<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For The Year Ended December 31, 1994
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)
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
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy
or information statements incorporated by reference in Part III of
this Form 10-K or any amendment to this Form 10-K. [ ]
No active market for the units of limited partnership interests
("Units") exists, and therefore the market value of such Units cannot
be determined.
Documents incorporated by reference: Portions of the Prospectus dated
May 13, 1985 forming a part of Registration Statement No. 2-90641
under the Securities Act of 1933 are incorporated by reference in
Parts I and III hereof. Portions of the Prospectus of Technology
Funding Medical Partners I, L.P., 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, is incorporated by reference in Part
III hereof.
<PAGE>
PART I
Item 1. BUSINESS
- ------ --------
Technology Funding Partners I (hereinafter referred to as the
"Partnership" or the "Registrant") is a limited partnership
organized under the laws of the State of California on
February 27, 1984. The purpose of the Partnership is to
provide venture capital financing to high technology
companies, joint ventures and equity partnerships as
described in the "Introductory Statement" and "Business of
the Partnership" sections of the Prospectus dated May 13,
1985 that forms a part of Registrant's Form S-1 Registration
Statement No. 2-90641, which sections are incorporated herein
by reference. 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, 2004, unless
terminated sooner.
Item 2. PROPERTIES
- ------ ----------
The Registrant has no material physical properties.
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. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- ------ ---------------------------------------------------
No matter was submitted to a vote of the holders of Units in
1994.
PART II
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 1,924 record holders of
Units.
(c) The Registrant, being a partnership, does not pay
dividends. Cash distributions, however, may be made to
the partners pursuant to the Registrant's Partnership
Agreement.
Item 6. SELECTED FINANCIAL DATA
- ------ -----------------------
<TABLE>
<CAPTION>
For the Years Ended and As of December 31,
-----------------------------------------------------------
1994 1993 1992 1991 1990
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Interest income $ 61,587 131,812 175,031 114,511 103,394
Net operating loss (658,711) (546,645) (445,099) (557,637) (496,721)
Net realized gain from sale
of investments -- 13,312 909,775 1,205,944 2,744,807
Realized losses from
investment write-downs -- (2,058,519) (13,104) (315,120) (510,875)
Provision for loan losses -- -- (731,366) (226,119) (137,483)
Net realized (loss) income (658,711) (2,591,852) (279,794) 107,068 1,599,728
Change in net unrealized
fair value:
Equity investments (2,709,091) 1,386,881 -- -- --
Secured notes receivable (41,000) 148,000 -- -- --
Cumulative effect on prior
periods of changing to the
fair value method of
accounting for investments -- 10,960,136 -- -- --
Net (loss) income (3,408,802) 9,903,165 (279,794) 107,068 1,599,728
Net realized (loss) income
per Unit (39) (154) (17) 6 87
Total assets 13,192,265 15,950,213 3,845,892 4,248,460 3,999,943
Short-term borrowings (2,889,002) (2,236,971) -- -- --
Distributions declared -- -- -- -- (961,596)
</TABLE>
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 income (loss) per Unit.
Refer to the financial statement note entitled "Change in
Method of Accounting for Investments" for a description of an
accounting change made prospectively in 1993.
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 $720,122. The
Partnership paid management fees of $332,760 to the Managing
General Partner and reimbursed related parties for operating
expenses of $145,850 in 1994. Other operating expenses of
$57,194 were paid and interest income of $1,464 was received.
The Partnership also paid $185,782 in interest on short-term
borrowings.
During the first quarter of 1994, the Partnership established
a new line of credit with a financial institution. The
maximum borrowing capacity at December 31, 1994 was
$3,300,000; however, the actual borrowing capacity in the
future may be lower based on collateral value. The
outstanding balance at December 31, 1994 was $2,889,002. The
maximum and weighted average amounts outstanding during the
year ended December 31, 1994 were $2,889,002 and $2,552,627,
respectively. The Partnership's investments in Viewlogic
Systems, Inc. and Cytocare, Inc. are pledged as collateral.
