<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, 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. 0-15766
TECHNOLOGY FUNDING SECURED INVESTORS I
------------------------------------------------------
(Exact name of Registrant as specified in its charter)
CALIFORNIA 94-2944800
- ------------------------------- ------------------------------------
(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 5, 1986 forming a part of Registration Statement No. 2-96022 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 Secured Investors I (hereinafter referred to
as the "Partnership" or the "Registrant") was formed as a
California limited partnership on August 31, 1984. The business
of the Partnership is to provide secured loans and to acquire
equity interests in new and developing companies as described in
the "Summary of the Offering" and "Business of the Partnership"
sections of the Prospectus dated May 5, 1986, that forms a part
of Registrant's Form S-1 Registration Statement No. 2-96022,
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
dissolved earlier.
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 of
limited partnership interests ("Units") during 1995.
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, 1995, there were 5,997 record holders of
Units.
(c) The Registrant, being a partnership, does not pay
dividends. Cash distributions, however, may be made to the
partners in the Partnership pursuant to the Registrant's
Partnership Agreement.
Item 6. SELECTED FINANCIAL DATA
- ------ -----------------------
<TABLE>
<CAPTION>
For the Years Ended and As of December 31,
-----------------------------------------------------------------
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Total income $ 188,104 156,925 376,496 1,312,184 1,967,331
Net operating (loss)
income (791,505) (446,132) (409,865) 94,594 593,337
Net realized gain from sales
of equity investments 540,349 355,016 -- 743,567 356,970
Realized losses from
investment write-downs (2,988,395) (514,251) (5,320,352) (715,875) (813,259)
Recovery from investments
previously written off -- 45,290 80,357 -- 89,010
Net realized (loss)
income (3,239,551) (560,077) (5,649,860) 122,286 226,058
Change in net unrealized
fair value:
Equity investments 2,389,463 (2,127,420) 2,295,838 (2,959,810) (142,460)
Secured notes receivable (20,000) 549,000 660,000 (654,696) 81,984
Net (loss) income (870,088) (2,138,497) (2,694,022) (3,492,220) 165,582
Net realized (loss)
income per Unit (28) (5) (48) 1 2
Total assets 1,900,971 2,270,238 4,424,424 8,768,510 15,408,327
Distributions declared -- -- (900,092) (2,700,080) (2,602,793)
</TABLE>
Refer to financial statement notes entitled "Summary of
Significant Accounting Policies" and "Allocation of Profits and
Losses" for a description of the method of calculation of net
realized (loss) income per Unit.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
- ------ -----------------------------------------------------------
AND RESULTS OF OPERATIONS
- -------------------------
Liquidity and Capital Resources
- -------------------------------
In 1995, net cash used by operating activities totaled $155,533.
The Partnership paid management fees of $40,172 to the Managing
General Partner and reimbursed related parties for operating
expenses of $226,345, and paid $2,677 to affiliated partnerships
for net loan participations. In addition, other operating
expenses of $77,921 were paid. Interest income of $191,582 was
received for secured notes receivable and short-term
investments.
In 1995, the Partnership issued $193,000 in secured notes
receivable primarily to portfolio companies in the computers and
computer equipment industry. Repayments of notes receivable
provided cash of $279,748 and sales of equity investments
provided cash of $556,341. As of December 31, 1995, the
Partnership was committed to fund an additional $86,000 on term
note financings to existing borrowing companies.
During 1995, Photon Dynamics and Celeritek, Inc. completed their
initial public offerings("IPOs"). Hybridon, Inc. completed its
IPO in early 1996. Although the Partnership's investments are
subject to certain selling restrictions, these IPOs indicate
future liquidity.
All management fees which are due have been paid through
December 31, 1995. Management fees are paid to the extent that
the aggregate amount of all proceeds (including those from
warrants exercised without cash) received by the Partnership
from the sale or other disposition of borrowing company equities
plus the aggregate fair market value of any equity securities
distributed to the partners exceeded total management fees
payable pursuant to the Partnership Agreement.
Beginning in 1991, the Partnership entered the liquidation stage
and began to distribute its available cash. The Partnership has
distributed a major portion of its available cash and is now at
the stage in its liquidation process where distributions are
primarily dependent on loan repayments from borrowing companies.
Distributions will fluctuate in the future based upon loan
repayments received by the Partnership.
Cash and cash equivalents at December 31, 1995 were $941,985.
Operating cash reserves combined with interest income received
on short-term investments, proceeds from sales of equity
investments and repayments of secured notes receivable are
expected to be sufficient to fund the Partnership operations
through the next twelve months.
Results of Operations
- ---------------------
1995 compared to 1994
- ---------------------
Net losses for 1995 and 1994 were $870,088 and $2,138,497,
respectively. The decrease in net loss was primarily
attributable to a $4,516,883 increase in the change in net
unrealized fair value of equity investments and a $185,333
increase in net realized gain from sales of equity investments.
These changes were partially offset by a $2,474,144 increase in
realized losses from investment write-downs, a $569,000 decrease
in the change in the net unrealized fair value of secured notes
receivable, and a $407,884 increase in total operating expenses.
In 1995, the increase in net unrealized fair value of equity
investments of $2,389,463 was mostly due to the reversal of
unrealized losses, which were realized from investment write-
downs for portfolio companies in the medical and retail/consumer
product industries. Realized losses from investment write-downs
were $2,988,395 and $514,251 in 1995 and 1994, respectively; the
1994 write-downs primarily related to an equity investment in
the medical industry. During the same period in 1994, the
decrease in fair value of $2,127,420 was primarily due to the
conversion of notes receivable to equity investments at fair
values lower than cost for a portfolio company in the medical
industry.
During 1995, the Partnership recorded a net realized gain of
$540,349 primarily from the sale of IKOS Systems, Inc. and 3Com
Corporation. The $355,016 net realized gain recorded in 1994
was mainly from the sale of Micro Decisionware, Inc.
