses of $109,000 was eliminated.
6. Short-term Borrowings
---------------------
The Partnership maintains a line of credit with a financial institution,
which has been renewed with a maturity date of April 5, 1996. At
September 30, 1995, the outstanding balance was $3,300,000; the
Partnership may not make additional draws as the maximum borrowing
capacity has been reached. The weighted-average interest rates during
the nine months ended September 30, 1995 and the year ended 1994 were
8.86% and 7.14%, respectively. The Partnership's shares in Viewlogic
Systems, Inc. and Medstone International Inc. are pledged as collateral.
7. Subsequent Events
-----------------
For the Partnership's public portfolio companies at quarter end,
Viewlogic Systems, Inc. had a material fair value change subsequent to
September 30, 1995. The change reflects changes in common stock prices
which fluctuate daily on stock exchanges.
As of November 3, 1995, the fair value for Viewlogic Systems, Inc.
decreased to $5,587,928, compared to $7,720,894 at September 30, 1995.
<PAGE>
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
Liquidity and Capital Resources
- -------------------------------
During the nine months ended September 30, 1995, net cash used by
operating activities totaled $560,508. The Partnership paid management
fees of $249,570 to the Managing General Partner and reimbursed related
parties for operating expenses of $57,460 during the nine months ended
September 30, 1995. Other operating expenses of $46,348 were paid and
interest income of $2,984 was received. The Partnership also paid
$210,114 in interest on short-term borrowings.
During the nine months ended September 30, 1995, proceeds from sales of
equity investments were $278,293.
The Partnership has a line of credit with a financial institution. This
line of credit has been renewed with a maturity date of April 5, 1996.
At September 30, 1995, the outstanding balance was $3,300,000; the
Partnership may not make additional draws as the maximum borrowing
capacity has been reached. Net proceeds from short-term borrowings for
the nine months ended September 30, 1995 totaled $428,578. The
Partnership's investments in Viewlogic Systems, Inc. and Medstone
International Inc. are pledged as collateral.
Cash and cash equivalents at September 30, 1995 were $146,784. If the
Partnership is not dissolved by year end 1995 as disclosed in Note 1,
future proceeds from the sale of investments and 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 income totaled $921,072 and $2,018,665 for the three months ended
September 30, 1995 and 1994, respectively. The change was primarily due
to a $1,158,106 decrease in the change in net unrealized fair value of
equity investments.
During the quarter ended September 30, 1995, equity investment fair
values were higher than cost basis by $1,003,088 primarily due to
portfolio companies in the medical and electronic design automation
industries. During the same quarter in 1994, fair values were higher by
$2,161,194 primarily due to portfolio companies in the electronic design
automation and medical industries.
During the three months ended September 30, 1995, the Partnership
realized a gain of $104,209 from sales of equity investments in Acuity
Imaging, Inc. No such gain was realized for the same period in 1994.
The Partnership recorded interest income of $516 and $16,029 for the
quarters ended September 30, 1995 and 1994, respectively. In 1995, the
interest income was lower due to the conversion of the Partnership's
outstanding secured notes receivable to equity investments as discussed
in Note 4 to the financial statements.
Given the inherent risk associated with the business of the Partnership,
the future performance of the portfolio company investments may
significantly impact future operations.
Current nine months compared to corresponding nine months in the
- ----------------------------------------------------------------
preceding year
- --------------
Net loss totaled $729,956 and $2,343,743 for the nine months ended
September 30, 1995 and 1994, respectively. The decrease in net loss was
substantially due to a $1,467,997 increase in the change in net
unrealized fair value of equity investments, a $248,393 increase in net
realized gain from sales of equity investments, and a $119,000 increase
in the change in net unrealized fair value of secured notes receivable.
These changes were partially offset by a $170,171 increase in realized
losses from investment write-downs.
During the nine months ended September 30, 1995, the $369,560 decrease
in fair value of equity investments was primarily due to a portfolio
company in the electronic design automation industry, partially offset
by a portfolio company in the medical industry. In 1994, the decrease
of $1,837,557 was primarily due to portfolio companies in the electronic
design automation and medical industries.
In 1995, the Partnership realized a gain of $248,393 from sales of
equity investments in Acuity Imaging, Inc. No such gain was realized in
1994.
During the nine months ended September 30, 1995, the Partnership
recorded an increase in the fair value of secured notes receivable of
$109,000 in order to eliminate the allowance for loan losses as there
were no secured notes receivable outstanding. A $10,000 decrease was
recorded for the same period in 1994.
In 1995, realized losses from investment write-downs totaled $170,171
primarily related to the write-off of accrued interest on secured notes
receivable to Wasatch Education Systems Corporation as discussed in Note
4 to the financial statements. No such write-down was recorded in 1994.
II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) No reports on Form 8-K were filed by the Partnership during the
quarter ended September 30, 1995.
(b) Financial Data Schedule for the nine months ended and as of
September 30, 1995 (Exhibit 27).
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be
signed on its behalf by the undersigned, thereunto duly authorized.
TECHNOLOGY FUNDING PARTNERS I
By: TECHNOLOGY FUNDING INC.
Managing General Partner
Date: November 10, 1995 By: /s/Frank R. Pope
-----------------------------------
Frank R. Pope
Executive Vice President and
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE>6
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE FORM 10-Q AS OF SEPTEMBER 30, 1995 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
<MULTIPLIER>1
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> SEP-30-1995
<PERIOD-TYPE> 9-MOS
<INVESTMENTS-AT-COST> 3,173,422
<INVESTMENTS-AT-VALUE> 12,657,788
<RECEIVABLES> 0
<ASSETS-OTHER> 83,190
<OTHER-ITEMS-ASSETS> 146,784
<TOTAL-ASSETS> 12,887,762
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 3,341,649
<TOTAL-LIABILITIES> 3,341,649
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 61,747
<SHARES-COMMON-STOCK> 16,643
<SHARES-COMMON-PRIOR> 16,643
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 9,484,366
<NET-ASSETS> 9,546,113
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 15,800
<OTHER-INCOME> 0
<EXPENSES-NET> 563,418
<NET-INVESTMENT-INCOME> (547,618)
<REALIZED-GAINS-CURRENT> 78,222
<APPREC-INCREASE-CURRENT> (260,560)
<NET-CHANGE-FROM-OPS> (729,956)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> (729,956)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 249,570
<INTEREST-EXPENSE> 213,388
<GROSS-EXPENSE> 563,918
<AVERAGE-NET-ASSETS> 9,911,091
<PER-SHARE-NAV-BEGIN> 27
<PER-SHARE-NII> (27)
<PER-SHARE-GAIN-APPREC> 0 <F1>
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 0
<EXPENSE-RATIO> 5.7
<AVG-DEBT-OUTSTANDING> 3,085,711
<AVG-DEBT-PER-SHARE> 185
<FN>
<F1>
A zero value is used since the change in net unrealized fair value is
not allocated to General Partners and Limited Partners as it is not
taxable. Only taxable gains or losses are allocated in accordance with
the Partnership Agreement.
</FN>
</TABLE>