The cash and cash equivalents balance at December 31, 1994
was $421. 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
- ---------------------
1994 compared to 1993
- ---------------------
Net loss was $3,408,802 in 1994 compared to a net income of
$9,903,165 in 1993. The 1993 net income was primarily due to
the cumulative effect at January 1, 1993 of $10,960,136 from
the Partnership adopting the fair value method of accounting
for investments. In addition, other changes related to
decreases of $4,095,972 and $189,000 in fair value of equity
investment and secured notes receivable, respectively, a
$70,225 decrease in interest income and an increase in
operating expenses of $41,841. These changes were partially
offset by a $2,058,519 decrease in realized losses from
investment write-downs.
During 1994, the decrease in fair value of equity investments
of $2,709,091 was primarily due to market price declines for
public portfolio companies in the electronic design
automation and medical industries. In 1993, the increase of
$1,386,881 was primarily attributable to increases in the
electronic design automation and computer systems and
software industries, partially offset by decreases in the
medical industry.
In 1994, the Partnership recorded a decrease in the fair
value of secured notes receivable of $41,000 based upon the
level of loan loss reserves deemed adequate by the Managing
General Partner. An increase of $148,000 was recorded in
1993, primarily due to the conversion of secured notes
receivable to equity investments.
Interest income was $61,587 and $131,812 in 1994 and 1993,
respectively. The decrease was primarily due to lower average
outstanding balances on interest-bearing notes receivable.
Total operating expenses were $387,538 and $345,697 in 1994
and 1993, respectively. The increase was primarily due to
higher short-term borrowings interest expense, partially
offset by lower investment operations, professional fees and
computer services expense as a result of lower overall
portfolio activity.
There were no realized losses from investment write-downs in
1994. In 1993, the Partnership realized losses from
investment write-downs of $2,058,519 primarily from the
write-off of equity investments and secured notes receivable
in a portfolio company in the computer systems and software
industry. The company terminated operations in late 1993 due
to its inability to secure additional financing.
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 $9,903,165 in 1993 compared to a net loss of
$279,794 in 1992. The change was primarily due to the
Partnership adopting the fair value method of accounting for
investments in 1993. The cumulative effect of this change on
prior periods resulted in an increase in income of
$10,960,136 as investments were recorded at total fair value
which exceeded the total cost basis. In addition, the change
in net unrealized fair value of equity investments increased
by $1,386,881 while the provision for loan losses decreased
by $731,366. These increases were partially offset by a
$2,045,415 increase in realized losses from investment write-
downs and a $896,463 decrease in realized gains from the sale
of investments.
The change in fair value of equity investments reflected a
net increase in the fair value of the Partnership's holdings.
In 1993, the increase of $1,386,881 was primarily
attributable to increases in portfolio companies in the
electronic design automation and computer systems and
software industries, partially offset by decreases in the
medical industry. No such change was recorded for the same
period in 1992 as the Partnership previously accounted for
its investments on a cost basis.
In 1993, the Partnership recorded an increase in the change
in fair value of secured notes receivable of $148,000 based
upon the level of loan loss reserves deemed adequate by the
Managing General Partner. The 1993 change was primarily due
to the conversion of secured notes receivable to equity
investments. In 1992, the decrease in fair value was
recorded as a provision for loan losses and was reflected as
a realized loss since the Partnership accounted for secured
notes receivable on a cost basis. The provision for loan
losses in 1992 was $731,366.
In 1993, the Partnership realized losses from investment
write-downs of $2,058,519 primarily from the write-off of
equity investments and secured notes receivable in a
portfolio company in the computer systems and software
industry; the note fundings were made during 1993 to help the
company continue operations. The company terminated
operations in late 1993 due to its inability to secure
additional financing. During the same period in 1992,
realized losses of $13,104 were recorded related to portfolio
companies in the medical and computer systems and software
industries.
Realized gains from the sale of investments of $13,312 in
1993 related to Laserscope. Realized gains of $909,775 in
1992 related to the sale of investments in Triconex
Corporation.
Operating expenses were $345,697 and $287,370 in 1993 and
1992, respectively. The increase was primarily due to higher
short-term borrowings interest expense, partially offset by
lower investment operations, and administrative and investor
services expenses due to lower portfolio monitoring
activities.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
- ------ -------------------------------------------
The financial statements of the Registrant are set forth in
Item 14.