The Partnership recorded a decrease in the fair value of secured
notes receivable of $20,000 in 1995, compared to an increase of
$549,000 in 1994, based upon the levels of loan loss reserves
deemed adequate by the Managing General Partner at the
respective year ends. The 1994 increase primarily related to
the conversion of notes receivable to equity investments as
discussed above.
Total operating expenses were $939,437 and $531,553 in 1995 and
1994, respectively. As discussed in Note 3 to the financial
statements, the 1995 operating expenses included additional
administrative and investor services expenses of $598,415. Had
these expenses been recorded in prior years, the 1995 and 1994
total operating expenses would have been $379,013 and $572,326,
respectively. The decrease was primarily due to lower lending
operations and investment management expenses, and
administrative and investor services expenses from reduced
overall portfolio activities.
There is no established source of market value information for
the Partnership's portfolio of equity investments and secured
notes receivable. The value of the portfolio has been estimated
by the Managing General Partner in the absence of readily
ascertainable market values. Although secured notes receivable
are secured by specific assets of the borrowing company, due to
the inherent uncertainty of valuation, estimated values may
differ significantly from the values that would have been used
had a ready market of the investment existed. The difference
could be material.
Given the inherent risk associated with the business of the
Partnership, the future performance of portfolio company
investments may significantly impact future operations.
1994 compared to 1993
- ---------------------
Net loss was $2,138,497 and $2,694,022 in 1994 and 1993,
respectively. The decrease in net loss was primarily due to a
$4,806,101 decrease in realized losses from investment write-
downs, a $355,016 increase in net realized gain from sale of
investments and a $114,055 decrease in total operating expenses.
These changes were mostly offset by decreases of $4,423,258 and
$111,000 in the change in net unrealized fair values of equity
investments and secured notes receivable, respectively, and a
$217,451 decrease in secured notes receivable interest income.
In 1994 and 1993, the Partnership realized losses from
investment write-downs of $514,251 and $5,320,352, respectively.
Realized losses in 1994 primarily related to an equity
investment in a portfolio company in the medical industry.
Realized losses in 1993 primarily related to equity investments
as well as secured notes receivable for portfolio companies in
the computers and computer equipment, and retail/consumer
products industries.
During 1994, the Partnership recorded a net realized gain of
$355,016 mainly from the sale of equity investments in Micro
Decisionware, Inc. There was no such gain recorded in 1993.
Total operating expenses were $531,553 in 1994 compared to
$645,608 in 1993. As discussed above, had the additional
expenses in 1995 been recorded in prior years, total operating
expenses would have been $572,326 and $690,847 for 1994 and
1993, respectively. The decrease was primarily due to lower
administrative and investor services, and lending operations and
investment management expenses from reduced overall portfolio
activities.
In 1994, a decrease in the net unrealized fair value of equity
investments of $2,127,420 was primarily due to a portfolio
company in the medical industry. In 1993, the $2,295,838
increase was primarily due to the reversal of unrealized losses,
which were realized from the write-down of one portfolio company
in the computers and computer equipment industry.
The Partnership recorded increases in the fair value of secured
notes receivable of $549,000 and $660,000 in 1994 and 1993,
respectively, based upon the level of loan loss reserves deemed
adequate by the Managing General Partner at the respective year
ends. The 1994 increase primarily related to a conversion of
notes receivable to equity investments for a portfolio company
in the medical industry; the 1993 increase was primarily due to
a similar conversion for a portfolio company in the
retail/consumer products industry.
Secured notes receivable interest income was $130,413 and
$347,864 in 1994 and 1993, respectively. The decrease was
primarily attributable to lower interest-bearing notes
receivable balances since the Partnership entered the
liquidation stage.
The Partnership also incurred management fees of $71,504 and
$140,753 during 1994 and 1993, respectively. As management fees
are computed on assets under management, the decrease was
consistent with the decrease in such assets.
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 1995, the Partnership incurred $40,172 in management fees.
The management fees are designed to compensate the General
Partners for General Partner Overhead incurred in performing
management duties for the Partnership through December 31, 1995.
General Partner Overhead includes the General Partners' share of
rent and utilities, and certain salaries and benefits paid by
the General Partners in performing their obligations to the
Partnership.
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, or its investee companies, have 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, 1995 and 1994
Statements of Operations for the years ended
December 31, 1995, 1994 and 1993
Statements of Partners' Capital for the years ended
December 31, 1995, 1994 and 1993
Statements of Cash Flows for the years ended
December 31, 1995, 1994 and 1993
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 5, 1986 included in
Registration Statement No. 2-96022 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, 1995.
(c) Financial Data Schedule for the year ended and as of December
31, 1995 (Exhibit 27).
<PAGE>
INDEPENDENT AUDITORS' REPORT
----------------------------
The Partners
Technology Funding Secured Investors I:
We have audited the accompanying balance sheets of Technology Funding
Secured Investors I (a California limited partnership) as of December 31,
1995 and 1994, and the related statements of operations, partners'
capital, and cash flows for each of the years in the three-year period
ended December 31, 1995. 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 loans and
securities owned, by correspondence with the individual borrowing and
investee companies, and a physical examination of securities held by a
safeguarding agent as of December 31, 1995 and 1994. 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 Secured Investors I as of December 31, 1995 and 1994, and the
results of its operations and its cash flows for each of the years in the
three-year period ended December 31, 1995 in conformity with generally
accepted accounting principles.