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. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
- ------- ---------------------------------------------------
As a partnership, the Registrant has no directors or
executive officers. Technology Funding Ltd., a California
limited partnership ("TFL") and Technology Funding Inc., a
California corporation ("TFI") and wholly-owned subsidiary of
TFL, are the General Partners of the Partnership. TFI is the
Managing General Partner. 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" in the Prospectus, which are
incorporated herein by reference. 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. EXECUTIVE COMPENSATION
- ------- ----------------------
As a partnership, the Registrant has no officers or
directors. In 1994, the Partnership incurred $332,760 in
management fees. The fees are designed to compensate the
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 General Partners.
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 General Partners nor any of their
officers, directors or partners own any Units. The General
Partners control the affairs of the Partnership pursuant to
the Partnership Agreement.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- ------- ----------------------------------------------
The Registrant has engaged in no transactions with the
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. 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 May 13,
1985, included in Registration Statement No. 2-
90641 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).
<PAGE>
INDEPENDENT AUDITORS' REPORT
----------------------------
The Partners
Technology Funding Partners I:
We have audited the accompanying balance sheets of Technology Funding
Partners I (a California 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 Partners I 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 discussed in Note 10 to the financial statements, in 1993 the
Partnership changed its method of accounting for investments from a
cost basis to a fair value basis.
As explained in Notes 1, 6 and 7, the financial statements include
investments of $13,105,603 and $15,795,571 (128% and 115% of partners'
capital) as of December 31, 1994 and 1993, respectively, whose values,
in certain circumstances, have been estimated by the Managing General
Partner in the absence of readily ascertainable market values. We
have reviewed the procedures used by the Managing General Partner in
arriving at its estimate of value of such 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 difference could be material.
San Francisco, California KPMG Peat Marwick LLP
March 17, 1995
<PAGE>
BALANCE SHEETS
- --------------
<TABLE>
<CAPTION>
December 31,
------------------
1994 1993
---- ----
<S> <C> <C>
ASSETS
Investments:
Equity investments (cost basis of
$2,768,651 and $2,642,169 for 1994
and 1993, respectively) $12,622,577 15,205,186
Secured notes receivable, net
(cost basis of $592,026 and
$658,385 for 1994 and 1993,
respectively) 483,026 590,385
---------- ----------
Total investments 13,105,603 15,795,571
Cash and cash equivalents 421 68,512
Prepaid management fees 83,190 83,190
Due from related parties 3,051 2,940
---------- ----------
Total $13,192,265 15,950,213
========== ==========
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable and accrued expenses $ 27,194 28,371
Short-term borrowings 2,889,002 2,236,971
---------- ----------
Total liabilities 2,916,196 2,265,342
Commitments and subsequent events
(Notes 4 and 11)
Partners' capital:
Limited Partners
(Units outstanding of 16,643
for both 1994 and 1993) 442,170 1,094,294
General Partners 88,973 95,560
Net unrealized fair value increase
(decrease) from cost:
Equity investments 9,853,926 12,563,017
Secured notes receivable (109,000) (68,000)
---------- ----------
Total partners' capital 10,276,069 13,684,871
---------- ----------
Total $13,192,265 15,950,213
========== ==========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
STATEMENTS OF OPERATIONS
- -----------------------
<TABLE>
<CAPTION>
For the Years Ended December 31,
----------------------------------
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Interest income $ 61,587 131,812 175,031
Costs and expenses:
Management fees 332,760 332,760 332,760
Operating expenses:
Administrative and
investor services 129,691 127,907 139,063
Computer services 29,506 43,718 46,948
Investment operations 19,011 44,015 58,210
Professional fees 23,548 43,086 37,321
Interest expense 185,782 86,971 5,828
--------- ---------- -------
Total operating expenses 387,538 345,697 287,370
--------- ---------- -------
Total costs and expenses 720,298 678,457 620,130
--------- ---------- -------
Net operating loss (658,711) (546,645) (445,099)
Provision for loan losses -- -- (731,366)
Net realized gain from
sale of investments -- 13,312 909,775
Realized losses from
investment write-downs -- (2,058,519) (13,104)
--------- ---------- -------
Net realized loss (658,711) (2,591,852) (279,794)
Change in net unrealized
fair value:
Equity investments (2,709,091) 1,386,881 --
Secured notes receivable (41,000) 148,000 --
Cumulative effect on prior
periods of changing to the
fair value method of
accounting for
investments -- 10,960,136 --
--------- ---------- -------
Net (loss) income $(3,408,802) 9,903,165 (279,794)
========= ========== =======
Net realized loss
per Unit $ (39) (154) (17)
========= ========== =======
</TABLE>
See accompanying notes to financial statements.
<PAGE>
STATEMENTS OF PARTNERS' CAPITAL
- -------------------------------
<TABLE>
<CAPTION>
For the years ended December 31, 1994, 1993 and 1992:
Net Unrealized Fair Value
Increase (Decrease) From Cost
-----------------------------
Limited General Equity Secured Notes
Partners Partners Investments Receivable Total
-------- -------- ----------- ---------- -----
<S> <C> <C> <C> <C> <C>
Partners' capital,
December 31, 1991 $ 3,937,223 124,277 -- -- 4,061,500
Net realized loss (276,996) (2,798) -- -- (279,794)
--------- ------- ---------- ------- ----------
Partners' capital,
December 31, 1992 3,660,227 121,479 -- -- 3,781,706
Net realized loss (2,565,933) (25,919) -- -- (2,591,852)
Change in net unrealized
fair value:
Equity investments -- -- 1,386,881 -- 1,386,881
Secured notes receivable -- -- -- 148,000 148,000
Cumulative effect on prior
periods of changing to the
fair value method of
accounting for investments -- -- 11,176,136 (216,000) 10,960,136
--------- ------- ---------- ------- ----------
Partners' capital,
December 31, 1993 1,094,294 95,560 12,563,017 (68,000) 13,684,871
Net realized loss (652,124) (6,587) -- -- (658,711)
Change in net unrealized
fair value:
Equity investments -- -- (2,709,091) -- (2,709,091)
Secured notes receivable -- -- -- (41,000) (41,000)
--------- ------- ---------- ------- ----------
Partners' capital,
December 31, 1994 $ 442,170 88,973 9,853,926 (109,000) 10,276,069
========= ======= ========== ======= ==========
See accompanying notes to financial statements.
</TABLE>
<PAGE>
STATEMENTS OF CASH FLOWS
- ------------------------
<TABLE>
<CAPTION>
For the Years Ended December 31,
-----------------------------------
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Cash flows from operations:
Interest received $ 1,464 78,648 102,245
Interest paid on short-term
borrowings (185,782) (86,971) (5,828)
Cash paid to vendors (57,194) (73,920) (81,704)
Cash paid to related parties (478,610) (553,452) (488,744)
------- --------- ---------
Net cash used by operations (720,122) (635,695) (474,031)
------- --------- ---------
Cash flows from investing activities:
Secured notes receivable issued -- (950,450)(1,300,000)
Repayments of convertible and
secured notes receivable -- 11,999 158,333
Purchase of equity investments -- (793,000) (559,710)
Proceeds from sale of investments -- 78,625 1,634,642
------- --------- ---------
Net cash used by
investing activities -- (1,652,826) (66,735)
------- --------- ---------
Cash flows from financing activities:
Proceeds from short-term
borrowings 652,031 2,236,971 --
------- --------- ---------
Net cash provided by financing
activities 652,031 2,236,971 --
------- --------- ---------
Net decrease in cash and
cash equivalents (68,091) (51,550) (540,766)
Cash and cash equivalents
at beginning of year 68,512 120,062 660,828
------- --------- ---------
Cash and cash equivalents
at end of year $ 421 68,512 120,062
======== ========= =========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
STATEMENTS OF CASH FLOWS (continued)
- -----------------------------------
<TABLE>
<CAPTION>
For the Years Ended December 31,
--------------------------------------
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Reconciliation of net
(loss) income to net cash
used by operations:
Net (loss) income $(3,408,802) 9,903,165 (279,794)
Adjustments to reconcile
net (loss) income to
net cash used by
operations:
Realized losses from
investment write-downs -- 2,058,519 13,104
Net realized gain from
sale of investments -- (13,312) (909,775)
Provision for loan losses -- -- 731,366
Change in net unrealized
fair value:
Equity investments 2,709,091 (1,386,881) --
Secured notes
receivable 41,000 (148,000) --
Cumulative effect of a
change in accounting
principle -- (10,960,136) --
Amortization of discount
on notes receivable (1,183) (600) (1,922)
Changes in:
Accrued interest on
convertible and secured
notes receivable (58,940) (52,564) (70,864)
Other assets -- (71) 162,522
Accounts payable and
accrued expenses (1,177) 941 (2,369)
Other liabilities -- -- (157,161)
Due from/to related
parties (111) (36,756) 40,862
---------- --------- --------
Net cash used by operations $ (720,122) (635,695) (474,031)
========== ========= =======
Non-cash investing activities:
Notes receivable and accrued
interest converted to
equity investments $ 125,000 1,305,055 143,940
========== ========= =======
</TABLE>
See accompanying notes to financial statements.