San Francisco, California
March 22, 1996 KPMG Peat Marwick LLP
<PAGE>
BALANCE SHEETS
- --------------
<TABLE>
<CAPTION>
December 31,
-------------------------------
1995 1994
---- ----
<S> <C> <C>
ASSETS
Investments:
Secured notes receivable, net
(cost basis of $832,586 and
$995,227 in 1995 and 1994,
respectively) $ 577,586 760,227
Equity investments (cost basis
of $265,947 and $3,196,958 in
1995 and 1994, respectively) 373,835 915,383
--------- ---------
Total investments 951,421 1,675,610
Cash and cash equivalents 941,985 534,644
Other assets 7,565 59,984
--------- ---------
Total $1,900,971 2,270,238
========= =========
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable and accrued expenses $ 30,700 47,221
Due to related parties 420,507 1,136
Other liabilities 59,181 60,320
--------- ---------
Total liabilities 510,388 108,677
Commitments
(Notes 3, 8, and 9)
Partners' capital:
Limited Partners
(Units outstanding of 111,101 and
115,501 in 1995 and 1994,
respectively) 1,580,542 4,866,951
General Partners (42,847) (188,815)
Net unrealized fair value (decrease)
increase from cost:
Secured notes receivable (255,000) (235,000)
Equity investments 107,888 (2,281,575)
--------- ---------
Total partners' capital 1,390,583 2,161,561
--------- ---------
Total $1,900,971 2,270,238
========= =========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
STATEMENTS OF OPERATIONS
- ------------------------
<TABLE>
<CAPTION>
For the Years Ended December 31,
-------------------------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Income:
Secured notes receivable
interest $ 142,791 130,413 347,864
Short-term investment interest 45,313 24,090 14,949
Other income -- 2,422 13,683
--------- --------- ---------
Total income 188,104 156,925 376,496
Costs and expenses:
Management fees 40,172 71,504 140,753
Operating expenses:
Administrative and investor
services 755,568 236,113 296,864
Lending operations and
investment management 84,203 184,121 216,478
Computer services 57,297 74,974 88,962
Professional fees 42,369 36,345 43,304
--------- --------- ---------
Total operating expenses 939,437 531,553 645,608
--------- --------- ---------
Total costs and expenses 979,609 603,057 786,361
--------- --------- ---------
Net operating loss (791,505) (446,132) (409,865)
Net realized gain from sales of
equity investments 540,349 355,016 --
Realized losses from
investment write-downs (2,988,395) (514,251) (5,320,352)
Recovery from investments
previously written off -- 45,290 80,357
--------- --------- ---------
Net realized loss (3,239,551) (560,077) (5,649,860)
Change in net unrealized
fair value:
Equity investments 2,389,463 (2,127,420) 2,295,838
Secured notes receivable (20,000) 549,000 660,000
--------- --------- ---------
Net loss $ (870,088) (2,138,497) (2,694,022)
========= ========= =========
Net realized loss
per Unit $ (28) (5) (48)
========= ========= =========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
STATEMENTS OF PARTNERS' CAPITAL
- -------------------------------
<TABLE>
<CAPTION>
For the years ended December 31, 1995, 1994 and 1993:
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, 1992 $11,992,168 (117,714) (2,449,993) (1,444,000) 7,980,461
Distributions (891,091) (9,001) -- -- (900,092)
Repurchase of limited
partnership interests (68,544) -- -- -- (68,544)
Net realized loss (5,593,361) (56,499) -- -- (5,649,860)
Change in net unrealized fair
value:
Equity investments -- -- 2,295,838 -- 2,295,838
Secured notes receivable -- -- -- 660,000 660,000
---------- ------- --------- --------- ----------
Partners' capital,
December 31, 1993 5,439,172 (183,214) (154,155) (784,000) 4,317,803
Repurchase of limited
partnership interests (17,745) -- -- -- (17,745)
Net realized loss (554,476) (5,601) -- -- (560,077)
Change in net unrealized fair
value:
Equity investments -- -- (2,127,420) -- (2,127,420)
Secured notes receivable -- -- -- 549,000 549,000
---------- ------- --------- --------- ----------
Partners' capital,
December 31, 1994 4,866,951 (188,815) (2,281,575) (235,000) 2,161,561
General Partner capital
contribution -- 178,364 -- -- 178,364
Repurchase of limited
partnership interests (79,254) -- -- -- (79,254)
Net realized loss (3,207,155) (32,396) -- -- (3,239,551)
Change in net unrealized fair
value:
Equity investments -- -- 2,389,463 -- 2,389,463
Secured notes receivable -- -- -- (20,000) (20,000)
---------- ------- --------- --------- ----------
Partners' capital,
December 31, 1995 $ 1,580,542 (42,847) 107,888 (255,000) 1,390,583
========== ======= ========= ========= ==========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
STATEMENTS OF CASH FLOWS
- ------------------------
<TABLE>
<CAPTION>
For the Years Ended December 31,
------------------------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating
activities:
Interest received $ 191,582 180,083 456,558
Cash paid to vendors (77,921) (198,895) (240,228)
Cash paid to related parties (266,517) (445,321) (596,881)
Cash paid to affiliated
partnerships (2,677) (5,058) (129,265)
------- --------- ---------
Net cash used by
operating activities (155,533) (469,191) (509,816)
------- --------- ---------
Cash flows from investing
activities:
Secured notes receivable issued (193,000) (347,000) (1,916,949)
Repayments of secured notes
receivable 279,748 406,773 3,155,060
Repayment from other investments -- -- 134,990
Proceeds from sales of equity
investments 556,341 418,020 --
Recovery from investments
previously written off -- 45,290 80,357
Purchase of equity investments (961) (69,633) (112,801)
------- --------- ---------
Net cash provided by investing
activities 642,128 453,450 1,340,657
------- --------- ---------
Cash flows from financing
activities:
Repurchase of limited
partnership interests (79,254) (17,745) (68,544)
Distributions to Limited and
General Partners -- -- (1,401,210)
------- --------- ---------
Net cash used by financing
activities (79,254) (17,745) (1,469,754)
------- --------- ---------
Net increase (decrease) in
cash and cash equivalents 407,341 (33,486) (638,913)
Cash and cash equivalents at
beginning of year 534,644 568,130 1,207,043
------- --------- ---------
Cash and cash equivalents at
end of year $ 941,985 534,644 568,130
======= ========= =========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
STATEMENTS OF CASH FLOWS (continued)
- -----------------------------------
<TABLE>
<CAPTION>
For the Years Ended December 31,
------------------------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Reconciliation of net loss
to net cash used by
operating activities:
Net loss $ (870,088) (2,138,497) (2,694,022)