<PAGE>
NOTES TO FINANCIAL STATEMENTS
- -----------------------------
1. Summary of Significant Accounting Policies
------------------------------------------
Organization
- ------------
Technology Funding Partners I (the "Partnership") is a limited
partnership organized under the laws of the State of California on
February 24, 1984. The purpose of the Partnership is to provide
venture capital financing to and participate in the management of high
technology companies, equity partnerships, and joint ventures. The
General Partners are Technology Funding Ltd. ("TFL") and Technology
Funding Inc. ("TFI"), a wholly-owned subsidiary of TFL. TFI is the
Managing General Partner. The registration statement of the
Partnership, filed with the Securities and Exchange Commission, became
effective on June 18, 1984. The Partnership commenced selling units
of limited partnership interest ("Units") on June 18, 1984. On
September 26, 1984 the minimum number of Units required to form the
Partnership (1,500) had been sold. On June 28, 1985, the offering
terminated with 16,643 Units sold. The Partnership Agreement provides
that the Partnership will continue until December 31, 2004, unless
terminated sooner.
Cash and Cash Equivalents
- -------------------------
Cash and cash equivalents are principally comprised of cash invested
in money market instruments. The Partnership considers all money
market instruments with an original maturity of three months or less
to be cash equivalents.
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 $3,360,677 by $980,198 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 (16,643) as of December 31, 1994, 1993 and
1992 into the total net realized income (loss) allocated to the
Limited Partners. The General Partners contributed an amount equal to
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 Partner. Included in equity investments are convertible or
subordinated notes receivable as repayment of these notes may occur
through conversion into equity investments.
Equity 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 in value 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" on the Statements of
Operations.
Secured Notes Receivable, Net
-----------------------------
The secured 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 Partner 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 Partner, the
future collectibility of interest or principal is in doubt.
In conjunction with the secured 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 Partner 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. Financing of Partnership Operations
-----------------------------------
The Managing General Partner expects 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 could 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. 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:
<TABLE>
<CAPTION>
For the Years Ended December 31,
-------------------------------------
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Increase in fair value
from cost of marketable
equity securities $ 8,548,474 9,881,614 6,780,165
Increase in fair value from
cost of non-marketable
equity securities 1,305,452 2,681,403 4,395,971
---------- ---------- ----------
Net unrealized fair
value increase from
cost at end of year 9,853,926 12,563,017 11,176,136
Net unrealized fair
value increase from
cost at beginning of
year 12,563,017 11,176,136 --
---------- ---------- ----------
Change in net unrealized
fair value of equity
investments $(2,709,091) 1,386,881 11,176,136
========== ========== ==========
</TABLE>
4. Related Party Transactions
--------------------------
Included in costs and expenses are related party costs as follows:
<TABLE>
<CAPTION>
For the Years Ended December 31,
-------------------------------------
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Management fees $332,760 332,760 332,760
Reimbursable operating
expenses:
Administrative and
investor services 97,676 100,721 96,331
Computer services 29,506 43,718 46,884
Investment operations 18,557 39,497 53,631
</TABLE>
Management fees are equal to two percent of the total limited
partners' capital contributions. The fees will remain at this level
in future years. Management fees compensate the Managing General
Partner solely for General Partner Overhead (as defined in the
Partnership Agreement) incurred in supervising the operations and
management of the Partnership and the Partnership's investments. At
December 31, 1994 and 1993, prepaid management fees of $83,190
represent the management fee paid for the following quarter of the
respective year pursuant to the Partnership Agreement.
The Partnership reimburses the Managing General Partner and affiliates
for operating expenses incurred in connection with the business of the
Partnership. Reimbursable operating expenses include expenses (other
than General Partner Overhead) such as administrative and investor
services, computer services and investment operations. There were
$3,051 and $2,940 of such expenses due from related parties at
December 31, 1994 and 1993, respectively.
Under the terms of a computer service agreement, the Partnership paid
Technology Administrative Management, a division of TFL, for its share
of computer support costs for the years ended December 31, 1994, 1993
and 1992. These amounts are included in computer services expenses.
Officers of the General Partners occasionally receive stock options as
compensation for serving on the Boards of Directors of portfolio
companies. It is the 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. At December 31, 1994, the Partnership
had an indirect interest, worth approximately $7,970, in non-
transferable Viewlogic Systems, Inc. and Cytocare, Inc. options.
5. Allocation of Profits and Losses
--------------------------------
Net profit and loss of the Partnership are allocated as follows:
A. Losses:
(i) 99% to the Limited Partners as a group and 1% to the
General Partners until such time as the aggregate amount
of such losses exceed total Limited Partner capital
account balances; then
(ii) Losses in excess of Limited Partner capital accounts will
be allocated to the General Partners as a group.
B. Profits:
(i) Net profits shall be first allocated to the general
partners to the extent of losses allocated in A(ii); then
(ii) 90% to the Limited Partners as a group and 10% to the
General Partners as a group until such time as the
aggregate amount of cash and the value of securities
distributed to the Limited Partners equals the aggregate
amount of Limited Partner capital contributions; then
(iii)80% to the Limited Partners as a group and 20% to the
General Partners as a group.
6. Equity Investments
------------------
At December 31, 1994 and 1993, equity investments consisted of:
<TABLE>
<CAPTION>
December 31, 1994 December 31, 1993
Principal ----------------- -----------------
Investment Amount or Cost Fair Cost Fair
Industry/Company Position Date Shares Basis Value Basis Value
- ---------------- -------- ---- ------ ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Computer Systems and Software
- -----------------------------
Quick Connect Common
Software, Inc. shares 08/94 63,637 $ 0 0 -- --
Wasatch Education Common
Systems shares 05/86 131,255 0 15,958 0 111,903
Corporation
Wasatch Education Common
Systems warrants
Corporation at $1.31;
expiring
05/97 05/92 248,104 0 0 0 0
Wasatch Education Common
Systems warrants
Corporation at $.50;
expiring
04/98 04/93 376,250 0 0 0 141,094
Wasatch Education Common
Systems warrants
Corporation at $.50;
expiring
04/98 04/93 130,000 0 0 0 50,000
Wasatch Education Series A
Systems Preferred
Corporation shares 06/93 1,300,000 1,300,000 1,300,000 1,300,000 1,300,000
Electronic Design Automation
- ----------------------------
Viewlogic Systems, Common
Inc. shares 12/91 555,460 447,397 9,572,352 447,397 11,516,794
Industrial/Business Automation
- ------------------------------
Acuity Imaging, Common
Inc. (formerly shares 03/88 24,916 29,900 175,037 29,900 131,060
Automatix, Inc.)
CogniSense Series A
Preferred
shares 09/92 26,723 40,329 0 40,329 0
Medical
- -------
Cardiac Science, Common 07/91-
Inc. shares 09/94 324,241 9,332 60,794 9,332 241,274
Cardiac Science, Common
Inc. warrants
at $.15;
expiring
04/97 04/92 833,333 -- -- 1,250 492,500
Cardiac Science, Common
Inc. options
at $2.05;
expiring
12/97.
15,000 in total,
fully vested
in 12/95 12/92 10,000 0 0 0 0
Cardiac Science, Common
Inc. shares 09/94 833,333 126,250 156,250 -- --
CEMAX, Inc. Common
shares 06/86 64 0 96 0 96
CEMAX, Inc. Common
shares 06/86 6,178 0 9,267 0 9,267
CEMAX, Inc. Redeemable
convertible
Series A
Preferred
shares 05/92 237,275 95,147 3,559 95,147 3,559
CEMAX, Inc. Redeemable
convertible
Series B
Preferred
shares 05/92 73,529 25,250 110,294 25,250 110,294
CEMAX, Inc. Redeemable
convertible
Series C
Preferred
shares 05/92 62,056 93,084 93,084 93,084 93,084
CEMAX, Inc. Subordinated
note (1) 11/93 $75,000 -- -- 75,376 75,376
CEMAX, Inc. Series D
Preferred
shares 10/94 25,619 76,858 76,858 -- --
Cytocare, Inc. Common
shares 06/88 211,351 525,104 1,049,028 525,104 928,885
--------- ---------- --------- ----------
Total equity investments $2,768,651 12,622,577 2,642,169 15,205,186
========= ========== ========= ==========
- -- No investment held at end of period.