Adjustments to reconcile net
loss to net cash used
by operating activities:
Net realized gain from sales of
equity investments (540,349) (355,016) --
Amortization of discount
related to warrants (14,766) (1,042) (21,727)
Realized losses from investment
write-downs 2,988,395 514,251 5,320,352
Recovery from investments
previously written off -- (45,290) (80,357)
Change in net unrealized
fair value:
Equity investments (2,389,463) 2,127,420 (2,295,838)
Secured notes receivable 20,000 (549,000) (660,000)
Changes in:
Accrued interest on secured and
convertible notes receivable 13,244 24,200 101,789
Other assets 55,096 (46,973) 297
Accounts payable and accrued
expenses (16,521) 4,571 (15,867)
Due to related parties 597,735 (2,773) (41,308)
Due to/from affiliated
partnerships (2,677) (5,058) (129,265)
Other liabilities (1,139) 4,016 6,130
Other, net 5,000 -- --
--------- --------- ---------
Net cash used by
by operating activities $ (155,533) (469,191) (509,816)
========= ========= =========
Non-cash investing activities:
Additions to equity investments $ 73,085 51,706 1,400
========= ========= =========
Conversion of secured notes
receivable to equity investments $ 2,816 2,082,107 1,270,740
========= ========= =========
Non-cash exercise of warrants $ 63,330 15,378 --
========= ========= =========
Non-cash financing activities:
General Partner capital
contribution (see Note 3) $ 178,364 -- --
========= ========= =========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
NOTES TO FINANCIAL STATEMENTS
- -----------------------------
1. Summary of Significant Accounting Policies
------------------------------------------
Organization
- ------------
Technology Funding Secured Investors I (the "Partnership") is a limited
partnership organized under the laws of the State of California on August
31, 1984. The purpose of the Partnership is to provide secured loans to
new and developing companies and to acquire, hold, sell, trade, exchange
or otherwise dispose of warrants and/or capital stock acquired by the
Partnership in conjunction with these loans. 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 and the Partnership commenced
selling units of limited partnership interest ("Units") on May 31, 1985.
On September 9, 1985, the minimum number of Units required to form the
Partnership (4,800) had been sold. On May 31, 1987, the offering
terminated with 117,496 Units sold, generating $29,372,475 in cash from
Limited Partners and $29,399 from the General Partners. The Partnership
Agreement provides that the Partnership will continue until December 31,
2004, unless terminated sooner.
Preparation of Financial Statements and Use of Estimates
- --------------------------------------------------------
These financial statements have been prepared on the accrual basis of
accounting in accordance with generally accepted accounting principles.
This requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements
and the reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
The financial statements include non-marketable investments of $806,289
and $1,499,291 (58% and 69% of partners' capital) as of December 31, 1995
and 1994, respectively, whose values have been estimated by the Managing
General Partner in the absence of readily ascertainable market values.
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 investments existed, and the differences could be
material. In addition, for certain publicly traded investments that may
not be marketable due to selling restrictions, the Managing General
Partner has applied an illiquidity discount of 25% in determining fair
value as mentioned below.
Cash and Cash Equivalents
- -------------------------
Cash and cash equivalents are principally comprised of cash invested in
demand accounts, accounts maintained with brokers, commercial paper and
money market instruments and are stated at cost plus accrued interest.
The Partnership considers all money market and short-term investments
with an original maturity of three months or less to be cash equivalents.
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 $1,098,533 by $3,991,650 as of December 31,
1995.
Net Realized Income (Loss) Per Unit
- -----------------------------------
Net realized income (loss) per Unit is calculated by dividing the
weighted average number of Units outstanding for the years ended December
31, 1995, 1994 and 1993, of 115,009, 115,883 and 116,824, respectively,
into the total net realized income (loss) allocated to the Limited
Partners. The General Partners contributed an amount equal to 0.1% of
the 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:
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 certain secured notes granted, the Partnership has
received warrants to purchase certain shares of capital stock of the
borrowing company. The cost basis of such 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
company. The discount is amortized to interest income on a straight-line
basis over the term of the loan. 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.
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 the 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 estimated quarterly by the Managing
General Partner. Included in equity investments are convertible and
subordinated notes receivable as repayment of these notes generally 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.
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" in the
Statements of Operations.
Other Investments
-----------------
At times, the Partnership will receive other assets in satisfaction of
secured notes receivable or equity investments in portfolio companies.
When the asset is received, existing investment balances in excess of the
fair value of the asset received are written off.
Non-cash Exercise of Warrants
- -----------------------------
Periodically, the Partnership may acquire stock through the non-cash
exercise of warrants. During 1995 and 1994, net realized gain resulting
from the non-cash exercise of warrants totaled $63,330 and $15,378,
respectively. This amount is included in net realized gain from sale of
equity investments. There was no such gain in 1993.
Distributions
- -------------
Distributions made to the Limited Partners are made among such partners
in the proportion their respective capital accounts bear to the total of
all capital accounts of the group. Future distributions will be
dependent upon loan repayments from borrowing companies and available
cash. Unnegotiated distribution checks, if any, after a reasonable
amount of time, are recorded as other liabilities on the Balance Sheets.
2. Change in Net Unrealized Fair Value of Equity Investments
---------------------------------------------------------
In accordance with the Partnership's 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,
---------------------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Increase in fair value from cost
of marketable equity securities $ 66,287 150,206 148,564
Increase (decrease) in fair value
from cost of non-marketable
equity securities 41,601 (2,431,781) (302,719)
--------- --------- ---------
Net unrealized fair value
increase (decrease) from cost
at end of year 107,888 (2,281,575) (154,155)
Net unrealized fair value
decrease from cost at
beginning of year (2,281,575) (154,155) (2,449,993)
--------- --------- ---------
Change in net unrealized
fair value of equity
investments $ 2,389,463 (2,127,420) 2,295,838
========= ========= =========
</TABLE>
3. Related Party Transactions
--------------------------
Included in costs and expenses are related party costs as follows:
<TABLE>
<CAPTION>
For the Years Ended December 31,
-----------------------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Management fees $ 40,172 71,504 140,753
Reimbursable operating expenses:
Administrative and investor
services 724,250 190,587 202,979
Lending operations and
investment management 42,533 105,483 122,879
Computer services 57,297 74,974 88,962
</TABLE>
Management fees, payable quarterly, are equal to one-half of one percent
of Partnership assets under management. Management fees compensate the
Managing General Partner solely for General Partner Overhead (as defined
in the Partnership Agreement) incurred in supervising the operation,
management, and progress of Partnership loans to borrowing companies and
its portfolio of warrants and capital stock of borrowing companies, as
well as for the general administration of the Partnership. Currently,
management fees are only paid to the extent that the aggregate amount of
all proceeds (including warrants exercised without cash) received by the
Partnership from the sale or other disposition of borrowing company
equities plus the aggregate fair market value of any equity securities
distributed to the partners exceeds the total management fee payable.
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 Organizational and Offering and General Partner Overhead) such as
investment operations, administrative and investor services and computer
services. At December 31, 1995 and 1994, due to related parties for such
expenses were $420,507 and $1,136, respectively. During late 1995,
operating cost allocations to the Partnership were reevaluated. The
Managing General Partner determined that it had not fully recovered
allocable overhead as permitted by the Partnership Agreement. As a
result, the Partnership was charged additional administrative and
investor services costs of $598,415, which were not previously recognized
by the Partnership. This charge consisted of $37,991, $40,773, $45,239
and $474,412 related to 1995, 1994, 1993 and prior years, respectively.
If this charge had been recorded in prior years, total operating expenses
would have been $379,013, $572,326, and $690,847 for 1995, 1994, and
1993, respectively. At December 31, 1995, $178,364 of the $598,415 was
recorded as a General Partner capital contribution to eliminate the
General Partner tax capital account deficit.
Under the terms of a computer support agreement, the Partnership
recognized charges from Technology Administrative Management, a division
of TFL, for its share of computer support costs. These amounts are
included in computer services expense.
Within the normal course of business, the Partnership participates in
secured notes receivable granted to non-affiliated borrowing companies by
affiliated partnerships which are also managed by the General Partners.
The Partnership may also reparticipate such secured notes receivable
amongst affiliated partnerships to meet business needs. At December 31,
1995 and 1994, due from affiliated partnerships, included in other
assets, were $3,977 and $1,300, respectively.
In order to increase the future investment returns from several portfolio
companies, the Partnership has contracted directly with Affiliates of the
General Partners or the General Partners as provided in Article 3
sections 3.02(d) and 3.06. These agreements generally provide for the
Partnership to make current payment of the direct expenses of the
Affiliate or the General Partners related to such recovery efforts as
well as a performance incentive payment based on the amount of
incremental recovery less expenses previously paid, which expenses will
be returned to the Partnership from recoveries. The General Partners
have agreed to waive any profit interest payable pursuant to Article 8
Section 8.02(b) attributable to any recoveries from the portfolio
companies subject to these separate written agreements. These agreements
are subject to review by legal counsel for the Partnership and may be
modified to assure conformity with the terms of the Partnership's Amended
and Restated Limited Partnership Agreement. Consistent with note
participations as discussed above, the agreements provide for a pro-rata
payment of expenses and incentive payments and a pro-rata participation
in the results of recovery efforts.
In 1995, 1994, and 1993 TFL had a sublease rental agreement with a
Partnership portfolio company in the computers and computer equipment
industry. The terms of this agreement were similar to those which would
apply to an unrelated party. This agreement was terminated in the fourth
quarter of 1995.
4. Allocation of Profits and Losses
--------------------------------
Net realized loss of the Partnership is allocated 99% to the Limited
Partners as a group and 1% to the General Partners as a group.
Net realized profit of the Partnership is allocated based on the
beginning of year partners' capital balances as follows:
(A) 99% to the Limited Partners as a group and 1% to the General
Partners until conversion, which is defined as such time
when:
(i) the amount of cash plus the value of any securities
distributed to the Limited Partners equals the
aggregate initial capital contributions of all the
Limited Partners; and
(ii) an 8% per annum cumulative, compounded return on the
adjusted capital contributions (i.e., initial capital
contributions less all amounts distributed) of all
Limited Partners has been achieved.
(B) Thereafter (post conversion), 80% to the Limited Partners as
a group and 20% to the General Partners as a group, except
as provided below.
The Partnership Agreement defines adjusted capital contribution, with
respect to any Limited Partner, as the capital contribution as reduced,
but not below zero, by (i) all prior tax distributions of cash to such
Limited Partner and (ii) the aggregate value (determined at the time of
distribution) of any securities distributed to such Limited Partner.
Limited Partners that subscribed to the first 60,000 Units accepted by
the Partnership will be allocated all of the General Partners' post-
conversion profits in excess of a 1% minimum allocation until such time
as each such Limited Partner has received total distributions from the
Partnership equal to their capital contribution plus a specified annual
priority return, ranging between 9% and 18%, on their adjusted capital
contribution. Once the lowest priority return is met, the profits will
be allocated to those Limited Partners who have not yet received their
priority returns. Thereafter, the General Partners will receive their
full post-conversion profits.