0 Investment active with a carrying value or fair value of zero.
(1) Subordinated note includes accrued interest. The interest rate on the
subordinated note was 4%.
</TABLE>
Marketable Equity Securities
- ----------------------------
At December 31, 1994 and 1993, marketable equity securities had
aggregate costs of $656,330 and $650,696, respectively, and
aggregate fair values of $9,204,804 and $10,532,310,
respectively. The net unrealized gains at December 31, 1994 and
1993 included gross gains of $8,548,474 and $9,882,214,
respectively.
Acuity Imaging, Inc (formerly Automatix, Inc.)
- -----------------------------------------------
In January 1994, Automatix, Inc. changed its name to Acuity
Imaging, Inc., merged with Itran Corporation, and had a 20 for 1
reverse common stock split. The Partnership's investment was
converted into 24,916 marketable, unrestricted common shares of
Acuity Imaging, Inc. The increase in the net unrealized fair
value of $43,977 reflected the market price at December 31, 1994.
Cardiac Science, Inc.
- ---------------------
In September 1994, the company resumed operations after it
completed a new round of equity financing. The company suspended
operations in February 1994 pending such additional financing.
Also in September 1994, the Partnership used its existing
$125,000 note receivable from the company to exercise its warrant
and received 833,333 common shares. In addition, 50,667 shares
of common stock were received as consideration for interest on
the note. At December 31, 1994, the Partnership recorded a
change in fair value decrease of $641,730 mainly due to a market
value decline as a result of the temporary suspension of
operations. Related to the new private round of financing, all
of the Partnership's common shares became restricted resulting in
a 25% illiquidity discount from market value, which also
contributed to the decrease in fair value.
CEMAX, Inc.
- -----------
In October 1994, the Partnership converted its subordinated note
receivable (including interest) to the company in exchange for
25,619 Series D Preferred shares at $3.00 per share for a total
cost of $76,858. This transaction did not affect the valuation
of the Partnership's existing investments.
Cytocare, Inc.
- --------------
The Partnership recorded an increase in fair value of $120,143 to
reflect the publicly-traded market price at December 31, 1994; a
portion of the investment fair value was adjusted to reflect a
25% discount for restricted securities.
Viewlogic Systems, Inc.
- -----------------------
The Partnership recorded a decrease in fair value of $1,944,442
to reflect the publicly-traded market price at December 31, 1994;
a portion of the investment fair value was adjusted to reflect a
25% discount for restricted securities.
Wasatch Education Systems Corporation
- -------------------------------------
The Partnership recorded a decrease in fair value of $287,039
based on the publicly-traded market price of this investment at
December 31, 1994; the fair value was adjusted to reflect a 25%
discount for restricted securities. In 1993, based on a June
1993 financing round and the relatively low level of common stock
trading to set a market price, the fair value for the company's
preferred and common stock was estimated to be $1.00 per share.
Since there has not been a recent round of financing, the
publicly-traded market price is used to value common stock and
warrants at December 31, 1994. The Managing General Partner
believes the best valuation at this time for the preferred shares
is $1.00 per share.
7. Secured Notes Receivable, Net
-----------------------------
At December 31, 1994 and 1993, secured notes receivable consisted
of:
<TABLE>
<CAPTION>
1994 1993
---- ----
<S> <C> <C>
Secured notes receivable $ 475,000 600,000
Accrued interest 117,814 60,356
Unamortized discount related to warrants (788) (1,971)
------- -------
Total secured notes receivable,
net (cost basis) 592,026 658,385
Allowance for loan losses (109,000) (68,000)
------- -------
Total secured notes receivable,
net (fair value) $ 483,026 590,385
======= =======
</TABLE>
Changes in the allowance for loan losses were as follows:
<TABLE>
<CAPTION>
1994 1993
---- ----
<S> <C> <C>
Balance, beginning of year $ 68,000 216,000
------- -------
Increase in provision for loan losses 41,000 190,000
Secured notes receivable write-offs:
Computer systems and software -- (338,000)
------- -------
Change in net unrealized fair value of
secured notes receivable 41,000 (148,000)
------- -------
Balance, end of year $109,000 68,000
======= =======
</TABLE>
The increase 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 Partner.
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
Partner's assessment of the portfolio as a whole.
The interest rate on secured notes receivable at December 31,
1994 was 12%.
The principal balance of $475,000 is scheduled to be repaid in
1995. The Managing General Partner may at times need to
restructure notes by either extending maturity dates or
converting notes to equity investments to increase the ultimate
collectibility of investments to the Partnership.
8. Cash and Cash Equivalents
-------------------------
Cash and cash equivalents at December 31, 1994 and 1993 consisted
of:
<TABLE>
<CAPTION>
1994 1993
---- ----
<S> <C> <C>
Demand accounts $421 5,983
Money-market accounts 0 62,529
--- ------
Total $421 68,512
=== ======
</TABLE>
9. Short-Term Borrowings
---------------------
During the first quarter of 1994, the Partnership established a
new line of credit with a financial institution. This line of
credit will expire on April 5, 1995; however, the Managing
General Partner plans to renew the line of credit. The maximum
borrowing capacity at December 31, 1994 was $3,300,000; however,
the actual borrowing capacity in the future may be lower based on
collateral value. During 1993, the Partnership maintained a
margin account with a brokerage firm, which was replaced by the
line of credit. The outstanding balance at December 31, 1994 was
$2,889,002. The maximum and weighted average amounts outstanding
during 1994 were $2,889,002 and $2,552,627, respectively, and
$2,236,971 and $1,551,679, correspondingly, in 1993. The year-
end and weighted average interest rate during the year ended
December 31, 1994 were 8.5% and 7.14%, respectively. In 1993,
both the year-end and weighted average interest rates were 6%.
In 1994 and 1993, interest expense of $185,782 and $86,971,
respectively, were recorded on short-term borrowings. The
Partnership's investments in Viewlogic Systems, Inc. and
Cytocare, Inc. are pledged as collateral.
10. Change in Method of Accounting for Investments
----------------------------------------------
In 1993 the Partnership changed its method of accounting and
reporting for investments from a cost basis to a fair value
basis. The newly adopted accounting principle is preferable
because it provides more meaningful financial information and
more accurately reflects the current values of the Partnership's
portfolio assets.
Under the cost basis method of accounting, 1993 net loss would
have been $2,659,852, or $158 per Unit, as changes in fair value
would not have been reflected on the Statements of Operations.
The cumulative effect of the change on prior periods is presented
as a separate item on the 1993 Statement of Operations.
11. Subsequent Events
-----------------
For the Partnership's public portfolio companies at year end,
Viewlogic Systems, Inc. had a material fair value change
subsequent to December 31, 1994. This change reflects changes in
common stock prices which fluctuate daily on stock exchanges.
As of February 24, 1995, the fair value for Viewlogic Systems,
Inc. decreased to $5,417,202, compared to $9,572,352 at December
31, 1994.
<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: 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.
<TABLE> <S> <C>
<ARTICLE>6
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM THE FORM 10-K AS OF DECEMBER 31, 1994 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
<MULTIPLIER>1
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1994
<PERIOD-END> DEC-31-1994
<PERIOD-TYPE> YEAR
<INVESTMENTS-AT-COST> 3,360,677
<INVESTMENTS-AT-VALUE> 13,105,603
<RECEIVABLES> 0
<ASSETS-OTHER> 86,241
<OTHER-ITEMS-ASSETS> 421
<TOTAL-ASSETS> 13,192,265
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 2,916,196
<TOTAL-LIABILITIES> 2,916,196
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 531,143
<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> 9,744,926
<NET-ASSETS> 10,276,069
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 61,587
<OTHER-INCOME> 0
<EXPENSES-NET> 720,298
<NET-INVESTMENT-INCOME> (658,711)
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> (2,750,091)
<NET-CHANGE-FROM-OPS> (3,408,802)
<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> (3,408,802)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 332,760
<INTEREST-EXPENSE> 185,782
<GROSS-EXPENSE> 721,048
<AVERAGE-NET-ASSETS> 11,980,470
<PER-SHARE-NAV-BEGIN> 66
<PER-SHARE-NII> (39)
<PER-SHARE-GAIN-APPREC> 0 <F1>
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 27
<EXPENSE-RATIO> .06
<AVG-DEBT-OUTSTANDING> 2,552,627
<AVG-DEBT-PER-SHARE> 153
<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>