5. Equity Investments
------------------
At December 31, 1995 and December 31, 1994, equity investments consisted
of:
<TABLE>
<CAPTION>
December 31, 1995 December 31, 1994
----------------- -----------------
Investment Cost Fair Cost Fair
Industry/Company Date Position Basis Value Basis Value
- ---------------- ---------- -------- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
WARRANTS:
Biotechnology
- -------------
Biocircuits 01/91 2,500 Common
shares at $8.00;
expiring 01/96 $ 0 300 0 0
Hybridon, Inc. 03/91 3,572 Common
shares at $3.50;
expiring 03/97 1,250 16,074 1,250 16,074
Computers and Computer Equipment
- --------------------------------
Censtor Corporation 02/91 78,438 Common
shares at $.29;
exercised 05/95 -- -- 15,000 173,191
MARCorp 05/92 842,213 Series B
Preferred shares
at $1.00; expiring
05/97 -- -- 0 0
Pinnacle Systems, 05/90 2,083 Common
Inc. shares at $8.00;
exercised 02/95 -- -- 2,500 14,164
Industrial/Business Automation
- ------------------------------
Cyclean, Inc. 09/87 75,591 Common
shares at $2.74;
expiring 04/01 0 0 7,000 0
Cyclean, Inc. 04/88 53,994 Common
shares at $2.74;
expiring 04/01 0 0 5,000 0
Cyclean, Inc. 01/89 10,799 Common
shares at $2.74;
expiring 04/01 0 0 1,000 0
Cyclean, Inc. 06/90 29,032 Common
shares at $3.10;
expiring 06/00 0 0 4,091 0
Cyclean, Inc. 03/91 53,563 Common
shares at $3.10;
expiring 04/01 0 0 7,909 0
Cyclean, Inc. 07/92 6,643 Common
shares at $3.10;
expiring 07/02 0 0 148 0
Cyclean, Inc. 09/94 3,822 Common
shares at $4.00;
expiring 03/99 0 0 0 0
Medical
- -------
Ash Medical 03/90 2,400 Common
Systems, Inc. shares at $12.50;
expired 03/95 -- -- 0 0
Hemocleanse, Inc. 03/90 38,886 Common
shares at $.92;
exercised 03/95 -- -- 0 0
Hemocleanse, Inc. 01/92 47,526 Common
shares at $.50;
expiring 01/97 0 0 0 0
Microgon, Inc. 10/90 62,500 Common
shares at $.60;
expired 10/95 -- -- 0 0
Microgon, Inc. 09/91 14,583 Common
shares at $.60;
expiring 09/96 -- -- 0 0
Microgon, Inc. 06/92 62,500 Common
shares at $.60;
expiring 06/97 -- -- 0 0
Microelectronics
- ----------------
Applied Micro 03/90 14,286 Common
Circuits, Inc. shares at $1.75;
expired 05/95 -- -- 5,000 5,000
Applied Micro 08/90 14,286 Common
Circuits, Inc. shares at $1.75;
expired 08/95 -- -- 5,000 5,000
Telecommunications
- ------------------
Integrated Network 06/91 2,941 Common
Corporation shares at $17.00;
expiring 06/96 5,000 0 10,000 49,997
Primary Access 10/90 17,140 Common
Corporation shares at $2.25;
exercised 06/95 -- -- 4,100 4,100
Primary Access 04/91 4,760 Common
Corporation shares at $2.25;
exercised 06/95 -- -- 1,400 1,400
------- ------- ------- -------
Total warrants 6,250 16,374 69,398 268,926
----- ------ ------- -------
STOCKS:
Computers and Computer Equipment
- --------------------------------
Censtor Corporation 05/95 21,178 Common
shares 11,179 11,179 -- --
MARCorp 12/89 1,177,438 Series A
Preferred shares 0 0 0 0
MARCorp 05/92 Convertible
Subordinated
Debenture,
$2,813,898
principal amount 0 0 0 0
MARCorp 02/93 368,119 Series A
Preferred shares 0 0 0 0
Electronic Design Automation
- ----------------------------
IKOS Systems, Inc. 07/90 84,765 Common
shares -- -- 23,613 162,155
Industrial/Business Automation
- ------------------------------
Cyclean, Inc. 09/94 18,532 Series D
Preferred shares 51,706 51,706 51,706 51,706
Cyclean, Inc. 01/95 26,195 Series D
Preferred shares 73,085 73,085 -- --
Cyclean of 03/95 Class A LLC Unit -
Los Angeles, LLC 11% ownership 2,816 2,816 -- --
Medical
- -------
Hemocleanse, Inc. 03/95 20,999 Common
shares 19,320 19,320 -- --
Resonex Holding 02/94 22,804 Common
Corporation shares 0 0 1,682,507 0
Microelectronics
- ----------------
Celeritek, Inc. 05/94 13,847 Common
shares 74,233 107,276 74,233 74,233
Retail/Consumer Products
- ------------------------
S-TRON 05/93 Subordinated note (1),
$390,000 principal
amount 0 0 392,015 130,316
S-TRON 05/93 390,000 Common
shares 0 0 0 0
S-TRON 05/93 897,000 Series 1
Preferred shares 0 0 295,740 0
S-TRON 05/93 2,340,000
Series 2
Preferred shares 0 0 585,000 191,473
Semiconductor Equipment
- -----------------------
Photon Dynamics 05/94 6,773 Common
shares 22,746 54,523 22,746 36,574
Telecommunications
- ------------------
3Com Corporation 06/95 847 Common
shares in
escrow 4,612 37,556 -- --
------- ------- --------- -------
Total stocks 259,697 357,461 3,127,560 646,457
------- ------- --------- -------
Total equity investments $265,947 373,835 3,196,958 915,383
======= ======= ========= =======
- -- 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 6%.
</TABLE>
Marketable Equity Securities
- ----------------------------
At December 31, 1995 and 1994, marketable equity securities had aggregate
costs of $78,845 and $26,113, respectively, and aggregate market values
of $145,132 and $176,319, respectively. The net unrealized gains at
December 31, 1995 and 1994 of $66,287 and $150,206, respectively, did not
include any gross losses.
Celeritek , Inc.
- ----------------
In December 1995, Celeritek, Inc. completed its initial public offering
("IPO") after effecting a common stock three-for-two split. The
Partnership sold 288 of its post-split common shares acquired in April
1995 into the IPO for proceeds of $2,011 and realized a gain of $1,050.
The Partnership recorded a $33,043 increase in fair value to reflect the
market value for its remaining shares at December 31, 1995. The market
value reflects a 25% discount for certain lockup restrictions.
Censtor Corporation
- -------------------
In May 1995, the Partnership exercised its warrant without cash and
received 21,178 common shares. The recorded common share cost basis was
$11,179, which is net of a realized loss.
Cyclean, Inc./Cyclean of Los Angeles, LLC
- -----------------------------------------
In January 1995, the Partnership obtained the right to receive 26,195
Series D Preferred shares with a twelve month vesting schedule in
exchange for a one year maturity date extension of secured notes
receivable. At December 31, 1995, all 26,195 shares were fully vested
with a recorded cost basis and fair value of $73,085.
In March 1995, Cyclean, Inc. ("Cyclean") formed Cyclean of Los Angeles,
LLC ("Cyclean LLC") and contributed certain assets and contracts to the
new entity. Cyclean LLC is completing a new round of financing through
the offering of Class A LLC Units. As a result of the transaction, one
of the Partnership's secured notes receivable was transferred from
Cyclean to Cyclean LLC with modified terms; Cyclean has guaranteed note
repayments. The Partnership received a participated percentage of one
Class A LLC Unit in exchange for certain interest payments and late
charges totaling $2,816. The Partnership is also entitled to royalty
payments and additional Series D Preferred shares based on the total
proceeds raised from the Cyclean LLC offering, which is expected to be
completed by early 1996.
In December 1995, all warrant cost bases totaling $25,148 were written
off as these warrants are expected to be canceled at the close of the
next financing round.
Hemocleanse, Inc.
- -----------------
In March 1995, the Partnership exercised its warrant without cash and
received 20,999 common shares, resulting in a cost basis and realized
gain of $19,320.
IKOS Systems, Inc.
- ------------------
In January 1995, the Partnership sold all of its holdings in the company
for total proceeds of $254,295 and a realized gain of $230,682.
Integrated Network Corporation
- ------------------------------
During June 1995, the Partnership exercised its option to sell half of
its warrant holdings to the company for $50,000 and realized warrant
income of $45,000, which was included in "secured note receivable
interest income" on the Statements of Operations. The Partnership does
not have this option for its remaining warrants.
Photon Dynamics
- ---------------
In November 1995, Photon Dynamics completed its IPO after effecting a
one-for-three reverse common stock split. The Partnership recorded a
$17,949 increase in fair value to reflect the unrestricted market value
for its investment at December 31, 1995.
Pinnacle Systems, Inc.
- ----------------------
In February 1995, the Partnership exercised its warrant without cash and
received 1,970 common shares. In May 1995, the Partnership sold the
common shares for total proceeds of $37,429 and realized a gain of
$34,929.
Primary Access Corporation/3Com Corporation
- -------------------------------------------
In June 1995, Primary Access Corporation ("Primary Access") was acquired
by 3Com Corporation ("3Com"), a public company. Immediately prior to the
acquisition, the Partnership exercised its Primary Access common warrant
holdings without cash and received 12,686 shares of Primary Access common
stock with a cost basis of $46,116, which reflects a realized gain of
$40,616 and a warrant cost basis of $5,500. Upon the acquisition, these
shares were then exchanged for 4,236 3Com common shares, of which 3,812
shares were sold for total proceeds of $262,606 and a realized gain of
$221,102 in July 1995. The remaining 424 shares, which became 847 shares
after a two-for-one stock split in August 1995, are held in an escrow
account until March 21, 1996 to indemnify 3Com for any loss it may incur
as a result of any contractual breach of the merger agreement by Primary
Access. The Partnership recorded an increase in the change in fair value
of $32,944 to reflect the market value at December 31, 1995 for these
unrestricted shares.
Resonex Holding Corporation
- ----------------------------
Resonex Holding Corporation has licensed certain technologies and is
currently obtaining additional bids from other potential licensees. The
company will wind down its operations by mid-1996. Based on the opinion
of the Managing General Partner, there has been an other than temporary
decline in Partnership's investment value and accordingly, the common
stock cost basis of $1,682,507 was written off.
S-Tron
- ------
The company was unsuccessful in its efforts to obtain a major government
contract; as a result, operations will likely cease by early 1996. Based
on the Managing General Partner's opinion, there has been an other than
temporary decline in the fair value of the Partnership's investment.
Accordingly, the Partnership has written off the cost basis of its
Preferred stock investment of $880,740 and recorded a write-down of
$392,015 on its subordinated note investment.
Other Equity Investments
- ------------------------
Biocircuits is a publicly-traded company. All other equity investments
not specifically discussed above are privately held and no public market
for the sale of these securities existed at December 31, 1995.
6. Secured Notes Receivable, Net
-----------------------------
At December 31, 1995 and 1994, secured notes receivable consisted of:
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Secured notes receivable $ 960,933 1,047,637
Accrued interest -- 14,089
Unamortized discount (128,347) (66,499)
--------- ---------
Total secured notes receivable,
net (cost basis) 832,586 995,227
Allowance for loan losses (255,000) (235,000)
--------- ---------
Total secured notes receivable,
net (fair value) $ 577,586 760,227
========= =========
</TABLE>
The 1995 notes were primarily from two portfolio companies in the
industrial/business automation, and computers and computer equipment
industries. The remaining loans were from two other companies. All
notes are secured by specific assets of the borrowing company. Interest
rates on secured notes receivable at December 31, 1995 ranged from 10% to
14.22%.
Changes in the allowance for loan losses were as follows:
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Balance, beginning of year $ 235,000 784,000
------- ---------
Increase (decrease) in provision for
loan losses 20,000 (528,760)
Secured notes receivable write-downs:
Computers and computer equipment -- (31,070)
Medical -- (34,460)
------- ---------
Total write-offs -- (65,530)
Recoveries of previous write-offs:
Microelectronics -- 45,290
------- ---------
Total recoveries -- 45,290
------- ---------
Change in net unrealized fair value
of secured notes receivable 20,000 (549,000)
------- ---------
Balance, end of year $ 255,000 235,000
======= =========
</TABLE>
The increase (decrease) in provision for loan losses is generally
comprised of realized loan losses, net of recognized recoveries, and a
change in net unrealized fair value based upon the level of loan loss
reserves deemed adequate by the Managing General Partner at the
respective year ends.
The allowance for loan losses is adjusted based upon changes to the
portfolio size and risk profile. Although the allowance for loan losses
is established by evaluating individual debtor repayment ability, the
allowance represents the Managing General Partner's assessment of the
portfolio as a whole.
Notes with a total cost basis of $832,586 and $782,274 at December 31,
1995 and 1994, respectively, were on nonaccrual status due to
uncertainties in the financial condition of the borrowing companies. The
Managing General Partner continues to monitor the progress of these
companies. The fair value at December 31, 1995 is based on the Managing
General Partner's estimate of collectibility of these notes.
The scheduled principal repayments remaining are:
<TABLE>
<CAPTION>
Year Ending Principal
December 31, Repayments
----------- ----------
<S> <C>
1996 $ 600,933
1997 --
1998 --
1999 --
2000 360,000
-------
$ 960,933
=======
</TABLE>
Secured notes receivable which are due on demand are included as
principal repayments for the year ending December 31, 1996. In addition,
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.
7. Cash and Cash Equivalents
-------------------------
At December 31, 1995 and 1994, cash and cash equivalents consisted of:
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Demand and brokerage accounts $ -- 1,994
Money-market accounts 941,985 532,650
------- -------
Total $941,985 534,644
======= =======
</TABLE>
8. Repurchase of Limited Partnership Interests
-------------------------------------------
Each June, beginning in June 1987, Limited Partners may tender their
Units for repurchase by the Partnership. The amount available in any
year to repurchase tendered Units is limited to 10% of the aggregate
principal repayments received by the Partnership during the preceding
calendar year on notes to borrowing companies. Units repurchased and the
amounts paid were: 503 Units for $9,108; 507 Units for $17,745; and 1,224
Units for $68,544 in 1995, 1994, and 1993, respectively.
In November 1995, following the annual June repurchases, the General
Partners elected to offer Limited Partners with an initial investment of
$2,000 held in an Individual Retirement or Keogh Account the option to
tender their Units for repurchase by the Partnership. This was a
reminder to those Limited Partners that this repurchase option was
available as the annual account maintenance fees for such investors
significantly diminishes the value of their nominal investment.
Repurchases under this option totaled $70,146 for 3,897 Units. The
amounts paid for all Unit repurchases were from aggregate principal
repayments as well as equity investment sale proceeds. The Managing
General Partner believed that it was beneficial to extend the 1995
buybacks and not limit such buybacks pursuant to the Partnership
Agreement.
9. Commitments
-----------
The Partnership is a party to financial instruments with off-balance-
sheet risk in the normal course of its business. Generally, these
instruments are 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 properly not recognized in the
financial statements. At December 31, 1995, the Partnership had unfunded
commitments of $86,000 related to term note financings to existing
borrowing companies.
The Partnership uses the same credit policies in making these commitments
and conditional obligations as it does for on-balance-sheet instruments.
Commitments to extend financing are agreements to lend to a company as
long as there are no violations of any conditions established in the
contract. The credit lines generally have fixed termination dates or
other termination clauses. Since many of the commitments are expected to
expire without being fully drawn upon, the total commitment amounts do
not necessarily represent future cash requirements. All commitments
funded require collateral specified in the agreements.
<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 SECURED INVESTORS I
By: TECHNOLOGY FUNDING INC.
Managing General Partner
Date: March 22, 1996 By: /s/Debbie A. Wong
--------------------------------------
Debbie A. Wong
Controller
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 22, 1996
- ------------------------ Executive Officer
Charles R. Kokesh and Chairman of
Technology Funding Inc.
and Managing General
Partner of Technology
Funding Ltd.
/s/Gregory T. George Group Vice President March 22, 1996
- -------------------------- 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, 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> DEC-31-1995
<PERIOD-TYPE> YEAR
<INVESTMENTS-AT-COST> 1,098,533
<INVESTMENTS-AT-VALUE> 951,421
<RECEIVABLES> 0
<ASSETS-OTHER> 7,565
<OTHER-ITEMS-ASSETS> 941,985
<TOTAL-ASSETS> 1,900,971
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 510,388
<TOTAL-LIABILITIES> 510,388
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1,537,695
<SHARES-COMMON-STOCK> 111,101
<SHARES-COMMON-PRIOR> 115,501
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (147,112)
<NET-ASSETS> 1,390,583
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 188,088
<OTHER-INCOME> 16
<EXPENSES-NET> 979,609
<NET-INVESTMENT-INCOME> (791,505)
<REALIZED-GAINS-CURRENT> (2,448,046)
<APPREC-INCREASE-CURRENT> 2,369,463
<NET-CHANGE-FROM-OPS> (870,088)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 4,400
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> (770,978)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 40,172
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,021,894
<AVERAGE-NET-ASSETS> 1,776,072
<PER-SHARE-NAV-BEGIN> 42
<PER-SHARE-NII> (28)
<PER-SHARE-GAIN-APPREC> 0 <F1>
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 14
<EXPENSE-RATIO> 55
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<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>
